UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
|
|
|
þ
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the quarterly period ended
February 28, 2009,
|
or
|
o
|
|
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
RPM International
Inc.
(Exact name of Registrant as
specified in its charter)
|
|
|
DELAWARE
(State or other jurisdiction
of
incorporation or organization)
|
|
02-0642224
(IRS Employer
Identification No.)
|
|
|
|
P.O. BOX 777;
2628 PEARL ROAD;
MEDINA, OHIO
(Address of principal
executive offices)
|
|
44258
(Zip Code)
|
(330) 273-5090
(Registrants telephone
number including area code)
Not Applicable
(Former name, former address and
former fiscal year, if changed since last report)
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes
þ
No
o
.
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
|
|
|
|
|
|
|
Large accelerated
filer
þ
|
|
Accelerated
filer
o
|
|
Non-accelerated
filer
o
|
|
Smaller reporting
company
o
|
|
|
(Do not check if a smaller reporting
company)
|
Indicate by check mark whether the Registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes
o
No
þ
.
As of April 7, 2009
128,420,774 Shares of RPM International Inc. Common Stock
were outstanding.
RPM
INTERNATIONAL INC. AND SUBSIDIARIES*
INDEX
|
|
|
*
|
|
As used herein, the terms RPM and the
Company refer to RPM International Inc. and its
subsidiaries, unless the context indicates otherwise.
|
2
PART I.
FINANCIAL INFORMATION
RPM INTERNATIONAL INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
February 28, 2009
|
|
|
May 31, 2008
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(In thousands, except per share amounts)
|
|
|
ASSETS
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
205,237
|
|
|
$
|
231,251
|
|
Trade accounts receivable (less allowances of $22,500 and
$24,554, respectively)
|
|
|
502,919
|
|
|
|
817,241
|
|
Inventories
|
|
|
463,613
|
|
|
|
476,149
|
|
Deferred income taxes
|
|
|
37,503
|
|
|
|
37,644
|
|
Prepaid expenses and other current assets
|
|
|
211,224
|
|
|
|
221,690
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,420,496
|
|
|
|
1,783,975
|
|
|
|
|
|
|
|
|
|
|
Property, Plant and Equipment, at Cost
|
|
|
1,008,251
|
|
|
|
1,054,719
|
|
Allowance for depreciation and amortization
|
|
|
(558,152
|
)
|
|
|
(556,998
|
)
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
450,099
|
|
|
|
497,721
|
|
|
|
|
|
|
|
|
|
|
Other Assets
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
830,567
|
|
|
|
908,358
|
|
Other intangible assets, net of amortization
|
|
|
347,995
|
|
|
|
384,370
|
|
Other
|
|
|
161,293
|
|
|
|
189,143
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
1,339,855
|
|
|
|
1,481,871
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
3,210,450
|
|
|
$
|
3,763,567
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
225,674
|
|
|
$
|
411,448
|
|
Current portion of long-term debt
|
|
|
172,424
|
|
|
|
6,934
|
|
Accrued compensation and benefits
|
|
|
100,543
|
|
|
|
151,493
|
|
Accrued loss reserves
|
|
|
77,505
|
|
|
|
71,981
|
|
Asbestos-related liabilities
|
|
|
65,000
|
|
|
|
65,000
|
|
Other accrued liabilities
|
|
|
117,363
|
|
|
|
139,505
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
758,509
|
|
|
|
846,361
|
|
|
|
|
|
|
|
|
|
|
Long-Term Liabilities
|
|
|
|
|
|
|
|
|
Long-term debt, less current maturities
|
|
|
810,806
|
|
|
|
1,066,687
|
|
Asbestos-related liabilities
|
|
|
442,549
|
|
|
|
494,745
|
|
Other long-term liabilities
|
|
|
141,024
|
|
|
|
192,412
|
|
Deferred income taxes
|
|
|
17,073
|
|
|
|
26,806
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
1,411,452
|
|
|
|
1,780,650
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity
|
|
|
|
|
|
|
|
|
Preferred stock, par value $0.01; authorized
50,000 shares; none issued
|
|
|
|
|
|
|
|
|
Common stock, par value $0.01 authorized 300,000 shares;
issued and outstanding 128,411 as of February 2009; issued and
outstanding 122,189 as of May 2008
|
|
|
1,284
|
|
|
|
1,222
|
|
Paid-in capital
|
|
|
778,362
|
|
|
|
612,441
|
|
Treasury stock, at cost
|
|
|
(50,283
|
)
|
|
|
(6,057
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
(120,820
|
)
|
|
|
101,162
|
|
Retained earnings
|
|
|
431,946
|
|
|
|
427,788
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,040,489
|
|
|
|
1,136,556
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity
|
|
$
|
3,210,450
|
|
|
$
|
3,763,567
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are
an integral part of these statements.
3
RPM
INTERNATIONAL INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
February 28,
|
|
|
February 29,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Net Sales
|
|
$
|
635,396
|
|
|
$
|
731,773
|
|
|
$
|
2,510,826
|
|
|
$
|
2,567,820
|
|
Cost of Sales
|
|
|
400,738
|
|
|
|
440,528
|
|
|
|
1,515,853
|
|
|
|
1,524,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
234,658
|
|
|
|
291,245
|
|
|
|
994,973
|
|
|
|
1,042,885
|
|
Selling, General and Administrative Expenses
|
|
|
265,618
|
|
|
|
266,160
|
|
|
|
837,290
|
|
|
|
811,913
|
|
Interest Expense, Net
|
|
|
13,520
|
|
|
|
9,462
|
|
|
|
41,500
|
|
|
|
34,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes
|
|
|
(44,480
|
)
|
|
|
15,623
|
|
|
|
116,183
|
|
|
|
196,685
|
|
Provision (Benefit) for Income Taxes
|
|
|
(13,547
|
)
|
|
|
3,473
|
|
|
|
35,873
|
|
|
|
61,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
(30,933
|
)
|
|
$
|
12,150
|
|
|
$
|
80,310
|
|
|
$
|
135,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Number of Shares of Common Stock Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
126,575
|
|
|
|
120,091
|
|
|
|
126,295
|
|
|
|
120,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
126,575
|
|
|
|
130,223
|
|
|
|
128,553
|
|
|
|
130,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings (Loss) per Share of Common Stock
|
|
$
|
(0.24
|
)
|
|
$
|
0.10
|
|
|
$
|
0.64
|
|
|
$
|
1.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings (Loss) per Share of Common Stock
|
|
$
|
(0.24
|
)
|
|
$
|
0.10
|
|
|
$
|
0.63
|
|
|
$
|
1.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Dividends Declared per Share of Common Stock
|
|
$
|
0.200
|
|
|
$
|
0.190
|
|
|
$
|
0.590
|
|
|
$
|
0.555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are
an integral part of these statements.
4
RPM
INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
80,310
|
|
|
$
|
135,273
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
47,433
|
|
|
|
46,220
|
|
Amortization
|
|
|
16,709
|
|
|
|
16,182
|
|
Deferred income taxes
|
|
|
6,780
|
|
|
|
30,452
|
|
Earnings of unconsolidated affiliates
|
|
|
(1,004
|
)
|
|
|
(908
|
)
|
Changes in assets and liabilities, net of effect from purchases
and sales of businesses:
|
|
|
|
|
|
|
|
|
Decrease in receivables
|
|
|
317,443
|
|
|
|
181,245
|
|
Decrease (increase) in inventory
|
|
|
17,398
|
|
|
|
(51,889
|
)
|
Decrease in prepaid expenses and other current and long-term
assets
|
|
|
23,641
|
|
|
|
3,965
|
|
(Decrease) in accounts payable
|
|
|
(188,436
|
)
|
|
|
(103,180
|
)
|
(Decrease) in accrued compensation and benefits
|
|
|
(52,486
|
)
|
|
|
(13,973
|
)
|
Increase (decrease) in accrued loss reserves
|
|
|
5,279
|
|
|
|
(4,632
|
)
|
(Decrease) in other accrued liabilities
|
|
|
(72,935
|
)
|
|
|
(24,329
|
)
|
Payments made for asbestos-related claims
|
|
|
(52,196
|
)
|
|
|
(67,595
|
)
|
Other
|
|
|
(13,349
|
)
|
|
|
14,949
|
|
|
|
|
|
|
|
|
|
|
Cash From Operating Activities
|
|
|
134,587
|
|
|
|
161,780
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(37,024
|
)
|
|
|
(29,825
|
)
|
Acquisition of businesses, net of cash acquired
|
|
|
(6,649
|
)
|
|
|
(13,995
|
)
|
Purchase of marketable securities
|
|
|
(71,583
|
)
|
|
|
(74,696
|
)
|
Proceeds from sales of marketable securities
|
|
|
65,452
|
|
|
|
66,422
|
|
Proceeds from the sales of assets or businesses
|
|
|
|
|
|
|
44,800
|
|
Other
|
|
|
777
|
|
|
|
(1,472
|
)
|
|
|
|
|
|
|
|
|
|
Cash (Used For) Investing Activities
|
|
|
(49,027
|
)
|
|
|
(8,766
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
Additions to long-term and short-term debt
|
|
|
108,146
|
|
|
|
130,288
|
|
Reductions of long-term and short-term debt
|
|
|
(202,175
|
)
|
|
|
(2,715
|
)
|
Issuance of stock for convertible bond redemption
|
|
|
150,612
|
|
|
|
|
|
Cash dividends
|
|
|
(76,152
|
)
|
|
|
(67,467
|
)
|
Repurchase of stock
|
|
|
(45,188
|
)
|
|
|
(5,940
|
)
|
Exercise of stock options, including tax benefit
|
|
|
1,980
|
|
|
|
6,086
|
|
|
|
|
|
|
|
|
|
|
Cash From (Used For) Financing Activities
|
|
|
(62,777
|
)
|
|
|
60,252
|
|
|
|
|
|
|
|
|
|
|
Effect of Exchange Rate Changes on Cash and Cash
Equivalents
|
|
|
(48,797
|
)
|
|
|
18,680
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents
|
|
|
(26,014
|
)
|
|
|
231,946
|
|
Cash and Cash Equivalents at Beginning of Period
|
|
|
231,251
|
|
|
|
159,016
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Period
|
|
$
|
205,237
|
|
|
$
|
390,962
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are
an integral part of these statements.
5
RPM
INTERNATIONAL INC. AND SUBSIDIARIES
FEBRUARY 28, 2009
(Unaudited)
NOTE A
BASIS OF PRESENTATION
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 (GAAP) in
the U.S. for complete financial statements. In our opinion,
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,
2009 and February 29, 2008. For further information, refer
to the Consolidated Financial Statements and Notes included in
our Annual Report on
Form 10-K
for the year ended May 31, 2008.
Our business is dependent on external weather factors.
Historically, we have experienced strong sales and net income in
our first, second and fourth fiscal quarters comprising the
three month periods ending August 31, November 30 and
May 31, respectively, with weaker performance in our third
fiscal quarter (December through February).
Certain reclassifications have been made to prior year amounts
to conform to the current year presentation.
NOTE B
MARKETABLE SECURITIES
The following tables summarize marketable securities held at
February 28, 2009 and May 31, 2008 by asset type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-For-Sale Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Fair Value
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
(Net Carrying
|
|
February 28, 2009
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Amount)
|
|
|
|
(In thousands)
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stocks
|
|
$
|
38,831
|
|
|
$
|
245
|
|
|
$
|
(16,786
|
)
|
|
$
|
22,290
|
|
Mutual funds
|
|
|
23,657
|
|
|
|
1
|
|
|
|
(9,181
|
)
|
|
|
14,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
62,488
|
|
|
|
246
|
|
|
|
(25,967
|
)
|
|
|
36,767
|
|
Fixed maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury and other government
|
|
|
9,338
|
|
|
|
381
|
|
|
|
(3
|
)
|
|
|
9,716
|
|
Corporate
|
|
|
16,732
|
|
|
|
630
|
|
|
|
(92
|
)
|
|
|
17,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
26,070
|
|
|
|
1,011
|
|
|
|
(95
|
)
|
|
|
26,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
88,558
|
|
|
$
|
1,257
|
|
|
$
|
(26,062
|
)
|
|
$
|
63,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
RPM
INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-For-Sale Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Fair Value
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
(Net Carrying
|
|
May 31, 2008
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Amount)
|
|
|
|
(In thousands)
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stocks
|
|
$
|
40,274
|
|
|
$
|
18,500
|
|
|
$
|
(1,034
|
)
|
|
$
|
57,740
|
|
Mutual funds
|
|
|
18,401
|
|
|
|
2,020
|
|
|
|
(418
|
)
|
|
|
20,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
58,675
|
|
|
|
20,520
|
|
|
|
(1,452
|
)
|
|
|
77,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury and other government
|
|
|
19,934
|
|
|
|
394
|
|
|
|
(95
|
)
|
|
|
20,233
|
|
Corporate
|
|
|
12,480
|
|
|
|
144
|
|
|
|
(200
|
)
|
|
|
12,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
32,414
|
|
|
|
538
|
|
|
|
(295
|
)
|
|
|
32,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
91,089
|
|
|
$
|
21,058
|
|
|
$
|
(1,747
|
)
|
|
$
|
110,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities, included in other current and long-term
assets, are composed of available-for-sale securities and are
reported at fair value, based on quoted market prices. Realized
gains and losses on sales of investments are recognized in net
income on the specific identification basis. Changes in the fair
values of securities that are considered temporary are recorded
as unrealized gains and losses, net of applicable taxes, in
accumulated other comprehensive income (loss) within
stockholders equity. Other-than-temporary declines in
market value from original cost are reflected in operating
income in the period in which the unrealized losses are deemed
other than temporary. In order to determine whether an
other-than-temporary decline in market value has occurred, the
duration of the decline in value and our ability to hold the
investment are considered in conjunction with an evaluation of
the strength of the underlying collateral and the extent to
which the investments amortized cost or cost, as
appropriate, exceeds its related market value.
Gross gains and losses realized on sales of investments were
$0.7 million and $0.1 million, respectively, for the
quarter ended February 28, 2009. Gross gains and losses
realized on sales of investments were $4.2 million and
$3.2 million, respectively, for the quarter ended
February 29, 2008. During the third quarter of fiscal 2009
and 2008, we recognized losses of $4.0 million and
$0.7 million, respectively, for securities deemed to have
other-than-temporary impairments. These amounts are included in
net interest expense in the Consolidated Statements of Income.
Gross gains and losses realized on sales of investments were
$4.4 million and $2.5 million, respectively, for the
nine months ended February 28, 2009. Gross gains and losses
realized on sales of investments were $6.9 million and
$3.8 million, respectively, for the nine months ended
February 29, 2008. During the first nine months of fiscal
2009 and 2008, we recognized losses of $7.4 million and
$0.8 million, respectively, for securities deemed to have
other-than-temporary impairments.
7
RPM
INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Summarized below are the securities we held at February 28,
2009 and May 31, 2008 that were in an unrealized loss
position included in accumulated other comprehensive income,
aggregated by the length of time the investments had been in
that position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 28, 2009
|
|
|
May 31, 2008
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
|
(In thousands)
|
|
|
Total investments with unrealized losses
|
|
$
|
31,974
|
|
|
$
|
(26,062
|
)
|
|
$
|
25,785
|
|
|
$
|
(1,747
|
)
|
Unrealized losses with a loss position for less than
12 months
|
|
|
27,280
|
|
|
|
(21,302
|
)
|
|
|
24,730
|
|
|
|
(1,635
|
)
|
Unrealized losses with a loss position for more than
12 months
|
|
|
4,694
|
|
|
|
(4,760
|
)
|
|
|
1,055
|
|
|
|
(112
|
)
|
Included in the figures above is our investment in Kemrock
Industries, which has a fair value of $3.3 million and an
unrealized loss of $8.9 million at February 28, 2009.
At May 31, 2008, our investment in Kemrock Industries had a
fair value of $20.9 million, and was in an unrealized gain
position. We have reviewed all of the securities included in the
table above and have concluded that we have the ability and
intent to hold these investments until their cost can be
recovered, based upon the severity and duration of the decline.
Therefore, we did not recognize any other-than-temporary
impairment losses on these investments. Unrealized losses at
February 28, 2009 were generally caused by the recent
decline in valuations in the financial markets and the
volatility in the global economy, specifically over the last six
months. If general economic conditions were to continue to
deteriorate, including continued uncertainties surrounding the
volatility in financial markets and the viability of banks and
other financial institutions, and if we were to experience
continuing or significant additional unrealized losses within
our portfolio of investments in marketable securities, we may
recognize additional other-than-temporary impairment losses.
Such potential losses could have a material impact on our
results of operations in any given reporting period. As such, we
continue to closely evaluate the status of our investments and
our ability and intent to hold these investments.
The net carrying value of debt securities at February 28,
2009, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because the
issuers of the securities may have the right to prepay
obligations without prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
Due:
|
|
|
|
|
|
|
|
|
Less than one year
|
|
$
|
1,242
|
|
|
$
|
1,264
|
|
One year through five years
|
|
|
13,816
|
|
|
|
14,345
|
|
Six years through ten years
|
|
|
4,271
|
|
|
|
4,449
|
|
After ten years
|
|
|
6,741
|
|
|
|
6,928
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26,070
|
|
|
$
|
26,986
|
|
|
|
|
|
|
|
|
|
|
NOTE C
FAIR VALUE MEASUREMENTS
Effective June 1, 2008, we adopted Statement of Financial
Accounting Standard No. 157
(SFAS No. 157), Fair Value
Measurements. SFAS No. 157 clarifies the
definition of fair value, establishes a framework for measuring
fair value based on the inputs used to measure fair value and
expands the disclosures of fair value measurements. In
accordance with Financial Accounting Standards Board Staff
Position
No. FAS 157-2,
Effective Date of FASB Statement
No. 157
,
we will defer the adoption of
SFAS No. 157 for our nonfinancial assets and
nonfinancial liabilities until June 1, 2009, which is not
expected to have a material impact on our financial
8
RPM
INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
statements. Our adoption of the portion of
SFAS No. 157 relating to our financial assets and
liabilities did not have a material impact on our financial
statements.
SFAS No. 157 valuation techniques are based on
observable and unobservable inputs. Observable inputs reflect
readily obtainable data from independent sources, while
unobservable inputs reflect managements market
assumptions. The fair value hierarchy has three levels based on
the reliability of the inputs used to determine fair value, as
follows:
Level 1 Inputs
Quoted prices for
identical instruments in active markets.
Level 2 Inputs
Quoted prices for
similar instruments in active markets; quoted prices for
identical or similar instruments in markets that are not active;
and model-derived valuations whose inputs are observable or
whose significant value drivers are observable.
Level 3 Inputs
Instruments with
primarily unobservable value drivers.
The following table presents our assets and liabilities that are
measured at fair value on a recurring basis and are categorized
using the fair value hierarchy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
|
Fair Value at
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
February 28, 2009
|
|
|
|
(In thousands)
|
|
|
Marketable securities
|
|
$
|
63,753
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
63,753
|
|
Interest rate swap
|
|
|
|
|
|
|
3,529
|
|
|
|
|
|
|
|
3,529
|
|
Cross-currency swap/interest rate swap
|
|
|
|
|
|
|
(3,231
|
)
|
|
|
|
|
|
|
(3,231
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
63,753
|
|
|
$
|
298
|
|
|
$
|
|
|
|
$
|
64,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE D
INVENTORIES
Inventories were composed of the following major classes:
|
|
|
|
|
|
|
|
|
|
|
February 28, 2009
|
|
|
May 31, 2008
|
|
|
|
(In thousands)
|
|
|
Raw material and supplies
|
|
$
|
147,282
|
|
|
$
|
151,400
|
|
Finished goods
|
|
|
316,331
|
|
|
|
324,749
|
|
|
|
|
|
|
|
|
|
|
Total Inventory
|
|
$
|
463,613
|
|
|
$
|
476,149
|
|
|
|
|
|
|
|
|
|
|
9
RPM
INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE E
COMPREHENSIVE INCOME
The following table illustrates the components of total
comprehensive income for each of the three and nine month
periods ended February 28, 2009 and February 29, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
February 28,
|
|
|
February 29,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Net income (loss)
|
|
$
|
(30,933
|
)
|
|
$
|
12,150
|
|
|
$
|
80,310
|
|
|
$
|
135,273
|
|
Other Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(20,851
|
)
|
|
|
9,705
|
|
|
|
(194,723
|
)
|
|
|
47,082
|
|
Pension and other postretirement benefit liability adjustments,
net of tax
|
|
|
1,314
|
|
|
|
1,637
|
|
|
|
6,302
|
|
|
|
1,637
|
|
Unrealized gain (loss) on securities, net of tax
|
|
|
(1,320
|
)
|
|
|
(7,457
|
)
|
|
|
(29,124
|
)
|
|
|
2,203
|
|
Derivatives income, net of tax
|
|
|
(5,683
|
)
|
|
|
(440
|
)
|
|
|
(4,437
|
)
|
|
|
5,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive Income (Loss)
|
|
$
|
(57,473
|
)
|
|
$
|
15,595
|
|
|
$
|
(141,672
|
)
|
|
$
|
191,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE F
CONTINGENCIES AND OTHER ACCRUED LOSSES
Asbestos-related
Contingencies
Certain of our wholly-owned subsidiaries, principally Bondex
International, Inc. (collectively referred to as our
subsidiaries), are defendants in various asbestos-related bodily
injury lawsuits filed in various state courts with the vast
majority of current claims pending in six states
Texas, Florida, Mississippi, Maryland, Illinois and Ohio. These
cases generally seek unspecified damages for asbestos-related
diseases based on alleged exposures to asbestos-containing
products previously manufactured by our subsidiaries or others.
As of February 28, 2009, our subsidiaries had a total of
10,281 active asbestos cases compared to a total of 11,350 cases
as of February 29, 2008. For the quarter ended
February 28, 2009, our subsidiaries secured dismissals
and/or
settlements of 228 cases and made total payments of
$19.8 million, which included defense-related payments of
$6.9 million. For the comparable period ended
February 29, 2008, dismissals
and/or
settlements covered 225 cases and total payments were
$18.7 million, which included defense-related payments of
$9.4 million. For the nine months ended February 28,
2009, our subsidiaries secured dismissals
and/or
settlements of 2,253 cases and made total payments of
$52.2 million, which included defense-related payments of
$19.7 million. For the comparable period ended
February 29, 2008, dismissals
and/or
settlements covered 882 cases and total payments were
$67.6 million, which included defense-related payments of
$32.0 million.
Of the 2,253 cases that were dismissed in the nine months ended
February 28, 2009, 1,420 were non-malignancies or unknown
disease cases that had been maintained on an inactive docket in
Ohio and were administratively dismissed by the Cuyahoga County
Court of Common Pleas during our second fiscal quarter ended
November 30, 2008. These claims were dismissed without
prejudice and may be re-filed should the claimants involved be
able to demonstrate disease in accordance with medical criteria
laws established in the state of Ohio.
During the quarter ended February 28, 2009, one payment
totaling $3.6 million was made to satisfy an adverse
judgment in a previous trial that occurred in calendar 2006 in
California. This payment, which included a significant amount of
accrued pre-judgment interest as required by California law, was
made on December 8, 2008, approximately two and a half
years after the adverse verdict and after all post-trial and
appellate remedies had been exhausted. Such satisfaction of
judgment amounts are not included in incurred costs until
available appeals are
10
RPM
INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
exhausted and the final payment amount is determined. As a
result, the timing and amount of any such payments could have a
significant impact on quarterly settlement costs.
During the prior fiscal year, our subsidiaries incurred higher
year-over-year, defense-related payments as a result of
implementing various changes to our management and defense of
asbestos claims, including a transition to a new claims intake
and database service provider. To facilitate that transition and
other related changes, we incurred duplicate defense-related
payments approximating $3.0 million during last years
second fiscal quarter. The transition was completed during the
quarter ended February 29, 2008.
Excluding defense-related payments, the average payment made to
settle or dismiss a case approximated $57,000 and $41,000 for
each of the quarters ended February 28, 2009 and
February 29, 2008, respectively. The amount and timing of
dismissals and settlements can fluctuate significantly from
period to period, resulting in volatility in the average cost to
resolve a case in any given quarter or year. In addition, in
some jurisdictions, cases may involve more than one individual
claimant. As a result, settlement or dismissal payments made on
a per case basis are not necessarily reflective of the payment
amounts on a per claimant basis. For example, the amount paid to
settle or dismiss a case can vary widely depending on a variety
of factors, including the mix of malignancy and non-malignancy
claimants, and the amount of defense expenditures incurred
during the period.
Estimating the future cost of asbestos-related contingent
liabilities was and continues to be subject to many
uncertainties that may change over time, including (i) the
ultimate number of claims filed; (ii) the amounts required
to resolve both currently known and future unknown claims;
(iii) the amount of insurance, if any, available to cover
such claims, including the outcome of coverage litigation
against our subsidiaries third-party insurers;
(iv) future earnings and cash flow of our subsidiaries;
(v) the impact of bankruptcies of other companies whose
share of liability may be imposed on our subsidiaries under
certain state liability laws; (vi) the unpredictable
aspects of the litigation process including a changing trial
docket and the jurisdictions in which trials are scheduled;
(vii) the outcome of any such trials including judgments or
jury verdicts, as a result of our more aggressive defense
posture, which includes taking selective cases to verdict;
(viii) the lack of specific information in many cases
concerning exposure to products for which one of our
subsidiaries is responsible and the claimants diseases;
(ix) potential changes in applicable federal
and/or
state
law; and (x) the potential impact of various proposed
structured settlement transactions or subsidiary bankruptcies by
other companies, some of which are the subject of federal
appellate court review, the outcome of which could materially
affect any future asbestos-related liability estimates.
In fiscal 2006, we retained Crawford & Winiarski
(C&W), an independent, third-party consulting
firm with expertise in the area of asbestos valuation work, to
assist us in calculating an estimate of our liability for
unasserted-potential-future-asbestos-related claims. The
methodology used by C&W to project our liability for
unasserted-potential-future-asbestos-related claims included
C&W doing an analysis of: (a) widely accepted forecast
of the population likely to have been exposed to asbestos;
(b) epidemiological studies estimating the number of people
likely to develop asbestos-related diseases; (c) historical
rate at which mesothelioma incidences resulted in the payment of
claims by us; (d) historical settlement averages to value
the projected number of future compensable mesothelioma claims;
(e) historical ratio of mesothelioma-related-indemnity
payments to non-mesothelioma indemnity payments; and
(f) historical defense costs and their relationship with
total indemnity payments.
During fiscal 2006, we recorded a liability for asbestos claims
in the amount of $380.0 million, while paying out
$59.9 million for dismissals
and/or
settlements, which resulted in our accrued liability balance
moving from $101.2 million at May 31, 2005 to
$421.3 million at May 31, 2006. This increase was
based largely upon C&Ws analysis of our total
estimated liability for
unasserted-potential-future-asbestos-related claims through
May 31, 2016. This amount was also calculated on a pre-tax
basis and was not discounted for the time value of money. In
light of the uncertainties inherent in making long-term
projections, we determined at that time that a ten-year period
was the most reasonable time period over which reasonably
accurate estimates might still be made for projecting asbestos
liabilities and defense costs and, accordingly, our accrual did
not include asbestos liabilities for any period beyond ten years.
11
RPM
INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During the fiscal year ended May 31, 2008, we reviewed and
evaluated our ten-year asbestos liability established as of
May 31, 2006. As part of that review and evaluation
process, the credibility of epidemiological studies of our
mesothelioma claims, first introduced to management by C&W
some
two-and-one-half
years ago, was validated. At the core of our evaluation process,
and the basis of C&Ws actuarial work on behalf of
Bondex, is the
Nicholson Study
. The
Nicholson Study
is the most widely recognized reference in bankruptcy trust
valuations, global settlement negotiations and the Congressional
Budget Offices work done on the proposed FAIR Act in 2006.
Based on our ongoing comparison of the
Nicholson Study
projections and Bondexs specific actual experience,
which continues to bear an extremely close correlation to the
studys projections, we decided to extend our asbestos
liability projection out to twenty years. C&W assisted us
in calculating an estimate of our liability for
unasserted-potential-future-asbestos-related claims out to that
twenty-year period.
C&W has projected that the cost of extending the asbestos
liability to twenty years, coupled with an updated evaluation of
our current known claims to reflect our most recent actual
experience, would be $288.1 million. Therefore, we added
$288.1 million to our existing asbestos liability, which
brought our total asbestos-related balance sheet liabilities at
May 31, 2008 to $559.7 million. Of that total,
$65.0 million was estimated to be the short-term liability
due in fiscal 2009, with the remaining $494.7 million
balance reflected as a long-term liability. The material
components of the accruals are: (i) the gross number of
open malignancy claims (principally mesothelioma claims) as
these claims have the most significant impact on our asbestos
settlement costs; (ii) historical and current settlement
costs and dismissal rates by various categories;
(iii) analysis of the jurisdiction and governing laws of
the states in which these claims are pending; (iv) outside
defense counsels opinions and recommendations with respect
to the merits of such claims; and (v) analysis of projected
liabilities for unasserted potential future claims.
In determining the amount of our asbestos liability, we relied
on assumptions that are based on currently known facts and
projection models. Our actual expenses could be significantly
higher or lower than those recorded if assumptions used in our
calculations vary significantly from actual results. Key
variables in these assumptions include the period of exposure to
asbestos claims, the number and type of new claims to be filed
each year, the rate at which mesothelioma incidences result in
compensable claims against us, the average cost of disposing of
each such new claim, the dismissal rates each year and the
related annual defense costs. Furthermore, predictions with
respect to these variables are subject to greater uncertainty as
the projection period lengthens. A significant upward or
downward trend in the number of claims filed, depending on the
nature of the alleged injury, the jurisdiction where filed, the
average cost of resolving each such claim and the quality of the
product identification, could change our estimated liability, as
could any substantial adverse verdict at trial. A federal
legislative solution, further state tort reform or a
structured-settlement transaction could also change the
estimated liability.
Subject to the foregoing variables, and based on currently
available data, we believe that our current asbestos liability
is sufficient to cover asbestos-related expenses for our known
pending and unasserted-potential-future-asbestos-related claims
through 2028. However, given the uncertainties associated with
projecting matters into the future and numerous other factors
outside of our control, we believe that it is reasonably
possible we may incur additional material asbestos liabilities
in periods before 2028. Due to the uncertainty inherent in the
process undertaken to estimate our losses, we are unable at the
present time to estimate an additional range of loss in excess
of our existing accruals. While it is reasonably possible that
such excess liabilities could be material to operating results
in any given quarter or year, we do not believe that it is
reasonably possible that such excess liabilities would have a
material adverse effect on our long-term results of operations,
liquidity or consolidated financial position.
During fiscal 2004, certain of our subsidiaries
third-party insurers claimed exhaustion of coverage. On
July 3, 2003, certain of our subsidiaries filed the case of
Bondex International, Inc. et al. v. Hartford Accident and
Indemnity Company et al., Case
No. 1:03-cv-1322,
in the United States District Court for the Northern District of
Ohio, for declaratory judgment, breach of contract and bad faith
against these third-party insurers, challenging their assertion
that their policies covering asbestos-related claims have been
exhausted. The coverage litigation involves, among other
matters, insurance coverage for claims arising out of alleged
exposure to asbestos containing products manufactured by the
previous owner of the Bondex tradename before March 1,
1966. On March 1, 1966, Republic
12
RPM
INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Powdered Metals Inc. (as it was known then), purchased the
assets and assumed the liabilities of the previous owner of the
Bondex tradename. That previous owner subsequently dissolved and
was never a subsidiary of Republic Powdered Metals, Bondex, RPM,
Inc. or the Company. Because of the earlier assumption of
liabilities, however, Bondex has historically responded, and
must continue to respond, to lawsuits alleging exposure to these
asbestos-containing products. We discovered that the defendant
insurance companies in the coverage litigation had wrongfully
used cases alleging exposure to these pre-1966 products to erode
their aggregate limits. This conduct, apparently known by the
insurance industry based on discovery conducted to date, was in
breach of the insurers policy language. Two of the
defendant insurers have filed counterclaims seeking to recoup
certain monies should the plaintiffs prevail on their claims.
During the second fiscal quarter ended November 30, 2006,
plaintiffs and one of the defendant insurers reached a
settlement of $15.0 million, the terms of which are
confidential by agreement of the parties. The settling defendant
was dismissed from the case.
In 2007, plaintiffs had filed motions for partial summary
judgment against the defendants and defendants had filed motions
for summary judgment against plaintiffs. In addition, plaintiffs
had filed a motion to dismiss the counterclaim filed by one of
the defendants. On December 1, 2008, the court decided the
pending motions for summary judgment and dismissal. The court
denied the plaintiffs motions for partial summary judgment
and granted the defendants motions for summary judgment
against plaintiffs on a narrow ground. The court also granted
the plaintiffs motion to dismiss one defendants
amended counterclaim. In light of its summary judgment rulings,
the court entered judgment as a matter of law on all remaining
claims and counterclaims, including the counterclaim filed by
another defendant, and dismissed the action. The court also
dismissed certain remaining motions as moot. Plaintiffs have
filed a notice of appeal to the United States Sixth Circuit
Court of Appeals and will continue to aggressively pursue their
claims on appeal. At present, the appellate court has not yet
entered a scheduling order in connection with the appeal.
We are unable at the present time to predict the timing or
ultimate outcome of this insurance coverage litigation or
whether there will be any further settlements. Consequently, we
are unable to predict whether, or to what extent, any additional
insurance may be available to cover a portion of our
subsidiaries asbestos liabilities. We have not included
any potential benefits from this litigation in calculating our
current asbestos liability. Our wholly-owned captive insurance
companies have not provided any insurance or reinsurance
coverage for any of our subsidiaries asbestos-related
claims.
The following table illustrates the movement of current and
long-term asbestos-related liabilities through February 28,
2009:
Asbestos
Liability Movement
(Current and Long-Term)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Additions to
|
|
|
|
|
|
Balance at
|
|
|
|
Beginning of
|
|
|
Asbestos
|
|
|
|
|
|
End of
|
|
|
|
Period
|
|
|
Charge
|
|
|
Deductions*
|
|
|
Period
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Nine Months Ended February 28, 2009
|
|
$
|
559,745
|
|
|
|
|
|
|
$
|
52,196
|
|
|
$
|
507,549
|
|
Year Ended May 31, 2008
|
|
|
354,268
|
|
|
$
|
288,100
|
|
|
|
82,623
|
|
|
|
559,745
|
|
Year Ended May 31, 2007
|
|
|
421,285
|
|
|
|
|
|
|
|
67,017
|
|
|
|
354,268
|
|
|
|
|
*
|
|
Deductions include payments for defense-related costs and
amounts paid to settle claims.
|
Other
Contingencies
We provide, through our wholly-owned insurance subsidiaries,
certain insurance coverage, primarily product liability, to our
other subsidiaries. Excess coverage is provided by third-party
insurers. Our reserves provide for
13
RPM
INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
these potential losses as well as other uninsured claims. As of
February 28, 2009, the current portion of these reserves
amounted to $61.8 million as compared with
$56.5 million at May 31, 2008, while the total
long-term reserves of $7.0 million at February 28,
2009 compare with $8.5 million at May 31, 2008.
Product warranty expense is recorded within selling, general and
administrative expense. We also offer a warranty program for our
roofing systems and have established a product warranty
liability. We review this liability for adequacy on a quarterly
basis and adjust it as necessary. The primary factors that could
affect this liability may include changes in the historical
system performance rate as well as the costs of replacement.
Provision for estimated warranty costs is recorded at the time
of sale and periodically adjusted, as required, to reflect
actual experience.
In addition, like other companies participating in similar lines
of business, some of our subsidiaries are involved in several
proceedings relating to environmental matters. It is our policy
to accrue remediation costs when it is probable that such
efforts will be required and the related costs can be reasonably
estimated. These liabilities are undiscounted.
NOTE G
PENSION AND POSTRETIREMENT HEALTH CARE BENEFITS
We account for our pension plans and postretirement benefit
plans in accordance with the provisions of
SFAS No. 158, Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans. We
offer defined benefit pension plans, defined contribution
pension plans, as well as several unfunded health care benefit
plans primarily for certain of our retired employees. The
following tables provide the retirement-related benefit
plans impact on income before income taxes for the three
and nine month periods ended February 28, 2009 and
February 29, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
Non-U.S. Plans
|
|
|
|
Quarter Ended
|
|
|
Quarter Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
February 28,
|
|
|
February 29,
|
|
Pension Benefits
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Service cost
|
|
$
|
3,680
|
|
|
$
|
3,560
|
|
|
$
|
760
|
|
|
$
|
867
|
|
Interest cost
|
|
|
2,976
|
|
|
|
2,574
|
|
|
|
1,915
|
|
|
|
1,634
|
|
Expected return on plan assets
|
|
|
(3,224
|
)
|
|
|
(3,330
|
)
|
|
|
(1,847
|
)
|
|
|
(1,679
|
)
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost
|
|
|
85
|
|
|
|
60
|
|
|
|
1
|
|
|
|
6
|
|
Net actuarial losses recognized
|
|
|
663
|
|
|
|
354
|
|
|
|
310
|
|
|
|
381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Periodic Benefit Cost
|
|
$
|
4,180
|
|
|
$
|
3,218
|
|
|
$
|
1,139
|
|
|
$
|
1,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
Non-U.S. Plans
|
|
|
|
Quarter Ended
|
|
|
Quarter Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
February 28,
|
|
|
February 29,
|
|
Postretirement Benefits
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Service cost
|
|
$
|
|
|
|
$
|
|
|
|
$
|
99
|
|
|
$
|
123
|
|
Interest cost
|
|
|
108
|
|
|
|
130
|
|
|
|
189
|
|
|
|
168
|
|
Prior service cost
|
|
|
(7
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
Net actuarial (gains) losses recognized
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Periodic Benefit Cost
|
|
$
|
77
|
|
|
$
|
123
|
|
|
$
|
288
|
|
|
$
|
314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
RPM
INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
Non-U.S. Plans
|
|
|
|
Nine Months Ended
|
|
|
Nine Months Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
February 28,
|
|
|
February 29,
|
|
Pension Benefits
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Service cost
|
|
$
|
11,040
|
|
|
$
|
10,680
|
|
|
$
|
2,279
|
|
|
$
|
2,601
|
|
Interest cost
|
|
|
8,930
|
|
|
|
7,722
|
|
|
|
5,745
|
|
|
|
4,902
|
|
Expected return on plan assets
|
|
|
(9,670
|
)
|
|
|
(9,990
|
)
|
|
|
(5,540
|
)
|
|
|
(5,036
|
)
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost
|
|
|
256
|
|
|
|
180
|
|
|
|
3
|
|
|
|
19
|
|
Net actuarial losses recognized
|
|
|
1,989
|
|
|
|
1,061
|
|
|
|
932
|
|
|
|
1,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Periodic Benefit Cost
|
|
$
|
12,545
|
|
|
$
|
9,653
|
|
|
$
|
3,419
|
|
|
$
|
3,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
Non-U.S. Plans
|
|
|
|
Nine Months Ended
|
|
|
Nine Months Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
February 28,
|
|
|
February 29,
|
|
Postretirement Benefits
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Service cost
|
|
$
|
|
|
|
$
|
|
|
|
$
|
295
|
|
|
$
|
370
|
|
Interest cost
|
|
|
324
|
|
|
|
391
|
|
|
|
567
|
|
|
|
505
|
|
Prior service cost
|
|
|
(21
|
)
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
Net actuarial (gains) losses recognized
|
|
|
(72
|
)
|
|
|
|
|
|
|
|
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Periodic Benefit Cost
|
|
$
|
231
|
|
|
$
|
370
|
|
|
$
|
862
|
|
|
$
|
942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We previously disclosed in our financial statements for the
fiscal year ended May 31, 2008 that we expected to
contribute approximately $10.3 million to our retirement
plans in the U.S. and approximately $7.5 million to
plans outside the U.S. during the current fiscal year. At
November 30, 2008, we updated our expected contributions to
the Retirement Plans in the U.S. to be $10.2 million,
and anticipated no change with regard to our foreign plans. As
of February 28, 2009, we do not anticipate any changes to
these contribution levels.
At February 28, 2009, the fair value of the assets held by
our pension plans has declined since our measurement date of
May 31, 2008, due primarily to the recent significant
declines in the stock markets. Assuming that there will be no
significant recovery in the stock markets and that we will not
contribute significant funds to our plans prior to the end of
our current fiscal year ending May 31, 2009, we may be
required to increase our recorded liability for the net
underfunded status of our pension plans, and we would expect
pension expense in fiscal 2010 to increase from fiscal 2009.
Further, a decline in the value of our pension plan assets could
require accelerated and higher cash contributions to our pension
plans. Such amounts are not currently quantifiable because our
required valuation of the assets and obligations of our pension
plans will not occur until May 31, 2009.
We have determined that our postretirement medical plan provides
prescription drug benefits that will qualify for the federal
subsidy provided by the Medicare Prescription Drug, Improvement
and Modernization Act of 2003. For all groups of retirees, we
have assumed that the subsidy will continue indefinitely.
As previously disclosed, we adopted the provisions of
SFAS No. 158, Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans, an
amendment of FASB Statements No. 87, 88, 106 and
132(R) beginning with our fiscal year ended May 31,
2008, and transitioned from a measurement date of February 28 to
May 31.
15
RPM
INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE
H COST REDUCTION INITIATIVES
During the first nine months of fiscal 2009, we undertook
various actions to lower the fixed cost base of certain of our
businesses in response to the current economic environment. As a
result of these cost reduction measures, which have included
personnel reductions, we have incurred employee separation
costs. During the third quarter, we incurred $14.5 million
of pre-tax charges and $20.3 million year to date in
relation to these actions. We do not anticipate any further
expenses in relation to these particular cost reduction
initiatives. Of the $14.5 million incurred during the third
fiscal quarter ended February 28, 2009, $11.2 million
was related to our industrial reportable segment
(industrial segment) and $3.2 million was
related to our consumer reportable segment (consumer
segment) with the remainder recognized at the nonoperating
level. These costs, all of which are cash costs, are reflected
within selling, general and administrative expenses on our
consolidated statements of income.
NOTE I
EARNINGS PER SHARE
Our basic earnings per share calculation is based on the
weighted-average number of shares of common stock outstanding.
Our diluted earnings per share calculation is based on the
weighted-average number of shares of common stock outstanding
adjusted for the number of additional shares that would have
been outstanding had all potentially dilutive common shares been
issued. Potentially dilutive shares of common stock include
stock options, nonvested share awards and shares issuable under
our employee stock purchase plan, as well as shares of common
stock that would have been issued pursuant to the assumed
conversion of our convertible notes. Since the potentially
dilutive shares related to the convertible notes are included in
the calculation of diluted earnings per share, the related
interest expense, net of tax, is added back to net earnings, as
this interest would not have been paid if the convertible notes
had been converted to common stock. Nonvested market-based stock
awards and nonvested
16
RPM
INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
performance-based awards are included in the average diluted
shares outstanding each period if established market or
performance criteria have been met at the end of the respective
periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
February 28,
|
|
|
February 29,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Shares Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
126,575
|
|
|
|
120,091
|
|
|
|
126,295
|
|
|
|
120,077
|
|
Net issuable common share equivalents(1)
|
|
|
|
|
|
|
2,099
|
|
|
|
1,134
|
|
|
|
2,298
|
|
Additional shares issuable assuming conversion of convertible
securities
|
|
|
|
|
|
|
8,033
|
|
|
|
1,124
|
|
|
|
8,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shares for diluted earnings per share
|
|
|
126,575
|
|
|
|
130,223
|
|
|
|
128,553
|
|
|
|
130,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss), basic
|
|
$
|
(30,933
|
)
|
|
$
|
12,150
|
|
|
$
|
80,310
|
|
|
$
|
135,273
|
|
Add: Income effect of convertible securities
|
|
|
|
|
|
|
771
|
|
|
|
280
|
|
|
|
2,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss), diluted
|
|
$
|
(30,933
|
)
|
|
$
|
12,921
|
|
|
$
|
80,590
|
|
|
$
|
137,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings (Loss) Per Share of Common Stock
|
|
$
|
(0.24
|
)
|
|
$
|
0.10
|
|
|
$
|
0.64
|
|
|
$
|
1.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings (Loss) Per Share of Common Stock
|
|
$
|
(0.24
|
)
|
|
$
|
0.10
|
|
|
$
|
0.63
|
|
|
$
|
1.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Conversion of the net issuable common share equivalents for the
three month period ended February 28, 2009 was not assumed,
since the result would have been anti-dilutive as a result of
the net loss incurred for the quarter.
|
NOTE J
INCOME TAXES
The effective income tax benefit rate was 30.5% for the three
months ended February 28, 2009 compared to an effective
income tax expense rate of 22.2% for the three months ended
February 29, 2008.
For the three months ended February 28, 2009 and, to a
lesser extent for the three months ended February 29, 2008,
the effective tax rate differed from the federal statutory rate
principally due to decreases in taxes as a result of the impact
of certain foreign operations on our U.S. taxes and the
effect of lower tax rates in certain of our foreign
jurisdictions. The decreases in the effective tax rates were
partially offset by provisions for valuation allowances
associated with losses incurred by certain of our foreign
businesses, state and local income taxes and other
non-deductible business operating expenses.
The effective income tax expense rate was 30.9% for the nine
months ended February 28, 2009 compared to an effective
income tax expense rate of 31.2% for the nine months ended
February 29, 2008.
For the nine months ended February 28, 2009 and, to a
lesser extent for the nine months ended February 29, 2008,
the effective tax rate differed from the federal statutory rate
principally as a result of the impact of certain
17
RPM
INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
foreign operations on our U.S. taxes and the effect of
lower tax rates in certain of our foreign jurisdictions. The
decreases in the effective tax rates were partially offset by
valuation allowances associated with losses incurred by certain
of our foreign businesses, state and local income taxes and
other non-deductible business operating expenses.
As of February 28, 2009, we have determined, based on the
available evidence, that it is uncertain whether we will be able
to recognize certain deferred tax assets. Therefore, in
accordance with the provisions of SFAS No. 109,
Accounting for Income Taxes, we intend to maintain
the tax valuation allowance recorded at February 28, 2009
for certain deferred tax assets until sufficient positive
evidence (for example, cumulative positive foreign earnings or
additional foreign source income) exists to support the reversal
of the tax valuation allowances. This valuation allowance
relates to U.S. federal foreign tax credit carryforwards,
certain foreign net operating losses and net foreign deferred
tax assets recorded in purchase accounting. Any reversal of the
valuation allowance that was recorded in purchase accounting
would reduce goodwill.
As of February 28, 2009, we had unrecognized tax benefits
of approximately $3.2 million, of which approximately
$2.4 million would impact the effective tax rate, if
recognized. We recognize interest and penalties related to
unrecognized tax benefits in income tax expense. At
February 28, 2009, the accrual for interest and penalties
totaled approximately $1.3 million.
We file income tax returns in the U.S. and various state,
local and foreign jurisdictions. As of February 28, 2009,
we are subject to U.S. federal income tax examinations for
the fiscal years 2006 through 2008. In addition, with limited
exceptions, we are subject to various state and local or
non-U.S. income
tax examinations by tax authorities for the fiscal years 2002
through 2008. We do not anticipate any significant changes to
the total unrecognized tax benefits within the next
12 months.
NOTE K
SEGMENT INFORMATION
We operate a portfolio of businesses and product lines that
manufacture and sell a variety of specialty paints, protective
coatings and roofing systems, sealants and adhesives. We manage
our portfolio by organizing our businesses and product lines
into two reportable segments: the industrial reportable segment
and the consumer reportable segment. Within each reportable
segment, we aggregate three operating segments that consist of
individual groups of companies and product lines, which
generally address common markets, share similar economic
characteristics, utilize similar technologies and can share
manufacturing or distribution capabilities. Our six operating
segments represent components of our business for which separate
financial information is available that is utilized on a regular
basis by our chief executive officer in determining how to
allocate the assets of the Company and evaluate performance.
These six operating segments are each managed by an operating
segment manager, who is responsible for the day-to-day operating
decisions and performance evaluation of the operating
segments underlying businesses.
Our industrial reportable segment products are sold throughout
North America and also account for the majority of our
international sales. Our industrial product lines are sold
directly to contractors, distributors and end-users, such as
industrial manufacturing facilities, public institutions and
other commercial customers. This reportable segment comprises
three separate operating segments our Tremco Group,
StonCor Group, and RPM II/Industrial Group. Products and
services within this reportable segment include construction
chemicals, roofing systems, weatherproofing and other sealants,
flooring and specialty chemicals.
Our consumer reportable segment manufactures and markets
professional use and do-it-yourself (DIY) products
for a variety of mainly consumer applications, including home
improvement and personal leisure activities. Our consumer
segments major manufacturing and distribution operations
are located primarily in North America, along with a few
locations in Europe. Consumer segment products are sold directly
to mass merchandisers, home improvement centers, hardware
stores, paint stores, craft shops and to other smaller customers
through distributors. This reportable segment comprises three
operating segments our DAP Group, Rust-Oleum/
18
RPM
INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Zinsser Group, and RPM II/Consumer Group. Products within this
reportable segment include specialty, hobby and professional
paints; caulks; adhesives; silicone sealants; wood stains and
specialty confectionary coatings and films.
In addition to our two reportable segments, there is a category
of certain business activities and expenses, referred to as
corporate/other, that does not constitute an operating segment.
This category includes our corporate headquarters and related
administrative expenses, results of our captive insurance
companies, gains or losses on the sales of certain assets and
other expenses not directly associated with either reportable
segment. Assets related to the corporate/other category consist
primarily of investments, prepaid expenses, deferred pension
assets, and headquarters property and equipment. These
corporate and other assets and expenses reconcile reportable
segment data to total consolidated income before income taxes
and identifiable assets. Our comparative three and nine month
results for the periods ended February 28, 2009 and
February 29, 2008, and identifiable assets as of
February 28, 2009 and May 31, 2008 are presented in
segment detail in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
February 28,
|
|
|
February 29,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Segment
|
|
$
|
406,691
|
|
|
$
|
467,538
|
|
|
$
|
1,729,851
|
|
|
$
|
1,681,984
|
|
Consumer Segment
|
|
|
228,705
|
|
|
|
264,235
|
|
|
|
780,975
|
|
|
|
885,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
635,396
|
|
|
$
|
731,773
|
|
|
$
|
2,510,826
|
|
|
$
|
2,567,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Segment
|
|
$
|
156,845
|
|
|
$
|
191,717
|
|
|
$
|
713,029
|
|
|
$
|
701,576
|
|
Consumer Segment
|
|
|
77,813
|
|
|
|
99,528
|
|
|
|
281,944
|
|
|
|
341,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
234,658
|
|
|
$
|
291,245
|
|
|
$
|
994,973
|
|
|
$
|
1,042,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Segment
|
|
$
|
(21,135
|
)
|
|
$
|
17,718
|
|
|
$
|
141,335
|
|
|
$
|
170,428
|
|
Consumer Segment
|
|
|
2,717
|
|
|
|
19,003
|
|
|
|
50,788
|
|
|
|
91,673
|
|
Corporate/Other
|
|
|
(26,062
|
)
|
|
|
(21,098
|
)
|
|
|
(75,940
|
)
|
|
|
(65,416
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
(44,480
|
)
|
|
$
|
15,623
|
|
|
$
|
116,183
|
|
|
$
|
196,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 28,
|
|
|
May 31,
|
|
Identifiable Assets
|
|
2009
|
|
|
2008
|
|
|
Industrial Segment
|
|
$
|
1,684,468
|
|
|
$
|
2,130,532
|
|
Consumer Segment
|
|
|
1,156,301
|
|
|
|
1,342,572
|
|
Corporate/Other
|
|
|
369,681
|
|
|
|
290,463
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
3,210,450
|
|
|
$
|
3,763,567
|
|
|
|
|
|
|
|
|
|
|
NOTE L
STOCK REPURCHASE PROGRAM
On January 8, 2008, we announced our authorization of a
stock repurchase program under which we may repurchase shares of
RPM International Inc. common stock at managements
discretion for general corporate purposes. Our current intent is
to limit our repurchases only to amounts required to offset
dilution created by stock issued in connection with our
equity-based compensation plans, or approximately one to two
million shares per year. As a result of this authorization, we
may repurchase shares from time to time in the open market or in
private transactions at various times and in amounts and for
prices that our management deems appropriate, subject to
19
RPM
INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
insider trading rules and other securities law restrictions. The
timing of our purchases will depend upon prevailing market
conditions, alternative uses of capital and other factors. We
may limit or terminate the repurchase program at any time.
During the nine month period ended February 28, 2009, we
repurchased approximately 2.4 million shares of our common
stock at a cost of approximately $43.4 million under this
program. There was no activity under this program during the
third quarter of fiscal 2009.
NOTE M
CONVERTIBLE NOTES
As previously reported, during our first fiscal quarter ended
August 31, 2008, our Senior Convertible Notes (the
Convertible Notes) due May 13, 2033 became
eligible for conversion based upon the price of RPM
International Inc. common stock. Subsequent to this event, on
June 13, 2008, we called for the redemption of all of our
outstanding Convertible Notes on the effective date of
July 14, 2008 (the Redemption Date). Prior
to the Redemption Date, virtually all of the holders had
already converted their Convertible Notes into
8,030,455 shares of RPM International Inc. common stock, or
27.0517 shares of common stock for each $1,000 Face Value
Convertible Note they held. Any fractional shares from the
conversion were paid in cash.
NOTE N
SUBSEQUENT EVENT
On April 7, 2009, we replaced our existing
$125.0 million accounts receivable securitization program,
under which we had no outstanding balance at February 28,
2009, and which was set to expire on May 7, 2009, with a
new, three-year, $150.0 million accounts receivable
securitization program (the new program). The new
program, which was established with two banks for certain of our
subsidiaries (originating subsidiaries),
contemplates that the originating subsidiaries will sell certain
of their accounts receivable to RPM Funding Corporation, a
wholly owned special purpose entity (SPE), which
will then transfer undivided interests in such receivables to
the participating banks. Once transferred to the SPE, such
receivables are owned in their entirety by the SPE and are not
available to satisfy claims of our creditors or creditors of the
originating subsidiaries until the obligations owing to the
participating banks have been paid in full. The transactions
contemplated by the new program do not constitute a form of
off-balance sheet financing and will be fully reflected in our
financial statements. Entry into the new program increases our
liquidity by $25.0 million, but increases our financing
costs due to higher market rates. The amounts available under
the program are subject to changes in the credit ratings of our
customers, customer concentration levels or certain
characteristics of the underlying accounts receivable.
NOTE O
NEW ACCOUNTING STANDARDS
In December 2007, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 141(R), Business
Combinations, and SFAS No. 160, Accounting
and Reporting of Noncontrolling Interests in Consolidated
Financial Statements, an amendment of ARB No. 51.
SFAS No. 141(R) and SFAS No. 160 are
required to be adopted simultaneously and are effective for our
fiscal year ending May 31, 2010. Under
SFAS No. 141(R), upon initially obtaining control of
another entity or business, an acquirer will recognize 100% of
the fair values of assets acquired, including goodwill, and
liabilities assumed, with limited exceptions, even if the
acquirer has not acquired 100% of the target. Also, under
SFAS No. 141(R), transaction costs will no longer be
considered part of the fair value of an acquisition, and will be
expensed as incurred. We are currently evaluating the impact
that the adoption of this statement will have on our financial
statements.
SFAS No. 160 improves the relevance, comparability and
transparency of financial information provided to investors by
requiring all entities to report noncontrolling (minority)
interests in subsidiaries in the same way. Additionally,
SFAS No. 160 eliminates the diversity that currently
exists in accounting for transactions between an entity and
noncontrolling interests by requiring they be treated as equity
transactions. SFAS No. 160 is effective for our fiscal
year ending May 31, 2010. We are currently evaluating the
impact that the adoption of this statement will have on our
financial statements.
20
|
|
ITEM 2.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
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 our asbestos liability;
allowances for doubtful accounts; inventories; allowances for
recoverable taxes; useful lives of property, plant and
equipment; goodwill and other intangible assets; 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, our
most recent facts, and other assumptions that we believe to be
reasonable under the circumstances. These estimates form the
basis for making judgments about the carrying values of our
assets and liabilities. Actual results, which are shaped by
actual market conditions, including legal settlements, may
differ materially from our estimates.
We have identified below the accounting policies and estimates
that are the most critical to our financial statements.
Revenue
Recognition
Revenues are recognized when realized or realizable, and when
earned. In general, this is when title and risk of loss pass to
the customer. Further, revenues are realizable when we have
persuasive evidence of a sales arrangement, the product has been
shipped or the services have been provided to the customer, the
sales price is fixed or determinable, and collectibility is
reasonably assured. We reduce our revenues for estimated
customer returns and allowances, certain rebates, sales
incentives and promotions in the same period the related sales
are recorded.
We also record revenues generated under long-term, construction
contracts, mainly in connection with the installation of
specialized roofing and flooring systems, and related services.
In general, we account for long-term, construction contracts
under the percentage-of-completion method, and therefore record
contract revenues and related costs as our contracts progress.
This method recognizes the economic results of contract
performance on a timelier basis than does the completed-contract
method; however, application of this method requires reasonably
dependable estimates of progress toward completion, as well as
other dependable estimates. When reasonably dependable estimates
cannot be made, or if other factors make estimates doubtful, the
completed-contract method is applied. Under the
completed-contract method, billings and costs are accumulated on
the balance sheet as the contract progresses, but no revenue is
recognized until the contract is complete or substantially
complete.
Translation
of Foreign Currency Financial Statements and Foreign Currency
Transactions
Our reporting currency is the U.S. dollar. However, the
functional currency for each of our foreign subsidiaries is its
local currency. We translate the amounts included in our
Consolidated Statements of Income from our foreign subsidiaries
into U.S. dollars at weighted-average exchange rates, which
we believe are 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 the U.S. dollar continues to strengthen, we will
continue to reflect the resulting losses as a component of
accumulated other comprehensive income. Conversely, if the
U.S. dollar were to weaken, foreign exchange translation
gains could result, which would favorably impact accumulated
other comprehensive income. Translation adjustments will be
included in net earnings in the event of a sale or liquidation
of any of our underlying foreign investments, or in the event
that we distribute the accumulated earnings of consolidated
foreign subsidiaries. If we determined 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 any such changes.
21
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, on a
consolidated basis, are treated as being analogous to equity for
accounting purposes. Therefore, foreign exchange gains or losses
on these intercompany loans are recorded in accumulated 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 apply the provisions of SFAS No. 141,
Business Combinations, which addresses the initial
recognition and measurement of goodwill and intangible assets
acquired in a business combination. We also apply the provisions
of SFAS No. 142, Goodwill and Other Intangible
Assets, which requires that goodwill be tested at least on
an annual basis, or more frequently as impairment indicators
arise, using a fair-value approach at the reporting unit level.
Our reporting units have been identified at the component level,
or one level below our operating segments. We have elected to
perform our annual required impairment tests, which involve the
use of estimates related to the fair market values of the
reporting units with which goodwill is associated, during our
fourth fiscal quarter. Calculating the fair market values of
reporting units requires our significant use of estimates and
assumptions.
We use significant judgment in determining the most appropriate
method to establish the fair values of each of our reporting
units. We estimate the fair values of our reporting units by
employing various valuation techniques, depending on the
availability and reliability of comparable market value
indicators, and employ methods and assumptions which include the
application of third-party market value indicators and the
computation of discounted future cash flows for each of our
reporting units annual projected earnings before interest,
taxes, depreciation and amortization. In applying this
methodology, we rely on a number of factors, including future
business plans, actual and forecasted operating results, and
market data. Our estimates are based upon assumptions we believe
to be reasonable, but which by nature are uncertain and
unpredictable. We believe we incorporate ample sensitivity
ranges into our analysis of goodwill impairment testing for each
reporting unit, such that actual experience would need to be
materially out of the range of expected assumptions in order for
an impairment to remain undetected. In the event that our
calculations indicate that goodwill is impaired, a fair value
estimate of each tangible and intangible asset would be
established. This process would require the estimation of the
discounted cash flows expected to be generated by each asset in
addition to independent asset appraisals, as appropriate, and,
if impaired, these balances would be written down to fair value.
Our cash flow estimates are based on our historical experience
and our internal business plans, and appropriate discount rates
are applied. Losses, if any, resulting from goodwill impairment
tests would be reflected in pre-tax income in our income
statement. We have not incurred any such impairment losses to
date.
Other
Long-Lived Assets
We assess identifiable, non-goodwill intangibles and other
long-lived assets for impairment whenever events or changes in
facts and circumstances indicate the possibility that the
carrying values of these assets may not be recoverable over
their estimated remaining useful lives. Factors considered
important in our assessment, 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;
|
|
|
|
significant changes in the strategy for our overall
business; and
|
|
|
|
significant negative industry or economic trends.
|
Additionally, we test all indefinite-lived intangible assets for
impairment at least annually during our fiscal fourth quarter.
Measuring a potential impairment of non-goodwill intangibles and
other long-lived assets requires the use of various estimates
and assumptions, including the determination of which cash flows
are directly related to the assets being evaluated, the
respective useful lives over which those cash flows will occur
and potential residual values, if any. If we determine that the
carrying values of these assets may not be recoverable based
upon the
22
existence of one or more of the above-described indicators or
other factors, any impairment amounts would be measured based on
the projected net cash flows expected from these assets,
including any net cash flows related to eventual disposition
activities. The determination of any impairment losses would be
based on the best information available, including internal
estimates of discounted cash flows, quoted market prices, when
available, and independent appraisals, as appropriate, to
determine fair values. Cash flow estimates would be based on our
historical experience and our internal business plans, with
appropriate discount rates applied. We have not incurred any
such impairment losses to date.
Deferred
Income Taxes
Our provision for income taxes is calculated in accordance with
SFAS No. 109, Accounting for Income Taxes,
which requires the recognition of deferred income taxes using
the liability method. Deferred income taxes reflect the net tax
effect of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes and certain changes in
valuation allowances. We provide valuation allowances against
deferred tax assets if, based on available evidence, it is more
likely than not that some portion or all of the deferred tax
assets will not be realized.
In determining the adequacy of valuation allowances, we consider
cumulative and anticipated amounts of domestic and international
earnings or losses, anticipated amounts of foreign source
income, as well as the anticipated taxable income resulting from
the reversal of future taxable temporary differences.
We intend to maintain any recorded valuation allowances until
sufficient positive evidence (for example, cumulative positive
foreign earnings or additional foreign source income) exists to
support a reversal of the tax valuation allowances.
Contingencies
We are party to claims and lawsuits arising in the normal course
of business, including the various asbestos-related suits
discussed in Note F to our Consolidated Financial
Statements. 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. Our provisions are
based on historical experience and legal advice, are reviewed
quarterly and are adjusted according to developments. Estimating
probable losses requires the analysis of multiple forecasted
factors that often depend on judgments about potential actions
by third parties, such as regulators, courts, and state and
federal legislatures. Changes in the amounts of our loss
provisions, which can be material, affect our Consolidated
Statements of Income. Due to the inherent uncertainties in the
process undertaken to estimate potential losses, we are unable
to estimate an additional range of loss in excess of our
accruals. While it is reasonably possible that such excess
liabilities, if they were to occur, could be material to
operating results in any given quarter or year of their
recognition, we do not believe that it is reasonably possible
that such excess liabilities would have a material adverse
effect on our long-term results of operations, liquidity or
consolidated financial position.
Our environmental-related accruals are similarly established
and/or
adjusted as more 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 costs for those sites. As
a result, accruals have not been estimated for certain of these
sites and costs may ultimately exceed existing estimated
accruals for other sites. We have received indemnities for
potential environmental issues from purchasers of certain of our
properties and businesses and from sellers of some of the
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 environmental costs in
addition to any amounts accrued, which may have a material
adverse effect on our financial condition, results of operations
or cash flows.
Additionally, our operations are subject to various federal,
state, local and foreign tax laws and regulations which govern,
among other things, taxes on worldwide income. The calculation
of our income tax expense is based on the best information
available and involves our significant judgment. The actual
income tax liability for each
23
jurisdiction in any year can be, in some instances, determined
ultimately several years after the financial statements have
been published.
We maintain accruals for estimated income tax exposures for many
different jurisdictions. Tax exposures are settled primarily
through the resolution of audits within each tax jurisdiction or
the closing of a statute of limitation. Tax exposures can also
be affected by changes in applicable tax laws or other factors,
which may cause us to believe a revision of past estimates is
appropriate. We believe that appropriate liabilities have been
established for income tax exposures; however, actual results
may differ materially from our estimates.
Allowance
for Doubtful Accounts Receivable
An allowance for anticipated uncollectible trade receivable
amounts is established using a combination of specifically
identified accounts to be reserved and a reserve covering trends
in collectibility. These estimates are based on an analysis of
trends in collectibility, past experience and individual account
balances identified as doubtful based on specific facts and
conditions. Receivable losses are charged against the allowance
when we confirm uncollectibility. Actual collections of trade
receivables could differ from our estimates due to changes in
future economic or industry conditions or specific
customers financial conditions.
Inventories
Inventories are stated at the lower of cost or market, cost
being determined on a
first-in,
first-out (FIFO) basis and market being determined on the basis
of replacement cost or net realizable value. Inventory costs
include raw materials, labor and manufacturing overhead. We
review the net realizable value of our inventory in detail on an
on-going basis, with consideration given to various factors,
which include our estimated reserves for excess, obsolete, slow
moving or distressed inventories. If actual market conditions
differ from our projections, and our estimates prove to be
inaccurate, write-downs of inventory values and adjustments to
cost of sales may be required. Historically, our inventory
reserves have approximated actual experience.
Marketable
Securities
Marketable securities, included in other current and long-term
assets, are composed of available for sale securities and are
reported at fair value, based on quoted market prices. Realized
gains and losses on sales of investments are recognized in net
income on the specific identification basis. Changes in fair
values of securities that are considered temporary, are recorded
as unrealized gains and losses, net of applicable taxes, in
accumulated other comprehensive income (loss) within
stockholders equity. Other-than-temporary declines in
market value from original cost are reflected in operating
income in the period in which the unrealized losses are deemed
other than temporary. In order to determine whether an
other-than-temporary decline in market value has occurred, the
duration of the decline in value and our ability to hold the
investment to recovery are considered in conjunction with an
evaluation of the strength of the underlying collateral and the
extent to which the investments amortized cost or cost, as
appropriate, exceeds its related market value.
Pension
and Postretirement Plans
We sponsor qualified defined benefit pension plans and various
other nonqualified postretirement plans. The qualified defined
benefit pension plans are funded with trust assets invested in a
diversified portfolio of debt and equity securities and other
investments. Among other factors, changes in interest rates,
investment returns and the market value of plan assets can
(i) affect the level of plan funding; (ii) cause
volatility in the net periodic pension cost; and
(iii) increase our future contribution requirements. A
significant decrease in investment returns or the market value
of plan assets or a significant decrease in interest rates could
increase our net periodic pension costs and adversely affect our
results of operations. A significant increase in our
contribution requirements with respect to our qualified defined
benefit pension plans could have an adverse impact on our cash
flow.
Changes in our key plan assumptions would impact net periodic
benefit expense and the projected benefit obligation for our
defined benefit and various postretirement benefit plans. Based
upon May 31, 2008 information,
24
the following tables reflect the impact of a 1% change in the
key assumptions applied to our defined benefit pension plans in
the U.S. and internationally:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
International
|
|
|
|
1% Increase
|
|
|
1% Decrease
|
|
|
1% Increase
|
|
|
1% Decrease
|
|
|
|
(In millions)
|
|
|
Discount Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in expense in FY 2008
|
|
$
|
(2.7
|
)
|
|
$
|
2.9
|
|
|
$
|
(2.1
|
)
|
|
$
|
2.3
|
|
Increase (decrease) in obligation as of May 31, 2008
|
|
$
|
(21.2
|
)
|
|
$
|
23.2
|
|
|
$
|
(19.7
|
)
|
|
$
|
23.8
|
|
Expected Return on Plan Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in expense in FY 2008
|
|
$
|
(1.5
|
)
|
|
$
|
1.5
|
|
|
$
|
(1.0
|
)
|
|
$
|
1.0
|
|
Increase (decrease) in obligation as of May 31, 2008
|
|
$
|
N/A
|
|
|
$
|
N/A
|
|
|
$
|
N/A
|
|
|
$
|
N/A
|
|
Compensation Increase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in expense in FY 2008
|
|
$
|
2.4
|
|
|
$
|
(2.1
|
)
|
|
$
|
1.0
|
|
|
$
|
(0.9
|
)
|
Increase (decrease) in obligation as of May 31, 2008
|
|
$
|
9.7
|
|
|
$
|
(8.6
|
)
|
|
$
|
5.4
|
|
|
$
|
(4.8
|
)
|
Based upon May 31, 2008 information, the following tables
reflect the impact of a 1% change in the key assumptions applied
to our various postretirement health care plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
International
|
|
|
|
1% Increase
|
|
|
1% Decrease
|
|
|
1% Increase
|
|
|
1% Decrease
|
|
|
|
(In millions)
|
|
|
Discount Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in expense in FY 2008
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(0.2
|
)
|
|
$
|
0.3
|
|
Increase (decrease) in obligation as of May 31, 2008
|
|
$
|
(0.5
|
)
|
|
$
|
0.5
|
|
|
$
|
(2.1
|
)
|
|
$
|
2.6
|
|
Healthcare Cost Trend Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in expense in FY 2008
|
|
$
|
0.0
|
|
|
$
|
(0.0
|
)
|
|
$
|
0.4
|
|
|
$
|
(0.1
|
)
|
Increase (decrease) in obligation as of May 31, 2008
|
|
$
|
0.5
|
|
|
$
|
(0.5
|
)
|
|
$
|
2.9
|
|
|
$
|
(1.9
|
)
|
REPORTABLE
SEGMENT INFORMATION
Our business is divided into two reportable segments: the
industrial reportable segment and the consumer reportable
segment. Within each reportable segment, we aggregate three
operating segments that consist of individual groups of
companies and product lines, which generally address common
markets, share similar economic characteristics, utilize similar
technologies and can share manufacturing or distribution
capabilities. Our six operating segments represent components of
our business for which separate financial information is
available that is utilized on a regular basis by our chief
executive officer in determining how to allocate the assets of
the Company and evaluate performance. These six operating
segments are each managed by an operating segment manager, who
is responsible for the day-to-day operating decisions and
performance evaluation of the operating segments
underlying businesses. We evaluate the profit performance of our
segments primarily based on gross profit, and, to a lesser
extent, income (loss) before income taxes, but also look to
earnings (loss) before interest and taxes (EBIT) as
a performance evaluation measure because interest expense is
essentially related to corporate acquisitions, as opposed to
segment operations.
25
Our industrial reportable segment products are sold throughout
North America and also account for the majority of our
international sales. Our industrial product lines are sold
directly to contractors, distributors and end-users, such as
industrial manufacturing facilities, public institutions and
other commercial customers. This reportable segment comprises
three separate operating segments our Tremco Group,
StonCor Group, and RPM II/Industrial Group. Products and
services within this reportable segment include construction
chemicals, roofing systems, weatherproofing and other sealants,
flooring and specialty chemicals.
Our consumer reportable segment manufactures and markets
professional use and do-it-yourself (DIY) products
for a variety of mainly consumer applications, including home
improvement and personal leisure activities. Our consumer
segments major manufacturing and distribution operations
are located primarily in North America. Consumer segment
products are sold throughout North America directly to mass
merchants, home improvement centers, hardware stores, paint
stores, craft shops and to other smaller customers through
distributors. This reportable segment comprises three operating
segments our DAP Group, Rust-Oleum/Zinsser Group,
and RPM II/Consumer Group. Products within this reportable
segment include specialty, hobby and professional paints;
caulks; adhesives; silicone sealants; wood stains and specialty
confectionary coatings and films.
In addition to our two reportable segments, there is a category
of certain business activities and expenses, referred to as
corporate/other, that does not constitute an operating segment.
This category includes our corporate headquarters and related
administrative expenses, results of our captive insurance
companies, gains or losses on the sales of certain assets and
other expenses not directly associated with either reportable
segment. Assets related to the corporate/other category consist
primarily of investments, prepaid expenses, deferred pension
assets, and headquarters property and equipment. These
corporate and other assets and expenses reconcile reportable
segment data to total consolidated income before income taxes,
interest expense and earnings before interest and taxes.
26
The following table reflects the results of our reportable
segments consistent with our management philosophy, and
represents the information we utilize, in conjunction with
various strategic, operational and other financial performance
criteria, in evaluating the performance of our portfolio of
product lines.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Nine Months Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
February 28,
|
|
|
February 29,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Segment
|
|
$
|
406,691
|
|
|
$
|
467,538
|
|
|
$
|
1,729,851
|
|
|
$
|
1,681,984
|
|
Consumer Segment
|
|
|
228,705
|
|
|
|
264,235
|
|
|
|
780,975
|
|
|
|
885,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
635,396
|
|
|
$
|
731,773
|
|
|
$
|
2,510,826
|
|
|
$
|
2,567,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Segment
|
|
$
|
156,845
|
|
|
$
|
191,717
|
|
|
$
|
713,029
|
|
|
$
|
701,576
|
|
Consumer Segment
|
|
|
77,813
|
|
|
|
99,528
|
|
|
|
281,944
|
|
|
|
341,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
234,658
|
|
|
$
|
291,245
|
|
|
$
|
994,973
|
|
|
$
|
1,042,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes(a)
|
|
$
|
(21,135
|
)
|
|
$
|
17,718
|
|
|
$
|
141,335
|
|
|
$
|
170,428
|
|
Interest (Expense), Net
|
|
|
(141
|
)
|
|
|
(311
|
)
|
|
|
(237
|
)
|
|
|
(1,968
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT(b)
|
|
$
|
(20,994
|
)
|
|
$
|
18,029
|
|
|
$
|
141,572
|
|
|
$
|
172,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes(a)
|
|
$
|
2,717
|
|
|
$
|
19,003
|
|
|
$
|
50,788
|
|
|
$
|
91,673
|
|
Interest (Expense), Net
|
|
|
(1,022
|
)
|
|
|
(855
|
)
|
|
|
(3,438
|
)
|
|
|
(2,705
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT(b)
|
|
$
|
3,739
|
|
|
$
|
19,858
|
|
|
$
|
54,226
|
|
|
$
|
94,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate/Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expense) Before Income Taxes(a)
|
|
$
|
(26,062
|
)
|
|
$
|
(21,098
|
)
|
|
$
|
(75,940
|
)
|
|
$
|
(65,416
|
)
|
Interest (Expense), Net
|
|
|
(12,357
|
)
|
|
|
(8,296
|
)
|
|
|
(37,825
|
)
|
|
|
(29,614
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT(b)
|
|
$
|
(13,705
|
)
|
|
$
|
(12,802
|
)
|
|
$
|
(38,115
|
)
|
|
$
|
(35,802
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes(a)
|
|
$
|
(44,480
|
)
|
|
$
|
15,623
|
|
|
$
|
116,183
|
|
|
$
|
196,685
|
|
Interest (Expense), Net
|
|
|
(13,520
|
)
|
|
|
(9,462
|
)
|
|
|
(41,500
|
)
|
|
|
(34,287
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT(b)
|
|
$
|
(30,960
|
)
|
|
$
|
25,085
|
|
|
$
|
157,683
|
|
|
$
|
230,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
The presentation includes a reconciliation of Income (Loss)
Before Income Taxes, a measure defined by generally accepted
accounting principles (GAAP) in the U.S., to EBIT.
|
|
(b)
|
|
EBIT is defined as earnings (loss) before interest and taxes. We
evaluate the profit performance of our segments based on income
before income taxes, but also look to EBIT as a performance
evaluation measure because interest expense is essentially
related to corporate acquisitions, as opposed to segment
operations. We believe EBIT is useful to investors for this
purpose as well, using EBIT as a metric in their investment
decisions. EBIT should not be considered an alternative to, or
more meaningful than, operating income as determined in
accordance with GAAP, since EBIT omits the impact of interest
and taxes in determining operating performance, which represent
items necessary to our continued operations, given our level of
indebtedness and ongoing tax obligations. Nonetheless, EBIT is a
key measure expected by and useful to our fixed income
investors, rating agencies and the banking community all of whom
believe, and we concur, that this measure is
|
27
|
|
|
|
|
critical to the capital markets analysis of our
segments core operating performance. We also evaluate EBIT
because it is clear that movements in EBIT impact our ability to
attract financing. Our underwriters and bankers consistently
require inclusion of this measure in offering memoranda in
conjunction with any debt underwriting or bank financing. EBIT
may not be indicative of our historical operating results, nor
is it meant to be predictive of potential future results.
|
RESULTS
OF OPERATIONS
Three
Months Ended February 28, 2009
Net
Sales
On a consolidated basis, net sales of $635.4 million for
the third quarter ended February 28, 2009 declined 13.2%,
or $96.4 million, over net sales of $731.8 million
during the same period last year. The organic decline in sales
amounted to 16.2%, or $118.4 million, of the shortfall in
net sales over the prior year third quarter result, which
includes volume-related declines approximating 13.1% or
$95.9 million, and the impact of net unfavorable foreign
exchange rates year-over-year, which amounted to 6.7%, or
$49.0 million, offset partially by pricing initiatives
representing 3.6% of the prior period sales, or
$26.5 million. These pricing initiatives, including those
across both of our reportable segments, were instituted
primarily during prior periods in order to offset the rising
costs of many of our raw materials. Foreign exchange losses
resulted from the strong dollar against nearly all major foreign
currencies, with the majority of the losses resulting from the
weaker euro and Canadian dollar. Seven small acquisitions
provided 3.0% of sales growth over last year, or
$22.0 million.
Industrial segment net sales, which comprised 64.0% of the
current quarters consolidated net sales, totaled
$406.7 million, a decline of 13.0% from $467.6 million
during last years third quarter. This segments net
sales decline resulted primarily from an overall decline in
organic sales, which accounted for a 17.7% decline over prior
year third quarter sales, and included 8.4% from net unfavorable
foreign exchange differences and volume declines approximating
12.3%, offset partially by 3.0% as a result of prior period
price increases. Six small acquisitions provided 4.7% growth
over the prior year third quarter. The pure unit organic sales
decline in the industrial segment resulted primarily from
declines in exterior insulated finishing systems, sealants and
certain specialty colorant and coatings product lines. There was
slow, but continued growth during the quarter from ongoing
industrial and commercial maintenance and improvement activities
in Canada, Latin America, South Africa and the Middle East. A
few of our industrial segment product lines, including corrosion
control coatings and global roofing products and services,
continued to grow organic sales during the quarter. Despite the
impact of the continuing weak economic environment on certain
sectors of our domestic commercial construction markets, which
we expect will continue throughout the remainder of our current
fiscal year, we continue to secure new business through strong
brand offerings, new product innovations and international
expansion.
Consumer segment net sales, which comprised 36.0% of the current
quarters consolidated net sales, decreased by 13.4% to
$228.7 million from $264.2 million during last
years third quarter. The decline in this segment was
purely organic, including volume declines approximating 14.4%,
in addition to the impact of net unfavorable foreign exchange
rates for approximately 3.6%, offset partially by prior period
price increases, which provided 4.6%. The organic sales volume
decline reflects the continued weakness in the economy,
including sluggish sales for retailers and distributors impacted
by the domestic housing recession. Our consumer segment
continues to increase market penetration at major retail
accounts with various new product launches, some of which
occurred earlier in this fiscal year, while also refocusing
efforts on our various repair and maintenance products.
Gross
Profit Margin
Our consolidated gross profit declined to 36.9% of net sales
this quarter from 39.8% of net sales for the same period a year
ago, reflecting our overall lower overhead absorption resulting
from a 13.1% decline in organic sales volume, which accounted
for approximately 2.8% of sales, or 280 basis points
(bps). Higher raw material costs, which impacted the
current gross profit margin by approximately 280 bps,
reflect the impact of year-over-year increases in oil prices and
energy costs, which had previously put upward pressure on many
of our raw material, packaging and transportation costs. Higher
pricing, which favorably impacted our gross profit margin by
approximately 270 bps, only partially offset the
combination of these year-over-year higher raw materials costs
28
and the impact of declining sales volumes. While many of our key
raw materials costs were higher than they were during the same
period a year ago, such as plasticizers, epoxies, various
solvents and resins, we experienced some relief in certain other
raw material and transportation costs this quarter, as a result
of declines in certain energy prices. We anticipate that these
changes will favorably impact our gross profit margin during the
final quarter of the current fiscal year.
Our industrial segment gross profit for the third quarter of
fiscal 2009 fell by 240 bps, to 38.6% of net sales from
last years third quarter result of 41.0% of net sales.
This segments 12.3% decline in organic sales volume
unfavorably impacted this segments gross margin by
approximately 340 bps during the current period, in
addition to higher raw material costs which had a negative
impact of approximately 130 bps. Higher selling prices
approximating 230 bps slightly offset these costs during
the quarter.
Our consumer segment gross profit for the quarter declined to
34.0% of net sales from 37.7% of net sales for the same period
last year, or approximately 370 bps, mainly as a result of
the approximate 550 bps impact of higher raw material
costs, partially offset by the impact of recent price increases
approximating 370 bps. The remaining 190 bps related
to this segments organic sales volume decline of 14.4%
versus last years third quarter net sales.
Selling,
General and Administrative Expenses
(SG&A)
Our consolidated SG&A increased to 41.8% of net sales for
the current quarter compared with 36.4% a year ago. The
540 bps increase in SG&A as a percent of sales
primarily reflects certain additional strategic initiatives that
were undertaken this quarter in order to reduce our fixed cost
base in light of the worldwide recession, by certain of our
businesses relating to additional headcount reductions, which
resulted in severance costs approximating 230 bps for the
quarter. We anticipate that these strategic reductions will
favorably impact our margins during the fourth fiscal quarter of
this year. The increase in SG&A as a percent of sales also
reflects the impact of the overall unit volume decline in net
sales, combined with additional bad debt, warranty and
unfavorable foreign exchange adjustments over the prior year,
offset partially by lower commissions on declining sales and
lower compensation-related costs.
Our industrial segment SG&A increased to 43.8% of net sales
for the current quarter from 37.1% for the same period last
year, reflecting the impact of certain additional severance
expenses incurred during the current quarter, which approximated
280 bps for this segment. Additionally, there were higher
employment-related costs, including increased compensation and
benefit-related accruals, and additional bad debt and
warranty-related expense. Partially offsetting those items was
the favorable impact of the prior quarter headcount reductions.
Our consumer segment SG&A as a percentage of net sales for
the current quarter increased by 220 bps to 32.4% compared
with 30.2% a year ago, reflecting the unfavorable margin impact
of the sales volume decline in net sales in this segment, in
addition to certain strategic reductions in this segments
workforce which approximated 140 bps.
SG&A expenses in our corporate/other category increased
during the current quarter to $13.7 million from
$12.8 million during the corresponding period last year.
This increase essentially reflects the combination of net
unfavorable foreign currency adjustments and higher legal
expense. Partially offsetting these higher expenses was the
impact of lower compensation-related expenses versus last
years third fiscal quarter.
License fee and joint venture income of approximately
$0.6 million and $0.8 million for each of the quarters
ended February 28, 2009 and February 29, 2008,
respectively, are reflected as reductions of consolidated
SG&A expenses.
We recorded total net periodic pension and postretirement
benefit costs of $5.7 million and $4.9 million for the
quarters ended February 28, 2009 and February 29,
2008, respectively. This increased pension expense of
$0.8 million was primarily the result of higher interest
costs approximating $0.6 million, along with net actuarial
losses incurred of approximately $0.2 million. We expect
that pension expense will fluctuate on a year-to-year basis,
depending primarily upon the investment performance of plan
assets and potential changes in interest rates, but such changes
are not expected to be material to our consolidated financial
results. See Note G, Pension and Postretirement
Health Care Benefits, for additional information regarding
these benefits.
29
Net
Interest Expense
Net interest expense was approximately $4.1 million higher
in the third quarter of fiscal 2009 than in the corresponding
period of fiscal 2008. We currently include interest income and
expense, along with realized gains and losses on the sales of
our marketable securities and
other-than-temporary
impairment losses on our marketable securities in this net
figure.
Interest expense was $12.4 million during this years
third fiscal quarter versus $13.5 million for the
corresponding period a year ago, for a decrease of
$1.1 million. The combination of lower interest rates,
which averaged 4.7% overall during the quarter compared with
4.9% in the prior year period, and lower average borrowings this
quarter reduced interest expense by approximately
$2.3 million versus last years third quarter.
Partially offsetting this reduction was the impact of higher
weighted-average net borrowings associated with recent
acquisitions, approximating $120.6 million during the
quarter, which increased interest expense by approximately
$0.7 million, and other additional interest-related costs
approximating $0.5 million.
Interest and dividend income was $2.2 million during the
third quarter of fiscal 2009 versus $3.7 million during the
corresponding period last year, or a decrease of
$1.5 million. Net realized gains on the sales of
investments resulted in a net gain of $0.6 million for the
quarter ended February 28, 2009 versus a net gain of
$1.0 million for the same period last year. Additionally,
there were impairments recognized on securities that management
has determined are
other-than-temporary
declines in value, which approximated $4.0 million and
$0.7 million for the third fiscal quarter of 2009 and 2008,
respectively. The year over year changes in these items reflect
the current global economic downturn and related declines in the
U.S. financial markets..
Income
(Loss) Before Income Taxes (IBT)
Our consolidated pretax loss for this years third quarter
of $44.5 million compares with last years third
quarter pretax income of $15.6 million, for a negative
margin on net sales of 7.0% versus a profit margin on sales of
2.2% a year ago.
Our industrial segment had a pretax loss of $21.1 million
versus last years pretax income of $17.7 million,
reflecting this segments 12.3% decline in organic sales
volume during the quarter, as previously discussed, in addition
to certain higher raw material costs and additional severance
expense occurring during this years third quarter. Our
consumer segment IBT declined to $2.7 million for the
quarter, from $19.0 million last year, primarily as a
result of the 14.4% organic sales decline combined with
additional severance expenses and certain higher raw material
costs.
Income
Tax Rate
Our effective income tax benefit rate was 30.5% for the three
months ended February 28, 2009 compared to an effective
income tax expense rate of 22.2% for the three months ended
February 29, 2008.
For the three months ended February 28, 2009 and, to a
lesser extent for the three months ended February 29, 2008,
the effective tax rate differed from the federal statutory rate
principally due to decreases in taxes as a result of the impact
of certain foreign operations on our U.S. taxes and the
effect of lower tax rates in certain of our foreign
jurisdictions. The decreases in the effective tax rates were
partially offset by provisions for valuation allowances
associated with losses incurred by certain of our foreign
businesses, state and local income taxes and other
non-deductible business operating expenses.
As of February 28, 2009, we have determined, based on the
available evidence, that it is uncertain whether we will be able
to recognize certain deferred tax assets. Therefore, in
accordance with the provisions of SFAS No. 109,
Accounting for Income Taxes, we intend to maintain
the tax valuation allowance recorded at February 28, 2009
for certain deferred tax assets until sufficient positive
evidence (for example, cumulative positive foreign earnings or
additional foreign source income) exists to support the reversal
of the tax valuation allowances. This valuation allowance
relates to U.S. federal foreign tax credit carryforwards,
certain foreign net operating losses and net foreign deferred
tax assets recorded in purchase accounting. Any reversal of the
valuation allowance that was recorded in purchase accounting
would reduce goodwill.
30
Net
Income (Loss)
Net loss of $30.9 million for the three months ended
February 28, 2009 compares to net income of
$12.2 million for the same period last year, for a negative
net margin on sales of 4.9% for the current quarter compared to
the prior years 1.7% net margin on sales. The decline in
net margin year-over-year resulted from the combined impact of
declining sales volumes in both segments, higher raw material
costs and severance-related expense, offset partially by the
impact of acquisitions and price increases.
Diluted loss per common share for this years third quarter
of $0.24 compares with diluted earnings per share of $0.10 a
year ago.
Nine
Months Ended February 28, 2009
Net
Sales
On a consolidated basis, net sales of $2.51 billion for the
nine months ended February 28, 2009 decreased 2.2%, or
$56.9 million, over net sales of $2.57 billion during
the same period last year. Organic sales declined by 5.5%, or
$139.8 million, from last year, including volume-related
declines approximating 6.3% or $158.6 million, and the
impact of net unfavorable foreign exchange rates year-over-year,
which amounted to 2.4%, or $62.0 million, offset partially
by pricing initiatives representing 3.2%, or $80.8 million.
These pricing initiatives, including those across both of our
reportable segments, were instituted primarily during prior
periods in order to offset the rising costs of many of our raw
materials. Foreign exchange losses resulted from the stronger
dollar against nearly all major foreign currencies, with the
majority of the losses resulting from the weaker euro and
Canadian dollar. Ten small acquisitions, net of the lost revenue
related to the divestiture of our Bondo subsidiary during last
years second fiscal quarter, provided 3.3% of the sales
growth over last year, or $82.9 million.
Industrial segment net sales, which comprised 68.9% of
consolidated net sales for this years first nine months,
totaled $1.73 billion, an increase of 2.8% from
$1.68 billion during last years first nine months.
This segments net sales growth resulted primarily from
eight small acquisitions, which contributed 6.7% of the growth
over the prior year period. Organic sales declined by 3.9% from
the corresponding prior year period, including the combination
of 2.8% from net unfavorable foreign exchange differences and
volume declines approximating 4.2%, offset partially by 3.1%
from favorable pricing.
Consumer segment net sales, which comprised 31.1% of the current
years consolidated net sales, decreased by 11.8% to
$781.0 million from $885.8 million during last
years first nine months. Contributing to this
segments net sales decline was the impact of the
divestiture of our Bondo subsidiary during last years
second fiscal quarter, which was only slightly offset by recent
acquisitions, for a net negative impact of 3.3%. Additionally,
our consumer segment organic sales declined by 8.5%, which
includes the combined impact of net unfavorable foreign exchange
rates for approximately 1.7% and a decline in sales volume
amounting to approximately 10.1%, offset partially by pricing,
which provided approximately 3.3%.
Gross
Profit Margin
Our consolidated gross profit declined to 39.6% of net sales
this first nine months from 40.6% of net sales for the same
period a year ago, reflecting the impact of increased raw
material costs, which were only partially offset by our recent
price increases, for a net negative impact of approximately
80 bps. Additionally, the impact of the 6.3% decline in
organic sales volume, resulting in lower overhead absorption,
provided the remainder of the decline in this years gross
profit margin.
Our industrial segment gross profit for the first nine months of
fiscal 2009 dropped by approximately 50 bps to 41.2% of net
sales from 41.7% of net sales a year ago. Higher raw materials
costs net of higher selling prices during the current year
period resulted in a net unfavorable impact on this
segments gross profit margin of approximately 10 bps,
while the impact of the 4.2% decline in organic sales volume
provided the remainder of the decline.
Our consumer segment gross profit for the first nine months of
fiscal 2009 declined to 36.1% of net sales from 38.5% of net
sales in the corresponding period last year, or approximately
240 bps, mainly as a result of the approximate 460 bps
impact of higher raw material costs, partially offset by recent
price increases approximating
31
250 bps, combined with this segments 10.1% organic
sales volume decline over last year. Partially offsetting the
impact of these items was a favorable mix of sales compared with
the prior year period.
SG&A
Our consolidated SG&A increased to 33.3% of net sales for
the first nine months of fiscal 2009 compared with 31.6% for the
same period a year ago. The 170 bps increase in SG&A
as a percentage of net sales primarily reflects the impact of
certain additional strategic initiatives that were undertaken in
order to reduce our fixed cost base, in light of the worldwide
recession, by some of our businesses relating to further
headcount reductions, which resulted in severance costs that
impacted SG&A as a percentage of net sales by approximately
80 bps for the current year to date period. Also reflected
in this increase was the overall unit volume decline in net
sales, combined with additional bad debt, environmental and
warranty-related expense versus the prior year. These additional
expenses were partially offset by reductions in advertising and
legal expense, and also reflect the favorable impact of declines
in commissions and other compensation reductions that resulted
from the reductions in force previously implemented across both
segments. We anticipate that the additional strategic reductions
taken during the current years third fiscal quarter will
favorably impact our margins during the final fiscal quarter of
2009.
Our industrial segment SG&A increased to 33.0% of net sales
for the first nine months of the current fiscal year from 31.5%
for the same period last year, reflecting certain severance
expenses incurred during the current year to date period, which
approximated 90 bps for this segment. The change also
reflects the impact of higher employment-related costs,
including increased compensation and benefit-related accruals,
higher warranty-related expense, and additional bad debt expense
over the prior year period. Partially offsetting those items was
certain favorable foreign exchange transactions during the
current years first nine months.
Our consumer segment SG&A as a percentage of net sales for
the first nine months of the current fiscal year increased by
130 bps to 29.2% compared with 27.9% a year ago, reflecting
primarily the unit volume decline in net sales in this segment,
in addition to certain strategic reductions in this
segments workforce which approximated 70 bps.
SG&A expenses in our corporate/other category increased
during the current year to date period to $38.1 million
from $35.8 million during the corresponding period last
year. This increase essentially reflects the impact of net
unfavorable foreign currency adjustments and prior year
favorable insurance-related loss reserve adjustments, which did
not recur this year, partially offset by this years lower
legal expenses and lower compensation-related expense versus
last years first nine months.
License fee and joint venture income of approximately
$2.1 million and $1.9 million for each of the first
nine months of fiscal 2009 and 2008, respectively, are reflected
as reductions of consolidated SG&A expenses.
We recorded total net periodic pension and postretirement
benefit costs of $17.1 million and $14.6 million for
the nine month periods ended February 28, 2009 and
February 29, 2008, respectively. This increased pension
expense of $2.5 million was primarily the result of higher
interest costs approximating $2.0 million, along with net
actuarial losses incurred of approximately $0.5 million. We
expect that pension expense will fluctuate on a year-to-year
basis, depending primarily upon the investment performance of
plan assets and potential changes in interest rates, but such
changes are not expected to be material to our consolidated
financial results. See Note G, Pension and
Postretirement Health Care Benefits, for additional
information regarding these benefits.
Net
Interest Expense
Net interest expense was approximately $7.2 million higher
in the first nine months of fiscal 2009 than in the
corresponding period of fiscal 2008. We currently include
interest income and expense, along with realized gains and
losses on the sales of our marketable securities and
other-than-temporary
impairment losses on our marketable securities in this net
figure.
Interest expense was $42.3 million for the first nine
months of fiscal 2009, versus $45.0 million for the
corresponding prior year period, or a decrease of
$2.7 million. Our lower average borrowings during the
current period reduced interest expense by $8.3 million,
while higher interest rates, which averaged 5.4% overall during
the current period, compared with 5.3% in the prior year period,
caused interest expense to increase by approximately
$0.3 million. Additionally, higher weighted-average net
borrowings associated with recent acquisitions, which
32
approximated $126.5 million during the current period,
increased interest expense by approximately $3.9 million,
while other additional interest-related costs increased interest
expense by an additional $1.4 million.
Interest and dividend income was $6.3 million during the
first nine months of fiscal 2009 versus $8.4 million during
the corresponding period last year, or a decrease of
$2.1 million. Net realized gains on the sales of
investments resulted in a net gain of $1.9 million for the
nine months ended February 28, 2009 versus a net gain of
$3.1 million for the same period last year. Additionally,
there were impairments recognized on securities that management
has determined are other-than-temporary declines in value, which
approximated $7.4 million and $0.8 million for the
first nine months of fiscal 2009 and 2008, respectively. The
year over year changes in these items reflect the current global
economic downturn and related declines in the
U.S. financial markets.
IBT
Our consolidated IBT for this years first nine months
declined to $116.2 million versus $196.7 million
during the same period a year ago, for a margin of 4.6% of net
sales versus 7.7% a year ago.
Our industrial segment IBT decreased by 17.1%, to
$141.3 million from last years $170.4 million,
reflecting this segments 4.2% decline in organic sales
over the prior year period, as previously discussed, combined
with additional bad debt and warranty expense,
compensation-related expense and severance expense occurring
during this years first nine months. Our consumer segment
IBT declined by 44.6%, to $50.8 million from
$91.7 million last year, primarily as a result of declining
sales volumes combined with net higher raw material costs and
severance expense versus the prior year to date period.
Income
Tax Rate
The effective income tax expense rate was 30.9% for the nine
months ended February 28, 2009 compared to an effective
income tax expense rate of 31.2% for the nine months ended
February 29, 2008.
For the nine months ended February 28, 2009 and, to a
lesser extent for the nine months ended February 29, 2008,
the effective tax rate differed from the federal statutory rate
principally as a result of the impact of certain foreign
operations on our U.S. taxes and the effect of lower tax
rates in certain of our foreign jurisdictions. The decreases in
the effective tax rates were partially offset by provisions for
valuation allowances associated with losses incurred by certain
of our foreign businesses, state and local income taxes and
other non-deductible business operating expenses.
As described in this Managements Discussion and Analysis
of Financial Condition and Results of Operations for the three
month period ended February 28, 2009, there is uncertainty
as to whether we will be able to recognize certain deferred tax
assets. Refer to that section for further information.
Net
Income
Net income of $80.3 million for the nine months ended
February 28, 2009 compares to $135.3 million for the
same period last year for a net margin on sales of 3.2% for the
current period compared to the prior periods 5.3% net
margin on sales. The decline in net margin year-over-year
resulted from the combined impact of declining sales volumes in
both segments, higher raw material costs and severance expense,
offset partially by the impact of acquisitions and favorable
pricing.
Diluted earnings per common share for this years first
nine months declined by 40.6% to $0.63 from $1.06 a year ago.
LIQUIDITY
AND CAPITAL RESOURCES
Cash
Flows From:
Operating
Activities
Operating activities provided cash flow of $134.6 million
during the first nine months of the current fiscal year compared
with $161.8 million of cash flow provided during the same
period of fiscal 2008.
33
The net decline in cash from operations includes the change in
net income, which declined by approximately $55.0 million
versus last year, in addition to changes in working capital
accounts and other accruals. A lower trade accounts receivable
balance at the end of the current nine month period, resulting
from additional cash collections, provided $317.4 million
in cash versus $181.2 million last year, or approximately
$136.2 million more cash year over year. Inventory balances
provided $17.4 million of cash this year compared with a
use of cash of $51.9 million last year, or
$69.3 million more cash year-over-year. With regard to
accounts payable, we used $85.3 million more during this
years first nine months compared to the same period a year
ago, as a result of a change in the timing of certain payments.
Accrued compensation and benefits used an additional
$38.5 million versus the prior year, while other accruals,
including those for other short-term and long-term items, used
an additional $48.6 million, due to changes in the timing
of such payments.
Cash provided from operations, along with the use of available
credit lines, as required, remain our primary sources of
liquidity.
Investing
Activities
Capital expenditures, other than for ordinary repairs and
replacements, are made to accommodate our continued growth to
achieve production and distribution efficiencies, to expand
capacity and to enhance our administration capabilities. Capital
expenditures of $37.0 million during this years first
nine months compare with current-year depreciation of
$47.4 million. Capital spending is expected to decline to a
level which will trail depreciation expense at least through
fiscal 2010. Due to additional capacity, which has been brought
on-line over the last several years, we believe there is
adequate production capacity to meet our needs based on
anticipated growth rates. Any additional capital expenditures
made over the next few years will likely relate primarily to new
products and technology.
Our captive insurance companies invest their excess cash in
marketable securities in the ordinary course of conducting their
operations, and this activity will continue. Differences in the
amounts related to these activities on a year-over-year basis
are primarily attributable to differences in the timing and
performance of their investments balanced against amounts
required to satisfy claims. At February 28, 2009, the fair
value of our investments in marketable securities totaled
$63.8 million, of which investments with a fair value of
$32.0 million were in an unrealized loss position. At
May 31, 2008, the fair value of our investments in
marketable securities totaled $110.4 million, of which
investments with a fair value of $25.8 million were in an
unrealized loss position. Total unrealized losses recorded in
accumulated other comprehensive income at February 28, 2009
and May 31, 2008 were $26.1 million and
$1.7 million, respectively.
We regularly review our marketable securities in unrealized loss
positions in order to determine whether or not we have the
ability and intent to hold these investments. That determination
is based upon the severity and duration of the decline, in
addition to our evaluation of the cash flow requirements of our
businesses. Unrealized losses at February 28, 2009 were
generally caused by the recent decline in valuations in the
financial sector and the volatility in the global economy,
specifically over the last six months. If general economic
conditions were to continue to deteriorate, including continued
uncertainties surrounding the volatility in financial markets
and the viability of banks and other financial institutions, and
if we were to experience continuing or significant additional
unrealized losses within our portfolio of investments in
marketable securities, we may recognize additional
other-than-temporary impairment losses in future periods. Such
potential losses could have a material impact on our results of
operations. As such, we continue to closely evaluate the status
of our investments and our ability and intent to hold these
investments until their cost can be recovered.
Financing
Activities
On April 7, 2009, we replaced our existing
$125.0 million accounts receivable securitization program,
under which we had no outstanding balance at February 28,
2009, and which was set to expire on May 7, 2009, with a
new, three-year, $150.0 million accounts receivable
securitization program (the new program). The new
program, which was established with two banks for certain of our
subsidiaries (originating subsidiaries),
contemplates that the originating subsidiaries will sell certain
of their accounts receivable to RPM Funding Corporation, a
wholly owned special purpose entity (SPE), which
will then transfer undivided interests in such receivables to
the
34
participating banks. Once transferred to the SPE, such
receivables are owned in their entirety by the SPE and are not
available to satisfy claims of our creditors or creditors of the
originating subsidiaries until the obligations owing to the
participating banks have been paid in full. The transactions
contemplated by the new program do not constitute a form of
off-balance sheet financing and will be fully reflected in our
financial statements. Entry into the new program increases our
liquidity by $25.0 million, but increases our financing
costs due to higher market rates. The amounts available under
the program are subject to changes in the credit ratings of our
customers, customer concentration levels or certain
characteristics of the underlying accounts receivable.
On February 20, 2008 we issued and sold $250.0 million
of 6.50% Notes due February 15, 2018. The proceeds
were used to repay our $100.0 million Senior Unsecured
Notes due March 1, 2008, the outstanding principal under
our $125.0 million accounts receivable securitization
program and $19.0 million in short-term borrowings under
our revolving credit facility. This financing strengthened our
credit profile and liquidity position, as well as lengthened the
average maturity of our outstanding debt obligations.
On December 29, 2006, we replaced our $330.0 million
revolving credit facility with a $400.0 million five-year
credit facility (the Credit Facility). The Credit
Facility is used for working capital needs and general corporate
purposes, including acquisitions. The Credit Facility provides
for borrowings in U.S. dollars and several foreign
currencies and provides sublimits for the issuance of letters of
credit in an aggregate amount of up to $35.0 million and a
swing-line of up to $20.0 million for short-term borrowings
of less than 15 days. In addition, the size of the Credit
Facility may be expanded, subject to lender approval, upon our
request by up to an additional $175.0 million, thus
potentially expanding the Credit Facility to $575.0 million.
Under the terms of the Credit Facility, we are required to
comply with various customary affirmative and negative
covenants. These include financial covenants requiring us to
maintain certain leverage and interest coverage ratios. Under
the terms of the leverage covenant, we may not permit our
consolidated indebtedness at any date to exceed 65% of the sum
of such indebtedness and our consolidated shareholders
equity on such date, and may not permit the indebtedness of our
domestic subsidiaries (determined on a combined basis and
excluding indebtedness to us and indebtedness incurred pursuant
to permitted receivables securitizations) to exceed 15% of our
consolidated shareholders equity. The interest coverage ratio
covenant requires us not to permit the ratio, calculated at the
end of each fiscal quarter for the four fiscal quarters then
ended, of EBITDA, as defined in the Credit Facility, for such
period to interest expense for such period to be less than
3.5:1. Identical leverage and interest coverage ratio covenants
are contained in the documents governing the new accounts
receivable securitization program.
Our failure to comply with these and other covenants contained
in the Credit Facility may result in an event of default under
that agreement, entitling the lenders to, among other things,
declare the entire amount outstanding under the Credit Facility
to be due and payable. The instruments governing our other
outstanding indebtedness generally include cross-default
provisions that provide that under certain circumstances, an
event of default that results in acceleration of our
indebtedness under the Credit Facility will entitle the holders
of such other indebtedness to declare amounts outstanding
immediately due and payable.
As of February 28, 2009, we were in compliance with all
covenants contained in our Credit Facility, including the
leverage and interest coverage ratio covenants. At that date,
our leverage ratio was 48.6% and our interest coverage ratio was
5.78: 1. Additionally, in accordance with these covenants, at
February 28, 2009, our domestic subsidiaries indebtedness
did not exceed 15% of consolidated shareholders equity as
of that date.
Our access to funds under our Credit Facility is dependent on
the ability of the financial institutions that are parties to
those facilities to meet their funding commitments. Those
financial institutions may not be able to meet their funding
commitments if they experience shortages of capital and
liquidity or if they experience excessive volumes of borrowing
requests within a short period of time. Moreover, the
obligations of the financial institutions under our Credit
Facility are several and not joint and, as a result, a funding
default by one or more institutions does not need to be made up
by the others.
We are exposed to market risk associated with interest rates. We
do not use financial derivative instruments for trading
purposes, nor do we engage in foreign currency, commodity or
interest rate speculation. Concurrent with the issuance of our
6.7% Senior Unsecured Notes, RPM United Kingdom G.P.
entered into a cross currency swap,
35
which fixed the interest and principal payments in euros for the
life of the 6.7% Senior Unsecured Notes and resulted in an
effective euro fixed rate borrowing of 5.31%. In addition to
hedging the risk associated with our 6.7% Senior Unsecured
Notes, our only other hedged risks are associated with certain
fixed debt, whereby we have a $163.7 million notional
amount interest rate swap contract designated as a fair value
hedge to pay floating rates of interest, based on six-month
LIBOR that matures in our fiscal year ending May 31, 2010.
Because critical terms of the debt and interest rate swap match,
the hedge is considered perfectly effective against changes in
fair value of debt, and therefore, there is no need to
periodically reassess the effectiveness during the term of the
hedge.
Our available liquidity, including our cash and cash equivalents
and amounts available under our committed credit facilities,
stood at $504.4 million at February 28, 2009. Our
debt-to-capital ratio was 48.6% at February 28, 2009,
unchanged from May 31, 2008.
During the first quarter of fiscal 2009, we called for
redemption all of our outstanding Senior Convertible Notes due
May 13, 2033. Prior to the redemption, virtually all of the
holders converted their Senior Convertible Notes into shares of
our common stock. For additional information, refer to
Note M, Convertible Notes, to the Consolidated
Financial Statements.
The following table summarizes our financial obligations and
their expected maturities at February 28, 2009 and the
effect such obligations are expected to have on our liquidity
and cash flow in the periods indicated.
Contractual
Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment
|
|
|
Payments Due in
|
|
|
|
Stream
|
|
|
2010
|
|
|
2011-12
|
|
|
2013-14
|
|
|
After 2014
|
|
|
|
(In thousands)
|
|
|
Long-term debt obligations
|
|
$
|
983,231
|
|
|
$
|
172,425
|
|
|
$
|
209,690
|
|
|
$
|
201,407
|
|
|
$
|
399,709
|
|
Capital lease obligations
|
|
|
3,194
|
|
|
|
537
|
|
|
|
964
|
|
|
|
852
|
|
|
|
841
|
|
Operating lease obligations
|
|
|
157,525
|
|
|
|
35,559
|
|
|
|
46,184
|
|
|
|
24,540
|
|
|
|
51,242
|
|
Other long-term liabilities(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payments on long-term debt obligations
|
|
|
259,281
|
|
|
|
41,258
|
|
|
|
74,341
|
|
|
|
61,841
|
|
|
|
81,841
|
|
Contributions to pension and postretirment plans(2)
|
|
|
213,600
|
|
|
|
18,700
|
|
|
|
38,300
|
|
|
|
52,700
|
|
|
|
103,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,616,831
|
|
|
$
|
268,479
|
|
|
$
|
369,479
|
|
|
$
|
341,340
|
|
|
$
|
637,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Excluded from other long-term liabilities is our liability for
unrecognized tax benefits, which totaled $4.7 million at
February 28, 2009. Currently, we cannot predict with
reasonable reliability the timing of cash settlements to the
respective taxing authorities.
|
|
(2)
|
|
These amounts represent our estimated cash contributions to be
made in the periods indicated for our pension and postretirement
plans, assuming no actuarial gains or losses, assumption changes
or plan changes occur in any period. The projection results
assume $10.2 million will be contributed to the U.S. plans
in fiscal 2009; all other plans and years assume the required
minimum contribution will be contributed. Also included are
expected interest payments on long-term debt.
|
Approximately $172.4 million in principal amount of our
outstanding long term debt will become due in the next fiscal
year. We expect that we will need additional financing in the
future to refinance this indebtedness and to provide liquidity
to support our operations. Based on the results of our
operations and financial condition, we believe that under normal
market conditions, we should be able to obtain financing in
amounts necessary to refinance our existing indebtedness as it
matures and to otherwise meet the liquidity needs of our
business. However, the financial markets have been subject to
significant disruption in recent months. Continued weakness in
the general economic conditions
and/or
United States or global financial markets could adversely affect
our ability to raise capital on favorable terms or at all. From
time to time we have relied, and may also rely in the future, on
access to financial markets as a source of liquidity for working
capital requirements, acquisitions and general
36
corporate purposes. Longer term volatility and continued
disruptions in the capital and credit markets as a result of
uncertainty, changing or increased regulation of financial
institutions, reduced alternatives or failures of significant
financial institutions could adversely affect our access to the
liquidity needed for our businesses in the longer term. Such
disruptions could require us to take measures to conserve cash
until the markets stabilize or until alternative credit
arrangements or other funding for our business needs can be
arranged. The disruptions in the capital and credit markets have
also resulted in higher interest rates on publicly issued debt
securities and increased costs under credit facilities.
Continuation of these disruptions would increase our interest
expense and capital costs and could adversely affect our results
of operations and financial position including our ability to
grow our business through acquisitions.
Off-Balance
Sheet Arrangements
We do not have any off-balance sheet financings, other than the
minimum operating lease commitments included per the above
Contractual Obligations table. 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.
OTHER
MATTERS
Environmental
Matters
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 our 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. For additional information, refer to
Part II, Item 1. Legal Proceedings.
FORWARD-LOOKING
STATEMENTS
The foregoing discussion includes forward-looking statements
relating to our business. These forward-looking statements, or
other statements made by us, are made based on our expectations
and beliefs concerning future events impacting us and are
subject to uncertainties and factors (including those specified
below), which are difficult to predict and, in many instances,
are beyond our control. As a result, our actual results could
differ materially from those expressed in or implied by any such
forward-looking statements. These uncertainties and factors
include (a) general economic conditions, including
uncertainties surrounding the volatility in financial markets,
the availability of capital and the effect of changes in
interest rates, and the viability of banks and other financial
institutions; (b) the price, supply and capacity of raw
materials, including assorted pigments, resins, solvents, and
other natural gas and oil based materials; packaging, including
plastic containers; and transportation services, including fuel
surcharges; (c) continued growth in demand for our
products; (d) legal, environmental and litigation risks
inherent in our construction and chemicals businesses and risks
related to the adequacy of our insurance coverage for such
matters; (e) the effect of fluctuations in currency
exchange rates upon our foreign operations; (f) 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; (g) risks and uncertainties associated with our
ongoing acquisition and divestiture activities; (h) risks
related to the adequacy of our contingent liabilities, including
for asbestos-related claims; and (i) other risks detailed
in our filings with the Securities and Exchange Commission,
including the risk factors set forth in our Annual Report on
Form 10-K
for the year ended May 31, 2008, as the same may be updated
from time to time. We do not undertake any obligation to
publicly update or revise any forward-looking statements to
reflect future events, information or circumstances that arise
after the filing date of this document.
|
|
ITEM 3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
We are exposed to market risk from changes in raw materials
costs, interest rates and foreign exchange rates since we fund
our operations through long- and short-term borrowings and
conduct our business in a variety of foreign currencies. There
were no material potential changes in our exposure to these
market risks since May 31, 2008.
37
|
|
ITEM 4.
|
CONTROLS
AND PROCEDURES
|
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.
Our Chief Executive Officer and Chief Financial Officer, after
evaluating the effectiveness of our disclosure controls and
procedures (as defined in Exchange Act
Rule 13a-15(e))
as of February 28, 2009 (the Evaluation Date),
have concluded that as of the Evaluation Date, our disclosure
controls and procedures were effective in ensuring that
information required to be disclosed by us in the reports we
file or submit under the Exchange Act (1) is recorded,
processed, summarized and reported, within the time periods
specified in the Commissions rules and forms, and
(2) is accumulated and communicated to our management,
including the Chief Executive Officer and the Chief Financial
Officer, as appropriate to allow for timely decisions regarding
required disclosure.
(b) CHANGES IN INTERNAL CONTROL.
There were no changes in our internal control over financial
reporting that occurred during the fiscal quarter ended
February 28, 2009 that have materially affected, or are
reasonably likely to materially affect, our internal control
over financial reporting.
PART II
OTHER INFORMATION
|
|
ITEM 1.
|
LEGAL
PROCEEDINGS
|
Asbestos
Litigation
Certain of our wholly-owned subsidiaries, principally Bondex
International, Inc. (collectively referred to as our
subsidiaries), are defendants in various asbestos-related bodily
injury lawsuits filed in various state courts with the vast
majority of current claims pending in six states
Texas, Florida, Mississippi, Maryland, Illinois and Ohio. These
cases generally seek unspecified damages for asbestos-related
diseases based on alleged exposures to asbestos-containing
products previously manufactured by our subsidiaries or others.
As of February 28, 2009, our subsidiaries had a total of
10,281 active asbestos cases compared to a total of 11,350 cases
as of February 29, 2008. For the quarter ended
February 28, 2009, our subsidiaries secured dismissals
and/or
settlements of 228 cases and made total payments of
$19.8 million, which included defense-related payments of
$6.9 million. For the comparable period ended
February 29, 2008, dismissals
and/or
settlements covered 225 cases and total payments were
$18.7 million, which included defense-related payments of
$9.4 million. For the nine months ended February 28,
2009, our subsidiaries secured dismissals
and/or
settlements of 2,253 cases and made total payments of
$52.2 million, which included defense-related payments of
$19.7 million. For the comparable period ended
February 29, 2008, dismissals
and/or
settlements covered 882 cases and total payments were
$67.6 million, which included defense-related payments of
$32.0 million.
Of the 2,253 cases that were dismissed in the nine months ended
February 28, 2009, 1,420 were non-malignancies or unknown
disease cases that had been maintained on an inactive docket in
Ohio and were administratively dismissed by the Cuyahoga County
Court of Common Pleas during our second fiscal quarter ended
November 30, 2008. These claims were dismissed without
prejudice and may be re-filed should the claimants involved be
able to demonstrate disease in accordance with medical criteria
laws established in the state of Ohio.
During the quarter ended February 28, 2009, one payment
totaling $3.6 million was made to satisfy an adverse
judgment in a previous trial that occurred in calendar 2006 in
California. This payment, which included a significant amount of
accrued pre-judgment interest as required by California law, was
made on December 8, 2008, approximately two and a half
years after the adverse verdict and after all post-trial and
appellate remedies had been exhausted. Such satisfaction of
judgment amounts are not included in incurred costs until
available appeals are exhausted and the final payment amount is
determined. As a result, the timing and amount of any such
payments could have a significant impact on quarterly settlement
costs.
During the prior fiscal year, our subsidiaries incurred higher
year-over-year, defense-related payments as a result of
implementing various changes to our management and defense of
asbestos claims, including a transition to a new claims intake
and database service provider. To facilitate that transition and
other related changes, we
38
incurred duplicate defense-related payments approximating
$3.0 million during last years second fiscal quarter.
The transition was completed during the quarter ended
February 29, 2008.
Excluding defense-related payments, the average payment made to
settle or dismiss a case approximated $57,000 and $41,000 for
each of the quarters ended February 28, 2009 and
February 29, 2008, respectively. The amount and timing of
dismissals and settlements can fluctuate significantly from
period to period, resulting in volatility in the average cost to
resolve a case in any given quarter or year. In addition, in
some jurisdictions, cases may involve more than one individual
claimant. As a result, settlement or dismissal payments made on
a per case basis are not necessarily reflective of the payment
amounts on a per claimant basis. For example, the amount paid to
settle or dismiss a case can vary widely depending on a variety
of factors, including the mix of malignancy and non-malignancy
claimants, and the amount of defense expenditures incurred
during the period.
For additional information on our asbestos litigation, including
a discussion of our asbestos related loss contingencies and a
discussion of certain of our subsidiaries complaint against
certain third-party insurers, see Note F of the Notes to
Consolidated Financial Statements.
EIFS
Litigation
As of February 28, 2009, Dryvit, one of our wholly owned
subsidiaries, was a defendant or co-defendant in various single
family residential exterior insulated finish systems
(EIFS) cases, the majority of which are pending in
the southeastern region of the country. Dryvit is also defending
EIFS lawsuits involving commercial structures, townhouses and
condominiums. The vast majority of Dryvits EIFS lawsuits
seek monetary relief for water intrusion related property
damages, although some claims in certain lawsuits allege
personal injuries from exposure to mold.
Third party excess insurers have historically paid varying
shares of Dryvits defense and settlement costs in the
individual commercial and residential EIFS lawsuits under
various cost-sharing agreements. Dryvit has assumed a greater
share of the costs associated with its EIFS litigation as it
seeks funding commitments from our third party excess insurers
and will likely continue to do so pending the outcome of
coverage litigation involving these same third party insurers.
This coverage litigation, Dryvit Systems, Inc. et al. v. Chubb
Custom Insurance Company et al, Case No. CV 05 578004, is
pending in the Cuyahoga County Court of Common Pleas. In
accordance with a Court order, the parties filed dispositive
motions on certain of the coverage issues. Oral argument on
these motions was completed on September 2, 2008. The
parties currently await a ruling on their respective summary
judgment motions, after which they will participate in a
court-ordered and agreed mediation. Discovery is stayed in the
meantime. A trial date has not yet been scheduled. If mediation
is not successful, the parties will resume discovery and a trial
date will be scheduled.
Environmental
Proceedings
As previously reported, several of our subsidiaries are, from
time to time, identified as a potentially responsible
party under the federal Comprehensive Environmental
Response, Compensation and Liability Act and similar state
environmental statutes. In some cases, our subsidiaries are
participating in the cost of certain
clean-up
efforts or other remedial actions. Our share of such costs,
however, has not been material and we believe that these
environmental proceedings will not have a material adverse
effect on our consolidated financial condition or results of
operations. See Item 2. Managements Discussion
and Analysis of Financial Condition and Results of
Operations Other Matters, in Part I of
this Quarterly Report on
Form 10-Q.
You should carefully consider the following risks, in addition
to the other information set forth in this report and the risk
factors disclosed in Item 1A of our Annual Report on
Form 10-K
for the fiscal year ended May 31, 2008.
Our
operations have been adversely affected by recent global market
and economic conditions.
The worldwide recession has had an adverse effect on our
operating results, particularly on our consumer products
segment, where sales and earnings have declined during recent
periods. Our industrial segment has also
39
felt the impact of recession as sales growth has slowed over
prior years levels. We anticipate that our operations will
continue to be adversely affected by global economic conditions
during the remainder of fiscal 2009. The recession has resulted,
and may result in the future, in decreased revenue, gross
margin, earnings or growth rates and difficulty in managing
inventory levels and collection of customer receivables. We also
have experienced, and expect to continue to experience,
increased competitive pricing pressure and customer turnover. In
addition, customer difficulties have resulted, and could result
in the future, in increases in bad debt write-offs and
adjustments to our allowance for doubtful accounts receivable.
We have also incurred severance and other expenses resulting
from adjustments in certain RPM businesses to address the
deteriorating business environment.
We may
not have access to capital in the future due to changes in
general economic conditions.
We expect that we will need additional financing in the future
to provide liquidity to conduct our operations, expand our
business or refinance existing indebtedness. Any sustained
weakness in the general economic conditions
and/or
United States or global financial markets could adversely affect
our ability to raise capital on favorable terms or at all. From
time to time we have relied, and may also rely in the future, on
access to financial markets as a source of liquidity for working
capital requirements, acquisitions and general corporate
purposes. Our access to funds under our Credit Facility is
dependent on the ability of the financial institutions that are
parties to those facilities to meet their funding commitments.
Those financial institutions may not be able to meet their
funding commitments if they experience shortages of capital and
liquidity or if they experience excessive volumes of borrowing
requests within a short period of time. Moreover, the
obligations of the financial institutions under our Credit
Facility are several and not joint and, as a result, a funding
default by one or more institutions does not need to be made up
by the others. Longer term volatility and continued disruptions
in the capital and credit markets as a result of uncertainty,
changing or increased regulation of financial institutions,
reduced alternatives or failures of significant financial
institutions could adversely affect our access to the liquidity
needed for our businesses in the longer term. Such disruptions
could require us to take measures to conserve cash until the
markets stabilize or until alternative credit arrangements or
other funding for our business needs can be arranged. The
disruptions in the capital and credit markets have also resulted
in higher interest rates on publicly issued debt securities and
increased costs under credit facilities. Continuation of these
disruptions would increase our interest expense and capital
costs and could adversely affect our results of operations and
financial position including our ability to grow our business
through acquisitions.
Volatility
in the equity markets or interest rates could substantially
increase our pension costs and required pension
contributions.
We sponsor qualified defined benefit pension plans and various
other nonqualified postretirement plans. The qualified defined
benefit pension plans are funded with trust assets invested in a
diversified portfolio of debt and equity securities and other
investments. Among other factors, changes in interest rates,
investment returns and the market value of plan assets can
(i) affect the level of plan funding; (ii) cause
volatility in the net periodic pension cost; and
(iii) increase our future contribution requirements. A
significant decrease in investment returns or the market value
of plan assets or a significant decrease in interest rates could
increase our net periodic pension costs and adversely affect our
results of operations. A significant increase in our
contribution requirements with respect to our qualified defined
benefit pension plans could have an adverse impact on our cash
flow.
40
|
|
ITEM 2.
|
UNREGISTERED
SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
|
(c) The following table presents information about
repurchases of common stock we made during the third quarter of
fiscal 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
Total Number
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
of Shares
|
|
|
Shares that
|
|
|
|
|
|
|
|
|
|
Purchased as
|
|
|
May Yet be
|
|
|
|
|
|
|
|
|
|
Part of Publicly
|
|
|
Purchased
|
|
|
|
Total Number
|
|
|
|
|
|
Announced
|
|
|
Under the
|
|
|
|
of Shares
|
|
|
Average Price
|
|
|
Plans or
|
|
|
Plans or
|
|
Period
|
|
Purchased(1)
|
|
|
Paid per Share
|
|
|
Programs
|
|
|
Programs(2)
|
|
|
December 1, 2008 through December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2009 through January 31, 2009
|
|
|
340
|
|
|
$
|
12.31
|
|
|
|
|
|
|
|
|
|
February 1, 2009 through February 28, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total-Third Quarter
|
|
|
340
|
|
|
$
|
12.31
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
A total of 340 shares of common stock reported as purchased
are attributable to shares of common stock that were disposed of
back to us in satisfaction of tax obligations related to the
vesting of restricted stock, which was granted under RPM
International Inc.s 2004 Omnibus Equity Plan.
|
|
(2)
|
|
Refer to Note L of the Notes to Consolidated Financial
Statements for further information regarding our stock
repurchase program.
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.1
|
|
Seventh Amendment to RPM International Inc. 1997 Restricted
Stock Plan, effective December 31, 2008.(x)
|
|
10
|
.2
|
|
Amendment Number One to RPM International Inc. 2007 Restricted
Stock Plan, effective December 31, 2008.(x)
|
|
10
|
.3
|
|
Amendment Number Two to the RPM International Inc. 2003
Restricted Stock Plan for Directors, effective December 31,
2008.(x)
|
|
10
|
.4
|
|
RPM International Inc. Amended and Restated 2004 Omnibus Equity
and Incentive Plan, effective December 31, 2008.(x)
|
|
10
|
.5
|
|
RPM International Inc. 2005 Deferred Compensation Plan, as
Amended and Restated Generally, effective January 1, 2005.(x)
|
|
10
|
.6
|
|
Amended and Restated Employment Agreement by and between the
Company and Frank C. Sullivan, Chairman and Chief Executive
Officer, effective December 31, 2008.(x)
|
|
10
|
.7
|
|
Form of Amended and Restated Employment Agreement, by and
between the Company and each of Ronald A. Rice, President and
Chief Operating Officer; P. Kelly Tompkins, Executive Vice
President- Administration and Chief Financial Officer; Paul G.P.
Hoogenboom, Senior Vice President- Manufacturing and Operations,
Chief Information Officer; and Stephen J. Knoop, Senior Vice
President- Corporate Development.(x)
|
|
10
|
.8
|
|
Amendment No. 3 to Amended and Restated Receivables
Purchase Agreement, dated February 27, 2009, which is
incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K, as filed with
the Securities and Exchange Commission on March 5, 2009
(File No. 001-14187).
|
|
31
|
.1
|
|
Rule 13a-14(a) Certification of the Companys Chief
Executive Officer.(x)
|
|
31
|
.2
|
|
Rule 13a-14(a) Certification of the Companys Chief
Financial Officer.(x)
|
|
32
|
.1
|
|
Section 1350 Certification of the Companys Chief
Executive Officer.(x)
|
|
32
|
.2
|
|
Section 1350 Certification of the Companys Chief
Financial Officer.(x)
|
41
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
RPM International Inc.
|
|
|
|
By:
|
/s/ Frank
C. Sullivan
|
Frank C. Sullivan
Chairman and Chief Executive Officer
|
|
|
|
By:
|
/s/ P.
Kelly Tompkins
|
P. Kelly Tompkins
Executive Vice President Administration and Chief
Financial Officer
Dated: April 8, 2009
42
Exhibit 10.4
RPM INTERNATIONAL INC.
AMENDED AND RESTATED
2004 OMNIBUS EQUITY AND INCENTIVE PLAN
Effective as of December 31, 2008
RPM INTERNATIONAL INC.
AMENDED AND RESTATED
2004 OMNIBUS EQUITY AND INCENTIVE PLAN
(
Effective as of December 31, 2008
)
1. Purposes
. The purposes of this Plan are: (a) to provide competitive incentives that will
enable the Company to attract, retain, motivate and reward employees who render services that
benefit the Company, Subsidiaries or Allied Enterprises, and (b) to align the interests of such
employees with the interests of the Companys stockholders generally.
2. Eligibility
. Individuals who are common law employees of RPM International Inc., a Subsidiary
or an Allied Enterprise may become eligible for Awards under this Plan; provided, however, that an
employee of an Allied Enterprise will be eligible for an Award only if the Committee has determined
that there are legitimate business criteria for granting such Award.
3. Definitions
. Capitalized terms in this Plan shall have the following meanings, unless
specifically provided otherwise in a plan agreement:
(a)
Allied Enterprise
. Allied Enterprise means a business enterprise, other than
the Company or a Subsidiary, in which the Company or a Subsidiary has at least a 20% equity
interest.
(b)
Appreciation-Only Award
. Appreciation-Only Award means Options and Stock
Appreciation Rights with an exercise price equal to at least one hundred percent (100%) of Fair
Market Value on the date of grant.
(c)
Award
. Award means an award in one of the forms described in Section 4(a) and
subject to the terms and conditions of this Plan and the relevant plan agreement.
(d)
Beneficiary
. Beneficiary means a person or entity designated in writing by a
Participant on such forms and in accordance with such terms and conditions as the Committee may
prescribe, to whom such Participants rights under the Plan shall pass in the event of the death of
such Participant. If the person or entity so designated is not living or in existence at the time
of the death of the Participant, or if no such person or entity has been so designated, the
Beneficiary shall mean the person or persons in the first of the following classes in which there
are any survivors of the Participant: (i) his or her spouse at the time of death, (ii) his or her
issue per stirpes, (iii) his or her parents, and (iv) the executor or administrator of his or her
estate.
(e)
Board of Directors
. Board of Directors or Board means the Board of Directors
of the Company, as constituted from time to time. Director means a member of the Board of
Directors of the Company.
(f)
Change in Control
. Change in Control means the occurrence of any of the
following events:
|
(i)
|
|
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 the then-outstanding securities entitled to vote generally in
the election of directors (the Voting Stock) immediately prior to such
transaction;
|
|
|
(ii)
|
|
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;
|
|
|
(iii)
|
|
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 SEC Rule
13d-3 or any successor rule or regulation promulgated under the Exchange Act)
of securities representing fifteen percent (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);
|
|
|
(iv)
|
|
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;
|
|
|
(v)
|
|
During any period of two (2) 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 Companys stockholders of each new Director was approved by
a vote of at least two-thirds (2/3) of the Directors then in office who were
Directors at the beginning of any such period; or
|
|
|
(vi)
|
|
Such event as the Board, in the good faith exercise of its
discretion, determines to be a Change in Control.
|
Notwithstanding the foregoing provisions of paragraphs (iii) and (iv) 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, or (C) any Company-sponsored employee stock ownership plan or other
employee benefit plan of the Company or any Subsidiary, or any entity
2
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 Companys 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.
(g)
Code
. Code means the Internal Revenue Code of 1986, as amended from time to
time, and related Treasury Department regulations and pronouncements. References to a particular
section of the Code shall include references to any related Treasury Department regulations and
pronouncements and to each of their successors.
(h)
Committee
. Committee means the Compensation Committee of the Board of
Directors.
(i)
Common Stock
. Common Stock means shares of common stock of RPM International
Inc., with par value of one cent ($0.01) per share.
(j)
Company
. Company means RPM International Inc., a Delaware corporation, and,
except for purposes of determining whether a Change in Control has occurred, any corporation or
entity that is a successor to RPM International Inc. or substantially all of the assets of RPM
International Inc., that assumes the obligations of RPM International Inc. under this Plan by
operation of law or otherwise.
(k)
Designated Representative
. Designated Representative means the person or office
designated by the Committee as being responsible for routine, day-to-day Plan administration
matters and, in the absence of a contrary designation, shall be the Director of Human Resources &
Administration and that persons designees.
(l)
Disability
. Disability means that an individual is, by reason of any medically
determinable physical or mental impairment that can be expected to result in death or can be
expected to last for a continuous period of not less than 12 months: (i) unable to engage in any
substantial gainful activity; or (ii) receiving income replacement benefits for a period of not
less than 3 months under an accident and health plan covering employees of the Company. Without
limitation, for purpose of this Plan, an individual will be deemed to have a Disability if the
individual is determined to be totally disabled by the Social Security Administration, or is
determined to be disabled in accordance with a disability insurance program of the Company or any
Subsidiary (provided that the definition of disability applied under such disability insurance
program complies with the requirements of Section 409A).
3
(m)
Dividend Equivalents
. Dividend Equivalents mean rights described in Section
6(c).
(n)
Dollar-Denominated Awards
. Dollar-Denominated Awards mean Performance Unit
Awards and any other Incentive Awards the amount of which are based on a specified amount of money
other than an amount of money determined by reference to the Fair Market Value of a specified
number of shares of Common Stock. Dollar-Denominated Awards do not include Options or Stock
Appreciation Rights.
(o)
Effective Date
. Effective Date means the effective date of this Plan, as
provided in Section 12.
(p)
Eligible Person
. Eligible Person means any individual who is eligible for an
Award under this Plan as set forth in Section 2.
(q)
Employee
. Employee means any person who is employed as a common law employee by
the Company or a Subsidiary on a full-time or part-time basis.
(r)
Exchange Act
. Exchange Act means the Securities Exchange Act of 1934, as
amended from time to time, and related regulations and pronouncements.
(s)
Fair Market Value
. Fair Market Value means, on a particular date:
(i) If the Common Stock is listed or admitted to trading on such date on the New York
Stock Exchange, the closing price of a share of Common Stock on such date as reported in the
principal consolidated transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange; or
(ii) If the Common Stock is not listed or admitted to trading on the New York Stock
Exchange but is listed or admitted to trading on another national exchange, the closing
price of a share of Common Stock on such date as reported in the principal consolidated
transaction reporting system with regard to securities listed or admitted to trading on such
national exchange; or
(iii) If the Common Stock is not listed or admitted to trading on any national
exchange, the price of a share of Common Stock at the end of such date in the
over-the-counter market, as reported by the National Association of Securities Dealers, Inc.
Automated Quotation System, the National Quotation Bureau or such other system then in use
with regard to the Common Stock or, if on such date the Common Stock is publicly traded but
not quoted by any such system, the mean of the closing bid and asked prices of a share of
Common Stock on such date as furnished by a professional market maker making a market in the
Common Stock; or
(iv) If there were no reported sales on the date described in subparagraphs (i), (ii)
or (iii), the respective prices on the most recent prior day on which a sale was so
reported.
4
In the case of an Incentive Stock Option, if the foregoing method of determining fair market value
should be inconsistent with Section 422 of the Code, Fair Market Value shall be determined by the
Committee in a manner consistent with Section 422 of the Code and shall mean the value as so
determined.
(t)
Incentive Award
. Incentive Award means an amount of money that is paid or a
number of shares of Common Stock that are issued, or a right to be paid an amount of money or to be
issued a number of shares of Common Stock that is granted as described in Section 6 of the Plan.
Incentive Awards do not include Options or Stock Appreciation Rights.
(u)
Incentive Stock Option
. Incentive Stock Option means an option intended to meet
the requirements of Section 422 of the Code.
(v)
Non-Statutory Stock Option
. Non-Statutory Stock Option means an option which is
not intended to be an Incentive Stock Option.
(w)
Option
. Option means an option granted under this Plan to purchase shares of
Common Stock. Options may be Incentive Stock Options or Non-Statutory Stock Options.
(x)
Participant
. Participant means an Eligible Person who has been granted an Award
under this Plan and executed a plan agreement as required under Section 4(d).
(y)
Performance-Based Compensation
. Performance-Based Compensation means
remuneration payable solely on account of the attainment of one or more performance goals as
described in Section 162(m)(4)(C) of the Code.
(z)
Performance Share Award
. Performance Share Award means a right described in
Section 6 to receive a specified number of shares of Common Stock, and/or an amount of money
determined by reference to the Fair Market Value of a specified number of shares of Common Stock,
at a future time or times if a specified performance goal is attained and any other terms or
conditions specified by the Committee are satisfied.
(aa)
Performance Unit Award
. Performance Unit Award means a right described in
Section 6 to receive a specified amount of money (other than an amount of money determined by
reference to the Fair Market Value of a specified number of shares of Common Stock), or shares of
Common Stock having a Fair Market Value equal to such specified amount of money, at a future time
or times if a specified performance goal is attained and any other terms or conditions specified by
the Committee are satisfied.
(bb)
Plan
. Plan means this RPM International Inc. 2004 Omnibus Equity and Incentive
Plan, as amended from time to time.
(cc)
Restricted Stock Award
. Restricted Stock Award means shares of Common Stock
that are issued to an Eligible Person as described in Section 6(a)(i) subject to restrictions
and/or forfeiture provisions specified by the Committee that will cease to apply at a future time
or times if continued employment conditions and other terms and conditions specified by the
Committee are satisfied.
5
(dd)
Restricted Stock Unit Award
. Restricted Stock Unit Award means shares of
Common Stock that will be issued to an Eligible Person at a future time or times as provided in
Section 6(a)(i) if continued employment conditions and other terms and conditions specified by the
Committee are satisfied.
(ee)
Sarbanes-Oxley Act
. Sarbanes-Oxley Act means the Sarbanes-Oxley Act of 2002,
as amended from time to time, and related regulations and pronouncements.
(ff)
SEC Rule 16b-3
. SEC Rule 16b-3 means Rule 16b-3 of the Securities and Exchange
Commission promulgated under the Exchange Act and related pronouncements, as such rule or any
successor rule may be in effect from time to time.
(gg)
Section 16 Person
. Section 16 Person means a person subject to potential
liability under Section 16(b) of the Exchange Act with respect to transactions involving equity
securities of the Company.
(hh)
Stock Appreciation Right
. Stock Appreciation Right means a right as described
in Section 9.
(ii)
Stock Power
. Stock Power means a power of attorney executed by a Participant
and delivered to the Company which authorizes the Company to transfer ownership of shares from the
Participant to the Company or a third party.
(jj)
Subsidiary
. Subsidiary means a corporation or other form of business
association of which shares (or other ownership interests) having more than fifty percent (50%) of
the voting power are owned or controlled, directly or indirectly, by the Company, but only during
the period any such corporation or business association would be so defined. Notwithstanding the
foregoing, when used in reference to an Incentive Stock Option, the term Subsidiary means a
subsidiary corporation as defined in Section 424(f) of the Code with respect to the Company.
4. Grants of Awards.
(a)
Types of Awards
. Subject to the terms and conditions of the Plan, the Committee
may at any time and from time to time, grant the following types of Awards to any Eligible Person:
(i) Incentive Awards, which may but need not be in the form of Dividend Equivalents,
Performance Share Awards, Performance Unit Awards, Restricted Stock Awards, or Restricted
Stock Unit Awards,
(ii) Options, and
(iii) Stock Appreciation Rights.
Notwithstanding any provision of this Section to the contrary, the Committee may only grant
Incentive Stock Options to Employees. Furthermore, no Award of any kind may be granted to
6
an Eligible Person who is an employee of an Allied Enterprise unless the Committee can demonstrate
legitimate business criteria for granting such Award.
(b)
Amendment of Awards; Waiver of Terms
. After an Award has been granted:
(i) the Committee may waive any term or condition thereof that could have been excluded
from such Award when it was granted, and
(ii) with the written consent of the affected Participant, may amend any Award after it
has been granted to include or exclude any provision which could have been included in or
excluded from such Award when it was granted,
and no additional consideration need be received by the Company in exchange for such waiver or
amendment.
(c)
Plan Agreements
. Awards are contingent on an Eligible Persons execution of a
plan agreement in the form prescribed by the Committee. All plan agreements shall incorporate this
Plan by reference. The Committee may condition an Award upon a Eligible Persons execution and
delivery of one or more Stock Powers in blank to the Company. Execution of a plan agreement by the
Eligible Person shall constitute the Eligible Persons irrevocable agreement to and acceptance of
the terms and conditions of the Award set forth in such plan agreement and of the terms and
conditions of the Plan applicable to such Award. Plan agreements may differ from time to time and
from Eligible Person to Eligible Person.
(d)
Revocation of Awards
. The Committee may revoke any Award; provided, however, that
after a plan agreement evidencing an Award has been executed and delivered to the Designated
Representative, the Committee may revoke the Award only with the written consent of the
Participant.
(e)
Performance-Based Compensation Awards
. The Committee may grant Awards that
qualify as Performance-Based Compensation. Any provision of the Plan that cannot be interpreted,
administered or construed to permit the granting of such Awards shall, to that extent, be
disregarded.
(f)
Incentive Stock Options; Non-Statutory Stock Options
. The Committee may grant
Options that are incentive stock options under Section 422 of the Code. Any provision of the Plan
that cannot be interpreted, administered or construed to permit the granting of such Options shall,
to that extent, be disregarded. If an Option is intended to be an Incentive Stock Option but, for
any reason, such Option or a portion thereof does not so qualify, then to the extent such Option
does not so qualify, such Option or such portion thereof shall be regarded as a Non-Statutory Stock
Option appropriately granted under this Plan provided it otherwise meets the Plans requirements
for Non-Statutory Stock Options.
5. Stock Available Under Plan; Award Limits.
(a)
Number of Shares
. Subject to Sections 5(c), 5(d) and 11:
7
(i) the maximum aggregate number of shares of Common Stock which may be issued under
this Plan pursuant to Awards is six million (6,000,000) shares of Common Stock; and
(ii) not more than three million (3,000,000) shares of the maximum aggregate number of
shares of Common Stock may be issued under this Plan pursuant to Restricted Stock Awards,
Restricted Stock Unit Awards, Performance Share Awards and Performance Unit Awards. Such
Awards shall be 100% fully performance-based stock compensation awards within the meaning of
Section 162(m) of the Code; and
(iii) the maximum number of shares of Common Stock with respect to which Options or
Stock Appreciation Rights may be granted under this Plan during any Plan Year (as defined in
Section 13(d)) to any Participant is two hundred twenty-five thousand (225,000) shares of
Common Stock; and
(iv) the maximum number of shares of Common Stock with respect to which any and all
Awards other than Appreciation-Only Awards and Dollar-Denominated Awards may be granted
under this Plan in any Plan Year to any Participant is one hundred seventy-five thousand
(175,000) shares of Common Stock; and
(v) no Participant may receive more than two million five hundred thousand dollars
($2,500,000) (or the equivalent thereof in shares of Common Stock, based on their Fair
Market Value on the date as of which the number of shares is determined) in payment of
Dollar-Denominated Awards that are granted to such Participant under this Plan in any Plan
Year.
(b)
Adjustments to Number of Shares
. If, in connection with an acquisition of another
company or all or part of the assets of another company by the Company or a Subsidiary, or in
connection with a merger or other combination of another company with the Company or a Subsidiary,
the Company either: (A) assumes stock options or other stock incentive obligations of such other
company, or (B) grants stock options or other stock incentives in substitution for stock options or
other stock incentive obligations of such other company, then none of the shares of Common Stock
that are issuable or transferable pursuant to such stock options or other stock incentives that are
assumed or granted in substitution by the Company shall be charged against the limitations set
forth in this Section.
(c)
Source of Shares
. Shares which may be issued pursuant to Awards made under the
Plan may be authorized but unissued shares of Common Stock, shares of Common Stock held in the
treasury, whether acquired by the Company specifically for use under this Plan or otherwise, or
shares issued or transferred to, or otherwise acquired by, a trust or other legal entity pursuant
to Section 16(d), as the Committee may from time to time determine; provided, however, that any
shares acquired or held by the Company for the purposes of this Plan shall, unless and until issued
or transferred to a trust or other legal entity pursuant to Section 16(d) or to an Eligible Person
in accordance with the terms and conditions of such Award, be and at all times remain treasury
shares of the Company, irrespective of whether such shares are credited to a special account for
purposes of this Plan, and shall be available for any corporate purpose.
8
(d)
Effect of Termination of Award
. If any shares of Common Stock subject to an Award
shall not be issued to an Eligible Person and shall cease to be issuable to a Eligible Person
because of the termination, expiration, forfeiture or cancellation, in whole or in part, of such
Award or the settlement of such Award in cash or for any other reason, or if any such shares shall,
after issuance, be reacquired by the Company because of an Eligible Persons failure to comply with
the terms and conditions of an Award, the shares not so issued, or the shares so reacquired by the
Company, as the case may be, shall be charged against the limitations provided for in Section 5(a)
and shall not be granted under this Plan again.
(e)
Effect of Receipt of Shares
. Subject to Section 5(f), if the purchase price of
shares subject to an Option is paid in shares of Common Stock in accordance with the provisions of
Section 8(b)(iv), the number of shares surrendered to the Company in payment of the purchase price
of the shares subject to the Option shall not be added back to the maximum aggregate number of
shares which may be issued under Section 5(a).
(f)
Compliance with NYSE Rules; Preservation of Incentive Stock Option Status
. If and
to the extent that the Committee determines that any provisions of this Plan shall cause the
Company or the Plan to fail to satisfy the rules or listing standards of the New York Stock
Exchange, as in effect from time to time, or shall prevent Incentive Stock Options granted under
the Plan from qualifying as incentive stock options under Section 422 of the Code, then to that
extent, such provisions shall be disregarded.
6. Incentive Awards.
(a)
Generally
. Except as otherwise provided in Section 16(e), Incentive Awards shall
be subject to the following provisions:
(i)
Amount of Incentive Awards
. Incentive Awards may be granted in lieu of, or
as a supplement to, any other compensation that may have been earned by the Eligible Person
prior to the date on which the Incentive Award is granted. The amount of an Incentive Award
may be based upon: (i) a specified number of shares of Common Stock or the Fair Market
Value of a specified number of shares of Common Stock, or (ii) an amount not determined by
reference to the Fair Market Value of a specified number of shares of Common Stock. Any
Incentive Award may be paid in the form of money or shares of Common Stock valued at their
Fair Market Value, or a combination of money and such shares, as the Committee may provide
in the relevant plan agreement. Dividend Equivalents, Performance Share Awards, Performance
Unit Awards, Restricted Stock Awards and Restricted Stock Unit Awards are specific forms of
Incentive Awards, but are not the only forms in which Incentive Awards may be made.
(ii)
Timing of Payment for Incentive Awards
. Any shares of Common Stock that
are to be issued pursuant to an Incentive Award, and any money to be paid in respect of an
Incentive Award, may be issued or paid to the Eligible Person at the time such Award is
granted, or at any time subsequent thereto, or in installments, as the Committee shall
determine. In the event that any such issuance or payment shall not be made to the Eligible
Person at the time an Incentive Award is granted, the Committee may grant Dividend
Equivalents in respect of the Award, or may provide that, until such shares are
9
issued or money is paid or until the Award is forfeited, and subject to such terms and
conditions as the Committee may impose, the Award shall earn amounts equivalent to interest
or another investment return specified by the Committee, which amounts shall be paid by
March 15 following the calendar year in which earned, and which amounts may be paid either
in money or shares of Common Stock, all as the Committee may provide.
(iii)
Terms of Incentive Awards; Stockholder Rights
. Incentive Awards shall be
subject to such terms and conditions as the Committee may determine; provided, however, that
upon the issuance of shares pursuant to any such Award, the recipient shall, with respect to
such shares, be and become a stockholder of the Company fully entitled to receive dividends
at the time such dividends are paid, to vote and to exercise all other rights of a
stockholder except to the extent otherwise provided in the Award.
(b)
Performance Share Awards and Performance Unit Awards
.
(i)
In General
. The Committee may grant any Eligible Person a Performance
Share Award and/or a Performance Unit Award. The Committee may provide that a specified
portion of the Performance Share Award or Performance Unit Award will be earned if the
specified performance goal applicable to the Award is partially attained.
(ii)
Performance Goals
. Subject to Section 7(b), the specified performance
goal applicable to a Performance Share Award or Performance Unit Award may consist of any
one or more of the following: completion of a specified period of employment with or other
service that benefits the Company or a Subsidiary or an Allied Enterprise, achievement of
financial or operational goals or the occurrence of a specified circumstance or event. The
performance goal applicable to Performance Share Awards and Performance Unit Awards need not
be the same for each award or each Eligible Person to whom an award is granted. An Eligible
Person may be granted Performance Share Awards and Performance Unit Awards each year, and
the performance period applicable to any such Award may overlap with one or more years
included in the performance period applicable to any earlier-granted or later-granted Award.
(iii)
Effect of Death or Disability
. Subject to Section 7(e), the Committee
may provide that if the Participants death or Disability occurs before the performance goal
applicable to a Performance Share Award or Performance Unit Award is attained, and
irrespective of whether the performance goal is thereafter attained, the Performance Share
Award or Performance Unit Award will be earned in whole or in part, as the Committee may
specify.
(iv)
Effect of Termination of Employment or Service
. The Committee may provide
for a Participants Performance Share Award or Performance Unit Award to be forfeited in
whole or in part if such Participants employment or service terminates for any reason
before shares are issued or money is paid, as applicable, in full settlement of such
Performance Share Award or Performance Unit Award.
(v)
Non-Alienation
. Except as otherwise provided in the relevant plan
agreement, Performance Share Awards and Performance Unit Awards may not be sold,
10
transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by
will or by the laws of descent and distribution or to a Beneficiary.
(c)
Dividend Equivalents
.
(i)
In General
. The Committee may grant any Eligible Person the right to be
paid an amount of money equal to the dividends paid from time to time on a specified number
of shares of Common Stock (Dividend Equivalents) which may be based on the number of
shares that are subject to another Award, including without limitation an Option or Stock
Appreciation Rights, and whether or not such other Award is vested or exercisable.
(ii)
Timing of Payment
. The Committee may provide for such amount of money to
be paid on each date on which such dividends are paid.
(iii)
Form of Payment
. Dividend Equivalents may be paid in the form of money
or shares of Common Stock based on their Fair Market Value on the payment date, or in a
combination of money and such shares, as the Committee may determine.
(iv)
Impact Upon Maximum Shares Available Under Plan
. Any shares of Common
Stock issued in payment of Dividend Equivalents shall be charged against the maximum
aggregate number of shares which may be issued pursuant to Awards under Section 5(a).
7. Special Provisions Applicable to Performance-Based Compensation Awards.
(a)
Grant and Administration of Performance-Based Compensation Awards
. Awards that
the Committee intends to qualify as Performance-Based Compensation shall be granted and
administered in a manner that will permit such Awards to qualify as Performance-Based Compensation.
(b)
Performance Measures
. The performance measure or measures applicable to any Award
(other than an Appreciation-Only Award) that the Committee intends to qualify as Performance-Based
Compensation shall be based on targeted levels of, targeted levels of return on, or targeted levels
of growth for, any one or more of the following (or substantially similar) performance measures on
a consolidated Company, consolidated group, business unit or divisional level, as the Committee may
specify: earnings, earnings per share, capital adjusted pre-tax earnings (economic profit), net
income, operating income, performance profit (operating income minus an allocated charge
approximating the Companys cost of capital, before or after tax), gross margin, revenue, working
capital, total assets, net assets, stockholders equity, and cash flow. The Committee shall select
the performance measure or measures applicable to any such Award and shall establish the levels of
performance at which such Award is to be earned in whole or in part. Any such performance measure
or combination of such performance measures may apply to the Participants Award in its entirety or
to any designated portion or portions of the Award, as the Committee may specify.
(c)
Payment of Performance-Based Compensation Awards
. Notwithstanding any provision
of the Plan to the contrary, but subject to Sections 7(e), 10 and 11, Awards to which
11
Section 7(b) applies shall: (i) be paid solely on account of the attainment of one or more
preestablished, objective performance goals within the meaning of Treasury Regulation Section
1.162-27(e)(2)(i) or a successor thereto over a period of one (1) year or longer, which performance
goals shall be based upon one or more of the performance measures set forth in Section 7(b), and
(ii) be subject to such other terms and conditions as the Committee may impose.
(d)
No Discretionary Increases in Payments Under Performance-Based Compensation
Awards
. The terms of the performance goal applicable to any Award to which Section 7(b)
applies shall preclude discretion to increase the amount of compensation that would otherwise be
due upon attainment of the goal, except as may otherwise be permitted in Treasury Regulation
Section 1.162-27(e) or a successor thereto.
(e)
Effect of Death, Disability or Change in Control
. An Award to which Section 7(b)
applies may be earned in whole or in part if the Participants death, Disability or a Change in
Control occurs before the performance goal applicable to the Award is attained but only if and to
the extent that: (i) the Committee so provides with respect to such Award, and (ii) the Award will
nevertheless qualify as Performance-Based Compensation, and (iii) payment is not made prior to
attainment of the performance goal.
8. Options
. Except as otherwise provided in Section 16(e), Options shall be subject to the
following provisions and such other terms and conditions as the Committee may provide in the
relevant plan agreement evidencing the Options:
(a)
Purchase Price Per Share
. Subject to Section 11, the purchase price per share
shall be not less than one hundred percent (100%) of the Fair Market Value of a share of Common
Stock on the date an Option is granted (or in the case of any optionee who, at the time an
Incentive Stock Option is granted, owns stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of his employer corporation or of its parent or
subsidiary corporation, not less than one hundred ten percent (110%) of such Fair Market Value with
respect to Incentive Stock Options). Subject to the foregoing limitations, the purchase price per
share may, if the Committee so provides at the time of grant of an Option, increase (but not
decrease) in correlation with an index specified by the Committee.
(b)
Payment of Purchase Price
. The purchase price of shares subject to an Option may
be paid in whole or in part: (i) in money, (ii) by bank-certified, cashiers or personal check
subject to collection, (iii) by electronic funds transfer, (iv) if so provided in the Option and
consistent with the Sarbanes-Oxley Act, other applicable laws and such terms and conditions as the
Committee may impose, by delivering to the Company a properly executed exercise notice together
with a copy of irrevocable instructions to a stockbroker to sell immediately some or all of the
shares acquired by exercise of the option and to deliver promptly to the Company an amount of sale
proceeds (or, in lieu of or pending a sale, loan proceeds) sufficient to pay the purchase price, or
(v) if so provided in the Option and subject to such terms and conditions as may be specified in
the Option, in shares of Common Stock owned by the optionee, free and clear of all liens and
encumbrances, which are surrendered to the Company actually or by attestation. Shares of Common
Stock thus surrendered shall be valued at their Fair Market Value on the date of exercise.
12
(c)
Consideration; Exercise of Options
. Options may be granted for such
consideration, including but not limited to money or other property, tangible or intangible, or
labor or services received or to be received by the Company, as the Committee may determine.
Property shall include an obligation of the Company unless prohibited by applicable law. Subject
to the provisions of this Section, each Option may be exercisable in full at the time of grant or
may become exercisable in one or more installments and at such time or times and subject to such
terms and conditions, as the Committee may determine. Without limiting the foregoing, an Option
may provide by its terms that it will become exercisable in whole or in part upon the completion of
specified periods of service or earlier achievement of one or more performance objectives specified
therein, or that it will become exercisable only if one or more performance goals specified therein
are achieved. The Committee may at any time accelerate the date on which an Option becomes
exercisable, and no additional consideration is required for such acceleration. Unless otherwise
provided in the relevant plan agreement, an Option may be exercised at any time in whole or in part
after it becomes exercisable and before its expiration or termination.
(d)
Limitations on Exercise of Options
. Subject to Section 16(a), each Option shall
be exercisable during the life of the optionee only by the optionee, his or her guardian or legal
representative, and after death only by his or her Beneficiary. The Committee may prohibit or
otherwise limit the exercise of Incentive Stock Options by an optionees guardian or legal
representative if necessary to preserve the Options status as Incentive Stock Options under
applicable law. Notwithstanding any other provision of this Plan, (i) no Option shall be
exercisable after the tenth (10th) anniversary of the date on which the Option was granted, and
(ii) no Incentive Stock Option which is granted to any optionee who, at the time such Option is
granted, owns stock possessing more than ten percent (10%) of the total combined voting power of
all classes of stock of his employer corporation or of its parent or subsidiary corporation, shall
be exercisable after the expiration of five (5) years from the date such Option is granted.
Subject to the foregoing provisions of this Section 8(d), the Committee may provide for an Option
to be exercisable after termination of the Eligible Persons employment or other service.
(e)
Limitation on Fair Market Value of Shares Subject to an Incentive Stock Option
.
An Option may be an Incentive Stock Option. The aggregate Fair Market Value (determined as of the
time the Option is granted) of the stock with respect to which Incentive Stock Options may be
exercisable for the first time by any Employee during any calendar year (under all plans, including
this Plan, of his employer corporation and its parent and subsidiary corporations) shall not exceed
one hundred thousand dollars ($100,000) unless the Code is amended to allow a higher dollar amount.
To the extent that such Fair Market Value exceeds one hundred thousand dollars ($100,000), such
Options shall be treated as Non-Statutory Stock Options.
(f)
Issuance of Shares Upon Exercise of Option
. Shares purchased pursuant to the
exercise of an Option shall be issued to the person exercising the Option as soon as practicable
after the Option is properly exercised. If so provided in the relevant plan agreement, the shares
issued pursuant to the exercise of the Option may be non-transferable and forfeitable to the
Company in designated circumstances and for specified periods of time.
13
(g)
No Discretion to Adjust Exercise Price
. Except as provided in Sections 8(a) and
11, the Committee shall not have the authority to adjust the exercise price of outstanding Options.
(h)
Legal and Regulatory Approvals
. No option shall be exercisable unless and until
the Company: (i) obtains the approval of all regulatory bodies whose approval the Committee may
deem necessary or desirable, and (ii) complies with all legal requirements determined to be
applicable by the Committee.
(i)
Notice of Exercise of Options
. An Option shall be considered exercised if and
when the person exercising the Option provides notice of the exercise to the Designated
Representative of the Company on a properly completed and executed form approved for this purpose
by the Committee, accompanied by full payment of the Option exercise price in one or more of the
forms authorized in the plan agreement evidencing such Option and described in Section 8(b) for the
number of shares to be purchased. No Option may at any time be exercised with respect to a
fractional share unless the relevant plan agreement expressly provides otherwise.
9. Stock Appreciation Rights
. Stock Appreciation Rights shall be subject to the following terms and
conditions:
(a)
Types of Stock Appreciation Rights
. Stock Appreciation Rights that are granted
under the Plan may be free-standing or may be supplemental to an Option. Any Stock Appreciation
Rights that are supplemental to an Option shall entitle the holder to receive an amount determined
under Section 9(b) in addition to the proceeds of the Option if and when the holder purchases
shares under the related Option or at any subsequent time specified in the relevant plan agreement;
provided that no exercise of such supplemental Stock Appreciation Right shall reduce the number of
shares subject to the related Option or reduce the consideration to be paid for shares under such
Option.
(b)
Consideration; Exercise of Stock Appreciation Rights
. Stock Appreciation Rights
may be granted for such consideration, including but not limited to money or other property,
tangible or intangible, or labor or services received or to be received by the Company, as the
Committee may determine. Property shall include an obligation of the Company unless prohibited by
applicable law. Subject to the provisions of this Section, Stock Appreciation Rights may be
exercisable in full at the time of grant or may become exercisable in one or more installments.
Without limiting the foregoing, Stock Appreciation Rights may become exercisable in whole or in
part upon the completion of specified periods of service or earlier achievement of one or more
specified performance objectives or become exercisable only if one or more specified performance
goals are achieved. The Committee may accelerate the date on which Stock Appreciation Rights
become exercisable, and no additional consideration is required for such acceleration. Unless
otherwise provided in the Plan or the relevant plan agreement, Stock Appreciation Rights may be
exercised at any time in whole or in part after they become exercisable and before they expire or
terminate.
(c)
Limitations on Exercise of Stock Appreciation Rights
. No free-standing Stock
Appreciation Rights that are granted as a supplement to the related Option shall be exercisable
14
after the tenth (10th) anniversary of the date on which the Stock Appreciation Rights were
granted. Subject to the foregoing provisions of this Section, the Committee may provide for Stock
Appreciation Rights to be exercisable after termination of the Eligible Persons employment or
other service.
(d)
Payment Upon Exercise of Stock Appreciation Rights; Exercise Price; Adjustment of
Payments Under Certain Circumstances
. Upon exercise of Stock Appreciation Rights, the holder
shall be entitled to receive an amount of money, or a number of shares of Common Stock that have a
Fair Market Value on the date of exercise of such Stock Appreciation Rights, or a combination of
money and shares valued at Fair Market Value on such date, as the Committee may determine, equal to
the amount by which the Fair Market Value of a share of Common Stock on the date of such exercise
exceeds the Exercise Price (as hereafter defined) of the Stock Appreciation Rights, multiplied by
the number of Stock Appreciation Rights exercised; provided that in no event shall a fractional
share be issued unless the relevant plan agreement expressly provides otherwise. In the case of
Stock Appreciation Rights that are granted as a supplement to the related Option, and in the case
of free-standing Stock Appreciation Rights, the Exercise Price shall be the Fair Market Value of a
share of Common Stock on the date the Stock Appreciation Rights were granted, unless the Committee
specified a higher Exercise Price when the Stock Appreciation Rights were granted.
(e)
Effect of Stock Appreciation Rights on Share Limitations
. Subject to Section
5(e), the limitations set forth in Section 5(a) shall be charged only for the number of shares
which are actually issued in settlement of Stock Appreciation Rights.
(f)
Limitations on Exercise of Stock Appreciation Rights
. Subject to Section 16(a),
Stock Appreciation Rights shall be exercisable during the life of the Participant only by him or
his guardian or legal representative, and after death only by his or her Beneficiary. A Stock
Appreciation Right shall be considered exercised if and when the person exercising the Stock
Appreciation Right provides notice of the exercise to the Designated Representative on a properly
completed and executed form approved for this purpose by the Committee, accompanied by full payment
of any consideration in one or more of the forms authorized in the relevant plan agreement and
described in Section 8(b) for the number of Stock Appreciation Rights to be exercised.
(g)
No Discretion to Adjust Exercise Price
. The Committee shall not have authority to
adjust the exercise price of outstanding Stock Appreciation Rights, except as permitted by Section
11.
10. Changes in Control, Termination of Service, Death and Disability.
(a)
Acceleration of Rights Upon Change in Control
. Notwithstanding any provision of
the Plan to the contrary, unless the relevant plan agreement provides otherwise: (i) any Award
which is outstanding but not yet fully exercisable, vested or earned at the time of a Change in
Control shall become fully exercisable, vested or earned at that time, and (ii) any Option or Stock
Appreciation Right which is outstanding at the time of a Change in Control shall remain exercisable
for the full balance of its ten (10) year (or shorter) term, irrespective of any provision that
would otherwise cause such Option or Stock Appreciation Right to terminate sooner.
15
(b)
Discretionary Actions By Committee
. Subject to Section 10(a), and without
limitation of the Committees authority under Section 13, the Committee may:
(i) authorize the holder of an Option or Stock Appreciation Rights to exercise the
Option or Stock Appreciation Rights following the termination of the Participants
employment or service or following the Participants death or Disability, whether or not the
Option or Stock Appreciation Rights would otherwise be exercisable following such event,
provided that in no event may an Option or Stock Appreciation Rights be exercised after the
expiration of their term;
(ii) grant Options and Stock Appreciation Rights which become exercisable only in the
event of a Change in Control;
(iii) provide for Stock Appreciation Rights to be exercised automatically and only for
money in the event of a Change in Control;
(iv) authorize any Award to become non-forfeitable, fully-earned and payable following:
(A) the termination of the Participants employment or service, or (B) the Participants
death or Disability, whether or not the Award would otherwise become non-forfeitable, fully
earned and payable following such event;
(v) grant Awards which become non-forfeitable and fully earned only in the event of a
Change in Control; and
(vi) provide in advance or at the time of a Change in Control for money to be paid in
settlement of any Award in the event of a Change in Control.
11. Adjustment Provisions
. In the event that any liquidation, recapitalization, reorganization,
redesignation or reclassification, split-up, reverse split, or consolidation of shares of Common
Stock shall be effected, or the outstanding shares of Common Stock shall be, in connection with a
stock split, stock dividend, combination of shares, merger or consolidation of the Company or a
sale by the Company of all or a part of its assets, exchanged for a different number or class of
shares or other securities or property of the Company or any other entity or person, or a spin-off
or a record date for determination of holders of Common Stock entitled to receive a dividend or
other distribution payable in Common Stock or other property (other than normal cash dividends)
shall occur: (a) the maximum aggregate number and class of shares or other securities or property
that may be issued in accordance with Section 5(a) pursuant to: (i) Awards thereafter granted, and
(ii) Awards thereafter granted that are not Appreciation-Only Awards, (b) the maximum number and
class of shares or other securities or property with respect to which Options or Stock Appreciation
Rights, or Awards other than Appreciation-Only Awards and Dollar-Denominated Awards, may be granted
during any calendar year to any Employee or other Eligible Person pursuant to Section 5(a), (c) the
number and class of shares or other securities or property that may be issued or transferred under
outstanding Awards, (d) the purchase price to be paid per share under outstanding and future
Awards, and (e) the price to be paid per share by the Company or a Subsidiary for shares or other
securities or property issued pursuant to Awards which are subject to a right of the Company or a
Subsidiary to reacquire such shares or other securities or property, shall in each case be
equitably adjusted.
16
Notwithstanding the foregoing, the foregoing adjustments shall be made in compliance with: (i)
Sections 422 and 424 of the Code with respect to Incentive Stock Options; and (ii) Section 162(m)
of the Code with respect to Performance-Based Compensation Awards.
12. Effective Date and Duration of Plan
. The Plan shall be effective on the date on which the
stockholders of the Company approve it at a duly held stockholders meeting. If so approved,
Awards may be granted within ten (10) years after the date of such approval by stockholders, but
not thereafter. In no event shall an Incentive Stock Option be granted under the Plan more than ten
(10) years from the earlier of the date the Plan is adopted by the Board or the date the Plan is
approved by the stockholders of the Company.
13. Administration.
(a)
Plan Administrator
. Unless otherwise specified by the Board, the Plan shall be
administered by the Compensation Committee of the Board of Directors. No person shall be appointed
to or shall serve as a member of such committee unless he or she is an independent director as
defined in applicable rules or listing standards of the New York Stock Exchange and a non-employee
director as defined in SEC Rule 16b-3. Unless the Board determines otherwise, such committee
shall also be comprised solely of outside directors within the meaning of Section 162(m)(4)(C)(i)
of the Code and Treasury Regulation Section 1.162-27(e)(3) or a successor thereto.
(b)
Authority and Governance of the Committee
. The Committee may establish such
rules, not inconsistent with the provisions of the Plan, as it may deem necessary for the proper
administration of the Plan, and may amend or revoke any rule so established. The Committee shall,
subject to the provisions of the Plan, have sole and exclusive power and discretion to interpret,
administer, implement and construe the Plan and full authority to make all determinations and
decisions thereunder including, without limitation, the authority and discretion to: (i) determine
the persons who are Eligible Persons and select the Eligible Persons who are to participate in the
Plan, (ii) determine when Awards shall be granted, (iii) determine the number of shares and/or
amount of money to be made subject to each Award, (iv) determine the type of Award to grant, (v)
determine the terms and conditions of each Award, including the exercise price in the case of an
Option or Stock Appreciation Rights and whether specific Stock Appreciation Rights shall supplement
Option, (vi) make any adjustments pursuant to Section 11, (vii) determine whether a specific Award
is intended to qualify as Performance-Based Compensation, (viii) designate one or more persons or
agents to carry out any or all of its administrative duties hereunder including, but not limited
to, appointment of the Designated Representative (provided that none of the duties required to be
performed by the Committee under SEC Rule 16b-3 may be delegated to any other person or agent),
(ix) prescribe any legends to be affixed to certificates representing shares granted or issued
under the Plan, and (x) correct any defect, supply any omission and reconcile any inconsistency in
or between the Plan, a plan agreement and related documents. The Company shall furnish the
Committee with such clerical and other assistance as is necessary for the performance of the
Committees duties under this Plan. Without limiting the generality of the foregoing, the
Committee shall have the authority to establish and administer performance goals applicable to
Awards, and the authority to certify that such performance goals are attained, within the meaning
of Treasury Regulation Section 1.162-27(c)(4) or a successor thereto. The Committees
interpretation of the Plan, any plan agreement,
17
related documents, its administration of the Plan, and all action taken by the Committee,
shall be final, binding and conclusive on the Company, its stockholders, Subsidiaries, Allied
Enterprises, all Participants and Eligible Persons, and upon their respective Beneficiaries,
successors and assigns, and upon all other persons claiming under or through any of them.
(c)
Limitation of Liability
. Members of the Board of Directors, members of the
Committee and Company employees who are their designees acting under this Plan shall be fully
protected in relying in good faith upon the advice of counsel and shall incur no liability except
for gross or willful misconduct in the performance of their duties hereunder.
(d)
Administrative Plan Years
. The Plan shall be administered and operated on the
basis of the Plan Year. The Plan Year is the Companys annual accounting period, which is
presently the twelve (12) month period ending on May 31. 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.
14. Satisfaction of Minimum Withholding Tax Liabilities.
(a)
In General
. The Committee shall cause the Company to withhold any taxes which it
determines it is required by law or required by the terms of this Plan to withhold in connection
with any distributions incident to this Plan.
(i)
Cash Distributions
. The Committee shall cause the Company to require any
withholding tax obligation arising in connection with a cash distribution (or the cash
portion of a distribution), up to the minimum required federal, state and local withholding
taxes, including payroll taxes, to be satisfied in whole or in part, with or without the
consent of the Participant or Beneficiary.
(ii)
Share Distributions
. The Committee shall cause the Company to withhold
from any distribution of shares (including the portion of a distribution consisting of
shares) under this Plan an amount equal to the Participants or Beneficiarys minimum tax
liability arising from such distribution. The withholding amount shall be obtained pursuant
to Section 14(b). The Participant or Beneficiary shall provide the Committee with such
Stock Powers and additional information or documentation as may be necessary for the
Committee to discharge its obligations under this Section.
(b)
Withholding from Share Distributions
. With respect to a distribution of shares
pursuant to the Plan, the Committee shall cause the Company to sell the fewest number of such
shares for the proceeds of such sale to equal (or exceed by not more than that actual sale price of
a single share) the Participants Minimum Withholding Tax Liability resulting from such
distribution. The Committee shall withhold the proceeds of such sale for purposes of satisfying
the Participants Minimum Withholding Tax Liability. Notwithstanding anything contained in this
Section 14 to the contrary, the Committee shall have no obligation to withhold amounts from
distributions of shares pursuant to the exercise of Incentive Stock Options except as may otherwise
be required by law.
18
(c)
Delivery of Withholding Proceeds
. The Committee shall cause the Company to
deliver withholding proceeds to the Internal Revenue Service and/or other taxing authority in
satisfaction of a Participants tax liability arising from a distribution.
(d)
Minimum Withholding Tax Liability
. For purposes of this Section 14, the term
Minimum Withholding Tax Liability is the product of: (i) the aggregate minimum applicable
federal and applicable state and local income withholding tax rate on the date of a distribution
pursuant to the Plan; and (ii) the Fair Market Value of shares distributable to the Participant
determined as of the date of distribution.
15. Section 409A.
Unless a plan agreement approved by the Committee provides otherwise, all Awards
granted under this Plan are intended to meet the requirements for exclusion from coverage under
Code Section 409A, and all Awards shall be construed and administered accordingly.
16. General Provisions.
(a)
Non-Transferability of Awards
. No Award shall be transferable by a Participant
other than by will, by the laws of descent and distribution, or to a Beneficiary in accordance with
the Plans terms. Notwithstanding any provision of the Plan to the contrary, the Committee may
permit a Participant to transfer any Award, other than an Incentive Stock Option, during his
lifetime to such other persons and such entities and on such terms and subject to such conditions
as the Committee may provide in the relevant plan agreement.
(b)
No Right To Continued Employment
. Nothing in this Plan or any plan agreement
shall confer upon any person any right to continue in the employment of the Company, a Subsidiary
or an Allied Enterprise, or affect the right of the Company, a Subsidiary or any Allied Enterprise
to terminate the employment of any person at any time with or without cause.
(c)
Satisfaction of Legal Requirements
. No shares of Common Stock shall be issued or
transferred pursuant to an Award unless and until all legal requirements applicable to the issuance
or transfer of such shares have, in the opinion of the Committee, been satisfied. Any such
issuance or transfer shall be contingent upon the person acquiring the shares giving the Company
any assurances the Committee may deem necessary or desirable to assure compliance with all
applicable legal requirements.
(d)
Limitation on Rights Relating to Common Stock Subject to Awards
. No person
(individually or as a member of a group) and no Beneficiary or other person claiming under or
through him or her, shall have any right, title or interest in or to any shares of Common Stock
other than such shares as have been issued to him or her. The Committee may provide for the
transfer of shares of Common Stock to a trust (which may but need not be a grantor trust), escrow
arrangement or other legal entity for the purpose of satisfying the Companys obligations under
this Plan. Except as may otherwise be required by applicable law, such shares shall be considered
authorized and issued shares with full dividend and voting rights.
(e)
Compliance With Foreign Laws Governing Stock Incentives
. If the laws of a foreign
country in which the Company, a Subsidiary or any Allied Enterprise has Eligible Persons prescribe
certain requirements for stock incentives to qualify for advantageous tax
19
treatment under the laws of that country, the Board of Directors may restate this Plan for the
purpose of qualifying the restated plan and stock incentives granted thereunder under such laws or
otherwise administer this Plan in compliance with such laws; provided, however, that: (i) the
terms and conditions of a stock incentive granted under such restated plan may not be more
favorable to the recipient than would be permitted if such stock incentive had been granted under
the Plan as herein set forth; (ii) all shares allocated to or utilized for the purposes of such
restated plan shall be subject to the limitations of Section 5; (iii) the provisions of the
restated plan cannot increase the Boards discretion to amend or terminate such restated plan
beyond that provided under this Plan; and (iv) no such restatement may cause any Award under the
Plan to violate Section 409A.
(f)
No Effect on Other Plans
. Nothing in this Plan is intended to be a substitute
for, or shall preclude or limit the establishment or continuation of, any other plan, practice or
arrangement for the payment of compensation or fringe benefits to Eligible Persons. An Eligible
Person may be granted an Award whether or not he is eligible to receive similar or dissimilar
incentive compensation under any other plan, practice or arrangement.
(g)
Preservation of Capital; Contractual Obligations
. The Companys obligation to
issue shares of Common Stock or to pay money in respect of any Award shall be subject to the
condition that such issuance or payment would not impair the Companys capital or constitute a
breach of, or cause the Company to be in violation of, any covenant, warranty or representation
made by the Company in any agreement with respect to indebtedness for borrowed money to which the
Company is a party before the date of grant of such Award.
(h)
Acceptance of Plan Terms and Plan Administration
. By accepting benefits under the
Plan, each Participant, Beneficiary or other person claiming under or through him or her, shall be
conclusively deemed to have indicated his acceptance and ratification of, and consent to, all
provisions of the Plan and any action or decision under the Plan by the Company, its agents and
employees, and the Board of Directors and the Committee.
(i)
Governing Law; Waiver of Jury Trial
. The validity, construction, interpretation
and administration of the Plan and of any determinations or decisions made thereunder, and the
rights of all persons having or claiming to have any interest therein or thereunder, shall be
governed by, and determined exclusively in accordance with, the laws of the State of Delaware, but
without giving effect to the principles of conflicts of laws thereof. Without limiting the
generality of the foregoing, the period within which any action arising under or in connection with
the Plan must be commenced, shall be governed by the laws of the State of Delaware, without giving
effect to the principles of conflicts of laws thereof, irrespective of the place where the act or
omission complained of took place, the residence of any party to such action and any place where
the action may be brought. A Eligible Persons acceptance of any Award shall constitute his
irrevocable and unconditional waiver of the right to a jury trial in any action or proceeding
concerning the Award, the Plan or any rights or obligations of the Eligible Person, the Company or
any other party under or with respect to the Award or the Plan.
(j)
Gender and Number
. The use of the masculine gender shall also include within its
meaning the feminine. The use of the singular shall include within its meaning the plural and vice
versa.
20
17. Amendment and Termination
. Subject to applicable stockholder approval requirements, the Plan
may be amended by the Board of Directors at any time and in any respect. Unless stockholder
approval is obtained, no amendment shall increase the aggregate number of shares which may be
issued under the Plan, or shall permit the exercise price of outstanding Options or Stock
Appreciation Rights to be reduced, except as permitted by Section 11. The Plan may also be
terminated for any reason and at any time by the Board of Directors. Subject to applicable
stockholder approval requirements, no amendment or termination of this Plan shall materially and
adversely affect any Award granted prior to the date of such amendment or termination without the
written consent of the holder of such Award.
IN WITNESS WHEREOF, RPM International Inc., by a duly authorized officer, has caused this RPM
International Inc. Amended and Restated 2004 Omnibus Equity and Incentive Plan to be adopted
effective as of this 31st day of December, 2008.
|
|
|
|
|
|
RPM International Inc.
|
|
|
By:
|
/s/ Janeen B. Kastner
|
|
|
|
Janeen B. Kastner
|
|
|
|
Its: Vice President Corporate Benefits and
Risk Management
|
|
|
21
Exhibit 10.5
RPM INTERNATIONAL INC.
2005 DEFERRED COMPENSATION PLAN
(As Amended and Restated Generally Effective January 1, 2005)
RPM INTERNATIONAL INC.
2005 DEFERRED COMPENSATION PLAN
(Effective January 1, 2005)
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 1 INTRODUCTION
|
|
|
1
|
|
|
|
1.1
|
|
|
Name of Plan
|
|
|
1
|
|
|
|
1.2
|
|
|
Purposes of Plan
|
|
|
1
|
|
|
|
1.3
|
|
|
Effective Date
|
|
|
1
|
|
|
|
1.4
|
|
|
Administration
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 2 DEFINITIONS AND CONSTRUCTION
|
|
|
2
|
|
|
|
2.1
|
|
|
Definitions
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 3 PARTICIPATION AND ELIGIBILITY
|
|
|
8
|
|
|
|
3.1
|
|
|
Participation
|
|
|
8
|
|
|
|
3.2
|
|
|
Commencement of Participation
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 4 CONTRIBUTIONS AND VESTING
|
|
|
9
|
|
|
|
4.1
|
|
|
Deferrals by Participants
|
|
|
9
|
|
|
|
4.2
|
|
|
Election to Defer; Effect of Election Form
|
|
|
10
|
|
|
|
4.3
|
|
|
Withholding and Crediting of Annual Deferral Amounts
|
|
|
10
|
|
|
|
4.4
|
|
|
Vesting
|
|
|
10
|
|
|
|
4.5
|
|
|
FICA and Other Taxes
|
|
|
10
|
|
|
|
4.6
|
|
|
Change In Distribution Elections
Before December 31, 2008 For Code
Section 409A Amounts
|
|
|
10
|
|
|
|
4.7
|
|
|
Suspension of Contributions
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 5 ACCOUNTS
|
|
|
12
|
|
|
|
5.1
|
|
|
Establishment of Bookkeeping Accounts
|
|
|
12
|
|
|
|
5.2
|
|
|
Subaccounts
|
|
|
12
|
|
|
|
5.3
|
|
|
Earnings Elections
|
|
|
12
|
|
|
|
5.4
|
|
|
Hypothetical Accounts and Creditor Status of Participants
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 6 PAYMENT OF ACCOUNT
|
|
|
14
|
|
|
|
6.1
|
|
|
General
|
|
|
14
|
|
|
|
6.2
|
|
|
Separation from Service
|
|
|
14
|
|
|
|
6.3
|
|
|
Short-Term Payout Account
|
|
|
14
|
|
|
|
6.4
|
|
|
Distribution upon Death
|
|
|
14
|
|
|
|
6.5
|
|
|
Change in Control
|
|
|
15
|
|
|
|
6.6
|
|
|
Form of Payment
|
|
|
15
|
|
|
|
6.7
|
|
|
Latest Payment Date
|
|
|
15
|
|
|
|
6.8
|
|
|
Valuation at Distribution
|
|
|
15
|
|
|
|
6.9
|
|
|
Change in Date or Form of Distribution
|
|
|
15
|
|
|
|
6.10
|
|
|
Other Distributions
|
|
|
16
|
i
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
|
|
6.11
|
|
|
Designation of Beneficiaries
|
|
|
16
|
|
|
|
6.12
|
|
|
Change in Marital Status
|
|
|
16
|
|
|
|
6.13
|
|
|
Withdrawals for Unforeseeable Emergency
|
|
|
17
|
|
|
|
6.14
|
|
|
Withholding on Distribution
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 7 ADMINISTRATION
|
|
|
18
|
|
|
|
7.1
|
|
|
Committee Duties
|
|
|
18
|
|
|
|
7.2
|
|
|
Administration Upon Change In Control
|
|
|
18
|
|
|
|
7.3
|
|
|
Agents
|
|
|
19
|
|
|
|
7.4
|
|
|
Binding Effect of Decisions
|
|
|
19
|
|
|
|
7.5
|
|
|
Indemnity of Committee and Benefits Review Committee
|
|
|
20
|
|
|
|
7.6
|
|
|
Employer Information
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 8 CLAIMS PROCEDURES
|
|
|
21
|
|
|
|
8.1
|
|
|
Presentation of Claim
|
|
|
21
|
|
|
|
8.2
|
|
|
Notification of Decision
|
|
|
21
|
|
|
|
8.3
|
|
|
Review of a Denied Claim
|
|
|
22
|
|
|
|
8.4
|
|
|
Decision on Review
|
|
|
22
|
|
|
|
8.5
|
|
|
Legal Action
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 9 AMENDMENT AND TERMINATION
|
|
|
24
|
|
|
|
9.1
|
|
|
Amendment, Modification and Termination
|
|
|
24
|
|
|
|
9.2
|
|
|
Actions Binding on Employers
|
|
|
24
|
|
|
|
9.3
|
|
|
Distribution of Benefits on Plan Termination
|
|
|
24
|
|
|
|
9.4
|
|
|
Participation By Affiliates
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 10 TRUST
|
|
|
26
|
|
|
|
10.1
|
|
|
Establishment of the Trust
|
|
|
26
|
|
|
|
10.2
|
|
|
Interrelationship of the Plan and the Trust
|
|
|
26
|
|
|
|
10.3
|
|
|
Distributions From the Trust
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 11 MISCELLANEOUS
|
|
|
27
|
|
|
|
11.1
|
|
|
Status of Plan
|
|
|
27
|
|
|
|
11.2
|
|
|
Unsecured General Creditor
|
|
|
27
|
|
|
|
11.3
|
|
|
Employers Liability
|
|
|
27
|
|
|
|
11.4
|
|
|
Nonassignability
|
|
|
27
|
|
|
|
11.5
|
|
|
Not a Contract of Employment
|
|
|
27
|
|
|
|
11.6
|
|
|
Furnishing Information
|
|
|
28
|
|
|
|
11.7
|
|
|
Terms
|
|
|
28
|
|
|
|
11.8
|
|
|
Captions
|
|
|
28
|
|
|
|
11.9
|
|
|
Governing Law
|
|
|
28
|
|
|
|
11.10
|
|
|
Successors
|
|
|
28
|
|
|
|
11.11
|
|
|
Spouses Interest
|
|
|
28
|
|
|
|
11.12
|
|
|
Validity
|
|
|
29
|
|
|
|
11.13
|
|
|
Incompetent
|
|
|
29
|
|
|
|
11.14
|
|
|
Distribution in the Event of Taxation
|
|
|
29
|
|
|
|
11.15
|
|
|
Insurance
|
|
|
29
|
ii
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
|
|
11.16
|
|
|
Legal Fees To Enforce Rights After Change in Control
|
|
|
30
|
|
|
|
11.17
|
|
|
Coordination with Other Benefits
|
|
|
30
|
iii
RPM INTERNATIONAL INC.
2005 DEFERRED COMPENSATION PLAN
(Generally Effective January 1, 2005)
ARTICLE 1
INTRODUCTION
RPM International Inc. (the Company) hereby adopts the RPM International Inc. 2005 Deferred
Compensation Plan (the Plan).
The purposes of the Plan are to provide deferred compensation for a select group of management
or highly compensated Employees, including the opportunity to make elective deferrals under this
arrangement to supplement their elective contributions to the RPM International Inc. 401(k) Plan,
which are subject to certain limitations under the Code.
The Company maintains the RPM International Inc. Deferred Compensation Plan (Prior Plan)
which relates to amounts deferred, earned and vested as of December 31, 2004, plus earnings and
losses attributable thereto. Deferred compensation that is earned and vested as of December 31,
2004, is permitted to be exempt under Code Section 409A if the plan under which the deferral is
made is not materially modified after October 3, 2004. The Company has elected to exempt from Code
Section 409A amounts earned and vested under the Prior Plan as of December 31, 2004, which amounts
remain subject to all terms and provisions of the Prior Plan.
The Company now establishes the RPM International Inc. 2005 Deferred Compensation Plan,
effective January 1, 2005, which relates to (i) amounts deferred after December 31, 2004, and (ii)
any amounts deferred but not vested prior to January 1, 2005. The Plan is effective as of the
Effective Date; provided, however, that in general this document reflects the provisions of the
Plan in effect for periods on and after January 1, 2009. For the period between the Effective Date
and January 1, 2009, the Plan was operated in good faith compliance with Code Section 409A and
applicable transition guidance and relief thereunder (including but not limited to Notice 2007-86),
but this document is not intended to fully reflect the operation of the Plan during such period.
The Plan is effective as of the Effective Date.
The Plan shall be administered by the Administrator or its delegate(s), as set forth in
Section 7.1.
1
ARTICLE 2
DEFINITIONS AND CONSTRUCTION
For purposes of the Plan, the following words and phrases shall have the respective meanings
set forth below, unless their context clearly requires a different meaning:
(a) Account means, with respect to any Participant, the bookkeeping account or accounts
maintained by the Company to reflect the Participants Annual Deferral Amounts, together with all
earnings, gains and losses thereon.
(b) Administrator means the individual, entity or committee named to administer the Plan
pursuant to Section 7.1 or 7.2.
(c) Affiliate means any corporation or business organization during any period during which
it would be treated, together with the Company, as a single employer for purposes of Code Sections
414(b) or (c).
(d) Annual Bonus means any cash compensation, in addition to Base Annual Salary and
commissions, payable to a Participant during a Plan Year under the RPM International Inc. Amended
and Restated Incentive Compensation Plan or any Employers annual bonus plans, but excluding
amounts payable under stock options or stock appreciation rights.
(e) Annual Deferral Amount means that portion of a Participants Base Annual Salary, Annual
Bonus and Director Fees that a Participant defers in accordance with Article 4 for any one Plan
Year. The term Annual Deferral Amount shall include any Restricted Stock deferred under the Plan
in accordance with the rules of the Plan as in effect prior to January 1, 2006.
(f) Base Annual Salary means the annual cash compensation relating to services performed
during any Plan Year, excluding bonuses, commissions, overtime, fringe benefits, stock options,
relocation expenses, incentive payments, non-monetary awards, director fees and other fees, and
automobile and other allowances paid to a Participant for employment services rendered (whether or
not such allowances are included in the Employees gross income). Base Annual Salary shall be
calculated before reduction for compensation voluntarily deferred or contributed by the Participant
pursuant to all qualified or non-qualified plans of any Employer and shall be calculated to include
amounts not otherwise included in the Participants gross income under Code Sections 125, 402(e)(3)
or 402(h) pursuant to plans established by any Employer; provided, however, that all such amounts
will be included in compensation only to the extent that had there been no such plan, the amount
would have been payable in cash to the Employee.
(g) Base Annual Salary Deferral means the amount of a Participants Base Annual Salary which
the Participant elects to have withheld and credited to his Account pursuant to Section 4.1.
2
(h) Beneficiary means the person or persons designated in accordance with Section 6.11 to
receive benefits in the event of the Participants death prior to complete distribution of his
Account.
(i) Benefits Review Committee means the committee named to review denied claims under the
Plan pursuant to Section 8.3.
(j) Board means the Board of Directors of the Company.
(k) Bonus Deferral means the amount of a Participants Annual Bonus Compensation which the
Participant elects to have withheld and credited to his Account pursuant to Section 4.1.
(l) Change in Control means the occurrence, at any time, of any of the following events:
(i) Any one person, or more than one person acting as a group, acquires ownership of
stock of the Company that, together with stock held by such person or group, constitutes
more than 50% of the total fair market value or total voting power of the stock of the
Company. However, if any one person, or more than one person acting as a group, is
considered to own more than 50% of the total fair market value or total voting power of the
stock of the Company, the acquisition of additional stock by the same person or persons is
not considered to cause a Change in Control. An increase in the percentage of stock owned by
any one person, or persons acting as a group, as a result of a transaction in which the
Company acquires its stock in exchange for property will be treated as an acquisition of
stock for purposes of this subsection. This subsection applies only when there is a
transfer of stock of the Company (or issuance of stock of the Company) and stock in the
Company remains outstanding after the transaction.
(ii) Any one person, or more than one person acting as a group, acquires (or has
acquired during the 12-month period ending on the date of the most recent acquisition by
such person or persons) ownership of stock of the Company possessing 35% or more of the
total voting power of the stock of the Company.
(iii) A majority of members of the Board of Directors is replaced during any 12-month
period by Directors whose appointment or election is not endorsed by a majority of the
members of the Board of Directors prior to the date of the appointment or election.
(iv) Any one person, or more than one person acting as a group. acquires (or has
acquired during the 12-month period ending on the date of the most recent acquisition by
such person or persons) assets from the Company that have a total gross fair market value
equal to or more than 40% of the total gross fair market value of all of the assets of the
Company immediately prior to such acquisition or acquisitions.
For purposes of this Section, persons will be considered to be acting as a group if they are owners
of a corporation that enters into a merger, consolidation, purchase or acquisition of stock,
3
or similar business transaction with the Company. If a person, including an entity, owns stock in
both corporations that enter into a merger, consolidation, purchase or acquisition of stock, or
similar transaction, such shareholder is considered to be acting as a group with other shareholders
in a corporation prior to the transaction giving rise to the change and not with respect to the
ownership interest in the other corporation.
(m) Code means the Internal Revenue Code of 1986, as amended from time to time. Whenever a
reference is made to a specific Section of the Code, such reference shall be deemed to include any
successor Sections of the Code having the same or similar purpose. In general, a reference to the
Code will include all lawful regulations and pronouncements promulgated thereunder; including
without limitation all applicable transition relief with respect to Code Section 409A.
(n) Company means RPM International Inc., a Delaware corporation, and any successor thereto.
(o) Deferral Account means (i) the sum of all of a Participants Annual Deferral Amounts
other
than
any amounts designated as Short-Term Payouts, plus (ii) investment
earnings and losses attributable thereto, less (iii) all distributions made to the Participant or
his Beneficiary pursuant to this Plan from his Deferral Account.
(p) Deferral Period means with respect to any Short-Term Payout elected with respect to an
Annual Deferral Amount, the period for which such Short-Term Payout is to be deferred under the
Plan.
(q) Director means a member of the Board of Directors of the Company.
(r) Director Fees means the fees paid by the Company, including retainer fees and meetings
fees, as compensation for serving on the Board of Directors.
(s) Disability means the Participant is determined to be totally disabled by the Social
Security Administration, or is determined to be disabled in accordance with a long-term disability
insurance program of the Company or any Affiliate.
(t) Effective Date means January 1, 2005, except where a different date is specifically set
forth.
(u) Election Form means the written agreement pursuant to which the Participant elects the
amount of his Base Annual Salary, Annual Bonus and/or Director Fees to be deferred pursuant to the
Plan, makes any related Short-Term Payout Election, if applicable, elects the deemed investment of
amounts deferred and the time and form of payment of such amounts and addresses such other matters
as the Administrator shall determine from time to time.
(v) Employee means any common-law employee of the Company or any Affiliate.
4
(w) Employer means the Company and any Affiliate that has been selected by the Board to
participate in the Plan.
(x) ERISA means the Employee Retirement Income Security Act of 1974, as amended from time to
time, and all lawful regulations and pronouncements promulgated thereunder. Whenever a reference
is made to a specific Section of ERISA, such reference shall be deemed to include any successor
Sections of ERISA having the same or similar purpose.
(y) 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.
(z) 401(k) Plan means the RPM International Inc. 401(k) Plan, as amended and restated on
January 1, 2004, and as amended from time to time thereafter.
(aa) Latest Payment Date means, with respect to any payment due hereunder, the latest date
by which such payment can be made so as to constitute payment on the date that such payment is
otherwise designated hereunder to be made under Code Section 409A, including under certain
provisions of such section which may be summarized as follows:
(i) The date designated for payment under the terms of the Plan or a later date in the
same calendar year or, if later, the fifteenth (15th) day of the third calendar month
following the date designated for payment.
(ii) If calculation of the amount of the benefit is not administratively practicable
due to events beyond the control of the Participant (or the Participants Beneficiary), any
date within the first taxable year of the Participant in which calculation of the payment is
administratively practicable.
(iii) If making the payment on the date designated under the terms of the Plan would
jeopardize the ability of the Company and Affiliates to continue as a going concern, the
first taxable year of the Participant in which making the payment would not have such
effect.
(iv) If there is a delay in payment by the Administrator other than with the express or
implied consent of the Participant, the first taxable year of the Participant in which the
dispute is resolved. The dispute shall be deemed resolved on the earliest date upon which:
(a) the Participant and the Administrator or the Company enter into a legally binding
settlement, (b) the Administrator or the Company concedes that an amount is payable, or (c)
the Administrator or the Company is required to make payment pursuant to a final
non-appealable judgment or other binding decision. The foregoing provisions shall apply only
if, during the period of the dispute, the Participant accepts any portion of the payment the
Administrator or the Company is willing to make (unless acceptance will result in
relinquishment of the claim to any remaining portion), and makes prompt and reasonable good
faith efforts to collect the remaining portion of the payment which meet the requirements of
Code Section 409A (including the timely notice requirements).
5
(v) In the event the payment fails to fails to comply with Federal securities laws or
other laws, the earliest date at which the Company reasonably anticipates that the making of
the payment will not cause such violation.
(vi) In the event the payment fails to be deductible under Code Section 162(m), or
meets other conditions specified by the Commissioner of the Internal Revenue Service, such
later date as may be provided under Code Section 409A.
(bb) Participant means each Employee or Director who has been selected for participation in
the Plan and who has become a Participant pursuant to Article 3.
(cc) Plan means the RPM International Inc. 2005 Deferred Compensation Plan, as in effect on
the Effective Date, and as amended from time to time hereafter.
(dd) Plan Agreement means the written agreement under which an eligible Employee or Director
agrees to participate in the Plan in accordance with its terms.
(ee) Plan Year means the twelve-consecutive month period commencing January 1 of each year
ending on the following December 31.
(ff) Restricted Stock means any award of shares of restricted stock that was unvested as of
December 31, 2004 and which became vested on or before May 31, 2006.
(gg) Retirement means (i) with respect to an Employee, Separation from Service from all
Employers for any reason other than death on or after attainment of age 55 and 5 Years of Service,
and (ii) with respect to a Director who is not an Employee, means a Separation from Service from
the Company on or after the attainment of age seventy (70).
(hh) Separation from Service means:
(i) with respect to any Employee who is a Participant, the separation from service
within the meaning of Code Section 409A, of such Participant with the Company and all of its
Affiliates, for any reason, including without limitation, quit, discharge, or retirement, or
a leave of absence (including military leave, sick leave, or other bona fide leave of
absence such as temporary employment by the government if the period of such leave exceeds
the greater of six months, or the period for which the Participants right to reemployment
is provided either by statute or by contract) or permanent decrease in service to a level
that is no more than Twenty Percent (20%) of its prior level. For this purposes, whether a
Separation from Service has occurred is determined based on whether it is reasonably
anticipated that no further services will be performed by the Participant after a certain
date or that the level of bona fide services the Participant will perform after such date
(whether as an employee or as an independent contractor) would permanently decrease to no
more than Twenty Percent (20%) of the average level of bona fide services performed (whether
as an employee or an independent contractor) over the immediately preceding 36-month period
(or the full period of services if the Participant has been providing services less than 36
months).
6
(ii) with respect to any Director who is a Participant but is not an Employee, the
expiration of the term for which the Director performs services as a Director, if such
expiration constitutes a good-faith and complete termination of the term for providing
services.
(ii) Short-Term Payout means that portion of a Participants Annual Deferral Amount that the
Participant elects to have distributed in a specific year, in accordance with Section 4.2.
(jj) Short-Term Payout Account means (i) the sum of a Participants Short-Term Payouts, plus
(ii) investment earnings and losses attributable thereto, less (iii) all distributions made to the
Participant or his Beneficiary pursuant to this Plan from his Short-Term Payout Account. The
Short-Term Payout Account shall be subdivided into separate accounts with respect to each separate
Short-Term Payout elected by the Participant.
(kk) Stock means RPM International Inc. authorized shares of common stock (par value $0.01
per share).
(ll) 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.
(mm) Unforeseeable Emergency means a sudden and unexpected illness or accident of the
Participant or of a dependent (as defined in section 152 of the Code without regard to Code
Sections 152(b)(1), (b)(2), and (d)(1)(B)) of the Participant, loss of the Participants property
due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result
of events beyond the control of the Participant.
(nn) Valuation Date means each business day.
(oo) Voting Power means, at any time, the total votes relating to the then-outstanding
securities entitled to vote generally in the election of Directors.
(pp) Voting Stock means, at any time, the then-outstanding securities entitled to vote
generally in the election of Directors.
(qq) Years of Service means the total number of full years of employment in which a
Participant has been employed by one or more Employers. For purposes of this definition, a year of
employment shall be a 365 day period (or 366 day period in the case of a leap year) that, for the
first year of employment, commences on the Employees date of hiring and that, for any subsequent
year, commences on an anniversary of that hiring date.
7
ARTICLE 3
PARTICIPATION AND ELIGIBILITY
Individuals eligible to become Participants in the Plan are (a) those Employees who are (i)
subject to the income tax laws of the United States, (ii) members of a select group of highly
compensated or management Employees, and (iii) selected by the Administrator, in its sole
discretion, as Participants, and (b) Directors. The Administrator shall notify each Participant of
his selection as a Participant. Subject to Section 3.3, an individual who satisfies the
eligibility requirements set forth in subsections (a) and (b) of Section 3.2 below shall remain
eligible to continue participation in the Plan for each Plan Year following his selection as a
Participant as long as he continues to meet such eligibility requirements.
|
3.2
|
|
Commencement of Participation.
|
(a) Except as provided in subsection (b) below, an Employee shall become a Participant
effective as of the first day of the Plan Year with respect to which he has timely completed and
filed an Election Form and, with respect to his first year of participation, a Plan Agreement in
accordance with Section 4.1(a).
(b) If the Administrator so determines in its sole discretion, a newly-hired Employee or
Director who is determined to be eligible to become a Participant, and who completes a Plan
Agreement and an Election Form within 30 days after the date on which he becomes eligible to
participate, shall become a Participant on the first day of the month following the month in which
his Plan Agreement and Election Form are filed with the Administrator; provided that the
Administrator has determined that such mid-year entry does not violate the requirements of Code
Section 409A.
8
ARTICLE 4
CONTRIBUTIONS AND VESTING
|
4.1
|
|
Deferrals by Participants.
|
(a) All elections under the Plan shall be subject to any such rules as may be prescribed by
the Administrator in its sole discretion, subject to the terms of this Plan. Before the first day
of each calendar year, a Participant may file with the Administrator an Election Form pursuant to
which such Participant elects to defer Base Annual Salary or Director Fees. A Participant must
file an Election Form to defer Annual Bonus at a time prescribed by the Administrator, which time
shall be not later than six (6) months before the end of the 12 month or longer period over which
the services upon which the Annual Bonus is based are performed. Prior to June 1, 2006, a
Participant had the right to defer Restricted Stock by filing an Election Form with the
Administrator no later than six months before the Restricted Stock was scheduled to become vested.
Notwithstanding the foregoing, a Participant who commences participation in accordance with Section
3.2(b) will be considered to have made a timely deferral election.
(b) A Participants deferral election shall be stated in whole percentages, subject to
maximums set forth below:
|
|
|
|
|
Base Annual Salary
|
|
|
90
|
%
|
Annual Bonus
|
|
|
90
|
%
|
Director Fees
|
|
|
100
|
%
|
Restricted Stock
|
|
|
100
|
%
|
The minimum Annual Deferral Amount that may be elected by a Participant who is an Employee shall be
$5,000. If no election is made with respect to any category, the amount deferred for such category
shall be zero.
(c)
Short Plan Year
. Notwithstanding the foregoing, if a Participant first becomes a
Participant after the first day of a Plan Year pursuant to Section 3.2(b), the maximum Annual
Deferral Amount (i) with respect to Base Annual Salary and Director Fees shall be limited to the
amount of compensation not yet earned by the Participant as of the date the Participant becomes a
Participant in accordance with Section 3.2(b), and (ii) with respect to Annual Bonus shall be
limited to a ratable portion of the Annual Bonus determined by multiplying the total of such
amounts by the ratio of the days remaining in the performance period over the total number of days
in the performance period.
9
|
4.2
|
|
Election to Defer; Effect of Election Form.
|
(a) A Participants election will be valid only if the Election Form is properly completed by
the Participant, timely delivered to the Administrator in accordance with Section 4.1(a) above and
accepted by the Administrator. A Participants election will become irrevocable on the last day on
which such election may be made under Section 4.1(a). If no Election Form is filed for a Plan
Year, the Annual Deferral Amount for such Plan Year shall be zero.
(b) A Participant shall designate in his Election Form what portion, if any, of his Annual
Deferral Amount shall be a Short-Term Payout and shall designate a Deferral Period for such
Short-Term Payout that shall not be less than three (3) full Plan Years following the end of the
Plan Year in which the deferral is made.
(c) Notwithstanding the foregoing, the Company may cancel a Participants deferral election if
the Committee determines that he has suffered an Unforeseeable Emergency.
|
4.3
|
|
Withholding and Crediting of Annual Deferral Amounts.
|
For each Plan Year, the Base Annual Salary portion of the Annual Deferral Amount shall be
withheld from each regularly scheduled Base Annual Salary payroll in equal amounts (or the total
equivalent if necessary to make adjustments for administrative purposes), as adjusted from time to
time for increases and decreases in Base Annual Salary. The Annual Bonus and/or Director Fees
portion of the Annual Deferral Amount shall be withheld at the time the Annual Bonus or Director
Fees are or otherwise would be paid to the Participant. Annual Deferral Amounts, if any, shall be
credited to the appropriate subaccount within a Participants Deferral Account as soon as
practicable after such amounts would otherwise have been paid to the Participant.
A Participant shall at all times be 100% vested in his or her Account.
|
4.5
|
|
FICA and Other Taxes.
|
Annual Deferral Amounts
. For each Plan Year in which an Annual Deferral Amount is
being withheld from a Participant, the Participants Employer(s) shall withhold from that portion
of the Participants Base Annual Salary and/or Annual Bonus that are not being deferred, in a
manner determined by the Employer(s), the Participants share of FICA and other employment taxes on
such Annual Deferral Amount. If necessary, the Administrator may reduce the Annual Deferral Amount
in order to comply with this Section.
|
4.6
|
|
Change In Distribution Elections Before December 31, 2008 For
Code Section 409A Amounts
.
|
A Participants vested Account balance shall be paid as provided by the Plan and, where
permitted under the Plan, as elected by the Participant. At such times as permitted by the
10
Administrator on or before December 31, 2008, in accordance with rules set forth by the
Administrator pursuant to guidance under Code Section 409A, a Participant may change his or her
payment elections (including any election regarding the form and timing of a payment) for vested
amounts and benefits of the Plan that are subject to Code Section 409A and that are deferred prior
to the election. A Participant may not in any calendar year, however, change any payment election
with respect to any vested amounts or benefits subject to Code Section 409A that he or she would
otherwise receive in such calendar year, or cause any such amount or benefit to be paid in such
calendar year that would otherwise not be received in such calendar year.
|
4.7
|
|
Suspension of Contributions.
|
Anything contained herein to the contrary notwithstanding, a Participant who receives a
distribution from the Plan due to an Unforeseeable Emergency under Section 6.14 shall not be
eligible to make deferrals hereunder for a six (6) month period after receipt of such distribution.
If required by the terms of the 401(k) Plan, a Participant who receives a hardship distribution
under the 401(k) Plan shall not be eligible to make deferrals under this Plan for a six (6) month
period after receipt of the hardship distribution.
11
ARTICLE 5
ACCOUNTS
|
5.1
|
|
Establishment of Bookkeeping Accounts.
|
A separate bookkeeping Account or Accounts shall be maintained for each Participant. Such
Account(s) shall be credited with the Annual Deferral Amount elected by the Participant pursuant to
Section 4.1 and credited (or charged, as the case may be) with the hypothetical investment results
determined pursuant to Section 5.3, and charged with distributions made to or with respect to a
Participant.
Within each Participants bookkeeping Account, separate subaccounts shall be maintained to the
extent necessary or desirable for the administration of the Plan. In particular, Accounts shall be
subdivided into Deferral Accounts and Short-Term Payout Accounts, plus any other subaccounts the
Administrator deems necessary or desirable.
(a) Amounts credited to a Participants Account shall be credited or charged with earnings and
losses based on one or more measurement funds (Measurement Funds) selected by the Participant
from among those made available under the Plan. Except as may be specifically determined by the
Administrator and communicated to Participants, Participants shall have the option to allocate the
amounts credited to their Accounts among the Measurement Funds, which allocations may be changed at
any time. The Measurement Funds shall be based on certain mutual funds and/or Company Stock, as
determined by the Administrator in its sole discretion. A Participant may elect different
investment allocations for new contributions and existing Account balances. Only whole percentages
may be elected, the minimum percentage for any allocation is 1%, and the total elections must
allocate 100% of all new contributions and 100% of all existing Account balances. If a Participant
does not elect any of the Measurement Funds, the Participants Account Balance shall automatically
be allocated to a Measurement Fund determined by the Administrator in its sole discretion. The
Measurement Funds and the procedures relating to the election of and any changes to such investment
elections, shall be determined by the Administrator from time to time. A Participants Account
shall be adjusted as of each Valuation Date to reflect investment gains and losses.
(b) (i) The value of a Participants Account Balance that has been allocated to any
Measurement Fund based on Company Stock may be adjusted by the Administrator in its sole
discretion to prevent dilution or enlargement of a Participants rights in the event of any
reorganization, merger or other corporate transaction as that term is defined in
regulations promulgated under Code Section 424.
(ii) Notwithstanding the foregoing provisions of this Subsection (b), the Company in
its sole discretion, shall have the authority to place such restrictions upon the investment
directions of any person who is subject to Section 16(b) of the Securities Exchange Act of
1934 as amended (Insider) as shall be appropriate to comply with such section.
12
|
5.4
|
|
Hypothetical Accounts and Creditor Status of Participants.
|
The Accounts established under this Article 5 shall be hypothetical in nature and shall be
maintained for bookkeeping purposes only, so that Annual Deferral Amounts can be credited to the
Participant and so that earnings and losses on such amounts so credited can be credited (or
charged, as the case may be). Neither the Plan nor any of the Accounts (or subaccounts) shall hold
any actual funds or assets. The right of any person to receive one or more payments under the Plan
shall be an unsecured claim against the general assets of the Company. Any liability of the
Company to any Participant, former Participant, or Beneficiary with respect to a right to payment
shall be based solely upon contractual obligations created by the Plan. Neither the Company, the
Board, nor any other person shall be deemed to be a trustee of any amounts to be paid under the
Plan. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create
or be construed to create a trust of any kind (other than a rabbi trust), or a fiduciary
relationship, between the Company and a Participant, former Participant, Beneficiary, or any other
person.
13
ARTICLE 6
PAYMENT OF ACCOUNT
A Participant (or in the event of his death, his Beneficiary) shall be entitled to receive
distribution of the vested amounts held in his Deferral Account and/or Short-term Payout Account
upon Separation from Service, expiration of the Deferral Period for a Short-Term Payout, death or a
Change in Control, in accordance with the rules set forth below. Any amounts in such Accounts that
are not vested under Section 6.4 at the time distribution begins shall be forfeited.
|
6.2
|
|
Separation from Service.
|
A Participant shall be entitled to receive distribution of his Deferral Account upon
Separation of Service. Payment of a Participants Deferral Account following a Separation from
Service will be made or will begin to be made as soon as practicable following the date of
Separation from Service for Participants who are not specified employees and as of the first day
of the seventh month beginning after Separation from Service for Participants who are specified
employees. For purposes of this Section, a specified employee is any Participant other than a
member of the Board of Directors who is not an Employee and any Participant who was a Participant
in the DAP Products, Inc. Supplemental Executive Retirement and Deferred Compensation Plan, as in
existence prior to its merger into the Prior Plan, unless such Participant is an officer of DAP
Products, Inc. at the time distribution would otherwise be made.
|
6.3
|
|
Short-Term Payout Account.
|
A Participant shall be entitled to receive payment of each Short-Term subaccount held within
his Short-Term Payout Account in accordance with the date or dates elected by the Participant in
his Election Forms. Each payment from a Participants Short-Term Payout Account will be made
within the first 60 days of the Plan Year following expiration of the Deferral Period with respect
to the relevant Short-Term Payout. Unless a Participant has elected otherwise in his Election Form
with respect to a Short-Term Payout, all amounts remaining in a Participants Short-Term Payout
Account upon a Separation from Service or upon death shall be transferred to the Participants
Deferral Account and thereafter distributed according to the time and form applicable for
distribution of the Participants Deferral Account.
|
6.4
|
|
Distribution upon Death.
|
In the event of a Participants death when any amounts remain credited to his Deferral Account
or Short-Term Payout Account, his Beneficiary shall be entitled to receive distribution of the
balance credited to such Account(s) paid in a single lump sum payment within 60 days following the
date the Administrator is provided with proof satisfactory to it of the Participants death.
14
Notwithstanding anything herein to the contrary, in the event of a Change in Control, a
Participant shall be entitled to receive distribution of the balance credited to his Deferral
Account and Short-Term Payout Account in a single lump sum payment within 30 days following such
Change in Control.
All payments hereunder shall be in the form of a single lump sum payment, except that a
Participant may elect that if he incurs a Separation from Service due to Retirement, and if his
total Account value exceeds the applicable dollar amount specified in Code Section 402(g), as
adjusted in accordance with Section 402(g)(5), his Deferral Account shall be paid to him in the
form of annual installments paid over a period not to exceed 10 years. Except as otherwise
determined by the Administrator in its sole discretion, all payments shall be made in the form of
cash.
Any distribution under this Plan shall be treated as made on the date otherwise provided for
such payment if it is made not later than the Latest Payment Date with respect to such payment.
|
6.8
|
|
Valuation at Distribution.
|
The balance of a Participants Account shall be determined as of the Valuation Date coincident
with or next preceding the date of the event giving rise to the distribution under Section 6.2,
6.3, 6.4 or 6.5 above; provided, however, that if a specified employee is entitled to
distribution pursuant to 6.2 above, his Account shall be determined as of the Valuation Date
coincident or next preceding the last day of the sixth month beginning after Separation from
Service.
|
6.9
|
|
Change in Date or Form of Distribution.
|
(a) A Participant may elect one time to change his elected form of distribution of his
Deferral Account upon a Separation from Service due to Retirement, to another form available under
Section 6.6, in accordance with such procedures as may be adopted by the Administrator subject to
Code Section 409A.
(b) A Participant may also elect one time to change the time of commencement of distribution
of his Deferral Account or Short-Term Payout Account to another date or dates one time, in
accordance with such procedures as may be adopted by the Administrator subject to Code Section
409A.
(c) Any such revision to the date or form of any payment under this Section shall be made at
least 12 months prior to the first distribution date previously in effect with respect to such
amount and shall delay distribution of such amount by at least 5 years from the date the payment
would have otherwise been made hereunder.
15
|
6.10
|
|
Other Distributions.
|
To the extent the Administrator determines to be consistent with Code Section 409A, the
Administrator may distribute all or part of a Participants Accounts to the extent that
acceleration of benefits is permissible in other limited circumstances pursuant to regulations and
other guidance under Code Section 409A, including but not limited to those circumstances detailed
in Sections 11.15 and 11.16.
|
6.11
|
|
Designation of Beneficiaries.
|
(a) Each Participant shall have the right, at any time, to designate one (1) or more persons
or an entity as Beneficiary (both primary as well as secondary) to whom benefits under this Plan
shall be paid in the event of a Participants death prior to complete distribution of the
Participants Account. Each Beneficiary designation shall be in a written form prescribed by the
Administrator and will be effective only when filed with the Administrator during the Participants
lifetime. A designation by a married Participant of a Beneficiary other than the Participants
spouse shall not be effective unless the spouse executes a written consent that acknowledges the
effect of the designation and is witnessed by a notary public, or the consent cannot be obtained
because the spouse cannot be located.
(b) Any nonspousal designation of Beneficiary may be changed by a Participant without the
consent of such Beneficiary by the filing of a new designation with the Administrator. The filing
of a new designation shall cancel all designations previously filed.
(c) If any Participant fails to designate a Beneficiary in the manner provided above, or if
the Beneficiary designated by a deceased Participant dies before the Participant or before complete
distribution of the Participants benefits, the Participants Beneficiary shall be the
Participants surviving spouse or, if there is no surviving spouse, the Participants estate.
|
6.12
|
|
Change in Marital Status.
|
If the Participants marital status changes after the Participant has designated a
Beneficiary, the following shall apply:
(a) If the Participant is married at death but was unmarried when the designation was made,
the designation shall be void unless the spouse has consented to it in the manner prescribed above.
(b) If the Participant is unmarried at death but was married when the designation was made:
(i) The designation shall be void if the spouse was named as Beneficiary. The
designation shall remain valid if a nonspouse Beneficiary was named.
(ii) If the Participant was married when the designation was made and is married to a
different spouse at death, the designation shall be void unless the new spouse has consented
to it in the manner prescribed above.
16
|
6.13
|
|
Withdrawals for Unforeseeable Emergency.
|
In accordance with procedures established by the Administrator, a Participant may apply to the
Administrator for, and the Administrator may permit, a withdrawal of all or any part of a
Participants Deferral Account, together with all earnings, gains and losses thereon, if the
Administrator, in its sole discretion, determines that the Participant has incurred an
Unforeseeable Emergency. The amount that may be withdrawn shall be limited to the amount
reasonably necessary to relieve the Unforeseeable Emergency upon which the request is based, plus
the federal and state taxes due on the withdrawal, as determined by the Administrator. The
Administrator may require a Participant who requests a withdrawal on account of an Unforeseeable
Emergency to submit such evidence as the Administrator, in its sole discretion, deems necessary or
appropriate to substantiate the circumstances upon which the request is based and the
unavailability of other resources with which the Participant may relieve the Unforeseeable
Emergency.
|
6.14
|
|
Withholding on Distribution.
|
There may be withheld from any payment made in cash or in kind under the Plan such amount or
amounts as may be required for purposes of complying with the tax withholding or other provisions
of the Code or the Social Security Act or any state or local income or employment tax act or for
purposes of paying any estate, inheritance or other tax attributable to any amounts payable
hereunder.
17
ARTICLE 7
ADMINISTRATION
Except as otherwise provided in this Article 7, this Plan shall be administered by a committee
(Committee) which shall consist of the Board, or such committee as the Board shall appoint.
Members of the Committee may be Participants under this Plan, except that no Participant shall vote
or act upon any matter relating solely to himself or herself. The Committee shall also have the
discretion and authority to (i) make, amend, interpret, and enforce all appropriate rules and
regulations for the administration of this Plan and (ii) decide or resolve any and all questions
including interpretations of this Plan, as may arise in connection with the Plan. The Committee
may, from time to time, designate one or more persons or agents to carry out any or all of its
duties hereunder. Any individual serving on the Committee who is a Participant shall not vote or
act on any matter relating solely to himself or herself. When making a determination or
calculation, the Committee shall be entitled to rely on information furnished by a Participant or
the Company.
|
7.2
|
|
Administration Upon Change In Control.
|
(a)
Administrator
. For purposes of this Plan, the Committee shall be the
Administrator at all times prior to the occurrence of a Change in Control. Upon and after the
occurrence of a Change in Control, the Administrator shall be an independent third party selected
by the individual who, immediately prior to such event, was the Companys Chief Executive Officer
or, if not so identified, the Companys highest ranking officer (the Ex-CEO). In the event the
Chief Executive Officer or highest ranking officer is not able to perform the duties and
responsibilities of the Ex-CEO, the next highest ranking officer of the Company able to perform
such duties and responsibilities shall act as the Ex-CEO. The Committee, however, as constituted
immediately prior to a Change in Control, shall continue to act as the Administrator of this Plan
until the date on which the independent third party selected by the Ex-CEO accepts the
responsibilities of Administrator under this Plan. The Administrator shall have the discretionary
power to determine all questions arising in connection with the administration of the Plan and the
interpretation of the Plan and Trust except benefit entitlement determinations upon appeal;
provided, however, upon and after the occurrence of a Change in Control, the Administrator shall
have no power to direct the investment of Plan or Trust assets or select any investment manager or
custodial firm for the Plan or Trust. Upon and after the occurrence of a Change in Control, the
Company must: (1) pay all reasonable administrative expenses and fees of the Administrator; (2)
indemnify the Administrator against any costs, expenses and liabilities including, without
limitation, attorneys fees and expenses arising in connection with the performance of the
Administrator hereunder, except with respect to matters resulting from the gross negligence or
willful misconduct of the Administrator or its employees or agents; and (3) supply full and timely
information to the Administrator on all matters relating to the Plan, the Trust, the Participants
and their Beneficiaries, the Account balances of the Participants, the date and circumstances of
the Retirement, death or Termination of Employment of the Participants, and such other pertinent
information as the Administrator may reasonably require. Upon and
18
after a Change in Control, the Administrator may only be terminated (and a replacement
appointed) by the Ex-CEO. Upon and after a Change in Control, the Administrator may not be
terminated by the Company.
(b)
Benefit Review Committee
. Upon and after the occurrence of a Change in Control,
the Benefits Review Committee, as constituted immediately prior to a Change in Control, shall
continue to review denied claims as provided in Section 8.3 of this Plan. In the event any member
of the Benefits Review Committee resigns or is unable to perform the duties of a member of the
Benefits Review Committee, successors to such members shall be selected by the Ex-CEO. Upon and
after a Change in Control, the Benefits Review Committee shall have the discretionary power and
authority to determine all questions arising in connection with the review of a denied claim as
provided in Section 8.3. Upon and after the occurrence of a Change in Control, the Company must:
(1) pay all reasonable administrative expenses and fees of the Benefits Review Committee; (2)
indemnify the Benefits Review Committee against any costs, expenses and liabilities including,
without limitation, attorneys fees and expenses arising in connection with the performance of the
Benefits Review Committee hereunder, except with respect to matters resulting from the gross
negligence or willful misconduct of the Benefits Review Committee or its employees or agents; and
(3) supply full and timely information to the Benefits Review Committee on all matters relating to
the Plan, the Trust, the Participants and their Beneficiaries, the Account balances of the
Participants, the date and circumstances of the Retirement, death or Termination of Employment of
the Participants, and such other pertinent information as the Benefits Review Committee may
reasonably require. Upon and after a Change in Control, a member of the Benefits Review Committee
may not be removed by the Company but may only be removed (and a replacement appointed) by the
Ex-CEO.
In the administration of this Plan, the Committee and the Benefits Review Committee may, from
time to time, designate one or more persons or agents and delegate to them such duties as it sees
fit (including acting through a duly appointed representative), and any reference herein to the
Committee or Benefits Review Committee shall be construed as a reference to such persons or agents.
The Committee and Benefits Review Committee may from time to time consult with counsel who may be
counsel to any Employer.
|
7.4
|
|
Binding Effect of Decisions.
|
Unless appealed to the Benefits Review Committee, the decision or action of the Committee or
Administrator with respect to any question arising out of or in connection with the administration,
interpretation and application of the Plan and the rules and regulations promulgated hereunder
shall be final and conclusive and binding upon all persons having any interest in the Plan. If
such decision or action is appealed under the provisions of this Plan, then the decision or action
of the Benefits Review Committee shall be final and conclusive and binding upon all persons having
any interest in the Plan.
19
|
7.5
|
|
Indemnity of Committee and Benefits Review Committee.
|
All Employers shall indemnify and hold harmless the members of the Committee and the Benefits
Review Committee, any Employee to whom the duties of the Committee or Benefits Review Committee may
be delegated, and the Administrator against any and all claims, losses, damages, expenses or
liabilities arising from any action or failure to act with respect to this Plan, except in the case
of willful misconduct by the Committee, the Benefits Review Committee any of the members of the
Committee or Benefits Review Committee, any such Employee or the Administrator.
|
7.6
|
|
Employer Information.
|
To enable the Committee, the Benefits Review Committee and/or Administrator to perform its
functions, the Company and each Employer shall supply full and timely information to the Committee,
the Benefits Review Committee and/or Administrator, as the case may be, on all matters relating to
the compensation of its Participants, the date and circumstances of the Retirement, death or
Termination of Employment of its Participants, and such other pertinent information as the
Committee, the Benefits Review Committee and/or Administrator may reasonably require.
20
ARTICLE 8
CLAIMS PROCEDURES
|
8.1
|
|
Presentation of Claim.
|
Any Participant or Beneficiary of a deceased Participant (such Participant or Beneficiary
being referred to below as a Claimant) may deliver to the Committee at the Company headquarters a
written claim for a determination with respect to the amounts distributable to such Claimant from
the Plan. If such a claim relates to the contents of a notice received by the Claimant, the claim
must be made within sixty (60) days after such notice was received by the Claimant. All other
claims must be made within 180 days of the date on which the event that caused the claim to arise
occurred. The claim must state with particularity the determination desired by the Claimant.
|
8.2
|
|
Notification of Decision.
|
The Committee shall consider a Claimants claim within a reasonable time, but no later than
ninety (90) days after receiving the claim. If the Committee determines that special circumstances
require an extension of time for processing the claim, written notice of the extension shall be
furnished to the Claimant prior to the termination of the initial ninety (90) day period. In no
event shall such extension exceed a period of ninety (90) days from the end of the initial period.
The extension notice shall indicate the special circumstances requiring an extension of time and
the date by which the Committee expects to render the benefit determination. The Committee shall
notify the Claimant in writing:
(a) that the Claimants requested determination has been made, and that the claim has been
allowed in full; or
(b) that the Committee has reached a conclusion contrary, in whole or in part, to the
Claimants requested determination, and such notice must set forth in a manner calculated to be
understood by the Claimant:
(i) the specific reason(s) for the denial of the claim, or any part of it;
(ii) specific reference(s) to pertinent provisions of the Plan upon which such denial
was based;
(iii) a description of any additional material or information necessary for the
Claimant to perfect the claim, and an explanation of why such material or information is
necessary;
(iv) an explanation of the claim review procedure set forth in Section 8.3 below; and
21
(v) a statement of the Claimants right to bring a civil action under ERISA Section
502(a) following an adverse benefit determination on review.
|
8.3
|
|
Review of a Denied Claim.
|
The Board shall appoint the members of a Benefits Review Committee which shall consist of
three (3) or more members. The Benefits Review Committee shall decide appeals of claim denials as
provided in this Section, have such other discretionary powers and authorities as provided by this
Section, and shall have such other discretionary powers and duties as shall from time to time be
assigned to the Benefits Review Committee by the Company. Prior to a Change in Control the members
of the Benefits Review Committee shall remain in office at the will of the Board, and the Board may
remove any of said members, from time to time, with or without cause. A member of the Benefits
Review Committee may resign upon written notice to the remaining member or members of the Benefits
Review Committee and to the Company respectively. The fact that a person is a prospective
Participant, a Participant or a former Participant shall not disqualify him from acting as a member
of the Benefits Review Committee. In case of the death, resignation or removal of any member of the
Benefits Review Committee, the remaining members shall act until a successor-member is appointed.
Upon request, the Company shall notify the Committee in writing of the names of the original
members of the Benefits Review Committee, of any and all changes in the membership of the Benefits
Review Committee, of the member designated as Chairman and the member designated as Secretary, and
of any changes in either office. Until notified of a change, the Committee shall be protected in
assuming that there has been no change in the membership of the Benefits Review Committee or the
designation of Chairman or of Secretary since the last notification was filed with it. The
Committee shall be under no obligation at any time to inquire into the membership of the Benefits
Review Committee or its officers. All communications to the Benefits Review Committee shall be
addressed to its Secretary at the headquarters address of the Company. On or before sixty (60)
days after receiving a notice from the Committee that a claim has been denied, in whole or in part,
a Claimant (or the Claimants duly authorized representative) may file with the Benefits Review
Committee a written request for a review of the denial of the claim. The Claimant (or the
Claimants duly authorized representative):
(a) may, upon request and free of charge, have reasonable access to, and copies of, all
documents, records and other information relevant to the claim for benefits;
(b) may submit written comments or other documents; and/or
(c) may request a hearing, which the Benefits Review Committee, in its sole discretion, may
grant.
The Benefits Review Committee shall render its decision on review promptly, and no later than
sixty (60) days after the Benefits Review Committee receives the Claimants written request for a
review of the denial of the claim. If the Benefits Review Committee determines that special
circumstances require an extension of time for processing the claim, written notice of the
extension shall be furnished to the Claimant prior to the termination of the
22
initial sixty (60) day period. In no event shall such extension exceed a period of sixty (60)
days from the end of the initial period. The extension notice shall indicate the special
circumstances requiring an extension of time and the date by which the Benefits Review Committee
expects to render the benefit determination. In rendering its decision, the Benefits Review
Committee shall take into account all comments, documents, records and other information submitted
by the Claimant relating to the claim, without regard to whether such information was submitted or
considered in the initial benefit determination. The decision must be written in a manner
calculated to be understood by the Claimant, and it must contain:
(a) specific reasons for the decision;
(b) specific reference(s) to the pertinent Plan provisions upon which the decision was based;
(c) a statement that the Claimant is entitled to receive, upon request and free of charge,
reasonable access to and copies of, all documents, records and other information relevant (as
defined in applicable ERISA regulations) to the Claimants claim for benefits; and
(d) a statement of the Claimants right to bring a civil action under ERISA Section 502(a).
A Claimants compliance with the foregoing provisions of this Article is a mandatory
prerequisite to a Claimants right to commence any legal action with respect to any claim for
benefits under this Plan.
23
ARTICLE 9
AMENDMENT AND TERMINATION
|
9.1
|
|
Amendment, Modification and Termination.
|
Subject to Sections 9.4 and 9.5 below, this Plan may be terminated by the Company at any time,
or from time to time, by action of the Board, and may be amended by the Company at any time, or
from time to time, by action of one or more duly authorized officers of the Company. No amendment,
modification or termination will be effective if it reduces the amounts credited to any
Participants Account or adversely affects the right of any Participant or Beneficiary to receive
payment of the Account as provided under this Plan, determined as of the date of the amendment,
unless an equivalent benefit is provided under another plan or program sponsored by the Company or
an Affiliate. Furthermore, no amendment, modification or termination will be effective prior to
the date permitted under Code Section 409A.
The prior provisions notwithstanding, this Plan may be amended to:
(a) reduce or eliminate the ability for future contributions to be credited to Participants
under this Plan;
(b) reduce or eliminate the future deemed interest or earnings credited to the amounts held in
a Participants Account;
(c) comply with any law; or
(d) preserve the intended deferral of taxation for the benefit of all Participants Accounts.
|
9.2
|
|
Actions Binding on Employers.
|
Any amendments made to this Plan, including an amendment to terminate the Plan, will be
binding on all the Employers without the approval or consent of the Employers other than the
Company.
|
9.3
|
|
Distribution of Benefits on Plan Termination.
|
In the event the Company elects to amend, modify or terminate the Plan as provided under
Section 9.1, no liquidation and payment of benefits shall occur as a result. The prior provisions
notwithstanding, the Company may, in its discretion, provide by amendment to the Plan for the
liquidation and termination of the Plan where:
(a) the termination and liquidation does not occur proximate to a downturn in the financial
health of the Company and Affiliates;
24
(b) the Plan and all arrangements required to be aggregated with the Plan under Code Section
409A are terminated and liquidated;
(c) no payments, other than those that would be payable under the terms of the Plan and the
aggregated arrangements if the termination and liquidation had not occurred, are made within twelve
(12) months of the date the Company takes all necessary action to irrevocably terminate and
liquidate the Plan;
(d) all payments are made within twenty-four (24) months of the date the Company takes all
necessary action to irrevocably terminate and liquidate the Plan; and
(e) the Company and its Affiliates do not adopt a new arrangement that would be aggregated
with any terminated arrangement under Code Section 409A, at any time within three (3) years
following the date of the date the Company takes all necessary action to irrevocably terminate and
liquidate the Plan.
Notwithstanding the above, the Company may, in its discretion, provide by amendment to
liquidate and terminate the Plan where the termination and liquidation occurs within twelve (12)
months of a corporate dissolution taxed under Code Section 331, or with the approval of a
bankruptcy court pursuant to 11 United States Code Section 503(b)(1)(A), provided that all amounts
deferred under the Plan are included in the Participants gross incomes in the latest of the
following years (or, if earlier, the taxable year in which the amount is actually or constructively
received):
(a) the calendar year in which the termination and liquidation occurs;
(b) the first calendar year in which the amount is no longer subject to a substantial risk of
forfeiture; or
(c) the first calendar year in which the payment is administratively practicable.
|
9.4
|
|
Participation By Affiliates.
|
Any Affiliate may adopt this Plan with the consent of the Company. An Affiliate that adopts
this Plan shall be liable for the payment of any benefit of a Participant under this Plan that
relates to employment or services provided to the Affiliate by the Participant, and neither the
Company nor any other Affiliate shall have any liability for such benefit. Each Affiliate, by
electing to participate in this Plan, appoints the Company as its agent and fully empowers the
Company to act on its behalf as it may deem appropriate in maintaining or terminating the Plan.
The adoption by the Company of any amendment to the Plan or the termination of all or any part of
the Plan will constitute and represent, without further action by any Affiliate, the approval,
adoption, ratification, or confirmation by each Affiliate of such amendment or termination and each
Affiliate shall be bound by such amendment or termination. An Affiliate may cease participation
only upon approval by the Company and only in accordance with such terms and conditions that may be
required by the Company.
25
ARTICLE 10
TRUST
|
10.1
|
|
Establishment of the Trust.
|
It is the intention of the Company that the Plan be unfunded for purposes of the Code and for
purposes of Title 1 of ERISA. No assets of the Company shall be held in any way as collateral
security for the fulfilling of the obligations of the Company under the Plan. No assets of the
Company shall be pledged or otherwise restricted in order to meet the obligations of the Plan.
Nonetheless, in order to provide assets from which to fulfill the obligations of the Participants
and their beneficiaries under the Plan, the Company may establish a Trust by a trust agreement with
a third party, the trustee, to which each Employer may, in its discretion, contribute cash or other
property, including securities issued by the Company, which trust is intended to provide for the
benefit payments under the Plan.
|
10.2
|
|
Interrelationship of the Plan and the Trust.
|
The provisions of the Plan shall govern the rights of a Participant to receive distributions
pursuant to the Plan. The provisions of the Trust shall govern the rights of the Employers,
Participants and the creditors of the Employers to the assets transferred to the Trust. Each
Employer shall at all times remain liable to carry out its obligations under the Plan.
|
10.3
|
|
Distributions From the Trust.
|
Each Employers obligations under the Plan may be satisfied with Trust assets distributed
pursuant to the terms of the Trust, and any such distribution shall reduce the Employers
obligations under this Plan. If the Trust terminates in accordance with its terms and benefits are
distributed from the Trust to a Participant in accordance therewith, the Participants benefits
under this Plan shall be reduced to the extent of such distributions.
26
ARTICLE 11
MISCELLANEOUS
The Plan is intended to be a plan that is not qualified within the meaning of Code Section
401(a) and that is unfunded and is maintained by an employer primarily for the purpose of
providing deferred compensation for a select group of management or highly compensated employees
within the meaning of ERISA Sections 201(2), 301(a)(3) and 401(a)(1). The Plan shall be
administered and interpreted to the extent possible in a manner consistent with that intent.
|
11.2
|
|
Unsecured General Creditor.
|
Participants and their Beneficiaries, heirs, successors and assigns shall have no legal or
equitable rights, interests or claims in any property or assets of an Employer. For purposes of
the payment of benefits under this Plan, any and all of an Employers assets shall be, and remain,
the general, unpledged unrestricted assets of the Employer. An Employers obligation under the
Plan shall be merely that of an unfunded and unsecured promise to pay money in the future and the
rights of Participants and Beneficiaries shall be no greater than those of unsecured general
creditors.
|
11.3
|
|
Employers Liability.
|
An Employers liability for the payment of benefits shall be defined only by the Plan and the
Plan Agreement, as entered into between the Employer and a Participant. An Employer shall have no
obligation to a Participant under the Plan except as expressly provided in the Plan and his or her
Plan Agreement.
Neither a Participant nor any other person shall have any right to commute, sell, assign,
transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate, alienate or
convey in advance of actual receipt, the amounts, if any, payable hereunder, or any part thereof,
which are, and all rights to which are expressly declared to be, unassignable and non-transferable.
No part of the amounts payable shall, prior to actual payment, be subject to seizure, attachment,
garnishment or sequestration for the payment of any debts, judgments, alimony or separate
maintenance owed by a Participant or any other person, be transferable by operation of law in the
event of a Participants or any other persons bankruptcy or insolvency or be transferable to a
spouse as a result of a property settlement or otherwise.
|
11.5
|
|
Not a Contract of Employment.
|
The terms and conditions of this Plan shall not be deemed to constitute a contract of
employment between any Employer and the Participant. Such employment is hereby acknowledged to be
an at will employment relationship that can be terminated at any time for any reason, or no
reason, with or without cause, and with or without notice, unless expressly provided in a written
employment agreement. Nothing in this Plan shall be deemed to give a
27
Participant the right to be retained in the service of any Employer, either as an Employee or
a Director, or to interfere with the right of any Employer to discipline or discharge the
Participant at any time.
|
11.6
|
|
Furnishing Information.
|
A Participant or his Beneficiary will cooperate with the Administrator by furnishing any and
all information requested by the Administrator and take such other actions as may be requested in
order to facilitate the administration of the Plan and the payments of benefits hereunder,
including but not limited to taking such physical examinations as the Administrator may deem
necessary.
Whenever any words are used herein in the masculine, they shall be construed as though they
were in the feminine in all cases where they would so apply; and whenever any words are used herein
in the singular or in the plural, they shall be construed as though they were used in the plural or
the singular, as the case may be, in all cases where they would so apply.
The captions of the articles, sections and paragraphs of this Plan are for convenience only
and shall not control or affect the meaning or construction of any of its provisions.
Subject to ERISA, the provisions of this Plan shall be construed and interpreted according to
the internal laws of the State of Ohio without regard to its conflicts of laws principles.
The provisions of this Plan shall bind and inure to the benefit of the Participants Employer
and its successors and assigns and the Participant and the Participants designated Beneficiaries.
The interest in the benefits hereunder of a spouse of a Participant who has predeceased the
Participant shall automatically pass to the Participant and shall not be transferable by such
spouse in any manner, including but not limited to such spouses will, nor shall such interest pass
under the laws of intestate succession.
28
In case any provision of this Plan shall be illegal or invalid for any reason, said illegality
or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and
enforced as if such illegal or invalid provision had never been inserted herein.
If the Administrator determines in its discretion that a benefit under this Plan is to be paid
to a minor, a person declared incompetent or to a person incapable of handling the disposition of
that persons property, the Administrator may direct payment of such benefit to the guardian, legal
representative or person having the care and custody of such minor, incompetent or incapable
person. The Administrator may require proof of minority, incompetence, incapacity or guardianship,
as it may deem appropriate prior to distribution of the benefit. Any payment of a benefit shall be
a payment for the account of the Participant and the Participants Beneficiary, as the case may be,
and shall be a complete discharge of any liability under the Plan for such payment amount.
|
11.14
|
|
Distribution in the Event of Taxation.
|
(a)
Employment Taxes
. Distribution shall be made from the Plan at such time or times
as the Administrator, in its sole discretion pursuant to uniform and nondiscriminatory procedures,
shall determine that amounts are due for the payment of Federal Insurance Contributions Act taxes
imposed under Code Sections 3101, 3121(a), or 3121(v)(2) on Participants Accounts. Such
distribution, if any, shall be made for the exclusive purpose of paying such Federal Insurance
Contributions Act taxes. In addition, distribution shall be made from the Plan at such time or
times as the Administrator, in its sole discretion pursuant to uniform and nondiscriminatory
procedures, shall determine that amounts are due for the payment of income tax at source on wages
imposed under Code Section 3401 (or the corresponding withholding provisions of applicable state,
local or foreign tax laws) as a result of the payment of the Federal Insurance Contributions Act
taxes, or are due for the payment of additional income tax at source on wages attributable to the
pyramiding of Code Section 3401 wages and taxes. Such distribution, if any, shall be made for the
exclusive purpose of paying such taxes. In no event shall the amounts distributed pursuant to this
Section exceed the amounts owed for the payment of Federal Insurance Contribution Act taxes and the
income tax withholding related to such amounts.
(b)
Distribution upon Income Inclusion under Code Section 409A
. Notwithstanding
anything herein to the contrary, in the event the Plan fails to meet the requirements of Code
Section 409A, the portion of a Participants Account which is included in income on account of the
failure to comply with Code Section 409A shall be distributed to the Participant.
The Employers, on their own behalf or on behalf of the trustee of the Trust, and, in their
sole discretion, may apply for and procure insurance on the life of the Participant, in such
amounts and in such forms as the Trust may choose. The Employers or the trustee of the Trust,
29
as the case may be, shall be the sole owner and beneficiary of any such insurance. The
Participant shall have no interest whatsoever in any such policy or policies, and at the request of
the Employers shall submit to medical examinations and supply such information and execute such
documents as may be required by the insurance company or companies to whom the Employers have
applied for insurance.
|
11.16
|
|
Legal Fees To Enforce Rights After Change in Control.
|
The Company and each Employer is aware that upon the occurrence of a Change in Control, the
Board or the board of directors of a Participants Employer (which might then be composed of new
members) or a shareholder of the Company or the Participants Employer, or of any successor
corporation might then cause or attempt to cause the Company, the Participants Employer or such
successor to refuse to comply with its obligations under the Plan and might cause or attempt to
cause the Company or the Participants Employer to institute, or may institute, litigation seeking
to deny Participants the benefits intended under the Plan. In these circumstances, the purpose of
the Plan could be frustrated. Accordingly, if, at any time in the two calendar years following a
Change in Control while a Participant continues to have an Account under the Plan, it should appear
to any Participant that the Company, the Participants Employer or any successor corporation has
failed to comply with any of its obligations under the Plan or any agreement thereunder or, if the
Company, such Employer or any other person takes any action to declare the Plan void or
unenforceable or institutes any litigation or other legal action designed to deny, diminish or to
recover from any Participant the benefits intended to be provided, then the Company and the
Participants Employer irrevocably authorize such Participant to retain counsel of his or her
choice at the expense of the Company and the Participants Employer (who shall be jointly and
severally liable) to represent such Participant in connection with the initiation or defense of any
litigation or other legal action, whether by or against the Company, the Participants Employer or
any director, officer, shareholder or other person affiliated with the Company, the Participants
Employer or any successor thereto in any jurisdiction. The reasonable fees and expenses of counsel
selected from time to time by the Participant as hereinabove provided shall be paid or reimbursed
to the Participant by the Company on a regular, periodic basis no later than 30 days after
presentation by the Participant of a statement or statements prepared by such counsel in accordance
with its customary practices, up to a maximum annual amount of $250,000 in each of the two years
following the year in which occurs the Change in Control, provided that the Participant presents
such statement(s) no later than 30 days prior to the end of each such year.
|
11.17
|
|
Coordination with Other Benefits.
|
The benefits provided for a Participant and Participants Beneficiary under the Plan are in
addition to any other benefits available to such Participant under any other plan or program for
employees of the Participants Employer. The Plan shall supplement and shall not supersede, modify
or amend any other such plan or program except as may otherwise be expressly provided.
30
IN WITNESS WHEREOF, the Company, by its duly authorized officer, has caused this RPM
International Inc. 2005 Deferred Compensation Plan to be executed effective as of December 31,
2008.
|
|
|
|
|
|
RPM International Inc.
|
|
|
By:
|
/s/
Janeen B. Kastner
|
|
|
|
Janeen B. Kastner
|
|
|
|
Title:
|
Vice President Corporate Benefits and
Risk Management
|
|
|
31
Exhibit 10.6
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement (this Agreement) dated effective as of the
31st day of December, 2008, between RPM International Inc., a Delaware corporation (the Company),
and Frank C. Sullivan (Executive).
WHEREAS, Executive is currently Chairman and Chief Executive Officer of the Company; and
WHEREAS, Executive and the Company entered into the Amended and Restated Employment Agreement,
dated as of June 1, 2006 (the Existing Agreement), to ensure Executives continued employment
with the Company; and
WHEREAS, the Company recognizes that, as with many publicly held corporations, the possibility
of a change in control may exist from time to time, and that the uncertainty and questions it may
raise among management, may result in the departure or distraction of management personnel to the
detriment of the Company and its stockholders. Accordingly, the Board of Directors has evaluated
the steps taken by the Company to ensure the continued dedication of the Executive in the event of
the disruption and uncertainty caused by the possibility of a change in control;
WHEREAS, the Board of Directors has determined that it is in the best interests of the
stockholders of the Company to take further action to secure the continued dedication of the
Executive in the event of any threat or occurrence of a change in control of the Company; and
WHEREAS, the Company desires to amend and restate the Existing Agreement to ensure that the
compensation and benefits provided the Executive in the event of a threat or occurrence of a change
in control will satisfy the Executives expectations and be competitive with those of other
corporations.
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, 2009 (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 Chairman and Chief Executive Officer
reporting to the Board of Directors of the Company. Executive shall be responsible for the general
management and operation of the Company and shall have such other powers and duties as may from
time to time be assigned by 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 Bay Village,
Ohio, and shall not be required to perform services which would make the continuance of his
principal residence in Bay Village, 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 Companys 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 Companys 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 Eight Hundred Twenty-Five Thousand Dollars ($825,000) 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 Executives Base Salary and other compensation during the Employment Period
and, at the discretion of the Compensation Committee, it may recommend to the Board of Directors of
the Company for its approval an increase in Executives Base Salary and other compensation,
effective as of June 1 of such fiscal year, based upon Executives performance, then generally
prevailing industry salary scales, the Companys 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,
Executives 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) for each
fiscal year of the Company during the Employment Period as the Compensation Committee may determine
in its sole discretion to recommend to the Board of Directors of the Company for its approval based
upon the Companys results of operation and other relevant factors. Such annual Incentive
Compensation shall be received by Executive as soon as possible, but no later than 90 days after
the close of the Companys fiscal year for which such Incentive Compensation is granted, provided
however, that to the extent the Companys senior executive for Human Resources determines it to be
consistent with Section 409A of the Code, Executive shall have such right, if any, as may be
provided under the Deferred Compensation Plan to elect to defer annual Incentive
2
Compensation. Any
such election shall be made in accordance with the terms of the Deferred Compensation Plan (including provisions regarding the time and form of such deferral election) and
such procedures as may be established thereunder.
(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, 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. Executives 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 the Board of Directors (or
its designee) 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 Companys 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-
3
time basis; (iv) the
resignation of Executive; (v) the Companys Termination of the Employment
Period for Cause; or (vi) the Companys 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 of Employment 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 Disability, Executive shall continue to receive his full Base
Salary until his employment is Terminated pursuant to Subsection 5(a)(ii) or (iii); provided that
his employment shall not be continued beyond the 29th month after such period of Disability began.
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 of Employment, but Executive shall be entitled
to receive his Earned Incentive Compensation, if any, within 30 days after the Termination Date.
(ii)
Resignation or Cause
. If Executives 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 of Employment Without Cause
. If Executives 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 (A)
Executives Unpaid Incentive Compensation, if any, plus (B) 300% of the sum of (I) the greater of
Executives Base Salary currently in effect or the highest of Executives Base Salary in effect at
any time during the period commencing three years prior to the Termination Date; and (II) the
highest amount of Annual Incentive Compensation Executive received from the Company during the full
five fiscal years of the Company immediately preceding the Termination Date. 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.
4
(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 three years 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 six months following the Termination Date and
(B) if Executives 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 invoices or receipts for payment, the
amount Executive spends to receive comparable coverage under such a comparable plan during such
three-year period. Notwithstanding the foregoing, in no event shall any such additional amount or
comparable benefit be provided to Executive prior to or materially after the time the original
payment or benefit would have been provided, or in a tax year other than the year in which payment
would otherwise be made. Payment under Subsection 5(c)(i)(B) shall be made within 30 days of the
time Executive presents an invoice or receipt for payment for such comparable coverage, provided
Executive presents such invoice(s) or receipt(s) no later than 30 days before the end of the
taxable year following the year in which the expenses were incurred. With respect to any coverage
under a Continuing Benefit Plan with respect to which, but for this Agreement, Executive would
otherwise be entitled to continuation coverage under Code Section 4980B (COBRA), any benefits
provided for expenses that are incurred after the end of what would be the COBRA continuation
coverage period if Executive had elected and paid for such coverage shall be made no later than the
end of the taxable year following the taxable year in which such expense was incurred.
Notwithstanding the foregoing sentence, the Companys obligations to Executive with respect to
continued benefits under the Continuing Benefit Plans shall end at the time Executive becomes
covered by another employer providing comparable benefits. 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 Executives 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 three-year period
following such a Termination Date, the Company shall afford Executive the opportunity to continue
Executives coverage under the Continuing Benefit Plans (other than the Estate/Financial Planning
Benefits), at Executives 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.
5
(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. After such a Termination
Date, Executive shall be entitled to the following additional benefits:
(A) A
lump sum payment equal to three times the annual premium most
recently paid with respect to Executive for
such executive life insurance program as may be maintained by the Company at the
Termination Date, except that if such premium is less than the next
scheduled premium as shown on the then current illustration of
coverage, the lump sum payment shall be three times such next scheduled
premium;
(B) A lump-sum payment equal to the cash value of the benefits Executive would have received
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 three years after the Termination Date,
with such payment to be paid no later than 2
1
/
2
months following the later of the end of Executives
taxable year or the end of the Companys taxable year in which the Termination Date occurs; and
(C) The lapse of all restrictions on transfer and forfeiture provisions to which Executives
awards under the Restricted Stock Plan 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 of Employment 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 of Employment, which shall
state in reasonable detail the facts upon which the Termination of Employment has occurred.
(e)
Set-Off
. There shall be no right of set-off or counterclaim against, or delay in,
any payment by the Company to Executive of any lump sum payment made under Subsection 5(b)(iii) or
5(c)(ii)(B) or any Gross-Up Payment in respect of any claim against or debt or obligation of
Executive, whether arising hereunder or otherwise.
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 Companys Termination of the Employment Period for Cause; (v)
the Companys Termination of the Employment Period at any time, without Cause, for any reason or no
reason; or (vi) Executives 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
6
Executives 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 Disability, Executive shall continue to receive his full Base
Salary until his employment is Terminated pursuant to Subsection 6(a)(i) or (ii); provided that his
employment shall not be continued beyond the 29th month after such period of Disability began.
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 of Employment, but Executive shall be entitled
to receive his Earned Incentive Compensation, if any, within 30 days after the Termination Date.
(ii)
Resignation or Cause
. If Executives 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 of Employment Without Cause or for Good Reason
. If Executives
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 a lump sum amount equal to (A) the amount of Executives Unpaid Incentive Compensation,
if any, plus (B) 300% of the sum of (I) the greater of Executives Base Salary currently in effect
or the highest of Executives Base Salary in effect at any time during the period commencing three
years prior to the date of the Protected Period begins; and (II) the highest amount of Annual
Incentive Compensation Executive received from the Company during the full five fiscal years of the
Company immediately preceding the Protected Period. In the case of Termination of Employment
without Cause, payment shall be made no later than 30 calendar days following the Termination Date,
and in the case of Termination of Employment for Good Reason, payment shall be made on the first
day of the seventh month following the Termination Date. 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
7
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 three years 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 one year following the Termination Date and (B)
if Executives 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 invoices or receipts for payment, the
amount Executive spends to receive comparable coverage under such a comparable plan during such
three-year period. Notwithstanding the foregoing, in no event shall any such additional amount or
comparable benefit be provided to Executive prior to or materially after the time the original
payment or benefit would have been provided, or in a tax year other than the year in which payment
would otherwise be made. Payment under Subsection 6(c)(i)(B) shall be made within 30 days of the
time Executive presents an invoice or receipt for payment for such comparable coverage, provided
Executive presents such invoice(s) or receipt(s) no later than 30 days before the end of
Executives taxable year following the year in which the expense was incurred; provided, however,
that in the event of Termination of Employment for Good Reason, no payment or reimbursement shall
be made hereunder before the first day of the seventh month following such Termination of
Employment. With respect to any coverage under a Continuing Benefit Plan with respect to which,
but for this Agreement, Executive would otherwise be entitled to continuation coverage under Code
Section 4980B (COBRA), any benefits provided for expenses incurred after the end of what would be
the COBRA continuation coverage period if Executive had elected and paid for such coverage shall be
made no later than the end of the taxable year following the taxable year in which such expense was
incurred. Notwithstanding the foregoing sentence, the Companys obligations to Executive with
respect to continued benefits under the Continuing Benefit Plans shall end at the time Executive
shall become covered by a plan of another employer providing comparable benefits
.
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 Executives 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 three-year period following such a Termination Date, the Company shall afford Executive the
opportunity to continue Executives coverage under the Continuing Benefit Plans (other than the
Estate/Financial Planning Benefits), at Executives expense, for an additional period under
8
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. After such a Termination
Date, Executive shall be entitled to the following additional benefits:
(A) A
lump sum payment equal to three times the annual premium most
recently paid with respect to Executive for
such executive life insurance program as may be maintained by the Company at the
Termination Date, except that if such premium is less than the next
scheduled premium as shown on the then current illustration of
coverage, the lump sum payment shall be three times such next scheduled
premium. Such lump sum payment shall be grossed up to compensate for
the tax impact of such payment and shall occur no later than 2
1
/
2
months following the later of the end of the Executives
taxable year or the end of the Companys taxable year in which the Termination Date occurs,
provided that in the case of Termination of Employment with Good Reason, in no event shall payment
occur prior to the first day of the seventh month following the Termination Date;
(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 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
three years after the Termination Date, determined and payable in accordance with the terms of the
Restricted Stock Plan and the Companys past practice. In the case of Termination of Employment
without Cause, payment shall be made no later than 30 calendar days following the Termination Date,
and in the case of Termination of Employment for Good Reason, payment shall be made on the first
day of the seventh month following the Termination Date; and
(C) The lapse of all restrictions on transfer and forfeiture provisions to which Executives
awards under the Restricted Stock Plan 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 of Employment 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 of Employment has occurred. A Termination
of Employment 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.
9
(f)
Deemed Termination After Change in Control
. In the event of a Termination of
Employment of Executive by the Company without Cause following the commencement of any discussion
with or communication from a third party that ultimately results in a Change in Control that is
also a change in control within the meaning of Section 409A, but prior to the date of such a
Change in Control, and Executive can reasonably demonstrate that such Termination of Employment was
made in connection with or in anticipation of such Change in Control, then Executive shall be
entitled to the benefits provided under Subsections 6(b)(iii) and 6(c) and Section 7, provided that
(i) no such payments or benefits shall be provided prior to such Change in Control; (ii) any
payments shall be payable within the various timeframes specified in Subsections 6(b)(iii) and 6(c)
and Section 7, but with such timeframes beginning as of the date of such Change in Control instead
of as of the date of Termination of Employment; and (iii) any reimbursements or in-kind benefits
shall be made or provided within the timeframes specified within the applicable provisions of
regulations under Section 409A in order to be exempt from or, if necessary, compliant with Section
409A.
(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 Companys expense, to provide outplacement assistance to Executive during the
Protected Period. In the event Executive pays for such services, the Company shall reimburse
Executive within 30 days from the time Executive presents an invoice or receipt for such expenses,
provided Executive presents such receipt(s) no later than 30 days before the end of Executives
second taxable year following the year in which such expenses were incurred
.
Any outplacement
services shall be appropriate to Executives position with the Company, as determined by the
outplacement assistance service firm. 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)
Omnibus Plan
. If Executive receives Awards (as defined therein) under the Omnibus
Plan and a Change in Control occurs as determined under the Omnibus Plan, then Executive shall be
entitled to the lapse of transfer restrictions imposed on any Award granted to Executive under the
Omnibus Plan, all as determined under and subject to the terms of the Omnibus Plan.
(k)
Payments upon Termination of Employment for Good Reason
. Notwithstanding anything
herein to the contrary, in the event Executives employment
10
Terminates for Good Reason, no payments or reimbursements to which Executive would otherwise be
entitled shall be paid prior to the first day of the seventh month following his Termination Date.
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 Companys 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
11
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
Companys receipt of such determination and calculations. Notwithstanding any of the foregoing, if
the Executives Termination of Employment was for Good Reason, in no event shall any such payments
be made before the first day of the seventh month following such Termination of Employment.
(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 Executives 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
12
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 pay to
Executive a Gross-up Payment as defined in (a) above with respect to the tax claimed and otherwise
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
payment, 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 Companys 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.
13
(g) If, after the receipt by Executive of an amount paid by the Company pursuant to Subsection
7(f), Executive receives any refund with respect to such claim, Executive shall (subject to the
Companys 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).
8.
Binding Agreement; Successors
. This Agreement shall inure to the benefit of and be
binding upon Executives 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 Executives
devisee, legatee, or other designee or, if there be no such designee, to Executives 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.
Failure by the Company to obtain such succession shall be a breach of this Agreement and shall
entitle Executive to compensation from the Company in the same amount and on the same terms as the
Executive would be entitled to hereunder if the Executive were to Terminate the Executives
employment for Good Reason during the Protected Period, except that, for purposes of implementing
the foregoing, the date on which any such succession becomes effective shall be deemed the
Termination Date.
9.
Restrictive Covenants
.
(a)
Non-Competition
. During the Employment Period and for a period of two years
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 of Employment. 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 two years 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.
14
(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 Groups 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:
Frank C. Sullivan
15
If to 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
16
Executive shall be subject to such restrictions and obligations as are reasonable under the
circumstances and enforceable by the Company.
16.
Code Section 409A
. The benefits under this Agreement generally are intended to
meet the requirements for exemption from Code Section 409A (including without limitation the
exemptions for restricted property, short-term deferrals, separation payments and reimbursements,
and welfare benefits) and shall be so construed and administered; however, to the extent any
benefit hereunder is not exempt from the application of Code Section 409A, it shall be administered
in compliance with Code Section 409A. Notwithstanding anything contained in this Agreement to the
contrary, this Agreement may be amended as the Company may determine, with the consent of the
Executive (which shall not be unreasonably withheld), to better secure exemption of each benefit
hereunder from, or if exemption is not reasonably available for such a benefit, to better comply
with, the requirements of Code Section 409A.
17.
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.
18.
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.
19.
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.
20.
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
(including the Existing Agreement), either oral or in writing, with respect to the employment of
Executive.
21.
Enforcement Costs
. The Company is aware that upon the occurrence of a Change in
Control the Board of Directors or a stockholder 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 at any time in the two
calendar years following a Termination of Employment during the Protected Period, 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
17
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 21 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,
stockholder or other person affiliated with the Company, in any jurisdiction. The Companys
obligations under this Section 21 shall not be conditioned on Executives 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 no later than 30 days after presentation by Executive of a statement or
statements prepared by such counsel in accordance with its customary practices, up to a maximum
annual amount of $250,000 in each of the two calendar years following the year in which occurs such
Termination of Employment within the Protected Period; provided, that Executive presents such
statement(s) no later than 30 days prior to the end of each such year, and provided further, that
if Executives Termination of Employment was for Good Reason, no such payment shall be made before
the first day of the seventh month following such Termination of Employment. Notwithstanding the
foregoing, this Section 21 shall not apply at any time unless a Change in Control has occurred.
[Remainder of page intentionally blank]
18
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date and year
first above written.
|
|
|
|
|
|
RPM INTERNATIONAL INC.
|
|
|
By:
|
/s/
Janeen B. Kastner
|
|
|
|
Janeen B. Kastner, Vice President
|
|
|
|
Corporate Benefits and Risk Management
|
|
|
The Company
|
|
|
|
|
|
|
/s/
Frank C. Sullivan
|
|
|
Frank C. Sullivan
|
|
|
Executive
|
|
19
Schedule A
Certain Definitions
As used in this Agreement, the following capitalized terms shall have the following meanings:
4
01(k)
Plan
means the RPM International Inc. 401(k) Trust and Plan and any successor plan
or arrangement.
Affiliate
of a specified entity means any entity during any period during which it would
be treated, together with the Company, as a single employer for purposes of Section 414(b)
and (c) of the Code.
Annual Incentive Compensation
means an amount equal to the amount of Incentive
Compensation paid 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 a completed
fiscal year (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;
A-1
(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
13d-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;
(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 Companys stockholders 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) The stockholders of the Company approve a plan of complete liquidation or
dissolution of the Company.
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 Companys 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.
COBRA Continuation Coverage
means the health care continuation requirements under the
federal Consolidated Omnibus Budget Reconciliation Act, as amended, Part VI
A-2
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 Groups 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 Groups
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) as in existence on the date of
this Agreement, or any successor plan that provides medical, dental and
prescription drug benefits, but only to the extent of such 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
means any medically determinable physical or mental impairment that can be
expected to result in death or can be expected to last for a continuous period of not less
than 12 months, and that makes Executive eligible for benefits under any long-term
disability program of the Company or an Affiliate. The Company and Executive acknowledge
and agree that the essential functions of Executives 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.
A-3
Earned Incentive Compensation
means the sum of:
|
(a)
|
|
The Unpaid Incentive Compensation; and
|
|
|
(b)
|
|
An amount equal to the Annual Incentive Compensation for the most recent completed
fiscal year (or for such shorter period during which Executive has been employed by the
Company) preceding the Termination Date 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.
Executive Life Insurance
means the RPM International Inc. Split Dollar Executive Life
Insurance Plan 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.
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
Executives 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 Executives Base Salary from
the amount in effect on the date of the Change in Control; (c) a reduction in Executives
Annual Incentive Compensation from the amount of Executives Annual Incentive Compensation
for the fiscal year preceding the fiscal year in which the Termination Date occurs, unless
such reduction results solely from the Companys 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; (e) the purported Termination of the Executives Employment
which is not effected pursuant to Sections 6(d) and 10 of this Agreement, which purported
Termination of Employment shall not be effective for purposes of this Agreement; (f) the
failure by the Company to comply with and satisfy Section 8 of this Agreement, relating to
the assumption of the Agreement by any successor entity; or (g) 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.
A-4
Group Long Term Disability Insurance
means the Group Long Term Disability Insurance
sponsored by the Company, 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.
Incentive Compensation
shall have the meaning given such term in Section 4(b).
Life and Disability Welfare Plan
means the RPM International Inc. Life and Disability
Welfare Plan, which includes Group Life Insurance, Group Long Term Disability Insurance and
Group Accidental Death and Dismemberment Insurance.
Limited Benefit Plans
means all the Companys 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 as in effect on the date
of this Agreement 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)
|
|
Stock option plans and other equity-based incentive plans,
including the RPM International Inc. 2007 Stock Option Plan, the Restricted
Stock Plan and the Omnibus Plan;
|
|
|
(d)
|
|
Any Executive Life Insurance;
|
|
|
(e)
|
|
The RPM International Inc. Incentive Compensation Plan;
|
|
|
(f)
|
|
The Deferred Compensation Plan;
|
|
|
(g)
|
|
The RPM International Inc. Employee Stock Purchase Plan;
|
|
|
(h)
|
|
The Life and Disability Welfare Plan;
|
|
|
(i)
|
|
The RPM International Inc. Group Variable Universal Life Plan
(also known as GRIP or GVUL);
|
|
|
(j)
|
|
The RPM International Inc. Business Travel Accident Plan;
|
|
|
(k)
|
|
The fringe benefits appertaining to Executives position with
the Company referred to in Subsection 4(f), including the use of an automobile;
and
|
A-5
|
(l)
|
|
RPM International Inc. Flexible Benefits Plan.
|
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.
Omnibus Plan
means the RPM International Inc. 2004 Omnibus Equity and Incentive Plan.
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 his
Termination of 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 Companys Certificate of
Incorporation or By-laws (or comparable charter document) or by statute.
Restricted Stock Plan
means either the RPM International Inc. 1997 Restricted Stock
Plan or the RPM International Inc. 2007 Restricted Stock Plan and any successor plan or
arrangement to either of such plans, but shall not be deemed to mean or include the Omnibus
Plan.
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.
Termination of Employment
means the separation from service within the meaning of Section
409A of the Code, of Executive with the Company and all of its Affiliates, for any reason,
including without limitation, quit, discharge, or retirement, or a leave of
A-6
absence (including military leave, sick leave, or other bona fide leave of absence such as
temporary employment by the government if the period of such leave exceeds the greater of
six months, or the period for which Executives right to reemployment is provided either by
statute or by contract) or permanent decrease in service to a level that is no more than
Twenty Percent (20%) of its prior level. For this purpose, whether a Termination of
Employment has occurred is determined based on whether it is reasonably anticipated that no
further services will be performed by Executive after a certain date or that the level of
bona fide services Executive will perform after such date (whether as an employee or as an
independent contractor) would permanently decrease to no more than Twenty Percent (20%) of
the average level of bona fide services performed (whether as an employee or an independent
contractor) over the immediately preceding 36-month period (or the full period of services
if Executive has been providing services less than 36 months). The terms Terminate or
Terminated, when used in reference to Executives employment or the Employment Period,
shall refer to a Termination of Employment as set forth in this paragraph.
Termination Date
means the effective date of Executives Termination of Employment.
Unpaid Incentive Compensation
means an amount equal to 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 Annual Incentive
Compensation for the most recent fiscal year preceding the fiscal year in which the
Termination Date occurs for which Incentive Compensation has been paid. For purposes of
this definition, 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.
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.
A-7
Exhibit 10.7
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
This Amended and
Restated Employment Agreement (this Agreement) dated effective as of the ___ day of
, 20___, between RPM International Inc., a
Delaware corporation (the Company), and
(Executive).
WHEREAS, Executive is currently [Title] of the Company; and
[WHEREAS, Executive and the Company entered into the Amended and Restated Employment
Agreement, dated as of
(the Existing Agreement), to ensure Executives continued
employment with the Company; and]
WHEREAS, the Board of Directors of the Company recognizes the importance of Executives
continuing contribution to the future growth and success of the Company and desires to assure the
Company and its stockholders of Executives 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, 20___ (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
reporting to the Chief
Executive Officer of the Company. Executive shall be responsible for all
matters of the
Company and shall have such other powers and duties as may from time to time be assigned by the
Chief Executive Officer 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
, and shall not be required to perform services which would make the continuance
of his principal residence in
, 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 Companys 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 Companys 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
Dollars ($
) 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 Executives Base Salary and other compensation during the Employment Period and, at the
discretion of the Compensation Committee, it may recommend to the Board of Directors of the Company
for its approval an increase in Executives Base Salary and other compensation, effective as of
June 1 of such fiscal year, based upon Executives performance, then generally prevailing industry
salary scales, the Companys 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, Executives 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) for each
fiscal year of the Company during the Employment Period as the Compensation Committee may determine
in its sole discretion to recommend to the Board of Directors of the Company for its approval based
upon the Companys results of operation and other relevant factors. Such annual Incentive
Compensation shall be received by Executive as soon as possible, but no later than 90 days after
the close of the Companys fiscal year for which such Incentive Compensation is granted, provided
however, that to the extent the Companys senior executive for Human Resources determines it to be
consistent with Section 409A of the Code, Executive shall have such right, if any, as may be
provided under the Deferred Compensation Plan to elect to defer annual Incentive Compensation. Any
such election shall be made in accordance with the terms of the Deferred Compensation Plan
(including provisions regarding the time and form of such deferral election) and such procedures as
may be established thereunder.
(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
2
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, 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. Executives 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 the Chief Executive
Officer 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 Companys 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 Companys Termination of the Employment Period for Cause; or (vi)
the Companys 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 of Employment without Cause pursuant to Subsection 5(a)(vi) and
expiration of the Employment
3
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 Disability, Executive shall continue to receive his full Base
Salary until his employment is Terminated pursuant to Subsection 5(a)(ii) or (iii); provided that
his employment shall not be continued beyond the 29th month after such period of Disability began.
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 of Employment, but Executive shall be entitled
to receive his Earned Incentive Compensation, if any, within 30 days after the Termination Date.
(ii)
Resignation or Cause
. If Executives 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 of Employment Without Cause
. If Executives 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 (A)
Executives Unpaid Incentive Compensation, if any, plus (B) 200% of the sum of (I) the greater of
Executives Base Salary currently in effect or the highest of Executives Base Salary in effect at
any time during the period commencing three years prior to the Termination Date; and (II) the
highest amount of Annual Incentive Compensation Executive received from the Company during the
full five fiscal years of the Company immediately preceding the Termination Date. 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
4
Subsection 5(c) following a Termination of the Employment Period under any other provision hereof.
(i)
Continuing Benefit Plans
. For a period of two years 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 six months following the Termination Date and (B) if Executives
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 invoices or receipts for payment, the amount Executive spends
to receive comparable coverage under such a comparable plan during such two-year period.
Notwithstanding the foregoing, in no event shall any such additional amount or comparable benefit
be provided to Executive prior to or materially after the time the original payment or benefit
would have been provided, or in a tax year other than the year in which payment would otherwise be
made. Payment under Subsection 5(c)(i)(B) shall be made within 30 days of the time Executive
presents an invoice or receipt for payment for such comparable coverage, provided Executive
presents such invoice(s) or receipt(s) no later than 30 days before the end of the taxable year
following the year in which the expenses were incurred. With respect to any coverage under a
Continuing Benefit Plan with respect to which, but for this Agreement, Executive would otherwise be
entitled to continuation coverage under Code Section 4980B (COBRA), any benefits provided for
expenses that are incurred after the end of what would be the COBRA continuation coverage period if
Executive had elected and paid for such coverage shall be made no later than the end of the taxable
year following the taxable year in which such expense was incurred. Notwithstanding the foregoing
sentence, the Companys obligations to Executive with respect to continued benefits under the
Continuing Benefit Plans shall end at the time Executive becomes covered by another employer
providing comparable benefits. 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 Executives 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 two-year period following such a Termination
Date, the Company shall afford Executive the opportunity to continue Executives coverage under the
Continuing Benefit Plans (other than the Estate/Financial Planning Benefits), at Executives
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. After such a Termination
Date, Executive shall be entitled to the following additional benefits:
5
(A) A lump sum payment equal to two times the annual premium most recently paid with respect to Executive for
such executive life insurance program as may be maintained by the Company at the
Termination Date, except that if such premium is less than the next scheduled premium as shown on the then current illustration of coverage, the lump sum payment shall be two times such next scheduled premium;
(B) A lump-sum payment equal to the cash value of the benefits Executive would have received
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 two years after the Termination Date, with
such payment to be paid no later than 2
1
/
2
months following the later of the end of Executives
taxable year or the end of the Companys taxable year in which the Termination Date occurs; and
(C) The lapse of all restrictions on transfer and forfeiture provisions to which Executives
awards under the Restricted Stock Plan 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 of Employment 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 of Employment, which shall
state in reasonable detail the facts upon which the Termination of Employment has occurred.
(e)
Set-Off
. There shall be no right of set-off or counterclaim against, or delay in,
any payment by the Company to Executive of any lump sum payment made under Subsection 5(b)(iii) or
5(c)(ii)(B) or any Gross-Up Payment in respect of any claim against or debt or obligation of
Executive, whether arising hereunder or otherwise.
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 Companys Termination of the Employment Period for Cause; (v)
the Companys Termination of the Employment Period at any time, without Cause, for any reason or no
reason; or (vi) Executives 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 Executives 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.
6
(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 Disability, Executive shall continue to receive his full Base
Salary until his employment is Terminated pursuant to Subsection 6(a)(i) or (ii); provided that his
employment shall not be continued beyond the 29th month after such period of Disability began.
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 of Employment, but Executive shall be entitled
to receive his Earned Incentive Compensation, if any, within 30 days after the Termination Date.
(ii)
Resignation or Cause
. If Executives 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 of Employment Without Cause or for Good Reason
. If Executives
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 a lump sum amount equal to (A) the amount of Executives Unpaid Incentive Compensation,
if any, plus (B) 300% of the sum of (I) the greater of Executives Base Salary currently in effect
or the highest of Executives Base Salary in effect at any time during the period commencing three
years prior to the date of the Protected Period begins; and (II) the highest amount of Annual
Incentive Compensation Executive received from the Company during the full five fiscal years of the
Company immediately preceding the Protected Period. In the case of Termination of Employment
without Cause, payment shall be made no later than 30 calendar days following the Termination Date,
and in the case of Termination of Employment for Good Reason, payment shall be made on the first
day of the seventh month following the Termination Date. 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
7
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 three years 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 one year following the Termination Date and
(B) if Executives 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 invoices or receipts for payment, the
amount Executive spends to receive comparable coverage under such a comparable plan during such
three-year period. Notwithstanding the foregoing, in no event shall any such additional amount or
comparable benefit be provided to Executive prior to or materially after the time the original
payment or benefit would have been provided, or in a tax year other than the year in which payment
would otherwise be made. Payment under Subsection 6(c)(i)(B) shall be made within 30 days of the
time Executive presents an invoice or receipt for payment for such comparable coverage, provided
Executive presents such invoice(s) or receipt(s) no later than 30 days before the end of
Executives taxable year following the year in which the expense was incurred; provided, however,
that in the event of Termination of Employment for Good Reason, no payment or reimbursement shall
be made hereunder before the first day of the seventh month following such Termination of
Employment. With respect to any coverage under a Continuing Benefit Plan with respect to which,
but for this Agreement, Executive would otherwise be entitled to continuation coverage under Code
Section 4980B (COBRA), any benefits provided for expenses incurred after the end of what would be
the COBRA continuation coverage period if Executive had elected and paid for such coverage shall be
made no later than the end of the taxable year following the taxable year in which such expense was
incurred. Notwithstanding the foregoing sentence, the Companys obligations to Executive with
respect to continued benefits under the Continuing Benefit Plans shall end at the time Executive
shall become covered by a plan of another employer providing comparable benefits
.
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 Executives 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 three-year period following such a Termination Date, the Company shall afford Executive the
opportunity to continue Executives coverage under the Continuing Benefit Plans (other than the
Estate/Financial Planning Benefits), at Executives 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
8
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. After such a Termination
Date, Executive shall be entitled to the following additional benefits:
(A) A lump sum payment equal to three times the annual premium most recently paid with respect to Executive for
such executive life insurance program as may be maintained by the Company at the
Termination Date, except that if such premium is less than the next
scheduled premium as shown on the then current illustration of
coverage, the lump sum payment shall be three times such next scheduled premium. Such lump sum payment shall be grossed up to compensate for the tax impact of such payment and shall occur no later than 2
1
/
2
months following the later of the end of the Executives
taxable year or the end of the Companys taxable year in which the Termination Date occurs,
provided that in the case of Termination of Employment with Good Reason, in no event shall payment
occur prior to the first day of the seventh month following the Termination Date;
(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 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
three years after the Termination Date, determined and payable in accordance with the terms of the
Restricted Stock Plan and the Companys past practice. In the case of Termination of Employment
without Cause, payment shall be made no later than 30 calendar days following the Termination Date,
and in the case of Termination of Employment for Good Reason, payment shall be made on the first
day of the seventh month following the Termination Date; and
(C) The lapse of all restrictions on transfer and forfeiture provisions to which Executives
awards under the Restricted Stock Plan 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 of Employment 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 of Employment has occurred. A Termination
of Employment 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
. In the event of a Termination of
Employment of Executive by the Company without Cause following the commencement of any discussion
with or communication from a third party that ultimately results in a Change in Control that is
also a change in control within the meaning of Section 409A, but prior to the date of such a
Change in Control, and Executive can reasonably demonstrate that such Termination of Employment was
made in connection with or in anticipation of such Change in
9
Control, then Executive shall be entitled to the benefits provided under Subsections 6(b)(iii) and 6(c) and Section 7, provided that
(i) no such payments or benefits shall be provided prior to such Change in Control; (ii) any
payments shall be payable within the various timeframes specified in Subsections 6(b)(iii) and 6(c)
and Section 7, but with such timeframes beginning as of the date of such Change in Control instead
of as of the date of Termination of Employment; and (iii) any reimbursements or in-kind benefits
shall be made or provided within the timeframes specified within the applicable provisions of
regulations under Section 409A in order to be exempt from or, if necessary, compliant with Section
409A.
(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 Companys expense, to provide outplacement assistance to Executive during the
Protected Period. In the event Executive pays for such services, the Company shall reimburse
Executive within 30 days from the time Executive presents an invoice or receipt for such expenses,
provided Executive presents such receipt(s) no later than 30 days before the end of Executives
second taxable year following the year in which such expenses were incurred
.
Any outplacement
services shall be appropriate to Executives position with the Company, as determined by the
outplacement assistance service firm. 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)
Omnibus Plan
. If Executive receives Awards (as defined therein) under the Omnibus
Plan and a Change in Control occurs as determined under the Omnibus Plan, then Executive shall be
entitled to the lapse of transfer restrictions imposed on any Award granted to Executive under the
Omnibus Plan, all as determined under and subject to the terms of the Omnibus Plan.
(k)
Payments upon Termination of Employment for Good Reason
. Notwithstanding anything
herein to the contrary, in the event Executives employment Terminates for Good Reason, no payments
or reimbursements to which Executive would otherwise be entitled shall be paid prior to the first
day of the seventh month following his Termination Date.
10
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 Companys 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
11
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 Companys
receipt of such determination and calculations. Notwithstanding any of the foregoing, if the
Executives Termination of Employment was for Good Reason, in no event shall any such payments be
made before the first day of the seventh month following such Termination of Employment.
(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 Executives 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
12
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 pay to
Executive a Gross-up Payment as defined in (a) above with respect to the tax claimed and otherwise
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
payment, 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 Companys 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 paid by the Company pursuant to Subsection
7(f), Executive receives any refund with respect to such claim, Executive shall (subject to the
Companys complying with the requirements of Subsection 7(f)) promptly
13
pay to the Company the amount of such refund (together with any interest paid or credited thereon after any taxes
applicable thereto).
8.
Binding Agreement; Successors
. This Agreement shall inure to the benefit of and be
binding upon Executives 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 Executives
devisee, legatee, or other designee or, if there be no such designee, to Executives 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.
Failure by the Company to obtain such succession shall be a breach of this Agreement and shall
entitle Executive to compensation from the Company in the same amount and on the same terms as the
Executive would be entitled to hereunder if the Executive were to Terminate the Executives
employment for Good Reason during the Protected Period, except that, for purposes of implementing
the foregoing, the date on which any such succession becomes effective shall be deemed the
Termination Date.
9.
Restrictive Covenants
.
(a)
Non-Competition
. During the Employment Period and for a period of two years
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 of Employment. 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 two years 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
14
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 Groups 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:
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.
15
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.
Code Section 409A
. The benefits under this Agreement generally are intended to
meet the requirements for exemption from Code Section 409A (including without limitation the
exemptions for restricted property, short-term deferrals, separation payments and reimbursements,
and welfare benefits) and shall be so construed and administered; however, to the extent any
benefit hereunder is not exempt from the application of Code Section 409A, it shall be administered
in compliance with Code Section 409A. Notwithstanding anything contained in this Agreement to the
contrary, this Agreement may be amended as the Company may determine, with the consent of the
Executive (which shall not be unreasonably withheld), to better secure exemption of each benefit
hereunder from, or if exemption is not reasonably available for such a benefit, to better comply
with, the requirements of Code Section 409A.
16
17.
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.
18.
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.
19.
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.
20.
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
(including the Existing Agreement), either oral or in writing, with respect to the employment of
Executive.
21.
Enforcement Costs
. The Company is aware that upon the occurrence of a Change in
Control the Board of Directors or a stockholder 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 at any time in the two
calendar years following a Termination of Employment during the Protected Period, 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 21 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,
stockholder or other person affiliated with the Company, in any jurisdiction. The Companys
obligations under this Section 21 shall not be conditioned on Executives 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 no later than 30 days after presentation by Executive of a statement or
statements prepared by such counsel in accordance with its customary practices, up to a
17
maximum annual amount of $250,000 in each of the two calendar years following the year in which occurs such
Termination of Employment within the Protected Period; provided, that Executive presents such
statement(s) no later than 30 days prior to the end of each such year, and provided further, that
if Executives Termination of Employment was for Good Reason, no such payment shall be made before
the first day of the seventh month following such Termination of Employment. Notwithstanding the
foregoing, this Section 21 shall not apply at any time unless a Change in Control has occurred.
[Remainder of page intentionally blank]
18
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date and year
first above written.
|
|
|
|
|
|
RPM INTERNATIONAL INC.
|
|
|
By:
|
|
|
|
|
Frank C. Sullivan, Chairman and
|
|
|
|
Chief Executive Officer
|
|
|
|
The Company
|
|
|
|
|
|
Executive
|
|
|
|
|
19
Schedule A
Certain Definitions
As used in this Agreement, the following capitalized terms shall have the following meanings:
4
01(k)
Plan
means the RPM International Inc. 401(k) Trust and Plan and any successor plan
or arrangement.
Affiliate
of a specified entity means any entity during any period during which it would
be treated, together with the Company, as a single employer for purposes of Section 414(b)
and (c) of the Code.
Annual Incentive Compensation
means an amount equal to the amount of Incentive
Compensation paid 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 a completed
fiscal year (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;
A-1
(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;
(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 Companys stockholders 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) The stockholders of the Company approve a plan of complete liquidation or
dissolution of the Company.
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 Companys 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.
COBRA Continuation Coverage
means the health care continuation requirements under the
federal Consolidated Omnibus Budget Reconciliation Act, as amended, Part VI
A-2
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 Groups 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 Groups
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) as in existence on the date of
this Agreement, or any successor plan that provides medical, dental and
prescription drug benefits, but only to the extent of such 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
means any medically determinable physical or mental impairment that can be
expected to result in death or can be expected to last for a continuous period of not less
than 12 months, and that makes Executive eligible for benefits under any long-term
disability program of the Company or an Affiliate. The Company and Executive acknowledge
and agree that the essential functions of Executives 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.
A-3
Earned Incentive Compensation
means the sum of:
|
(a)
|
|
The Unpaid Incentive Compensation; and
|
|
|
(b)
|
|
An amount equal to the Annual Incentive Compensation for the most recent completed
fiscal year (or for such shorter period during which Executive has been employed by the
Company) preceding the Termination Date 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.
Executive Life Insurance
means the RPM International Inc. Split Dollar Executive Life
Insurance Plan 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.
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
Executives 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 Executives Base Salary from
the amount in effect on the date of the Change in Control; (c) a reduction in Executives
Annual Incentive Compensation from the amount of Executives Annual Incentive Compensation
for the fiscal year preceding the fiscal year in which the Termination Date occurs, unless
such reduction results solely from the Companys 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; (e) the purported Termination of the Executives Employment
which is not effected pursuant to Sections 6(d) and 10 of this Agreement, which purported
Termination of Employment shall not be effective for purposes of this Agreement; (f) the
failure by the Company to comply with and satisfy Section 8 of this Agreement, relating to
the assumption of the Agreement by any successor entity; or (g) 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.
A-4
Group Long Term Disability Insurance
means the Group Long Term Disability Insurance
sponsored by the Company, 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.
Incentive Compensation
shall have the meaning given such term in Section 4(b).
Life and Disability Welfare Plan
means the RPM International Inc. Life and Disability
Welfare Plan, which includes Group Life Insurance, Group Long Term Disability Insurance and
Group Accidental Death and Dismemberment Insurance.
Limited Benefit Plans
means all the Companys 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 as in effect on the date
of this Agreement 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)
|
|
Stock option plans and other equity-based incentive plans,
including the RPM International Inc. 2007 Stock Option Plan, the Restricted
Stock Plan and the Omnibus Plan;
|
|
|
(d)
|
|
Any Executive Life Insurance;
|
|
|
(e)
|
|
The RPM International Inc. Incentive Compensation Plan;
|
|
|
(f)
|
|
The Deferred Compensation Plan;
|
|
|
(g)
|
|
The RPM International Inc. Employee Stock Purchase Plan;
|
|
|
(h)
|
|
The Life and Disability Welfare Plan;
|
|
|
(i)
|
|
The RPM International Inc. Group Variable Universal Life Plan
(also known as GRIP or GVUL);
|
|
|
(j)
|
|
The RPM International Inc. Business Travel Accident Plan;
|
|
|
(k)
|
|
The fringe benefits appertaining to Executives position with
the Company referred to in Subsection 4(f), including the use of an automobile;
and
|
A-5
|
(l)
|
|
RPM International Inc. Flexible Benefits Plan.
|
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.
Omnibus Plan
means the RPM International Inc. 2004 Omnibus Equity and Incentive Plan.
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 his
Termination of 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 Companys Certificate of
Incorporation or By-laws (or comparable charter document) or by statute.
Restricted Stock Plan
means either the RPM International Inc. 1997 Restricted Stock
Plan or the RPM International Inc. 2007 Restricted Stock Plan and any successor plan or
arrangement to either of such plans, but shall not be deemed to mean or include the Omnibus
Plan.
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.
Termination of Employment
means the separation from service within the meaning of Section
409A of the Code, of Executive with the Company and all of its Affiliates, for any reason,
including without limitation, quit, discharge, or retirement, or a leave of
A-6
absence
(including military leave, sick leave, or other bona fide leave of absence such as temporary
employment by the government if the period of such leave exceeds the greater of six months,
or the period for which Executives right to reemployment is provided either by statute or
by contract) or permanent decrease in service to a level that is no more than Twenty Percent
(20%) of its prior level. For this purpose, whether a Termination of Employment has
occurred is determined based on whether it is reasonably anticipated that no further
services will be performed by Executive after a certain date or that the level of bona fide
services Executive will perform after such date (whether as an employee or as an independent
contractor) would permanently decrease to no more than Twenty Percent (20%) of the average
level of bona fide services performed (whether as an employee or an independent contractor)
over the immediately preceding 36-month period (or the full period of services if Executive
has been providing services less than 36 months). The terms Terminate or Terminated,
when used in reference to Executives employment or the Employment Period, shall refer to a
Termination of Employment as set forth in this paragraph.
Termination Date
means the effective date of Executives Termination of Employment.
Unpaid Incentive Compensation
means an amount equal to 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 Annual Incentive
Compensation for the most recent fiscal year preceding the fiscal year in which the
Termination Date occurs for which Incentive Compensation has been paid. For purposes of
this definition, 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.
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.
A-7