-----BEGIN PRIVACY-ENHANCED MESSAGE-----
Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
Originator-Key-Asymmetric:
MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen
TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB
MIC-Info: RSA-MD5,RSA,
JYn9ZxXIgVaV6N18El0ixaEDjDvOpE7ftqRSU2j/PyclC8mTTcGzFUHhtIQj4d2o
B/+/HfH7TG4EVjH67u3USA==
<SEC-DOCUMENT>0000950152-06-007634.txt : 20060920
<SEC-HEADER>0000950152-06-007634.hdr.sgml : 20060920
<ACCEPTANCE-DATETIME>20060915103407
ACCESSION NUMBER: 0000950152-06-007634
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 11
CONFORMED PERIOD OF REPORT: 20020531
FILED AS OF DATE: 20020829
DATE AS OF CHANGE: 20060920
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: RPM INTERNATIONAL INC/DE/
CENTRAL INDEX KEY: 0000110621
STANDARD INDUSTRIAL CLASSIFICATION: PAINTS, VARNISHES, LACQUERS, ENAMELS & ALLIED PRODUCTS [2851]
IRS NUMBER: 020642224
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0531
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-14187
FILM NUMBER: 061092429
BUSINESS ADDRESS:
STREET 1: 2628 PEARL RD
STREET 2: P O BOX 777
CITY: MEDINA
STATE: OH
ZIP: 44258
BUSINESS PHONE: 3302735090
MAIL ADDRESS:
STREET 1: 2628 PEARL RD
STREET 2: P O BOX 777
CITY: MEDINA
STATE: OH
ZIP: 44258
FORMER COMPANY:
FORMER CONFORMED NAME: RPM INTERNATIONAL INC/OH/
DATE OF NAME CHANGE: 20021015
FORMER COMPANY:
FORMER CONFORMED NAME: RPM INC/OH/
DATE OF NAME CHANGE: 19920703
FORMER COMPANY:
FORMER CONFORMED NAME: REPUBLIC POWDERED METALS INC
DATE OF NAME CHANGE: 19711027
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>l21038ae10vk.txt
<DESCRIPTION>RPM, INC. 10-K/FISCAL YEAR END 5-31-02
<TEXT>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the fiscal year ended May 31, 2002
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from __________ to ___________
Commission File No. 1-14187
RPM, INC.
(Exact Name of Registrant as Specified in its Charter)
Ohio 34-6550857
- ------------------------------- ---------------------------------------
(State or Other Jurisdiction of (IRS Employer Identification
Incorporation or Organization) No.)
P.O. Box 777, 2628 Pearl Road, Medina, Ohio 44258
- -------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (330) 273-5090
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Exchange on Which Registered
- ------------------- ------------------------------------
Common Shares, Without Par Value New York Stock Exchange
Rights to Purchase Common Shares New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to the
filing requirements for the past 90 days. Yes x No
--- ---
<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of August 16, 2002, 114,829,899 Common Shares were outstanding, and
the aggregate market value of the Common Shares of the Registrant held by
non-affiliates (based upon the closing price of the Common Shares as reported on
the New York Stock Exchange on August 16, 2002) was approximately
$1,679,740,280. For purposes of this information, the 2,095,652 outstanding
Common Shares which were owned beneficially as of May 31, 2002 by executive
officers and Directors of the Registrant were deemed to be the Common Shares
held by affiliates.
Documents Incorporated by Reference
Portions of the following documents are incorporated by reference to
Parts II, III and IV of this Annual Report on Form 10-K: (i) definitive Proxy
Statement to be used in connection with the Registrant's Annual Meeting of
Shareholders to be held on October 11, 2002 (the "2002 Proxy Statement") and
(ii) the Registrant's 2002 Annual Report to Shareholders for the fiscal year
ended May 31, 2002 (the "2002 Annual Report to Shareholders").
Except as otherwise stated, the information contained in this Annual
Report on Form 10-K is as of May 31, 2002.
2
<PAGE>
PART I
ITEM 1. BUSINESS.
THE COMPANY
RPM, Inc. ("RPM" or the "Company") was organized in 1947 as an
Ohio corporation under the name Republic Powdered Metals, Inc. On November 9,
1971, the Company's name was changed to RPM, Inc. As used herein, the terms
"RPM" and the "Company" refer to RPM, Inc. and its subsidiaries, unless the
context indicates otherwise. The Company has its principal executive offices at
2628 Pearl Road, P.O. Box 777, Medina, Ohio 44258, and its telephone number is
(330) 273-5090.
RECENT DEVELOPMENTS
In June 2002, the Company's Board of Directors approved a plan
to change the Company's place of incorporation from Ohio to Delaware. Under the
plan, RPM International Inc., a newly formed Delaware entity, will become the
parent holding company of RPM and several other intermediate holding companies
and wholly-owned subsidiaries. Each outstanding Common Share, without par value,
of RPM will be converted into one share of common stock, par value $.01 per
share, of RPM International Inc. at the effective time of the reincorporation.
RPM currently serves as a holding company for its various operating companies.
After the reincorporation, the Company's various operating companies will be
realigned according to their product offerings, served end markets, customer
base and operating philosophy. Those operating companies that tend to be
entrepreneurial and serve niche markets (such as many of the entities that make
up the group of companies referred to as "RPM II") will continue to be owned by
RPM. Operating companies that primarily serve the consumer market will be
transferred to a new intermediate holding company to be wholly-owned by RPM
International Inc. Operating companies that primarily serve the industrial
market will be transferred to a new intermediate holding company also to be
wholly-owned by RPM International Inc.
In addition to allowing the Company to more effectively align
the structure of its various operating companies and further streamline the
management and operations of its businesses, the Company's management believes
that by reincorporating in Delaware, it will be able to take advantage of
Delaware's modern and flexible corporate laws as well as the expertise of the
Delaware courts in corporate matters. Management anticipates that the favorable
business corporation laws of Delaware should benefit the Company by allowing it
to conduct its affairs in a more flexible and efficient manner.
The reincorporation is subject to the approval of holders of
two-thirds of the Company's Common Shares at the annual meeting scheduled for
October 11, 2002. The Company's management does not expect that the
reincorporation will have a material impact on the Company's day-to-day
operations. The Company will continue to be headquartered in Ohio and does not
anticipate any change in its relationships with its customers, suppliers or
employees worldwide.
RPM International Inc. common stock will be traded on the New
York Stock Exchange under the symbol "RPM," the same symbol under which the
Company's Common Shares currently trade. RPM International Inc. will succeed to
the registration and reporting history of
3
<PAGE>
RPM under the Securities Act of 1933, as amended, and the Securities Exchange
Act of 1934, as amended.
Subsequent to the end of the 2002 fiscal year, on June 6,
2002, the Company entered into a securitization transaction with several banks
for certain of its subsidiaries, providing for a wholly owned special purpose
entity ("RPM Funding") to receive investments of up to $125 million, see Note B
(Borrowings) of the Notes to Consolidated Financial Statements, which appears on
page 40 of the Annual Report to Shareholders, incorporated herein by reference.
This securitization is being accomplished through the sale of various accounts
receivable by certain of the Company's subsidiaries to RPM Funding, and by RPM
Funding then transferring those receivables to a conduit administered by the
banks. This securitization will be reflected in the Company's financial
statements and, therefore, will not be off-balance sheet financing. The
securitization will increase the Company's liquidity and reduce financing costs
by replacing up to $125 million of existing borrowings at lower interest rates.
As of July 1, 2002, $100 million was securitized under the agreement, which
amount was used to reduce the $395 million outstanding balance of the Company's
$500 million, 5-year revolving credit facility, leaving $205 million of
liquidity available as of that date under this facility.
BUSINESS
RPM manufactures and markets high quality specialty paints,
protective coatings and roofing systems, sealants and adhesives, focusing on the
maintenance and improvement needs of both the industrial and consumer markets.
The Company's family of products includes those marketed under brand names such
as CARBOLINE, DAP, DAY-GLO, FLECTO, RUST-OLEUM, STONHARD, TREMCO AND ZINSSER. As
of May 31, 2002, RPM marketed its products in approximately 130 countries and
territories and operated manufacturing facilities in 62 locations in the United
States, Argentina, Belgium, Brazil, Canada, China, Colombia, Germany, Italy,
Malaysia, Mexico, New Zealand, The Netherlands, Poland, South Africa, the United
Arab Emirates and the United Kingdom. Approximately 25 percent of the Company's
sales are generated in international markets through a combination of exports
and sales by affiliates in foreign countries. For the fiscal year ended May 31,
2002, the Company recorded sales of approximately $1.986 billion.
OPERATING SEGMENT INFORMATION
The Company's portfolio of business is organized into two
operating segments: the Industrial Division and the Consumer Division. The
Industrial Division constitutes approximately 53 percent of sales and includes
maintenance and protection products for roofing and waterproofing systems,
flooring, corrosion control and other specialty applications. The Consumer
Division constitutes approximately 47 percent of sales and includes
rust-preventative, special purpose and decorative paints, caulks, sealants,
primers and other branded consumer products. Reference is made to "Reportable
Segment and Geographic Area Information" on pages 22 and 23 of the Annual Report
to Shareholders, incorporated herein by reference, for financial information
relating to operating segments.
INDUSTRIAL DIVISION
The Industrial Division has operations primarily in North
America and Europe as well as a presence in regions of South America, Asia,
South Africa, Australia and the Middle East. The Company's industrial
businesses, which account for the vast majority of its
4
<PAGE>
international sales, sell directly to contractors, distributors and end-users,
such as industrial manufacturing facilities, educational and governmental
institutions and commercial establishments. The Industrial Division generated
approximately $1.054 billion in sales for the fiscal year ended May 31, 2002 and
is comprised of the following major product lines:
- institutional roofing systems and sealants used in
building protection, maintenance and weatherproofing
applications marketed under the Company's
well-established TREMCO, REPUBLIC, VULKEM and
DYMERIC brand names;
- high-performance polymer flooring systems for
industrial, institutional and commercial facility
floor surfaces marketed under the STONHARD brand
name. The Company also manufactures and supplies
molded and pultruded fiberglass reinforced plastic
gratings used for industrial platforms, staircases
and walkways marketed under the FIBERGRATE brand
name;
- high-performance, heavy-duty corrosion control
coatings and a supplier of structural and
fireproofing protection products and secondary
containment linings for a wide variety of industrial
infrastructure applications marketed under the
CARBOLINE, NULLIFIRE and PLASITE brand names;
- exterior insulating finishing systems, including
textured finish coats, sealers and variegated
aggregate finishes marketed under the DRYVIT brand
name; and
- a variety of products for specialized applications,
including powder coatings for exterior and interior
applications marketed under the TCI brand name,
fluorescent colorants and pigments marketed under
the DAY-GLO brand name, concrete and masonry
additives marketed under the EUCO brand name,
commercial carpet cleaning solutions marketed under
the CHEMSPEC brand name, specialty processing
chemicals for the textile industry marked under the
AMERICAN EMULSIONS brand name, wood and lumber
treatments marketed under the KOP-COAT brand name
and pleasure marine coatings marketed under the
PETTIT, WOOLSEY and Z-SPAR brand names.
CONSUMER PRODUCTS
The Consumer Division manufactures professional and
do-it-yourself, or DIY, products for home maintenance and improvement,
automotive repair and maintenance, and hobby and leisure applications. The
Consumer Division's major manufacturing and distribution operations are located
in North America. The Company markets its products through a wide range of
distribution channels including home improvement centers, mass merchandisers,
hardware stores, paint stores and distributors. The Consumer Division generated
approximately $0.932 billion in sales in the fiscal year ended May 31, 2002 and
is comprised of the following major product lines:
- small project rust-preventative, decorative and
assorted specialty paints and coatings for the DIY
and professional markets through a wide assortment
of
5
<PAGE>
RUST-OLEUM products. In addition to the original
line of rust-preventative coatings sold under the
STOPS RUST name, leading brands within the
RUST-OLEUM portfolio include AMERICAN ACCENTS,
PAINTER'S TOUCH, TREMCLAD, HARD HAT, FLECTO,
VARATHANE and WATCO. New specialty coatings
introduced in the past fiscal year include EPOXY
SHIELD, ROAD WARRIOR and INDUSTRIAL CHOICE MARKING
AEROSOL;
- a complete line of caulks and sealants, patch and
repair products and adhesives for the home
improvement, repair and construction markets through
the Company's wide assortment of DAP products.
Leading brands within the DAP portfolio include ALEX
PLUS, KWIK SEAL PLUS with MICROBAN, SIDE WINDER
ADVANCED SIDING and WINDOW SEALANT, WELDWOOD, `33'
GLAZING and PLASTIC WOOD. Recently introduced
products include DRYDEX, EASY SOLUTIONS and
CRACKSHOT;
- a broad line of specialty primers and sealers
marketed under the ZINSSER, B-I-N, BULLS EYE 1-2-3,
COVER-STAIN and SEALCOAT UNIVERSAL brand names, as
well as wallcovering removal and preparation
coatings under the principal brands of DIF,
PAPERTIGER and SHIELDZ. ZINSSER PLUS MILDEWPROOF
COMMERCIAL WALLCOVERING SYSTEM was introduced this
past fiscal year; and
- an assortment of other products, including autobody
paints and repair products marketed under the BONDO
brand name, hobby paints and cements marketed under
the TESTORS brand name, wood furniture finishes and
touch-up products marketed under the CCI, MOHAWK,
CHEMICAL COATINGS and WESTFIELD COATINGS brand
names, deck and fence restoration products marketed
under the WOLMAN brand name and shellac-based
chemicals for industrial uses, edible glazes and
food coatings by MANTROSE-HAEUSER under the NATURE
SEAL brand name.
HISTORICAL RESTRUCTURING ACTIVITY
The Company actively pursues initiatives to enhance profitability by
lowering its operating costs through focused corporate leadership and broad
operating company support. In August 1999, the Company launched a comprehensive
restructuring program aimed at permanently reducing its fixed costs by more than
$23 million. The major features of the restructuring program included: (i) the
closure of 17 facilities to eliminate redundancies in manufacturing,
administration and distribution, (ii) a reduction of approximately 10% of the
Company's work force and (iii) the consolidation of certain consumer product
line distribution and warehousing activities to reduce costs and improve working
capital efficiencies. This restructuring program was completed by May 31, 2001,
and when combined with additional workforce reductions in response to slower
economic conditions during the 2002 fiscal year, is believed by the Company to
be generating savings in excess of management's initial objectives.
6
<PAGE>
FOREIGN OPERATIONS
The Company's foreign manufacturing operations for the fiscal
year ended May 31, 2002 accounted for approximately 19% of its total sales
(which does not include exports directly from the United States), although it
also receives license fees and royalty income from numerous license agreements
and also has joint ventures accounted for under the equity method in various
foreign countries. The Company has manufacturing facilities in Argentina,
Belgium, Brazil, Canada, China, Colombia, Germany, Italy, Malaysia, Mexico, New
Zealand, The Netherlands, Poland, South Africa, the United Arab Emirates and the
United Kingdom, and sales offices or public warehouse facilities in Australia,
Canada, Finland, France, Germany, Hong Kong, Iberia, Mexico, the Philippines,
Singapore, Sweden, the United Kingdom and several other countries. Information
concerning the Company's foreign operations is set forth in Management's
Discussion and Analysis of Results of Operations and Financial Condition, which
appears in the Annual Report to Shareholders, incorporated herein by reference.
COMPETITION
The Company is engaged in highly competitive industries and,
with respect to all of its major products, faces competition from local,
regional and national firms. The industries are fragmented, and the Company does
not face competition from any one company in particular. However, several of the
Company's competitors have greater financial resources and sales organizations
than the Company. While third-party figures are not necessarily available with
respect to the size of the Company's position in the market for each of its
products, the Company believes that it is a major producer of roofing systems,
aluminum coatings, cement-based paint, hobby paints, pleasure marine coatings,
furniture finishing repair products, automotive repair products, industrial
corrosion control products, consumer rust-preventative coatings, polymer
flooring, fluorescent coatings and pigments, exterior insulation finish systems,
molded and pultruded fiberglass reinforced plastic grating and shellac-based
coatings. However, the Company does not believe that it has a significant share
of the total protective coatings market. The following is a summary of the
competition faced by the Company in various markets.
Paints, Coatings, Adhesives and Sealants Industry
-------------------------------------------------
In the market for paints, coatings, adhesives and sealants,
the top ten producers account for approximately one-third of the global market.
In addition to the Company, leading suppliers tend to focus on coatings while
other companies focus on adhesives and sealants. This industry has experienced
significant consolidation over the past several decades, however, the market
remains fragmented, which creates further consolidation opportunities. Barriers
to market entry are relatively high due to the lengthy interval between product
development and market acceptance, the importance of brand identity, and the
difficulty in establishing a reputation as a reliable supplier in this sector.
Like the Company, most of the suppliers in this industry have a portfolio of
products that span across the various markets.
Consumer Home Improvement. Within the Consumer Division
operations, the Company generally serves the home improvement market with
products designed for niche architectural, rust-preventative, decorative,
special purpose, caulking and sealing applications. Products sold by the Company
in this market include, but are not limited to, those sold under the RUST-OLEUM,
DAP, ZINSSER and BONDO brand names. Leading manufacturers of home
7
<PAGE>
improvement-related coatings, adhesives and sealants market their products to
DIY users, professional contractors, industrial contractors, and industrial
end-users through a wide range of distribution channels including home
improvement centers, mass merchandisers, hardware stores, paint stores and
industrial distributors. Competitors in this market generally compete for market
share by marketing and building upon brand recognition, providing customer
service and developing new products based on customer needs.
Special Purpose-- Industrial Maintenance Protective Coatings.
Anti-corrosion protective coatings must withstand the destructive elements of
nature and other operating processes under harsh environments and conditions.
Some of the larger consumers of high-performance protective and corrosion
control coatings are the oil and gas, pulp and paper, petrochemical,
shipbuilding and public utility industries. In the public sector, corrosion
control coatings are used on structures such as bridges and in water and waste
water treatment plants. These markets are highly fragmented. The Company and its
competitors gain market share in this industry by offering high quality
products, supplying a variety of products and offering customized solutions. The
Company sells products marketed primarily under the CARBOLINE, PLASITE, and TCI
brand names to this market.
Roofing Systems Industry
------------------------
In the roofing industry, reroofing applications account for
three-quarters of U.S. demand, with the remaining quarter made up by the new
roofing segment. The largest manufacturers focus primarily on residential
roofing as well as single-ply systems for low-end commercial and institutional
applications, competing mainly on price and minimally on service. The Company
competes primarily in the higher-end, multi-ply and modified bitumen segments of
the built-up and low-slope roofing industry. This niche within the larger market
tends to exhibit less commodity-market characteristics, with customers valuing
the greater protection and longer life provided by these roofing systems, as
well as ongoing maintenance, inspection and technical services. Typical
customers demanding higher-performance roofing systems include governmental
facilities, universities, hospitals and certain other manufacturing facilities.
The Company markets to this industry primarily under its TREMCO line of
products.
Construction Chemicals Industry
-------------------------------
Flooring Systems. Polymer flooring systems are used in
industrial, commercial and, to a lesser extent, residential applications to
provide a smooth, seamless surface that is impervious to penetration by water
and other substances. Polymer flooring systems are based primarily on epoxy
resins, although urethane products have experienced significant growth in recent
years. Most flooring is applied during new construction, but there is also a
significant repair and renovation market. Key performance attributes in polymer
flooring systems that distinguish competitors include static control, chemical
resistance, contamination control, durability and aesthetics. The Company
primarily markets under the STONHARD and FIBERGRATE brand names in this
industry. This market is also fragmented.
Sealants, Concrete and Masonry Products. Sealants used in a
variety of construction applications include urethane and silicone-based
products designed for sealing windows and commercial buildings, waterproofing,
fireproofing and concrete sealing, among others. In the concrete and masonry
additives market, a variety of chemicals can be added to cement, concrete,
asphalt and other masonry to improve the processability, performance, or
appearance of these products. Chemical cement admixtures are typically grouped
according to
8
<PAGE>
functional characteristics, such as water-reducers, set controllers,
superplasticizers and air-entraining agents. Key attributes that differentiate
competitors in these markets include quality assurance, on-the-job consultation
and the provision of value-added engineered products. The Company primarily
offers products marketed under the EUCO, REPUBLIC, VULKEM and DYMERIC brand
names in this industry.
INTELLECTUAL PROPERTY
The intellectual property portfolios of the subsidiaries of
the Company include numerous valuable patents, trade secrets and know-how,
domain names, trademarks and trade names. Significant research and technology
development continues to be conducted by the subsidiaries. However, no single
patent, trademark, name or license, or group of these rights, other than the
marks DAY-GLO(R), RUST-OLEUM(R), CARBOLINE(R), DAP(R) and TREMCO(R), are
material to the Company's business.
Day-Glo Color Corp., a subsidiary of the Company, is the owner
of more than 50 trademark registrations of the mark "DAY-GLO(R)" in numerous
countries and the United States for a variety of fluorescent products. There are
also many other foreign and domestic registrations for other trademarks of the
Day-Glo Color Corp., for a total of more than 100 registrations. These
registrations are valid for a variety of terms ranging from one year to 20
years, which terms are renewable as long as the marks continue to be used. These
registrations are maintained and renewed on a regular basis.
Rust-Oleum Corporation, a subsidiary of the Company, is the
owner of more than 50 United States trademark registrations for the mark
"RUST-OLEUM(R)" and other trademarks covering a variety of rust-preventative
coatings sold by Rust-Oleum Corporation. There are also many foreign
registrations for "RUST-OLEUM(R)" and the other trademarks of Rust-Oleum
Corporation, for a total of nearly 400 registrations. These registrations are
valid for a variety of terms ranging from one year to 20 years, which terms are
renewable for as long as the marks continue to be used. These registrations are
maintained and renewed on a regular basis.
Carboline Company, a subsidiary of the Company, is the owner
of a United States trademark registration for the mark "CARBOLINE(R)." Carboline
Company is also the owner of several other United States registrations for other
trademarks. These registrations are maintained and renewed on a regular basis.
DAP Products Inc., a subsidiary of the Company, is the owner
of more than 150 United States and foreign trademark applications and
registrations which include the mark "DAP(R)." DAP Products Inc. is also the
owner of several other United States and foreign registrations for other
trademarks including "PUTTY KNIFE(R)." These registrations are maintained and
renewed on a regular basis.
Tremco Incorporated, a subsidiary of the Company, is the owner
of more than 100 registrations for the mark and name "TREMCO(R)" in numerous
countries and the United States for a variety of sealants and coating products.
There are also many other foreign and domestic registrations for other
trademarks of Tremco Incorporated, for a total of over 600 registrations and
applications. The registrations are valid for a variety of terms ranging from
one year to 20 years, which terms are renewable as long as the marks continue to
be used. These registrations are maintained and renewed on a regular basis.
9
<PAGE>
The Company's other principal product trademarks include:
ALUMANATION(R), AVALON(R), B-I-N(R), BITUMASTIC(R), BONDO(R), BULLS EYE
1-2-3(R), DRYVIT(R), DYMERIC(R), DYNALITE(R), DYNATRON(R), EASY FINISH(R),
FLECTO(R), EPOXSTEEL(R), FIBERGRATE(R), FLOQUIL(R), GEOFLEX(R), MAR-HYDE(R),
MOHAWK and DESIGN(R), OUTSULATION(R), PARASEAL(R), PERMAROOF(R), PETTIT(TM),
PLASITE(R), SANITILE(R), STONCLAD(R), STONHARD(R), STONLUX(R), TCI(R),
TESTORS(R), ULTRALITE(TM), VARATHANE(R), VULKEM(R), WOOLSEY(R), ZINSSER(R) and
Z-SPAR(R); and, in Europe, NULLIFIRE(R), RADGLO(R) and MARTIN MATHYS(R).
RAW MATERIALS
The Company does not have any single source suppliers of raw
materials that are material to its business, and the Company believes that
alternate sources of supply of raw materials are available to the Company for
most of its raw materials. Where shortages of raw materials have occurred, the
Company has been able to reformulate products to use more readily available raw
materials. Although the Company has been able to reformulate products to use
more readily available raw materials in the past, the Company cannot guaranty
that it will have the ability to do so in the future.
SEASONAL FACTORS
The Company's business is dependent on external weather
factors. The Company historically experiences strong sales and net income in its
first, second and fourth fiscal quarters comprised of the three month periods
ending August 31, November 30 and May 31, respectively, with weaker performance
in its third fiscal quarter (December through February).
CUSTOMERS
Eight large Consumer Division accounts, such as DIY home
centers, represented approximately 23% of the Company's total sales for the
fiscal year ended May 31, 2002. Sales to The Home Depot represented 11% of the
Company's total sales for the last fiscal year. Except for sales to these
customers, the Company's business is not dependent upon any one customer or
small group of customers but is rather dispersed over a substantial number of
customers.
BACKLOG
The Company historically has not had a significant backlog of
orders, nor was there a significant backlog during the last fiscal year.
RESEARCH
The Company's research and development work is performed in
various laboratory locations throughout the United States. During fiscal years
2002, 2001 and 2000, the Company invested approximately $20.9 million, $21.8
million and $22.3 million, respectively, on research and development activities.
In addition to this laboratory work, the Company views its field technical
service as being integral to the success of its research activities. The
research and development activities and the field technical service costs are
both included as part of selling, general and administrative expenses.
10
<PAGE>
ENVIRONMENTAL MATTERS
The Company is subject to numerous foreign, federal, state and
local environmental protection and health and safety laws and regulations
governing, among other things:
- the sale, export, generation, storage, handling, use and
transportation of hazardous materials;
- the emission and discharge of hazardous materials into the soil,
water and air; and
- the health and safety of the Company's employees.
The Company is also required to obtain permits from governmental
authorities for certain operations. The Company cannot guarantee that it has
been or will be at all times in complete compliance with such laws, regulations
and permits. If the Company violates or fails to comply with these laws,
regulations or permits, it could be fined or otherwise sanctioned by regulators.
Certain environmental laws assess liability on current or previous
owners or operators of real property for the cost of removal or remediation of
hazardous substances. Persons who arrange for the disposal or treatment of
hazardous substances also may be responsible for the cost of removal or
remediation of these substances, even if such persons never owned or operated
any disposal or treatment facility. Certain of the Company's subsidiaries are
involved in various environmental claims, proceedings and/or remedial activities
relating to facilities currently or previously owned, operated or used by these
subsidiaries, or their predecessors. In addition, the Company or its
subsidiaries, together with other parties, have been designated as potentially
responsible parties, or PRPs, under federal and state environmental laws for the
remediation of hazardous waste at certain disposal sites. In addition to
clean-up actions brought by federal, state and local agencies, plaintiffs could
raise personal injury, natural resource damage or other private claims due to
the presence of hazardous substances on a property. Environmental laws often
impose liability even if the owner or operator did not know of, or was not
responsible for, the release of hazardous substances.
The Company has in the past, and will in the future, incur costs
to comply with environmental laws. Environmental laws and regulations are
complex, change frequently and have tended to become stringent over time. In
addition, costs may vary depending on the particular facts and development of
new information. As a result, the Company's operating expenses and continuing
capital expenditures may increase. More stringent standards may also limit its
operating flexibility. In addition, to the extent hazardous materials exist on
or under real property, the value and future use of that real property may be
adversely affected. Because the Company's competitors will have similar
restrictions, the Company's management believes that compliance with more
stringent environmental laws and regulations is not likely to affect the
Company's competitive position. However, a significant increase in these costs
could adversely affect the Company's business, results of operations, financial
condition or cash flows. For information regarding environmental accruals, see
Note H (Contingencies and Loss Reserves) of the Notes to Consolidated Financial
Statements which appear in the Annual Report to Shareholders, incorporated
herein by reference.
11
<PAGE>
EMPLOYEES
As of May 31, 2002, the Company employed 7,687 persons, of
whom 583 were represented by unions under contracts which expire at varying
times in the future. The Company believes that its relations with its employees
are good.
ITEM 2. PROPERTIES.
The Company's corporate headquarters and a plant and offices
for one subsidiary are located on an 119-acre site in Medina, Ohio, which is
owned by the Company. As of May 31, 2002, the Company's operations occupied a
total of approximately 7.4 million square feet, with the majority, approximately
6.0 million square feet, devoted to manufacturing, assembly and storage. Of the
approximately 7.4 million square feet occupied, 5.3 million square feet are
owned and 2.1 million square feet are occupied under operating leases. In
addition, approximately 0.3 million owned square feet is associated with
property intended to be sold or sublet in conjunction with the Company's
restructuring program.
Set forth below is a description, as of May 31, 2002, of the
Company's principal manufacturing facilities which management believes are
material to the Company's operations:
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE FEET
BUSINESS/ OF
LOCATION SEGMENT FLOOR SPACE LEASED OR OWNED
-------- ------- ----------- ---------------
<S> <C> <C> <C>
Pleasant Prairie, Rust-Oleum 303,200 Owned
Wisconsin (Consumer)
Toronto, Ontario, Tremco 207,000 Owned
Canada (Industrial)
Cleveland, Ohio Euclid Chemical 173,000 Owned
(Industrial)
Cleveland, Ohio Tremco 160,300 Owned
(Industrial)
Cleveland, Ohio Day-Glo 147,000 Owned
(Industrial)
Baltimore, Maryland DAP 144,200 Owned
(Consumer)
Tipp City, Ohio DAP 140,000 Owned
(Consumer)
Lake Charles, Carboline 114,300 Owned
Louisiana (Industrial)
Somerset, New Jersey Zinsser 110,000 Owned
(Consumer)
Maple Shade, Stonhard 77,500 Owned
New Jersey (Industrial)
</TABLE>
12
<PAGE>
The Company leases certain of its properties under long-term
leases. Some of the leases provide for increased rent based on an increase in
the cost-of-living index. For information concerning the Company's rental
obligations, see Note E (Leases) of Notes to Consolidated Financial Statements
which appear in the Annual Report to Shareholders, incorporated herein by
reference. Under all of its leases, the Company is obligated to pay certain
varying insurance costs, utilities, real property taxes and other costs and
expenses.
The Company believes that its manufacturing plants and office
facilities are well maintained and suitable for the operations of the Company.
ITEM 3. LEGAL PROCEEDINGS.
EIFS Litigation
---------------
As previously reported, Dryvit is a defendant or co-defendant
in numerous exterior insulated finish systems ("EIFS") related lawsuits. As of
May 31, 2002, Dryvit was a defendant or co-defendant in approximately 850 single
family residential EIFS cases, the vast majority of which are pending in North
Carolina, South Carolina and Alabama. Dryvit is also defending EIFS lawsuits
involving office buildings and other commercial structures. The vast majority of
Dryvit's EIFS lawsuits seek monetary relief for water intrusion related property
damages, although a number of claims also stem from alleged personal injuries
from exposure to mold.
As previously reported, Dryvit settled the North Carolina
class action styled Ruff, et al. v. Parex, Inc., et al. ("Ruff"). As of May 31,
2002, approximately 600 claims had been submitted to the claims administrator
for verification and validation. Of these 600 claims, 110 claims were rejected
and 280 claims were paid in the amount of $4,450,000 pursuant to funding
arrangements described below with Dryvit's insurers. The remaining claims are at
various stages of investigation, review and validation by the claims
administrator.
As previously reported, Dryvit is a defendant in an attempted
state class action filed in Jefferson County, Tennessee styled Bobby R. Posey,
et al. v. Dryvit Systems, Inc. (formerly styled William J. Humphrey, et al. v.
Dryvit Systems, Inc.) (Case No. 17,715-IV). The Posey case is an attempted
state-wide class action which seeks various types of damages on behalf of all
similarly situated persons who paid for the purchase of a Dryvit EIFS-clad
structure in the State of Tennessee during the period beginning November 14,
1990 to the date of the complaint.
On April 8, 2002, the judge in the Posey case signed a
preliminary approval order for a nationwide class action settlement of a
substantial portion of Dryvit's residential EIFS litigation. The proposed class
covers all persons in any state (other than North Carolina) who own a one- or
two-family residential dwelling or townhouse clad with Dryvit EIFS installed
after January 1, 1989. Nationwide notice to all eligible class members began on
or about June 13, 2002. A fairness hearing is set for on or about October 1,
2002, to seek final court approval of the proposed settlement. If there is not
an excessive number of opt outs by the September 3, 2002 deadline, and the court
grants final approval of the settlement at the fairness hearing, the settlement
will result in the dismissal of all other pending attempted state class actions.
As previously reported, Dryvit is a defendant in other attempted state class
actions including cases filed in Madison County, Illinois styled Osborne, et.
al. v. Dryvit Systems, Inc. (Case No.
13
<PAGE>
00L000395) and in Mobile County, Alabama styled Tony Bryan, et. al. v. Dryvit
Systems, Inc. (Case No. CV-01-00761 JSJ).
Certain of Dryvit's insurers have paid or are currently paying
a portion of Dryvit's defense costs in the class actions, and individual
commercial building and homeowner lawsuits. Dryvit, RPM's wholly-owned captive
insurance company, First Colonial Insurance Company ("First Colonial"), and
certain of Dryvit's umbrella carriers have entered into various cost-sharing
agreements to cover both the individual and class action cases which have been
subject to periodic renegotiations. Under these cost-sharing agreements,
Dryvit's insurers have covered a substantial portion of the EIFS indemnity and
defense costs. Dryvit is currently in discussions with its insurers, including
First Colonial, with respect to funding Dryvit's potential obligations under the
proposed national class action settlement. Based on Dryvit's existing insurance
arrangements and Dryvit's obligations under the proposed class action
settlement, management believes that the EIFS litigation will not have a
material adverse effect on the Company's consolidated financial condition or
results of operations.
Asbestos Litigation
-------------------
As previously reported, the Company and certain of its
wholly-owned subsidiaries, principally Bondex International, Inc. (collectively
referred to as "the Company"), are defendants in various asbestos-related bodily
injury lawsuits. These cases generally seek damages for asbestos-related
diseases based on alleged exposures to asbestos-containing products previously
manufactured by the Company.
The Company continues to vigorously defend all
asbestos-related lawsuits. In many cases, the claimants are unable to
demonstrate that any injuries they have incurred, in fact, resulted from
exposure to one of the Company's products. In such cases, the Company is
generally dismissed without payment. With respect to those cases where
compensable disease, exposure and causation are established with respect to one
of the Company's products, the Company generally settles for amounts that
reflect the confirmed disease, the seriousness of the case, the particular
jurisdiction and the number and solvency of other parties in the case.
As of May 31, 2002, the Company had a total of 1,784 active
asbestos cases compared to 1,151 as of May 31, 2001. This increase in the number
of cases filed is due, in part, to the bankruptcy filings of various other
asbestos litigation defendants. During the quarter ended May 31, 2002, the
Company secured dismissals and/or settlements of 236 claims for $1,356,125, net
of insurer payments and excluding defense costs, compared to 14 dismissals
and/or settlements for $129,660 for the same quarter ended May 31, 2001. For the
fiscal year ended May 31, 2002, the Company secured dismissals and/or
settlements of 334 claims for $2,494,437, net of insurer payments and excluding
defense costs, compared to dismissals and/or settlements of 85 claims for
$851,183 for the fiscal year ended May 31, 2001.
The Company's third party insurers have historically been
responsible, under a cost sharing agreement, for the payment of approximately
90% of the indemnity and defense costs associated with the Company's asbestos
litigation. The Company expects that its insurers will continue to cover a
substantial portion of these costs associated with its asbestos litigation at
least into the 2004 fiscal year. For the estimated costs associated with
asbestos litigation which are not covered by insurance, the Company has
established a financial reserve in an amount which it deems to be adequate.
14
<PAGE>
Based on the Company's existing insurance arrangements and the
financial reserve mentioned above, at the present time management does not
believe that the Company's current asbestos litigation will have a material
adverse effect on the Company's consolidated financial condition or results of
operations. However, the potential cost of liabilities associated with asbestos
claims is subject to many uncertainties, including (i) the ultimate number of
claims filed against the Company, (ii) the cost of resolving current and future
claims, (iii) the amount of insurance available to cover such claims, (iv)
future earnings and cash flow of the Company, (v) the impact of bankruptcies of
other companies whose share of liability may be imposed on the Company under
certain state liability laws, (vi) the unpredictable aspects of the litigation
process, and (vii) potential legislative changes. Accordingly, management cannot
be certain that the future costs of the Company's asbestos litigation will not
have a material adverse effect on the Company's future business, consolidated
financial condition, results of operations or cash flows.
In addition to the foregoing legal proceedings, various of the
Company's subsidiaries are, from time to time, parties to legal proceedings
associated with their businesses and operations. It is not possible to predict
the outcome of these proceedings, but management believes that these other
proceedings will not have a material adverse effect on the Company's
consolidated financial condition or results of operations.
Environmental Proceedings
-------------------------
As previously reported, various of the Company's subsidiaries
are, from time to time, identified as a "potentially responsible party" under
the Comprehensive Environmental Response, Compensation and Liability Act and
similar state environmental statutes. In some cases, the Company's subsidiaries
are participating in the cost of certain clean-up efforts or other remedial
actions. The Company's share of such costs, however, has not been material and
management believes that these environmental proceedings will not have a
material adverse effect on the Company's consolidated financial condition or
results of operations. See "Business-Environmental Matters."
See Note H (Contingencies and Loss Reserves) of the Notes to
Consolidated Financial Statements which appear in the Annual Report to
Shareholders, incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
15
<PAGE>
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT*.
The name, age and positions of each executive officer of the
Company as of August 1, 2002 are as follows:
<TABLE>
<CAPTION>
Name Age Position and Offices with the Company
- ---- --- -------------------------------------
<S> <C> <C>
Thomas C. Sullivan 65 Chairman of the Board and Chief Executive Officer
James A. Karman 65 Vice Chairman
Frank C. Sullivan 41 President and Chief Operating Officer
Dennis F. Finn 49 Vice President - Environmental and Regulatory Affairs
Glenn R. Hasman 48 Vice President - Finance and Communications
Paul G. Hoogenboom 42 Vice President - Operations and Systems
Stephen J. Knoop 37 Vice President - Corporate Development
Robert L. Matejka 59 Vice President, Chief Financial Officer and Controller
Ronald A. Rice 39 Vice President - Administration and Assistant Secretary
Keith R. Smiley 40 Vice President, Treasurer and Assistant Secretary
P. Kelly Tompkins 45 Vice President, General Counsel and Secretary
</TABLE>
- -----------------------
* Included pursuant to Instruction 3 to Item 401(b) of Regulation S-K.
Thomas C. Sullivan has been Chairman of the Board and Chief
Executive Officer of the Company since October 1971. From June 1971 through
September 1978, Mr. Sullivan served as President and, prior thereto, as
Executive Vice President of the Company. Mr. Sullivan's employment with the
Company commenced in 1961, and he has been a Director since 1963. Mr. Sullivan
will step down from his position as the Chief Executive Officer of the Company
effective as of October 11, 2002 and will retire as an employee of the Company
effective as of January 1, 2003. Mr. Sullivan will continue to serve as Chairman
of the Board and as a member of the Board of Directors and will serve the
Company in a consulting capacity pursuant to a consulting agreement effective
January 1, 2003 and continuing through May 31, 2005. Mr. Sullivan is the father
of Frank C. Sullivan, President of the Company.
James A. Karman was elected Vice Chairman on August 5, 1999.
From September 1978 to August 1999, he served as President and Chief Operating
Officer. Mr. Karman also was the Chief Financial Officer of the Company from
October 1982 to October 1993, and again from June 2001 to October 2001. From
October 1973 through September 1978, Mr. Karman served as Executive Vice
President, Secretary and Treasurer, and, prior thereto, as Vice
President-Finance and Treasurer of the Company. Mr. Karman's employment with the
Company commenced in 1963, and he has been a Director since 1963. Mr. Karman
will step down from his position as Vice Chairman of the Board of Directors
effective as of October 11, 2002 and will retire as an employee of the Company
as of January 1, 2003. Mr. Karman will continue to serve as a member of the
Board of Directors and will serve the Company in a consulting capacity pursuant
to a consulting agreement effective January 1, 2003 and continuing through May
31, 2004.
16
<PAGE>
Frank C. Sullivan was elected Chief Operating Officer on
October 12, 2001 and President on August 5, 1999. From October 1995 to August
1999 he served as Executive Vice President, and was Chief Financial Officer from
October 1993 to August 1999. Mr. Sullivan served as a Vice President from
October 1991 to October 1995. Prior thereto, he served as Director of Corporate
Development of the Company from February 1989 to October 1991. Mr. Sullivan
served as Regional Sales Manager, from February 1988 to February 1989, and as a
Technical Service Representative, from February 1987 to February 1988, of AGR
Company, an Ohio General Partnership formerly owned by the Company. Prior
thereto, Mr. Sullivan was employed by First Union National Bank from 1985 to
1986 and Harris Bank from 1983 to 1985. Mr. Sullivan is employed as President
and Chief Operating Officer under an employment agreement for a period ending
May 31, 2003, which will be either amended or replaced by a new agreement to
reflect his anticipated election as Chief Executive Officer of the Company on
October 11, 2002. Mr. Sullivan is the son of Thomas C. Sullivan, Chairman of the
Board and Chief Executive Officer of the Company.
Dennis F. Finn was elected Vice President-Environmental and
Regulatory Affairs on October 12, 2001. Prior to joining the Company in November
2000 as director of environmental and regulatory affairs, Mr. Finn served for 10
years as director of environmental health and safety at Day-Glo Color Corp., one
of the Company's operating companies. He also held various positions with Nalco
Chemical Company and IIT Research Institute.
Glenn R. Hasman was elected Vice President-Finance and
Communications on August 1, 2000. Mr. Hasman served as Vice President-Controller
from August 1999 to August 2000, as Vice President-Financial Operations from
October 1997 to August 1999, as Vice President-Administration from October 1993
to October 1997 and as Controller from July 1990 to October 1993. From September
1982 through July 1990, Mr. Hasman served in a variety of management capacities,
most recently Vice President-Operations and Finance, Chief Financial Officer and
Treasurer, with a former wholly-owned subsidiary of the Company. From 1979 to
1982, Mr. Hasman served as RPM's Director of Internal Audit and from 1976 to
1979 he was associated with Ciulla, Smith & Dale, LLP, independent accountants.
Mr. Hasman is employed as Vice President-Finance and Communications under an
employment agreement that provides for automatic annual renewal.
Paul G. Hoogenboom was elected Vice President-Operations on
August 1, 2000. Mr. Hoogenboom served as Vice President and General Manager of
the Company's e-commerce subsidiary, RPM-e/c, Inc., in 1999. From 1998 to 1999,
Mr. Hoogenboom was a Director of Cap Gemini, a computer systems and technology
consulting firm. During 1997, Mr. Hoogenboom was employed as a strategic
marketing consultant for Xylan Corporation, a network switch manufacturer. From
1994 to 1997, Mr. Hoogenboom was Director of Corporate I.T. and Communications
for A.W. Chesterton Company, a manufacturer of fluid sealing systems. Mr.
Hoogenboom is employed as Vice President-Operations under an employment
agreement that provides for automatic annual renewal.
Stephen J. Knoop was elected Vice President-Corporate
Development on August 5, 1999. From June 1996 to August 1999, Mr. Knoop served
as Director of Corporate Development of the Company. From 1990 to May 1996, Mr.
Knoop was an attorney at Calfee, Halter & Griswold LLP. Mr. Knoop is employed as
Vice President-Corporate Development under an employment agreement that provides
for automatic annual renewal.
17
<PAGE>
Robert L. Matejka was elected Chief Financial Officer on
October 12, 2001 and Vice President-Controller on August 1, 2000. From 1995 to
1999, he served as Vice President-Finance of the motor and drive systems
businesses of Rockwell International Corporation. From 1973 to 1995, Mr. Matejka
served in various capacities with Reliance Electric Company, most recently as
its Assistant Controller. From 1965 to 1973, he was an Audit Supervisor with
Ernst & Young. Mr. Matejka is employed as Chief Financial Officer and Vice
President - Controller under an employment agreement that provides for automatic
annual renewal.
Ronald A. Rice was elected Vice President-Administration on
October 12, 2001 and Assistant Secretary on August 5, 1999. From August 1999 to
October 2001, he served as the Company's Vice President-Risk Management and
Benefits. From 1997 to August 1999, he served as Director of Risk Management and
Employee Benefits, and from 1995 to 1997 he served as Director of Benefits. From
1985 to 1995, Mr. Rice served in various capacities with the Wyatt Company, most
recently he served as Senior Account Manager from 1992 to 1995. Mr. Rice is
employed as Vice President-Administration and Assistant Secretary under an
employment agreement that provides for automatic annual renewal.
Keith R. Smiley was elected Vice President and Assistant
Secretary on August 5, 1999, and has served as Treasurer of the Company since
February 1997. From October 1993 to February 1997, he served as Controller of
the Company. From January 1992 until February 1997, Mr. Smiley also served as
the Company's Internal Auditor. Prior thereto, he was associated with Ciulla,
Smith & Dale, LLP. Mr. Smiley is employed as Vice President, Treasurer and
Assistant Secretary under an employment agreement that provides for automatic
annual renewal.
P. Kelly Tompkins has served as Vice President, General
Counsel and Secretary since June 1998. From June 1996 to June 1998, Mr. Tompkins
served as Assistant General Counsel. From 1987 to 1995, Mr. Tompkins was
employed by Reliance Electric Company in various positions including Senior
Corporate Counsel, Director of Corporate Development and Director of Investor
Relations. From 1985 to 1987, Mr. Tompkins was employed as a litigation attorney
by Exxon Corporation. Mr. Tompkins is employed as Vice President, General
Counsel and Secretary under an employment agreement that provides for automatic
annual renewal.
18
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
RPM Common Shares are traded on the New York Stock Exchange
under the symbol RPM. The high and low sales prices for the Common Shares, and
the cash dividends paid on the Common Shares, for each quarter of the two most
recent fiscal years is set forth in the table below.
RANGE OF SALES PRICES AND DIVIDENDS PAID
----------------------------------------
Dividends Paid
Fiscal 2002 High Low Per Share
----------- ---- --- ---------
1st Quarter $ 11.150 $ 8.020 $0.1250
2nd Quarter 15.050 7.910 $0.1250
3rd Quarter 17.080 12.900 $0.1250
4th Quarter 17.870 14.150 $0.1250
Dividends Paid
Fiscal 2001 High Low Per Share
----------- ---- --- ---------
1st Quarter $ 10.7500 $ 8.6250 $0.1225
2nd Quarter 10.2500 7.7500 0.1250
3rd Quarter 9.9375 8.2500 0.1250
4th Quarter 10.5000 8.2500 0.1250
- --------------------
Source: The Wall Street Journal
Cash dividends are payable quarterly, upon authorization of
the Board of Directors. Regular payment dates are approximately the 30th day of
July, October, January and April. RPM maintains a Dividend Reinvestment Plan
whereby cash dividends, and a maximum of an additional $5,000 per month, may be
invested in RPM Common Shares purchased in the open market at no commission cost
to the participant.
The number of holders of record of RPM Common Shares as of
August 16, 2002 was approximately 40,230.
RECENT SALES OF UNREGISTERED SECURITIES.
None.
19
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected consolidated financial
data of the Company for each of the five years during the period ended May 31,
2002. The data was derived from the annual Consolidated Financial Statements of
the Company which have been audited by Ciulla, Smith & Dale, LLP, independent
accountants.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MAY 31,
--------------------------
2002* 2001 2000 1999 1998
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(Amounts in thousands, except per
share and percentage data)
Net sales $1,986,126 $2,007,762 $1,962,410 $1,720,628 $1,623,326
Income before income taxes 154,124 101,487 71,761 159,597 149,556
Net income 101,554 62,961 40,992 94,546 87,837
Return on sales % 5.1% 3.1% 2.1% 5.5% 5.4%
Basic earnings per share 0.97 0.62 0.38 0.87 0.89
Diluted earnings per share 0.97 0.62 0.38 0.86 0.84
Shareholders' equity 858,106 639,710 645,724 742,876 566,337
Shareholders' equity per share 8.22 6.26 6.02 6.83 5.75
Return on shareholders' equity % 13.6% 9.8% 5.9% 14.4% 16.6%
Average shares outstanding 104,418 102,202 107,221 108,731 98,527
Cash dividends paid 52,409 50,605 51,901 50,446 43,474
Cash dividends per share 0.5000 0.4975 0.4850 0.4645 0.4400
Retained earnings 409,603 360,458 348,102 359,011 314,911
Working capital 436,600 443,652 408,890 402,870 387,284
Total assets 2,036,403 2,078,490 2,099,203 1,737,236 1,685,917
Long-term debt 707,921 955,399 959,330 582,109 716,989
Depreciation and amortization 56,859 81,494 79,150 62,135 57,009
</TABLE>
- ---------------
Note: Acquisitions made by the Company during the periods presented may impact
comparability from year to year. For information concerning acquisitions for
fiscal years 2002 and 2001, see Note A(2) of Notes to Consolidated Financial
Statements, which appear in the Annual Report to Shareholders, incorporated
herein by reference.
*Reflects the adoption of SFAS No. 142 regarding "Goodwill and Other
Intangible Assets". See Note A(10) to Notes to Consolidated Financial
Statements, which appear in the Annual Report to Shareholders, incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The information required by this item is set forth at pages 22
through 31 of the 2002 Annual Report to Shareholders, incorporated herein by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to market risk from changes in interest
rates and foreign currency exchange rates since it funds its operations through
long-and short-term borrowings and
20
<PAGE>
denominates its business transactions in a variety of foreign currencies. A
summary of the Company's primary market risk exposures is presented below.
Interest Rate Risk
The Company's primary interest rate risk exposure results from
floating rate debt including various revolving credit and other lines of credit.
At May 31, 2002, approximately 70% of the Company's total long-term debt
consisted of floating rate debt. If interest rates were to increase 100 basis
points (1%) from May 31, 2002 rates, and assuming no changes in long-term debt
from the May 31, 2002 levels, the additional annual expense would be
approximately $5.0 million on a pre-tax basis. The Company currently does not
hedge its exposure to this floating rate interest rate risk.
Foreign Currency Risk
The Company's foreign sales and results of operations are
subject to the impact of foreign currency fluctuations. As most of the Company's
foreign operations are in countries with fairly stable currencies, such as the
United Kingdom, Belgium and Canada, this effect has not been material. In
addition, foreign debt is denominated in the respective foreign currency,
thereby eliminating any related translation impact on earnings. If the dollar
were to strengthen, the Company's foreign results of operations would be
negatively impacted, but the effect is not expected to be material. A 10%
adverse change in foreign currency exchange rates would not have resulted in a
material impact on the Company's net income for the fiscal year ended May 31,
2002. The Company does not currently hedge against the risk of exchange rate
fluctuations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is set forth at pages 32
through 49 of the 2002 Annual Report to Shareholders, which information is
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information required by this item as to the Directors of the
Company appearing under the caption "Proposal One - Election of Directors" in
the Company's 2002 Proxy Statement is incorporated herein by reference.
Information required by this item as to the Executive Officers of the Company is
included as Item 4A of Part I of this Annual Report on Form 10-K as permitted by
Instruction 3 to Item 401(b) of Regulation S-K. Information required by Item 405
of Regulation S-K is set forth in the 2002 Proxy Statement under the heading
"Proposal One - Section 16(a) Beneficial Ownership Reporting Compliance," which
information is incorporated herein by reference.
21
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is set forth in the 2002
Proxy Statement under the heading "Proposal One - Executive Compensation," which
information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS.
The information required by this item is set forth in the 2002
Proxy Statement under the headings "Share Ownership of Principal Holders and
Management" and "Proposal One - Equity Compensation Plan Information," which
information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is set forth in the 2002
Proxy Statement under the heading "Proposal One - Election of Directors," which
information is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) The following documents are filed as part of this 2002 Annual Report on
Form 10-K:
1. FINANCIAL STATEMENTS. The following consolidated financial
statements of the Company and its subsidiaries and the report of independent
auditors thereon, included in the 2002 Annual Report to Shareholders on pages 32
through 49, are incorporated by reference in Item 8:
Independent Auditors' Report
Consolidated Balance Sheets -
May 31, 2002 and 2001
Consolidated Statements of Income -
years ended May 31, 2002, 2001 and 2000
Consolidated Statements of Shareholders'
Equity - years ended May 31, 2002, 2001
and 2000
Consolidated Statements of Cash Flows -
years ended May 31, 2002, 2001 and 2000
Notes to Consolidated Financial
Statements (including Unaudited Quarterly
Financial Information)
22
<PAGE>
2. FINANCIAL STATEMENT SCHEDULES. The following consolidated financial
statement schedule of the Company and its subsidiaries and the report of
independent auditors thereon are filed as part of this Annual Report on Form
10-K and should be read in conjunction with the consolidated financial
statements of the Company and its subsidiaries included in the 2002 Annual
Report to Shareholders:
Schedule Page No.
-------- --------
Independent Auditors' Report S-1
Schedule II - Valuation and Qualifying S-2
Accounts and Reserves
All other schedules have been omitted because they are not applicable
or not required, or because the required information is included in the
consolidated financial statements or notes thereto.
3. Exhibits.
--------
See the Index to Exhibits at page E-1 of this Annual Report on
Form 10-K.
(b) Reports on Form 8-K.
-------------------
The Company filed a Current Report on Form 8-K on March 14,
2002, during the fourth fiscal quarter, to report that it had issued a
press release dated March 13, 2002, announcing the Company's third
quarter earnings.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
RPM, INC.
Date: August 29, 2002 By: /s/ Thomas C. Sullivan
----------------------
Thomas C. Sullivan
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Signature and Title
- -------------------
Chairman of the Board of
/s/ Thomas C. Sullivan Directors and Chief Executive
- ---------------------- Officer (Principal Executive Officer)
Thomas C. Sullivan
/s/ James A. Karman Vice Chairman and a Director
- ----------------------------
James A. Karman
/s/ Frank C. Sullivan Chief Operating Officer, President and a
- ---------------------------- Director
Frank C. Sullivan
/s/ Robert L. Matejka Vice President, Chief Financial Officer
- ---------------------------- and Controller (Principal Financial
Robert L. Matejka Officer)
/s/ Dr. Max D. Amstutz
- ----------------------------
Dr. Max D. Amstutz Director
/s/ Edward B. Brandon Director
- ----------------------------
Edward B. Brandon
/s/ Lorrie Gustin Director
- ----------------------------
Lorrie Gustin
24
<PAGE>
/s/ E. Bradley Jones Director
- ----------------------------
E. Bradley Jones
/s/ Donald K. Miller Director
- ----------------------------
Donald K. Miller
/s/ William A. Papenbrock Director
- ----------------------------
William A. Papenbrock
/s/ Albert B. Ratner Director
- ----------------------------
Albert B. Ratner
/s/ Jerry Sue Thornton Director
- ----------------------------
Jerry Sue Thornton
/s/ Joseph P. Viviano Director
- ----------------------------
Joseph P. Viviano
Date: August 29, 2002
25
<PAGE>
RPM, INC.
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
3.1 Amended Articles of Incorporation, of RPM, Inc., which
is incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-3 as filed
with the Commission on January 6, 1997.
3.2 Amended Code of Regulations, which is incorporated
herein by reference to Exhibit 3.2 to the Company's
Annual Report on Form 10-K for the fiscal year ended May
31, 2001.
4.1 Specimen Certificate of Common Shares, without par
value, of RPM, Inc., which is incorporated herein by
reference to Exhibit 4.1 to the Company's Annual Report
on Form 10-K for the fiscal year ended May 31, 1998.
4.2 Specimen Note Certificate for 7.0% Senior Notes Due
2005, which is incorporated herein by reference to
Exhibit 4.3 to the Company's Registration Statement on
Form S-4 as filed with the Commission on August 3, 1995.
4.3 Specimen Note Certificate of Liquid Asset Notes With
Coupon Exchange ("LANCEs(SM)") Due 2008, which is
incorporated herein by reference to Exhibit 4.3 to the
Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1998.
4.4 Rights Agreement by and between RPM, Inc. and Harris
Trust and Savings Bank dated as of April 28, 1999, which
is incorporated herein by reference to Exhibit 4.1 to
the Company's Registration Statement on Form 8-A as
filed with the Commission on May 11, 1999.
4.4.1 Amendment to Rights Agreement dated December 18, 2000 by
and among the Company, Computershare Investor Services
(formerly Harris Trust and Savings Bank) and National
City Bank, which is incorporated herein by reference to
Exhibit 4.4.1 to the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 2001.
4.5 Indenture, dated as of June 1, 1995, between RPM, Inc.
and The First National Bank of Chicago, as trustee, with
respect to the 7.0% Senior Notes Due 2005, which is
incorporated herein by reference to Exhibit 4.5 to the
Company's Registration Statement on Form S-4 as filed
with the Commission on August 3, 1995.
4.6 First Supplemental Indenture, dated as of March 5, 1998
to the Indenture dated as of June 1, 1995, between RPM,
Inc. and The First National Bank of Chicago, as trustee,
with respect to the Liquid Asset Notes with Coupon
Exchange ("LANCEs(SM)") due 2008, which is incorporated
herein by reference to Exhibit 4.6 to the Company's
Annual Report on Form 10-K for the fiscal year ended May
31, 1998.
E-1
<PAGE>
EXHIBIT NO. DESCRIPTION
----------- -----------
4.7 Note Purchase Agreement, dated as of November 15, 2001,
between the Company and the Purchasers thereto with
respect to the sale of $15 million principal amount of
6.12% Senior Notes, Series A, due November 15, 2004, $10
million principal amount of 6.61% Senior Notes, Series
B, due November 15, 2006, and $30 million principal
amount of 7.3% Senior Notes, Series C, due November,
2008, which is incorporated herein by reference to
Exhibit 4.1 to the Company's Quarterly Report on Form
10-Q for the quarterly period ended November 30, 2001.
*10.1 Succession and Post-Retirement Consulting Letter
Agreement, dated April 12, 2002, by and between RPM,
Inc. and Thomas C. Sullivan, current Chief Executive
Officer and Chairman of the Board.
*10.2 Succession and Post-Retirement Consulting Letter
Agreement, dated April 12, 2002, by and between RPM,
Inc. and James A. Karman, current Vice Chairman of the
Board.
*10.3 Form of Employment Agreement entered into by and between
RPM, Inc. and each of Frank C. Sullivan, President and
Chief Operating Officer, P. Kelly Tompkins, Vice
President, General Counsel and Secretary, Glenn R.
Hasman, Vice President - Finance and Communications,
Stephen J. Knoop, Vice President - Corporate
Development, Robert L. Matejka, Chief Financial Officer
and Vice President - Controller, Ronald A. Rice, Vice
President - Administration and Assistant Secretary,
Keith R. Smiley, Vice President, Treasurer and Assistant
Secretary and Paul G. Hoogenboom, Vice
President-Operations, which is incorporated herein by
reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended
February 28, 2001.
*10.4 RPM, Inc. 1989 Stock Option Plan, as amended, and form
of Stock Option Agreements to be used in connection
therewith, which is incorporated herein by reference to
Exhibit 10.4 to the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 2001.
*10.5 RPM, Inc. 1996 Stock Option Plan, and form of Stock
Option Agreement to be used in connection therewith,
which is incorporated by reference to Exhibit 10.7 to
the Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 1997.
*10.5.1 Amendment No. 1 to RPM, Inc. 1996 Stock Option Plan,
which is incorporated herein by reference to Exhibit
10.7.1 to the Company's Annual Report on Form 10-K for
the fiscal year ended May 31, 1998.
*10.5.2 Amendment to RPM, Inc. 1996 Stock Option Plan, which is
incorporated herein by reference to Exhibit 4.3.1 to the
Company's Registration Statement on Form S-8 as filed
with the Commission on May 3, 2001.
*10.6 RPM, Inc. Retirement Savings Trust and Plan, as amended
which is incorporated herein by reference to Exhibit
10.6 to the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 2001.
E-2
<PAGE>
EXHIBIT NO. DESCRIPTION
----------- -----------
*10.7 RPM, Inc. Benefit Restoration Plan, which is
incorporated herein by reference to Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 2001.
*10.8.1 RPM, Inc. Deferred Compensation Plan, effective May 31,
2002.
*10.8.2 Master Trust Agreement for RPM, Inc. Deferred
Compensation Plan(s).
*10.9 RPM, Inc. Incentive Compensation Plan, which is
incorporated herein by reference to Exhibit 10.10 to the
Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 2001.
*10.10 RPM, Inc. 1997 Restricted Stock Plan, and Form of
Acceptance and Escrow Agreement to be used in connection
therewith, which is incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for
the quarterly period ended November 30, 1997.
*10.10.1 First Amendment to the RPM, Inc. 1997 Restricted Stock
Plan, effective as of October 1, 1998.
*10.10.2 Second Amendment to the RPM, Inc. 1997 Restricted Stock
Plan, dated as of May 22, 2002.
*10.11 Form of Indemnification Agreement entered into by and
between the Company and each of its Directors and
Executive Officers, which is incorporated herein by
reference to Exhibit 10.12 to the Company's Annual
Report on Form 10-K for the fiscal year ended May 31,
2001.
10.12 Five-Year $500,000,000 Credit Agreement, dated as of
July 14, 2000, among the Company, The Chase Manhattan
Bank as Administrative Agent and Chase Securities Inc.,
which is incorporated by reference to Exhibit 10.16 to
the Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 2000.
10.12.1 Amendment No. 1, dated July 13, 2001 to the 364-Day
Credit Agreement and the Five-Year Credit Agreement
among the Company, the Lenders party thereto and the
Chase Manhattan Bank, as Administrative Agent, which is
incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the
quarterly period ended August 31, 2001.
10.13 Commercial Paper Placement Agency Agreement, dated as of
August 10, 1999, between the Company and Chase
Securities, Inc. (similar forms of agreement were also
executed with Banc One Capital Markets, Inc. and Banc of
America Securities LLC) incorporated herein by reference
to Exhibit 10.3 to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended August 31,
1999.
11.1 Computation of Net Income per Common Share.
13.1 Financial Information contained in 2002 Annual Report to
Shareholders.
21.1 Subsidiaries of the Company.
23.1 Consent of Independent Certified Public Accountants.
- ------------------------------
E-3
<PAGE>
*Management contract or compensatory plan or arrangement identified
pursuant to Item 14(c) of this Form 10-K.
E-4
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To The Board of Directors and
Shareholders
RPM, Inc. and Subsidiaries
Medina, Ohio
The audits referred to in our report to the Board of Directors and Shareholders
of RPM, Inc. and Subsidiaries dated July 3, 2002, relating to the consolidated
financial statements of RPM, Inc. and Subsidiaries included the audit of the
schedule listed under Item 14 of Form 10-K for each of the three years in the
period ended May 31, 2002. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based upon our audits.
In our opinion such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
/s/ Ciulla, Smith & Dale, LLP
Ciulla, Smith & Dale, LLP
S-1
<PAGE>
RPM, INC. AND SUBSIDIARIES
--------------------------
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES SCHEDULE II
----------------------------------------------
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
CHARGED TO
BALANCE AT ADDITIONS SELLING, ACQUISITIONS BALANCE
BEGINNING CHARGED TO GENERAL AND ADDITIONS CHARGED (DISPOSALS) AT END
OF PERIOD COST OF SALES ADMINISTRATIVE TO RESTRUCTURING OF BUSINESSES DEDUCTIONS OF PERIOD
--------- ------------- -------------- ---------------- ------------- ---------- ---------
<S> <C> <C> <C> <C>
YEAR ENDED MAY 31, 2002
- -----------------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS $17,705 $ $ 7,156 $ $ $ 8,977(1) $15,884
======= ========== =========== =========== ========== ======= =======
ACCRUED LOSS RESERVES - CURRENT $55,416 $ $ 23,898 $ $ (100) $27,300(2) $51,914
======= ========== =========== =========== ========== ======= =======
ACCRUED WARRANTY RESERVES -
LONG-TERM $11,959 $ $ (235) $ $ $ 2,069(2) $ 9,655
======= ========== =========== =========== ========== ======= =======
YEAR ENDED MAY 31, 2001
- -----------------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS $16,248 $ $ 8,817 $ $ 10 $ 7,370(1) $17,705
======= ========== =========== =========== ========== ======= =======
ACCRUED LOSS RESERVES - CURRENT $64,765 $ $ 15,329 $ $ $24,678(2) $55,416
======= ========== =========== =========== ========== ======= =======
ACCRUED WARRANTY RESERVES -
LONG-TERM $13,740 $ $ (209) $ $ $ 1,572(2) $11,959
======= ========== =========== =========== ========== ======= =======
ACCRUED RESTRUCTURING RESERVES $13,540 $ $ $ $ $13,540(3) $
======= ========== =========== =========== ========== ======= =======
YEAR ENDED MAY 31, 2000
- -----------------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS $14,248 $ $ 9,794 $ $ 644 $ 8,438(1) $16,248
======= ========== =========== =========== ========== ======= =======
ACCRUED LOSS RESERVES - CURRENT $49,296 $ $ 28,241 $ $ 9,119 $21,891(2) $64,765
======= ========== =========== =========== ========== ======= =======
ACCRUED WARRANTY RESERVES -
LONG-TERM $18,816 $ $ (2,836) $ $ $ 2,240(2) $13,740
======= ========== =========== =========== ========== ======= =======
ACCRUED RESTRUCTURING RESERVES $ 1,638 $ 7,876 $ $ 51,970 $ $47,944(3) $13,540
======= ========== =========== =========== ========== ======= =======
</TABLE>
(1) UNCOLLECTIBLE ACCOUNTS WRITTEN OFF, NET OF RECOVERIES
(2) PRIMARILY CLAIMS PAID DURING THE YEAR
(3) RESTRUCTURING INITIATIVES COMPLETED DURING THE YEAR
S-2
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>2
<FILENAME>l21038aexv10w1.txt
<DESCRIPTION>EX-10.1
<TEXT>
<PAGE>
Exhibit 10.1
[RPM Letterhead]
RONALD A. RICE
VICE PRESIDENT - ADMINISTRATION
ASSISTANT SECRETARY
April 12,2002
Mr. Thomas C. Sullivan
Chairman & CEO
RPM, INC.
P. O. Box 777
Medina, OH 44258
RE: Succession and Post-Retirement Consulting
Dear Tom:
During the past year, as you are well aware, the Compensation Committee, on
behalf of the entire Board, has been engaged in a thorough review of the
executive management transition and succession process. In order to facilitate a
smooth and orderly transition of responsibilities within RPM's executive
management team upon your retirement on January 1, 2003, the Compensation
Committee has considered and recommended that RPM retain your continued services
as a Consultant. The significant events leading up to your retirement and the
overall terms of your consulting relationship with RPM have been mutually agreed
to as follows:
1) Effective October 11, 2002 you will step down as CEO and Frank will, upon
election by the Board, succeed to the title and position of CEO and
President. However, you have agreed to continue to serve as Chairman of the
Board and serve as a Board member in Class I until the expiration of such
term or until a successor has been duly elected.
2) Effective January 1, 2003, you will retire from employee status.
3) For the twenty-nine (29) month period, January 1, 2003 through May 31, 2005
(the "Consulting Period"), you have agreed to maintain a commitment to RPM
by utilizing your industry experience and business relationships to assist
in corporate development related activities including identifying
acquisition opportunities, as may be requested from time-to-time by the
Company.
The Compensation Committee has recognized and RPM agrees that your continued
commitment beyond retirement, as Chairman and Consultant, will bring meaningful
value to the Company and its shareholders. Given the material benefits to RPM,
the Company has agreed to the following compensation and benefits transition and
structure:
<PAGE>
4/12/02
Page 2
1. EMPLOYMENT AGREEMENT DATED FEBRUARY 1, 2001 -- By the terms of this
Agreement, and coincident with your retirement date, your Employment Period
will expire on January 1, 2003. Accordingly, you will no longer be entitled
to further payment of your active employee Base Salary and will no longer
be entitled to participate in the Benefit Plans, except as required by law,
the terms of the Benefit Plans, or as provided for during the Consulting
Period (see below).
2. CONSULTING PERIOD -- During the twenty-nine (29) month Consulting Period,
the Company will pay you a gross amount of $2,102,500 (which will be paid
in equal monthly installments throughout the Consulting Period) for your
services as Consultant, Chairman and Board Member. In addition, during the
Consulting Period, you will also be entitled to the following benefits at
the Company's sole cost and expense:
a. Use of reasonable off-site office space;
b. Use of a part-time administrative assistant;
c. Use of your current Company Car, whereupon at the end of the Consulting
Period, the Company will purchase and transfer full ownership to you;
d. Continued coverage under the Company's Health Insurance Plan for you
and your eligible dependent;
e. Continued payment of the standard monthly membership dues during the
Consulting Period for two country clubs, and the quarterly membership
dues for The Union Club; and
f. Continuation of financial planning services, as currently provided
The Company believes the arrangements described above provide RPM with
assurance of an orderly and effective transition and provides the
management team continued access to your unique knowledge, insights and
experience. This letter constitutes the entire agreement concerning this
subject matter and supersedes all prior and contemporaneous agreements, if
any.
Sincerely yours,
RPM, INC.
/s/ Ronald A. Rice
Ronald A. Rice
Vice President -- Administration and Assistant Secretary
cc Compensation Committee
Frank C. Sullivan
P. Kelly Tompkins
---------------------------------------------------------------------------
I HAVE READ, UNDERSTAND AND ACCEPT ALL OF THE TERMS AND CONDITIONS AS SET
FORTH IN THIS LETTER AGREEMENT.
/s/ Thomas C. Sullivan 5/24/02
------------------------------- -------------
(Signature) Date
/s/ Mary Hall Crawford 5/24/02
------------------------------ -------------
(Witness) Date
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>3
<FILENAME>l21038aexv10w2.txt
<DESCRIPTION>EX-10.2
<TEXT>
<PAGE>
Exhibit 10.2
[RPM Letterhead]
- --------------------------------------------------------------------------------
RONALD A. RICE
VICE PRESIDENT - ADMINISTRATION
ASSISTANT SECRETARY
April 12, 2002
Mr. James A. Karman
Vice Chairman
RPM, INC.
P.O. Box 777
Medina, OH 44258
RE: Succession and Post-Retirement Consulting
Dear Jim:
During the past year, as you are well aware, the Compensation Committee, on
behalf of the entire Board, has been engaged in a thorough review of the
executive management transition and succession process. In order to facilitate a
smooth and orderly transition of responsibilities within RPM's executive
management team upon your retirement on January 1, 2003, the Compensation
Committee has considered and recommended that RPM retain your continued services
as a Consultant. The significant events leading up to your retirement and the
overall terms of your consulting relationship with RPM have been mutually agreed
to as follows:
1) Effective October 11, 2002 you will step down as Vice Chairman of RPM.
However, you have agreed to continue to serve as Board member in Class II
until the expiration of that term or until a successor has been duly
elected.
2) Effective January 1, 2003, you will retire from employee status.
3) For the seventeen (17) month period, January 1, 2003 through May 31, 2004
(the "Consulting Period"), you have agreed to maintain a commitment to RPM
by utilizing your professional experience and business relationships to
assist in the area of investor relations (or such other areas), as may be
reasonably requested from time-to-time by the Company.
The Compensation Committee has recognized and RPM agrees that your continued
commitment beyond retirement, as a Consultant, will bring meaningful value to
the Company and its shareholders. Given the material benefits to RPM, the
Company has agreed to the following compensation and benefits transition and
structure:
1. EMPLOYMENT AGREEMENT DATED FEBRUARY 1, 2001 -- By the terms of this
Agreement, and coincident with your retirement date, your Employment Period
will expire on January 1, 2003. Accordingly, you will no longer be entitled
to further payment of your active employee Base Salary and will no longer
be entitled to participate in the Benefit Plans, except as required by law,
the terms of the Benefit Plans, or as provided for during the Consulting
Period (see below).
<PAGE>
4/12/02
PAGE 2
2. CONSULTING PERIOD -- During the seventeen (17) month Consulting Period, the
Company will pay you a gross amount of $970,417 (which will be paid in
equal monthly installments throughout the Consulting Period) for your
services as Consultant and Board Member. In addition, during the Consulting
Period, you will also be entitled to the following benefits at the
Company's sole cost and expense:
a. Use of your current Company Car, whereupon at the end of the
Consulting Period, the Company will purchase and transfer full
ownership to you;
b. Continued coverage under the Company's Health Insurance Plan for you
and your eligible dependent;
c. Continued payment of the standard monthly membership dues during the
Consulting Period for one country club, and the quarterly membership
dues for The Union Club; and
d. Continuation of financial planning services, as currently provided.
The Company believes the arrangements described above provide RPM with
assurance of an orderly and effective transition and provides the
management team continued access to your unique knowledge, insights and
experience. This letter constitutes the entire agreement concerning this
subject matter and supersedes all prior and contemporaneous agreements, if
any.
Sincerely yours,
RPM, INC.
/s/ Ronald A. Rice
Ronald A. Rice
Vice President -- Administration and Assistant Secretary
cc Compensation Committee
Frank C. Sullivan
P. Kelly Tompkins
---------------------------------------------------------------------------
I HAVE READ, UNDERSTAND AND ACCEPT ALL OF THE TERMS AND CONDITIONS AS SET
FORTH IN THIS LETTER AGREEMENT.
/s/ James A. Karman May 24, 2002
------------------------------ --------------
(Signature) Date
/s/ Mary Hall Crawford 5-24-02
------------------------------ --------------
(Witness) Date
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.8.1
<SEQUENCE>4
<FILENAME>l21038aexv10w8w1.txt
<DESCRIPTION>EX-10.8.1
<TEXT>
<PAGE>
Exhibit 10.8.1
RPM, INC.
Deferred Compensation Plan
Master Plan Document
================================================================================
EFFECTIVE MAY 31, 2002
<PAGE>
RPM, INC.
Deferred Compensation Plan
Master Plan Document
================================================================================
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 1 DEFINITIONS..............................................................................................1
ARTICLE 2 SELECTION, ENROLLMENT, ELIGIBILITY.......................................................................8
2.1 SELECTION BY COMMITTEE.........................................................................8
2.2 ENROLLMENT REQUIREMENTS........................................................................8
2.3 ELIGIBILITY; COMMENCEMENT OF PARTICIPATION.....................................................9
2.4 TERMINATION OF PARTICIPATION AND/OR DEFERRALS..................................................9
ARTICLE 3 DEFERRAL COMMITMENTS/COMPANY CONTRIBUTION AMOUNTS/COMPANY RESTORATION
MATCHING AMOUNTS/RESTRICTED STOCK AMOUNTS/VESTING/CREDITING/TAXES..............................9
3.1 MINIMUM DEFERRALS..............................................................................9
3.2 MAXIMUM DEFERRAL..............................................................................10
3.3 ELECTION TO DEFER; EFFECT OF ELECTION FORM....................................................11
3.4 WITHHOLDING AND CREDITING OF ANNUAL DEFERRAL AMOUNTS..........................................11
3.5 ROLLOVER AMOUNT...............................................................................11
3.6 ANNUAL STOCK DIVIDEND AMOUNT..................................................................12
3.7 ANNUAL COMPANY CONTRIBUTION AMOUNT............................................................12
3.8 ANNUAL COMPANY RESTORATION MATCHING AMOUNT....................................................13
3.9 ANNUAL RESTRICTED STOCK AMOUNT................................................................13
3.10 VESTING.......................................................................................13
3.11 CREDITING/DEBITING OF ACCOUNT BALANCES AND MERGER ACCOUNTS....................................14
3.12 FICA AND OTHER TAXES..........................................................................17
ARTICLE 4 DEDUCTION LIMITATION....................................................................................18
4.1 DEDUCTION LIMITATION ON BENEFIT PAYMENTS......................................................18
ARTICLE 5 SHORT-TERM PAYOUT; UNFORESEEABLE FINANCIAL EMERGENCIES; WITHDRAWAL
ELECTION......................................................................................18
5.1 SHORT-TERM PAYOUT.............................................................................18
5.2 OTHER BENEFITS TAKE PRECEDENCE OVER SHORT-TERM................................................19
5.3 WITHDRAWAL PAYOUT/SUSPENSIONS FOR UNFORESEEABLE FINANCIAL EMERGENCIES.........................19
5.4 WITHDRAWAL ELECTION...........................................................................19
ARTICLE 6 MERGER ACCOUNT..........................................................................................20
6.1 MERGER ACCOUNT................................................................................20
6.2 VESTING OF MERGER ACCOUNT.....................................................................20
6.3 PAYMENT OF MERGER ACCOUNT.....................................................................21
</TABLE>
-i-
<PAGE>
RPM, INC.
Deferred Compensation Plan
Master Plan Document
================================================================================
<TABLE>
<S> <C> <C>
ARTICLE 7 RETIREMENT BENEFIT FROM ACCOUNT BALANCE.................................................................21
7.1 RETIREMENT BENEFIT............................................................................21
7.2 PAYMENT OF RETIREMENT BENEFIT.................................................................21
ARTICLE 8 TERMINATION BENEFIT FROM ACCOUNT BALANCE...............................................................22
8.1 TERMINATION BENEFIT...........................................................................22
8.2 PAYMENT OF TERMINATION BENEFIT................................................................22
ARTICLE 9 DISABILITY WAIVER AND BENEFIT FROM ACCOUNT BALANCE.....................................................22
9.1 DISABILITY WAIVER.............................................................................22
9.2 CONTINUED ELIGIBILITY; DISABILITY BENEFIT.....................................................22
ARTICLE 10 SURVIVOR BENEFIT FROM ACCOUNT BALANCE.................................................................23
10.1 SURVIVOR BENEFIT..............................................................................23
10.2 PAYMENT OF SURVIVOR BENEFIT...................................................................23
ARTICLE 11 BENEFICIARY DESIGNATION..............................................................................23
11.1 BENEFICIARY...................................................................................23
11.2 BENEFICIARY DESIGNATION; CHANGE; SPOUSAL CONSENT..............................................23
11.3 ACKNOWLEDGEMENT...............................................................................23
11.4 NO BENEFICIARY DESIGNATION....................................................................23
11.5 DOUBT AS TO BENEFICIARY.......................................................................24
11.6 DISCHARGE OF OBLIGATIONS......................................................................24
ARTICLE 12 LEAVE OF ABSENCE......................................................................................24
12.1 PAID LEAVE OF ABSENCE.........................................................................24
12.2 UNPAID LEAVE OF ABSENCE.......................................................................24
ARTICLE 13 TERMINATION, AMENDMENT OR MODIFICATION................................................................24
13.1 TERMINATION...................................................................................24
13.2 AMENDMENT.....................................................................................25
13.3 PARTICIPATION BY SUBSIDIARIES.................................................................25
13.4 PLAN AGREEMENT................................................................................25
13.5 EFFECT OF PAYMENT.............................................................................26
ARTICLE 14 ADMINISTRATION........................................................................................26
14.1 COMMITTEE DUTIES..............................................................................26
14.2 ADMINISTRATION UPON CHANGE IN CONTROL.........................................................26
14.3 AGENTS........................................................................................27
14.4 BINDING EFFECT OF DECISIONS...................................................................27
</TABLE>
-ii-
<PAGE>
RPM, INC.
Deferred Compensation Plan
Master Plan Document
================================================================================
<TABLE>
<S> <C> <C>
14.5 INDEMNITY OF COMMITTEE AND BENEFITS REVIEW COMMITTEE..........................................27
14.6 EMPLOYER INFORMATION..........................................................................28
ARTICLE 15 OTHER BENEFITS AND AGREEMENTS..........................................................................28
15.1 COORDINATION WITH OTHER BENEFITS..............................................................28
ARTICLE 16 CLAIMS PROCEDURES......................................................................................28
16.1 PRESENTATION OF CLAIM.........................................................................28
16.2 NOTIFICATION OF DECISION......................................................................28
16.3 REVIEW OF A DENIED CLAIM......................................................................29
16.4 DECISION ON REVIEW............................................................................30
16.5 LEGAL ACTION..................................................................................30
ARTICLE 17 TRUST.................................................................................................30
17.1 ESTABLISHMENT OF THE TRUST....................................................................30
17.2 INTERRELATIONSHIP OF THE PLAN AND THE TRUST...................................................30
17.3 DISTRIBUTIONS FROM THE TRUST..................................................................31
ARTICLE 18 MISCELLANEOUS.........................................................................................31
18.1 STATUS OF PLAN................................................................................31
18.2 UNSECURED GENERAL CREDITOR....................................................................31
18.3 EMPLOYER'S LIABILITY..........................................................................31
18.4 NONASSIGNABILITY..............................................................................31
18.5 NOT A CONTRACT OF EMPLOYMENT..................................................................31
18.6 FURNISHING INFORMATION........................................................................32
18.7 TERMS.........................................................................................32
18.8 CAPTIONS......................................................................................32
18.9 GOVERNING LAW.................................................................................32
18.10 NOTICE........................................................................................32
18.11 SUCCESSORS....................................................................................32
18.12 SPOUSE'S INTEREST.............................................................................32
18.13 VALIDITY......................................................................................32
18.14 INCOMPETENT...................................................................................33
18.15 COURT ORDER...................................................................................33
18.16 DISTRIBUTION IN THE EVENT OF TAXATION.........................................................33
18.17 INSURANCE.....................................................................................33
18.18 LEGAL FEES TO ENFORCE RIGHTS AFTER CHANGE IN CONTROL..........................................34
</TABLE>
-iii-
<PAGE>
RPM, INC.
Deferred Compensation Plan
Master Plan Document
================================================================================
RPM, INC.
DEFERRED COMPENSATION PLAN
Effective May 31, 2002
PURPOSE
The purpose of this Plan is to provide specified benefits to a select
group of management or highly compensated Employees and Directors who contribute
materially to the continued growth, development and future business success of
RPM, Inc., an Ohio corporation, and its subsidiaries, if any, that sponsor this
Plan. This Plan shall be unfunded for tax purposes and for purposes of Title I
of ERISA. This Deferred Compensation Plan supersedes in its entirety the RPM,
Inc. Deferred Compensation Plan (hereinafter, the "Predecessor Plan") for any
and all participants in the Predecessor Plan as of the Effective Date of this
Plan. Any and all balances accrued by participants under the Predecessor Plan
shall be subject to the terms and conditions of this Plan and shall be referred
to as the "Rollover Amount."
ARTICLE 1
DEFINITIONS
For the purposes of this Plan, unless otherwise clearly apparent from
the context, the following phrases or terms shall have the following indicated
meanings:
1.1 "Account Balance" shall mean, with respect to a Participant, a credit
on the records of the Employer equal to the sum of (i) the Deferral
Account balance, (ii) the Company Contribution Account balance, (iii)
the Company Restoration Matching Account balance, (iv) the Restricted
Stock Account balance, and (v) the Stock Dividend Account balance. The
Account Balance shall be a bookkeeping entry only and shall be utilized
solely as a device for the measurement and determination of the amounts
to be paid to a Participant, or his or her designated Beneficiary,
pursuant to this Plan. The Account Balance shall not include a
Participant's Merger Account.
1.2 "Additional Contributions" shall mean the contributions previously made
by DAP Products Inc. to the DAP Plan on behalf of those Participants
whose benefits under any tax-qualified or non-qualified retirement or
deferred compensation plan maintained by DAP Products Inc. were
decreased due to the Participant's Deferral Contributions under the
DAP Plan and credited to the Merger Account.
1.3 "Annual Bonus" shall mean any compensation, in addition to Base Annual
Salary, Special Incentive Plan Amounts, commissions and other incentive
plan amounts, payable to a Participant during a Plan Year under any
Employer's annual bonus plans, excluding stock options.
1.4 "Annual Company Contribution Amount" shall mean, for any one Plan Year,
the amount determined in accordance with Section 3.7.
1.5 "Annual Company Restoration Matching Amount" for any one Plan Year
shall be the amount determined in accordance with Section 3.8.
1.6 "Annual Deferral Amount" shall mean that portion of a Participant's
Base Annual Salary, Annual Bonus, Special Incentive Plan Amounts and
Director Fees that a Participant defers in accordance with Article 3
for any one Plan Year. In the event of a Participant's Retirement,
Disability (if
-1-
<PAGE>
RPM, INC.
Deferred Compensation Plan
Master Plan Document
================================================================================
deferrals cease in accordance with Section 9.1), death or a
Termination of Employment prior to the end of a Plan Year, such year's
Annual Deferral Amount shall be the actual amount withheld prior to
such event.
1.7 "Annual Installment Method" shall be an annual installment payment over
the number of years selected by the Participant in accordance with this
Plan, calculated as follows: (i) for the first annual installment, the
vested Account Balance of the Participant shall be calculated as of the
close of business on or around the date on which the Participant
Retires, as determined by the Committee in its sole discretion, and
(ii) for remaining annual installments, the vested Account Balance of
the Participant shall be calculated on every applicable anniversary of
the date on which the Participant Retires. Each annual installment
shall be calculated by multiplying this balance by a fraction, the
numerator of which is one and the denominator of which is the remaining
number of annual payments due the Participant. By way of example, if
the Participant elects a ten (10) year Annual Installment Method, the
first payment shall be 1/10 of the vested Account Balance, calculated
as described in this definition. The following year, the payment shall
be 1/9 of the vested Account Balance, calculated as described in this
definition. Shares of Stock that shall be distributable from the
Restricted Stock Account shall be distributable in shares of actual
Stock in the same manner previously described. However, the Committee
may, in its sole discretion, adjust the annual installments in order to
distribute whole shares of actual Stock.
1.8 "Annual Restricted Stock Amount" shall mean, with respect to a
Participant for any one Plan Year, the amount of Restricted Stock
deferred in accordance with Section 3.9 of this Plan, calculated using
the closing price of Stock at the end of the business day closest to
the date such Restricted Stock would otherwise vest, but for the
election to defer. In the event of a Participant's Retirement,
Disability (if deferrals cease in accordance with Section 9.1), death
or a Termination of Employment prior to the end of a Plan Year, such
year's Annual Restricted Stock Amount shall be the actual amount
withheld prior to such event.
1.9 "Annual Stock Dividend Amount" shall mean, for any one Plan Year, the
amount determined in accordance with Section 3.6.
1.10 "Base Annual Salary" shall mean 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 Employee's 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 Participant's gross income under
Code Sections 125, 402(e)(3), 402(h), or 403(b) 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.
1.11 "Beneficiary" shall mean one or more persons, trusts, estates or other
entities, designated in accordance with Article 11, that are entitled
to receive benefits under this Plan upon the death of a Participant.
-2-
<PAGE>
RPM, INC.
Deferred Compensation Plan
Master Plan Document
================================================================================
1.12 "Beneficiary Designation Form" shall mean the form established from
time to time by the Committee that a Participant completes, signs and
returns to the Committee to designate one or more Beneficiaries.
1.13 "Board" shall mean the board of directors of the Company.
1.14 "Change in Control" shall mean the occurrence, at any time, of any of
the following events:
(a) The Company is merged or consolidated or reorganized into or
with another corporation or other legal person or entity, and
as a result of such merger, consolidation or reorganization
less than a majority of the combined voting power of the
then-outstanding securities of such corporation, person or
entity immediately after such transaction are held in the
aggregate by the holders of Voting Stock immediately prior to
such transaction;
(b) The Company sells or otherwise transfers all or substantially
all of its assets to any other corporation or other legal
person or entity, and less than a majority of the combined
voting power of the then-outstanding securities of such
corporation, person or entity immediately after such sale or
transfer is held in the aggregate by the holders of Voting
Stock immediately prior to such sale or transfer;
(c) There is a report filed on Schedule 13D or Schedule TO (or any
successor schedule, form or report), each as promulgated
pursuant to the Exchange Act, disclosing that any person (as
the term "person" is used in Section 13(d)(3) or Section
14(d)(2) of the Exchange Act) has become the beneficial owner
(as the term "beneficial owner" is defined under Rule l3d-3 or
any successor rule or regulation promulgated under the
Exchange Act) of securities representing 15% or more of the
Voting Power;
(d) The Company files a report or proxy statement with the
Securities and Exchange Commission pursuant to the Exchange
Act disclosing in response to Form 8-K or Schedule 14A (or any
successor schedule, form or report or item therein) that a
change in control of the Company has or may have occurred or
will or may occur in the future pursuant to any then-existing
contract or transaction; or
(e) If during any period of two consecutive years, individuals,
who at the beginning of any such period, constitute the
Directors cease for any reason to constitute at least a
majority thereof, unless the nomination for election by the
Company's shareholders of each new Director was approved by a
vote of at least two-thirds of the Directors then in office
who were Directors at the beginning of any such period.
Notwithstanding the foregoing provisions of Sections 1.14(c) and (d)
above, 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
-3-
<PAGE>
RPM, INC.
Deferred Compensation Plan
Master Plan Document
================================================================================
entity either files or becomes obligated to file a report on Schedule
13D or Schedule TO (or any successor schedule, form or report) under
the Exchange Act, disclosing beneficial ownership by it of shares of
Voting Stock, but only if both (A) the transaction giving rise to such
filing or obligation is approved in advance of consummation thereof by
the Company's Board of Directors and (B) at least a majority of the
Voting Power immediately after such transaction is held in the
aggregate by the holders of Voting Stock immediately prior to such
transaction, or (iii) solely because of a change in control of any
Subsidiary.
Solely for purposes of this definition of Change of Control, the capitalized
terms shall have the following meanings:
"Director" means a member of the Board of Directors of the Company.
"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.
"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.
" 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.
1.15 "Claimant" shall have the meaning set forth in Section 16.1.
1.16 "Code" shall mean the Internal Revenue Code of 1986, as it may be
amended from time to time.
1.17 "Committee" shall mean the committee described in Article 14.
1.18 "Company" shall mean RPM, Inc., an Ohio corporation, and any successor
to all or substantially all of the Company's assets or business.
1.19 "Company Contribution Account" shall mean (i) the sum of the
Participant's Annual Company Contribution Amounts, plus (ii) amounts
credited as a result of the cancellation of Restricted Stock under the
RPM, Inc. 1997 Restricted Stock Plan where such amounts are to be
credited to the Company Contribution Account pursuant to the terms of
the RPM, Inc. 1997 Restricted Stock Plan, plus (iii) amounts credited
or debited in accordance with all the applicable crediting and debiting
provisions of this Plan that relate to the Participant's Company
Contribution Account, less (iv) all distributions made to the
Participant or his or her Beneficiary pursuant to this Plan that relate
to the Participant's Company Contribution Account.
1.20 "Company Restoration Matching Account" shall mean (i) the sum of all of
a Participant's Annual Company Restoration Matching Amounts, plus (ii)
amounts credited in accordance with all the applicable crediting and
debiting provisions of this Plan that relate to the Participant's
Company
-4-
<PAGE>
RPM, INC.
Deferred Compensation Plan
Master Plan Document
================================================================================
Restoration Matching Account, less (iii) all distributions made to the
Participant or his or her Beneficiary pursuant to this Plan that relate
to the Participant's Company Restoration Matching Account.
1.21 "DAP Plan" shall mean the DAP Products, Inc. Supplemental Executive
Retirement Plan and Deferred Compensation Plan.
1.22 "Deduction Limitation" shall mean the limitation on a benefit that may
otherwise be distributable pursuant to the provisions of this Plan, as
set forth in Article 4.
1.23 "Deferral Account" shall mean (i) that portion of a Participant's
Rollover Amount which is represented by the Participant's aggregate
deferral contributions described in Section 6.1 of the Predecessor
Plan, as well as any appreciation (or depreciation) specifically
attributable to such deferral contributions accumulated under the
Predecessor Plan, plus (ii) the sum of all of a Participant's Annual
Deferral Amounts, plus (iii) amounts credited in accordance with all
the applicable crediting and debiting provisions of this Plan that
relate to the Participant's Deferral Account, less (iv) all
distributions made to the Participant or his or her Beneficiary
pursuant to this Plan that relate to his or her Deferral Account.
1.24 "Deferral Contributions" shall mean that portion of a Participant's
compensation, as defined in the DAP Plan, that a Participant previously
deferred in accordance with the terms and provisions of the DAP Plan
and credited to the Merger Account.
1.25 "Director" shall mean any member of the board of directors of any
Employer.
1.26 "Director Fees" shall mean the fees paid by any Employer, including
retainer fees and meetings fees, as compensation for serving on the
board of directors.
1.27 "Disability" shall mean (i) a period of disability during which a
Participant qualifies for permanent disability benefits under the
Participant's Employer's long-term disability plan, or (ii) if a
Participant does not participate in such a plan, or if the
Participant's Employer does not sponsor such a plan or discontinues its
sponsorship of such a plan, a period of disability during which the
Participant is determined to be totally and permanently disabled by the
Social Security Administration.
1.28 "Disability Benefit" shall mean the benefit set forth in Article 9.
1.29 "Effective Date" shall mean, for purposes of this Plan, May 31, 2002.
1.30 "Election Form" shall mean the form established from time to time by
the Committee that a Participant completes, signs and returns to the
Committee to make an election under the Plan.
1.31 "Employee" shall mean a person who is an employee of any Employer.
1.32 "Employer(s)" shall mean the Company and/or any of its subsidiaries
(now in existence or hereafter formed or acquired) that have been
selected by the Board to participate in the Plan and have adopted the
Plan as a sponsor.
1.33 "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as it may be amended from time to time.
1.34 "401(k) Plan" shall mean the RPM, Inc. 401(k) Trust and Plan, adopted
by the Company.
-5-
<PAGE>
RPM, INC.
Deferred Compensation Plan
Master Plan Document
================================================================================
1.35 "Merger Account" shall mean the Merger Account accumulated by a
Participant under the Predecessor Plan as more fully described in
Article 6. The Merger Account shall be a bookkeeping entry only and
shall be utilized solely as a device for the measurement and
determination of the amounts to be paid to a Participant, or his or her
designated Beneficiary, pursuant to this Plan.
1.36 "Participant" shall mean any Employee or Director (i) who is selected
to participate in the Plan in accordance with Section 2.1, (ii) who
elects to participate in the Plan, (iii) who signs a Plan Agreement, an
Election Form and a Beneficiary Designation Form, (iv) whose signed
Plan Agreement, Election Form and Beneficiary Designation Form are
accepted by the Committee, (v) who commences participation in the Plan,
and (vi) whose Plan Agreement has not terminated. A spouse or former
spouse of a Participant shall not be treated as a Participant in the
Plan or have an account balance under the Plan, even if he or she has
an interest in the Participant's benefits under the Plan as a result of
applicable law or property settlements resulting from legal separation
or divorce.
1.37 "Plan" shall mean the RPM, Inc. Deferred Compensation Plan, which shall
be evidenced by this instrument and by each Plan Agreement, as they may
be amended from time to time.
1.38 "Plan Agreement" shall mean a written agreement, as may be amended from
time to time, which is entered into by and between an Employer and a
Participant. Each Plan Agreement executed by a Participant and the
Participant's Employer shall provide for the entire benefit to which
such Participant is entitled under the Plan; should there be more than
one Plan Agreement, the Plan Agreement bearing the latest date of
acceptance by the Employer shall supersede all previous Plan Agreements
in their entirety and shall govern such entitlement. The terms of any
Plan Agreement may be different for any Participant, and any Plan
Agreement may provide additional benefits not set forth in the Plan or
limit the benefits otherwise provided under the Plan; provided,
however, that any such additional benefits or benefit limitations must
be agreed to by both the Employer and the Participant.
1.39 "Plan Year" shall mean a period beginning on each June 1 and continuing
through May 31; however, the initial Plan Year shall begin on May 31
in order to facilitate the transition from the Predecessor Plan.
1.40 "Related Employment" shall mean the employment of a Participant by an
Employer which is not the Company, provided (i) such employment is
undertaken by the Participant at the request of the Company; (ii)
immediately prior to undertaking such employment the Participant was an
officer or Employee of the Company, or was engaged in Related
Employment as herein defined; and (iii) such employment is recognized
by the Committee, in its sole discretion, as Related Employment.
1.41 "Restricted Stock" shall mean rights to receive unvested shares of
restricted stock selected by the Committee in its sole discretion and
awarded to the Participant under the RPM, Inc. 1997 Restricted Stock
Plan or any other similar stock incentive plan sponsored by the
Company.
1.42 "Restricted Stock Account" shall mean the aggregate value, measured on
any given date, of (i) the number of shares of Restricted Stock
deferred by a Participant as a result of all Annual Restricted Stock
Amounts, plus (ii) the number of shares of Restricted Stock cancelled
under the RPM, Inc. 1997 Restricted Stock Plan where a corresponding
number of shares is to be credited to the Restricted Stock Account
pursuant to the terms of the RPM, Inc. 1997 Restricted Stock
-6-
<PAGE>
RPM, INC.
Deferred Compensation Plan
Master Plan Document
Plan, plus (iii) the number of additional shares credited as a result
of deemed reinvestment of dividends in accordance with all the
applicable crediting provisions of the RPM, Inc. Stock Unit Fund I that
relate to the Participant's Restricted Stock Account, less (iv) the
number of shares of Restricted Stock previously distributed to the
Participant or his or her Beneficiary pursuant to this Plan. This
portion of the Participant's Account Balance shall only be
distributable in actual shares of Stock.
1.43 "Retirement", "Retire(s)" or "Retired" shall mean, with respect to an
Employee, severance from employment from all Employers for any reason
other than a leave of absence, death or Disability on or after the
earlier of the attainment of (a) age sixty-five (65) or (b) age
fifty-five (55) with five (5) Years of Service; and shall mean with
respect to a Director who is not an Employee, severance of his or her
directorships with all Employers on or after the later of (y) the
attainment of age seventy (70), or (z) in the sole discretion of the
Committee, an age later than age seventy (70). If a Participant is both
an Employee and a Director, Retirement shall not occur until he or she
Retires as both an Employee and a Director, which Retirement shall be
deemed to be a Retirement as a Director; provided, however, that such a
Participant may elect, at least thirteen (13) months prior to
Retirement and in accordance with the policies and procedures
established by the Committee, to Retire for purposes of this Plan at
the time he or she Retires as an Employee, which Retirement shall be
deemed to be a Retirement as an Employee. Notwithstanding the above,
the Committee may, in its sole discretion, deem a Participant, who has
experienced a Termination of Employment, to have Retired for purposes
of this Plan.
1.44 "Retirement Benefit" shall mean the benefit set forth in Article 7.
1.45 "Rollover Amount" shall mean the amount determined in accordance with
Section 3.5.
1.46 "Short-Term Payout" shall mean the payout set forth in Section 5.1.
1.47 "Special Incentive Plan Amounts" shall mean any amounts payable to a
Participant during a Plan Year under any Employer's cash incentive
plans, which have been designated by the Committee for deferral under
this Plan.
1.48 "Stock" shall mean RPM, Inc. authorized common shares (without par
value) or any other equity securities of the Company designated by the
Committee.
1.49 "Supplemental Contributions" shall mean those contributions previously
made by DAP Products, Inc. to the DAP Plan on behalf of certain
Participants for purposes of funding an expected target benefit less
offsets as provided in the DAP Plan and credited to the Merger Account.
1.50 "Stock Dividend Account" shall mean (i) that portion of a Participant's
Rollover Amount, which is represented by the Participant's aggregate
dividends declared on Restricted Stock granted to a Participant and
automatically deferred under the terms of the Predecessor Plan, as well
as any appreciation (or depreciation) specifically attributable to such
dividends, plus (ii) the sum of all of a Participant's Annual Stock
Dividend Amounts plus (iii) amounts credited in accordance with all the
applicable crediting and debiting provisions of this Plan that relate
to the Participant's Stock Dividend Account, less (iv) all
distributions made to the Participant or his or her Beneficiary
pursuant to this Plan that relate to the Participant's Stock Dividend
Account.
1.51 "Survivor Benefit" shall mean the benefit set forth in Article 10.
1.52 "Termination Benefit" shall mean the benefit set forth in Article 8.
-7-
<PAGE>
RPM, INC.
Deferred Compensation Plan
Master Plan Document
================================================================================
1.53 "Termination of Employment" shall mean the severing of employment with
all Employers, or service as a Director of all Employers, voluntarily
or involuntarily, for any reason other than Retirement, Disability,
death or an authorized leave of absence. If a Participant is both an
Employee and a Director, a Termination of Employment shall occur only
upon the termination of the last position held; provided, however, that
such a Participant may elect, at least thirteen (13) months before
Termination of Employment and in accordance with the policies and
procedures established by the Committee, to be treated for purposes of
this Plan as having experienced a Termination of Employment at the time
he or she ceases employment with an Employer as an Employee.
1.54 "Trust" shall mean one or more trusts established pursuant to that
certain Master Trust Agreement for RPM, Inc. Deferred Compensation
Plan(s), between the Company and the trustee named therein, as amended
from time to time.
1.55 "Unforeseeable Financial Emergency" shall mean an unanticipated
emergency that is caused by an event beyond the control of the
Participant that would result in severe financial hardship to the
Participant resulting from (i) a sudden and unexpected illness or
accident of the Participant or a dependent of the Participant, (ii) a
loss of the Participant's property due to casualty, or (iii) such other
extraordinary and unforeseeable circumstances arising as a result of
events beyond the control of the Participant, all as determined in the
sole discretion of the Committee.
1.56 "Years of Service" shall mean the total number of full years in which a
Participant has been (i) employed by one or more Employers or (ii)
employed in Related Employment. 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 Employee's date of hiring and that, for any subsequent year,
commences on an anniversary of that hiring date. The Committee shall
make a determination as to whether any partial year of employment shall
be counted as a Year of Service.
ARTICLE 2
SELECTION, ENROLLMENT, ELIGIBILITY
2.1 SELECTION BY COMMITTEE. Participation in the Plan shall be limited to
(i) a select group of management and highly compensated Employees and
Directors of the Employer, as determined by the Committee in its sole
discretion and/or (ii) any individual who was in a select group of
management or highly compensated Employees and/or Directors of the
Employer and who accumulated an account balance under the Predecessor
Plan. From that group, the Committee shall select, in its sole
discretion, Employees and Directors to participate in the Plan.
2.2 ENROLLMENT REQUIREMENTS. As a condition to participation, each selected
Participant shall complete, execute and return to the Committee a Plan
Agreement, an Election Form and a Beneficiary Designation Form, all
within thirty (30) days after he or she is selected to participate in
the Plan. In addition, the Committee shall establish from time to time
such other enrollment requirements as it determines in its sole
discretion are necessary.
2.3 ELIGIBILITY; COMMENCEMENT OF PARTICIPATION. Provided a Participant
selected to participate in the Plan has met all enrollment requirements
set forth in this Plan and required by the Committee, including
returning all required documents to the Committee within the specified
-8-
<PAGE>
RPM, INC.
Deferred Compensation Plan
Master Plan Document
================================================================================
time period, that Participant shall commence participation in the Plan
on the first day of the month following the month in which the
Participant completes all enrollment requirements; or, at the
discretion of the Committee, the first day eligible. If a Participant
fails to meet all such requirements within the period required, in
accordance with Section 2.2, that Participant shall not be eligible to
participate in the Plan until the first day of the Plan Year following
the delivery to and acceptance by the Committee of the required
documents.
2.4 TERMINATION OF PARTICIPATION AND/OR DEFERRALS. The Committee may reduce
any individual's level of participation including termination of any
individual as a Participant of this Plan, with or without cause, at any
time. In connection with such action, the Committee shall have the
right, in its sole discretion, to (i) terminate any deferral election
the Participant has made for the remainder of the Plan Year in which
the Participant's membership status changes, (ii) prevent the
Participant from making future deferral elections (iii) immediately
distribute the Participant's then vested Account Balance as a
Termination Benefit and terminate the Participant's participation in
the Plan and/or (iv) take such other action as it deems appropriate to
attain the desired level of participation for an individual.
ARTICLE 3
DEFERRAL COMMITMENTS/COMPANY CONTRIBUTION AMOUNTS/COMPANY RESTORATION MATCHING
AMOUNTS/RESTRICTED STOCK AMOUNTS/VESTING/CREDITING/TAXES
3.1 MINIMUM DEFERRALS.
(a) BASE ANNUAL SALARY, ANNUAL BONUS, SPECIAL INCENTIVE PLAN
AMOUNTS AND DIRECTOR FEES. For each Plan Year, a Participant
may elect to defer, as his or her Annual Deferral Amount, Base
Annual Salary, Annual Bonus, Special Incentive Plan Amounts
and/or Director Fees in the following minimum amounts for each
deferral elected:
Base Annual Salary, $5,000 aggregate
Annual Bonus, Special
Incentive Plan
Amounts
Director Fees $0
If an election is made for less than the stated minimum
amounts, or if no election is made, the amount deferred shall
be zero.
(b) ANNUAL RESTRICTED STOCK AMOUNT. For each grant of Restricted
Stock, a Participant may elect to defer, as his or her Annual
Restricted Stock Amount, Restricted Stock in the following
minimum amount:
Restricted Stock 0%
If no election is made, the amount deferred shall be zero.
-9-
<PAGE>
RPM, INC.
Deferred Compensation Plan
Master Plan Document
================================================================================
(c) SHORT PLAN YEAR. Notwithstanding the foregoing, if a
Participant first becomes a Participant after the first day of
a Plan Year, the minimum Annual Deferral Amount shall be an
amount equal to the minimum set forth above, multiplied by a
fraction, the numerator of which is the number of complete
months remaining in the Plan Year and the denominator of which
is 12.
3.2 MAXIMUM DEFERRAL.
(a) BASE ANNUAL SALARY, ANNUAL BONUS, SPECIAL INCENTIVE PLAN
AMOUNTS AND DIRECTOR FEES. For each Plan Year, a Participant
may elect to defer, as his or her Annual Deferral Amount, Base
Annual Salary, Annual Bonus, Special Incentive Plan Amounts
and/or Director Fees up to the following maximum percentages
for each deferral elected:
Base Annual Salary 90%
Annual Bonus 90%
Special Incentive Plan 90%
Amounts
Director Fees 100%
(b) ANNUAL RESTRICTED STOCK AMOUNT. For each Plan Year, a
Participant may elect to defer, as his or her Annual
Restricted Stock Amount, Restricted Stock in the following
maximum percentage:
Restricted Stock 100%
(c) SHORT PLAN YEAR. Notwithstanding the foregoing, if a
Participant first becomes a Participant after the first day of
a Plan Year, 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 submits a Plan
Agreement and Election Form to the Committee for acceptance,
and (ii) with respect to Annual Bonus and Special Incentive
Plan Amounts shall be limited to those amounts deemed eligible
for deferral, in the sole discretion of the Committee.
3.3 ELECTION TO DEFER; EFFECT OF ELECTION FORM.
(a) FIRST PLAN YEAR. In connection with a Participant's
commencement of participation in the Plan, the Participant
shall make an irrevocable deferral election for the Plan Year
in which the Participant commences participation in the Plan,
along with such other elections as the Committee deems
necessary or desirable under the Plan. For these elections to
be valid, the Election Form must be completed and signed by
the Participant, timely delivered to the Committee (in
accordance with Section 2.2 above) and accepted by the
Committee.
(b) SUBSEQUENT PLAN YEARS. For each succeeding Plan Year, an
irrevocable deferral election for that Plan Year, and such
other elections as the Committee deems necessary or desirable
under the Plan, shall be made by timely delivering to the
Committee, in
-10-
<PAGE>
RPM, INC.
Deferred Compensation Plan
Master Plan Document
================================================================================
accordance with its rules and procedures, before the end of
the Plan Year preceding the Plan Year for which the election
is made, a new Election Form. If no such Election Form is
timely delivered for a Plan Year, the Annual Deferral Amount
shall be zero for that Plan Year.
(c) RESTRICTED STOCK DEFERRAL. Notwithstanding paragraphs (a) and
(b), for an election to defer Restricted Stock to be valid:
(i) a separate irrevocable Election Form must be completed and
signed by the Participant, with respect to such Restricted
Stock; and (ii) such Election Form must be timely delivered to
and accepted by the Committee in accordance with the
following: (i) for the first Plan Year, a Participant's
Election Form with respect to such Restricted Stock must be
delivered to and accepted by the Committee in accordance with
the deadlines established by the Committee; and (ii) for each
succeeding Plan year, a Participant's Election Form with
respect to Restricted Stock must be timely delivered to and
accepted by the Committee at least six (6) months prior to the
date such Restricted Stock vests under the terms of the RPM,
Inc. 1997 Restricted Stock plan, or any similar stock
incentive plan sponsored by the Company.
3.4 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,
Special Incentive Plan Amounts and/or Director Fees portion of the
Annual Deferral Amount shall be withheld at the time the Annual Bonus,
Special Incentive Plan Amounts or Director Fees are or otherwise would
be paid to the Participant, whether or not this occurs during the Plan
Year itself. Annual Deferral Amounts, if any, shall be credited to a
Participant's Deferral Account at the time such amounts would otherwise
have been paid to the Participant.
3.5 ROLLOVER AMOUNT. With respect to Participants who participated in the
Predecessor Plan, an amount equal to their "account" as set forth in
such Predecessor Plan, valued as of the Effective Date of this Plan,
shall be the Rollover Amount. The Rollover Amount shall be comprised of
(i) elective deferrals accumulated pursuant to Section 6.1 of the
Predecessor Plan, (ii) a Participant's Merger Account accumulated
pursuant to Section 2.15A of the Predecessor Plan, and (iii) any
dividends declared on Restricted Stock granted to a Participant and
automatically deferred under the Predecessor Plan. The portion of a
Participant's Rollover Amount that is attributable to elective
deferrals (i) shall be credited to the Participant's Deferral Account
on the Effective Date of this Plan, and (ii) shall be subject to the
terms and conditions of this Plan. The portion of a Participant's
Rollover Amount that is attributable to a Participant's Merger Account
(i) shall be credited to the Participant's Merger Account on the
Effective Date of this Plan and (ii) shall be subject to the terms and
conditions of this Plan. The portion of a Participant's Rollover Amount
that is attributable to dividends declared on Restricted Stock granted
to a Participant and automatically deferred under the Predecessor Plan
(i) shall be credited to a Participant's Stock Dividend Account on the
Effective Date of this Plan and (ii) shall be subject to the terms and
conditions of this Plan. Any Participant with a Rollover Amount shall
have no right to demand distribution of such amounts other than as
specifically provided for herein; provided, however, that any
"in-service distribution" elections made by the Participant under the
Predecessor Plan shall apply to the Rollover Amount under this Plan.
-11-
<PAGE>
RPM, INC.
Deferred Compensation Plan
Master Plan Document
================================================================================
3.6 ANNUAL STOCK DIVIDEND AMOUNT. For each Plan Year in which a dividend is
declared and paid on Stock, an Employer shall automatically credit a
Participant's Stock Dividend Account with any stock dividends, cash
dividends or other non-cash dividends that would have been payable on a
Participant's shares of Restricted Stock which have not been deferred
under any plan. The amount so credited to a Participant pursuant to
this Section 3.6 (i) shall be for that Participant the Annual Stock
Dividend Amount, (ii) shall automatically be deemed to be invested in
the RPM, Inc. Stock Unit Fund II Measurement Fund, and (iii) shall be
credited to the Participant's Stock Dividend Account on a date or dates
to be determined by the Committee, in its sole discretion. The amount
credited to the Participant for a particular cash dividend or other
non-cash dividend shall be equal to the fair market value of the
dividend. Dividends payable on shares of Restricted Stock deferred by a
Participant under this Plan shall be credited to the Participant's
Restricted Stock Account in accordance with Section 3.11(c).
3.7 ANNUAL COMPANY CONTRIBUTION AMOUNT.
(a) For each Plan Year, an Employer may be required to credit
amounts to a Participant's Company Contribution Account in
accordance with the RPM, Inc. 1997 Restricted Stock Plan,
employment agreements, or other plans and agreements providing
for contributions to the Annual Company Contribution Account.
Such amounts shall be credited on the date or dates prescribed
by such agreements.
(b) For each Plan Year, an Employer, in its sole discretion, may,
but is not required to, credit any amount it desires to any
Participant's Company Contribution Account under this Plan,
which amount shall be for that Participant the Annual Company
Contribution Amount for that Plan Year. The amount so credited
to a Participant may be smaller or larger than the amount
credited to any other Participant, and the amount credited to
any Participant for a Plan Year may be zero, even though one
or more other Participants receive an Annual Company
Contribution Amount for that Plan Year. The Annual Company
Contribution Amount described in this Section 3.7(b), if any,
shall be credited as of the last day of the Plan Year or as
otherwise provided. If a Participant is not employed by an
Employer as of the last day of a Plan Year other than by
reason of his or her Retirement, Disability or death while
employed, the Annual Company Contribution Amount for that Plan
Year shall be zero or as otherwise provided.
3.8 ANNUAL COMPANY RESTORATION MATCHING AMOUNT. A Participant's Annual
Company Restoration Matching Amount for any Plan Year shall be equal to
(i) the "match" provided in the 401(k) Plan that the Company would have
credited to the Participant on the amount of Base Annual Salary and
Annual Bonus deferred into this Plan for such Plan Year had such Base
Annual Salary and Annual Bonus deferral been contributed to the 401(k)
Plan, to the extent allowable under the limitations applicable to the
401(k) Plan, reduced by (ii) the amount of the "match" the Company
makes to the Participant during such Plan Year under the 401(k) Plan.
The amount so credited to a Participant under this Plan shall be for
that Participant the Annual Company Restoration Matching Amount for
that Plan Year and shall be credited to the Participant's Company
Restoration Matching Account on a date or dates to be determined by the
Committee, in its sole discretion.
3.9 ANNUAL RESTRICTED STOCK AMOUNT. Subject to Section 3.3(c) and any terms
and conditions imposed by the Committee, Participants may elect to
defer, under the Plan, Restricted Stock,
-12-
<PAGE>
RPM, INC.
Deferred Compensation Plan
Master Plan Document
================================================================================
which amount shall be for that Participant the Annual Restricted Stock
Amount for that Plan Year. The portion of any Restricted Stock deferred
shall, at the time all forfeiture restrictions with respect to
Restricted Stock would otherwise lapse under the terms of the RPM, Inc.
1997 Restricted Stock Plan or any other similar stock incentive plan
sponsored by the Company, but for the election to defer, be reflected
on the books of the Company as an unfunded, unsecured promise to
deliver to the Participant a specific number of actual shares of Stock
in the future.
3.10 VESTING.
(a) A Participant shall at all times be 100% vested in his or her
Deferral Account and Stock Dividend Account.
(b) A Participant shall be vested in his or her Merger Account
only to the extent that the Participant would be vested in
such amounts under the provisions of the Predecessor Plan, as
determined by the Committee in its sole discretion, and shall
continue to vest in accordance with the provisions of the
Predecessor Plan, as more fully described in Section 6.2.
(c) A Participant shall be vested in his or her Company
Contribution Account and Restricted Stock Account or any
Supplemental Contributions in accordance with the vesting
schedule(s) set forth in his or her Plan Agreement, employment
agreement, or any other agreement entered into between the
Participant and his or her Employer. However, amounts credited
to the Company Contribution Account and shares credited to the
Restricted Stock Account as a result of cancellation or
surrender of shares of Restricted Stock granted under the RPM,
Inc. 1997 Restricted Stock Plan shall be fully vested when the
restrictions with respect to the stock cancelled or
surrendered would have otherwise lapsed. If not addressed in
such agreements or plan, a Participant shall vest in his or
her Company Contribution Account in accordance with the
schedule declared by the Committee in its sole discretion.
(d) A Participant shall be vested in his or her Company
Restoration Matching Account only to the extent that the
Participant would be vested in such amounts under the
provisions of the 401(k) Plan, as determined by the Committee
in its sole discretion.
(e) Notwithstanding anything to the contrary contained in this
Section 3.10, in the event of a Change in Control, or upon
a Participant's Retirement, death while employed by an
Employer, or Disability, a Participant's Company Contribution
Account and Company Restoration Matching Account shall
immediately become 100% vested (if it is not already vested in
accordance with the above vesting schedules).
(f) Notwithstanding subsection 3.10(e) above, the vesting
schedule for a Participant's Company Contribution Account and
Company Restoration Matching Account shall not be accelerated
to the extent that the Committee determines that such
acceleration would cause the deduction limitations of Section
280G of the Code to become effective. In the event that all of
a Participant's Company Contribution Account and/or Company
Restoration Matching Account is not vested pursuant to such a
determination, the Participant may request independent
verification of the Committee's calculations with respect to
the application of Section 280G. In such case, the Committee
must provide to the Participant within 15 business days of
such a request an opinion from a nationally recognized
accounting firm selected by the Participant (the "Accounting
Firm"). The
-13-
<PAGE>
RPM, INC.
Deferred Compensation Plan
Master Plan Document
================================================================================
opinion shall state the Accounting Firm's opinion that any
limitation in the vested percentage hereunder is necessary to
avoid the limits of Section 280G and contain supporting
calculations. The cost of such opinion shall be paid for by
the Company.
(g) Section 3.10(f) shall not prevent the acceleration of the
vesting schedule applicable to a Participant's Company
Contribution Account and Company Restoration Matching Account
for any Participant who is entitled to a "gross-up" payment,
to eliminate the effect of the Code section 4999 excise tax,
pursuant to an employment agreement or other agreement entered
into between the Participant and the Employer.
3.11 CREDITING/DEBITING OF ACCOUNT BALANCES AND MERGER ACCOUNTS. In
accordance with, and subject to, the rules and procedures that are
established from time to time by the Committee, in its sole discretion,
amounts shall be credited or debited to a Participant's Account Balance
and/or Merger Account balance in accordance with the following rules:
(a) MEASUREMENT FUNDS. Subject to the restrictions found in
Section 3.11(c) below, the Participant may elect one or more
of the measurement funds selected by the Committee, in its
sole discretion, which are based on certain mutual funds (the
"Measurement Funds"), for the purpose of crediting or debiting
additional amounts to his or her Account Balance and/or Merger
Account balance. As necessary, the Committee may, in its sole
discretion, discontinue, substitute or add a Measurement Fund.
Each such action will take effect as of the first day of the
first calendar quarter that begins at least thirty (30) days
after the day on which the Committee gives Participants
advance written notice of such change.
(b) ELECTION OF MEASUREMENT FUNDS. Subject to the restrictions
found in Section 3.11(c) below, a Participant, in connection
with his or her initial deferral election in accordance with
Section 3.3(a) above, shall elect, on the Election Form, one
or more Measurement Fund(s) (as described in Section 3.11(a)
above) to be used to determine the amounts to be credited
or debited to his or her Account Balance and/or Merger Account
balance. If a Participant does not elect any of the
Measurement Funds as described in the previous sentence, the
Participant's Account Balance and/or Merger Account balance
shall automatically be allocated into the lowest-risk
Measurement Fund, as determined by the Committee, in its sole
discretion. Subject to the restrictions found in Section
3.11(c) below, the Participant may (but is not required to)
elect, by submitting an Election Form to the Committee that is
accepted by the Committee, to add or delete one or more
Measurement Fund(s) to be used to determine the amounts to be
credited or debited to his or her Account Balance and/or
Merger Account balance, or to change the portion of his or her
Account Balance and/or Merger Account balance allocated to
each previously or newly elected Measurement Fund. If an
election is made in accordance with the previous sentence, it
shall apply as of the first business day deemed reasonably
practicable by the Committee, in its sole discretion, and
shall continue thereafter for each subsequent day in which the
Participant participates in the Plan, unless changed in
accordance with the previous sentence.
(c) RPM, INC. STOCK UNIT FUND I.
-14-
<PAGE>
RPM, INC.
Deferred Compensation Plan
Master Plan Document
================================================================================
(i) A Participant's Restricted Stock Account will be automatically
allocated to the RPM, Inc. Stock Unit Fund I Measurement Fund.
Participants may not select any other Measurement Fund to be used
to determine the amounts to be credited or debited to their
Restricted Stock Account. Furthermore, no other portion of the
Participant's Account Balance can be either initially allocated
or re-allocated to the RPM, Inc. Stock Unit Fund I. Amounts
allocated to the RPM, Inc. Stock Unit Fund I shall only be
distributable in actual shares of Stock.
(ii) Any stock dividends, cash dividends or other non-cash dividends
that would have been payable on the Stock credited to a
Participant's Restricted Stock Account shall be credited to the
Participant's Restricted Stock Account balance in the form of
additional shares of Stock and shall automatically and
irrevocably be deemed to be re-invested in the RPM, Inc. Stock
Unit Fund I until such amounts are distributed to the
Participant. The number of shares credited to the Participant for
a particular stock dividend shall be equal to (a) the number of
shares of Stock credited to the Participant's Restricted Stock
Account as of the payment date for such dividend in respect of
each share of Stock, multiplied by (b) the number of additional
shares of Stock actually paid as a dividend in respect of each
share of Stock. The number of shares credited to the Participant
for a particular cash dividend or other non-cash dividend shall
be equal to (a) the number of shares of Stock credited to the
Participant's Restricted Stock Account as of the payment date for
such dividend in respect of each share of Stock, multiplied by
(b) the fair market value of the dividend, divided by (c) the
"fair market value" of the Stock on the payment date for such
dividend.
(iii) The number of shares of Stock credited to the Participant's
Restricted Stock Account balance may be adjusted by the
Committee, in its sole discretion, to prevent dilution or
enlargement of a Participant's rights in the event of any
reorganization, reclassification, stock split, or other unusual
corporate transaction or event which affects the value of the
Stock, provided that any such adjustment shall be made taking
into account any crediting of shares of Stock to the Participant
under Section 3.11(c)(ii) above in connection with such
transaction or event.
(iv) For purposes of this Section 3.11(c), "fair market value" shall
mean for any day the closing price of the stock or, in the event
that no trading takes place on such day, the average of the
reported closing bid and asked prices, in either case as reported
on the principal national securities exchange on which the Stock
is listed or admitted to trading.
(d) RPM, INC. STOCK UNIT FUND II.
(i) Subject to the restrictions found in Section 3.11(c), above, a
Participant may allocate or re-allocate any portion of his or her
Account Balance and/or Merger Account balance to the RPM, Inc.
Stock Unit Fund II. In all events, new contributions to the
Participant's Stock Dividend Account shall automatically be
allocated to the RPM, Inc. Stock Unit Fund II. Participants may
re-allocate any
-15-
<PAGE>
RPM, INC.
Deferred Compensation Plan
Master Plan Document
================================================================================
portion of their Account Balance and/or Merger Account balance
from the RPM, Inc. Stock Unit Fund II to any other Measurement
Fund, at any time.
(ii) The value of a Participant's Account Balance and/or Merger
Account balance that has been allocated to the RPM, Inc. Stock
Unit Fund II may be adjusted by the Committee, in its sole
discretion, to prevent dilution or enlargement of a Participant's
rights in the event of any reorganization, reclassification,
stock split, or other unusual corporate transaction or event
which affects the value of the Stock.
(e) PROPORTIONATE ALLOCATION. In making any election described in Sections
3.11(b) and (d) above, the Participant shall specify on the Election
Form, in increments of one percent (1%), the percentage of his or her
Account Balance and/or Merger Account balance to be allocated to a
Measurement Fund (as if the Participant was making an investment in
that Measurement Fund with that portion of his or her Account Balance
and/or Merger Account balance).
(f) CREDITING OR DEBITING METHOD. The performance of each elected
Measurement Fund (either positive or negative) will be determined by
the Committee, in its reasonable discretion, based on the performance
of the Measurement Funds themselves. A Participant's Account Balance
and/or Merger Account balance shall be credited or debited on a daily
basis based on the performance of each Measurement Fund selected by
the Participant, SUCH PERFORMANCE BEING DETERMINED BY THE COMMITTEE IN
ITS SOLE DISCRETION.
(g) NO ACTUAL INVESTMENT. Notwithstanding any other provision of this Plan
that may be interpreted to the contrary, the Measurement Funds are to
be used for measurement purposes only, and a Participant's election of
any such Measurement Fund, the allocation to his or her Account
Balance and/or Merger Account balance thereto, the calculation of
additional amounts and the crediting or debiting of such amounts to a
Participant's Account Balance and/or Merger Account balance SHALL NOT
be considered or construed in any manner as an actual investment of
his or her Account Balance and/or Merger Account balance in any such
Measurement Fund. In the event that the Company or the Trustee (as
that term is defined in the Trust), in its own discretion, decides to
invest funds in any or all of the investments on which the Measurement
Funds are based, no Participant shall have any rights in or to such
investments themselves. Without limiting the foregoing, a
Participant's Account Balance and/or Merger Account balance shall at
all times be a bookkeeping entry only and shall not represent any
investment made on his or her behalf by the Company or the Trust; the
Participant shall at all times remain an unsecured creditor of the
Company.
3.12 FICA AND OTHER TAXES.
(a) ANNUAL DEFERRAL AMOUNTS. For each plan year in which an Annual
Deferral Amount is being withheld from a Participant, the
Participant's Employer(s) shall withhold from that portion of the
Participant's Base Annual Salary, Annual Bonus and/or Special
Incentive Plan Amounts that are not being deferred, in a manner
determined by the Employer(s), the Participant's share of FICA and
other employment taxes on such Annual Deferral
-16-
<PAGE>
RPM, INC.
Deferred Compensation Plan
Master Plan Document
================================================================================
Amount. If necessary, the Committee may reduce the Annual Deferral
Amount in order to comply with this Section 3.12.
(b) COMPANY RESTORATION MATCHING ACCOUNT, COMPANY CONTRIBUTION ACCOUNT AND
MERGER ACCOUNT. When a participant becomes vested in a portion of his
or her Company Restoration Matching Account, Company Contribution
Account or Merger Account, the Participant's Employer(s) shall
withhold from the Participant's Base Annual Salary, Annual Bonus
and/or Special Incentive Plan Amounts that are not deferred, in a
manner determined by the Employer(s), the Participant's share of FICA
and other employment taxes. If necessary, the Committee may reduce the
vested portion of the Participant's Company Restoration Matching
Account, Company Contribution Account or Merger Account, as
applicable, in order to comply with this Section 3.12.
(c) ANNUAL STOCK DIVIDEND AMOUNTS. When the Participant's Employer credits
an Annual Stock Dividend Amount to a Participant's Stock Dividend
Account, the Participant's Employer shall withhold from the
Participant's Base Annual Salary, Annual Bonus and/or Special
Incentive Plan Amounts that are not deferred, in a manner determined
by the Employer, the Participant's share of FICA and other employment
taxes. If necessary, the Committee may reduce the Participant's Annual
Stock Dividend Amount in order to comply with this Section 3.10.
(d) ANNUAL RESTRICTED STOCK AMOUNTS. When an Annual Restricted Stock
Amount is withheld from a Participant, the Participant's Employer(s)
shall withhold from that portion of the Participant's Base Annual
Salary, Annual Bonus, Special Incentive Plan Amounts and Restricted
Stock that are not being deferred, in a manner determined by the
Employer(s), the Participant's share of FICA and other employment
taxes on such Annual Restricted Stock Amount. If necessary, the
Committee may reduce the Annual Restricted Stock Amount in order to
comply with this Section 3.12.
(e) DISTRIBUTIONS. The Participant's Employer(s), or in the event that
payments are being made directly by the trustee of the Trust, the
trustee of the Trust, shall withhold from any payments made to a
Participant under this Plan all federal, state and local income,
employment and other taxes required to be withheld by the Employer(s),
or in the event that payments are being made directly by the trustee
of the Trust, the trustee of the Trust, in connection with such
payments, in amounts and in a manner to be determined in the sole
discretion of the Employer(s) and the trustee of the Trust.
ARTICLE 4
DEDUCTION LIMITATION
4.1 DEDUCTION LIMITATION ON BENEFIT PAYMENTS. If an Employer determines in
good faith that there is a reasonable likelihood that any compensation paid
to a Participant for a taxable year of the Employer would not be deductible
by the Employer solely by reason of the limitation under Code Section
162(m), then to the extent deemed necessary by the Employer to ensure that
the entire amount of any distribution to the Participant pursuant to this
Plan is deductible, the Employer may defer all or any portion of a
distribution under this Plan. Any amounts deferred pursuant to this
limitation shall continue to be credited/debited with additional amounts in
accordance with Section 3.11 above, even if such amount is being paid out
in installments. The
-17-
<PAGE>
RPM, INC.
Deferred Compensation Plan
Master Plan Document
================================================================================
amounts so deferred and amounts credited thereon shall be distributed to
the Participant or his or her Beneficiary (in the event of the
Participant's death) at the earliest possible date, as determined by the
Employer in good faith, on which the deductibility of compensation paid or
payable to the Participant for the taxable year of the Employer during
which the distribution is made will not be limited by Section 162(m), or if
earlier, the effective date of a Change in Control. Notwithstanding
anything to the contrary in this Plan, the Deduction Limitation shall not
apply to any distributions made after a Change in Control.
ARTICLE 5
SHORT-TERM PAYOUT; UNFORESEEABLE FINANCIAL EMERGENCIES;
WITHDRAWAL ELECTION
5.1 SHORT-TERM PAYOUT. In connection with each election to defer an Annual
Deferral Amount, a Participant may irrevocably elect to receive a future
"Short-Term Payout" from the Plan with respect to all or a portion of such
Annual Deferral Amount. The Short-Term Payout shall be a lump sum payment
in an amount that is equal to the portion of the Annual Deferral Amount the
Participant elected to have distributed as a Short-Term Payout plus amounts
credited or debited in the manner provided in Section 3.11 above on that
amount, calculated as of the close of business on or around the date on
which that the Short-Term Payout becomes payable, as determined by the
Committee in its sole discretion. Subject to the other terms and conditions
of this Plan, each Short-Term Payout elected shall be paid out during a
sixty (60) day period commencing immediately after the first day of any
Plan Year designated by the Participant. The Plan Year designated by the
Participant must be at least three Plan Years after the end of the Plan
Year in which the Annual Deferral Amount is actually deferred. By way of
example, if a three year Short-Term Payout is elected for Annual Deferral
Amounts that are deferred in the Plan Year commencing June 1, 2002, the
three year Short-Term Payout would become payable during a sixty (60) day
period commencing June 1, 2006.
In addition, subject to the terms and conditions of this Section 5.1,
Section 5.2 and all other provisions of this Plan, any similar elections
made pursuant to the terms of the Predecessor Plan, shall be deemed to
remain in effect under this Plan. The distribution date selected by a
Participant in connection with such election(s) under the Predecessor Plan
shall remain binding on the parties. The Committee shall, in its
discretion, determine how any amounts deferred under the Predecessor Plan
shall be treated pursuant to the language of Article 5 and the Plan.
5.2 OTHER BENEFITS TAKE PRECEDENCE OVER SHORT-TERM. Should an event occur that
triggers a benefit under Article 7, 8, 9 or 10, any Annual Deferral Amount,
plus amounts credited or debited thereon, that is subject to a Short-Term
Payout election under Section 5.1 shall not be paid in accordance with
Section 5.1 but shall be paid in accordance with the other applicable
Article.
5.3 WITHDRAWAL PAYOUT/SUSPENSIONS FOR UNFORESEEABLE FINANCIAL EMERGENCIES. If
the Participant experiences an Unforeseeable Financial Emergency, the
Participant may petition the Committee (i) to suspend any deferrals
required to be made by such Participant or (ii) to suspend any deferrals
required to be made by such Participant and receive a partial or full
payout from the Plan. The payout shall not exceed the lesser of the
Participant's vested Account Balance and vested Merger Account balance,
excluding the portion of the Account Balance attributable to the
-18-
<PAGE>
RPM, INC.
Deferred Compensation Plan
Master Plan Document
================================================================================
Restricted Stock Account, calculated as if such Participant were receiving
a Termination Benefit, or the amount reasonably needed to satisfy the
Unforeseeable Financial Emergency. A Participant may not receive a payout
from the Plan to the extent that the Unforeseeable Financial Emergency is
or may be relieved (i) through reimbursement or compensation by insurance
or otherwise, (ii) by liquidation of the Participant's assets, to the
extent the liquidation of such assets would not itself cause severe
financial hardship or (iii) by suspension of deferrals under this Plan. If
the Committee, in its sole discretion, approves a Participant's petition
for suspension, the Participant's deferrals under this Plan shall be
suspended as of the date of such approval. If the Committee, in its sole
discretion, approves a Participant's petition for suspension and payout,
the Participant's deferrals under this Plan shall be suspended as of the
date of such approval and the Participant shall receive a payout from the
Plan within sixty (60) days of the date of such approval.
5.4 WITHDRAWAL ELECTION. A Participant may elect, at any time, to withdraw all
or a portion of his or her vested Account Balance, excluding the portion of
the Account Balance attributable to the Restricted Stock Account. For
purposes of this Section 5.4, the value of a Participant's vested Account
Balance shall be calculated as of the close of business on or around the
date on which receipt of the Participant's election is acknowledged by the
Committee, as determined by the Committee in its sole discretion, less a
withdrawal penalty equal to 10% of the amount withdrawn (the net amount
shall be referred to as the "Withdrawal Amount"). This election can be made
at any time, before or after Retirement or Disability, and whether or not
the Participant is in the process of being paid pursuant to an installment
payment schedule. The Participant shall make this election by giving the
Committee advance written notice of the election in a form determined from
time to time by the Committee. The Participant shall be paid the Withdrawal
Amount within sixty (60) days of his or her election. Once the Withdrawal
Amount is paid, the Participant's participation in the Plan shall be
suspended for the remainder of the Plan Year in which the withdrawal is
elected and for one (1) full Plan Year thereafter.
ARTICLE 6
MERGER ACCOUNT
6.1 MERGER ACCOUNT. With respect to a Participant who participated in the
Predecessor Plan and who maintained a Merger Account under the Predecessor
Plan, an amount equal to his or her Merger Account as set forth in such
Predecessor Plan, valued as of the Effective Date of this Plan, shall be
credited to such Participant's Merger Account under this Plan. The Merger
Account shall be comprised of Deferral Contributions, Additional
Contributions and Supplemental Contributions accumulated under the
Predecessor Plan pursuant to Section 5.2 of such Predecessor Plan.
6.2 VESTING OF MERGER ACCOUNT.
(a) DEFERRAL CONTRIBUTIONS. A Participant shall at all times be 100%
vested in that portion of his or her Merger Account that is
attributable to his or her Deferral Contributions.
(b) ADDITIONAL CONTRIBUTIONS. A Participant shall vest in that portion of
his or her Merger Account that is attributable to his or her
Additional Contributions upon the Participant's completion of five (5)
Years of Vesting Service.
-19-
<PAGE>
RPM, INC.
Deferred Compensation Plan
Master Plan Document
================================================================================
(c) SUPPLEMENTAL CONTRIBUTIONS. A Participant shall vest in that portion
of his or her Merger Account that is attributable to his or her
Supplemental Contributions upon the Participant's completion of five
(5) Years of Vesting Service.
(d) YEARS OF VESTING SERVICE. For purposes of this Section 6.2, "Years of
Vesting Service" shall mean whole years of service resulting from (i)
service credited to a Participant for purposes of vesting under the
DAP Plan as of December 31, 1999 and (ii) service earned by a
Participant with the Company including service in Related Employment.
In combining service under the DAP Plan and service with the Company,
twelve (12) months of service are required for a Year of Vesting
Service and any resulting number of months less than twelve (12) shall
be disregarded and shall not be used in determining the vested portion
of a Participant's Merger Account.
A Participant shall earn a month of service for each calendar month in
which he or she performs an hour of service for the Company or in
Related Employment. In addition, if, within twelve (12) months from
the date on which a Participant Retires or experiences a Termination
of Employment, a Participant performs an hour of service for the
Company or in Related Employment, such Participant shall receive a
month of service for each month following the Participant's Retirement
or Termination of Employment through the date of service. Furthermore,
if, following a leave of absence of twelve (12) months or less, a
Participant Retires or experiences a Termination of Employment, and
within twelve (12) months from the date on which the Participant's
leave of absence first commenced such Participant performs an hour of
service, the Participant shall receive a month of service for each
month during the Participant's leave of absence. A Participant shall
earn a Year of Vesting Service for each twelve (12) months of service
earned by the Participant.
(e) SERVICE UNDER DAP PLAN. Each Participant who maintains a Merger
Account together with the Years of Vesting Service and months of
vesting service credited to such Participant under the DAP Plan as of
December 31, 1999 is listed at Appendix A.
(f) ACCELERATED VESTING. Notwithstanding anything to the contrary, upon a
Participant's termination on or after the attainment of age sixty-five
(65), the portion of a Participant's Merger Account that is
attributable to his or her Additional Contributions or Supplemental
Contributions shall immediately become 100% vested (if it is not
already vested in accordance with the above vesting schedule).
6.3 PAYMENT OF MERGER ACCOUNT. A Participant's vested Merger Account,
calculated as of the close of business on or around the date on which the
vested Merger Account becomes payable, as determined by the Committee in
its sole discretion, shall be distributed pursuant to the terms of the
Participant's form executed in accordance with the terms of the DAP Plan
unless a subsequent distribution election is made under this Plan. A lump
sum payment shall be made, or installment payments shall commence, no later
than sixty (60) days after the date on which a Participant's Merger Account
becomes payable. If a Participant's vested Merger Account is less than
$40,000 at the time when such Merger Account becomes payable or if a
Participant is required to take a lump sum distribution under the RPM, Inc.
Retirement Plan or the RPM, Inc. 401(k) Plan, such Participant's vested
Merger Account shall be paid in a lump sum regardless of such Participant's
election.
-20-
<PAGE>
RPM, INC.
Deferred Compensation Plan
Master Plan Document
================================================================================
ARTICLE 7
RETIREMENT BENEFIT FROM ACCOUNT BALANCE
7.1 RETIREMENT BENEFIT. A Participant who Retires shall receive, as a
Retirement Benefit, his or her vested Account Balance, calculated as of the
close of business on or around the date on which the Participant Retires,
as determined by the Committee in its sole discretion.
7.2 PAYMENT OF RETIREMENT BENEFIT. A Participant, in connection with his or her
commencement of participation in the Plan, shall elect on an Election Form
to receive the Retirement Benefit in a lump sum or pursuant to an Annual
Installment Method of up to 10 years. The Participant may change his or her
election to an allowable alternative payout period by submitting a new
Election Form to the Committee, provided that any such Election Form is
submitted to and accepted by the Committee in its sole discretion at least
thirteen (13) months prior to the Participant's Retirement. The Election
Form most recently accepted by the Committee shall govern the payout of the
Retirement Benefit. If a Participant does not make any election with
respect to the payment of the Retirement Benefit or if the Participant's
vested Account Balance is less than $50,000 at the time of his or her
Retirement, then such benefit shall be payable in a lump sum. The lump sum
payment shall be made, or installment payments shall commence, no later
than sixty (60) days after the date on which the Participant Retires.
Remaining installments, if any, shall be paid no later than sixty (60) days
after each anniversary of the date on which the Participant Retires.
ARTICLE 8
TERMINATION BENEFIT FROM ACCOUNT BALANCE
8.1 TERMINATION BENEFIT. A Participant who experiences a Termination of
Employment shall receive a Termination Benefit, which shall be equal to the
Participant's vested Account Balance, calculated as of the close of
business on or around the date on which the Participant experiences a
Termination of Employment, as determined by the Committee in its sole
discretion.
8.2 PAYMENT OF TERMINATION BENEFIT. The Termination Benefit shall be paid to
the Participant in a lump sum payment no later than sixty (60) days after
the date on which the Participant experiences the Termination of
Employment.
ARTICLE 9
DISABILITY WAIVER AND BENEFIT FROM ACCOUNT BALANCE
9.1 DISABILITY WAIVER.
(a) WAIVER OF DEFERRAL. A Participant who is determined to be suffering
from a Disability shall be (i) excused from fulfilling that portion of
the Annual Deferral Amount commitment that would otherwise have been
withheld from a Participant's Base Annual Salary, Annual Bonus,
Special Incentive Plan Amounts and/or Director Fees for the Plan Year
during which the Participant first suffers a Disability, and (ii)
excused from fulfilling any existing unvested Restricted Stock
commitments. During the period of Disability, the Participant shall
not be allowed to make any additional deferral elections, but will
continue to be considered a Participant for all other purposes of this
Plan.
-21-
<PAGE>
RPM, INC.
Deferred Compensation Plan
Master Plan Document
================================================================================
(b) DEFERRAL FOLLOWING DISABILITY. If a Participant returns to employment,
or service as a Director, with an Employer after a Disability ceases,
the Participant may elect to defer an Annual Deferral Amount and
Annual Restricted Stock Amount for the Plan Year following his or her
return to employment or service and for every Plan Year thereafter
while a Participant in the Plan; provided such deferral elections are
otherwise allowed and an Election Form is delivered to and accepted by
the Committee for each such election in accordance with Section 3.3
above.
9.2 CONTINUED ELIGIBILITY; DISABILITY BENEFIT. A Participant suffering a
Disability shall, for benefit purposes under this Plan, continue to be
considered to be employed, or in the service of an Employer as a Director,
and shall be eligible for (i) an Annual Company Contribution Amount, if
any, credited to such Participant's Company Contribution Account in
accordance with Section 3.7(b), and (ii) the benefits provided for in
Articles 5, 6, 7, 8 or 10 in accordance with the provisions of those
Articles. Notwithstanding the above, the Committee shall have the right to,
in its sole and absolute discretion and for purposes of this Plan only,
deem the Participant to have experienced a Termination of Employment, at
any time after such Participant is determined to be suffering a Disability.
If the Committee elects to exercise such right, the Participant shall
receive a Disability Benefit equal to his or her vested Account Balance in
accordance with Article 8. In the case of a Participant who is otherwise
eligible to Retire, the Committee must deem the Participant to have Retired
for purposes of this Plan only, as soon as practicable after the
Participant is determined to be suffering a Disability. If the Committee
elects to exercise such right, the Participant shall receive a Disability
Benefit equal to his or her vested Account Balance, in accordance with
Article 7.
ARTICLE 10
SURVIVOR BENEFIT FROM ACCOUNT BALANCE
10.1 SURVIVOR BENEFIT. The Participant's Beneficiary(ies) shall receive a
Survivor Benefit upon the Participant's death which will be equal to (i)
the Participant's vested Account Balance, calculated as of the close of
business on or around the date of the Participant's death, as selected by
the Committee in its sole discretion, if the Participant dies prior to his
or her Retirement, Termination of Employment or Disability, or (ii) the
Participant's unpaid Retirement Benefit, calculated as of the close of
business on or around the date of the Participant's death, as selected by
the Committee in its sole discretion, if the Participant dies before his or
her Retirement Benefit is paid in full.
10.2 PAYMENT OF SURVIVOR BENEFIT. The Survivor Benefit shall be paid to the
Participant's Beneficiary(ies) in a lump sum payment no later than sixty
(60) days after the date on which the Committee is provided with proof that
is satisfactory to the Committee of the Participant's death.
ARTICLE 11
BENEFICIARY DESIGNATION
11.1 BENEFICIARY. Each Participant shall have the right, at any time, to
designate his or her Beneficiary(ies) (both primary as well as contingent)
to receive any benefits payable under the Plan to a beneficiary upon the
death of a Participant. The Beneficiary designated under this Plan
-22-
<PAGE>
RPM, INC.
Deferred Compensation Plan
Master Plan Document
================================================================================
may be the same as or different from the Beneficiary designation under any
other plan of an Employer in which the Participant participates.
11.2 BENEFICIARY DESIGNATION; CHANGE; SPOUSAL CONSENT. A Participant shall
designate his or her Beneficiary by completing and signing the Beneficiary
Designation Form, and returning it to the Committee or its designated
agent. A Participant shall have the right to change a Beneficiary by
completing, signing and otherwise complying with the terms of the
Beneficiary Designation Form and the Committee's rules and procedures, as
in effect from time to time. Upon the acceptance by the Committee of a new
Beneficiary Designation Form, all Beneficiary designations previously filed
shall be canceled. The Committee shall be entitled to rely on the last
Beneficiary Designation Form filed by the Participant and accepted by the
Committee prior to his or her death.
11.3 ACKNOWLEDGMENT. No designation or change in designation of a beneficiary
shall be effective until received and acknowledged in writing by the
Committee or its designated agent.
11.4 NO BENEFICIARY DESIGNATION. If a Participant fails to designate a
Beneficiary as provided in Sections 11.1, 11.2 and 11.3 above or, if all
designated Beneficiaries predecease the Participant or die prior to
complete distribution of the Participant's benefits, then the Participant's
designated Beneficiary shall be deemed to be his or her surviving spouse.
If the Participant has no surviving spouse, the benefits remaining under
the Plan to be paid to a Beneficiary shall be payable to the executor or
personal representative of the Participant's estate.
11.5 DOUBT AS TO BENEFICIARY. If the Committee has any doubt as to the proper
Beneficiary to receive payments pursuant to this Plan, the Committee shall
have the right, exercisable in its discretion, to cause the Participant's
Employer to withhold such payments until this matter is resolved to the
Committee's satisfaction.
11.6 DISCHARGE OF OBLIGATIONS. The payment of benefits under the Plan to a
Beneficiary shall fully and completely discharge all Employers and the
Committee from all further obligations under this Plan with respect to the
Participant, and that Participant's Plan Agreement shall terminate upon
such full payment of benefits.
ARTICLE 12
LEAVE OF ABSENCE
12.1 PAID LEAVE OF ABSENCE. If a Participant is authorized by the Participant's
Employer for any reason to take a paid leave of absence from the employment
of the Employer, the Participant shall continue to be considered employed
by the Employer and the Annual Deferral Amount and Annual Restricted Stock
Amount shall continue to be withheld during such paid leave of absence in
accordance with Section 3.3.
12.2 UNPAID LEAVE OF ABSENCE. If a Participant is authorized by the
Participant's Employer for any reason to take an unpaid leave of absence
from the employment of the Employer, the Participant shall continue to be
considered employed by the Employer and the Participant shall be excused
from making deferrals until the earlier of the date the leave of absence
expires or the Participant returns to a paid employment status. Upon such
expiration or return, deferrals shall resume for the remaining portion of
the Plan Year in which the expiration or return occurs, based on the
-23-
<PAGE>
RPM, INC.
Deferred Compensation Plan
Master Plan Document
================================================================================
deferral election, if any, made for that Plan Year. If no election was
made for that Plan Year, no deferral shall be withheld.
ARTICLE 13
TERMINATION, AMENDMENT OR MODIFICATION
13.1 Termination. Each Employer reserves the right to discontinue its
sponsorship of the Plan and/or to terminate the Plan at any time with
respect to any or all of its participating Employees and Directors, by
action of its board of directors. Upon the termination of the Plan with
respect to any Employer, the Plan Agreements of the affected
Participants who are employed by that Employer, or in the service of
that Employer as Directors, shall terminate and their vested Account
Balances shall be determined (i) as if they had experienced a
Termination of Employment on the date of Plan termination; or (ii) if
Plan termination occurs after the date upon which a Participant was
eligible to Retire, then with respect to that Participant as if he or
she had Retired on the date of Plan termination. Such benefits shall be
paid to the Participants as follows: (i) prior to a Change in Control,
if the Plan is terminated with respect to all of its Participants, an
Employer shall have the right, in its sole discretion, and
notwithstanding any elections made by the Participant, to pay such
benefits in a lump sum or pursuant to an Annual Installment Method of
up to 10 years, with amounts credited and debited during the
installment period as provided herein; or (ii) prior to a Change in
Control, if the Plan is terminated with respect to less than all of its
Participants, an Employer shall be required to pay such benefits in a
lump sum; or (iii) after a Change in Control, if the Plan is terminated
with respect to some or all of its Participants, the Employer shall be
required to pay such benefits in a lump sum. The termination of the
Plan shall not adversely affect any Participant or Beneficiary who has
become entitled to the payment of any benefits under the Plan as of the
date of termination; provided however, that the Employer shall have the
right to accelerate installment payments without a premium or
prepayment penalty by paying the vested Account Balance in a lump sum
or pursuant to an Annual Installment Method using fewer years.
13.2 AMENDMENT. Any Employer may, at any time, amend or modify the Plan
in whole or in part with respect to that Employer by the action of its
board of directors or by an individual to whom the Board has delegated
authority to amend this Plan provided, however, that: (i) no amendment
or modification shall be effective to decrease or restrict the value of
a Participant's vested Account Balance in existence at the time the
amendment or modification is made, calculated as if the Participant had
experienced a Termination of Employment as of the effective date of the
amendment or modification or, if the amendment or modification occurs
after the date upon which the Participant was eligible to Retire, the
Participant had Retired as of the effective date of the amendment or
modification, (ii) no amendment or modification of this Section 13.2 or
Section 14.1 of the Plan shall be effective, and (iii) no amendment or
modification shall be effective to change the form or timing of the
payment of a Participant's Merger Account. The amendment or
modification of the Plan shall not affect any Participant or
Beneficiary who has become entitled to the payment of benefits under
the Plan as of the date of the amendment or modification; provided,
however, that the Employer shall have the right to accelerate
installment payments by paying the vested Account Balance in a lump sum
or pursuant to an Annual Installment Method using fewer years.
-24-
<PAGE>
RPM, INC.
Deferred Compensation Plan
Master Plan Document
================================================================================
13.3 PARTICIPATION BY SUBSIDIARIES. Any subsidiary may adopt this Plan
with the consent of the Company. A subsidiary 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
subsidiary by the Participant, and neither the Company nor any other
subsidiary shall have any liability for such benefit. Each subsidiary,
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 subsidiary, the approval, adoption, ratification, or
confirmation by each subsidiary of such amendment or termination and
each subsidiary shall be bound by such amendment or termination. A
subsidiary 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.
13.4 PLAN AGREEMENT. Despite the provisions of Sections 13.1 and 13.2
above, if a Participant's Plan Agreement contains benefits or
limitations that are not in this Plan document, the Employer may only
amend or terminate such provisions as set forth in the Plan Agreement
and, if not set forth in the Plan Agreement, then only with the consent
of the Participant.
13.5 EFFECT OF PAYMENT. The full payment of the Participant's vested Account
Balance and/or vested Merger Account under Articles 5, 6, 7, 8, 9 or 10
of the Plan shall completely discharge all obligations to a Participant
and his or her designated Beneficiaries under this Plan and the
Participant's Plan Agreement shall terminate.
ARTICLE 14
ADMINISTRATION
14.1 COMMITTEE DUTIES. Except as otherwise provided in this Article 14,
this Plan shall be administered by a 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. 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.
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.
14.2 ADMINISTRATION UPON CHANGE IN CONTROL.
(a) COMMITTEE. 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 Company's Chief Executive Officer or, if
not so identified, the Company's highest ranking officer (the
"Ex-CEO"); provided, however, the Committee, 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. Upon and
after a Change in Control, the Administrator shall have the
discretionary power to determine all questions arising in
connection with
-25-
<PAGE>
RPM, INC.
Deferred Compensation Plan
Master Plan Document
================================================================================
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, attorney's 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 Participants'
Merger Account balances, the date and circumstances of the
Retirement, Disability, death or Termination of Employment of
the Participants, and such other pertinent information as the
Administrator may reasonably require. Upon and 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 16.3
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 16.3. 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, attorney's 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 Participants' Merger Account balances,
the date and circumstances of the Retirement, Disability,
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.
14.3 AGENTS. In the administration of this Plan, the Committee and the
Benefits Review Committee may, from time to time, employ agents and
delegate to them such administrative duties as it sees FIT (including
acting through a duly appointed representative) and may from time to
time consult with counsel who may be counsel to any Employer.
-26-
<PAGE>
RPM, INC.
Deferred Compensation Plan
Master Plan Document
================================================================================
14.4 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.
14.5 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.
14.6 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, Disability,
death or Termination of Employment of its Participants, and such other
pertinent information as the Committee or Administrator may reasonably
require.
ARTICLE 15
OTHER BENEFITS AND AGREEMENTS
15.1 COORDINATION WITH OTHER BENEFITS. The benefits provided for a
Participant and Participant's 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 Participant's 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.
ARTICLE 16
CLAIMS PROCEDURES
16.1 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 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.
16.2 NOTIFICATION OF DECISION. The Committee shall consider a Claimant's
claim within a reasonable time, but no later than ninety (90) days
after receiving the claim. If the Committee determines
-27-
<PAGE>
RPM, INC.
Deferred Compensation Plan
Master Plan Document
================================================================================
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 Claimant's 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 Claimant's 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 16.3 below; and
(v) a statement of the Claimant's right to bring a civil
action under ERISA Section 502(a) following an
adverse benefit determination on review.
16.3 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
application 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 address of the
-28-
<PAGE>
RPM, INC.
Deferred Compensation Plan
Master Plan Document
================================================================================
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 Claimant's 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 Claimant's 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.
16.4 DECISION ON REVIEW. 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 Claimant's 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 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 Claimant's
claim for benefits; and
(d) a statement of the Claimant's right to bring a civil action
under ERISA Section 502(a).
16.5 LEGAL ACTION. A Claimant's compliance with the foregoing provisions of
this Article 16 is a mandatory prerequisite to a Claimant's right to
commence any legal action with respect to any claim for benefits under
this Plan.
ARTICLE 17
TRUST
17.1 ESTABLISHMENT OF THE TRUST. 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, to provide for the benefit payments under the
Plan.
-29-
<PAGE>
RPM, INC.
Deferred Compensation Plan
Master Plan Document
================================================================================
17.2 INTERRELATIONSHIP OF THE PLAN AND THE TRUST. The provisions of the
Plan and the Plan Agreement 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.
17.3 DISTRIBUTIONS FROM THE TRUST. Each employer's 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
Employer's obligations under this Plan.
ARTICLE 18
MISCELLANEOUS
18.1 STATUS OF PLAN. 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.
18.2 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
Employer's assets shall be, and remain, the general, unpledged
unrestricted assets of the Employer. An Employer's obligation under the
Plan shall be merely that of an unfunded and unsecured promise to pay
money in the future.
18.3 EMPLOYER'S LIABILITY. An Employer's 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.
18.4 NONASSIGNABILITY. 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 Participant's or any other person's bankruptcy or
insolvency or be transferable to a spouse as a result of a property
settlement or otherwise.
18.5 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 Participant
the right to be retained in the service of any Employer, either as
-30-
<PAGE>
RPM, INC.
Deferred Compensation Plan
Master Plan Document
================================================================================
an Employee or a Director, or to interfere with the right of any
Employer to discipline or discharge the Participant at any time.
18.6 FURNISHING INFORMATION. A Participant or his or her Beneficiary will
cooperate with the Committee by furnishing any and all information
requested by the Committee 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 Committee may deem necessary.
18.7 TERMS. 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.
18.8 CAPTIONS. 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.
18.9 GOVERNING LAW. 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.
18.10 NOTICE. Any notice or filing required or permitted to be given to the
Committee under this Plan shall be sufficient if in writing and
hand-delivered, or sent by registered or certified mail, to the address
below:
Janeen B. Kastner
Director of Human Resources & Administration
RPM, Inc.
2628 Pearl Rd.
P.O. Box 777
Medina, OH 44258
Such notice shall be deemed given as of the date of delivery or, if
delivery is made by mail, as of the date shown on the postmark on the
receipt for registration or certification.
Any notice or filing required or permitted to be given to a Participant
under this Plan shall be sufficient if in writing and hand-delivered,
or sent by mail, to the last known address of the Participant.
18.11 SUCCESSORS. The provisions of this Plan shall bind and inure to the
benefit of the Participant's Employer and its successors and assigns
and the Participant and the Participant's designated Beneficiaries.
18.12 SPOUSE'S INTEREST. 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 spouse's
will, nor shall such interest pass under the laws of intestate
succession.
18.13 VALIDITY. 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.
-31-
<PAGE>
RPM, INC.
Deferred Compensation Plan
Master Plan Document
===============================================================================
18.14 INCOMPETENT. If the Committee 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 person's property, the Committee 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
Committee 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 Participant's Beneficiary, as the case may be,
and shall be a complete discharge of any liability under the Plan for
such payment amount.
18.15 COURT ORDER. Upon receipt of a court order in any action in which the
Plan or the Committee has been named as a party, the Committee shall
provide the affected Participant with notice of such court order as
soon as is reasonably practicable. Notwithstanding the notice
requirement set forth in the previous sentence, the Committee is
authorized to make any payments directed by such court order. In
addition, if a court determines that a spouse or former spouse of a
Participant has an interest in the Participant's benefits under the
Plan in connection with a property settlement or otherwise, the
Committee, in its sole discretion, shall have the right,
notwithstanding any election made by a Participant, to immediately
distribute the spouse's or former spouse's interest in the
Participant's benefits under the Plan to that spouse or former spouse.
18.16 DISTRIBUTION IN THE EVENT OF TAXATION.
(a) IN GENERAL. If, for any reason, all or any portion of a
Participant's benefits under this Plan becomes taxable to the
Participant prior to receipt, a Participant may petition the
Committee before a Change in Control, or the trustee of the
Trust after a Change in Control, for a distribution of that
portion of his or her benefit that has become taxable. Upon
the grant of such a petition, which grant shall not be
unreasonably withheld (and, after a Change in Control, shall
be granted), a Participant's Employer shall distribute to the
Participant immediately available funds in an amount equal to
the taxable portion of his or her benefit (which amount shall
not exceed a Participant's unpaid vested Account Balance under
the Plan). If the petition is granted, the tax liability
distribution shall be made within 90 days of the date when the
Participant's petition is granted. Such a distribution shall
affect and reduce the benefits to be paid under this Plan. If,
for any reason, all or any portion of a Participant's benefits
under this Plan becomes taxable to the Participant prior to
receipt, such occurrence will not impact the tax status of any
other benefits under the Plan.
(b) TRUST. If the Trust terminates in accordance with its terms and
benefits are distributed from the Trust to a Participant in
accordance therewith, the Participant's benefits under this
Plan shall be reduced to the extent of such distributions.
18.17 INSURANCE. 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, 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
-32-
<PAGE>
RPM, INC.
Deferred Compensation Plan
Master Plan Document
===============================================================================
such documents as may be required by the insurance company or companies
to whom the Employers have applied for insurance.
18.18 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 Participant's Employer (which
might then be composed of new members) or a shareholder of the Company
or the Participant's Employer, or of any successor corporation might
then cause or attempt to cause the Company, the Participant's 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
Participant's 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, following a Change in Control, it should appear to any
Participant that the Company, the Participant's 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
Participant's Employer irrevocably authorize such Participant to retain
counsel of his or her choice at the expense of the Company and the
Participant's 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 Participant's Employer or any director, officer,
shareholder or other person affiliated with the Company, the
Participant's Employer or any successor thereto in any jurisdiction.
IN WITNESS WHEREOF, the Company has signed this Plan document as of May 30,
2002.
"Company"
RPM, Inc., an Ohio corporation
By: /s/ Ronald A. Rice
--------------------------------
Title: Vice President Administration
-----------------------------
-33-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.8.2
<SEQUENCE>5
<FILENAME>l21038aexv10w8w2.txt
<DESCRIPTION>EX-10.8.2
<TEXT>
<PAGE>
Exhibit 10.8.2
MASTER TRUST AGREEMENT FOR
RPM, INC.
DEFERRED COMPENSATION PLAN(S)
<PAGE>
MASTER TRUST AGREEMENT FOR RPM, INC.
DEFERRED COMPENSATION PLAN(S)
================================================================================
MASTER TRUST AGREEMENT
TABLE OF CONTENTS
ARTICLE PAGE
- ------- ----
ARTICLE 1 1
- ---------
Name, Intentions, Irrevocability, Deposit and Definitions 1
- ---------------------------------------------------------
1.1 NAME. 1
1.2 INTENTIONS. 1
1.3 IRREVOCABILITY; CREDITOR CLAIMS. 1
1.4 INITIAL DEPOSIT. 2
1.5 ADDITIONAL DEFINITIONS. 2
1.6 GRANTOR TRUST. 5
ARTICLE 2 5
- ---------
General Administration 5
- ----------------------
2.1 COMMITTEE DIRECTIONS AND ADMINISTRATION BEFORE
CHANGE IN CONTROL. 5
2.2 ADMINISTRATION UPON CHANGE IN CONTROL. 6
2.3 CONTRIBUTIONS. 6
2.4 COMPANY CONTRIBUTIONS TO MEET SUBSIDIARY OBLIGATIONS. 6
2.5 TRUST FUND. 7
2.6 RECAPTURE OF TRUST FUND. 7
ARTICLE 3 10
- ---------
Powers and Duties of Trustee 10
- ----------------------------
3.1 INVESTMENT DIRECTIONS. 10
3.2 INVESTMENT UPON CHANGE IN CONTROL. 10
3.3 MANAGEMENT OF INVESTMENTS. 10
3.4 SECURITIES. 13
3.5 SUBSTITUTION. 13
3.6 DISTRIBUTIONS. 13
3.7 TRUSTEE RESPONSIBILITY REGARDING PAYMENTS ON INSOLVENCY 17
3.8 COSTS OF ADMINISTRATION. 19
3.9 TRUSTEE COMPENSATION AND EXPENSES. 19
3.10 PROFESSIONAL ADVICE. 19
3.11 PAYMENT ON COURT ORDER. 20
3.12 PROTECTIVE PROVISIONS. 20
3.13 INDEMNIFICATIONS. 20
i
<PAGE>
MASTER TRUST AGREEMENT FOR RPM, INC.
DEFERRED COMPENSATION PLAN(S)
================================================================================
ARTICLE 4 21
- ---------
Insurance Contracts 21
- -------------------
4.1 TYPES OF CONTRACTS. 21
4.2 OWNERSHIP. 22
4.3 RESTRICTIONS ON TRUSTEE'S RIGHTS. 22
ARTICLE 5 22
- ---------
Trustee's Accounts 22
- ------------------
5.1 RECORDS. 22
5.2 ANNUAL ACCOUNTING; FINAL ACCOUNTING. 22
5.3 VALUATION. 23
5.4 DELEGATION OF DUTIES. 23
ARTICLE 6 24
- ---------
Resignation or Removal of Trustee 24
- ---------------------------------
6.1 RESIGNATION; REMOVAL. 24
6.2 SUCCESSOR TRUSTEE. 24
6.3 SETTLEMENT OF ACCOUNTS. 24
ARTICLE 7 24
- ---------
Controversies, Legal Actions and Counsel 24
- ----------------------------------------
7.1 CONTROVERSY. 24
7.2 JOINDER OF PARTIES. 25
7.3 EMPLOYMENT OF COUNSEL. 25
ARTICLE 8 25
- ---------
Insurers 25
- --------
8.1 INSURER NOT A PARTY. 25
8.2 AUTHORITY OF TRUSTEE. 25
8.3 CONTRACT OWNERSHIP. 25
8.4 LIMITATION OF LIABILITY. 25
8.5 CHANGE OF TRUSTEE. 25
ARTICLE 9 26
- ---------
Amendment and Termination 26
- -------------------------
9.1 AMENDMENT. 26
9.2 MERGER. 27
9.3 FINAL TERMINATION. 27
ii
<PAGE>
MASTER TRUST AGREEMENT FOR RPM, INC.
DEFERRED COMPENSATION PLAN(S)
================================================================================
ARTICLE 10 28
- ----------
Miscellaneous 28
- -------------
10.1 DIRECTIONS FOLLOWING CHANGE IN CONTROL. 28
10.2 TAXES. 28
10.3 THIRD PERSONS. 28
10.4 NONASSIGNABILITY; NONALIENATION. 28
10.5 APPLICABLE LAW. 29
10.6 NOTICES AND DIRECTIONS. 29
10.7 SUCCESSORS AND ASSIGNS. 29
10.8 GENDER AND NUMBER. 29
10.9 HEADINGS. 29
10.10 COUNTERPARTS. 29
10.11 BENEFICIAL INTEREST. 29
10.12 THE TRUST AND PLANS. 29
10.13 EFFECTIVE DATE. 30
iii
<PAGE>
MASTER TRUST AGREEMENT FOR
RPM, INC.
DEFERRED COMPENSATION PLAN(S)
THIS MASTER TRUST AGREEMENT ("Master Trust Agreement") is made and
entered into as of __________, 2002, between RPM, Inc., an Ohio corporation and
KeyBank National Association, a national banking association, to evidence the
master trust (the "Trust") to be established, pursuant to those executive
deferral plans or other arrangements of the Company listed in Exhibit A (the
"Plans") now or hereafter existing that provide for the establishment of a
trust, for the benefit of a select group of management or highly compensated
employees and/or Directors who contribute materially to the continued growth,
development and business success of the Company and those subsidiaries of the
Company, if any, that participate in the Plans (collectively, "Subsidiaries,"
or singularly, "Subsidiary").
ARTICLE 1
NAME, INTENTIONS, IRREVOCABILITY, DEPOSIT AND DEFINITIONS
1.1 NAME. The name of the Trust created by this Agreement (the "Trust")
shall be:
MASTER TRUST AGREEMENT FOR
RPM, INC.
DEFERRED COMPENSATION PLAN(S)
1.2 INTENTIONS. The Company wishes to establish the Trust and to contribute
to the Trust assets that shall be held therein, subject to the claims
of the Company's and the Subsidiaries' creditors in the event of their
Insolvency (as defined below) until paid to Participants and their
Beneficiaries in such manner and at such times as specified in the
Plans. It is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of
the Plans as unfunded plans maintained for the purpose of providing
supplemental compensation for a select group of management or highly
compensated employees and/or Directors for purposes of Title I of ERISA
(as defined below). In addition, it is the intention of the Company and
the Subsidiaries to make contributions to the Trust to provide
themselves with a source of funds to assist them in the meeting of
their liabilities under the Plans.
1.3 IRREVOCABILITY; CREDITOR CLAIMS. The Trust hereby established shall be
irrevocable. Except as otherwise provided in Sections 2.6 and 9.3, the
principal of the Trust, and any earnings thereon, shall be held
separate and apart from other funds of the Company and the Subsidiaries
and shall be used exclusively for the uses and purposes of the
Participants and the general creditors of the Company and the
Subsidiaries as herein set forth. The Participants and their
Beneficiaries shall have no preferred claim on, or any beneficial
ownership interest in, any assets of the Trust. Any rights created
under the Plans and this Master Trust Agreement shall be mere unsecured
contractual rights of the Participants and their Beneficiaries against
the Company and the Subsidiaries. Any assets held by the Trust will be
subject to the claims of the Company's and the Subsidiaries' general
creditors under federal and state law as provided in Section 3.7(b).
<PAGE>
MASTER TRUST AGREEMENT FOR RPM, INC.
DEFERRED COMPENSATION PLAN(S)
================================================================================
1.4 INITIAL DEPOSIT. The Company hereby deposits with the Trustee in trust
$100, which shall become the principal of the Trust to be held,
administered and disposed of by the Trustee as provided in this Master
Trust Agreement.
1.5 ADDITIONAL DEFINITIONS. In addition to the definitions set forth above,
for purposes hereof, unless otherwise clearly apparent from the
context, the following terms have the following indicated meanings:
(a) "Administrator" shall mean the Administrator appointed
pursuant to Section 3.6(i).
(b) "Beneficiary" shall mean one or more persons, trusts, estates
or other entities, designated in accordance with a Plan, that
are entitled to receive benefits under a Plan upon the death
of a Participant.
(c) "Board" shall mean the board of directors of the Company.
(d) "Change in Control" shall mean the occurrence, at any time, of
any of the following events:
(i) The Company is merged, consolidated or reorganized
into or with another corporation or other legal
person or entity (other than Parent or any Subsidiary
of Parent), and as a result of such merger,
consolidation or reorganization less than a majority
of the combined voting power of the then outstanding
securities of such corporation, person or entity
immediately after such transaction are held in the
aggregate by the holders of 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 (other
than Parent or any Subsidiary of Parent), and less
than a majority of the combined voting power of the
then outstanding securities of such corporation,
person or entity immediately after such sale or
transfer is held in the aggregate by the holders of
Voting Stock immediately prior to such sale or
transfer;
(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 but excluding Parent or any Subsidiary
of Parent) 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;
2
<PAGE>
MASTER TRUST AGREEMENT FOR RPM, INC.
DEFERRED COMPENSATION PLAN(S)
================================================================================
(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 (excluding any change in
control in favor of Parent or any Subsidiary of
Parent);
(v) If during any period of two consecutive years,
individuals, who at the beginning of any such period,
constitute the Directors cease for any reason to
constitute at least a majority thereof, unless the
nomination for election by the Company's shareholders
of each new Director was approved by a vote of at
least two-thirds of the Directors then in office who
were Directors at the beginning of any such period;
or
(vi) Such event as the Board, in the good faith exercise
of its discretion, shall determine to be a "Change in
Control."
Notwithstanding the foregoing provisions of Sections
1.5(d)(iii) and 1.5(d)(iv) above, a Change in Control shall
not be deemed to have occurred for purposes of this Agreement
(i) solely because (A) the Company, (B) a Subsidiary, or (C)
any Company sponsored employee stock ownership plan or other
employee benefit plan of the Company or any Subsidiary, or any
entity holding shares of Voting Stock for or pursuant to the
terms of any such plan, either files or becomes obligated to
file a report or proxy statement under or in response to
Schedule 13D, Schedule TO, Form 8 K or Schedule 14A (or any
successor schedule, form or report or item therein) under the
Exchange Act, disclosing beneficial ownership by it of shares
of Voting Stock or because the Company reports that a change
in control of the Company has or may have occurred or will or
may occur in the future by reason of such beneficial
ownership, (ii) solely because any other person or entity
either files or becomes obligated to file a report on Schedule
13D or Schedule TO (or any successor schedule, form or report)
under the Exchange Act, disclosing beneficial ownership by it
of shares of Voting Stock, but only if both (A) the
transaction giving rise to such filing or obligation is
approved in advance of consummation thereof by the Company's
Board of Directors and (B) at least a majority of the Voting
Power immediately after such transaction is held in the
aggregate by the holders of Voting Stock immediately prior to
such transaction, or (iii) solely because of a change in
control of any Subsidiary.
Solely for purposes of this definition of Change of Control,
the capitalized terms shall have the following meanings:
"Director" means a member of the Board of Directors
of the Company.
3
<PAGE>
MASTER TRUST AGREEMENT FOR RPM, INC.
DEFERRED COMPENSATION PLAN(S)
================================================================================
"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.
"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.
"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.
(e) "Committee" shall mean the administrative committee appointed
by the Board to administer this Trust.
(f) "Company" shall mean RPM, Inc., an Ohio corporation. If and
when Parent acquires all of the outstanding voting stock of
all classes of RPM, Inc., however, Company shall mean the
Parent.
(g) "Director" shall mean any member of the Board or of the board
of directors of any Subsidiary.
(h) "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as it may be amended from time to time.
(i) "Fiscal Year" shall mean the Fiscal Year chosen for this
Master Trust Agreement by the Board.
(j) "Insolvent" shall have the meaning set forth in Section 3.7(a)
below.
(k) "Insolvent Entity" shall have the meaning set forth in Section
3.7(a) below.
(l) "IRS" shall mean the Internal Revenue Service.
(m) "Parent" shall mean any publicly-held corporation, limited
liability company or partnership that (a) is formed for the
sole purpose of acquiring, directly or indirectly (whether by
distribution or otherwise), substantially all of the
4
<PAGE>
MASTER TRUST AGREEMENT FOR RPM, INC.
DEFERRED COMPENSATION PLAN(S)
================================================================================
outstanding voting stock of all classes of RPM, Inc., (b) is
owned immediately after the acquisition described in clause
(a) of this definition by the same shareholders as were
shareholders of RPM, Inc. immediately prior to the acquisition
described in clause (a) of this definition, and (c) hereafter
owns, directly or indirectly, all of the outstanding voting
stock of all classes of RPM, Inc.
(n) "Participant" shall mean a person who is a participant in one
or more of the Plans in accordance with their terms and
conditions.
(o) "Payment Schedule" shall have the meaning set forth in Section
3.6(b) below.
(p) "Plan(s)" shall mean those executive deferral plans or other
arrangements of the Company listed in Exhibit A.
(q) "Trustee" shall mean KeyBank National Association or such
successor trustee as appointed pursuant to Section 6.2.
(r) "Trust Fund" shall mean the assets held by the Trustee
pursuant to the terms of this Master Trust Agreement and for
the purposes of the Plans.
1.6 GRANTOR TRUST. The Trust is intended to be a "grantor trust," of which
the Company and the Subsidiaries are the grantors, within the meaning
of subpart E, part I, subchapter J, chapter 1, subtitle A of the
Internal Revenue Code of 1986, as amended, and the Trust shall be
construed accordingly.
ARTICLE 2
GENERAL ADMINISTRATION
2.1 COMMITTEE DIRECTIONS AND ADMINISTRATION BEFORE CHANGE IN CONTROL.
Until a Change in Control has occurred, this Section 2.1 shall be
effective and the Committee shall direct the Trustee as to the
administration of the Trust in accordance with the following
provisions:
(a) The Committee shall be identified to the Trustee by a copy of
the resolution of the Board appointing the Committee. In the
absence thereof, the Board shall be the Committee. The
Committee may delegate its authorities and discretions.
Persons authorized to give directions to the Trustee on behalf
of the Committee shall be identified to the Trustee by written
notice from the Committee, and such notice shall contain
specimens of the authorized signatures. The Trustee shall be
entitled to rely on such written notice as evidence of the
identity and authority of the persons appointed until a
written cancellation of the appointment, or the written
appointment of a successor, is received by the Trustee.
5
<PAGE>
MASTER TRUST AGREEMENT FOR RPM, INC.
DEFERRED COMPENSATION PLAN(S)
================================================================================
(b) Directions by the Committee, or its delegate, to the Trustee
shall be in writing and signed by the Committee or persons
authorized by the Committee, or may be made by such other
method as is acceptable to the Trustee.
(c) The Trustee may conclusively rely upon directions from the
Committee in taking any action with respect to this Master
Trust Agreement, including the making of payments from the
Trust Fund and the investment of the Trust Fund pursuant to
this Master Trust Agreement. The Trustee shall have no
liability for actions taken, or for failure to act, on the
direction of the Committee. The Trustee shall have no
liability for failure to act in the absence of proper written
directions.
(d) The Trustee may request instructions from the Committee and
shall have no duty to act or liability for failure to act if
such instructions are not forthcoming from the Committee. If
requested instructions are not received within a reasonable
time, the Trustee may, but is under no duty to, act on its own
discretion to carry out the provisions of this Master Trust
Agreement in accordance with this Master Trust Agreement and
the Plans.
2.2 ADMINISTRATION UPON CHANGE IN CONTROL. In the event of a Change in
Control, the authority of the Committee, its delegate, and any person
authorized by the Committee to administer the Trust and direct the
Trustee, as set forth in Section 2.1 above, shall cease, and the
Administrator shall have complete authority to administer the Trust.
2.3 CONTRIBUTIONS. Except as provided in any Plan, the Company and the
Subsidiaries, in their sole discretion, may at any time, or from time
to time, make additional deposits of cash or other property acceptable
to the Trustee in trust with the Trustee to augment the principal to
be held, administered and disposed of by the Trustee as provided in
this Master Trust Agreement. Neither the Trustee nor any Participant
or Beneficiary shall have any right to compel such additional
deposits. The Trustee shall have no duty to collect or enforce payment
to it of any contributions or to require that any contributions be
made, and shall have no duty to compute any amount to be paid to it
nor to determine whether amounts paid comply with the terms of the
Plans. Following a Change in Control, the Administrator shall have the
right and duty to compel and collect contributions from the Company to
make-up for any shortfall between (i) the anticipated benefit
obligations and administrative expenses that are to be paid under the
Plans and Trust and (ii) the assets of the Trust Fund, unless it
determines that it is not in the best interests of the Participants
and Beneficiaries to do so.
2.4 COMPANY CONTRIBUTIONS TO MEET SUBSIDIARY OBLIGATIONS. In the event the
Company makes any contributions which may be used to assist a
Subsidiary in meeting the Subsidiary's obligations to its employees or
directors under any Plan, such contributions and any earnings thereon
shall be subject to the claims of the creditors of the Company and the
Subsidiary. Any such contributions and earnings thereon not
transferred to the
6
<PAGE>
MASTER TRUST AGREEMENT FOR RPM, INC.
DEFERRED COMPENSATION PLAN(S)
================================================================================
Subsidiary's employees or directors shall revert to the Company upon
termination of this Trust.
2.5 TRUST FUND. The contributions received by the Trustee from the Company
and the Subsidiaries shall be held and administered pursuant to the
terms of this Master Trust Agreement without distinction between
income and principal and without liability for the payment of interest
thereon except as expressly provided in this Master Trust Agreement.
During the term of this Trust, all income received by the Trust, net
of expenses and taxes, shall be accumulated and reinvested. Except as
hereinafter provided, the assets held for the payment of benefits of
Participants and Beneficiaries of each Plan and payable by the Company
and separate Subsidiaries under the provisions of a Plan shall be
commingled. However, the Trustee shall maintain a separate account
that will show the equitable share of the assets available to pay
benefits owed by the Company and each Subsidiary under the provisions
of each Plan and the income gains and losses of the Trust Fund's
assets so held shall be allocated proportionately among the accounts.
The Trustee, however, shall establish a separate sub-account
("Subtrust") to hold assets contributed by the Company to meet the
obligations of a Subsidiary under any Plan and such other Subtrusts as
directed by the Committee in writing. Assets held in a Subtrust shall
be commingled and the Trustee shall maintain a separate account that
will show the equitable share of the assets available to pay benefits
owed by the Company and each Subsidiary under the provisions of each
Plan and the income gains and losses of the Subtrust's assets so held
shall be allocated proportionately among the accounts. In the event
Parent acquires all of the outstanding voting stock of all classes of
RPM, Inc., any separate account evidencing an equitable share for RPM,
Inc. or any Subtrust holding assets contributed by RPM, Inc. shall
continue to be so maintained and held and shall be transferred to the
Parent only upon and to the extent such interest is assigned to Parent
by RPM, Inc.
2.6 RECAPTURE OF TRUST FUND. The Company shall have no right or power to
direct the Trustee to return to the Company or any Subsidiary, or to
divert to others any portion of the Trust Fund except upon occurrence
of the following events:
(a) Final Termination. In the event of final termination of the
Trust as provided in Section 9.3, the assets of the Trust or
of each Subtrust shall be returned to the Company or
Subsidiary that made contributions to the Trust or Subtrust in
accordance with the instructions of the Company;
(b) An Insolvency occurs. In the event of Insolvency, assets of
the Trust shall be paid and administered in accordance with
Section 3.7;
(c) Benefits become insured or guaranteed. If benefits of a
Participant or Beneficiary that have become payable under the
terms of a Plan become insured or guaranteed pursuant to a
contract with an insurance company, guaranty company or
similar organization irrespective of whether such contract has
been purchased by the Company, Participant or other person,
the Company or Subsidiary shall be
7
<PAGE>
MASTER TRUST AGREEMENT FOR RPM, INC.
DEFERRED COMPENSATION PLAN(S)
================================================================================
entitled to demand from the Trustee a repayment from the Trust
Fund in an amount which does not exceed the actuarial present
value of the benefits that are so insured or guaranteed, to
the extent that such benefits would be payable by the Company
or Subsidiary in accordance with the terms of the Plan; and if
all of the benefit payments due under the Plan with respect to
the Company or Subsidiary are so insured or guaranteed, the
Company or Subsidiary may also demand repayment of any portion
of the Trust Fund an amount that does not exceed the actuarial
present value of such benefits insured or guaranteed. The
Company shall determine such amount and provide a written
demand therefore from the Trustee. The Trustee shall have no
liability to any person for making such payment in such
amount;
(d) The Company or Subsidiary pays the Participant's benefit. If,
pursuant to Section 3.6(d), the Company makes payment directly
to a Participant or Beneficiary (in lieu of such payment being
made directly by the Trustee), the Company may request the
Trustee to provide it or the Subsidiary reimbursement for the
amount paid by the Company or the Subsidiary; and such
reimbursement shall be paid by the Trustee from the Trust
Fund;
(e) The Participant incurs a forfeiture or penalty. If a
Participant or Beneficiary forfeits all or a portion of his
benefit, incurs a penalty for an accelerated distribution
under the terms of the Plan, or makes a voluntary written
election to forego and relinquish amounts payable to him
pursuant to the Plan, the Company may demand that the Trustee
return the present value of the benefit to the Company or
Subsidiary that would be obligated to make payment of the
benefit had the forfeiture, penalty or relinquishment not
occurred, or direct that the amounts be used to pay fees or
expenses of the Trust or Plan;
(f) The maintenance of the Trust is not warranted by expense.
Prior to a Change in Control, if the value of the assets
comprising the Trust is such that the continuation of the
Trust is not warranted by its administrative expenses, the
Committee may direct that the Trust be terminated and assets
shall be distributed in accordance with Subsection (a) of this
Section 2.6; or
(g) The Trust has Excess Assets. In the event the Trust holds
Excess Assets, the Trustee, at the direction of the Committee
prior to a Change in Control, or the Administrator upon and
after a Change in Control, shall distribute to the Company and
the Subsidiaries such excess portion of the Trust Fund.
(i) "Excess Assets" are assets of the Trust exceeding the
sum of: one hundred twenty-five percent (125%) of the
anticipated benefit obligations and administrative
obligations that are to be paid under the Plans.
8
<PAGE>
MASTER TRUST AGREEMENT FOR RPM, INC.
DEFERRED COMPENSATION PLAN(S)
================================================================================
(ii) Unless otherwise directed by the Committee or the
Administrator after a Change in Control, Excess
Assets shall be returned to the Company or a
Subsidiary in the following order of priority:
(A) Cash and cash equivalents;
(B) All taxable investments of the
Trust (other than cash and cash
equivalents, securities and
obligations issued by the Company
or Subsidiaries and Contracts with
insurers), in such order as the
Committee may request;
(C) All nontaxable investments of the
Trust (other than cash and cash
equivalents, securities and
obligations issued by the Company
or Subsidiaries and Contracts with
insurers), in such order as the
Committee may request;
(D) Securities and obligations issued
by the Company or Subsidiaries in
such order as the Committee may
request; and
(E) Contracts with insurers, proceeding
in order of Contracts on insureds
from the youngest to the oldest
ages based on the insured's
attained age on the date of return
of Excess Assets.
Notwithstanding the foregoing, Excess Assets may be
returned in any other order of priority directed by
the Committee prior to a Change in Control.
(iii) If any Subtrust holds Excess Assets, the Committee
may direct the Trustee to transfer such Excess Assets
to other Subtrusts, either ratably in proportion to
the unfunded liabilities to Participants for Plan
benefits of all other Subtrusts or first to the other
Subtrust(s) with the largest percentage of such
unfunded liabilities except that any excess assets of
a Subtrust holding assets resulting from
contributions by the Company to pay benefits
attributable solely to services rendered by a
Participant for the Company may only be transferred
to a Subtrust holding assets for such purposes, any
excess assets of a Subtrust holding assets resulting
from contributions by a Subsidiary to pay benefits
attributable solely to services rendered by a
Participant for the Subsidiary may only be
transferred to a Subtrust holding assets for such
purposes, and any excess assets of a Subtrust to
which the Company made contributions and which holds
assets
9
<PAGE>
MASTER TRUST AGREEMENT FOR RPM, INC.
DEFERRED COMPENSATION PLAN(S)
================================================================================
to pay benefits attributable solely to services
rendered by a Participant for a Subsidiary may only
be transferred to a Subtrust established to receive
assets from the Company for such purposes. After a
Change in Control, the Administrator may also direct
a transfer of Excess Assets of a Subtrust to other
Subtrusts upon its own initiative in such amounts as
it may determine in its sole discretion. Excess
Assets of a Subtrust for a Plan shall be determined
in the same manner as Excess Assets of the Trust are
determined.
ARTICLE 3
POWERS AND DUTIES OF TRUSTEE
3.1 INVESTMENT DIRECTIONS. Except as provided in this Section and Section
3.2 below, the Committee shall provide the Trustee with all investment
instructions. The Trustee shall neither affect nor change investments
of the Trust Fund, except as directed in writing by the Committee;
provided, that the Trustee may (i) deposit cash on hand from time to
time in any bank savings account, certificate of deposit, or other
instrument creating a deposit liability for a bank, including the
Trustee's own banking department, if the Trustee is a bank, without
such prior direction, or (ii) invest in government securities, bonds
with specific ratings, equities, or mutual funds composed of such
investments, all within broad investment guidelines established by the
Committee from time to time. The Trustee shall have no right, duty or
responsibility to recommend investments or investment changes. The
Trustee shall not be liable in any manner for any reason for any loss
or other unfavorable investment results arising from its compliance
with the investment instructions of the Committee and shall not
indemnify the Company or any Subsidiaries for any damages, costs or
attorney's fees arising from or attributable to any investment
directed by the Committee prior to a Change in Control.
3.2 INVESTMENT UPON CHANGE IN CONTROL. In the event of a Change in
Control, the authority of the Committee, its delegate and any person
authorized by the Committee to direct investments of the Trust Fund
shall cease and the Trustee shall have complete authority to direct
investments of the Trust Fund. The president of the Company shall
notify the Trustee in writing when a Change in Control has occurred.
The Trustee has no duty to inquire whether a Change in Control has
occurred and may rely on notification by the president of the Company
of a Change in Control; provided, however, that if any officer, former
officer, director or former director of the Company or any Subsidiary
(other than the president of the Company), or any Participant notifies
the Trustee that there has been or there may be a Change in Control,
the Trustee shall have the duty to satisfy itself as to whether a
Change in Control has in fact occurred. The Company shall indemnify
and hold harmless the Trustee for any damages or costs (including
attorneys' fees) that may be incurred because of reliance on the
president's notice or lack thereof or because of actions taken to
determine whether a Change in Control has occurred. The Trustee shall
indemnify and hold harmless the Company and the Subsidiaries for any
damages or costs (including attorney's fees) that may be incurred in
the event that the
10
<PAGE>
MASTER TRUST AGREEMENT FOR RPM, INC.
DEFERRED COMPENSATION PLAN(S)
================================================================================
Trustee fails to timely perform its duties as required by this Master
Trust Agreement upon receipt of the President's notice.
3.3 MANAGEMENT OF INVESTMENTS. Subject to Section 3.1 above, the Trustee
shall have, without exclusion, all powers conferred on the Trustee by
applicable law, unless expressly provided otherwise herein, and all
rights associated with assets of the Trust shall be exercised by the
Trustee or the person designated by the Trustee. The Trustee shall
have full power and authority to invest and reinvest the Trust Fund in
any investment permitted by law, exercising the judgment and care that
persons of prudence, discretion and intelligence would exercise under
the circumstances then prevailing, considering the probable income and
safety of their capital, including, without limiting the generality of
the foregoing, the power:
(a) To invest and reinvest the Trust Fund, together with the
income therefrom, in common stock, preferred stock,
convertible preferred stock, mutual funds (including, without
limitation, mutual funds for which the Trustee or its
affiliates receive fees for acting as investment advisor or
providing other services), bonds, debentures, convertible
debentures and bonds, mortgages, notes, time certificates of
deposit, commercial paper and other evidences of indebtedness
(including those issued by the Trustee or any of its
affiliates), other securities (including stock, rights to
acquire stock or obligations issued by the Company or a
Subsidiary), policies of life insurance, annuity contracts,
options to buy or sell securities or other assets, and other
property of any kind (personal, real, or mixed, and tangible
or intangible);
(b) To deposit or invest all or any part of the assets of the
Trust Fund in savings accounts or certificates of deposit or
other deposits which bear a reasonable interest rate in a
bank, including the commercial department of the Trustee, if
such bank is supervised by the United States or any State;
(c) To hold, manage, improve, repair and control all property,
real or personal, forming part of the Trust Fund and to sell,
convey, transfer, exchange, partition, lease for any term,
even extending beyond the duration of this Trust, and
otherwise dispose of the same from time to time in such
manner, for such consideration, and upon such terms and
conditions as the Trustee shall determine;
(d) To have, respecting securities, all the rights, powers and
privileges of an owner, including the power to give proxies,
pay assessments and other sums deemed by the Trustee to be
necessary for the protection of the Trust Fund, to vote any
corporate stock either in person or by proxy, with or without
power of substitution, for any purpose; to participate in
voting trusts, pooling agreements, foreclosures,
reorganizations, consolidations, mergers and liquidations, and
in connection therewith to deposit securities with and
transfer title to any protective or other committee under such
terms as the Trustee may deem advisable; to
11
<PAGE>
MASTER TRUST AGREEMENT FOR RPM, INC.
DEFERRED COMPENSATION PLAN(S)
================================================================================
exercise or sell stock subscriptions or conversion rights;
and, regardless of any limitation elsewhere in this instrument
relative to investment by the Trustee, to accept and retain as
an investment any securities or other property received
through the exercise of any of the foregoing powers;
(e) To hold in cash, without liability for interest, such portion
of the Trust Fund which, in its discretion, shall be
reasonable under the circumstances, pending investments, or
payment of expenses, or the distribution of benefits;
(f) To take such actions as may be necessary or desirable to
protect the Trust Fund from loss due to the default on
mortgages held in the Trust including the appointment of
agents or trustees in such other jurisdictions as may seem
desirable, to transfer property to such agents or trustees, to
grant such powers as are necessary or desirable to protect the
Trust or its assets, to direct such agents or trustees, or to
delegate such power to direct, and to remove such agents or
trustees;
(g) To employ such agents including custodians and counsel as may
be reasonably necessary and to pay them reasonable
compensation; to settle, compromise or abandon all claims and
demands in favor of or against the Trust assets;
(h) To cause title to property of the Trust to be issued, held or
registered in the individual name of the Trustee, or in the
name of its nominee(s) or agents, or in such form that title
will pass by delivery;
(i) To exercise all of the further rights, powers, options and
privileges granted, provided for, or vested in trustees
generally under the laws of the State whose laws are
applicable to this Master Trust Agreement, as provided in
Section 10.5 below, so that the powers conferred upon the
Trustee herein shall not be in limitation of any authority
conferred by law, but shall be in addition thereto;
(j) To borrow money from any source (including the Trustee) and to
execute promissory notes, mortgages or other obligations and
to pledge or mortgage any Trust assets as security;
(k) To lend certificates representing stocks, bonds, or other
securities to any brokerage or other firm selected by the
Trustee;
(l) To institute, compromise and defend actions and proceedings;
to pay or contest any claim; to settle a claim of or against
the Trust by compromise, arbitration, or otherwise; to
release, in whole or in part, any claim belonging to the Trust
to the extent that the claim is uncollectible;
12
<PAGE>
MASTER TRUST AGREEMENT FOR RPM, INC.
DEFERRED COMPENSATION PLAN(S)
================================================================================
(m) To use securities depositories or custodians and to allow such
securities as may be held by a depository or custodian to be
registered in the name of such depository or its nominee or in
the name of such custodian or its nominee;
(n) To invest the Trust Fund from time to time in one or more
investment funds, which funds shall be registered under the
Investment Company Act of 1940; and
(o) To do all other acts necessary or desirable for the proper
administration of the Trust Fund, as if the Trustee were the
absolute owner thereof.
However, nothing in this section shall be construed to mean the
Trustee assumes any responsibility for the performance of any
investment made by the Trustee in its capacity as trustee under the
operations of this Master Trust Agreement. Notwithstanding any powers
granted to the Trustee pursuant to this Master Trust Agreement or to
applicable law, the Trustee shall not have any power that could give
this Trust the objective of carrying on a business and dividing the
gains therefrom, within the meaning of section 301.7701 2 of the
Procedure and Administrative Regulations promulgated pursuant to the
Internal Revenue Code of 1986, as amended.
3.4 SECURITIES. Voting or other rights in securities shall be exercised by
the person or entity responsible for directing such investments, and
the Trustee shall have no duty to exercise voting or proxy or other
rights relating to any investment managed or directed by the
Committee. In no event shall any voting or other rights in securities
be exercised by or rest with Participants or Beneficiaries. If any
foreign securities are purchased pursuant to the direction of the
Committee, it shall be the responsibility of the person or entity
responsible for directing such investments to advise the Trustee in
writing of any laws or regulations, either foreign or domestic, that
apply to such foreign securities or to the receipt of dividends or
interest on such securities.
3.5 SUBSTITUTION. Notwithstanding any provision of any Plan or the Trust
to the contrary, the Company and/or any Subsidiary shall at all times
have the power to reacquire the Trust Fund by substituting readily
marketable securities (other than stock, a debt obligation or other
security issued by the Company or any Subsidiary) and/or cash of an
equivalent value and such other property shall, following such
substitution, constitute the Trust Fund. Notwithstanding the
foregoing, after a Change in Control, any such substitution shall be
subject to the approval of the Trustee.
3.6 DISTRIBUTIONS.
(a) The establishment of the Trust and the payment or delivery to
the Trustee of money or other property shall not vest in any
Participant or Beneficiary any right, title, or interest in
and to any assets of the Trust. To the extent that any
Participant or Beneficiary acquires the right to receive
payments under any of the Plans, such right shall be no
greater than the right of an unsecured general creditor
13
<PAGE>
MASTER TRUST AGREEMENT FOR RPM, INC.
DEFERRED COMPENSATION PLAN(S)
================================================================================
of the Company and the Subsidiaries and such Participant or
Beneficiary shall have only the unsecured promise of the
Company and the Subsidiaries that such payments shall be made.
(b) Concurrent with the establishment of this Trust, the Company
shall deliver to the Trustee a schedule (the "Payment
Schedule") that indicates the amounts payable in respect of
each Participant (and his or her Beneficiaries) on a Plan by
Plan basis, provides a formula or formulas or other
instructions acceptable to the Trustee for determining the
amounts so payable, specifies the form in which such amount is
to be paid (as provided for or available under the applicable
Plans), and the time of commencement for payment of such
amounts. If, during a Fiscal Year, there is a new Participant,
the Company shall deliver a Payment Schedule with respect to
the new Participant within sixty (60) days of the last day of
the Fiscal Year. The Company shall provide a modified Payment
Schedule when the Committee directs that a distribution be
made to a Participant or Beneficiary, upon a Change in
Control, and within sixty (60) days of the last day of each
Fiscal Year ending after a Change in Control. After a Change
in Control, the Company shall also provide a Payment Schedule
or modified payment Schedule for any or all Plans upon request
by the Trustee at any time. Except as otherwise provided
herein, prior to a Change in Control, the Trustee shall make
payments to the Participants and their Beneficiaries in
accordance with such Payment Schedule. Despite the foregoing,
after a Change in Control, the Trustee shall make payments in
accordance with the terms and provisions of each of the Plans
and related plan agreements as directed by the Administrator.
The Trustee, at the direction of the Committee or, after a
Change in Control, as directed by the Administrator, may make
any distribution required to be made by it hereunder by
delivering:
(i) Its check payable to the person to whom such
distribution is to be made, to the person, or, if
prior to a Change in Control, to the Company for
redelivery to such person; provided that before a
Change in Control, the Committee may direct the
Trustee to deliver one or more lump sum checks
payable to the Company, and the Company shall prepare
and deliver individual checks for each Participant or
Beneficiary; or
(ii) Its check payable to an insurer for the benefit of
such person, to the insurer, or, if prior to a Change
in Control, to the Company for redelivery to the
insurer; or
(iii) Contracts held on the life of the Participant to whom
or with respect to whom the distribution is being
made, to the Participant or Beneficiary, or, if prior
to a Change in Control, to the Company for redelivery
to the person to whom such distribution is to be
made; or
14
<PAGE>
MASTER TRUST AGREEMENT FOR RPM, INC.
DEFERRED COMPENSATION PLAN(S)
================================================================================
(iv) If a distribution is being made, in whole or in part,
of other assets, assignments or other appropriate
documents or certificates necessary to effect a
transfer of title, to the Participant or Beneficiary,
or, if prior to a Change in Control, to the Company
for redelivery to such person.
(c) If the principal of the Trust, and any earnings thereon, are
not sufficient, determined on a Plan by Plan basis, to make
payments of benefits in accordance with the terms of the
Plans, the Company and the Subsidiaries shall make the balance
of each such payment as it falls due. If the Trustee knows
that principal and earnings are not sufficient to make
payments of benefits in accordance with the terms of the
Plans, the Trustee shall notify the Company and the
Subsidiaries of the insufficiency. To the extent that the
total Trust assets available to make benefit payments to
Participants or Beneficiaries who are currently entitled to
payment are less than the liabilities of the Plans, the
Trustee shall make benefit payments proportionate to the ratio
of assets available to pay benefits to the total values of the
liabilities.
(d) The Company and the Subsidiaries may make payment of benefits
directly to Participants or their Beneficiaries as they become
due under the terms of the Plans. The Company and the
Subsidiaries shall notify the Trustee of their decisions to
make payment of benefits directly prior to the time amounts
are payable to Participants or their Beneficiaries.
(e) Notwithstanding anything contained in this Master Trust
Agreement to the contrary, if at any time the Trust is finally
determined by the IRS not to be a "grantor trust" with the
result that the income of the Trust Fund is not treated as
income of the Company or the Subsidiaries pursuant to Sections
671 through 679 of the Internal Revenue Code of 1986, as
amended, or if a tax is finally determined by the IRS to be
payable by one or more Participants or Beneficiaries with
respect to any interest in the Plans or the Trust Fund prior
to payment of such interest to any such Participant or
Beneficiary, the Committee shall immediately determine each
Participant's share of the Trust Fund in accordance with the
Plans, and the Trustee shall immediately distribute such share
in a lump sum to each Participant or Beneficiary entitled
thereto, regardless of whether such Participant's employment
has terminated (provided such Participant has a vested
interest in his or her accrued benefits under the Plans) and
regardless of form and time of payments specified in or
pursuant to the Plans. Any remaining assets (less any expenses
or costs due under Sections 3.8 and 3.9 of this Master Trust
Agreement) shall then be paid by the Trustee to the Company
and the Subsidiaries in such amounts, and in the manner
instructed by the Committee. If the value of the Trust Fund is
less than the benefit obligations under the Plans, the
foregoing described distributions will be limited to a
Participant's share of the Trust Fund, determined by
allocating assets to the Participant based on the ratio of the
Participant's benefit obligations under the Plans to the total
benefit obligations
15
<PAGE>
MASTER TRUST AGREEMENT FOR RPM, INC.
DEFERRED COMPENSATION PLAN(S)
================================================================================
under the Plans. The Trustee shall rely solely on the
directions of the Committee prior to a Change in Control, and
on the directions of the Administrator upon and after a Change
in Control, with respect to the occurrence of the foregoing
events and the resulting distributions to be made, and the
Trustee shall not be responsible for any failure to act in the
absence of such direction.
(f) The Company or the Subsidiary obligated to pay a benefit
pursuant to the terms of a Plan, shall make provision for the
reporting and withholding of any federal, state or local taxes
that may be required to be withheld with respect to the
payment of the benefit made to Participants and Beneficiaries
and shall pay amounts withheld to the appropriate taxing
authorities, or shall designate and appoint another party to
perform such responsibilities. The Trustee shall deliver any
withholding amount to the Company or Subsidiary as provided in
instructions from the Company.
(g) Prior to a Change in Control, payments by the Trustee shall be
delivered or mailed to addresses supplied by the Committee and
the Trustee's obligation to make such payments shall be
satisfied upon such delivery or mailing. Prior to a Change in
Control, the Trustee shall have no obligation to determine the
identity of persons entitled to benefits or their mailing
addresses. After a Change in Control, the Administrator shall
have such obligations.
(h) Prior to a Change in Control, the entitlement of a Participant
or his or her Beneficiaries to benefits under the Plans shall
be determined by the Committee or such party as designated
under the Plans, and any claim for such benefits shall be
considered and reviewed under the procedures set out in the
Plans.
(i) Upon and after the occurrence of a Change in Control, this
Trust shall be administered by an independent third party (the
"Administrator") selected by the individual who, immediately
prior to such event, was the Company's Chief Executive Officer
or, if not so identified, the Company's 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. Until the date on
which the independent third party that is selected by the
Ex-CEO accepts the responsibilities of Administrator under
this Master Trust Agreement, the Committee as constituted
immediately prior to a Change in Control shall be the
Administrator and shall have the powers, duties and
discretionary authority of the Administrator. The
Administrator shall have the discretionary power to determine
all questions arising in connection with the administration of
the Trust and the interpretation of the Trust; 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
16
<PAGE>
MASTER TRUST AGREEMENT FOR RPM, INC.
DEFERRED COMPENSATION PLAN(S)
================================================================================
Trust, which powers shall be held and exercised solely by the
Trustee. With respect to any power held by the Administrator,
the Trustee shall act only in accordance with the
Administrator's written directions and shall take no action in
the absence of such directions. Upon and after the occurrence
of a Change in Control, the Company shall: (1) pay all
reasonable administrative expenses and fees of the
Administrator; (2) indemnify the Administrator against any
costs, expenses and liabilities including, without limitation,
attorney's fees and expenses arising in connection with the
performance of the Administrator hereunder, except with
respect to matters resulting from the negligence or willful
misconduct of the Administrator or its employees or agents;
and (3) supply full and timely information to the
Administrator or all matters relating to the Plan, the Trust,
the Participants and their Beneficiaries, the Account Balances
of the Participants, the date of circumstances of the
Retirement, Disability, death or Termination of Employment of
the Participants, and such other pertinent information as the
Administrator may reasonably require. Upon and after a Change
in Control, the Administrator may 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.
3.7 TRUSTEE RESPONSIBILITY REGARDING PAYMENTS ON INSOLVENCY.
(a) If the Company, or any Subsidiary is Insolvent (the "Insolvent
Entity"), the Trustee shall cease payments of benefits to
Participants and Beneficiaries otherwise entitled to payment
by the Insolvent Entity under the provisions of any Plan as
provided in this Section 3.7. The Company or Subsidiary shall
be considered "Insolvent" for purposes of this Master Trust
Agreement if:
(i) the entity is unable to pay its debts as they become
due, or
(ii) the entity is subject to a pending proceeding as a
debtor under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as provided
in Section 1.3 above, the principal and income of the Trust
shall be subject to claims of the general creditors of the
Company and its Subsidiaries under federal and state law as
set forth below:
(i) The Board and the president of the Company shall have
the duty to inform the Trustee in writing of the
Company's or any Subsidiary's Insolvency. If a person
claiming to be a creditor of the Company or any
Subsidiary alleges in writing to the Trustee that the
Company or any Subsidiary has become Insolvent, the
Trustee shall determine whether the Company or any
Subsidiary is Insolvent and, pending such
determination, the Trustee shall discontinue payment
of benefits to the Insolvent Entity's Participants
17
<PAGE>
MASTER TRUST AGREEMENT FOR RPM, INC.
DEFERRED COMPENSATION PLAN(S)
================================================================================
or their Beneficiaries. Prior to a Change in Control,
the Trustee may conclusively rely on any
determination it receives from the Board or the
president of the Company with respect to the
Insolvency of the Company or any Subsidiary.
(ii) Unless the Trustee has actual knowledge of the
Company's or a Subsidiary's Insolvency, or has
received notice from the Company, a Subsidiary, or a
person claiming to be a creditor alleging that the
Company or a Subsidiary is Insolvent, the Trustee
shall have no duty to inquire whether the Company or
any Subsidiary is Insolvent. The Trustee may in all
events rely on such evidence concerning the Company's
or any Subsidiary's solvency as may be furnished to
the Trustee and that provides the Trustee with a
reasonable basis for making a determination
concerning the Company's or any Subsidiary's
solvency. In this regard, the Trustee may rely upon a
letter from the Company's or a Subsidiary's auditors
as to the Company's or any Subsidiary's financial
status. In determining whether the Company or any
Subsidiary is Insolvent for purposes of this Section
3.7, the Trustee may engage the services of legal,
accounting, financial and other advisors which may be
advisors to the Company or any Subsidiary, to assist
it in the determination. The Company and each
Subsidiary agree to cooperate fully with any
reasonable inquiry of the Trustee or such advisor in
making the determination of whether the Company or
any Subsidiary is Insolvent. To the extent that the
Trustee engages the services of an advisor to the
Company or any Subsidiary, the Trustee may rely,
without further inquiry, on the written determination
of that advisor as to whether or not the Company or
the Subsidiary is Insolvent. All costs which are
reasonably incurred by the Trustee in making the
determination of whether the Company or any
Subsidiary is Insolvent shall be reimbursed to the
Trustee by the Company and the Subsidiary, and if not
so reimbursed, shall be chargeable against the Trust
Fund.
(iii) If at any time the Trustee determines that the
Company or any Subsidiary is Insolvent, the Trustee
shall discontinue payments to Participants and
Beneficiaries otherwise entitled to payment by the
Insolvent Entity under the provisions of any Plan,
and shall hold the portion of the assets of the Trust
allocable to the Insolvent Entity or otherwise held
for the benefit of the Insolvent Entity's
Participants and Beneficiaries for the benefit of the
Insolvent Entity's general creditors. Nothing in this
Master Trust Agreement shall in any way diminish any
rights of Participants or their Beneficiaries to
pursue their rights as general creditors of the
Insolvent Entity with respect to benefits due under
the Plans or otherwise.
18
<PAGE>
MASTER TRUST AGREEMENT FOR RPM, INC.
DEFERRED COMPENSATION PLAN(S)
================================================================================
(iv) The Trustee shall resume the payment of benefits to
Participants or their Beneficiaries in accordance
with this Article 3 of this Master Trust Agreement
only after the Trustee has determined that the
alleged Insolvent Entity is not Insolvent (or is no
longer Insolvent).
(c) Provided that there are sufficient assets, if the Trustee
discontinues the payment of benefits from the Trust pursuant
to Section 3.7(b) hereof and subsequently resumes such
payments, the first payment following such discontinuance
shall include the aggregate amount of all payments due to
Participants or their Beneficiaries under the terms of the
Plans for the period of such discontinuance, less the
aggregate amount of any payments made to Participants or their
Beneficiaries by the Company or any Subsidiary in lieu of the
payments provided for hereunder during any such period of
discontinuance. Prior to a Change in Control, the Committee
shall instruct the Trustee as to such amounts, and after a
Change in Control, the Administrator shall determine such
amounts in accordance with the terms and provisions of the
Plans.
3.8 COSTS OF ADMINISTRATION. The Trustee is authorized to incur reasonable
obligations in connection with the administration of the Trust,
including attorneys' fees, Administrator fees, other administrative
fees and appraisal fees. Such obligations shall be paid by the Company
and the Subsidiaries. The Trustee is authorized to pay such amounts
from the Trust Fund if the Company or the Subsidiaries fail to pay them
within sixty (60) days of presentation of a statement of the amounts
due and is authorized to pay amounts incurred in connection with the
administration of the Plans if such amount is approved by the Committee
prior to a Change in Control or by the Administrator upon and after a
Change in Control.
3.9 TRUSTEE COMPENSATION AND EXPENSES. The Trustee shall be entitled to
reasonable compensation for its services as from time to time agreed
upon between the Trustee and the Company. Any amount received by the
Trustee or any affiliate of the Trustee from any mutual fund or other
investment vehicle, or any distributor or sponsor of any mutual fund
or other investment vehicle including investment advisory fees, 12b-1
fees, and sub-transfer agent fees shall be applied toward the payment
of such reasonable compensation and shall reduce, on a
dollar-for-dollar basis, the amount owed for the performance of
services under this Master Trust Agreement. If the Trustee and the
Company fail to agree upon a compensation, or following a Change in
Control, the Trustee shall be entitled to compensation at a rate equal
to the rate charged by the Trustee for similar services rendered by it
during the current fiscal year for other trusts similar to this Trust.
The Trustee shall be entitled to reimbursement for reasonable expenses
incurred by it in the performance of its duties as the Trustee,
including reasonable fees for legal counsel, accountants and financial
advisors. The Trustee's compensation and expenses shall be paid by the
Company and the Subsidiaries. The Trustee is authorized to withdraw
such amounts from the Trust Fund if the Company or the Subsidiaries
fail to pay them within sixty (60) days of presentation of a statement
of the amounts due.
19
<PAGE>
MASTER TRUST AGREEMENT FOR RPM, INC.
DEFERRED COMPENSATION PLAN(S)
================================================================================
3.10 PROFESSIONAL ADVICE. The Company and the Subsidiaries specifically
acknowledge that the Trustee and/or the Administrator may find it
desirable or expedient to retain legal counsel (who, prior to a Change
in Control, but not upon or after a Change in Control, may also be
legal counsel for the Company or any Subsidiary) or other professional
advisors to advise it in connection with the exercise of any duty
under this Master Trust Agreement, including, but not limited to, any
matter relating to or following a Change in Control or the Insolvency
of the Company or any Subsidiary. The Trustee and/or Administrator
shall be fully protected with respect to any action taken or omitted
by either in good faith pursuant to the professional advice.
3.11 PAYMENT ON COURT ORDER. To the extent permitted by law, the Trustee is
authorized to make any payments directed by court order in any action
in which the Trustee in its capacity as trustee of this Trust has been
named as a party. The Trustee is not obligated to defend actions in
which the Trustee is so named, but shall notify the Company or
Committee of any such action and may tender defense of the action to
the Company, Committee, Participant or Beneficiary whose interest is
affected. The Trustee may in its discretion defend any action in which
the Trustee in its capacity as trustee of this Trust is named, and any
expenses incurred by the Trustee shall be paid by the Company and the
Subsidiaries. The Trustee is authorized to pay such amounts from the
Trust Fund if the Company or the Subsidiaries fail to pay them within
sixty (60) days of presentation of a statement of the amounts due.
This Section 3.11 shall have no application to any action in which the
Trustee is named other than in its capacity as trustee of this Trust.
3.12 PROTECTIVE PROVISIONS. Notwithstanding any other provision contained
in this Master Trust Agreement to the contrary, the Trustee shall have
no obligation to (i) determine the existence of any conversion,
redemption, exchange, subscription or other right relating to any
securities purchased of which notice was given prior to the purchase
of such securities and shall have no obligation to exercise any such
right unless the Trustee is advised in writing by the Committee both
of the existence of the right and the desired exercise thereof within
a reasonable time prior to the expiration of the right to exercise, or
(ii) advance any funds to the Trust. Furthermore, the Trustee is not a
party to the Plans.
3.13 INDEMNIFICATIONS.
(a) The Company shall indemnify and hold the Trustee harmless from
and against all loss or liability (including expenses and
reasonable attorneys' fees) to which it may be subject by
reason of its execution of its duties under this Trust, or by
reason of any acts taken in good faith in accordance with any
directions, or acts omitted in good faith due to absence of
directions, from the Company, the Committee, a delegate of the
Committee, any person authorized by the Committee to
administer the Trust or direct the Trustee or the
Administrator unless such loss or liability is due to the
Trustee's negligence or willful misconduct. The indemnity
described herein shall be provided by the Company. In
addition, the Company shall protect, defend, indemnify and
hold the Trustee harmless from
20
<PAGE>
MASTER TRUST AGREEMENT FOR RPM, INC.
DEFERRED COMPENSATION PLAN(S)
================================================================================
any loss, liability or expense including reasonable attorney
fees in connection with any allegation, suit, or cause of
action claiming that any computer software programs or
tutorials used by the Company and the Subsidiaries in
connection with this Master Trust Agreement infringe upon any
United States patent, copyright, trade secret, or other
proprietary right of a third party and the Company further
agrees that it will use its best efforts to require the
Administrator to provide the same indemnification protection
to the Trustee with respect to any such programs or tutorials
used by the Administrator.
(b) The Company shall indemnify and hold the Administrator
harmless from and against all loss or liability (including
expenses and reasonable attorneys' fees) to which it may be
subject by reason of its execution of its duties under this
Trust, or by reason of any acts taken in good faith in
accordance with any directions, or acts omitted in good faith
due to absence of directions, from the Company or the
Committee, unless such loss or liability is due to the
Administrator's negligence or willful misconduct. The
indemnity described herein shall be provided by the Company.
(c) The Trustee shall indemnify and hold harmless the Company and
all Subsidiaries from and against any loss, cost, damage,
expense or liability (including expenses and reasonable
attorneys' fees) which arises from or is based on the
negligence or a breach of trust by the Trustee, its
affiliates, and their respective subsidiaries, parents, and
employees. In addition, the Trustee shall protect, defend,
indemnify and hold the Company and all Subsidiaries harmless
from any loss, liability or expense including reasonable
attorneys' fees in connection with any allegation, suit, or
cause of action claiming that any computer software programs
or tutorials used by the Trustee to provide any services under
this Master Trust Agreement infringe upon any United States
patent, copyright, trade secret, or other proprietary right of
a third party. Upon request by the Company, the Trustee will
correct any error or omission made by the Trustee in
connection with services provided under this Master Trust
Agreement at no additional charge or fee unless such error or
omission is due to the negligence or willful misconduct of the
Company and the Subsidiaries in discharging their duties and
responsibilities under this Master Trust Agreement.
(d) All releases and indemnities provided in this Master Trust
Agreement shall survive the termination of this Master Trust
Agreement.
ARTICLE 4
INSURANCE CONTRACTS
4.1 TYPES OF CONTRACTS. To the extent that the Trustee is directed by the
Committee, its delegate or any person authorized by the Committee
prior to a Change in Control to invest part or all of the Trust Fund
in insurance contracts, the type and amount thereof
21
<PAGE>
MASTER TRUST AGREEMENT FOR RPM, INC.
DEFERRED COMPENSATION PLAN(S)
================================================================================
shall be specified in the direction. The Trustee shall be under no duty
to make inquiry as to the propriety of the type or amount so specified.
4.2 OWNERSHIP. Each insurance contract issued shall provide that the
Trustee shall be the owner thereof with the power to exercise all
rights, privileges, options and elections granted by or permitted
under such contract or under the rules of the insurer. The exercise by
the Trustee of any incidents of ownership under any contract shall,
prior to a Change in Control, be subject to the direction of the
Committee or its delegate.
4.3 RESTRICTIONS ON TRUSTEE'S RIGHTS. The Trustee shall have no power to
name a beneficiary of the policy other than the Trust, to assign the
policy (as distinct from conversion of the policy to a different form)
other than to a successor Trustee, or to loan to any person the
proceeds of any borrowing against such policy. Despite the foregoing,
the Trustee may (i) loan to the Company or any Subsidiary the proceeds
of any borrowing against an insurance policy held in the Trust Fund or
(ii) assign all, or any portion, of a policy to the Company or any
Subsidiary if under other provisions of this Master Trust Agreement
the Company or any Subsidiary is entitled to receive assets from the
Trust.
ARTICLE 5
TRUSTEE'S ACCOUNTS
5.1 RECORDS. The Trustee shall maintain accurate records and detailed
accounts of all investments, receipts, disbursements and other
transactions hereunder. Such records shall be available at all
reasonable times for inspection by the Company, Subsidiaries, and the
Administrator or their authorized representative. The Trustee shall
maintain a disaster recovery plan and shall maintain copies of all
records at an off-site location. The Trustee, at the direction of the
Committee, shall submit to the Committee and to any insurer such
valuations, reports or other information as the Committee may
reasonably require and, in the absence of fraud or bad faith, the
valuation of the Trust Fund by the Trustee shall be conclusive. The
Trustee shall have no responsibility for maintaining any records
relating to the interest of any Participant or Beneficiary in the
Trust Fund.
5.2 ANNUAL ACCOUNTING; FINAL ACCOUNTING.
(a) Within 45 days following the end of each Fiscal Year and
within 60 days after the removal or resignation of the Trustee
or the termination of the Trust, the Trustee shall file with
the Committee or Administrator a written account setting forth
a description of all properties purchased and sold, all
receipts, disbursements and other transactions effected by it
during the Fiscal Year or, in the case of removal, resignation
or termination, since the close of the previous Fiscal Year,
and listing the properties held in the Trust Fund as of the
last day of the Fiscal Year or other period and indicating
their market values.
22
<PAGE>
MASTER TRUST AGREEMENT FOR RPM, INC.
DEFERRED COMPENSATION PLAN(S)
================================================================================
(b) The Committee or Administrator may approve such account either
by written notice of approval delivered to the Trustee or by
its failure to express written objection to such account
delivered to the Trustee within one (1) year after the date of
which such account was delivered to the Committee.
(c) The approval by the Committee or Administrator of an
accounting shall be binding as to all matters embraced in such
accounting on all parties to this Master Trust Agreement and
on all Participants and Beneficiaries, to the same extent as
if such accounting had been settled by a judgment or decree of
a court of competent jurisdiction in which the Trustee, the
Committee, the Administrator, the Company, the Subsidiaries
and all persons having or claiming any interest in any Plan or
the Trust Fund were made parties.
(d) Despite the foregoing, nothing contained in this Master Trust
Agreement shall deprive the Trustee of the right to have an
accounting judicially settled, if the Trustee, in the
Trustee's sole discretion, desires such a settlement.
5.3 VALUATION. The assets of the Trust Fund shall be valued at their
respective fair market values on the date of valuation, as determined
by the Trustee based upon such sources of information as it may deem
reliable, including, but not limited to, stock market quotations,
statistical valuation services, newspapers of general circulation,
financial publications, advice from investment counselors, brokerage
firms or insurance companies, or any combination of sources. Prior to
a Change in Control, the Committee shall instruct the Trustee as to
the value of assets for which market values are not readily obtainable
by the Trustee. If the Committee fails to provide such values, the
Trustee may take whatever action it deems reasonable, including
employment of attorneys, appraisers, life insurance companies or other
professionals, the expense of which shall be an expense of
administration of the Trust Fund and payable by the Company and the
Subsidiaries. The Trustee may rely upon information from the Company
and the Subsidiaries, the Committee, appraisers or other reasonable
sources and shall be held harmless and shall not incur any liability
for an inaccurate valuation based in good faith upon such information.
5.4 DELEGATION OF DUTIES. The Company, a Subsidiary, the Committee, and
the Administrator may at any time employ the Trustee as their agent to
perform any act, keep any records or accounts and make any
computations that are required of the Company, any Subsidiary or the
Committee by this Master Trust Agreement or the Plans. The Trustee may
be compensated for such employment and such employment shall not be
deemed to be contrary to the Trust. Nothing done by the Trustee as
such agent shall change or increase its responsibility or liability as
Trustee hereunder.
23
<PAGE>
MASTER TRUST AGREEMENT FOR RPM, INC.
DEFERRED COMPENSATION PLAN(S)
================================================================================
ARTICLE 6
RESIGNATION OR REMOVAL OF TRUSTEE
6.1 RESIGNATION; REMOVAL. The Trustee may resign at any time by written
notice to the Company, which shall be effective sixty (60) days after
receipt of such notice unless the Company and the Trustee agree
otherwise. Prior to a Change in Control, the Trustee may be removed by
the Company on sixty (60) days notice or upon shorter notice accepted
by the Trustee. In the event of gross negligence or willful misconduct
by the Trustee, however, the Company, prior to a Change in Control,
may remove the Trustee immediately. Upon and after a Change in
Control, the Trustee may be removed by a majority vote of the
Participants, and if a Participant is dead, his or her Beneficiaries
(who collectively shall have one vote among them and shall vote in
place of such deceased Participant), on sixty (60) days notice or upon
shorter notice accepted by the Trustee.
6.2 SUCCESSOR TRUSTEE. If the Trustee resigns or is removed, a successor
shall be appointed by the Company, in accordance with this Section, by
the effective date of the resignation or removal under Section 6.1
above. The successor shall be a bank, trust company, or similar
independent third party that is granted corporate trustee powers under
state or federal law. Upon and after the occurrence of a Change in
Control, a successor Trustee may not be appointed without the consent
of a majority of the Participants. If no such appointment has been
made within six (6) months, the Trustee may apply to a court of
competent jurisdiction for appointment of a successor or for
instructions. All expenses of the Trustee in connection with the
proceeding shall be allowed as administrative expenses of the Trust.
6.3 SETTLEMENT OF ACCOUNTS. Upon resignation or removal of the Trustee and
appointment of a successor Trustee, all assets shall subsequently be
transferred to the successor Trustee. The transfer shall be completed
within ninety (90) days after receipt of notice of resignation,
removal or transfer, unless the Company extends the time limit. Upon
the transfer of the assets, the successor Trustee shall succeed to all
of the powers and duties given to the Trustee in this Master Trust
Agreement. The resigning or removed Trustee shall render to the
Committee or Administrator an account in the form and manner and at
the time prescribed in Section 5.2. The approval of such accounting
and discharge of the Trustee shall be as provided in such Section.
ARTICLE 7
CONTROVERSIES, LEGAL ACTIONS AND COUNSEL
7.1 CONTROVERSY. If any controversy arises with respect to the Trust, the
Trustee shall take action as directed by the Committee or, in the
absence of such direction or upon or after a Change in Control, as it
deems advisable, whether by legal proceedings, compromise or
otherwise. The Trustee may retain the funds or property involved
without liability pending settlement of the controversy. The Trustee
shall be under no obligation to take
24
<PAGE>
MASTER TRUST AGREEMENT FOR RPM, INC.
DEFERRED COMPENSATION PLAN(S)
================================================================================
any legal action of whatever nature unless there shall be sufficient
property in the Trust to indemnify the Trustee with respect to any
expenses or losses to which it may be subjected.
7.2 JOINDER OF PARTIES. In any action or other judicial proceedings
affecting the Trust, it shall be necessary to join as parties the
Trustee, the Committee, the Administrator, the Company and the
Subsidiaries. No Participant or other person shall be entitled to any
notice or service of process. Any judgment entered in such a
proceeding or action shall be binding on all persons claiming under
the Trust. Nothing in this Master Trust Agreement shall be construed
as to deprive a Participant or Beneficiary of his or her right to seek
adjudication of his or her rights by administrative process or by a
court of competent jurisdiction.
7.3 EMPLOYMENT OF COUNSEL. The Trustee may consult with legal counsel
(who, prior to a Change in Control, but not upon or after a Change in
Control, may be counsel for the Company or any Subsidiary) and shall
be fully protected with respect to any action taken or omitted by it
in good faith pursuant to the advice of counsel.
ARTICLE 8
INSURERS
8.1 INSURER NOT A PARTY. No insurer shall be deemed to be a party to the
Trust and an insurer's obligations shall be measured and determined
solely by the terms of contracts and other agreements executed by it.
8.2 AUTHORITY OF TRUSTEE. An insurer shall accept the signature of the
Trustee to any documents or papers executed in connection with such
contracts. The signature of the Trustee shall be conclusive proof to
the insurer that the person on whose life an application is being made
is eligible to have a contract issued on his or her life and is
eligible for a contract of the type and amount requested.
8.3 CONTRACT OWNERSHIP. An insurer shall deal with the Trustee as the sole
and absolute owner of any insurance contracts and shall have no
obligation to inquire whether any action or failure to act on the part
of the Trustee is in accordance with or authorized by the terms of the
Plans or this Master Trust Agreement.
8.4 LIMITATION OF LIABILITY. An insurer shall be fully discharged from any
and all liability for any action taken or any amount paid in
accordance with the direction of the Trustee and shall have no
obligation to see to the proper application of the amounts so paid. An
insurer shall have no liability for the operation of the Trust or the
Plans, whether or not in accordance with their terms and provisions.
8.5 CHANGE OF TRUSTEE. An insurer shall be fully discharged from any and
all liability for dealing with a party or parties indicated on its
records to be the Trustee until such time as
25
<PAGE>
MASTER TRUST AGREEMENT FOR RPM, INC.
DEFERRED COMPENSATION PLAN(S)
================================================================================
it shall receive at its home office written notice of the appointment
and qualification of a successor Trustee.
ARTICLE 9
AMENDMENT AND TERMINATION
9.1 AMENDMENT. Subject to the limitations set forth in this Section 9.1,
this Master Trust Agreement may be amended by a written instrument
executed by the Trustee and the Company. Action to amend the Master
Trust Agreement shall be taken by the Company either by resolution
duly adopted by the Board or by an instrument in writing executed by
an officer of the Company to whom authority to adopt or approve
amendments to the Master Trust Agreement has been delegated pursuant
to a resolution duly adopted by the Board. Notwithstanding the
foregoing, no such amendment shall conflict with the terms of the
Plans or shall make the Trust revocable. Any amendment, change or
modification shall be subject to the following rules:
(a) GENERAL RULE. Subject to Sections 9.1(b), (c) and (d) below,
this Master Trust Agreement may be amended:
(i) By the Company and the Trustee, provided, however,
that if an amendment would in any way adversely
affect the rights accrued under the Plans in the
Trust Fund by any Participant or Beneficiary, each
and every Participant and Beneficiary whose rights in
the Trust Fund would be adversely affected must
consent to the amendment before this Master Trust
Agreement may be so amended; and
(ii) By the Company and the Trustee as may be necessary to
comply with laws which would otherwise render the
Trust void, voidable or invalid in whole or in part.
(b) LIMITATION. Notwithstanding that an amendment may be
permissible under Section 9.1(a) above, this Master Trust
Agreement shall not be amended by an amendment that would:
(i) Cause any of the assets of the Trust to be used for
or diverted to purposes other than for the exclusive
benefit of Participants and Beneficiaries as set
forth in the Plans, or payment of expenses of the
Trust, except as is required to satisfy the claims of
the Company's or a Subsidiary's general creditors; or
(ii) Be inconsistent with the terms of any Plan, including
the terms of any Plan regarding termination,
amendment or modification of the Plan.
(c) WRITING AND CONSENT. Any amendment to this Master Trust
Agreement shall be set forth in writing and signed by the
Company and the Trustee and, if consent of
26
<PAGE>
MASTER TRUST AGREEMENT FOR RPM, INC.
DEFERRED COMPENSATION PLAN(S)
================================================================================
any Participant or Beneficiary is required under Section
9.1(a), the Participant or Beneficiary whose consent is
required. Any amendment may be current, retroactive or
prospective, in each case as provided therein.
(d) THE COMPANY AND TRUSTEE. In connection with the exercise of
the rights under this Section 9.1:
(i) prior to a Change in Control, the Trustee shall have
no responsibility to determine whether any proposed
amendment complies with the terms and conditions set
forth in Sections 9.1(a) and (b) above and may
conclusively rely on the directions of the Committee
with respect thereto, unless the Trustee has
knowledge of a proposed transaction or transactions
that would result in a Change in Control; and
(ii) upon and after a Change in Control, the power of the
Company to amend this Master Trust Agreement shall
cease, and the power to amend that was previously
held by the Company shall, instead, be exercised by a
majority of the Participants and, if a Participant is
dead, his or her Beneficiaries (who collectively
shall have one vote among them and shall vote in
place of such deceased Participant), provided that
such amendment otherwise complies with the
requirements of Sections 9.1(a), (b) and (c) above.
The eligibility to vote of any person claiming to be
a Participant or Beneficiary shall be determined by
the Administrator.
(e) Taxation. This Master Trust Agreement shall not be amended,
altered, changed or modified in a manner that would cause the
Participants and/or Beneficiaries under any Plan to be taxed
on the benefits under any Plan in a year other than the year
of actual receipt of benefits.
9.2 MERGER. The Company or any Subsidiary may merge into this Master Trust
another trust of which the Company, a Subsidiary, or the Company and
any Subsidiary or Subsidiaries are grantors under the Internal Revenue
Code and which provides funds exclusively for the uses and purposes of
Participants, Beneficiaries, and general creditors of the Company and
Subsidiaries. The terms of this Master Trust Agreement shall be
amended to reflect any protected interest of a Participant or
Beneficiary of the trust so merged.
9.3 FINAL TERMINATION. The Trust shall not terminate until the date on
which Participants and their Beneficiaries are no longer entitled to
benefits pursuant to the terms of the Plans and all of the expenses of
the Trust have been paid, and on such date the Trust shall terminate.
Upon termination of the Trust, any assets remaining in the Trust shall
be returned to the Company and the Subsidiaries that made
contributions to the Trust. Such remaining assets shall be paid by the
Trustee to the Company and the Subsidiaries in such amounts and in the
manner instructed by the Company, whereupon the Trustee shall be
released and discharged from all obligations hereunder. From and after
the date of
27
<PAGE>
MASTER TRUST AGREEMENT FOR RPM, INC.
DEFERRED COMPENSATION PLAN(S)
================================================================================
termination and until final distribution of the Trust Fund, the Trustee
shall continue to have all of the powers provided herein as are
necessary or expedient for the orderly liquidation and distribution of
the Trust Fund.
ARTICLE 10
MISCELLANEOUS
10.1 DIRECTIONS FOLLOWING CHANGE IN CONTROL. Despite any other provision of
this Master Trust Agreement that may be construed to the contrary,
following a Change in Control, all powers of the Committee, a delegate
of the Committee, a Subsidiary, the Company, the Board and any person
authorized by any of the foregoing to direct the Trustee under this
Master Trust Agreement shall terminate. The Administrator shall have
complete authority to administer the Trust and the Trustee shall act
on its own discretion to invest the assets of the Trust Fund in
accordance with the Plans and this Master Trust Agreement. The
Trustee's discretion may be limited, however, in accordance with any
investment guidelines that the Committee delivers to the Trustee prior
to a Change in Control and which are approved and accepted by the
Trustee in writing. The approval and acceptance of the Trustee shall
not be unreasonably withheld.
10.2 TAXES. The Company and the Subsidiaries shall from time to time pay
taxes of any and all kinds whatsoever that at any time are lawfully
levied or assessed upon or become payable in respect of the Trust
Fund, the income or any property forming a part thereof, or any
security transaction pertaining thereto. To the extent that any taxes
lawfully levied or assessed upon the Trust Fund are not paid by the
Company and the Subsidiaries, the Trustee shall have the power to pay
such taxes out of the Trust Fund and shall seek reimbursement from the
Company and the Subsidiaries. Prior to making any payment, the Trustee
may require such releases or other documents from any lawful taxing
authority as it shall deem necessary. The Trustee shall contest the
validity of taxes in any manner deemed appropriate by the Company or
its counsel, but at the Company's and the Subsidiaries' expense, and
only if it has received an indemnity bond or other security
satisfactory to it to pay any such expenses. The Trustee shall not be
liable for any nonpayment of tax when it distributes an interest
hereunder on directions from the Committee. The Trustee shall have no
obligation to prepare or file any tax return on behalf of the Trust
Fund, any such return being the sole responsibility of the Company or
its successors and assigns. The Trustee shall cooperate with the
Company or its successors and assigns in connection with the
preparation and filing of any such return.
10.3 THIRD PERSONS. All persons dealing with the Trustee are released from
inquiring into the decisions or authority of the Trustee and from
seeing to the application of any moneys, securities or other property
paid or delivered to the Trustee.
10.4 NONASSIGNABILITY; NONALIENATION. Benefits payable to Participants and
their Beneficiaries under this Master Trust Agreement may not be
anticipated, assigned (either
28
<PAGE>
MASTER TRUST AGREEMENT FOR RPM, INC.
DEFERRED COMPENSATION PLAN(S)
================================================================================
at law or in equity), alienated, pledged, encumbered or subjected to
attachment, garnishment, levy, execution or other legal or equitable
process.
10.5 APPLICABLE LAW. Except to the extent, if any, preempted by ERISA, this
Master Trust Agreement shall be governed by and construed in
accordance with the internal laws of the State of Ohio. Any provision
of this Master Trust Agreement prohibited by law shall be ineffective
to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
10.6 NOTICES AND DIRECTIONS. Whenever a notice or direction is given by the
Committee to the Trustee, it shall be in the form required by Section
2.1. Actions by the Company shall be by the Board or a duly authorized
officer, with such actions certified to the Trustee by an
appropriately certified copy of the action taken. The Trustee shall be
protected in acting upon any such notice, resolution, order,
certificate or other communication believed by it to be genuine and to
have been signed by the proper party or parties.
10.7 SUCCESSORS AND ASSIGNS. This Master Trust Agreement shall be binding
upon and inure to the benefit of the Company, the Subsidiaries and the
Trustee and their respective successors and assigns.
10.8 GENDER AND NUMBER. Words used in the masculine shall apply to the
feminine where applicable, and when the context requires, the plural
shall be read as the singular and the singular as the plural.
10.9 HEADINGS. Headings in this Master Trust Agreement are inserted for
convenience of reference only and any conflict between such headings
and the text shall be resolved in favor of the text.
10.10 COUNTERPARTS. This Master Trust Agreement may be executed in an
original and any number of counterparts, each of which shall be deemed
to be an original of one and the same instrument.
10.11 BENEFICIAL INTEREST. The Company and the Subsidiaries are the true
beneficiaries hereunder in that the payment of benefits, directly or
indirectly to or for a Participant or Beneficiary by the Trustee, is
in satisfaction of the Company's and the Subsidiaries' liability
therefore under the Plans. Nothing in this Master Trust Agreement
shall establish any beneficial interest in any person other than the
Company and the Subsidiaries.
10.12 THE TRUST AND PLANS. This Trust, the Plans and each Participant's Plan
Agreement are part of and constitute a single, integrated employee
benefit plan and trust, shall be construed together as the entire
agreement between the Company, the Trustee, the Participants and the
Beneficiaries with regard to the subject matter thereof, and shall
supersede all previous negotiations, agreements and commitments with
respect thereto.
29
<PAGE>
MASTER TRUST AGREEMENT FOR RPM, INC.
DEFERRED COMPENSATION PLAN(S)
================================================================================
10.13 EFFECTIVE DATE. The effective date of this Master Trust Agreement shall
be _________, 2002.
IN WITNESS WHEREOF the Company and the Trustee have signed this Master
Trust Agreement as of the date first written above.
TRUSTEE: THE COMPANY:
- ------- -----------
KeyBank National Association RPM, Inc.,
A National Banking Association, An Ohio Corporation,
By: By: /s/ Ronald A. Rice
------------------------------ ------------------------------------
Title: Title: Vice President Administration
--------------------------- ---------------------------------
30
<PAGE>
MASTER TRUST AGREEMENT FOR RPM, INC.
DEFERRED COMPENSATION PLAN(S)
================================================================================
EXHIBIT A
PLANS
1. RPM, Inc. Deferred Compensation Plan
2. RPM, Inc. Non-Employee Deferred Compensation Plan
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.10.1
<SEQUENCE>6
<FILENAME>l21038aexv10w10w1.txt
<DESCRIPTION>EX-10.10.1
<TEXT>
<PAGE>
Exhibit 10.10.1
FIRST AMENDMENT TO THE
RPM, INC. 1997 RESTRICTED STOCK PLAN
------------------------------------
THIS FIRST AMENDMENT is executed as of the date set forth below by RPM,
Inc. (hereinafter referred to as the "Company").
WITNESSETH:
WHEREAS, the Company has adopted and maintains the RPM, Inc. 1997
Restricted Stock Plan (hereinafter referred to as the "Plan") for the benefit of
certain of its employees and certain employees of the Company's subsidiaries;
and
WHEREAS, the Company reserved the right, pursuant to Section 8 of the
Plan, to make certain amendments thereto; and
WHEREAS, it is the desire of the Company to amend the Plan so that the
payment of dividends on Shares awarded under the Plan will not be made to the
employee under the Plan but will be retained by the Company and the Company will
credit a like amount of money to be paid to the employee under the RPM, Inc.
Deferred Compensation Plan;
NOW, THEREFORE, pursuant to Section 8 of the Plan, the Company hereby
amends the Plan as follows, effective on October 1, 1998, as set forth below:
1. Article 4 of the Plan is hereby amended by the addition of the
following Section 4.5:
"4.5 As of the date any dividend is paid on any Shares under this Plan,
the eligible employee shall be credited with a dividend equivalent credit under
the RPM, Inc. Deferred Compensation Plan equal to either:
(a) the amount of any cash dividend; or
<PAGE>
(b) if the dividend is paid in Shares, an amount equal to the number of
Shares and fractions thereof multiplied by the Share's closing price on the date
that the dividend is paid. The actual dividend paid shall be retained by the
Company."
2
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.10.2
<SEQUENCE>7
<FILENAME>l21038aexv10w10w2.txt
<DESCRIPTION>EX-10.10.2
<TEXT>
<PAGE>
Exhibit 10.10.2
SECOND AMENDMENT TO THE
RPM, INC. 1997 RESTRICTED STOCK PLAN
------------------------------------
THIS SECOND AMENDMENT is executed as of the date set forth below by
RPM, Inc. (hereinafter referred to as the "Company").
WITNESSETH:
WHEREAS, the Company has adopted and maintains the RPM, Inc. 1997
Restricted Stock Plan (hereinafter referred to as the "Plan") for the benefit of
certain of its employees and certain employees of the Company's subsidiaries;
and
WHEREAS, the Company reserved the right, pursuant to Section 8 of the
Plan, to make certain amendments thereto; and
WHEREAS, it is the desire of the Company to amend the Plan so that
employees may surrender Shares awarded under the Plan and receive a credit to
their account under the RPM, Inc. Deferred Compensation Plan;
NOW, THEREFORE, effective May 31, 2002 and pursuant to Section 8 of the
Plan, the Company hereby amends Article 11 of the Plan by the deletion of said
Article 11 in its entirety and the substitution in lieu thereof the following:
"11. COORDINATION WITH DEFERRED COMPENSATION PLAN.
11.1. In the event that an employee who becomes an eligible
employee under this Plan on or before May 31, 2002 has received an
award of Shares subject to the restrictions set forth in Section 5.2
above, has not made an election under Section 83(b) of the Internal
Revenue Code, and will be in receipt
<PAGE>
of an amount of compensation in excess of the amount that may be
deducted under Section 162(m) of the Internal Revenue Code upon lapse
of the restrictions, the Committee shall have the right and authority
to cancel such number of Shares as is necessary so that the
compensation amount attributable to the remaining Shares that will
become unrestricted on or before the next immediate May 31 will be
deductible by the Company after taking into account Section 162(m) of
the Internal Revenue Code, and the employee shall automatically receive
as a credit to his Company Contribution Account under the RPM, Inc.
Deferred Compensation Plan ("Deferred Compensation Plan") an amount
equal to (i) multiplied by (ii) where:
(i) equals the average closing price of one Share for the
five (5) trading day period ending on such May 31; and
(ii) equals the number of Shares that the Committee has
elected to cancel as set forth above in this Section 11.1.
The Committee may determine to make such a cancellation at any time but
not later than ten (10) days prior to the date the restrictions for
such Shares lapse pursuant to Section 5.2 above. The Employee shall be
notified in writing of any such cancellation and shall be subject to
such further requirements as determined by the Committee in its sole
discretion.
11.2. In the event that an employee who becomes an eligible
employee under this Plan after May 31, 2002 has received an award of
Shares subject to the restrictions set forth in Section 5.2 above, has
not made an election under Section 83(b) of the Internal Revenue Code,
and will be in receipt of an amount of compensation in excess of the
amount that may be deducted under
<PAGE>
Section 162(m) of the Internal Revenue Code upon lapse of the
restrictions, the Committee shall have the right and authority to
cancel such number of Shares as is necessary so that the compensation
amount attributable to the remaining Shares that will become
unrestricted on or before the next immediate May 31 will be deductible
by the Company after taking into account Section 162(m) of the
Internal Revenue Code, and the employee shall automatically have the
same number of Shares credited to his Restricted Stock Account under
the Deferred Compensation Plan. The Committee may determine to make
such a cancellation at any time but not later than ten (10) days prior
to the date the restrictions for such Shares lapse pursuant to Section
5.2 above. The Employee shall be notified in writing of any such
cancellation and shall be subject to such further requirements as
determined by the Committee in its sole discretion.
11.3. In the event that any employee has received an award of
Shares subject to the restrictions set forth in Section 5.2 above, has
not made an election under Section 83(b) of the Internal Revenue Code,
and will be in receipt of an amount of compensation upon lapse of such
restrictions, the employee may elect to surrender, as of a date
specified in his election, any of the Shares awarded under this Plan
and the employee shall automatically have the same number of Shares
credited to his Restricted Stock Account under the Deferred
Compensation Plan. For an election to be valid, it must be made in
accordance with the terms and conditions imposed by the Committee and
the requirements of the Deferred Compensation Plan. An employee may
make one (1) irrevocable election during each Plan Year. The first
surrender election of an employee must be delivered to
<PAGE>
and accepted by the Committee in accordance with the deadlines
established by the Committee. For each succeeding Plan Year, the
surrender election with respect to the Shares must be delivered to and
accepted by the Committee at least six (6) months prior to the date
all restrictions with respect to the Shares lapse.
11.4 An employee shall be vested in Shares or amounts credited
to his Account Balance under the Deferred Compensation Plan as a result
of cancellation or surrender of Shares under this Plan when
restrictions on the Shares cancelled or surrendered would have lapsed
under this Plan."
IN WITNESS WHEREOF, RPM, Inc., by its officer as duly authorized, has
caused this Second Amendment to the Plan to be executed as of this 22nd day of
May, 2002.
RPM, Inc.
By: /s/ Ronald A. Rice
-----------------------------------
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-11.1
<SEQUENCE>8
<FILENAME>l21038aexv11w1.txt
<DESCRIPTION>EX-11.1
<TEXT>
<PAGE>
Exhibit 11.1
RPM, INC. AND SUBSIDIARIES
--------------------------
CONSOLIDATED STATEMENTS OF COMPUTATIONS OF EARNINGS
---------------------------------------------------
PER COMMON SHARE AND COMMON SHARE EQUIVALENTS
---------------------------------------------
(In thousands except per share amounts)
Year Ended May 31
--------------------------------
2002 2001 2000
-------- -------- --------
Net Income
- ----------
Net income applicable to Common Shares
for basic and diluted earnings
per share $101,554 $ 62,961 $ 40,992
======== ======== ========
Shares Outstanding
- ------------------
Weighted average shares for basic
earnings per share 104,418 102,202 107,221
Net issuable Common Share equivalents 713 10 163
-------- -------- --------
Total shares for diluted earnings
per share 105,131 102,212 107,384
======== ======== ========
Basic and Diluted Earnings
Per Common Share $ .97 $ .62 $ .38
======== ======== ========
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13.1
<SEQUENCE>9
<FILENAME>l21038aexv13w1.txt
<DESCRIPTION>EX-13.1
<TEXT>
<PAGE>
Exhibit 13.1
MANAGEMENT'S DISCUSSION AND ANALYSIS
of Results of Operations and Financial Condition
- --------------------------------------------------------------------------------
Reportable Segment and Geographic Area Information
We have determined that RPM has two operating segments - industrial and consumer
- - based on the nature of our business activities, products and services; the
structure of management; and the structure of information as presented to the
Board of Directors. Within each segment, individual operating companies or
groups of companies generally address common markets, utilize similar
technologies, and can share manufacturing or distribution capabilities. We
evaluate the profit performance of our segments based on earnings before
interest and taxes (EBIT) since interest expense is essentially related to
corporate acquisitions, as opposed to segment operations.
Industrial segment products are sold throughout North America and account for
most of RPM's sales in Europe, South America, Asia, South Africa, Australia and
the Middle East. The industrial product line is primarily sold to distributors,
contractors and to end users, such as industrial manufacturing facilities,
educational and governmental institutions and commercial establishments.
Industrial segment products reach their markets through a combination of direct
sales, sales representative organizations, distributor sales and sales of
licensees and joint ventures.
Consumer segment products are sold throughout North America to mass
merchandisers, home centers, hardware stores, paint stores, automotive supply
stores and craft shops. Major customers include Ace Hardware Stores, Canadian
Tire, Cotter & Company, Do It Best, The Home Depot, Lowe's Home Centers, W. W.
Grainger, and Wal-Mart. Consumer segment products are sold to retailers through
a combination of direct sales, sales representative organizations and
distributor sales.
The eight largest consumer segment customers represent approximately 23 percent,
19 percent, and 18 percent of consolidated net sales and approximately 49
percent, 41 percent, and 40 percent of consumer segment sales for 2002, 2001,
and 2000, respectively. The Home Depot represented 11 percent of consolidated
net sales and 24 percent of consumer segment sales for the year ended May 31,
2002.
Sales for the years ended May 31, 2002, 2001 and 2000 do not include sales of
RPM products by joint ventures and licensees, amounting to approximately $32
million, $37 million, and $35 million, respectively. We reflect income from our
joint ventures on the equity method, and receive royalties from our licensees,
both of which are reflected as offsets to selling, general and administrative
(SG&A) expenses. Export sales were less than 10 percent of net sales for each of
the three years presented.
In addition to the two operating segments, there are certain business
activities, referred to as corporate/other, that do not constitute an operating
segment, including corporate headquarters and related administrative expenses,
results of our captive insurance company, gains or losses on the sales of
certain assets and other expenses not directly associated with either operating
segment. Related assets consist primarily of investments, prepaid expenses,
deferred pension assets, and headquarters property and equipment. These
corporate and other assets and expenses reconcile operating segment data to
total consolidated net sales, earnings before interest and taxes, identifiable
assets, capital expenditures, and depreciation and amortization.
The following data reflects the adoption of Statement of Financial Accounting
Standards (FAS) No. 142, "Goodwill and Other Intangible Assets," effective June
1, 2001 (refer to Note A [10]).
22
<PAGE>
SEGMENT AND GEOGRAPHIC INFORMATION
SEGMENT INFORMATION
<TABLE>
<CAPTION>
(In thousands)
Year Ended May 31 2002 2001 2000(1)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales
Industrial $ 1,053,632 $ 1,100,682 $ 1,092,976
Consumer 932,494 907,080 869,434
Corporate/Other
- --------------------------------------------------------------------------------------------------
TOTAL $ 1,986,126 $ 2,007,762 $ 1,962,410
==================================================================================================
Earnings before interest and taxes (EBIT)(2)
Industrial $ 107,033 $ 122,034 $ 98,980
Consumer 118,230 62,662 47,907
Corporate/Other (30,675) (18,006) (23,333)
- --------------------------------------------------------------------------------------------------
TOTAL $ 194,588 $ 166,690 $ 123,554
==================================================================================================
Identifiable assets
Industrial $ 962,742 $ 1,002,209 $ 993,239
Consumer 1,000,928 1,016,067 1,041,896
Corporate/Other 72,733 60,214 64,068
- --------------------------------------------------------------------------------------------------
TOTAL $ 2,036,403 $ 2,078,490 $ 2,099,203
==================================================================================================
Capital expenditures
Industrial $ 17,743 $ 30,123 $ 34,331
Consumer 20,559 23,629 27,929
Corporate/Other 1,629 366 925
- --------------------------------------------------------------------------------------------------
TOTAL $ 39,931 $ 54,118 $ 63,185
==================================================================================================
Depreciation and amortization
Industrial $ 26,883 $ 38,579 $ 38,519
Consumer 28,605 41,627 39,862
Corporate/Other 1,371 1,288 769
- --------------------------------------------------------------------------------------------------
TOTAL $ 56,859 $ 81,494 $ 79,150
==================================================================================================
GEOGRAPHIC INFORMATION
(In thousands)
Year Ended May 31 2002 2001 2000
- --------------------------------------------------------------------------------------------------
Net sales (based on shipping locations)
United States $ 1,615,047 $ 1,614,112 $ 1,572,919
- --------------------------------------------------------------------------------------------------
Foreign
Canada 135,694 140,009 135,641
Europe 158,440 164,517 172,662
Other Foreign 76,945 89,124 81,188
- --------------------------------------------------------------------------------------------------
Total Foreign 371,079 393,650 389,491
- --------------------------------------------------------------------------------------------------
TOTAL $ 1,986,126 $ 2,007,762 $ 1,962,410
==================================================================================================
Assets employed
United States $ 1,664,402 $ 1,732,238 $ 1,740,882
- --------------------------------------------------------------------------------------------------
Foreign
Canada 147,568 128,159 130,064
Europe 160,641 144,619 155,330
Other Foreign 63,792 73,474 72,927
- --------------------------------------------------------------------------------------------------
Total Foreign 372,001 346,252 358,321
- --------------------------------------------------------------------------------------------------
TOTAL $ 2,036,403 $ 2,078,490 $ 2,099,203
==================================================================================================
</TABLE>
(1) Includes restructuring and asset impairment charges and related costs (refer
to Note I).
(2) EBIT is a widely accepted financial indicator used by certain investors and
analysts to analyze and compare companies on the basis of operating performance.
EBIT is not intended to represent cash flows for the period, nor is it presented
as an alternative to operating income or as an indicator of operating
performance. EBIT should not be considered in isolation, but with Generally
Accepted Accounting Principles in the U.S., and it is not indicative of
operating income or cash flow from operations as determined by those principles.
Our method of computation may or may not be comparable to other similarly titled
measures of other companies. EBIT may not be indicative of our historical
operating results nor is it meant to be predictive of potential future results.
23
<PAGE>
- --------------------------------------------------------------------------------
Critical Accounting Policies and Estimates
Our consolidated financial statements include accounts of RPM and all
majority-owned subsidiaries. Preparation of our financial statements requires
the use of estimates and judgments that affect the amounts of our assets,
liabilities, revenues and expenses. We continually evaluate these estimates,
including those related to allowances for doubtful accounts, inventories,
allowances for recoverable taxes, useful lives of property, plant and equipment,
goodwill, environmental and other contingent liabilities, income tax valuation
allowances, pension plans and the fair value of financial instruments. We base
our estimates on historical experience and other assumptions, which we believe
to be reasonable under the circumstances. These estimates form the basis for
making judgments about the carrying value of our assets and liabilities. Actual
results may differ from these estimates under different assumptions and
conditions.
We have identified below the accounting policies that are critical to our
financial statements.
REVENUE RECOGNITION - Revenues are recognized when title and risk of loss
passes to customers. The Securities and Exchange Commission's Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition," provides guidance
on the application of Generally Accepted Accounting Principles (GAAP) in the
U.S. to selected revenue recognition issues. We have concluded that our
revenue recognition policy is appropriate and in accordance with GAAP and SAB
No. 101.
TRANSLATION OF FOREIGN CURRENCY FINANCIAL STATEMENTS AND FOREIGN CURRENCY
TRANSACTIONS - Our reporting currency is the U.S. dollar. However, the
functional currency of all of our foreign subsidiaries is their local currency.
We translate the amounts included in our consolidated statements of income from
our foreign subsidiaries into U.S. dollars at year-to-date average exchange
rates, which we believe are fairly representative of the actual exchange rates
on the dates of the transactions. Our foreign subsidiaries' assets and
liabilities are translated into U.S. dollars from local currency at the actual
exchange rates as of the end of each reporting date, and we record the resulting
foreign exchange translation adjustments in our consolidated balance sheets as a
component of accumulated other comprehensive income (loss). If we determine that
the functional currency of any of our foreign subsidiaries should be the U.S.
dollar, our financial statements would be affected. Should this occur, we would
adjust our reporting to appropriately account for such change(s).
As appropriate, we use permanently invested intercompany loans as a source of
capital to reduce exposure to foreign currency fluctuations at our foreign
subsidiaries. These loans are treated as analogous to equity for accounting
purposes. Therefore, foreign exchange gains or losses on these intercompany
loans are recorded in other comprehensive income (loss). If we were to determine
that the functional currency of any of our subsidiaries should be the U.S.
dollar, we would no longer record foreign exchange gains or losses on such
intercompany loans.
GOODWILL - We adopted two new accounting standards issued by the Financial
Accounting Standards Board in June 2001. FAS No. 141, "Business Combinations,"
eliminates the pooling method of accounting for all business combinations
initiated after June 30, 2001, and addresses the initial recognition and
measurement of goodwill and intangible assets acquired in a business
combination. Accordingly, we apply the provisions of FAS No. 141 to all business
combinations initiated after its effective date. We also adopted FAS No. 142,
effective June 1, 2001 (refer to Note A [10]). Goodwill amortization ceased upon
adoption of this standard, and the required initial impairment tests were
performed. Results of these impairment tests have not generated any impairment
loss to date.
Prospectively, goodwill will be tested on an annual basis, or more frequently,
as impairment indicators arise. Impairment tests, which involve the use of
estimates related to the fair market values of the business operations with
which goodwill is associated, are performed at the end of the first fiscal
quarter. Losses, if any, resulting from impairment tests would be reflected in
our income statement.
OTHER LONG-LIVED ASSETS - We assess for impairment of identifiable non-goodwill
intangibles and other long-lived assets whenever events or changes
24
<PAGE>
in facts and circumstances indicate the possibility that the carrying value may
not be recoverable. Factors considered important which might trigger an
impairment evaluation include the following:
- - significant under-performance relative to historical or projected future
operating results;
- - significant changes in the manner of our use of the acquired assets or the
strategy for our overall business; and
- - significant negative industry or economic trends.
When we determine that the carrying value of non-goodwill intangibles and other
long-lived assets may not be recoverable based upon the existence of one or more
of the above described indicators, any impairment would be measured based on
projected net cash flows expected from the asset(s), including eventual
disposition.
CONTINGENCIES (ALSO REFER TO NOTE H) - We are party to claims and lawsuits
arising in the normal course of business. Although we cannot precisely predict
the amount of any liability that may ultimately arise with respect to any of
these matters, we record provisions when we consider the liability probable and
reasonably estimable. The provisions are based on historical experience and
legal advice, and are reviewed quarterly and adjusted according to developments.
Changes in the amount of these provisions affect our consolidated statements of
income. Due to the inherent uncertainties in the loss reserve estimation
process, actual results may differ.
Our environmental-related accruals are similarly established and/or adjusted as
information becomes available upon which costs can be reasonably estimated. Here
again, actual costs may vary from these estimates because of the inherent
uncertainties involved, including the identification of new sites and the
development of new information about contamination. Certain sites are still
being investigated and therefore we have been unable to fully evaluate the
ultimate cost for those sites. As a result, reserves have not been taken for
certain of these sites and costs may ultimately exceed existing reserves for
other sites. We have received indemnities for potential environmental issues
from purchasers of certain of our properties and businesses and from sellers of
properties or businesses we have acquired. We have also purchased insurance to
cover potential environmental liabilities at certain sites. If the indemnifying
or insuring party fails to, or becomes unable to, fulfill its obligations under
those agreements or policies, we may incur additional environmental costs in
addition to any amounts reserved, which could have a material adverse effect on
our financial condition, results of operations or cash flows.
Results of Operations
FISCAL 2002 COMPARED TO FISCAL 2001
NET SALES - Fiscal 2002 net sales were slightly below fiscal 2001 by $21.6
million, or 1 percent. The commercial unit of DAP was divested in March 2001,
and had sales of $26.3 million to that point in the 2001 fiscal year. Factoring
out those sales to be comparable, plus the negative effects from foreign
exchange differences of approximately $14 million, principally against the
Canadian dollar, year over year sales would show a 1 percent increase.
Industrial segment sales amounted to 53 percent of the RPM total, and were lower
year over year by 3.3 percent, when the negative foreign exchange effect of
$11.2 million is excluded. The industrial economy, including electronics, was
generally weak throughout the year, causing a number of customers to postpone
higher cost maintenance and replacement projects, particularly flooring. It is
our belief that this business was not lost to any competitor, but becomes
pent-up demand for those maintenance products and services. Furthermore,
flooring has higher than average margins in this segment, so earnings could
benefit even faster than normal when this business returns. We believe this
segment could begin to show a modest rebound in the second half of the 2003
fiscal year.
Consumer segment sales amounted to 47 percent of the RPM total, and were ahead
6.2 percent year over year on a comparable basis, after adjusting for the
commercial DAP unit divestiture and negative foreign exchange differences of
$2.8 million. Consumer demand was solid throughout the year, especially for our
DAP, Rust-Oleum, and Zinsser products. This growth reflects a combination of
higher unit volume of approximately
25
<PAGE>
- --------------------------------------------------------------------------------
5 percent, and the balance of growth from slightly higher pricing to counter
increased raw material and packaging costs during the 2001 fiscal year. We
anticipate continued solid sales from our consumer segment during the 2003
fiscal year.
GROSS PROFIT MARGIN - The gross profit margin improved in fiscal 2002, reaching
45.9 percent compared with 45.1 percent during fiscal 2001. The industrial gross
margin this year of 46.9 percent was slightly behind last year's 47.4 percent.
This was mainly a volume effect as the sales decline, particularly of higher
margin flooring (off $44 million, or 11 percent), was too great to overcome
versus related overhead costs. Restructuring savings (refer to Note I) and a
number of favorable raw material costs partially offset this volume effect.
Consumer gross margins, on the other hand, reached 44.8 percent from 42.5
percent last year. This improvement reflects additional restructuring savings of
approximately $21 million during fiscal 2002, plus positive cost leverage from
the higher sales volume, and a number of favorable raw material costs in this
segment as well.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A) - SG&A expenses improved to
36.1 percent of sales this year from 36.8 percent during fiscal 2001. We adopted
FAS No. 142 as of June 1, 2001, the beginning of the 2002 fiscal year, and that
change is reflected in SG&A (refer to Note A [10]). On a pro forma basis, last
year's SG&A percentage under FAS No. 142 would have been $25.1 million lower, or
35.6 percent of sales. The divested commercial unit of DAP had carried a lower
SG&A percentage, having an approximate negative effect of 0.4 percent of sales,
bringing last year's SG&A percentage, adjusted for both FAS No. 142 and the
divestiture, to approximately 36 percent of sales. This year's $2.1 million
third quarter charge related to the devaluation of the Argentinean peso amounted
to 0.1 percent of fiscal 2002 sales. Without that charge, this year's SG&A
percentage would have equaled last year's 36 percent, adjusted for FAS No. 142
and the divestiture.
By segment, industrial SG&A of 36.8 percent this year compares with 36.3 percent
last year, or 35.2 percent on a pro forma FAS No. 142-adjusted basis. This
difference is attributable to the lower sales volume; increased distribution
costs associated with a transition to fewer warehouses, which is now completed;
and the Argentinean peso devaluation, all of which were partly offset by solid
cost-containment efforts throughout the segment. Consumer SG&A of 32.1 percent
this year compares favorably with 35.6 percent last year, or 34.1 percent on a
pro forma FAS No. 142-adjusted basis. This significant improvement is
attributable to the much higher consumer sales volume; some reduced freight
costs, as there were still restructuring-related inefficiencies a year ago; and
solid cost-containment efforts throughout this segment as well. Corporate/ Other
costs were $30.7 million this fiscal year compared with $18 million last year.
This change includes increased legal and professional fees associated with
terminated acquisition and divestiture efforts; increased product liability
costs (including those described in Note H); rising health care and other
employee benefit costs; and management succession costs. License fee and joint
venture income of $1.3 million and $1.7 million during fiscal years 2002 and
2001, respectively, are reflected as credits to SG&A expenses.
EARNINGS BEFORE INTEREST AND TAXES (EBIT) - We believe that EBIT best reflects
the performance of our operating segments as interest expense and income taxes
are not consistently allocated to operating segments by the various
constituencies utilizing our financial statements. Requests for operating
performance measures received from research analysts, financial institutions and
rating agencies typically focus on EBIT, and we believe EBIT disclosure is
responsive to investors. EBIT climbed $27.9 million, reaching $194.6 million in
fiscal 2002. Fiscal 2001 EBIT, adjusted for FAS No. 142, would have been $191.8
million, leaving this year's EBIT ahead by $2.8 million, or up 1.5 percent on a
1 percent decrease in sales. Industrial EBIT was down $15 million during fiscal
2002, or down $26.9 million after adjusting last year for FAS No. 142, with this
decline being mainly attributable to the lower flooring sales volume. Consumer
EBIT nearly doubled year over year, up $55.6 million, or still ahead $42.4
million on a pro forma FAS No. 142-adjusted basis, with that growth almost
equally attributable to the restructuring savings and the higher comparable
sales volume.
26
<PAGE>
- --------------------------------------------------------------------------------
NET INTEREST EXPENSE - Net interest expense declined $24.7 million during 2002
(refer to Note A [16]) as a result of lower interest rates on the variable rate
portion (approximately 75 percent) of average outstanding borrowings (refer to
Note B), and reduced debt levels during the year. The overall effective interest
rate of approximately 4.5 percent this year compares favorably with 6.9 percent
during fiscal 2001, amounting to savings of $20.3 million, net of changes in
investment income, this year. Total debt levels were approximately $63 million
lower on average throughout fiscal 2002, accounting for the remaining $4.4
million of interest costs saved year over year.
INCOME TAX RATE - The effective income tax rate this year of 34.1 percent
compares favorably with last year's 38 percent rate (refer to Note C). This rate
reduction is driven by the adoption of FAS No. 142, related to the elimination
of non-tax deductible goodwill amortization.
NET INCOME - This year's net income of $101.6 million, or $.97 per diluted
share, increased 61 percent and 56 percent, respectively, from fiscal 2001. On a
pro forma basis adjusted for FAS No. 142, last year's net earnings and diluted
earnings per share would have been $84.8 million and $.83 (refer to Note A
[10]), respectively, putting this year's results still ahead by 20 percent and
17 percent, respectively.
During March 2002, we sold 11.5 million common shares (see Financing Activities
below) through a follow-on public equity offering, and this transaction had a
dilutive effect on fiscal 2002 earnings of $.01 per share. For fiscal 2003, this
transaction is expected to have a dilutive effect on earnings of approximately
$.07 per share, based on fiscal 2002 average interest rates.
FISCAL 2001 COMPARED TO FISCAL 2000
NET SALES - Net sales for fiscal year 2001 increased by $45 million, or 2
percent, over fiscal 2000.
On August 3, 1999, we acquired DAP Products, Inc. and DAP Canada Corp., or DAP,
a leading manufacturer and marketer of caulks and sealants, spackling and
glazing compounds, contact cements, and other specialty adhesives, with annual
sales at the time of approximately $220 million. Its brand names DAP, Alex Plus
and Kwik Seal are well known throughout the U.S. and Canada.
On a consolidated basis, the extra two months of DAP sales during fiscal 2001,
reported within the consumer segment, offset the loss of sales from product
lines in the industrial segment that were sold in fiscal 2000. Comparable sales,
including small product line additions, grew by 4 percent in the industrial
segment, while sales in the consumer segment remained relatively flat from 2000
to 2001. The 4 percent growth in the industrial segment reflected a combination
of greater unit volume (2-3 percent) and higher pricing (1-2 percent) which
offset increased raw material and packaging costs during fiscal 2001. In
addition, on a year to year basis, foreign exchange differences had a negative
impact on sales, primarily within the industrial segment, decreasing sales by
approximately $20 million, or 1 percent.
The general slowdown in the economy impacted sales in both our consumer and
industrial segments during the 2001 fiscal year, causing firms to decrease or
defer spending in areas such as protective maintenance, which our products and
services provide. The severe winter cold during fiscal 2001 extended much
further south than usual, and Europe was affected as well, causing our sales to
those regions to be much weaker than usual during the third fiscal quarter in
2001, the seasonally slowest time of the year. Furthermore, several of our major
consumer segment accounts were aggressively de-stocking their inventories in
2001, which especially impacted our sales to those accounts during the months of
December 2000 and March 2001.
GROSS PROFIT MARGIN - Gross profit margin in fiscal 2001 of 45.1 percent closely
matched the prior year's gross profit margin of 45.3 percent. The gross profit
margin for the industrial segment improved to 47.4 percent from 46.6 percent in
fiscal 2000, due to the product lines that were sold during fiscal 2000, which
carried lower margins and, to a lesser extent, due to the leveraged benefits
from higher sales volume. We believe that timely pricing initiatives in this
segment successfully offset rising material costs, principally oil-related,
during fiscal 2001. The gross margin in the consumer segment, in contrast,
dipped to 42.5 percent in 2001 from 43.6 percent in 2000, principally reflecting
this segment's less timely ability to gain price relief during periods of rising
material costs, as our consumer segment businesses generally have servicing
agreements
27
<PAGE>
- --------------------------------------------------------------------------------
with their accounts that renew annually. As these agreements come up for
renewal, we have been generally successful in negotiating pricing relief. In
addition, the DAP acquisition accounts for two more months of lower than average
gross margins in 2001 as compared to 2000 in the consumer segment. We also
experienced lower gross margins in the consumer segment in 2001 because we
incurred premium costs to outsource some of our products in order to seamlessly
service customers during brief periods of insufficient capacity caused by
information systems conversions. During 2000, the consumer segment incurred $7
million in inventory discontinuation costs associated with the comprehensive
restructuring program initiated in August 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A) - SG&A expenses amounted to
36.8 percent of sales in fiscal 2001, compared with 36.3 percent in fiscal 2000.
The expenses of our industrial segment increased to 36.3 percent from 35.6
percent in 2000, mainly because the product lines that were sold during fiscal
2000 had, on a relative basis, much lower SG&A expenses, plus we incurred
additional, related costs of approximately $3 million during 2001 toward
completion of the restructuring program. SG&A expenses in the consumer segment
increased to 35.6 percent from 35.2 percent in 2000, principally because we
incurred approximately $5 million in additional costs related to the
restructuring program, tempered slightly by two more months of results from DAP,
with its comparatively lower SG&A expense structure. Our consumer segment also
incurred higher freight costs in the form of oil-driven fuel surcharges,
premiums to expedite certain shipments during restructuring, and increased
handling costs to service more frequent shipments to our customers. License fee
and joint venture income included as credits to SG&A expenses approximated $1.7
million in each year.
EARNINGS BEFORE INTEREST AND TAXES (EBIT) - Fiscal 2001 EBIT in the industrial
and consumer segments were both well ahead of their reported EBIT for fiscal
2000. Excluding the restructuring and asset impairment charges and all related
costs from 2000, totaling $59.8 million, pro forma EBIT results for industrial,
consumer, and corporate/other would have been $121.3 million, $79.8 million and
($17.7) million, respectively, or $183.4 million in total. On that basis, EBIT
for the industrial segment year over year appears flat ($122.0 million vs.
$121.3 million), but considering the loss of EBIT from the divestitures during
2000 and the additional $3 million spent in 2001 toward completion of the
restructuring program, EBIT for the industrial segment during 2001 would have
been $7 million ahead of 2000, or up 6 percent on the 4 percent higher sales. On
the same pro forma basis, fiscal 2001 EBIT for our consumer segment was off $17
million ($62.7 million vs. $79.8 million), or 21 percent, for the reasons
discussed above. Lastly, on the same pro forma basis, corporate/other costs were
flat year over year ($18.0 million vs. $17.7 million) as certain lower corporate
costs offset higher costs associated with our now completed e-commerce
infrastructure development during 2001.
In August 1999, we announced a comprehensive restructuring program to generate
manufacturing, distribution and administrative efficiencies, and to better
position ourselves for increased profitability and long-term growth (refer to
Note I). Pre-tax restructuring and asset impairment charges for $45 million and
$7 million were taken during the first and fourth quarters of fiscal 2000,
respectively. Through year-end 2001, we had incurred all of these charges.
NET INTEREST EXPENSE - Net interest expense increased $13.4 million in 2001
(refer to Note A [16]), reflecting higher average interest rates as compared to
fiscal 2000, on the variable rate portion (approximately 80 percent) of
outstanding borrowings (refer to Note B), two additional months of indebtedness
related to our acquisition of DAP in August 1999, and higher average
indebtedness related to the repurchase of 8,970,100 of our common shares between
January 1999 and July 2000 (refer to Note D). The Federal Reserve Board cuts in
interest rates that began early in calendar 2001 translated into lower rates on
the variable portions of our outstanding borrowings, resulting in comparably
lower interest costs.
INCOME TAX RATE - The effective income tax rate in 2001 of 38 percent compared
favorably with the 42.9 percent rate in 2000 (refer to Note C). The 2000 rate
was impacted by the restructuring and asset impairment charges plus related
costs that year. Excluding those charges and costs, the pro forma tax rate for
2000 would have been 40.3 percent, still higher
28
<PAGE>
- --------------------------------------------------------------------------------
than the 2001 rate of 38 percent. The 2001 tax rate reduction mainly reflected
an improved mix of foreign income, including fewer unusable foreign tax losses
in 2001 as compared to 2000.
NET INCOME - Fiscal 2001 net income of $63 million, or $.62 per diluted share,
compared favorably with $41 million in 2000, or $.38 per diluted share.
Excluding the $59.8 million pre-tax restructuring and asset impairment charges
plus related costs, pro forma net income for 2000 would have been $78.6 million,
or $.73 per diluted share. Against fiscal 2000 on this pro forma basis, 2001 net
income and earnings per share (EPS) were down 20 percent and 15 percent,
respectively, as a result of the factors discussed above. In addition, the
difference in pro forma decline, year over year between net income and EPS
reflected the net benefit from the shares repurchased, which added $.01 per
diluted share to 2001 results.
Liquidity and Capital Resources
CASH FLOWS FROM:
OPERATING ACTIVITIES - There was $191.4 million of cash generated from
operations during fiscal 2002 compared with $74.5 million a year ago, a 157
percent increase. Aside from the earnings increase year over year, this
significant cash flow improvement reflects positive changes in working capital
this past year. Net reductions in working capital generated approximately $37
million of cash during fiscal 2002 compared with working capital consuming
approximately $67 million of cash during fiscal 2001, a positive swing in cash
of approximately $104 million from year to year. There has been a strong focus
on improved accounts receivable collections, and on managing inventory back down
to more appropriate levels post-restructuring, supported by strengthened
information technology and operating techniques, such as Class A manufacturing,
and these efforts will continue.
Cash provided from operations remains our primary source of financing internal
growth, with limited use of short-term credit.
INVESTING ACTIVITIES - Capital expenditures, other than for ordinary repairs and
replacements, are made to accommodate our continued growth through improved
production and distribution efficiencies and capacity, and to enhance
administration. Capital expenditures in fiscal 2002 of $39.9 million compare
with depreciation and amortization of $56.9 million. We are not capital
intensive and capital expenditures generally do not exceed depreciation and
amortization in a given year. We have enhanced our review and control over the
capital investment process, which contributed to the $14 million reduction in
capital expenditures this year compared to a year ago, and those efforts and
controls will continue. Capital spending is expected to hold at approximately
the fiscal 2002 level for the next several years as many larger spending needs
have been accomplished in recent years, such as to accommodate the restructuring
program plus several major information technology platform conversions. We
believe there is adequate production capacity to meet our needs for the next
several years at normal growth rates.
During fiscal 2002, there were investments totaling $3.1 million (refer to Note
A [2]) for several small product line and minority interest acquisitions.
Our captive insurance company invests in marketable securities in the ordinary
course of conducting its operations and this activity will continue (refer to
Note A [7]). Differences in these activities between years are attributable to
the timing and performance of its investments.
During fiscal 2002, certain non-core assets were sold, generating proceeds of
$1.6 million (refer to Note A [2]).
FINANCING ACTIVITIES (ALSO REFER TO NOTE B) - On January 22, 1999, we announced
the authorization of a share repurchase program, allowing the repurchase of up
to 5 million of our common shares over a period of 12 months. On October 8,
1999, we announced the authorized expansion of this repurchase program to a
total of 10 million shares. As of July 2000, we had repurchased 8,970,100 of our
common shares at an average price of $11.11 per share, and this program has
since expired.
On July 14, 2000, we refinanced our then-existing $300 million and $400 million
revolving credit facilities with a $200 million, 364-day revolving credit
facility and a $500 million, 5-year revolving credit facility.
29
<PAGE>
- --------------------------------------------------------------------------------
Early during the 2002 fiscal year, our $200 million facility was refinanced with
a one-year term loan due July 12, 2002. During March 2002, we sold 11.5 million
common shares through a follow-on public offering at $14.25 per share, closing
on April 2, 2002 (refer to Note D). The entire proceeds of the offering, $156
million, were used to permanently pay down the outstanding balance under this
$200 million term loan facility, which was then retired.
On November 27, 2001, we issued and sold $30 million aggregate principal amount
of 7.3 percent senior unsecured notes due 2008, $10 million aggregate principal
amount of 6.61 percent senior unsecured notes due 2006, and $15 million
aggregate principal amount of 6.12 percent senior unsecured notes due 2004 to
various insurance companies. The proceeds from these notes were used to reduce
the outstanding balance under the $500 million revolving credit agreement. As of
May 31, 2002, there was $395 million drawn against this facility, leaving $105
million of liquidity available, and we had no outstanding commercial paper.
Our debt-to-total-capital ratio was 45 percent at May 31, 2002, down from 60
percent at May 31, 2001.
The table below summarizes our financial obligations and their expected
maturities at May 31, 2002, and the effect such obligations are expected to have
on our liquidity and cash flow in the periods indicated.
Less than 1-3 After 3
May 31, 2002 Total 1 Year Years Years
- -------------------------------------------------------------------------------
(In thousands)
Current portion
of long-term debt $ 5.9 $ 5.9 $ -- $ --
Long-term debt 707.9 0.0 22.7 685.2
Non-cancelable
operating lease
obligations 62.2 16.4 19.3 26.5
- -------------------------------------------------------------------------------
$776.0 $22.3 $ 42.0 $711.7
===============================================================================
Subsequent to fiscal year end, on June 6, 2002, we entered into a securitization
transaction with several banks for certain of our subsidiaries, providing for a
wholly owned special purpose entity (SPE) to receive investments of up to $125
million (refer to Note B). This securitization is being accomplished by having
certain subsidiaries sell various of their accounts receivable to the SPE, and
by having the SPE then transfer those receivables to a conduit administered by
the banks. This securitization transaction will be reflected in our financial
statements and thus will not be off-balance sheet financing. This transaction
increases our liquidity and reduces our financing costs by replacing up to $125
million of existing borrowings at lower interest rates. As of July 1, 2002, $100
million was securitized under this agreement, which was used to reduce the $395
million outstanding balance of the $500 million revolver, leaving $205 million
of liquidity then available under that facility.
The strength of the U.S. dollar has fluctuated throughout the year and was
slightly weaker at fiscal year end, over the previous year end, causing foreign
net assets to slightly increase shareholders' equity compared to a year ago.
This trend could continue if the dollar continues to weaken against,
principally, the Canadian dollar and the euro (refer to Note A [5]).
We maintain excellent relations with our banks and other financial institutions
to provide continual access to financing for future growth opportunities.
OFF-BALANCE SHEET FINANCINGS - We do not have any off-balance sheet financings,
other than the minimum leasing commitments described in Note E. 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.
30
<PAGE>
- --------------------------------------------------------------------------------
Qualitative and Quantitative Disclosures
About Market Risk
We are exposed to market risk from changes in interest rates and foreign
currency exchange rates because we fund our operations through long- and
short-term borrowings and denominate our business transactions in a variety of
foreign currencies. A summary of our primary market risk exposures is presented
below.
INTEREST RATE RISK - Our primary interest rate risk exposure results from our
floating rate debt, including various revolving and other lines of credit (refer
to Note B). At May 31, 2002, approximately 70 percent of our total debt was
subject to floating interest rates. If interest rates were to increase 100 basis
points (1 percent) from May 31, 2002 rates, and assuming no changes in debt from
the May 31, 2002 levels, the additional annual interest expense would amount to
approximately $5.0 million on a pre-tax basis. We currently do not hedge our
exposure to floating interest rate risk as we believe the cost of such hedging
would exceed the benefit at this time.
FOREIGN CURRENCY RISK - Our foreign sales and results of operations are subject
to the impact of foreign currency fluctuations (refer to Note A [4]). As most of
our foreign operations are in countries with fairly stable currencies, such as
Belgium, Canada and the United Kingdom, this effect has not been material. In
addition, foreign debt is denominated in the respective foreign currency,
thereby eliminating any related translation impact on earnings.
If the U.S. dollar continues to weaken, our foreign results of operations will
be positively impacted, but the effect is not expected to be material. A 10
percent change in foreign currency exchange rates would not have resulted in a
material impact to net income for the year ended May 31, 2002. We do not
currently hedge against the risk of exchange rate fluctuations.
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; (b) the price and supply of raw
materials, particularly titanium dioxide, certain resins, aerosols and solvents;
(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 insurance and reserves for such matters; (e) the
effect of changes in interest rates; (f) the effect of fluctuations in currency
exchange rates upon our foreign operations; (g) the effect of non-currency risks
of investing in and conducting operations in foreign countries, including those
relating to domestic and international political, social, economic and
regulatory factors; (h) risks and uncertainties associated with our ongoing
acquisition and divestiture activities; and other risks detailed in our other
reports and statements filed with the Securities and Exchange Commission,
including the risk factors set forth in our prospectus and prospectus supplement
included as part of our recently filed Registration Statement on Form S-3 (File
No. 333-77028), as the same may be amended from time to time.
31
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS RPM, Inc. and Subsidiaries
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
May 31 2002 2001
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments (Note A) $ 42,172 $ 23,926
Trade accounts receivable (less allowances
of $15,884 in 2002 and $17,705 in 2001) 397,659 411,718
Inventories (Note A) 251,446 277,494
Prepaid expenses and other current assets 110,037 106,282
- -----------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 801,314 819,420
- -----------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, AT COST (NOTE A)
Land 21,655 21,713
Buildings and leasehold improvements 203,428 188,590
Machinery and equipment 430,758 412,751
- -----------------------------------------------------------------------------------------------------------
655,841 623,054
Less allowance for depreciation and amortization 300,044 261,018
- -----------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 355,797 362,036
- -----------------------------------------------------------------------------------------------------------
OTHER ASSETS
Goodwill (Note A) 592,329 571,276
Other intangible assets, net of amortization (Note A) 264,530 300,372
Other 22,433 25,386
- -----------------------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 879,292 897,034
- -----------------------------------------------------------------------------------------------------------
TOTAL ASSETS $2,036,403 $2,078,490
===========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 160,767 $ 152,307
Current portion of long-term debt (Note B) 5,876 7,379
Accrued compensation and benefits 80,530 74,888
Accrued loss reserves (Note H) 51,914 55,416
Other accrued liabilities 58,144 75,022
Income taxes payable (Notes A and C) 7,483 10,756
- -----------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 364,714 375,768
- -----------------------------------------------------------------------------------------------------------
LONG-TERM LIABILITIES
Long-term debt, less current maturities (Note B) 707,921 955,399
Other long-term liabilities 55,458 53,479
Deferred income taxes (Notes A and C) 50,204 54,134
- -----------------------------------------------------------------------------------------------------------
TOTAL LONG-TERM LIABILITIES 813,583 1,063,012
- -----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,178,297 1,438,780
- -----------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common shares, stated value $.015 per share; authorized 200,000 shares;
issued 122,653 and outstanding 114,696 in 2002; issued 111,153 and
outstanding 102,211 in 2001 (Note D) 1,786 1,619
Paid-in capital 585,566 430,015
Treasury shares, at cost (Note D) (88,364) (99,308)
Accumulated other comprehensive loss (Note A) (50,485) (53,074)
Retained earnings 409,603 360,458
- -----------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 858,106 639,710
- -----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,036,403 $2,078,490
===========================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
32
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME RPM, Inc. and Subsidiaries
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended May 31 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 1,986,126 $2,007,762 $1,962,410
Cost of sales 1,073,910 1,101,417 1,074,011
- ------------------------------------------------------------------------------------------------------------------
Gross profit 912,216 906,345 888,399
Selling, general and administrative expenses 717,628 739,655 712,875
Restructuring and asset impairment charge (Note I) 51,970
Interest expense, net (Note A) 40,464 65,203 51,793
- ------------------------------------------------------------------------------------------------------------------
Income before income taxes 154,124 101,487 71,761
Provision for income taxes (Note C) 52,570 38,526 30,769
- ------------------------------------------------------------------------------------------------------------------
NET INCOME $ 101,554 $ 62,961 $ 40,992
==================================================================================================================
Average shares outstanding (Note D) 104,418 102,202 107,221
- ------------------------------------------------------------------------------------------------------------------
Basic and diluted earnings per common share (Note D) $.97 $.62 $.38
==================================================================================================================
Cash dividends per common share $.5000 $.4975 $.4850
==================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY RPM, Inc. and Subsidiaries
(In thousands)
<TABLE>
<CAPTION>
Common Shares
------------- Accumulated
Number Other
Of Shares Stated Paid-In Treasury Comprehensive Retained
(Note D) Value Capital Shares Loss (Note A) Earnings Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT MAY 31, 1999 109,443 $ 1,613 $423,204 $ (17,044) $ (23,908) $359,011 $742,876
----------
Comprehensive income
Net income 40,992 40,992
Reclassification adjustments 738 738
Translation loss and other (16,385) (16,385)
----------
Comprehensive income 25,345
Dividends paid (51,901) (51,901)
Repurchase of shares (6,517) (71,472) (71,472)
Stock option exercises 100 1 875 876
Restricted share awards 108 2 (2)
BALANCE AT MAY 31, 2000 103,134 1,616 424,077 (88,516) (39,555) 348,102 645,724
----------
Comprehensive income
Net income 62,961 62,961
Reclassification adjustments 1,015 1,015
Translation loss and other (14,534) (14,534)
----------
Comprehensive income 49,442
Dividends paid (50,605) (50,605)
Repurchase of shares (1,157) (11,101) (11,101)
Stock option exercises 59 1 101 309 411
Restricted share awards 175 2 5,837 5,839
BALANCE AT MAY 31, 2001 102,211 1,619 430,015 (99,308) (53,074) 360,458 639,710
----------
Comprehensive income
Net income 101,554 101,554
Reclassification adjustments (120) (120)
Translation gain and other 2,709 2,709
----------
Comprehensive income 104,143
Dividends paid (52,409) (52,409)
Sale of shares 11,500 167 155,767 155,934
Stock option exercises, net 847 92 9,412 9,504
Restricted share awards 138 (308) 1,532 1,224
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE AT MAY 31, 2002 114,696 $ 1,786 $585,566 $ (88,364) $ (50,485) $409,603 $858,106
=============================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
33
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS RPM, Inc. and Subsidiaries
(In thousands)
<TABLE>
<CAPTION>
Year Ended May 31 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 101,554 $ 62,961 $ 40,992
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 43,541 43,035 42,290
Amortization of goodwill 19,694 18,352
Other amortization 13,318 18,765 18,508
Asset impairment charge, net of gains 3,354 6,940
(Decrease) in deferred income taxes (3,930) (6,432) (31,081)
(Earnings) of unconsolidated affiliates (391) (275) (435)
Changes in assets and liabilities, net of effect
from purchases and sales of businesses:
(Increase) decrease in accounts receivable 15,031 (11,095) 6,251
(Increase) decrease in inventory 25,929 (37,578) 4,716
(Increase) in prepaid and other assets (8,447) (9,735) (13,484)
Increase (decrease) in accounts payable 8,489 (2,812) 1,615
Increase (decrease) in accrued restructuring (13,540) 13,540
Increase (decrease) in accrued liabilities (5,810) 12,373 (11,285)
Other 2,086 (4,220) 5,659
- ---------------------------------------------------------------------------------------------------------
Cash From Operating Activities 191,370 74,495 102,578
- ---------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (39,931) (54,118) (63,185)
Acquisition of businesses, net of cash acquired (3,138) (2,645) (323,033)
Purchase of marketable securities (15,693) (21,906) (19,816)
Proceeds from marketable securities 19,495 28,283 13,142
Joint ventures (investments) and distributions 16 647 (500)
Proceeds from sale of assets and businesses 1,553 31,694 55,290
- ---------------------------------------------------------------------------------------------------------
Cash (Used For) Investing Activities (37,698) (18,045) (338,102)
- ---------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to long-term and short-term debt 236,681 708,850 937,077
Reductions of long-term and short-term debt (485,662) (710,389) (566,610)
Cash dividends (52,409) (50,605) (51,901)
Sale of shares 155,934
Exercise of stock options 9,504 411 876
Repurchase of shares (11,101) (71,472)
- ---------------------------------------------------------------------------------------------------------
Cash From (Used For) Financing Activities (135,952) (62,834) 247,970
- ---------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND SHORT-TERM INVESTMENTS 526 (1,030) (835)
- ---------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS 18,246 (7,414) 11,611
- ---------------------------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF YEAR 23,926 31,340 19,729
- ---------------------------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS AT END OF YEAR $ 42,172 $ 23,926 $ 31,340
- ---------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash paid during the year for:
Interest $ 50,353 $ 60,027 $ 55,253
Income taxes $ 59,774 $ 35,216 $ 70,086
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Shares issued for restricted stock plan $ 1,224 $ 1,459 $ 1,202
(Debt) from business combinations $ (6,724)
</TABLE>
See Notes to Consolidated Financial Statements
34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2002, 2001, 2000
- --------------------------------------------------------------------------------
Note A - Summary of Significant
Accounting Policies
(1) PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of RPM, Inc. and its majority owned subsidiaries. The Company
accounts for its investment in less than majority owned joint ventures under the
equity method. Intercompany accounts, transactions and unrealized profits and
losses are eliminated in consolidation.
Certain reclassifications have been made to prior year amounts to conform with
the current year presentation. In an effort to achieve improved reporting
consistency across divisions, and in conjunction with the migration to a new
reporting and consolidation system, the Company has adopted a new chart of
accounts. Accordingly, the Company has elected to reclassify certain internal
distribution costs from cost of sales to selling, general and administrative
expenses. Additionally, a portion of those costs are offset by the movement of
certain employee benefits costs related to manufacturing personnel out of
selling, general and administrative expenses and into cost of sales. For the
fiscal years ended May 31, 2001 and 2000, the net effect of the reclassification
of these expenses resulted in the movement of $26.4 million and $25.6 million,
respectively, from cost of sales to selling, general and administrative
expenses.
(2) BUSINESS COMBINATIONS - During the two year period ended May 31, 2002, the
Company completed several product line and minority interest acquisitions which
have been accounted for by the purchase method of accounting. The $4,083,000
difference between the fair value of net assets acquired and the purchase
consideration of $5,783,000 has been allocated to goodwill. The assets,
liabilities and operating results of these companies are reflected in the
Company's financial statements from their respective dates of acquisition
forward.
During the past two years, the Company realized proceeds from divestitures of
approximately $24,147,000 resulting in a gain of approximately $823,000.
Pro forma results of operations for the years ended May 31, 2002 and May 31,
2001, were not materially different from reported results and consequently are
not presented.
(3) ESTIMATES - The preparation of financial statements in conformity with
Generally Accepted Accounting Principles (GAAP) requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
(4) FOREIGN CURRENCY - The functional currency of foreign subsidiaries is their
local currency. Accordingly, for the periods presented, assets and liabilities
have been translated using exchange rates at year end, while income and expense
for the periods have been translated using an annual average exchange rate. The
resulting translation adjustments have been recorded in other comprehensive
loss, a component of shareholders' equity, and will be included in net earnings
only upon the sale or liquidation of the underlying foreign investment, which is
not contemplated at this time. Transaction gains and losses have been immaterial
during the past three fiscal years.
35
<PAGE>
(5) COMPREHENSIVE INCOME - Accumulated other comprehensive loss (which is shown
net of taxes) consists of the following components:
<TABLE>
<CAPTION>
Foreign Minimum Unrealized
Currency Pension Gain (Loss)
Translation Liability On
(In thousands) Adjustments Adjustments Securities Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at May 31, 1999 $(22,317) $ (853) $ (738) $(23,908)
Reclassification adjustments for
(gains) losses included in net income 738 738
Other Comprehensive Gain (Loss) (16,223) 853 (1,015) (16,385)
- -----------------------------------------------------------------------------------------------------------------------------
Balance at May 31, 2000 (38,540) (1,015) (39,555)
Reclassification adjustments for
(gains) losses included in net income 1,015 1,015
Other Comprehensive Gain (Loss) (14,552) (102) 120 (14,534)
- -----------------------------------------------------------------------------------------------------------------------------
Balance at May 31, 2001 (53,092) (102) 120 (53,074)
Reclassification adjustments for
(gains) losses included in net income (120) (120)
Other Comprehensive Gain (Loss) 3,411 (151) (551) 2,709
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE AT MAY 31, 2002 $(49,681) $ (253) $ (551) $(50,485)
=============================================================================================================================
</TABLE>
(6) CASH AND SHORT-TERM INVESTMENTS - For purposes of the statement of cash
flows, the Company considers all highly liquid debt instruments purchased with
a maturity of three months or less to be cash equivalents. The Company does
not believe it is exposed to any significant credit risk on cash and
short-term investments.
(7) MARKETABLE SECURITIES - Marketable securities, all of which are classified
as available for sale, total $19,396,000 and $24,480,000 at May 31, 2002 and
2001, respectively. The estimated fair values of these securities are included
in other current assets and are based on quoted market prices.
(8) FINANCIAL INSTRUMENTS - The Company's financial instruments recorded on the
balance sheet include cash and short-term investments, accounts receivable,
notes and accounts payable and debt. The carrying amount of cash and short-term
investments, accounts receivable and notes and accounts payable approximates
fair value because of their short-term maturity.
The carrying amount of the Company's debt instruments approximates fair value
based on quoted market prices, variable interest rates or borrowing rates for
similar types of debt arrangements.
The Company adopted Statement of Financial Accounting Standards (FAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended,
effective June 1, 2001. This statement standardizes the accounting for
derivative instruments by requiring those items to be recognized as assets or
liabilities with changes in fair value reported in earnings or other
comprehensive income in the current period. The adoption of FAS No. 133 has had
no impact on financial results of the Company.
(9) INVENTORIES - Inventories are stated at the lower of cost or market, cost
being determined substantially 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 material, labor and manufacturing overhead.
Inventories were composed of the following major classes:
May 31 2002 2001
- ---------------------------------------------------------
(In thousands)
Raw material and supplies $ 75,080 $ 89,071
Finished goods 176,366 188,423
- ---------------------------------------------------------
TOTAL INVENTORY $251,446 $277,494
=========================================================
(10) GOODWILL AND OTHER INTANGIBLE ASSETS - In June 2001, the Financial
Accounting Standards Board issued FAS No. 141, "Business Combinations," and FAS
No. 142, "Goodwill and Other Intangible Assets."
36
<PAGE>
- --------------------------------------------------------------------------------
FAS No. 141 requires the use of the purchase method for all business
combinations initiated after June 30, 2001. It also provides guidance on
purchase accounting related to the recognition of intangible assets, noting that
any purchase price allocated to an assembled workforce may not be accounted for
separately from goodwill. FAS No. 142 requires that goodwill and identifiable
acquired intangible assets with indefinite useful lives shall no longer be
amortized, but tested for impairment annually and whenever events or
circumstances occur indicating that goodwill might be impaired. FAS No. 142 also
requires the amortization of identifiable assets with finite useful lives.
Identifiable acquired intangible assets, which are subject to amortization, are
to be tested for impairment in accordance with FAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." The adoption of FAS No. 144 on
June 1, 2001, did not have an impact on the Company.
The Company elected to adopt the provisions of FAS No. 142 as of June 1, 2001,
and has identified its reporting units (components) to be one level below its
industrial and consumer operating segments. The Company has determined the
carrying value of each reporting unit by assigning assets and liabilities,
including the existing goodwill and intangible assets, to those reporting units
as of June 1, 2001. Upon adoption of FAS No. 142, amortization of goodwill
recorded for business combinations consummated prior to July 1, 2001 ceased, and
intangible assets acquired prior to July 1, 2001 that did not meet the criteria
for recognition apart from goodwill under FAS No. 141 were reclassified to
goodwill (e.g. workforce). In connection with the adoption of FAS No. 142, the
Company was required to perform a transitional goodwill impairment assessment
within six months of adoption. Prospectively, the annual impairment test will be
performed in the first quarter of the Company's fiscal year and any losses
resulting from the test will be reflected in operating income. The annual
goodwill impairment assessment involves estimating the fair value of the
reporting unit and comparing it with its carrying amount. If the carrying amount
of the reporting unit exceeds its fair value, additional steps are followed to
recognize a potential impairment loss. Calculating the fair values of the
reporting units requires significant estimates and assumptions by management.
The Company estimates the fair value of each of its reporting units by applying
third party market value indicators to the reporting unit's projected earnings
before interest, taxes, depreciation and amortization. The Company completed its
transitional goodwill impairment assessment as of June 1, 2001, and its annual
impairment assessment as of August 31, 2001, with no adjustment to the carrying
value of its goodwill.
The changes in the carrying amount of goodwill, by reporting segment, for the
year ended May 31, 2002, are as follows:
<TABLE>
<CAPTION>
Industrial Consumer
(In thousands) Segment Segment Total
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at May 31, 2001 $244,707 $326,569 $571,276
Goodwill related to acquisitions 1,253 1,253
FAS No. 142 workforce reclassification, net of deferred tax 10,377 8,490 18,867
Translation adjustments (371) 1,304 933
- --------------------------------------------------------------------------------------------------------------------------
BALANCE AT MAY 31, 2002 $255,966 $336,363 $592,329
==========================================================================================================================
</TABLE>
37
<PAGE>
- --------------------------------------------------------------------------------
Other intangible assets consist of the following major classes:
<TABLE>
<CAPTION>
Amortization Gross Net Other
Period Carrying Accumulated Intangible
(In thousands) (In Years) Amount Amortization Assets
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
As of May 31, 2002
Amortized intangible assets
Formulae 10 to 33 $167,721 $ 42,067 $125,654
Customer related intangibles 10 to 33 48,094 10,960 37,134
Trademarks/names 5 to 40 4,336 1,146 3,190
Other 3 to 20 23,088 8,903 14,185
- ------------------------------------------------------------------------------------------------------------
Total Amortized Intangibles 243,239 63,076 180,163
Unamortized intangible assets
Trade names 84,367 84,367
- ------------------------------------------------------------------------------------------------------------
TOTAL OTHER INTANGIBLE ASSETS $327,606 $ 63,076 $264,530
============================================================================================================
As of May 31, 2001
Amortized intangible assets
Formulae 10 to 25 $167,845 $ 34,643 $133,202
Customer related intangibles 10 to 33 48,084 9,028 39,056
Trademarks/names 10 to 40 105,466 17,918 87,548
Workforce 15 to 20 38,107 12,729 25,378
Other 5 to 20 21,577 6,389 15,188
- ------------------------------------------------------------------------------------------------------------
TOTAL OTHER INTANGIBLE ASSETS $381,079 $ 80,707 $300,372
============================================================================================================
</TABLE>
The aggregate other intangible asset amortization expense for the fiscal years
ended May 31, 2002, 2001 and 2000, was $11,329,000, $16,602,000 and $17,084,000
respectively. For each of the next five fiscal years through May 31, 2007, the
estimated annual intangible asset amortization expense will approximate
$11,000,000.
The following pro forma information reconciles net income reported for the years
ended May 31, 2002, 2001 and 2000, to adjusted net income, reflecting the impact
of FAS No. 142:
<TABLE>
<CAPTION>
Year Ended May 31 2002 2001 2000
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(In thousands, except per share data)
Net income
Reported net income $101,554 $ 62,961 $ 40,992
Add back goodwill amortization, net of tax 18,468 17,233
Add back workforce amortization, net of tax 1,406 1,413
Add back trade name amortization, net of tax 1,930 1,844
- -------------------------------------------------------------------------------------------------
ADJUSTED NET INCOME $101,554 $ 84,765 $ 61,482
=================================================================================================
Basic and diluted earnings per share
Reported net income $.97 $.62 $.38
Goodwill amortization, net of tax .18 .16
Workforce amortization, net of tax .01 .01
Trade name amortization, net of tax .02 .02
- -------------------------------------------------------------------------------------------------
ADJUSTED BASIC AND DILUTED EARNINGS PER SHARE $.97 $.83 $.57
=================================================================================================
</TABLE>
38
<PAGE>
- --------------------------------------------------------------------------------
(11) DEPRECIATION - Depreciation is computed over the estimated useful lives of
the assets primarily using the straight-line method. Depreciation expense
charged to operations for the three years ended May 31, 2002 was $43,541,000,
$43,035,000 and $42,290,000, respectively. The annual depreciation rates are
based on the following ranges of useful lives:
Land improvements 5 to 42 years
Buildings and improvements 5 to 50 years
Machinery and equipment 3 to 20 years
(12) REVENUE RECOGNITION - The Company's subsidiaries recognize revenue when
title and risk of loss passes to customers.
(13) SHIPPING COSTS - Shipping costs paid to third-party shippers for
transporting products to customers are included in selling, general and
administrative expense. For the years ended May 31, 2002, 2001 and 2000,
shipping costs were $73,700,000, $75,400,000 and $66,100,000, respectively.
(14) ADVERTISING COSTS - Advertising costs are charged to operations when
incurred and are included in selling, general and administrative expenses. For
the years ended May 31, 2002, 2001 and 2000, advertising costs were $53,400,000,
$52,400,000 and $47,100,000, respectively.
(15) RESEARCH AND DEVELOPMENT - Research and development costs are charged to
operations when incurred and are included in selling, general and administrative
expenses. The amounts charged for the three years ended May 31, 2002 were
$20,900,000, $21,800,000 and $22,300,000, respectively. The customer sponsored
portion of such expenditures was not significant.
(16) INTEREST EXPENSE, NET - Interest expense is shown net of investment income
which consists of interest, dividends and capital gains. Investment income for
the three years ended May 31, 2002 was $2,094,000, $3,682,000 and $2,643,000,
respectively.
(17) INCOME TAXES - The Company and its wholly owned domestic subsidiaries file
a consolidated federal income tax return. The tax effects of transactions are
recognized in the year in which they enter into the determination of net income,
regardless of when they are recognized for tax purposes. As a result, income tax
expense differs from actual taxes payable. The accumulation of these differences
at May 31, 2002 is shown as a noncurrent liability of $50,204,000 (net of a
noncurrent asset of $69,963,000). At May 31, 2001, the noncurrent liability was
$54,134,000 (net of a noncurrent asset of $70,754,000). The Company does not
intend to distribute the accumulated earnings of consolidated foreign
subsidiaries amounting to $115,415,000 at May 31, 2002, and $102,847,000 at May
31, 2001, and therefore no provision has been made for the taxes which would
result if such earnings were remitted to the Company.
(18) REPORTABLE SEGMENTS - Reportable segment information appears on pages 22
and 23 of this report.
39
<PAGE>
- --------------------------------------------------------------------------------
Note B - Borrowings
A description of long-term debt follows:
<TABLE>
<CAPTION>
May 31 2002 2001
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(In thousands)
Revolving credit agreement for $500,000,000 with a syndicate of banks through
July 14, 2005. Interest, which is tied to LIBOR, averaged 3.17% at May 31, 2002.
The chairman of the board and chief executive officer of the company is a director
of one of the banks providing this facility. $395,000 $500,000
Short-term borrowings with a bank paid off with proceeds from the credit agreement
described above. 33,000
Revolving 364-day credit agreement for $200,000,000 with a syndicate of banks,
refinanced and subsequently paid off and retired with proceeds from the March 2002
sale of common shares. 155,700
Unsecured 7.00% senior notes due June 15, 2005. 150,000 150,000
Unsecured notes due March 1, 2008, interest, which is tied to LIBOR, averaged
2.08% at May 31, 2002. 100,000 100,000
Unsecured senior notes due insurance companies: 6.75% due August 2, 2002 and
2003 in the amount of $3,429,000 ($5,143,000 at May 31, 2001); 6.12% due
November 15, 2004 in the amount of $15,000,000; 6.61% due November 15, 2006
in the amount of $10,000,000 and 7.30% due November 15, 2008 in the amount
of $30,000,000. 58,429 5,143
Revolving multi-currency credit agreement for $15,000,000 with a bank through
December 31, 2002. Interest, which is tied to one of various rates, averaged
4.73% at May 31, 2002. This obligation has been reclassified as long-term,
reflecting the Company's intent and ability to refinance this obligation through
unused credit facilities. 3,835 9,827
Other notes and mortgages payable at various rates of interest due in installments
through 2011, substantially secured by property. 6,533 9,108
- ----------------------------------------------------------------------------------------------------------------------------
713,797 962,778
Less current portion 5,876 7,379
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL LONG-TERM DEBT, LESS CURRENT MATURITIES $707,921 $955,399
============================================================================================================================
</TABLE>
At May 31, 2002, the Company had additional unused short-term lines of credit
with several banks totaling $45,600,000, in addition to $105,000,000 available
under the $500,000,000 revolving credit agreement.
The aggregate maturities of long-term debt for the five years subsequent to May
31, 2002 are as follows: 2003 -$5,876,000; 2004 - $6,958,000; 2005 -
$15,728,000; 2006 - $545,051,000; 2007 - $10,047,000.
Subsequent to year end, on June 6, 2002, the Company entered into an accounts
receivable securitization transaction for certain of its subsidiaries. This
securitization transaction will remain on the balance sheet and allows for a
maximum of $125,000,000 of borrowings at lower interest rates.
As of July 1, 2002, the Company had $100,000,000 outstanding under this program,
with the proceeds being used to reduce the outstanding balance of the Company's
$500,000,000 revolving credit agreement from $395,000,000 to $295,000,000.
40
<PAGE>
- --------------------------------------------------------------------------------
Note C - Income Taxes
Consolidated income before taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended May 31 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
United States $ 128,883 $ 81,853 $ 41,424
Foreign 25,241 19,634 30,337
- -------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED INCOME BEFORE TAXES $ 154,124 $ 101,487 $ 71,761
=========================================================================================================================
Provision for income taxes consists of the following:
Current
U.S. federal $ 42,901 $ 31,821 $ 43,174
State and local 4,770 3,829 3,547
Foreign 8,829 9,308 15,129
- -------------------------------------------------------------------------------------------------------------------------
56,500 44,958 61,850
- -------------------------------------------------------------------------------------------------------------------------
Deferred
U.S. federal (5,370) (9,603) (29,028)
Foreign 1,440 3,171 (2,053)
- -------------------------------------------------------------------------------------------------------------------------
(3,930) (6,432) (31,081)
- -------------------------------------------------------------------------------------------------------------------------
PROVISION FOR INCOME TAXES $ 52,570 $ 38,526 $ 30,769
=========================================================================================================================
A reconciliation between the actual income tax expense provided and the income
tax expense computed by applying the statutory federal income tax rate of 35% to
income before tax is as follows:
Income taxes at U.S. statutory rate $ 53,943 $ 35,520 $ 25,116
Difference in foreign taxes versus the U.S. statutory rate (3,155) (1,563) 2,458
State and local income taxes net of federal income tax benefit 3,101 2,489 2,306
Amortization of goodwill 4,530 4,285
Tax benefits from foreign sales corporation (1,362) (1,675) (1,725)
Other 43 (775) (1,671)
- -------------------------------------------------------------------------------------------------------------------------
ACTUAL TAX EXPENSE $ 52,570 $ 38,526 $ 30,769
=========================================================================================================================
ACTUAL TAX RATE 34.11% 37.96% 42.88%
=========================================================================================================================
</TABLE>
Deferred income taxes result from timing differences in recognition of revenue
and expense for book and tax purposes, primarily from the tax timing differences
relating to business combinations.
Note D - Common Shares
In March 2002, the Company completed a public offering for 11,500,000 of its
common shares at $14.25 per share. Net proceeds of $155,934,000 after expenses
were used to retire debt.
The Company's authorized common shares total 200,000,000 with a stated value of
$.015 per share. At May 31, 2002 and 2001, there were 114,696,000 and
102,211,000 shares outstanding, respectively, each of which is entitled to one
vote.
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding during
each year (104,418,000 in 2002, 102,202,000 in 2001 and 107,221,000 in 2000). To
compute diluted earnings per share, the weighted average number of common shares
outstanding during each year was increased by common stock options with
exercisable prices lower than the average market prices of common shares during
each year and reduced by the number of shares assumed to have been purchased
with proceeds from the exercised options (105,131,000 in 2002, 102,212,000 in
2001 and 107,384,000 in 2000).
41
<PAGE>
- --------------------------------------------------------------------------------
The Company has a Restricted Stock Plan. Under the terms of the Plan, up to
1,563,000 shares may be awarded, generally subject to forfeiture until the
completion of five years of service, to certain employees through May 2007. For
the year ended May 31, 2002, 138,000 shares were awarded under this Plan, net of
forfeitures (175,000 shares in 2001). At May 31, 2002, 86,000 shares awarded
under this Plan were vested (none at May 31, 2001).
In 1999, the Company authorized the repurchase of up to 10,000,000 of its common
shares. Through July 2000, the Company had repurchased 8,970,000 shares at an
aggregate cost of $99,617,000, and this program has since expired. The Company
subsequently reissued 1,013,000 (28,000 through May 31, 2001) of these shares in
connection with its Stock Option and Restricted Stock programs bringing the
balance to 7,957,000 in treasury shares. Shares repurchased under this program
are held at cost and are included in Shareholders' Equity as treasury shares.
The Company's Shareholder Rights Plan provides existing shareholders the right
to purchase shares of the Company at a discount in certain circumstances as
defined by the Plan. The rights are not exercisable at May 31, 2002 and expire
in May 2009.
The Company has options outstanding under two stock option plans, the 1989 Stock
Option Plan, and the 1996 Key Employees Stock Option Plan, which provides for
the granting of options for up to 9,000,000 shares. These options are generally
exercisable cumulatively in equal annual installments commencing one year from
the grant date and have expiration dates ranging from July 2002 to April 2012.
At May 31, 2002, 3,093,000 shares (3,589,000 at May 31, 2001) were available for
future grant.
Transactions during the last two years are summarized as follows:
<TABLE>
<CAPTION>
Year Ended May 31,
------------------
Shares Under Option 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(In thousands)
Outstanding, beginning of year (weighted average price of $12.39 ranging from
$8.42 to $16.35 per share) 7,017 6,243
Granted (weighted average price of $11.83 ranging from $10.26 to $16.70 per share) 496 1,202
Cancelled/expired (weighted average price of $11.17 ranging from $8.42 to $16.35 per share) (390) (369)
Exercised (weighted average price of $11.54 ranging from $8.42 to $16.35 per share) (900) (59)
- ---------------------------------------------------------------------------------------------------------------------------
OUTSTANDING, END OF YEAR (WEIGHTED AVERAGE PRICE OF $12.58 RANGING FROM
$8.69 TO $16.70 PER SHARE) 6,223 7,017
===========================================================================================================================
EXERCISABLE, END OF YEAR (WEIGHTED AVERAGE PRICE OF $13.50 RANGING FROM
$8.69 TO $16.35 PER SHARE) 3,987 3,947
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
at May 31, 2002 at May 31, 2002
------------------------------------------ -------------------------------
Weighted
Average Weighted Weighted
Range of Shares Remaining Average Shares Average
Exercise Prices (000's) Life Price (000's) Price
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 8.00 - $ 9.99 1,870 8.2 $ 9.36 587 $ 9.43
$ 10.00 - $ 14.99 2,310 5.3 $12.61 1,592 $12.73
$ 15.00 - $ 16.75 2,043 5.5 $15.48 1,808 $15.50
----- -----
6,223 6.2 $12.58 3,987 $13.50
===== =====
</TABLE>
42
<PAGE>
- --------------------------------------------------------------------------------
The Company is accounting for its stock option plans under the provisions of the
Accounting Principle Board's Opinion No. 25 and, accordingly, no compensation
cost has been recognized. If compensation cost had been determined based on the
fair value at the grant date for awards under this plan consistent with the
method prescribed by FAS No. 123, the Company's net income and earnings per
share for the years ended May 31, 2002 and 2001, would have been reduced to the
pro forma amounts indicated in the following table:
(In thousands, except per share amounts) 2002 2001
- ---------------------------------------------------------------
Pro Forma Net Income $ 99,411 $ 59,956
===============================================================
Pro Forma Earnings Per Share:
BASIC AND DILUTED $.95 $.59
===============================================================
As Reported Earnings Per Share:
BASIC AND DILUTED $.97 $.62
===============================================================
The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions. The expected volatility rate is 34.2% for shares granted in 2002
and 32.5% for 2001. The expected life is 7.0 years, with dividend yields of 3.0%
and 3.5% and risk-free interest rates of 4.4% and 5.1%, for 2002 and 2001,
respectively.
Note E - Leases
At May 31, 2002, certain property, plant and equipment were leased by the
Company under long-term leases. Certain of these leases provide for increased
rental based upon an increase in the cost-of-living index. Future minimum lease
commitments as of May 31, 2002 for all non-cancelable leases are as follows:
May 31 (In thousands)
- -----------------------------------------
2003 $16,374
2004 11,304
2005 8,059
2006 5,722
2007 4,363
Thereafter 16,402
- -----------------------------------------
TOTAL MINIMUM LEASE COMMITMENTS $ 62,224
=========================================
Rental expenses for all operating leases totaled $23,100,000 in 2002,
$20,500,000 in 2001 and $17,200,000 in 2000. Capitalized leases were
insignificant for the three years ended May 31, 2002.
Note F - Retirement Plans
The Company sponsors a non-contributory defined benefit pension plan (The
Retirement Plan) covering substantially all domestic non-union employees.
Pension coverage for employees of the Company's foreign subsidiaries is
provided, to the extent deemed appropriate, through separate plans, many of
which are governed by local statutory requirements. In addition, benefits for
domestic union employees are provided by separate plans.
The Retirement Plan provides benefits that are based upon years of service and
average compensation with accrued benefits vesting after five years. Benefits
for union employees are generally based upon years of service. The Company's
funding policy is to contribute annually an amount that can be deducted for
federal income tax purposes using a different actuarial cost method and
different assumptions from those used for financial reporting.
43
<PAGE>
- --------------------------------------------------------------------------------
Net periodic pension cost (income) consisted of the following for the three
years ended May 31, 2002:
<TABLE>
<CAPTION>
U.S. Plans Non-U.S. Plans
---------------------------------------- ---------------------------------------
2002 2001 2000 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Service cost $8,310 $7,742 $6,650 $1,073 $1,112 $1,122
Interest cost 6,706 6,470 5,678 2,305 2,314 2,176
Expected return on plan assets (8,589) (9,157) (6,123) (3,118) (3,396) (3,026)
Amortization of:
Prior service cost 188 164 132
Net gain on adoption of FAS No. 87 (85) (87) (96)
Net actuarial (gains) losses recognized (11) (62) 439 87 (85) 91
Curtailment/settlement (gains) losses (722) 103 (24)
- ---------------------------------------------------------------------------------------------------------------------------------
NET PENSION COST $6,519 $4,348 $6,783 $ 347 $ (55) $ 339
=================================================================================================================================
</TABLE>
The changes in benefit obligations and plan assets, as well as the funded status
of the Company's pension plans at May 31, 2002 and 2001 were as follows:
<TABLE>
<CAPTION>
U.S. Plans Non-U.S. Plans
------------------------ -----------------------
2002 2001 2002 2001
- --------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Benefit obligation at beginning of year $ 87,199 $ 81,892 $ 34,175 $ 32,343
Service cost 8,310 7,742 1,073 1,112
Interest cost 6,706 6,470 2,305 2,314
Benefits paid (14,022) (12,785) (1,465) (1,452)
Participant contributions 385 428
Actuarial (gains) losses 7,508 4,156 47 2,030
Currency exchange rate changes (1,276) (2,600)
Curtailment/settlement (gains) losses (721)
Plan amendments 516
Acquisitions 445
- --------------------------------------------------------------------------------------------------------------------
BENEFIT OBLIGATION AT END OF YEAR $ 96,217 $ 87,199 $ 35,244 $ 34,175
====================================================================================================================
Fair value of plan assets at beginning of year $ 93,899 $ 101,502 $ 37,557 $ 40,921
Actual return on plan assets (4,748) (2,543) (2,101) 186
Employer contributions 10,216 7,202 360 500
Participant contributions 385 428
Benefits paid (14,022) (12,785) (1,476) (1,641)
Currency exchange rate changes (1,248) (2,837)
Acquisitions 523
- --------------------------------------------------------------------------------------------------------------------
FAIR VALUE OF PLAN ASSETS AT END OF YEAR $ 85,345 $ 93,899 $ 33,477 $ 37,557
====================================================================================================================
Excess (deficit) of plan assets versus
benefit obligations at end of year $ (10,872) $ 6,700 $ (1,767) $ 3,382
Contributions after measurement date 2,661 2,537 104 93
Unrecognized actuarial (gains) losses 23,571 2,715 8,439 3,514
Unrecognized prior service cost 1,896 1,568
Unrecognized net transitional asset (113) (198)
- --------------------------------------------------------------------------------------------------------------------
NET AMOUNT RECOGNIZED $ 17,143 $ 13,322 $ 6,776 $ 6,989
====================================================================================================================
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
U.S. Plans Non-U.S. Plans
------------------------- ------------------------
2002 2001 2002 2001
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(In thousands)
Amounts recognized in the consolidated
balance sheets consist of:
Prepaid benefit cost $ 17,688 $ 14,057 $ 7,739 $ 7,974
Accrued benefit liability (792) (781) (1,106) (1,041)
Accumulated other comprehensive loss 247 46 143 56
- --------------------------------------------------------------------------------------------------------
NET AMOUNT RECOGNIZED $ 17,143 $ 13,322 $ 6,776 $ 6,989
========================================================================================================
</TABLE>
For domestic plans with accumulated benefit obligations in excess of plan
assets, the projected benefit obligation, accumulated benefit obligation and
fair value of assets were $1,293,000, $1,293,000 and $414,000, respectively, as
of May 31, 2002 and $781,000, $781,000 and $ -0- , respectively, as of May 31,
2001.
For foreign plans with accumulated benefit obligations in excess of plan assets,
the projected benefit obligation, accumulated benefit obligation and fair value
of assets were $1,159,000, $1,106,000 and $ -0- , respectively, as of May 31,
2002 and $1,145,000, $1,042,000 and $ -0- , as of May 31, 2001.
The following weighted average assumptions were used to determine the Company's
obligations under the plans:
<TABLE>
<CAPTION>
U.S. Plans Non-U.S. Plans
---------------------- ---------------------
2002 2001 2002 2001
<S> <C> <C> <C> <C>
Discount rate 7.25% 7.50% 6.63% 6.63%
Expected return on plan assets 9.00% 9.00% 8.13% 8.25%
Rate of compensation increase 4.00% 4.00% 4.00% 4.00%
</TABLE>
The plans' assets consist primarily of stocks, bonds and fixed income
securities.
The Company also sponsors an employee savings plan under Section 401(k) of the
Internal Revenue Code, which covers substantially all non-union employees in the
United States. The Plan provides for matching contributions in Company shares
based upon qualified employee contributions. Matching contributions charged to
income were $5,149,000, $5,170,000 and $4,925,000 for years ending May 31, 2002,
2001 and 2000, respectively.
45
<PAGE>
- --------------------------------------------------------------------------------
Note G - Post-retirement Health Care Benefits
In addition to the defined benefit pension plan, the Company also provides
health care benefits to certain of its retired employees through unfunded plans.
Employees become eligible for these benefits if they meet minimum age and
service requirements. The components of this expense for the three years ended
May 31, 2002 were as follows:
<TABLE>
<CAPTION>
2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Service cost - Benefits earned during this period $ 131 $ 81 $110
Interest cost on the accumulated obligation 945 918 890
Amortization of unrecognized (gains) (51) (124) (55)
- --------------------------------------------------------------------------------------------------------------------------
NET PERIODIC POST-RETIREMENT EXPENSE $1,025 $875 $945
==========================================================================================================================
The changes in the benefit obligations of the plans at May 31, 2002 and 2001,
were as follows:
2002 2001
- --------------------------------------------------------------------------------------------------------------------------
(In thousands)
Accumulated post-retirement benefit obligation at beginning of year $12,615 $11,928
Service cost 131 81
Interest cost 945 918
Benefit payments (904) (972)
Actuarial (gains) losses 804 791
Currency exchange rate changes (109) (131)
- --------------------------------------------------------------------------------------------------------------------------
Accumulated post-retirement benefit obligation at end of year 13,482 12,615
Unrecognized actuarial gains (losses) 973 1,874
- --------------------------------------------------------------------------------------------------------------------------
ACCRUED POST-RETIREMENT HEALTH CARE BENEFITS $14,455 $14,489
==========================================================================================================================
</TABLE>
A 7.25% general discount rate was used in determining the accumulated
post-retirement benefit obligation as of May 31, 2002 (7.50% for May 31, 2001).
An 8.00% increase in the cost of covered health care benefits was generally
assumed for fiscal 2002 (7.00% for fiscal 2001). This trend rate in all cases is
assumed to decrease to 5.00% after several years and remain at that level
thereafter except for various union plans which will cap at alternate benefit
levels. A 1.00% increase in the health care costs trend rate would have
increased the accumulated post-retirement benefit obligation as of May 31, 2002
by $1,460,000 and the net post-retirement expense by $143,000. A 1.00% decrease
in the health care costs trend rate would have decreased the accumulated
post-retirement benefit obligation as of May 31, 2002 by $1,244,000 and the net
post-retirement expense by $117,000.
Note H - Contingencies and Loss Reserves
Accrued loss reserves consist of the following:
<TABLE>
<CAPTION>
May 31 2002 2001
- -------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Accrued product liability reserves $39,337 $39,054
Accrued warranty reserves - Current 5,412 5,170
Accrued environmental reserves 6,455 9,557
Accrued other 710 1,635
- -------------------------------------------------------------------------------------------------------------------------
Accrued loss reserves - Current 51,914 55,416
Accrued warranty reserves - Long-term 9,655 11,959
- -------------------------------------------------------------------------------------------------------------------------
TOTAL ACCRUED LOSS RESERVES $61,569 $67,375
==========================================================================================================================
</TABLE>
46
<PAGE>
- --------------------------------------------------------------------------------
The Company, through its wholly owned insurance subsidiary, provides certain
insurance coverage, primarily product liability, to the Company's other domestic
subsidiaries. Excess coverage is provided by outside carriers. The reserves
reflected above provide for these potential losses as well as other uninsured
claims. Provision for estimated warranty costs is recorded at the time of sale
and periodically adjusted to reflect actual experience.
The Company and certain of its subsidiaries, principally Bondex, are named as
defendants in a number of asbestos related bodily injury cases. In many cases,
the plaintiffs are unable to demonstrate that any injuries they have incurred
resulted from exposure to one of the Companies' products. These cases are
generally dismissed with no payment. With respect to cases where compensable
disease, exposure and causation are established, the companies generally settle
for amounts each considers reasonable given the facts and circumstances of each
case. Bondex's outside insurance carriers have historically been responsible,
under a cost sharing agreement, for the payment of approximately 90% of defense
and indemnity costs. Bondex has established a reserve to provide for its 10%
share of these potential losses. Bondex expects that its outside insurance
carriers will continue to cover a substantial portion of the costs associated
with its asbestos litigation at least into the 2004 fiscal year period.
In addition, the Company, like others in similar businesses, is involved in
several proceedings relating to environmental matters. It is the Company's
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 and do not take into consideration any possible recoveries of
future insurance proceeds or claims against third parties.
Due to the uncertainty inherent in the loss reserve estimation process, the
Company is unable to estimate an additional range of loss in excess of its
accruals. It is at least reasonably possible that actual costs will differ from
estimates, but, based upon information presently available, such future costs
are not expected to have a material adverse effect on the Company's financial
position or its results of operations. However, such costs could be material to
the Company's financial position or results of operations in a future period.
Note I - Restructuring and Asset Impairment Charge
For the year ended May 31, 2000, the Company recorded a restructuring charge of
$51,970,000. Included in this charge were severance and other employee related
costs of $21,986,000, contract exit and termination costs of $2,059,000,
facility closures and write-downs of property, plant and equipment and
intangibles of $22,342,000 and $5,583,000, respectively.
In addition to the $51,970,000 restructuring charge, related costs were incurred
during the May 31, 2000 year primarily to account for inventory of certain
product lines that were being discontinued, totaling $7,876,000, and these costs
were charged to earnings and classified as a component of cost of sales.
The severance and other employee related costs provided for a reduction of
approximately 780 employees related to facility closures and streamlining of
operations for cost reduction initiatives. The costs of exit and contract
termination were comprised primarily of non-cancelable lease obligations on the
closed facilities. The charge for property, plant and equipment represented
write-downs to net realizable value of less efficient and duplicate facilities
and machinery and equipment no longer needed in the combined restructured
manufacturing operations.
47
<PAGE>
- --------------------------------------------------------------------------------
Note J - Interim Financial Information (Unaudited)
The following is a summary of the quarterly results of operations for the years
ended May 31, 2002 and 2001:
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------
August 31 November 30 February 28 May 31
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(In thousands, except per share amounts)
2002
- --------------------------------------------------------------------------------------------
Net sales $533,275 $487,880 $407,538 $557,433
- --------------------------------------------------------------------------------------------
Gross profit $250,674 $221,968 $178,636 $260,938
- --------------------------------------------------------------------------------------------
Net income $ 36,569 $ 24,490 $3,274 $ 37,221
- --------------------------------------------------------------------------------------------
BASIC EARNINGS PER SHARE $.36 $.24 $.03 $.34
============================================================================================
DILUTED EARNINGS PER SHARE $.36 $.24 $.03 $.33
============================================================================================
DIVIDENDS PER SHARE $.1250 $.1250 $.1250 $.1250
============================================================================================
Three Months Ended
-------------------------------------------------
August 31 November 30 February 28 May 31
- --------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
2001
- --------------------------------------------------------------------------------------------
Net sales $554,923 $499,904 $405,400 $547,535
- --------------------------------------------------------------------------------------------
Gross profit $256,316 $228,160 $171,238 $250,631
- --------------------------------------------------------------------------------------------
Net income (loss) $ 28,850 $16,868 $(7,018) $ 24,261
- --------------------------------------------------------------------------------------------
BASIC EARNINGS (LOSS) PER SHARE $.28 $.17 $(.07) $.24
============================================================================================
DILUTED EARNINGS (LOSS) PER SHARE $.28 $.17 $(.07) $.24
============================================================================================
DIVIDENDS PER SHARE $.1225 $.1250 $.1250 $.1250
============================================================================================
</TABLE>
Quarterly earnings per share do not total to the yearly earnings per share due
to the weighted average number of shares outstanding in each quarter.
48
<PAGE>
Independent Auditor's Report
To The Board of Directors and Shareholders - RPM, Inc. and Subsidiaries
Medina, Ohio
We have audited the accompanying consolidated balance sheets of RPM, Inc.
and Subsidiaries as of May 31, 2002 and 2001, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the
years in the three year period ended May 31, 2002. These consolidated
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of RPM,
Inc. and Subsidiaries at May 31, 2002 and 2001, and the results of their
operations and their cash flows for each of the years in the three year
period ended May 31, 2002, in conformity with accounting principles
generally accepted in the United States.
As discussed in Note A to the consolidated financial statements, the
Company adopted the provisions of Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" effective June 1,
2001.
/s/Ciulla, Smith & Dale, LLP
Cleveland, Ohio
July 3, 2002
QUARTERLY STOCK PRICE AND DIVIDEND INFORMATION
RPM, Inc. common shares are traded on the New York Stock Exchange under the
symbol RPM. The high and low sale prices for the common shares, and the cash and
stock dividends paid on the common shares, for each quarter of the two most
recent fiscal years is set forth in the table below.
RANGE OF MARKET PRICES
Fiscal 2002 High Low Dividends paid per share
- --------------------------------------------------------------------------------
1st Quarter $11.15 $ 8.02 $ 0.1250
2nd Quarter 15.05 7.91 0.1250
3rd Quarter 17.08 12.90 0.1250
4th Quarter 17.87 14.15 0.1250
Fiscal 2001 High Low Dividends paid per share
- --------------------------------------------------------------------------------
1st Quarter $10.75 $ 8.63 $ 0.1225
2nd Quarter 10.25 7.75 0.1250
3rd Quarter 9.94 8.25 0.1250
4th Quarter 10.50 8.25 0.1250
Source: The Wall Street Journal
The number of holders of record of RPM, Inc. Common Shares as of July 12, 2002
was 40,231.
49
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21.1
<SEQUENCE>10
<FILENAME>l21038aexv21w1.txt
<DESCRIPTION>EX-21.1
<TEXT>
<PAGE>
.
.
.
Exhibit 21.1
------------
The following is a list of subsidiaries of RPM, Inc.(1) as of June 6, 2002.
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation
- ---- -------------
<S> <C>
American Emulsions Co., Inc. Georgia
Select Dye & Chemical, Inc. Georgia
Bondex International, Inc. Ohio
Bondo Corporation Ohio
Carboline Company Delaware
Carboline International Corporation(2) Delaware
Carboline Dubai Corporation Missouri
StonCor Africa (Pty.) Ltd. South Africa
Chemrite Equipment Systems
(Pty.) Ltd. South Africa
StonCor Namibia (Pty.) Ltd. South Africa
Chemical Coatings, Inc.