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As filed with the Securities and Exchange Commission on July 9, 1999.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
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OMNOVA SOLUTIONS INC.
(Exact Name of Registrant as Specified in Its Charter)
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<S> <C>
OHIO 34-1897652
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
175 GHENT ROAD FAIRLAWN, OHIO 44333
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(Address of Principal Executive (Zip Code)
Offices)
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Registrant's telephone number, including area code (330) 869-4200
Securities to be registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
Name of Each Exchange on Which Each
Title of Each Class to be so Class is to be Registered
Registered
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COMMON STOCK $0.10 PAR VALUE NEW YORK STOCK EXCHANGE
</TABLE>
Securities to be registered pursuant to Section 12(g) of the Act:
NONE
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INFORMATION REQUIRED IN REGISTRATION STATEMENT
ITEM 1. BUSINESS.
INTRODUCTION
Omnova Solutions Inc. was organized in June 1999 as a wholly owned
subsidiary of GenCorp Inc. Subject to the satisfaction or waiver of certain
conditions:
- GenCorp will contribute to Omnova Solutions GenCorp's Performance
Chemicals and Decorative & Building Products businesses and some other
corporate assets in exchange for shares of Omnova Solutions common
stock and Omnova Solution's assumption of liabilities related to those
businesses and assets; and
- GenCorp will declare and pay as a special dividend to the holders of
its common stock, on a pro rata basis, all of the outstanding shares
of capital stock of Omnova Solutions.
The foregoing transactions are referred to as the Distribution.
The Distribution is conditioned upon, among other things:
- approval of the Distribution by holders of at least a majority of the
outstanding GenCorp common stock as of the record date for the special
meeting of GenCorp's shareholders to be held on August 18, 1999;
- the effectiveness of this Registration Statement on Form 10; and
- there not being in effect any statute, rule, regulation or order of
any court, governmental or regulatory body that prohibits or makes
illegal the transactions contemplated by the Distribution.
The Distribution will not occur if the conditions described above are not
satisfied.
The GenCorp Board has retained discretion, even if all conditions to the
Distribution are satisfied, to abandon, defer or modify the Distribution.
Prior to the date of the special dividend contemplated by the Distribution,
GenCorp will transfer to Omnova Solutions the assets associated with the
Performance Chemicals and Decorative & Building Products businesses, and some
other corporate assets. These assets will include (1) the GenCorp Technology
Center, (2) GenCorp's corporate flight operations, (3) GenCorp's corporate
headquarters building in Fairlawn, Ohio and (4) the tangible and intangible
assets owned and leased for the Performance Chemicals and Decorative & Building
Products businesses. Omnova Solutions intends to dispose of the corporate flight
operations within a reasonable period after the Distribution. In exchange for
the assets transferred, Omnova Solutions will issue to GenCorp a number of
shares of Omnova Solutions common stock equal to the number of shares of GenCorp
common stock outstanding on the record date for the special dividend and assume
liabilities of GenCorp relating to the businesses and assets transferred.
In connection with the Distribution, it is anticipated that Omnova
Solutions will enter into a credit agreement with Bank of America, the terms of
which are currently being negotiated. The credit agreement is expected to
provide $250 million of available credit on a five-year revolving basis.
Immediately prior to the Distribution, Omnova Solutions will borrow
approximately $188 million under the credit agreement. At the same time, Omnova
Solutions will declare and distribute to GenCorp a special dividend in the
amount of approximately $188 million. Omnova Solutions expects to use funds
borrowed under the credit agreement to pay the special dividend to GenCorp. The
actual amount to be borrowed by Omnova Solutions and distributed to GenCorp will
be determined at the time of the Distribution.
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BACKGROUND
Following the Distribution, Omnova Solutions will operate two business
segments, Performance Chemicals and Decorative & Building Products. Omnova
Solutions had pro forma revenues of approximately $766 million for the fiscal
year ended November 30, 1998. Information regarding revenues, operating profits
and assets attributable to the two segments are contained in Omnova Solutions'
audited and unaudited combined financial statements included in this Form 10.
The Performance Chemicals business was founded in 1952 as a segment of The
General Tire & Rubber Company, GenCorp's predecessor, focusing primarily on the
manufacture of latex, an emulsion polymer, for the paper industry and tire cord
adhesives in its Mogadore, Ohio facility. During the 1960's, the segment began
expanding its product lines for the paper and carpet industries, and in 1993
opened a latex plant in Green Bay, Wisconsin to better serve the needs of its
paper customers in the Upper Midwest. The Decorative & Building Products segment
began in 1945 when The General Tire & Rubber Company purchased the Jeannette,
Pennsylvania coated fabric facility from the Pennsylvania Rubber Company. In
1963 the Company built a production facility in Columbus, Mississippi to
increase its capacity and product offering in coated fabrics.
Since the early 1990's, GenCorp has aggressively grown both businesses. For
Performance Chemicals, the 1996 acquisition of Morton International's Lytron(R)
plastic pigment latex product line broadened offerings to the paper industry.
The 1998 acquisition of Goodyear's Calhoun, Georgia latex facility provided
additional manufacturing capacity, a strong presence in the southeast and an
expanded customer base. Performance Chemicals also acquired Sequa Chemical's
U.S. specialty chemicals business in 1998, gaining manufacturing facilities in
Chester, South Carolina and Greensboro, North Carolina. This acquisition
expanded existing emulsion polymer market positions and provided entry into new
related specialty chemical markets. The 1999 acquisition of PolymerLatex's U.S.
acrylics business in Fitchburg, Massachusetts provided a key northeast location
while strengthening and diversifying served markets in acrylic emulsions and
other specialty chemicals. The most recent 1999 acquisition of Morton
International's global latex floor care business has provided Performance
Chemicals with a new and complementary product line and new customers, based on
existing technology. Performance Chemicals holds a strong number two market
position in the styrene butadiene latex industry. The number of Performance
Chemicals facilities has grown from two to six in the past few years, with
estimated available served markets growing from $1 billion to $3.5 billion.
Decorative & Building Products expanded its commercial wallcovering
capabilities in 1991 through the acquisition of Canadian General Towers'
commercial wallcovering business. Today, with the recent acquisition of Walker
Greenbank's U.K.-based Muraspec and Brymor commercial wallcovering businesses,
Decorative & Building Products has grown to be the worldwide leader in this
market. Brymor provides a European manufacturing base. Muraspec, a distribution
business with sales offices throughout the U.K. and Europe, serves as a key
European distribution platform from which to market commercial wallcoverings and
other decorative and building products. GenCorp acquired Goodyear's Reneer Films
Division in 1993, increasing vinyl film and decorative laminate capability for
the Decorative & Building Products business and elevating its market position in
vinyl woodgrain laminates to number one in North America. In 1997, Decorative &
Building Products acquired the Printworld business of Technographics, Inc.,
adding paper laminates to its vinyl laminate portfolio and gaining entry into
the transfer printing market for furnishings and apparel.
Omnova Solutions had approximately 2,600 employees at May 31, 1999 located
at offices, plants and other facilities located principally throughout the
United States and the United Kingdom.
Omnova Solutions has been, and will be until the date of the special
dividend contemplated by the Distribution, a wholly owned subsidiary of GenCorp.
Omnova Solutions' principal executive offices are located at 175 Ghent Road,
Fairlawn, Ohio 44333. Its telephone number at that address is (330) 869-4200.
GENERAL
Omnova Solutions develops, manufactures and markets emulsion polymers,
specialty chemicals and decorative and building products for a variety of
industrial, commercial and consumer markets. The Performance Chemicals unit's
broad range of emulsion polymers and specialty chemicals are used as coatings,
binders,
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adhesives, and additives for paper, carpet, textile and various other
industries. Decorative & Building Products designs, manufactures and markets a
comprehensive line of polyvinyl chloride and paper-based decorative and
performance-enhancing surface products including wallcovering, coated fabrics,
vinyl woodgrain and paper laminates and graphic arts and industrial films, as
well as membrane systems for roofing. Markets served include furniture,
transportation, construction, remodeling, interior decorating and graphic arts.
Of Omnova Solutions' 1998 historical revenues, approximately 36% were
derived from the Performance Chemicals business and 64% from the Decorative &
Building Products business.
PRODUCTS AND SERVICES
PERFORMANCE CHEMICALS
Performance Chemicals manufactures a broad line of emulsion polymers and
specialty chemicals for use in the paper, carpet, textile, nonwoven,
construction, coatings, adhesive and tire cord industries. Performance
Chemicals' products for the paper industry improve the strength, gloss and
printability of its customers' products. These products are primarily used in
the manufacture of coated papers for applications such as magazines, photo
papers and office forms. Latex formulations are also used to provide these same
characteristics to paperboard packaging for food and household products. The
business is also a leading producer of styrene butadiene latex for use as carpet
backing adhesive, which secures carpet fibers to backing materials. Through the
1998 acquisition of Sequa Chemicals, Performance Chemicals significantly
expanded its product line breadth to include specialty wet end formulations such
as opacifiers, lubricants and insolubilizers used in paper manufacturing. The
acquisition significantly expanded total product offerings to paper customers
and enabled Performance Chemicals to generate significant synergies through
consolidated purchasing of acrylic monomers, cross selling of textile and carpet
chemicals and enhanced applications development. Additionally, the acquisition
added a diverse line of textile processing, coating and finishing chemicals that
provide water, stain and oil repellency and permanent press properties to
natural and synthetic textile fibers for apparel, home furnishings and
upholstery.
Performance Chemicals' product portfolio includes a growing specialty
segment that provides resins, binders, coatings, adhesives and saturants to a
broad variety of markets that include nonwoven, graphic arts, industrial
coatings and construction. These products provide greater strength, improved
processing ability and enhanced appearance for customer products.
With a strong number two position in the latex industry, Performance
Chemicals is recognized in all of its markets for its core capabilities in
polymer technology, its ability to rapidly develop highly customized products
and its ability to provide innovative, cost effective customer solutions.
DECORATIVE & BUILDING PRODUCTS
Decorative & Building Products is a leading supplier of decorative
surfacing laminates for wood and metal applications and holds the number one
North American position in woodgrain laminates. Decorative laminate products are
manufactured utilizing vinyls, lightweight papers and foils. Unique ultraviolet
(UV) and electronic beam (EB) coatings provide scratch, stain and UV resistance.
In addition, Decorative & Building Products has further differentiated itself in
the decorative laminate market as a single source supplier of integrated vinyl
and paper laminate designs for the furniture and cabinet industries, building an
extensive library of patterns, designs and textures and developing rapid
make-to-order production capabilities. Important markets for these products
include furniture, kitchen cabinets, manufactured housing, flooring laminates,
consumer electronics and wrapped wood components. In particular, the growing
ready-to-assemble furniture market provides an attractive market for Omnova
Solutions' unique decorative laminates product offerings. Double polished clear
vinyl films for the graphic arts, office products and stationery markets are
also produced.
Decorative & Building Products is the leading global manufacturer of
wallcoverings for the commercial market. Its product line includes a broad range
of fabric-backed vinyl and paper-backed vinyl wallcovering designs. Its industry
leading styling and design library covers a broad range of styles, patterns,
textures, and colors, ranging from traditional to contemporary designs.
Additionally, Decorative & Building Products has built its leading position in
the commercial wallcoverings market by leveraging its reputation for product
durability
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and quality, global distribution network, extensive emboss and print roll
library, long-term customer relationships, and integrated
manufacturing/distribution/sourcing value proposition. Well-known brands include
Bolta(R), Essex(R), Genon(R), Lanark(R), Tower(TM) and X-Quest(R) in North
America and Muralon and Muraspec in Europe. Key end user markets include the
hospitality, healthcare, commercial office and retail industries.
Decorative & Building Products is the leading North American supplier of
vinyl coated fabrics and urethane fabrics for contract and residential home
furnishings, transportation seating and marine applications as well as a variety
of other industrial and commercial end use markets. Its coated fabrics are
durable, stain resistant and cost effective alternatives and complements to
leather and textile coverings. Competitive advantages in the coated fabric
industry are leveraged through creative design and styling capabilities,
performance enhancing coatings, innovative technical support programs, leading
brand names and established distribution channels.
Decorative & Building Products is also a leading North American
manufacturer and marketer of single-ply roofing membrane systems for the
commercial and industrial roofing market. Selling under the Genflex(TM) brand
name, it is the only North American single-ply roofing supplier that offers all
three single-ply roofing systems, EPDM, TPO and PVC. This allows for a tailored
solution for each type of roofing application requirement. Through the
introduction of innovative products, Decorative & Building Products has
developed programs that reduce the time and cost of installation.
Through its Printworld operations, Decorative & Building Products
manufactures heat transfer prints on paper used to decorate apparel and home
furnishings. Heat transfer printing is an innovative, unique process for
printing intricate patterns on natural and synthetic fabrics that can be used
widely in the home furnishing, commercial furnishing and apparel industries.
Decorative & Building Products has established leading market positions in
all of its product categories by utilizing the Company's core competencies in
design, compounding, calendering, printing, embossing and coating. Given similar
core competencies and base technology requirements, the business is able to
leverage its investments in manufacturing, process and design improvement across
this broad set of product lines and benefit from economies of scale. In
addition, its broad offering of decorative and building products uniquely
positions it to provide integrated decorative solutions for its customers.
BUSINESS STRATEGY
ORGANIC GROWTH BY PROVIDING TOTAL SOLUTIONS. Omnova Solutions intends to
grow organically by developing long-term customer relationships and positioning
itself as the preferred total solutions partner. Omnova Solutions' strategy is
to avoid commodity market segments and focus on products that are highly
customized to meet specific customer requirements. These relationships have
enabled Omnova Solutions to develop innovative products that provide superior
functional performance, higher decorative content, and more efficient, lower
cost production processes to meet customers' specific application needs and
enhance the value of their products. For example, new roofing system
developments have provided significant benefits to contractors and building
owners by substantially reducing installation time and labor costs.
PURSUE GROWTH THROUGH STRATEGIC ACQUISITIONS. Omnova Solutions' businesses
have achieved significant growth through acquisitions of companies that build on
existing markets and core product and process technologies. Omnova Solutions
plans to continue to pursue acquisitions, strategic partnerships and joint
ventures in the future, targeting technologies and products in high growth
markets that are strategically related to its existing product portfolio,
customer base and markets.
LEVERAGE CORE COMPETENCIES ACROSS BUSINESSES. Omnova Solutions' expertise
in high performance polymer-based chemistries, the design and development of
customized product applications and polymer processing capabilities are shared
across its business units and provide a unique and differentiating competitive
advantage. Performance Chemicals and Decorative & Building Products have
identified common growth platforms to capitalize on these technology linkages.
For example, Performance Chemicals has pursued the development and
commercialization of new polymer and specialty chemical additives to meet the
needs of its broadening market portfolio. These new formulations in advanced
coatings, inks and adhesives are beginning to be leveraged in the Decorative &
Building Products segment to enhance the performance of a number of its
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products. Omnova Solutions' aligned growth strategy targets opportunities for
both businesses to team as customers or suppliers in the paper, textile, carpet,
furniture and construction industries.
EXPAND STRONG RESEARCH AND DESIGN CAPABILITIES. Omnova Solutions is an
industry leader in research and development, as well as styling and design
capabilities. The Performance Chemicals segment has recently made a major
investment in a new high speed pilot paper coater, which will be used to
accelerate Omnova Solutions' development and commercialization of new coating
technologies in its core markets. Omnova Solutions started construction of a new
pilot plant in 1998, which will support Omnova Solutions' new product
development and customer qualifications efforts. The Decorative & Building
Products segment maintains design centers in Salem, New Hampshire, New York and
Hertfordshire, England where designers combine traditional design techniques
with state-of-the-art computer aided design equipment to create unique designs
for incorporation across Omnova Solutions' decorative product spectrum. Omnova
Solutions continues to strengthen its design capability through investments in
digital archiving of designs and digital sampling. In addition, the business has
increased its focus on technology and new product development to provide
differentiated value-added products to customers.
INCREASE TECHNOLOGY LINKAGES. Through increasing technology linkages and
materials utilization between the two segments, Omnova Solutions can
aggressively pursue the development and commercialization of new polymers as
well as the function and performance of its decorative coatings. These technical
and materials synergies allow Performance Chemicals and Decorative & Building
Products to target and expand key markets. Technological linkages, purchasing,
marketing and sales economies, and manufacturing economies will enable more cost
effective development of new products and will increase the effectiveness of
cost reduction initiatives at Omnova Solutions. For example, the Omnova
Solutions business units have a powerful collective knowledge base in paper,
nonwovens, textiles, printing technology, ink systems and performance coatings,
and the chemicals application skills to supply advantaged products for these
applications.
BROADEN INTERNATIONAL OPERATIONS. Omnova Solutions plans to continue to
increase its global supply capabilities and the markets it serves. For example,
the recent acquisition of the Brymor and Muraspec U.K.-based commercial
wallcovering business provided a European manufacturing, design and distribution
platform for the Decorative & Building Products segment. The Company is
committed to continuing to expand its international presence through a continued
aggressive acquisition, joint venture and alliance strategy.
IMPROVE PROFITABILITY THROUGH OPERATIONAL EXCELLENCE INITIATIVES.
Operational excellence processes including Six Sigma quality, supply chain
management and high performance workplace initiatives are utilized throughout
Omnova Solutions' businesses. Omnova Solutions plans to continue to focus on
operational excellence initiatives across the supply chain to drive improvements
in productivity, quality cost and safety.
MARKETS AND CUSTOMERS
Management believes that Performance Chemicals is a market leader in its
targeted product categories. The polymer and chemical coating and binding
markets are highly competitive based on price, quality, customer service,
product performance and innovations. Performance Chemicals is the leading
quality producer for latex in the paper industry. Several customers generate
more than 10% of Performance Chemicals total revenues. These customers include
industry leaders such as Champion, Shaw and Consolidated.
Management believes that Decorative & Building Products is a market leader
in its targeted product categories. Decorative & Building Products markets are
competitive based on decorative content, enhanced performance characteristics,
price, quality, customer service, brand name recognition and reputation.
Decorative & Building Products markets its products under numerous brand names
to different industries. Major customers of this unit are Steelcase, Bradco and
Ashley Furniture.
DISTRIBUTION METHODS
Methods of distribution used by Omnova Solutions vary widely depending on
the nature of the products and the industry or market served. Products are sold
either directly or through distributors.
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COMPETITION
Performance Chemicals competes with several large global chemical companies
including Dow, BASF and Rohm & Haas, some of which produce rather than buy major
raw materials. Performance Chemicals also competes with small to mid-sized
U.S.-focused suppliers of specialty chemicals including B.F. Goodrich, National
Starch, S. C. Johnson Polymers and Morton International. Depending on the
products involved and markets served, the basis of competition varies from
price, quality, customer and technical service, product performance and
innovation, and industry recognition. Overall, Performance Chemicals regards its
products to be competitive in its major markets and believes that it holds
leading or strong number two positions in several North American markets
including paper coatings, styrene butadiene latex carpet backing binders,
textile permanent press resins, nonwoven binders, paper tape release coatings
and saturants, and tire cord adhesives.
Decorative & Building Products competes in its served markets with numerous
competitors, many of which are smaller and privately-owned. Key competitors in
each product group include:
- Commercial wallcovering -- RJF International, Fidelity Paint Systems
- Coated fabrics -- Haartz and Uniroyal
- Decorative laminates -- Chiyoda, Dai Nippon and Toppan
- Building systems -- Carlisle, Firestone, and Manville
- Heat transfer printing -- Miroglio, Sublistatic and Transfertex
INTELLECTUAL PROPERTY
Omnova Solutions regards its patents, copyrights, trademarks, and similar
intellectual property as important to its success and relies upon patent,
copyright and trademark laws, as well as confidentiality agreements with its
employees and others, to protect its rights. Omnova Solutions pursues patents
for important developments and the registration of its important copyrights and
trademarks in the United States and, depending upon use, in other countries.
Omnova Solutions may be subject to claims of alleged infringement of the
patents, trademarks and other intellectual property rights of third parties from
time to time in the ordinary course of business. Omnova Solutions does not
believe that these legal proceedings or claims are likely to have, individually
or in the aggregate, a material adverse effect on Omnova Solutions' business,
financial condition or results of operations.
RAW MATERIALS
Performance Chemicals utilizes a variety of raw materials, primarily
monomers, in the manufacture of its products, all of which are generally
available from several qualified suppliers. Monomer costs are a major component
of the emulsion polymers produced by the business. The monomers used include
styrene, butadiene, acrylonitrile, hydroxyethyl acrylate, vinylpyridine,
vinylidiene chloride, acrylic acid, methacrylic acid, itaconic acid, vinyl
acetate, butyl acrylate, ethyl acrylate, methyl methacrylate, acrylamide,
n-methyol methacrylamide, acrylamide, and hydroxyethyl methacrylate.
Decorative & Building Products also utilizes a variety of raw materials
which are generally available from multiple suppliers. Key raw materials include
polyvinyl chloride resins, textiles, plasticizers, paper, and titanium dioxide.
Textiles and polyvinyl chloride resins represent approximately 47% of total raw
materials purchased on a dollar basis.
The cost of these raw materials has a significant impact on Omnova
Solutions' profitability. A significant increase in the price of monomers or
polyvinyl chloride resins could materially increase Omnova Solutions' operating
costs and materially adversely affect its profit margins. While Omnova Solutions
generally attempts to pass increased raw materials prices onto its customers in
the form of price increases, there has historically been a time delay between
increased raw materials prices and the ability to increase product prices. In
addition, Omnova Solutions may not be able to increase its prices sufficiently
to cover any significant raw materials cost increases.
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ENVIRONMENTAL MATTERS
The business operations of Omnova Solutions, like those of other companies
in the industries in which Omnova Solutions operates, are subject to numerous
foreign, federal, state and local environmental laws and regulations. These laws
and regulations not only affect Omnova Solutions' current operations, but also
could impose liability on Omnova Solutions for past operations that were
conducted in compliance with then applicable laws and regulations. Omnova
Solutions anticipates that these laws and regulations will become increasingly
stringent. Environmental liabilities related to discontinued operations will not
be assumed by Omnova Solutions and will remain obligations of GenCorp after the
Distribution.
EMPLOYEES
Omnova Solutions will employ approximately 2,600 employees after the
Distribution. Approximately 28% of these employees will be covered by collective
bargaining agreements. One of these agreements, covering approximately 22% of
Omnova Solutions' covered employees, will expire within the next 12 months. A
prolonged work stoppage at any of Omnova Solutions' facilities could materially
adversely affect Omnova Solutions' business and results of operations.
ITEM 2. FINANCIAL INFORMATION.
OMNOVA SOLUTIONS SELECTED HISTORICAL FINANCIAL DATA
The financial data as of November 30, 1998 and 1997 and for each of the
three years in the period ended November 1998, and as of and for the three
months ended February 28, 1998 and 1999 has been derived from the audited and
unaudited combined financial statements of Omnova Solutions contained in this
Form 10. The other historical financial data is unaudited. The historical
combined financial statements of Omnova Solutions contained in this Form 10 are
presented as if Omnova Solutions was a separate entity for all periods
presented.
You should keep the following in mind when reviewing this data:
- Segment operating profit represents net sales less applicable costs,
expenses and provisions for restructuring and unusual items relating to
operations. Segment operating profit excludes corporate income and
expenses, provisions for nonoperating unusual items, interest expense and
income taxes.
- During fiscal 1994, Omnova Solutions recorded a charge of $23 million for
the cumulative effect of accounting changes for postretirement benefits
other than pensions and income taxes.
- During fiscal 1996, Omnova Solutions recorded unusual pre-tax income of
$4 million from the sale of the structural urethane adhesives business.
- During fiscal 1997, Omnova Solutions acquired Printworld. During fiscal
1998, Omnova Solutions acquired (1) the U.S. specialty chemicals business
of Sequa Chemicals, (2) the commercial wallcovering business of Walker
Greenbank PLC and (3) the Calhoun, Georgia latex facility of The Goodyear
Tire & Rubber Company. These acquisitions are reflected in the income
statement and balance sheet data beginning on the acquisition dates.
- During fiscal 1998, Omnova Solutions recorded unusual expense of $3
million pre-tax related to exiting the residential wallcovering business.
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<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED NOVEMBER 30, ENDED FEB. 28,
-------------------------------- ---------------
1994 1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ---- ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.................................. $479 $525 $506 $548 $624 $134 $171
Segment operating profit................... 40 57 74 66 83 15 17
Income before cumulative effect of
accounting changes....................... 16 27 37 34 42 8 7
Cumulative effect of accounting changes.... (23) -- -- -- -- -- --
---- ---- ---- ---- ---- ---- ----
Net income (loss).......................... $ (7) $ 27 $ 37 $ 34 $ 42 $ 8 $ 7
==== ==== ==== ==== ==== ==== ====
BALANCE SHEET DATA (AT PERIOD END):
Total assets............................... $240 $226 $233 $277 $603 $266 $603
Long-term debt............................. -- -- -- -- -- -- --
Divisional equity.......................... 159 146 147 182 489 193 499
</TABLE>
OMNOVA SOLUTIONS CAPITALIZATION
The following table sets forth the capitalization of Omnova Solutions at
February 28, 1999, the Omnova Solutions principal financial adjustments that
will result from the Distribution and the pro forma capitalization of Omnova
Solutions after giving effect to the Distribution. You should read this data in
conjunction with the historical financial statements and the unaudited pro forma
condensed financial statements of Omnova Solutions included elsewhere in this
Form 10.
The pro forma adjustments reflect:
- The anticipated borrowing of approximately $188 million and the resulting
payment of a dividend to GenCorp in that amount. The actual amount to be
borrowed and paid to GenCorp will be determined immediately prior to the
Distribution.
- The $215 million effect of the Distribution on divisional equity
described in the Omnova Solutions Unaudited Pro Forma Condensed Combined
Balance Sheet as of February 28, 1999 included in this Form 10.
<TABLE>
<CAPTION>
FEBRUARY 28, 1999
-------------------------------------
OMNOVA
OMNOVA PRO FORMA SOLUTIONS
SOLUTIONS ADJUSTMENTS PRO FORMA
--------- ----------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Notes payable............................................... $ 6 $ -- $ 6
Long-term debt.............................................. -- 188 188
---- ----- ----
Total debt.................................................. 6 188 194
Total divisional equity..................................... 499 (215) 284
---- ----- ----
TOTAL CAPITALIZATION........................................ $505 $ (27) $478
==== ===== ====
</TABLE>
OMNOVA SOLUTIONS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Since 1994, GenCorp's key strategy has been to become a more focused
company in fewer businesses. The businesses targeted were those with the
greatest potential to generate value from continuing improved
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performance and expansion in existing markets, and through enhanced growth by
entering attractive new and related markets. On December 17, 1998, GenCorp
announced its plans to spin off its Performance Chemicals and Decorative &
Building Products businesses to GenCorp shareholders as a separate publicly
traded polymer products company (Omnova Solutions).
Omnova Solutions will operate two business segments, Performance Chemicals
and Decorative & Building Products. The Performance Chemicals unit manufactures
a broad range of emulsion polymers and specialty chemicals used as coatings,
binders, adhesives, and additives for paper, carpet, textile and various other
specialty chemical industries. Decorative & Building Products designs,
manufactures and markets a comprehensive line of polyvinyl chloride and
paper-based decorative and functional surface products including wallcovering,
coated fabrics and vinyl woodgrain and paper laminates for furniture,
construction, remodeling and other commercial applications, as well as membrane
systems for roofing.
Omnova Solutions' sales are affected by numerous factors. In the
Performance Chemicals business, the key sales drivers are the ability to create
custom polymer and specialty chemical solutions to enhance customer product
performance; domestic demand for coated paper; and trends in the carpet,
textile, and specialty markets. In the Decorative & Building Products business,
commercial wallcovering and building systems sales are driven by trends in
refurbishment of commercial office buildings, hotels, hospitals and schools and,
to a lesser degree, new construction cycles. Product design and styling are
important product differentiators in the commercial wallcovering business. Sales
trends in decorative laminates and coated fabrics typically move with general
economic trends, with slightly greater growth due to the business units' ability
to produce enhanced designs and styles to meet the needs of commercial and
residential furniture customers. Omnova Solutions is subject to volatility in
its operating costs arising from changes in the price of several key raw
materials including polyvinyl chloride, styrene and butadiene.
Omnova Solutions' annual sales have grown from $479 million in 1994 to $624
million in 1998. During the same period, Omnova Solutions' segment operating
profit doubled from $40 million to $83 million. Omnova Solutions' revenue growth
is due to both strategic acquisitions and growth in existing product lines. The
significant growth in segment operating profit was due to acquisitions,
operational improvement initiatives, aggressive cost containment and a general
shift toward higher margin products.
Recent strategic acquisitions of Performance Chemicals include the purchase
of the Lytron(R) polystyrene latex plastic pigment business in 1996, which
broadened offerings to the paper industry; the acquisition of The Goodyear Tire
& Rubber Company's Calhoun, Georgia latex facility in 1998, which provided new
manufacturing capacity, increased presence in the Southeastern U.S. and an
expanded customer base; and the acquisition of Sequa Chemical's U.S. specialty
chemicals business in 1998, which expanded existing emulsion polymer market
positions and provided entry into new related specialty chemical markets. In
fiscal 1999, Performance Chemicals acquired PolymerLatex's U.S. acrylics
business in Fitchburg, Massachusetts which strengthened and diversified markets
in acrylic emulsions and other specialty chemicals; and Morton International's
global latex floor care business, which provided a complementary product line
and customer base. In 1996, Performance Chemicals sold its structural urethane
adhesives business.
Recent strategic acquisitions of Decorative & Building Products include the
purchase of Printworld in 1997, which added paper laminates to its vinyl
laminate portfolio and provided entry into the transfer printing market for
furnishings and apparel; and the 1998 acquisition of Walker Greenbank's
U.K.-based commercial wall-covering business which provided two European
facilities and a platform from which to market other decorative and building
products. Also during 1998, Decorative & Building Products sold its residential
wallcovering business.
The combined financial statements of Omnova Solutions generally reflect the
financial position, results of operations and cash flows of the operations
expected to be transferred to Omnova Solutions in connection with the
Distribution. Accordingly, Omnova Solutions' combined financial statements have
been carved out from the consolidated financial statements of GenCorp using the
historical results of operations and historical basis of the assets and
liabilities of Omnova Solutions' businesses and the allocation methodology
described in Note A to Omnova Solutions' Combined Financial Statements. Omnova
Solutions will operate as two business segments, Performance Chemicals and
Decorative & Building Products. The combined financial statements of Omnova
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<PAGE> 11
Solutions do not include certain assets and liabilities which will be
transferred to Omnova Solutions in connection with the Distribution. See "Item
13. Financial Statements and Supplementary Data -- Omnova Solutions Unaudited
Pro Forma Condensed Combined Financial Statements" and Note A to Omnova
Solutions' Combined Financial Statements. Management believes the assumptions
underlying Omnova Solutions' financial statements are reasonable.
RECENT DEVELOPMENTS
Net sales for the Omnova Solutions businesses in the second quarter of 1999
increased 27% to $195.9 million compared to $153.7 million in the second quarter
of 1998. Sales increased in both Decorative & Building Products and Performance
Chemicals, primarily from sales attributable to acquisitions. Total segment
operating profit increased to $23.5 million for the second quarter of 1999
versus $21.7 million in the second quarter of 1998. Operating margins decreased
to 12.0% in the second quarter of 1999 compared to 14.1% in the second quarter
of 1998, due primarily to lower average unit selling prices across certain
Performance Chemicals product lines, and increased new product development
spending.
Net sales for Performance Chemicals increased for the second quarter of
1999 by 49% to $82.0 million compared to $55.0 million in the second quarter of
1998. The increase reflects sales attributable to the 1998 acquisitions.
Excluding the effect of acquired businesses, volume was flat compared to 1998
while pricing was down slightly. Segment operating profit during the second
quarter of 1999 improved 8% to $9.4 million versus $8.7 million in the second
quarter of 1998. Segment operating margins declined to 11.5% in the second
quarter of 1999 versus 15.8% in the 1998 second quarter. The decline is
primarily due to lower pricing and integration costs related to acquisition
activity in the latter half of 1998.
During the second quarter of 1999, Performance Chemicals completed the $8
million acquisition of Morton International's global latex floor care business,
adding a complementary product line and customer base, and expanding its
presence in Europe and the Far East.
Net sales for Decorative & Building Products increased for the second
quarter of 1999 by 15.4% to $113.9 million compared to $98.7 million in the
second quarter of 1998. The increase was mainly related to the European
wallcovering acquisition, paper laminates and building systems businesses.
Segment operating profit during the second quarter of 1999 improved 12.3% to
$14.6 million versus $13.0 million in the second quarter of 1998. Segment
operating margins declined to 12.8% in the second quarter of 1999 from 13.2% for
the second quarter of 1998, due primarily to increased spending on new product
development.
Within the Decorative & Building Products business unit during the second
quarter of 1999, the trend of performance improvement for the building systems
(roofing) sector continued with a 20% increase in sales. Sales were also up by
30% in the first half of 1999 within the coated fabrics' residential upholstery
business.
RESULTS OF OPERATIONS FIRST THREE MONTHS FISCAL 1999 COMPARED TO 1998
Total sales increased for the first quarter of 1999 by 28% to $171 million
compared to $134 million in the first quarter of 1998. This increase mainly
relates to sales attributable to the 1998 acquisitions. Total segment operating
profit during the first quarter of 1999 improved 13% to $17 million versus $15
million in the first quarter of 1998. Net income was $7 million in the first
three months of fiscal 1999 compared to $8 million in the same period of 1998.
Net sales for Performance Chemicals increased for the first quarter of 1999
by 57% to $74 million compared to $47 million in the first quarter of 1998. The
increase reflects sales attributable to the 1998 acquisitions. Excluding the
effect of acquired businesses, volume was flat compared to 1998 while pricing
was down slightly. Segment operating profit during the first quarter of 1999
improved 20% to $6 million versus $5 million in the first quarter of 1998.
Segment operating profit margins declined to 8.1% in the first quarter of 1999
versus 10.6% in the 1998 first quarter. The decline is primarily due to lower
pricing and integration costs related to acquisition activity in the latter half
of 1998.
Sales for Decorative & Building Products increased for the first quarter of
1999 by 12% to $97 million compared to $87 million in the first quarter of 1998.
These increases were mainly related to the European
11
<PAGE> 12
wallcovering acquisition and higher volumes in the building systems and
decorative laminates businesses, which more than offset the decline in sales
resulting from the divestiture of the residential wallcovering business. Segment
operating profit during the first quarter of 1999 improved 10% to $11 million
versus $10 million in the first quarter of 1998. Segment operating profit
margins were comparable at 11.3% in the first quarter of 1999 versus 11.5% for
the first quarter of 1998.
During the quarter, Decorative & Building Products continued its
integration of the European wallcovering business. Synergies realized from the
1997 Printworld acquisition have led to significant sales growth in the
decorative laminates business from new coordinated paper and vinyl product
lines. Decorative & Building Products has also increased market share across all
of its building systems product lines.
Interest expense allocated from GenCorp increased to $5 million in the
first quarter of 1999 compared to $1 million in the first quarter of 1998. The
increase in interest expense relates to the increase in GenCorp's debt from
February 28, 1998 to February 28, 1999 due primarily to the fiscal 1998
acquisitions.
RESULTS OF OPERATIONS FISCAL 1998 COMPARED TO 1997
Total sales for Omnova Solutions increased $76 million, or 14%, to $624
million in 1998 from $548 million in 1997. Total segment operating profit,
excluding unusual items, in 1998 increased $20 million, or 30% to $86 million in
1998 from $66 million in 1997. Net income was $42 million in 1998 compared to
$34 million in 1997, a 24% increase.
Sales for Performance Chemicals increased $46 million, or 26%, to $226
million in 1998 from $180 million in 1997. The increase was attributable to the
recent acquisitions and volume growth in the existing product lines, partially
offset by a modest decline in pricing. Segment operating profit for Performance
Chemicals increased by $13 million, or 59%, to $35 million in 1998 from $22
million in 1997. The increase was also attributable to the recent acquisitions
and volume growth in the existing product lines. Operating profit margins for
Performance Chemicals increased to 15.5% in 1998 from 12.2% in 1997, resulting
primarily from lower raw material pricing in 1998.
Decorative & Building Products sales increased $30 million, or 8%, to $398
million in 1998 from $368 million in 1997. The increase was primarily
attributable to sales related to the commercial wallcovering business acquired
in 1998 and higher sales in the building systems, decorative laminates and
coated fabrics businesses. Segment operating profit, excluding unusual items,
increased by $7 million, or 16%, to $51 million in 1998 from $44 million in
1997. Segment operating profit margins for this segment increased to 12.8% in
1998 from 12.0% in 1997. These increases were related to the 1998 acquisition
and the strong performance of building systems, decorative laminates, heat
transfer and coated fabrics product lines.
Interest expense allocated from GenCorp increased to $8 million in 1998
compared to $4 million in 1997. The increase in interest expense relates to the
increase in GenCorp's debt during fiscal 1998 due primarily to the fiscal 1998
acquisitions.
As compared to 1998, other (income) expense was favorably impacted in
fiscal 1997 by the reimbursement of expenses related to an environmental
settlement. Omnova Solutions recognized unusual expense of $3 million in 1998
related to exiting the residential wallcovering business.
RESULTS OF OPERATIONS FISCAL 1997 COMPARED TO FISCAL 1996
Total sales for Omnova Solutions increased $42 million, or 8% in 1997 to
$548 million from $506 million in 1996. Total segment operating profit,
excluding unusual items, in 1997 decreased $4 million or 6% to $66 million in
1997 from $70 million in 1996. Net income was $34 million in 1997 compared to
$37 million in 1996, an 8% decrease.
Sales for Performance Chemicals increased 8% to $180 million in 1997 from
$166 million in 1996. The improvement was primarily due to volume increases
across paper coating and Lytron(R) product lines. Segment operating profit,
excluding unusual items, in 1997 was $22 million compared to $25 million in
1996. Segment
12
<PAGE> 13
operating profit margins declined to 12.2% from 15.1%. The decrease was
attributable to lower average selling prices and increased raw material costs,
which were consistent with the industry.
Decorative & Building Products sales increased 8% to $368 million in 1997
from $340 million in 1996. The improvement was primarily due to volume growth in
the commercial wallcovering and roofing product lines, and the acquisition of
Technographics Inc.'s Printworld business. This increase was partially offset by
sales declines in the residential wallcovering and plastic films businesses.
Segment operating profit in 1997 was $44 million compared to $45 million in
1996. Segment operating profit margins were 12.0% in 1997 compared to 13.2% in
1996. The decrease was attributable to increased raw material costs and start-up
costs related to new product offerings during fiscal 1997.
Interest expense allocated from GenCorp decreased to $4 million in 1997
compared to $8 million in 1996. The decrease in interest expense relates
primarily to the conversion of GenCorp's $115,000,000 8% Convertible
Subordinated Debentures Due August 1, 2002 into GenCorp common stock.
Other (income) expense was favorably impacted in fiscal 1997 by the
reimbursement of expenses related to an environmental settlement. There were no
unusual items in 1997 as compared to 1996 when Omnova Solutions recognized
unusual income of $4 million from the sale of the structural urethane adhesives
business.
FINANCIAL RESOURCES AND CAPITAL SPENDING
First Quarter 1999 and 1998
Cash flow used in operating activities for the first three months of fiscal
1999 was $3 million as compared to zero in the first three months of 1998. The
cash flow used by operating activities primarily reflects a higher working
capital requirement.
For the first three months of 1999, $1 million was used for investing
activities, including the acquisition of the U.S. acrylics emulsion business of
PolymerLatex for $9 million, consisting of cash of $3 million and a note for $6
million, and capital expenditures of $7 million, offset by proceeds of $9
million from the sale of the residential wallcovering business. This is compared
to $3 million used for investing activities in the first three months of 1998,
which was for capital expenditures.
Fiscal 1998, 1997, and 1996
Cash flow provided by operating activities for fiscal 1998 was $52 million
compared to $57 million in 1997 and $51 million in 1996. Working capital
requirements for Omnova Solutions have remained relatively constant from
year-to-year.
In fiscal 1998, $312 million was used for investing activities including
$294 million for acquisitions and capital expenditures of $18 million. The
acquisitions included Sequa Corporation's specialty chemicals unit for $108
million, Walker Greenbank's commercial wallcovering business for $112 million
and The Goodyear Tire & Rubber Company's Calhoun, Georgia latex facility for $74
million. This is compared to $58 million used for investing activities in fiscal
1997, which included the acquisition of Technographics, Inc.'s Printworld
business for $47 million and capital expenditures of $11 million. Cash flow used
in investing activities during fiscal 1996 was $15 million, which included the
acquisition of Morton International's Lytron(R) business for $4 million and
capital expenditures of $15 million, offset by $4 million of proceeds received
from the sale of the structural urethane adhesives business.
Cash flow provided by financing activities in fiscal 1998 was $264 million
compared to $1 million in 1997 and cash flow used of $36 million in 1996. The
increase in net transactions with GenCorp during fiscal 1998 was primarily due
to cash required by Omnova Solutions for its fiscal 1998 acquisitions.
Capital Spending
Capital expenditures were made and are planned principally for capacity
expansion and asset replacement, cost reduction, safety and productivity
improvements and environmental protection. Capital expenditures totaled $7
million for the first three months of fiscal 1999, and $18 million in 1998, $11
million in 1997 and $15 million
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<PAGE> 14
in 1996. Omnova Solutions' total capital expenditures in 1999 are currently
projected to be approximately $53 million. Planned expenditures for 1999
increased significantly due to $10 million of planned equipment upgrades and
additions in Decorative & Building Products; $8 million planned for Performance
Chemicals' capacity expansion and renovation of its pilot plant; and $12 million
for planned improvements to recently acquired businesses including Sequa
Chemicals and Walker Greenbank's commercial wallcovering business. Management of
Omnova Solutions plans to fund these capital expenditures from cash flow from
operations and, if necessary, from borrowings under its new credit facility.
Based upon current and anticipated levels of operations and plans for
integrating recent acquisitions, Omnova Solutions believes that its cash flow
from operations, combined with borrowings that will be available under its new
credit facility will be sufficient to enable Omnova Solutions to meet its
current and anticipated cash operating requirements, including scheduled
interest and principal payments, capital expenditures and working capital needs
for the next 12 months. However, actual capital requirements may change,
particularly as a result of any acquisitions which Omnova Solutions may make.
The ability of Omnova Solutions to meet its current and anticipated operating
requirements will be dependent upon the future performance of Omnova Solutions
which, in turn, will be subject to general economic conditions and to financial,
business and other factors, including factors beyond Omnova Solutions' control.
Depending on the nature, size and timing of future acquisitions, Omnova
Solutions may be required to raise additional financing. There can be no
assurances that additional financing will be available to Omnova Solutions on
acceptable terms. In addition, the tax rules related to the Distribution may
limit Omnova Solutions' ability for a period of time to fund acquisitions
through the issuance of equity securities. See "Item 7. Certain Relationships
and Related Transactions -- Distribution Agreement." Substantially all of the
debt of Omnova Solutions will bear interest at variable rates; therefore, its
liquidity and financial condition is and will continue to be affected by changes
in prevailing interest rates.
ENVIRONMENTAL MATTERS
Omnova Solutions' policy is to conduct its businesses with due regard for
the preservation and protection of the environment. Omnova Solutions devotes
resources and management attention to environmental matters and actively manages
its ongoing processes to comply with extensive environmental laws and
regulations.
Capital expenditures for projects related to the environment were
approximately $1 million in each of 1998, 1997 and 1996. Omnova Solutions
currently forecasts that capital expenditures for environmental projects will
approximate $2 million in each of 1999 and 2000. During 1998, noncapital
expenditures for environmental compliance and protection totaled $4 million all
of which were for recurring costs associated with managing hazardous substances
and pollution abatement in ongoing operations. Similar noncapital expenditures
were $3 million in each of 1997 and 1996. It is presently expected that
noncapital environmental expenditures for the next several years will be
consistent with historical expenditure levels.
Management believes, on the basis of presently available information, that
resolution of environmental matters will not materially affect future results of
operation, liquidity, capital resources or the consolidated financial condition
of Omnova Solutions.
INFORMATION SYSTEMS AND THE YEAR 2000
Omnova Solutions is currently engaged in a comprehensive project to upgrade
its information, technology, manufacturing and facilities computer hardware and
software programs to address the Year 2000 issue at its domestic and
international businesses. Many of Omnova Solutions' systems include new hardware
and updated software packages purchased from established vendors who have
represented that these systems are Year 2000 ready. Omnova Solutions does not
have large centralized systems, a factor which Omnova Solutions believes reduces
the risk of a single point of failure having wide-spread impact on Omnova
Solutions.
As part of this project, Omnova Solutions has formally communicated with
all of its significant suppliers, vendors and large customers to determine the
extent to which Omnova Solutions is vulnerable to those parties' failures to
correct their own Year 2000 issues. As of February 28, 1999, Omnova Solutions
has received approximately 75% of the responses, and those responses generally
indicate that these parties will be Year 2000 ready.
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<PAGE> 15
Omnova Solutions has completed an inventory and assessment of its
information technology systems. Both internal and external resources are being
utilized to test Omnova Solutions' software for Year 2000 readiness and, where
necessary, the systems are being remediated through upgrading, replacement or
reprogramming. Also, Omnova Solutions has completed an inventory and assessment
of its non-information technology (embedded) systems, prioritizing the impact of
each of these systems on Omnova Solutions' ability to conduct its operations
and, as necessary, obtaining vendor verification and/or remediation of those
systems. The process of analyzing, prioritizing, remediating and testing will be
an iterative process until all critical systems are Year 2000 ready.
The estimated cost for this project is projected to range between $3
million and $5 million, which is being funded through operating cash flows.
Omnova Solutions has spent approximately $1 million as of February 28, 1999 on
this project, most of which has been for internal remediation efforts and
expects to spend a significant amount of the remaining budget in the second and
third quarter of 1999. Excluding recent acquisitions, Omnova Solutions believes
that approximately 70% of its systems are Year 2000 ready as of February 28,
1999 and the remaining systems will be Year 2000 ready by mid-year 1999. Recent
acquisitions are targeted for completion by the end of the third quarter of
1999.
Based upon currently available information and considering Omnova
Solutions' decentralized systems and Year 2000 efforts, management believes that
the most reasonably likely worst case scenario could result in minor short-term
business interruptions. Omnova Solutions is preparing contingency plans which
include alternative sourcing to minimize any disruptions to its businesses
resulting from a vendor or supplier not being Year 2000 ready. However, failure
by Omnova Solutions and/or vendors and customers to complete Year 2000 readiness
work in a timely manner could have a material adverse effect on certain of
Omnova Solutions' operations. Omnova Solutions' exposure could increase or its
timetable for Year 2000 readiness could be delayed as a result of any new
acquisitions.
ADOPTION OF THE EURO
Based upon a preliminary evaluation, management believes that the adoption
of the Euro by the European Economic Community will not have a material impact
on Omnova Solutions' international businesses. Omnova Solutions' foreign
operations currently are small and each operation conducts the majority of its
business in a single currency with minimal price variations between countries.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Although Omnova Solutions conducts business in foreign countries,
international operations were not material to Omnova Solutions' consolidated
financial position, results of operations or cash flows as of February 28, 1999.
Additionally, foreign currency transaction gains and losses were not material to
Omnova Solutions' results of operations for the three months ended February 28,
1999. While international operations have not been significant in the past,
Omnova Solutions could be subject to material foreign currency exchange rate
risk with respect to future operations and cash flows due to Omnova Solutions'
acquisition of the European wallcovering business in late 1998. To date, Omnova
Solutions has not entered into any significant foreign currency forward exchange
contracts or other derivative financial instruments to hedge the effects of
adverse fluctuations in foreign currency exchange rates. Omnova Solutions is
evaluating the future use of these financial instruments.
NEW ACCOUNTING PRONOUNCEMENTS
Omnova Solutions adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (SFAS 130), as of December 1, 1998, which
established standards for reporting and displaying comprehensive income and its
components in the financial statements. The adoption of SFAS 130, which had no
impact on Omnova Solutions' net income or divisional equity, requires
translation adjustments to be included in other comprehensive income.
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (SFAS 131). This statement is required to be adopted
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<PAGE> 16
in fiscal year 1999. SFAS 131 requires that annual and interim financial and
descriptive information about reportable operating segments be reported on the
same basis used internally for evaluating segment performance and the allocation
of resources. While Omnova Solutions has not yet determined the impact of
adopting SFAS 131 on its financial statement disclosures, Omnova Solutions does
not expect any change to its primary financial statements.
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which is required to be adopted in fiscal
year 2001. Because of Omnova Solutions' minimal use of derivatives, management
does not anticipate that the adoption of this Statement will have a significant
effect on earnings or the financial position of Omnova Solutions.
In April 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-5, "Reporting the Costs of
Start-up Activities" (SOP 98-5). SOP 98-5 is effective for Omnova Solutions
beginning on December 1, 1999, and requires that start-up costs capitalized
prior to December 1, 1999 be written off and any future start-up costs be
expensed as incurred. Omnova Solutions has no capitalized start-up costs;
therefore the adoption of SOP 98-5 will not have an effect on the combined
financial statements.
In March 1998, the AICPA issued SOP 98-1, "Accounting For the Costs of
Computer Software Developed For or Obtained For Internal Use" (SOP 98-1). SOP
98-1 is effective for Omnova Solutions beginning on December 1, 1999. SOP 98-1
will require the capitalization of certain costs incurred after the date of
adoption in connection with developing or obtaining software for internal use.
Omnova Solutions believes it is in compliance with the standards established by
SOP 98-1 and that its implementation will not impact Omnova Solutions' future
earnings or financial position.
FORWARD-LOOKING STATEMENTS
This Form 10 contains forward-looking statements as defined by the Private
Securities Litigation Reform Act of 1995. These statements present (without
limitation) the expectations, beliefs, plans and objectives of management and
future financial performance and/or assumptions underlying or judgments
concerning matters discussed in this document. These discussions and any other
discussions contained in this proxy statement, except to the extent that they
contain historical facts, are forward-looking and accordingly involve estimates,
assumptions, judgments and uncertainties; in particular, this pertains to
management's comments on financial resources, capital spending and the outlook
for each of Omnova Solutions' business segments. The outcomes of forward-looking
statements and material contingencies could differ materially from those
discussed due to inherent economic risks and changes in prevailing governmental
policies and regulatory actions. In addition to certain contingency matters and
their respective cautionary statements discussed elsewhere in this Form 10, the
Forward-Looking Statements section of this Management's Discussion and Analysis
indicates some important factors that could cause actual results or outcomes to
differ materially from those addressed in the forward-looking statements.
Some important factors that could cause Omnova Solutions' actual results or
outcomes to differ from those expressed in its forward-looking statements
include, but are not limited to, the following:
- General economic trends affecting Omnova Solutions' markets
- Governmental and regulatory policies including environmental regulations
- Omnova Solutions' acquisition activities
- Raw material prices for chemical feed stocks including polyvinyl
chloride, styrene and butadiene
- The ability of Omnova Solutions and its customers and vendors to
successfully modify and convert their systems to be Year 2000 ready
- Fluctuations in exchange rates of foreign currencies and other risks
associated with foreign operations
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<PAGE> 17
Additional risk factors may be described from time to time in Omnova
Solutions' filings with the Securities and Exchange Commission. All of these
risk factors are difficult to predict, contain material uncertainties that may
affect actual results and may be beyond Omnova Solutions' control.
ITEM 3. PROPERTIES.
Significant operating, manufacturing, research, design and/or sales and
marketing facilities of Omnova Solutions after the Distribution are set forth
below.
CORPORATE HEADQUARTERS AFTER THE DISTRIBUTION:
<TABLE>
<S> <C>
Omnova Solutions *Omnova Solutions Overseas
175 Ghent Road 545 Orchard Road
Fairlawn, OH 44333-3300 #09-05 Far East Shopping Centre
330/869-4200 Singapore 238882
(65) 733-7080
Technology Center
2990 Gilchrist Road
Akron, OH 44305-4489
330/794-6300
</TABLE>
PERFORMANCE CHEMICALS:
<TABLE>
<S> <C>
Headquarters: Sales/Manufacturing/Technical/Distribution:
165 S. Cleveland Avenue Akron, OH
Mogadore, OH 44260-1593 Calhoun, GA
330/628-6550 Chester, SC
*Dalton, GA
Fitchburg, MA
Green Bay, WI
Greensboro, NC
Mogadore, OH
</TABLE>
DECORATIVE & BUILDING PRODUCTS:
<TABLE>
<S> <C> <C>
Sales/Marketing/Design/Distribution:
Headquarters Manufacturing Facilities: *Asnieres, France
175 Ghent Road Auburn, PA *Brussels, Belgium
Fairlawn, OH 44333-3300 Columbus, MS *Charlotte, NC
330/869-4200 Jeannette, PA Herfordshire, England
Kent, England *Jebei Ali, Dubai, UAE
Monroe, NC *Maumee, OH
*New York, NY
*Paris, France
*Pine Brook, NJ
Salem, NH
</TABLE>
- ---------------
* An asterisk next to a facility listed above indicates that it is a leased
property.
In addition, Omnova Solutions owns and leases properties (primarily
machinery, warehouse and office facilities) in various regions of the country
for use in the ordinary course of business.
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<PAGE> 18
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Omnova Solutions is presently a wholly owned subsidiary of GenCorp. The
following table sets forth information regarding the beneficial ownership of
Omnova Solutions common stock immediately after the Distribution, as if the
Distribution took place on May 31, 1999, by (1) each person known by GenCorp who
would beneficially own more than 5% of the outstanding Omnova Solutions common
stock; (2) each of the persons who are expected to serve as a director of Omnova
Solutions; (3) each of the executive officers listed on the Summary Compensation
Table under "Item 6. Executive Compensation;" and (4) all persons expected to be
Omnova Solutions directors and executive officers after the Distribution, as a
group.
<TABLE>
SHARES PERCENT
BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
- ---------------- ------------------ --------
<S> <C> <C>
GenCorp and Omnova Solutions employee savings plans......... 5,789,750 13.86%(1)
175 Ghent Road
Fairlawn, OH 44333
FMR Corp.................................................... 4,406,173 10.55%(2)
82 Devonshire Street
Boston, MA 02109
Mario J. Gabelli/Gabelli Funds Inc.......................... 3,217,875 7.70%(3)
One Corporate Center
Rye, NY 10580
Franklin Resources, Inc..................................... 2,739,300 6.56%(4)
777 Mariners Island Boulevard
San Mateo, CA 94404
The Prudential Insurance Company of America................. 2,176,745 5.21%(5)
Prudential Plaza
Newark, NJ 07102
Merrill Lynch & Co. Inc..................................... 2,877,566 6.89%(6)
World Financial Center, North Tower
250 Vesey Street
New York, NY 10381
Edward P. Campbell.......................................... 1,250 *
Charles A. Corry............................................ 3,150 *
Diane E. McGarry............................................ 1,827 *
Steven W. Percy............................................. 1,084 *
R. Byron Pipes.............................................. 2,034 *
John B. Yasinsky............................................ 753,906(7)(8) 1.78%
Nathaniel J. Mass........................................... 116,868(7)(8) *
Kevin M. McMullen........................................... 91,557(7)(8) *
Marvin W. Zima.............................................. 58,411(7)(8) *
Michael E. Hicks............................................ 43,048(7)(8) *
All directors and executive officers........................ 1,124,012(7)(8) 2.64%
as a group (13 persons)
</TABLE>
- ---------------
* Less than one percent.
(1) Shares held at May 31, 1999 by the trustee for the GenCorp employee savings
plans, Mellon Bank, included 471,156 shares held for the GenCorp Profit
Sharing Retirement and Savings Plan, and 5,318,594 shares held for the
GenCorp Retirement Savings Plan. Shares are voted by the Trustee in
accordance with the instructions of the participating employees to whose
accounts such shares are allocated, except that shares for which no
18
<PAGE> 19
employee instructions are received and shares held for the plans which have
not been allocated to participants' accounts may be voted by the Trustee in
accordance with instructions given by the Benefits Management Committee for
the plans. The Benefits Management Committee presently consists of four
persons, all of whom are officers of GenCorp.
(2) FMR reported that it had sole power to vote 380,600 shares, sole dispositive
power with respect to 4,173,900 shares and no shared voting or dispositive
power in Amendment No. 4 to Schedule 13G dated February 1, 1999 and filed
with the Securities and Exchange Commission.
(3) Mario J. Gabelli, directly as to 2,625 shares and through and shared with
various entities within Gabelli Funds Inc. as to the balance of the shares,
has investment discretion with respect to all shares, sole voting authority
with respect to 3,202,875 shares and no voting authority with respect to
15,000 shares, according to Amendment No. 26 to Schedule 13D dated January
8, 1998 and filed with the Securities and Exchange Commission.
(4) Franklin Resources, Inc. reports sole voting and dispositive authority for
2,020,600 shares held by Franklin Mutual Advisers, Inc., sole voting and
dispositive authority for 641,000 shares held by Templeton Investment
Counsel, Inc., and sole voting and dispositive power for 77,700 shares held
by Templeton Management Limited in amendment No. 1 to Schedule 13G dated
January 22, 1999 and filed with the Securities and Exchange Commission.
(5) Prudential reported that it had sole voting and dispositive authority with
respect to 1,490,700 shares and shared voting and dispositive authority with
respect to 686,045 shares in Amendment No. 4 to Schedule 13G dated January
26, 1999 and filed with the Securities and Exchange Commission.
(6) Merrill Lynch & Co., Inc., reported on behalf of Merrill Lynch Asset
Management Group having shared voting power and shared dispositive power
with respect to 2,877,566 shares and no sole voting or dispositive power in
Schedule 13G dated February 4, 1999 and filed with the Securities and
Exchange Commission.
(7) Includes shares subject to stock options which may be exercised within 60
days of May 31, 1999 as follows: Mr. Yasinsky, 653,733 shares (reflecting
the option allocations described under "Item 7. Certain Relationships and
Related Transactions -- Agreement on Employee Matters"); Mr. Mass, 107,500
shares; Mr. McMullen, 85,000 shares; Mr. Zima, 23,500 shares; and Mr. Hicks,
24,550 shares and all directors and executive officers as a group, 759,576
shares. Nonemployee directors do not participate in GenCorp's existing stock
option plan.
(8) Includes the approximate number of shares credited to the individual's
account as of May 31, 1999 under the GenCorp Retirement Savings Plan, and
where applicable, under the GenCorp Stock Incentive Compensation Plan and
under the GenCorp Profit Sharing Retirement and Savings Plan, a savings plan
for salaried employees sponsored by GenCorp prior to September 1989.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
OMNOVA SOLUTIONS MANAGEMENT
The following table sets forth the names and information as to the persons
who are expected to serve as Directors and executive officers of Omnova
Solutions immediately after the Distribution. Management anticipates that
following the Distribution, the number of directors on the Omnova Solutions
Board will be set at nine, and there will be three vacancies on the Omnova
Solutions Board following the Distribution. The Omnova Solutions Board may fill
one or more of those vacancies and those persons will serve until the annual
meeting of Omnova Solutions shareholders to be held in 2000, 2001 or 2002.
GenCorp is currently evaluating additional candidates to serve as additional
directors of Omnova Solutions following the Distribution.
19
<PAGE> 20
<TABLE>
<CAPTION>
DIRECTOR OF EXPECTED POSITION
NAME AGE GENCORP SINCE WITH OMNOVA SOLUTIONS
- ---- --- ------------- ---------------------
<S> <C> <C> <C>
Edward P. Campbell................ 49 1999 Director
Charles A. Corry.................. 67 1995 Director
Diane E. McGarry.................. 49 1995 Director
Steven W. Percy................... 52 1997 Director
Dr. R. Byron Pipes................ 57 1993 Director
John B. Yasinsky.................. 60 1993 Chairman and Chief Executive
Officer; Director
Marvin W. Zima.................... 61 N/A Vice President; President,
Performance Chemicals Division
Kevin M. McMullen................. 38 N/A Vice President; President,
Decorative & Building Products
Division
Michael E. Hicks.................. 41 N/A Senior Vice President and Chief
Financial Officer
James C. LeMay.................... 42 N/A Senior Vice President, Law and
General Counsel
Nathaniel J. Mass................. 48 N/A Senior Vice President, Strategic
Growth
Gregory T. Troy................... 44 N/A Senior Vice President, Human
Resources
Cynthia A. Slack.................. 50 N/A Secretary
</TABLE>
EDWARD P. CAMPBELL
Mr. Campbell has served as President and Chief Executive Officer of Nordson
Corporation, Westlake, OH, an international manufacturer of industrial
application equipment, since 1997. Prior to that time, he was Chief Operating
Officer of Nordson from 1994 to 1997 and Vice President of Nordson from 1988 to
1994. He is also a director of KeyCorp, Cleveland, OH. Mr. Campbell is a member
of the Audit and Finance Committees of GenCorp's Board.
CHARLES A. CORRY
Mr. Corry currently serves as a director of USX Corporation, Pittsburgh,
PA, a producer of energy and metal products and until recently, Mr. Corry also
served as Chairman of the Executive Committee of USX. He was Chairman and Chief
Executive Officer of USX from 1989 until his retirement in 1995 and President
and a director since February 1988. He is also a director of Mellon Bank
Corporation and Mellon Bank, N.A., Pittsburgh, PA. Mr. Corry is Chairman of the
Organization & Compensation Committee and a member of the Finance, Nominating &
Corporate Governance and Executive Committees of the GenCorp Board.
DIANE E. MCGARRY
Ms. McGarry has served as Senior Vice President, Eastern Operations, North
American Solutions Group, of Xerox Corporation, Rochester, NY, a manufacturer of
copiers and electronic office equipment, since January 1999. She was previously
Vice President/General Manager of the Color Solutions Business Unit of Xerox
from March 1998 until January 1999; Chairman, President and Chief Executive
Officer of Xerox Canada Inc., North York, Ontario, Canada, from 1993 until March
1998; Director, Sales Operations for the United Kingdom for Rank Xerox, a joint
venture between Xerox and the Rank Organization from 1991 to 1993; and Executive
Assistant to the Chairman and Chief Executive Officer of Xerox from February
1990 to 1991. Ms. McGarry is a member of the Audit and Organization &
Compensation Committees and Chairperson of the Government Affairs &
Environmental Issues Committee of the GenCorp Board.
20
<PAGE> 21
STEVEN W. PERCY
Mr. Percy has served as Chairman and Chief Executive Officer of BP America
Inc., Cleveland, OH, a petroleum extraction, refining and distribution company,
from 1996 until March 31, 1999 and the BP/Amoco merger. He was Executive Vice
President of BP America and President of BP Oil in the United States from 1992
to 1996; and Group Treasurer of the British Petroleum Company, plc and Chief
Executive of BP Finance International from 1989 until 1992. Mr. Percy is a
member of the Organization & Compensation and Nominating & Corporate Governance
Committees of the GenCorp Board.
DR. R. BYRON PIPES
Dr. Pipes has served as Distinguished Visiting Scientist, College of
William and Mary, Williamsburg, VA since 1998. He was the Seventeenth President
of Rensselaer Polytechnic Institute, Troy, NY from 1993 until 1998. He was
Provost of the University of Delaware from 1991 until 1993 and Dean of the
College of Engineering from 1985 until 1993. Dr. Pipes is Chairman of the
Nominating & Corporate Governance Committee and a member of the Executive and
Finance Committees of the GenCorp Board.
JOHN B. YASINSKY
Mr. Yasinsky has served as Chairman of the GenCorp Board since March 1995
and Chief Executive Officer and President of GenCorp since July 1994. He was
President and Chief Operating Officer of GenCorp from November 1993 until July
1994. Previously, he was Group President, Westinghouse Electric Corporation,
Pittsburgh, PA, a power generation and electrical equipment manufacturing
company, from February 1993 until November 1993 and President, Westinghouse
Power Systems from 1990 to 1993. He is also a director of CMS Energy
Corporation, Dearborn, MI and Consumers Power Company, Jackson, MI. Mr. Yasinsky
is Chairman of the Executive Committee of the GenCorp Board.
MARVIN W. ZIMA
Mr. Zima has served as Vice President of GenCorp since August 1994 and
President of GenCorp's Performance Chemicals business unit since 1991. He was
previously President and Chief Executive Officer of Uniroyal Engineered Products
from 1987 to 1991 and held various other management positions with Uniroyal from
1982 to 1987.
KEVIN M. MCMULLEN
Mr. McMullen has served as Vice President of GenCorp and President of
GenCorp's Decorative & Building Products business unit since September 1996. He
was previously General Manager of General Electric Corporation's Lighting
Division from 1991 to 1996 and Senior Engagement Manager at McKinsey and
Company, a business consulting firm, from 1985 to 1991.
MICHAEL E. HICKS
Mr. Hicks has served as Senior Vice President, Chief Financial Officer and
Treasurer of GenCorp since February 1999. He was previously Treasurer of GenCorp
since September 1994 and Director of Treasury of GenCorp from 1989 to 1994.
JAMES C. LEMAY
Mr. LeMay has served as Assistant General Counsel of GenCorp since May
1997. He was previously Senior Counsel of GenCorp from May 1990 to May 1997.
NATHANIEL J. MASS
Mr. Mass has served as Senior Vice President of Strategic Growth of GenCorp
since June 1996. He was previously Partner and Director of the Business Dynamics
Center, McKinsey and Company from 1994 to June 1996; Chief Executive Officer,
Light Sciences Inc. from 1991 to 1993 and Director of Worldwide Strategic
Planning, Exxon Chemical Company from 1988 to 1991.
21
<PAGE> 22
GREGORY T. TROY
Mr. Troy has served as Director, Human Resources of Performance Chemicals
since December 1996. He was previously Director, Human Resources of Bosch
Braking Systems (formerly AlliedSignal) from 1995 to December 1996; Employee
Relations Area Manager Manufacturing of Mobil Corporation's Plastics Division
from 1994 to 1995; Senior Human Resources Advisor of Mobil's Petrochemicals
Division from 1993 to 1994 and Employee Relations Manager of Mobil's Houston
Olefina Plant from 1991 to 1993.
CYNTHIA A. SLACK
Ms. Slack has served as Assistant Secretary and Senior Counsel, Finance and
Securities of GenCorp since September 1997. Previously, Ms. Slack was Assistant
Secretary and Counsel, Finance and Securities of GenCorp from March 1997 to
September 1997 and Counsel, Finance and Securities of GenCorp since February
1990.
CLASSIFICATION OF OMNOVA SOLUTIONS BOARD
Omnova Solutions' articles of incorporation will provide that the Omnova
Solutions Board will be divided into three classes of directors to be as nearly
equal in number of directors as possible. Class I will consist of John B.
Yasinsky and Dr. R. Byron Pipes and their current term of office will expire at
Omnova Solutions' 2000 annual meeting of shareholders. Class II will consist of
Diane E. McGarry and Steven W. Percy and their current term of office will
expire at Omnova Solutions' 2001 annual meeting of shareholders. Class III will
consist of Edward P. Campbell and Charles A. Corry and their current term of
office will expire at Omnova Solutions' 2002 annual meeting of shareholders. At
each annual shareholders' meeting, directors will be elected for a term of three
years and hold office until their successors are elected and qualified or until
their earlier removal or resignation. Newly created directorships resulting from
an increase in the number of directors or any vacancies on Omnova Solutions'
Board resulting from death, resignation, disqualification, removal or other
cause may be filled by a majority of the remaining directors then in office.
COMMITTEES
The Omnova Solutions Board is expected to have five standing committees:
(1) Organization & Compensation; (2) Audit; (3) Executive; (4) Finance; and (5)
Nominating & Corporate Governance.
ORGANIZATION & COMPENSATION COMMITTEE. The Organization & Compensation
Committee will review periodically the organization of Omnova Solutions and its
management, including major changes in the organization of Omnova Solutions and
the responsibility of management as proposed by the Chief Executive Officer. It
will monitor executive development and succession planning, review the
effectiveness and performance of senior management and make recommendations to
the Omnova Solutions Board concerning the appointment and removal of officers.
It will also periodically review the compensation philosophy, policies and
practices of Omnova Solutions and make recommendations to the Omnova Solutions
Board concerning major changes, as appropriate. It will annually review changes
in Omnova Solutions' employee benefit, savings and retirement plans and report
on those changes to the Omnova Solutions Board. The committee will also
administer Omnova Solutions' incentive and deferred compensation plans and
approve, and in some cases recommend to the Omnova Solutions Board for approval,
the compensation of employee-directors, officers, and principal executives of
Omnova Solutions. The members of the Organization & Compensation Committee are
expected to be Charles A. Corry, Chairman, Edward P. Campbell, Diane E. McGarry
and Steven W. Percy.
AUDIT COMMITTEE. The Audit Committee will review and evaluate the scope of
the audits to be performed, the adequacy of services performed by, and the fees
and compensation of the independent auditors and receive and review a report
from the independent auditors prior to the publication of Omnova Solutions'
audited financial statements. It will also consider and recommend to the Omnova
Solutions Board the selection of the independent auditors to examine the
consolidated financial statements of Omnova Solutions for the next year. It will
review and evaluate the scope and appropriateness of Omnova Solutions' internal
audit programs and plans and its system of internal control. The committee will
review and evaluate the appropriateness of Omnova Solutions' accounting
principles and practices and financial reporting and receive periodic reports
from the internal audit
22
<PAGE> 23
and law departments on a number of matters, including compliance with Omnova
Solutions' policy on legal and ethical conduct. Members of the Audit Committee
are expected to be: Steven W. Percy, Chairman, Edward P. Campbell and Diane E.
McGarry.
EXECUTIVE COMMITTEE. During the intervals between meetings of the Board of
Directors, the Executive Committee, unless restricted by resolution of the
Omnova Solutions Board, will be able to exercise, under the control and
direction of the Omnova Solutions Board, all of the powers of the Omnova
Solutions Board in the management and control of the business of Omnova
Solutions. Members of the Executive Committee are expected to be: John B.
Yasinsky, Chairman, Charles A. Corry and R. Byron Pipes.
FINANCE COMMITTEE. The Finance Committee will make recommendations to the
Omnova Solutions Board in regard to Omnova Solutions' planning with respect to
its capital structure and raising of its long-term capital and with regard to
dividend actions. It will review the performance and management of Omnova
Solutions' employee benefit funds and make recommendations to the Omnova
Solutions Board in regard to contributions to any pension plan, profit sharing,
retirement or savings plan of Omnova Solutions, or any proposed changes in the
funding method or interest assumption or in amortization of liabilities in
connection with funding any plan. Members of the Finance Committee are expected
to be: Edward P. Campbell, Chairman, Charles A. Corry, Steven W. Percy and R.
Byron Pipes.
NOMINATING & CORPORATE GOVERNANCE COMMITTEE. The Nominating & Corporate
Governance Committee will periodically review and make recommendations to the
Omnova Solutions Board concerning the criteria for selection and retention of
directors, the composition of the Omnova Solutions Board, structure and function
of Omnova Solutions Board committees, retirement policies and compensation and
benefits of directors. It will recommend to the Omnova Solutions Board qualified
candidates to serve as directors of Omnova Solutions and aid in attracting
qualified candidates to the Omnova Solutions Board. It will also consider and
make recommendations to the Omnova Solutions Board concerning direct nominations
submitted by shareholders. Members of the Nominating & Corporate Governance
Committee are expected to be: R. Byron Pipes, Chairman, Charles A. Corry and
Diane E. McGarry.
ITEM 6. EXECUTIVE COMPENSATION.
COMPENSATION OF DIRECTORS
Each nonemployee director of Omnova Solutions will receive a retainer of
$24,000 per year and an attendance fee of $1,000 for each Board and Committee
meeting attended. Nonemployee directors who served as Chairman of a committee of
the Omnova Solutions Board will receive an annual fee of $2,000 in consideration
of that service.
Nonemployee directors will be able to elect annually to defer all or a
percentage of their retainer, any committee Chairman's fee and meeting
attendance fees pursuant to a deferred compensation plan for nonemployee
directors. The plan will be unfunded, and deferred amounts will be credited, at
the election of the director, with phantom shares in an Omnova Solutions stock
fund, an S&P 500 index fund, or a cash deposit program. Deferred amounts and
earnings will be payable after termination of Omnova Solutions Board service in
either a lump sum or installments as elected by the director.
In March 1998 each GenCorp nonemployee director received 200 restricted
shares of GenCorp common stock. These restricted shares will vest March 25,
2000. In March 1999, each GenCorp nonemployee director received 250 restricted
shares of GenCorp common stock. These restricted shares will vest on March 30,
2001. Vesting will be accelerated in full upon resignation from the GenCorp
Board to serve on the Omnova Solutions Board. Dividends on restricted shares are
automatically reinvested through GenCorp's dividend reinvestment program unless
a director chooses otherwise. All shares may be voted, but ownership may not be
transferred until service on the GenCorp Board terminates. Unvested shares will
be forfeited in the event of a voluntary resignation (other than resignation to
serve on the Omnova Solutions Board) or refusal to stand for reelection, but
vesting will be accelerated in the event of death, disability or retirement
pursuant to the Retirement Plan for Nonemployee Directors described below or
upon the occurrence of a change in control or announcement of a
23
<PAGE> 24
tender or exchange offer which would result in a person holding beneficial
ownership of 30% of more of the outstanding GenCorp common stock.
Nonemployee directors of Omnova Solutions will be eligible for stock option
grants and restricted stock awards under the Omnova Solutions 1999 Equity and
Performance Incentive Plan.
Each nonemployee director who terminates his or her service on the Omnova
Solutions Board after at least 60 months of service (including service on the
GenCorp Board) will receive an annual retirement benefit equal to the retainer
in effect on the date the director's service terminates, payable in monthly
installments, until the number of monthly payments made equals the lesser of (1)
the individual's months of service as a director, or (2) 120 monthly payments.
In the event of death prior to payment of the applicable number of installments,
the aggregate amount of unpaid monthly installments will be paid, in a lump sum,
to the retired director's surviving spouse or other designated beneficiary, if
any, or to the retired director's estate.
Under the Omnova Solutions Board's retirement policy, a director's term of
office normally will expire at the annual meeting following his or her
seventieth birthday regardless of the term of the class for which the director
was last elected. Under special circumstances, however, the Omnova Solutions
Board may waive immediate compliance and request that a director postpone his or
her retirement until a later date.
Directors who are also employees of Omnova Solutions will not be
compensated separately for serving on the Omnova Solutions Board and will not be
paid a retainer or additional compensation for attendance at Board or committee
meetings.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The following tables set forth information concerning annual and long-term
compensation for services rendered to GenCorp for fiscal 1998, 1997 and 1996 by
those persons who are expected to be the Chief Executive Officer and the other
four most highly compensated executive officers of Omnova Solutions (determined
by reference to fiscal 1998 compensation) immediately following the Distribution
(the "Named Omnova Solutions Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
--------------------------------------- ----------------------------
AWARDS PAYOUTS
---------------------------- ------------
RESTRICTED LTIP
OTHER ANNUAL STOCK SECURITIES PAYOUTS ALL OTHER
NAME AND CURRENT SALARY BONUS COMPENSATION AWARDS UNDERLYING COMPENSATION COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) ($) OPTIONS/SARS(8) ($) ($)(12)(13)
------------------ ---- ------- ------- ------------ ---------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John B. Yasinsky............ 1998 695,833 800,000(1) 16,000(6) -- 85,000 420,000(9) 69,563
Chairman, Chief 1997 666,667 850,000(2) 16,000(6) -- 100,000 698,200(10) 54,466
Executive Officer 1996 620,833 600,000(3) 16,000(6) -- 100,000 281,266(11) 47,065
and President of GenCorp
Nathaniel J. Mass........... 1998 338,333 295,000(1) 6,643(7) -- 24,000 98,539(9) 28,050
Senior Vice President, 1997 320,833 285,000(2) 156,696(7) -- 30,000 -- 18,324
Strategic Growth of
GenCorp 1996 144,423 250,000(4) 2,621(7) -- 75,000 -- 6,066
Kevin M. McMullen........... 1998 275,000 225,000(1) -- -- 20,000 125,441(9) 20,063
Vice President; 1997 270,833 175,000(2) -- -- 25,000 -- 16,405
President, Decorative 1996 56,890 220,000(5) -- -- 75,000 -- 1,876
& Building Products
business unit of GenCorp
Marvin W. Zima.............. 1998 211,667 208,000(1) 10,000(6) -- 15,000 24,143(9) 15,266
Vice President; 1997 202,500 87,000(2) 10,000(6) -- 15,000 74,456(10) 16,782
President of 1996 187,500 140,000(3) 10,000(6) -- 15,000 88,545(11) 16,478
Performance Chemicals
business unit of GenCorp
Michael E. Hicks............ 1998 160,000 66,900(1) -- -- 5,000 42,175(9) 14,002
Senior Vice President 1997 150,883 75,200(2) -- -- 13,000 70,271(10) 11,930
and Chief Financial 1996 129,667 50,000(3) -- -- 7,000 -- 9,912
Officer of GenCorp
</TABLE>
24
<PAGE> 25
- ---------------
(1) Elected officers received 20% of their net 1998 incentive bonuses in shares
of GenCorp common stock (based upon the closing price on January 29, 1999
as reported on the NYSE) as follows: Mr. Yasinsky, 4,163 shares; Mr. Mass,
1,416 shares; Mr. McMullen, 1,146 shares; Mr. Zima, 1,639 shares; and Mr.
Hicks, 1,480 shares.
(2) Elected officers received 20% of their net 1997 incentive bonuses in shares
of GenCorp common stock (based upon the closing price on January 30, 1998
as reported on the NYSE) as follows: Mr. Yasinsky, 4,179 shares; Mr. Mass
1,349 shares; Mr. McMullen, 837 shares; Mr. Zima, 2,344 shares; and Mr.
Hicks, 2,178 shares.
(3) Messrs. Yasinsky, Zima and Hicks received part payment of their 1996
incentive bonuses in shares of GenCorp common stock (based upon the closing
price on January 20, 1997 as reported on the NYSE) as follows: Mr.
Yasinsky, 9,140 shares; Mr. Zima, 1,278 shares; and Mr. Hicks, 122 shares.
(4) Includes a 1996 year-end payment of $100,000 and a one-time payment of
$150,000 pursuant to Mr. Mass' employment agreement to compensate him for
loss of a 1996 bonus from his former employer.
(5) Includes a 1996 year-end incentive bonus of $125,000 and a hiring bonus of
$95,000 pursuant to Mr. McMullen's employment agreement.
(6) Cash allowance in lieu of a company provided automobile. Perquisites and
other personal benefits provided to the Named Omnova Solutions Officers
during 1998, 1997 and 1996 did not exceed disclosure thresholds established
by the Securities and Exchange Commission.
(7) Reimbursement for taxes payable in connection with relocation.
(8) Shares of GenCorp common stock underlying options granted pursuant to the
GenCorp Inc. 1997 and 1993 Stock Option Plans.
(9) Amounts paid for the 1996-1998 performance period under GenCorp's Long-Term
Incentive Program. The net amount, after tax withholding, was paid in
shares of GenCorp common stock based upon the January 29, 1999 closing
price on the NYSE.
(10) Amounts paid for the 1995-1997 performance period under GenCorp's Long-Term
Incentive Program. The net amount, after tax withholding, was paid in
shares of GenCorp common stock based upon the January 30, 1998 closing
price on the NYSE. Messrs. Mass and McMullen did not participate during the
1995-1997 performance period.
(11) Awards paid for the 1994-1996 performance period under GenCorp's Long-Term
Incentive Program. Messrs. Mass, McMullen and Hicks did not participate
during the 1994-1996 performance period.
(12) Amounts accrued as dividend and interest earnings on prior years' awards
under GenCorp's Stock Incentive Compensation Plan. Dividends declared on
common stock credited to the executive's account in the trust fund are
credited to the executive's account as an additional number of shares
determined by dividing the aggregate amount of the dividend by the market
value of common stock on the dividend date. The actual value of the shares
distributed on a future payment date will be based upon the market value of
GenCorp common stock at the future payment date. Amounts accrued during
1998, and the number of shares attributable thereto were: Mr. Zima, $1,826
or 73 shares and Mr. Hicks, $3,418 or 137 shares. Messrs. Yasinsky, Mass
and McMullen did not participate in the Plan.
(13) Company contributions to the executive's account in the GenCorp Retirement
Savings Plan and, where applicable, the amount credited to the executive's
account in GenCorp's Benefits Restoration Plan, a nonfunded plan which
restores to the individual's account amounts otherwise excluded due to
limitations imposed by the Internal Revenue Code on contributions and
includable compensation under qualified plans. Amounts credited during 1998
were: Mr. Yasinsky $69,563, Mr. Mass $28,050, Mr. McMullen $20,063, Mr.
Zima $13,440 and Mr. Hicks $10,584.
25
<PAGE> 26
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL
UNDERLYING OPTIONS/SARS
OPTIONS/SARS GRANTED TO EXERCISE OR
GRANTED EMPLOYEES BASE PRICE EXPIRATION
NAME (#) (1) IN FISCAL YEAR ($ /SHARE)(2) DATE
- ---- ------------ -------------- ---------------- ----------
<S> <C> <C> <C> <C>
John B. Yasinsky..... 85,000 11.30% $30.1875 3-25-08
Nathaniel J. Mass.... 24,000 3.19 $30.1875 3-25-08
Kevin M. McMullen.... 20,000 2.66 $30.1875 3-25-08
Marvin W. Zima....... 15,000 1.99 $30.1875 3-25-08
Michael E. Hicks..... 15,000 0.66 $30.1875 3-25-08
All Shareholders(5).. N/A N/A N/A N/A
<CAPTION>
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE APPRECIATION FOR OPTION TERM
(TEN YEARS)(3)(4)
-------------------------------------------------
NAME 0% ($) 5% ($) 10% ($)
- ---- ----------- ---------------- ----------------
<S> <C> <C> <C>
John B. Yasinsky..... $ 0 1,613,704 4,089,444
Nathaniel J. Mass.... 0 455,634 1,154,666
Kevin M. McMullen.... 0 379,695 962,222
Marvin W. Zima....... 0 284,771 721,667
Michael E. Hicks..... 0 94,924 240,556
All Shareholders(5).. 0 2,041,909,423 3,251,399,497
</TABLE>
- ---------------
(1) Non-qualified stock options granted pursuant to the GenCorp Inc. 1997 Stock
Option Plan ("Plan") for the number of shares of GenCorp common stock
indicated. No stock appreciation rights were granted in 1998. Options become
exercisable in 25% increments on September 22, 1998 and March 25, 1999, 2000
and 2001, respectively.
(2) Exercise price equals the closing market price of GenCorp common stock on
the date of grant on the NYSE.
(3) The 0%, 5% and 10% appreciation over 10 years' option valuation method
assumes a stock price of $30.1875, $49.17 and $78.30, respectively, at March
25, 2008.
(4) The potential realizable values are shown in the table in conformity with
Securities and Exchange Commission regulations, and are not intended to
forecast possible future appreciation. GenCorp is not aware of any formula
which will predict with reasonable accuracy the future appreciation of
equity securities. No benefit can be realized by optionees without an
appreciation in stock price, which will benefit all shareholders
commensurately.
(5) Based upon 41,525,640 shares of GenCorp common stock outstanding on December
31, 1998.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
SHARES OPTIONS/SARS AT FISCAL YEAR MONEY OPTIONS /SARS AT
ACQUIRED END (#)(1) FISCAL YEAR END ($)
ON VALUE ---------------------------- ----------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John B. Yasinsky....... 0 0 444,050 138,750 $4,304,787 $484,375
Nathaniel J. Mass...... 2,000 $12,625 75,250 51,750 606,531 264,844
Kevin M. McMullen...... 0 0 73,750 46,250 667,969 269,531
Marvin W. Zima......... 0 0 14,750 21,250 108,375 56,250
Michael E. Hicks....... 0 0 20,050 10,250 181,213 36,563
</TABLE>
- ---------------
(1) No SARs have been issued under the Plan.
26
<PAGE> 27
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE
PAYOUTS UNDER NON-
STOCK PRICE-BASED
PERFORMANCE OR PLANS(2)(3)
NUMBER OF OTHER PERIOD UNTIL --------------------
SHARES, UNITS OR MATURATION OR THRESHOLD TARGET MAXIMUM
NAME OTHER RIGHTS PAYOUT ($) ($) ($)
- ---- ---------------- ------------------ --------- ------- -------
<S> <C> <C> <C> <C> <C>
John B. Yasinsky............. (1) 3 Years 224,375 448,750 897,500
Nathaniel J. Mass............ (1) 3 Years 63,333 126,667 253,333
Kevin M. McMullen............ (1) 3 Years 49,583 99,167 198,333
Marvin W. Zima............... (1) 3 Years 30,617 61,233 122,467
Michael E. Hicks............. (1) 3 Years 23,520 47,040 94,080
</TABLE>
- ---------------
(1) Indicates awards under the GenCorp Inc. Long-Term Incentive Program
("Program") pursuant to which key employees designated by the Organization &
Compensation Committee of the GenCorp Board may receive incentive payments
equal to specified percentages of average annual compensation (salary and
bonus paid under GenCorp's Executive Incentive Compensation Program) upon
attainment of specified threshold, target or maximum levels of financial
performance ("performance goals") over a three-year performance period. For
the 1998-2000 performance period, threshold, target and maximum performance
goals for corporate officers are designated percentages of corporate return
on assets employed and earnings per share growth, and for business unit
presidents, designated percentages of corporate and business unit return on
assets employed and operating profit growth for their respective business
units. No payments are made under the Program if financial performance for
the performance period falls below threshold levels.
(2) Percentages of average annual compensation (determined for the three-year
performance period) payable to participants upon attainment of performance
goals for the 1998-2000 performance period are as follows:
<TABLE>
<CAPTION>
THRESHOLD TARGET MAXIMUM
--------- ------ -------
<S> <C> <C> <C>
GenCorp Chairman, CEO and President....................... 15% 30% 60%
GenCorp Senior Vice Presidents / Other Corporate
Officers................................................ 10% 20% 40%
GenCorp Business Unit Presidents.......................... 10% 20% 40%
</TABLE>
(3) For purposes of the table above, estimated future payouts have been
calculated on the basis of the participant's 1998 fiscal year salary and
bonus shown in the Summary Compensation Table above. Performance awards
under GenCorp's Long-Term Incentive Program for the three-year performance
period ending November 30, 1999 will be determined based upon (1) actual
performance up to the date of the special dividend contemplated by the
Distribution, and (2) budgeted performance, for the remainder of the period,
according to GenCorp's annual operating plan. Pro rata performance awards
will be paid under the GenCorp plan for the performance periods ending
November 30, 2000 and November 30, 2001. Pro rata performance awards for
each partial performance period will be determined based upon (1) actual
performance up to the date of the special dividend contemplated by the
Distribution, and (2) budgeted performance, for the remainder of the fiscal
year ending November 30, 1999, according to GenCorp's annual operating plan.
PENSION BENEFITS
GenCorp's salaried pension plans include several formulas for the
determination of benefits, and require that the formula providing the highest
benefit be utilized to determine an individual employee's actual benefit.
Benefits for Messrs. Mass, McMullen, Zima and Hicks have been determined
pursuant to a formula which utilizes five-year average compensation for years of
service prior to December 1, 1999 and a career average formula for service from
December 1, 1999 to normal retirement. The benefit for Mr. Yasinsky has been
determined pursuant to the terms of his employment agreement. Estimated benefits
are shown below because the required calculations do not lend themselves to a
typical pension plan table where benefits can be determined by the reader solely
upon the basis of years of service and final compensation.
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<PAGE> 28
<TABLE>
<CAPTION>
APPROXIMATE ESTIMATED
YEARS OF CREDITED ANNUAL BENEFITS
SERVICE AT PAYABLE AT
NAME NORMAL RETIREMENT NORMAL RETIREMENT(1)
- ---- ----------------- --------------------
<S> <C> <C>
John B. Yasinsky(2)...................................... 41 $885,442
Nathaniel J. Mass........................................ 19 224,647
Kevin M. McMullen........................................ 29 245,717
Marvin W. Zima........................................... 11 58,915
Michael E. Hicks......................................... 45 163,780
</TABLE>
- ---------------
(1) Retirement benefits shown in the table for Messrs. Mass, McMullen, Zima and
Hicks were calculated pursuant to the terms of the Pension Plan for Salaried
Employees of GenCorp Inc. (the "GenCorp Pension Plan"). There is no offset
for Social Security payments. Mr. Yasinsky's retirement benefit has been
determined pursuant to the supplemental pension provisions of his employment
agreement described under " -- Employment Contracts and Termination of
Employment and Change in Control Arrangements."
The benefits shown are estimated and have not been adjusted for any survivor
option. Each estimated benefit is based upon the assumption that the
executive will remain an employee until age 65 at a rate of compensation
equivalent to that in effect on December 1, 1998 and that the pension plan
under which the estimated benefit is calculated will remain unchanged.
Benefits for Messrs. Mass, McMullen, Zima and Hicks have been determined by
a formula which provides for a benefit (A) for years of service prior to
December 1, 1999 of (1) 1.125% of five-year average compensation ("average
compensation") up to the average Social Security wage base ("ASSWB") plus
1.5% of average compensation in excess of the ASSWB multiplied by the total
of such years of service up to 35 years and (2) 1.5% of average compensation
multiplied by the total years of service in excess of 35 years, and (B) for
each year of service after December 1, 1999 (1) prior to attainment of 35
years of service, 1.625% of annual compensation up to the ASSWB plus 2.0% of
annual compensation in excess of the ASSWB, and (2) after attainment of 35
years of service, 2.0% of annual compensation.
The benefits shown in the table have not been reduced to reflect either (1)
the limitation on includable compensation or the overall benefit limitation
imposed on pension plans qualified under Section 401(a) of the Code, or (2)
a plan's own exclusions from includable compensation, since the amount of
any of those reductions will be restored to the individual pursuant to the
terms of GenCorp's Benefits Restoration Plan, a nonfunded plan with benefits
payable out of the general assets of GenCorp.
(2) Mr. Yasinsky's benefit is the product of (1) total years of service
(including 30 years credited upon Mr. Yasinsky's employment with GenCorp,
plus additional years accrued as an employee with Omnova Solutions until age
65), (2) 1.47%, and (3) the average of his five highest years of
compensation (salary and incentive bonus only) during the ten years
preceding retirement. Under the terms of Mr. Yasinsky's employment
agreement, amounts determined pursuant to the foregoing formula will be paid
out of GenCorp funds and will be offset by any payments made from the
GenCorp Pension Plan and the pension plan of his prior employer.
OMNOVA SOLUTIONS 1999 EQUITY AND PERFORMANCE INCENTIVE PLAN
Omnova Solutions desires to establish an equity performance and incentive
plan in order to integrate GenCorp's existing stock option and long-term
incentive plans and to more closely align the interests of its executives with
those of Omnova Solutions' shareholders. For this purpose, subject to the
approval of the shareholders, Omnova Solutions has adopted the Omnova Solutions
1999 Equity and Performance Incentive Plan. A copy of the plan has been filed as
an exhibit to this Form 10. A summary of the plan is set forth below.
Approximately 8 officers, 50 key employees and 8 nonemployee directors of
Omnova Solutions are expected to be eligible to receive awards under the plan.
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<PAGE> 29
PLAN SUMMARY
General. Under the plan, Omnova Solutions' Board is authorized to make
awards of (1) options to purchase shares of Omnova Solutions' common stock, (2)
performance stock and performance units, (3) restricted stock, (4) deferred
stock or (5) appreciation rights. Omnova Solutions' Organization and
Compensation Committee will be authorized to oversee the plan and to make awards
and grants under the plan.
Shares Available Under the Plan. The number of shares of Omnova Solutions'
common stock that may be issued or transferred (1) upon the exercise of options
("Option Rights"), (2) as restricted stock ("Restricted Stock") and released
from all substantial risks of forfeiture, (3) as deferred stock ("Deferred
Stock"), (4) in payment of performance stock ("Performance Stock") or
performance units ("Performance Units") that have been earned, (5) in payment of
dividend equivalents paid with respect to awards made under the plan, or (6) in
payment of appreciation rights may not exceed a total of 2,400,000, subject to
some adjustments pursuant to the terms of the plan. These shares of common stock
may be original issue or treasury shares or a combination of both.
Eligibility. Officers, key employees and nonemployee directors of Omnova
Solutions, as well as any person who has agreed to begin serving in such
capacity within 30 days of the date of the grant are eligible to be selected by
Omnova Solutions' Board to receive benefits under the plan. Omnova Solutions'
Organization and Compensation Committee will select those who will receive
grants on the basis of management objectives.
Option Rights. Option Rights entitle the optionee to purchase shares of
Omnova Solutions' common stock at a predetermined price per share (which may not
be less than the market value at the date of grant, except for non-qualified
stock options granted in lieu of salary or bonus, which may be not less than 85%
of the market value at the date of grant). Each grant will specify whether the
option price will be payable (1) in cash at the time of exercise, (2) by the
transfer to Omnova Solutions of shares of common stock owned by the optionee for
at least six months, having a value at the time of exercise equal to the option
price, (3) if authorized by Omnova Solutions' Board or its Organization and
Compensation Committee, the delivery of shares of Restricted Stock or other
forfeitable shares, Deferred Stock, Performance Stock, other vested Option
Rights, or Performance Units, or (4) a combination of those payment methods.
Grants may provide for deferred payment of the option price from the proceeds of
sale through a broker on the date of exercise of some or all of the shares of
Omnova Solutions' common stock to which the exercise relates.
No Option Rights may be exercisable more than ten years from the date of
grant. Each grant must specify the period of continuous employment with Omnova
Solutions that is required before the Option Rights become exercisable. Grants
may provide for earlier exercise of an Option Right in the event of a "change in
control" of Omnova Solutions or other similar transactions or events. Grants may
also specify management objectives that must be achieved as a condition to the
exercise of the option. Successive grants may be made to the same optionee
whether or not previously granted Option Rights remain unexercised.
Restricted Stock. An award of Restricted Stock involves the immediate
transfer of ownership of a specific number of shares of Omnova Solutions common
stock by Omnova Solutions to a participant in consideration of the performance
of services. The participant is immediately entitled to voting, dividend and
other ownership rights in such shares. The transfer may be made without
additional consideration or in consideration of a payment by the participant
that is less than current market value, as the Omnova Solutions Board may
determine. The Omnova Solutions Board may condition the award on the achievement
of specified management objectives.
Restricted Stock must be subject to a "substantial risk of forfeiture"
within the meaning of Section 83 of the Internal Revenue Code for a period to be
determined by the Omnova Solutions Board. An example would be a provision that
the Restricted Stock would be forfeited if the participant ceased to serve as an
officer or key employee of Omnova Solutions during a specified period of years.
If service alone is the criterion for non-forfeiture, the period of service must
be at least three years; if other management objectives are included, non-
forfeiture may occur one year from the date of grant. In order to enforce these
forfeiture provisions, the transferability of Restricted Stock will be
prohibited or restricted in a manner and to the extent prescribed by Omnova
Solutions' Board for the period during which the forfeiture provisions are to
continue. Omnova
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<PAGE> 30
Solutions' Board may provide for a shorter period during which the forfeiture
provisions are to apply in the event of a change in control of Omnova Solutions
or other similar transaction or event.
Deferred Stock. An award of Deferred Stock constitutes an agreement by
Omnova Solutions to deliver shares of its common stock to the participant in the
future in consideration of the performance of services. However, the Deferred
Stock award may be subject to the fulfillment of certain conditions, such as
management objectives, during the deferral period specified by Omnova Solutions'
Board. During the deferral period, the participant cannot transfer any rights in
the award and has no right to vote the shares of Deferred Stock, but Omnova
Solutions' Board may, on or after the date of the award, authorize the payment
of dividend equivalents on such shares on a current, deferred or contingent
basis, either in cash or in additional shares of Omnova Solutions common stock.
Awards of Deferred Stock can be made without additional consideration or in
consideration of a payment by the participant that is less than the market value
per share on the date of award. Deferred Stock must be subject to performance of
services for at least three years; provided that if management objectives are
included, the performance of services must be for at least one year. Omnova
Solutions' Board determines the deferral period at the date of the award, and
may provide for a deferral period of less than three years in the event of a
change in control of Omnova Solutions or other similar transaction or event.
Performance Stock and Performance Units. Performance Stock and Performance
Units involve awards that become payable upon the achievement of specified
management objectives during a designated performance period. This performance
period may be subject to earlier termination in the event of death, retirement
or a change in control of Omnova Solutions or other similar transaction or
event. A minimum level of acceptable achievement may also be established by
Omnova Solutions' Board. If, by the end of the performance period, the
participant has achieved the specified management objectives, the participant
will be deemed to have fully earned the Performance Stock or Performance Units.
If the participant has not achieved the management objectives, but has attained
or exceeded the predetermined minimum, the participant will be deemed to have
partly earned the Performance Stock and/or Performance Units (such part to be
determined in accordance with a formula). To the extent earned, the Performance
Stock and/or Performance Units will be paid to the participant at the time and
in the manner determined by Omnova Solutions' Board in cash, shares of Omnova
Solutions common stock or in any combination of those methods. Each award of
Performance Stock or Performance Units may be subject to adjustment to reflect
changes in compensation or other factors, so long as no adjustment would result
in the loss of an available exemption for the award under Section 162(m) of the
Internal Revenue Code. Omnova Solutions' Board or its Organization and
Compensation Committee may provide for the payment of dividend equivalents to
the holder on a current, deferred or contingent basis, either in cash or in
additional Omnova Solutions common stock.
Appreciation Rights. An Appreciation Right ("Appreciation Right") entitles
the holder, by surrender of the related Option Right (if granted in connection
with Option Rights) or by itself (if granted as a free-standing Appreciation
Right), to receive from Omnova Solutions an amount equal to 100%, or a lesser
percentage as Omnova Solutions' Board may determine, of the spread between the
strike price (or the option price if granted in tandem with Option Rights) and
the then-current market value of Omnova Solutions' common stock. Any grant may
specify that the amount payable on exercise of an Appreciation Right may be paid
by Omnova Solutions in cash, in Omnova Solutions common stock, or in any
combination of the two, and may either grant to the optionee or retain in Omnova
Solutions' Board the right to elect among those alternatives. Any grant may
specify that the Appreciation Right may be exercised only in the event of a
"change in control" or other similar transaction or event. Any grant of
Appreciation Rights may specify management objectives that must be achieved as a
condition to the exercise of those rights.
Management Objectives. The plan requires that Omnova Solutions' Board
establish performance goals for purposes of Performance Stock and Performance
Units. In addition, if Omnova Solutions' Board so chooses, Option Rights,
Restricted Stock and Deferred Stock may also specify management objectives.
Management objectives may be described either in terms of firm-wide objectives,
individual participant objectives, or objectives related to performance of the
division, subsidiary, department or function within Omnova Solutions in which
the participant is employed. Management objectives applicable to any award may
include specified levels of and/or growth in (1) cash flow, (2) earnings per
share, (3) earnings before interest and taxes, (4) earnings per
30
<PAGE> 31
share growth, (5) net income, (6) return on assets, (7) return on assets
employed (8) return on equity, (9) return on invested capital, (10) return on
total capital, (11) revenue growth, (12) stock price, (13) total return to
stockholders, (14) economic value added, (15) operating profit growth, or any
combination of those methods. If Omnova Solutions' Board determines that a
change in the business, operations, corporate structure or capital structure of
Omnova Solutions, or the manner in which it conducts its business, or other
events or circumstances render the management objectives unsuitable, Omnova
Solutions' Board may modify the performance goals or the related minimum
acceptable level of achievement, in whole or in part, as Omnova Solutions' Board
deems appropriate and equitable, unless the result would be to make an award
otherwise eligible for an exemption under Section 162(m) of the Internal Revenue
Code ineligible for such an exemption.
Transferability. Except as otherwise determined by Omnova Solutions' Board,
no Option Right or other award under the plan is transferable by a participant
other than by will or the laws of descent and distribution, or (except for
incentive stock options) to the participant's immediate family or trusts
established solely for the benefit of one or more members of the immediate
family. Except as otherwise determined by Omnova Solutions' Board, Option Rights
are exercisable during the optionee's lifetime only by him or her.
The Board of Directors may specify at the date of grant that part or all of
the shares of Omnova Solutions common stock that are (1) to be issued or
transferred by Omnova Solutions upon exercise of Option Rights, upon termination
of the deferral period applicable to Deferred Stock or upon payment under any
grant of Performance Stock or Performance Units or (2) no longer subject to the
substantial risk of forfeiture and restrictions on transfer referred to in the
plan, shall be subject to further restrictions on transfer.
Adjustments. The Plan provides that the number of shares available for
awards will be adjusted to account for (a) shares relating to awards that expire
or are forfeited under the Plan, or (b) shares that are transferred, surrendered
or relinquished in payment of the option exercise price for satisfaction of
withholding rules for the exercise or receipt of awards under the Plan. This
permits the grant of additional awards equal to the number of shares turned in
by award recipients. The maximum number of shares of Omnova Solutions common
stock covered by outstanding Option Rights, Deferred Stock, Performance Stock
and Restricted Stock granted under the plan, and the prices per share applicable
to those shares, are subject to adjustment in the event of stock dividends,
stock splits, combinations of shares, recapitalizations, mergers,
consolidations, spin-offs, reorganizations, liquidations, issuances of rights or
warrants, and similar events. In the event of any such transaction, Omnova
Solutions' Board is given discretion to provide a substitution of alternative
consideration for any or all outstanding awards under the plan, as it in good
faith determines to be equitable under the circumstances, and may require the
surrender of all awards so replaced. Omnova Solutions' Board may also make or
provide for adjustments in the numerical limitations under the plan as Omnova
Solutions' Board may determine appropriate to reflect any of the foregoing
transactions or events.
Omnova Solutions' Board is authorized to interpret the plan and related
agreements and other documents. Omnova Solutions' Board may make awards to
employees under any or a combination of all of the various categories of awards
that are authorized under the plan, or in its discretion, make no awards. The
plan may be amended from time to time by Omnova Solutions' Board. However, any
amendment that must be approved by the shareholders of Omnova Solutions in order
to comply with applicable law or the rules of the principal national securities
exchange or quotation system upon which Omnova Solutions common stock is traded
or quoted will not be effective unless and until such approval has been obtained
in compliance with those applicable laws or rules. These amendments would
include any increase in the number of shares issued or certain other increases
in awards available under the plan (except for increases caused by adjustments
made pursuant to the plan). Presentation of the plan or any amendment of the
plan for shareholder approval is not to be construed to limit Omnova Solutions'
authority to offer similar or dissimilar benefits through plans that are not
subject to shareholder approval.
Omnova Solutions' Board may provide for special terms for awards to
participants who are foreign nationals or who are employed by Omnova Solutions
outside the United States of America as Omnova Solutions' Board may consider
necessary or appropriate to accommodate differences in local law, tax policy or
custom.
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<PAGE> 32
The plan provides that awards representing no more than 3% of the shares
available under the plan may not be required to meet certain restrictions
otherwise applicable to restricted stock, deferred stock and performance stock
awards under the plans.
Omnova Solutions' Board may not, without further approval of its
shareholders, authorize the amendment of any outstanding Option Right to reduce
the option price. Furthermore, no Option Right may be canceled and replaced with
awards having a lower option price without further approval of the shareholders
of Omnova Solutions. The plan does not confer on any participant a right to
continued employment with Omnova Solutions.
ACCOUNTING TREATMENT
Performance Shares and Performance Units will require a charge against
income of Omnova Solutions periodically representing increases in the value of
the anticipated benefits. The charge is based on the dollar amount expected to
be paid at the end of the performance period. Restricted Stock and Deferred
Stock will require a charge against income equal to the fair market value of the
awarded shares at the time of award less the amount, if any, paid or payable by
the awardee. The charge is spread over the earn-out period for the Restricted or
Deferred Stock. Given the variety of awards that may be made separately or in
combination under the plan, actual awards may result in periodic charges against
income in some other circumstances.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
If the Directors remove Mr. Yasinsky from the position of Chairman and CEO
of GenCorp or Omnova Solutions prior to age 65 for any reason other than for
"cause" as defined in his October 18, 1993 employment agreement, Mr. Yasinsky
may elect to terminate his employment and receive (a) a termination payment
equal to two times the sum of (1) his annual base salary at the time of
termination and (2) his incentive bonus for the last completed fiscal year
preceding termination, and (b) a supplemental pension determined as described in
footnote (2) under "Pension Benefits". The agreement also provides that Mr.
Yasinsky will participate in the GenCorp Pension Plan and that his supplemental
pension will be offset by the amount of any pension payment made from the
GenCorp Pension Plan and pension payment received from his former employer. The
normal form of payment of the supplemental pension will be a 50% or 100% joint
and survivor annuity, unless Mr. Yasinsky elects a lump-sum payment. If elected,
the amount of any lump-sum payment will be calculated using the then-current
interest rate for 30-year Treasury securities, as approved by the GenCorp Board
for the calculation of lump-sum payments under all GenCorp benefit plans and
deferred compensation arrangements. In the event of death prior to electing a
payment option, the supplemental pension will be paid to Mr. Yasinsky's
surviving spouse for her life, calculated as if he had attained age 62, retired,
and elected a joint and 100% survivor annuity. In the event of disability prior
to age 62, GenCorp or Omnova Solutions will pay Mr. Yasinsky an amount equal to
60% of his base monthly salary (offset for payments received under Social
Security) until eligible for supplemental pension benefits at age 62.
Mr. Nathaniel J. Mass' May 13, 1996 employment agreement provided an
initial base salary of $300,000 per annum, increasing to $325,000 on February 1,
1997, a one time bonus of $150,000 to compensate him for loss of an expected
bonus payment from his prior employer, a prorated 1996 incentive bonus, with a
minimum of $75,000 and an option to purchase 75,000 shares of GenCorp common
stock at an exercise price equal to the closing market price on his employment
date. If Mr. Mass' employment is terminated by GenCorp, for reasons other than
for cause or due to disability or mandatory retirement, he will be eligible to
receive separation pay in the form of (a) continuing base salary at the rate in
effect on the date of termination and (b) continuing bonus payments, each in the
annualized amount of his last bonus payment preceding the date of termination,
for a period not to exceed the shortest of (1) two years from the date of
termination, or (2) until he obtains comparable employment.
Mr. Kevin McMullen's July 16, 1996 employment agreement provided an initial
base salary of $250,000 per annum, subject to pro-rata adjustment at the end of
the 1996 fiscal year, a one-time hiring bonus of $95,000, a 1996 incentive bonus
of $125,000, and an option to purchase 75,000 shares of GenCorp common stock at
an exercise price equal to the closing market price on his employment date. If
Mr. McMullen's employment is terminated by GenCorp other than for cause,
disability or retirement, he will be eligible for continuation of his
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<PAGE> 33
base salary in effect at termination for a period not to exceed the shorter of
(1) eighteen months or (2) until he obtains comparable employment.
GenCorp adopted the 1999 Key Employee Retention Plan which provides for
payment of up to two annual cash retention payments to eligible employees who
satisfactorily continue their employment with GenCorp or Omnova Solutions,
attain specific performance objectives (including completion of the
Distribution) and meet all plan requirements. In the event that the Distribution
does not occur before February 1, 2000, for whatever reason, a pro rata share of
the retention payment will be made and there will be no obligation to pay any
future payments. To date, 14 key employees have received Key Employee Retention
Letter Agreements pursuant to the plan, providing for individual total retention
payments ranging from $75,000 to $800,000. Pursuant to the plan, the following
payments may be made to the following Named Omnova Solutions Officers at the end
of the first and second years, respectively: Mr. Yasinsky, $200,000 and
$600,000; Mr. McMullen, $150,000 and $150,000; Mr. Mass, $150,000 and $150,000;
Mr. Zima, $150,000 and $150,000; and Mr. Hicks, $75,000 and $75,000.
At the time of the Distribution, it is intended that Omnova Solutions will
assume the foregoing employment contracts and termination of employment and
change-in-control arrangements with appropriate modifications.
During 1997 the GenCorp Board of Directors authorized GenCorp to enter into
amended and restated severance agreements with ten existing elected officers.
The severance agreements provide for a severance payment in an amount equal to
the officer's base salary plus bonus (as defined in the agreement) multiplied by
a factor of 3 in the case of the GenCorp Chief Executive Officer or a GenCorp
Senior Vice President, or by a factor of 2 for other covered officers, if within
three years after a change-in-control (as such term is defined in the
agreements), the officer's employment is terminated (1) by GenCorp for any
reason other than death, disability or cause, or (2) by the officer following
the occurrence of one or more adverse events enumerated in the agreement. The
agreements provide for payment of performance awards under the Long-Term
Incentive Program, continuation of health and life benefits for 24 or 36 months,
as appropriate, vesting of accrued retirement benefits, payment of the amount
required to cover excise taxes, if any, financial counseling, outplacement, and
accounting fees and costs of legal representation if required to enforce the
agreement. Mr. Wolfe's agreement includes a provision for payment of the same
severance compensation if his employment is terminated within three years after
a change-in-control of Aerojet. The severance agreements renew annually unless
terminated pursuant to their provisions.
Omnova Solutions will either assume current GenCorp severance agreements
with appropriate modifications or will enter into severance agreements with
Omnova Solutions officers who currently are not parties to such agreements.
Agreements for Messrs. Yasinsky and Mass each will include a requirement that
any amount which may become payable under the severance agreement be offset by
any amount which may be paid under the individual executive's employment
agreement as a result of termination of employment due to a change-in-control.
Mr. Yasinsky's agreement will provide that he may terminate his employment for
any reason, or without reason, during the 30-day period immediately following
the date six months after the occurrence of a change-in-control, with the right
to severance compensation under this agreement.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Omnova Solutions is wholly owned by GenCorp, and its results have been
included in GenCorp's consolidated financial results. After the Distribution,
the results of operations of Omnova Solutions will no longer be consolidated
with GenCorp and Omnova Solutions will be an independent public company.
Furthermore, except as described below, all contractual relationships existing
prior to the Distribution between GenCorp after the Distribution (sometimes
referred to as New GenCorp) and Omnova Solutions will be terminated except for
commercial relationships in the ordinary course of business.
Prior to the Distribution, GenCorp and Omnova Solutions will enter into
certain agreements, described below, governing their relationship subsequent to
the Distribution and providing for the allocation of tax and other liabilities
and obligations arising from periods prior to the Distribution. Each of GenCorp
and Omnova Solutions believes that the agreements are fair.
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<PAGE> 34
Copies of the forms of the material agreements have been or will be filed
as exhibits to this Registration Statement on Form 10. The following description
summarizes the material terms of these agreements.
DISTRIBUTION AGREEMENT
GenCorp and Omnova Solutions will enter into a distribution agreement
providing for, among other things, corporate transactions required to effect the
Distribution and other arrangements between GenCorp and Omnova Solutions with
respect to or in consequence of the Distribution.
The distribution agreement will provide for, with certain exceptions, (1)
the contribution of assets to Omnova Solutions by GenCorp, and (2) assumptions
of liabilities and cross-indemnities designed principally to place financial
responsibility for the liabilities of GenCorp and its subsidiaries other than
Omnova Solutions with New GenCorp and financial responsibilities for the
liabilities to be assumed by Omnova Solutions with Omnova Solutions. Each of New
GenCorp and Omnova Solutions will have sole responsibility for claims arising
out of its respective activities after the Distribution. Further, the
distribution agreement will provide that New GenCorp and Omnova Solutions will
not take any action to cause the Distribution to be taxable to GenCorp or its
shareholders, and that New GenCorp and Omnova Solutions will indemnify each
other for any adverse consequences incurred as a result of their breach of that
obligation to the other.
The distribution agreement will also provide that each of New GenCorp and
Omnova Solutions will be granted mutual access to certain historical records and
information in the possession of the other, and requires the retention by each
of New GenCorp and Omnova Solutions for a period of six years following the
Distribution of all information in its possession, and thereafter requires that
each party give the other prior notice of its intention to dispose of the
information.
The distribution agreement will also provide that, except as otherwise set
forth therein or in any other agreement, all costs or expenses incurred on or
prior to the Distribution date in connection with the Distribution will be
charged to and paid by the party incurring the costs or expenses. Except as set
forth in the Distribution Agreement or any related agreement, each party will
bear its own costs and expenses incurred after the Distribution.
TAX MATTERS AGREEMENT
As part of the Distribution, GenCorp and Omnova Solutions will enter into a
tax matters agreement that will provide, among other things, for the allocation
of Federal, state, local and foreign tax liabilities for periods prior to and
including the Distribution date. Through the Distribution date, Omnova Solutions
has been and will be included in GenCorp's consolidated Federal income tax
returns and, in certain states, GenCorp's state tax returns. In general, the tax
matters agreement will provide that New GenCorp will be liable for taxes related
to GenCorp, New GenCorp and Omnova Solutions for all periods prior to the
Distribution. In addition, New GenCorp will be entitled to all refunds related
to GenCorp, New GenCorp and Omnova Solutions for all periods prior to the
Distribution. Though valid as between New GenCorp and Omnova Solutions, the tax
matters agreement is not binding on the IRS and does not affect the several
liability of GenCorp and Omnova Solutions for all federal income taxes of the
consolidated group required to be shown on the consolidated Federal income tax
returns.
ALTERNATIVE DISPUTE RESOLUTION AGREEMENT
GenCorp and Omnova Solutions will enter into an alternative dispute
resolution agreement establishing procedures for resolving disputes that may
arise between them after the Distribution. The alternative dispute resolution
agreement will provide for both mediation and arbitration, which would be the
exclusive methods for resolution of most disputes between the parties that arise
prior to the Distribution or in connection with the Distribution and would
reduce the possibility of litigation between them.
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AGREEMENT ON EMPLOYEE MATTERS
GenCorp and Omnova Solutions will enter into an agreement on employee
matters providing for the treatment of employee benefit matters and other
compensation arrangements for former and current employees of Omnova Solutions
and its subsidiaries.
OMNOVA SOLUTIONS SALARIED PENSION PLAN. Prior to the Distribution, Omnova
Solutions will establish its own pension plan for the benefit of its active
salaried employees and those former salaried employees who terminated employment
from active business locations of Omnova Solutions. The terms of the Omnova
Solutions salaried pension plan will be substantially identical to the GenCorp
salaried pension plan. Omnova Solutions employees who participate in the GenCorp
salaried pension plan will be eligible for immediate participation in the Omnova
Solutions salaried pension plan. Omnova Solutions salaried employees also will
be credited under the Omnova Solutions salaried pension plan, for eligibility
and vesting purposes, with service credited to them under the GenCorp salaried
pension plan. Those assets and liabilities of the GenCorp salaried pension plan
which are attributable to Omnova Solutions plan participants (including a pro
rata share of surplus plan assets) will be transferred from the GenCorp salaried
pension plan to the Omnova Solutions salaried pension plan in connection with
the Distribution, following which the Omnova Solutions salaried employees will
receive benefit service with respect to service credited to them under the
GenCorp salaried pension plan. These transfers will result in Omnova Solutions
having estimated prepaid pension cost, based on actuarial estimates, of
approximately $26 million.
OMNOVA SOLUTIONS HOURLY PENSION PLAN. Prior to the Distribution, Omnova
Solutions will establish its own pension plan for the benefit of its active
hourly employees and those former hourly employees who terminated employment
from active business locations of Omnova Solutions. The terms of the Omnova
Solutions hourly pension plan will be substantially identical to the GenCorp
hourly pension plan. Omnova Solutions employees who participate in the GenCorp
hourly pension plan will be eligible for immediate participation in the Omnova
Solutions hourly pension plan. Omnova Solutions employees also will be credited
under the Omnova Solutions hourly pension plan, for eligibility and vesting
purposes, with service credited to them under the GenCorp hourly pension plan.
Those assets and liabilities of the GenCorp hourly pension plan which are
attributable to the Omnova Solutions hourly plan participants (including a pro
rata share of surplus plan assets) will be transferred from the GenCorp hourly
pension plan to the Omnova Solutions hourly pension plan in connection with the
Distribution, following which the Omnova Solutions hourly employees will receive
benefit service with respect to service credited to them under the GenCorp
hourly pension plan. These transfers will result in Omnova Solutions having
estimated prepaid pension cost, based on actuarial estimates, of approximately
$9 million.
POSTRETIREMENT BENEFITS. GenCorp currently provides certain health care and
life insurance benefits to most retired employees in the United States with
varied coverage by employee groups. The health care plans generally provide for
cost sharing in the form of retiree contributions, deductibles and coinsurance
between GenCorp and its retirees. The unfunded benefit obligation reported in
GenCorp's financial statements for such postretirement benefits will be
allocated between New GenCorp and Omnova Solutions as follows: (1) approximately
$303 million for active employees remaining New GenCorp employees and former
employees who do not become employees of Omnova Solutions will be retained by
New GenCorp; and (2) approximately $46 million for active employees transferred
to Omnova Solutions and former employees who terminated employment from active
business locations of Omnova Solutions will be assumed by Omnova Solutions.
JOINT SAVINGS PLAN. As of the Distribution, the GenCorp retirement savings
plans will become a multiple employer plan in which both New GenCorp and Omnova
Solutions will be unrelated participating employers. On and after the date of
the special dividend contemplated by the Distribution, employer matching
contributions on behalf of New GenCorp employees will be made solely by New
GenCorp and solely to the New GenCorp stock fund, and employer matching
contributions on behalf of Omnova Solutions employees will be made solely by
Omnova Solutions and solely to the Omnova Solutions stock fund. Not later than
the later of October 31, 2001 or two years after the Distribution, the accounts
of Omnova Solutions employees and former Omnova Solutions employees will be
transferred to a new separate savings plan to be established by Omnova
Solutions. Thereafter, neither Omnova Solutions nor its employees will
participate in the New GenCorp retirement savings plan.
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Omnova Solutions common stock held in the accounts of New GenCorp employees
that is attributable to contributions made before the Distribution may be
retained in the Omnova Solutions stock fund, transferred to the New GenCorp
stock fund or transferred to any other investment funds in the retirement
savings plan at the participant's election in accordance with the terms of the
retirement savings plan. Except as provided in the preceding sentence,
contributions made to or held under the retirement savings plan on behalf of New
GenCorp employees may not be invested in the Omnova Solutions stock fund. Any
dividends on Omnova Solutions common stock in accounts of New GenCorp employees
will be reinvested in the Omnova Solutions stock fund.
New GenCorp common stock held in the accounts of Omnova Solutions employees
that is attributable to contributions made before the Distribution may be
retained in the New GenCorp stock fund, transferred to the Omnova Solutions
stock fund or transferred to any other investment fund in the retirement savings
plan at the participant's election in accordance with the term of the retirement
savings plan. Except as provided in the preceding sentence, contributions made
to or held under the retirement savings plan on behalf of Omnova Solutions
employees may not be invested in the New GenCorp stock fund. Any dividends after
the Distribution date on New GenCorp common stock in accounts of Omnova
Solutions employees will be reinvested in the New GenCorp stock fund.
STOCK INCENTIVE COMPENSATION PLAN. Prior to the Distribution date, the
GenCorp Inc. Stock Incentive Compensation Plan will be terminated, and all
accounts of participants, whether represented by GenCorp shares held in a trust
or cash payment obligations will be distributed to participants, subject to the
normal tax withholding provisions in the plan.
GENCORP 1993 AND 1997 STOCK OPTION PLANS. Prior to the date of the special
dividend contemplated by the Distribution, exercisable options under the GenCorp
1993 and 1997 Stock Option Plans for (1) active employees, (2) retirees, and (3)
other former employees whose options remain exercisable, will be split into
options to acquire New GenCorp common stock and Omnova Solutions common stock.
Except with respect to options held by the chief executive officers of New
GenCorp and Omnova Solutions, the number of exercisable options in each company
will each equal the number of exercisable options under the GenCorp Stock Option
Plans. With respect to exercisable options held by the chief executive officers,
(1) Mr. Wolfe's options will be converted into 66 2/3% New GenCorp options and
33 1/3% Omnova Solutions options, and (2) Mr. Yasinsky's options will be
converted into 66 2/3% Omnova Solutions options and 33 1/3% New GenCorp options.
The exercise price of each resulting option will bear the same ratio to the
market price, as of the date of the special dividend contemplated by the
Distribution, of the respective company's stock, as the exercise price of the
original GenCorp option bore to the market price of GenCorp shares immediately
before the Distribution date.
Unexercisable options under the GenCorp 1997 Stock Option Plan for New
GenCorp employees will be replaced with a number of unexercisable New GenCorp
options under that plan which will, based upon (1) the market price of GenCorp
shares immediately after the date of the special dividend contemplated by the
Distribution and (2) the exercise prices for those options, have an aggregate
intrinsic value equal to that of the unexercisable GenCorp options immediately
before the date of the special dividend contemplated by the Distribution.
Unexercisable options under the GenCorp 1997 Stock Option Plan for Omnova
Solutions employees will be replaced with a number of unexercisable Omnova
Solutions options which will, based upon (1) the market price of Omnova
Solutions shares immediately after the date of the special dividend contemplated
by the Distribution and (2) the exercise price for such options, have an
aggregate intrinsic value equal to that of the unexercisable GenCorp options
immediately before the date of the special dividend contemplated by the
Distribution.
In converting the stock option plans for the Distribution, the exercisable
and unexercisable aggregate intrinsic value of the options immediately after the
conversion will be equal to the aggregate intrinsic value immediately before the
conversion. The ratio of the exercise price per option to the market value per
share will not be reduced and the vesting provisions and option period of the
Omnova Solutions and New GenCorp options will be the same as for the original
GenCorp options. Accordingly, no compensation expense will be recognized by
Omnova Solutions or New GenCorp.
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UNFUNDED DEFERRED COMPENSATION. GenCorp has unfunded obligations to pay
deferred compensation and retirement income under its Benefits Restoration Plan,
Deferred Bonus Plan, Non-Employee Directors Retirement and Deferred Compensation
Plans, 1996 Supplemental Retirement Plan for Management Employees, individual
employment agreements, and other miscellaneous plans related to discontinued
operations. Subject to legal requirements for employee acquiescence, benefit
obligations for (1) active employees transferred to Omnova Solutions, (2)
retired employees who terminated employment from active business locations of
Omnova Solutions, and (3) GenCorp directors resigning to become members of the
Omnova Solutions Board, will be assumed by Omnova Solutions. Benefit obligations
for (4) active employees remaining New GenCorp employees, (5) GenCorp directors
remaining on the New GenCorp Board, (6) other retired employees, and (7) retired
directors, will be retained by New GenCorp.
Former employees and directors will be able to elect a lump-sum payment of
their deferred compensation, subject to (1) a 10% reduction in order to avoid
adverse tax consequences, and (2) all applicable tax withholding. Active
employees and directors may receive lump-sum payments upon termination of
employment or board service with GenCorp, New GenCorp or Omnova Solutions based
upon appropriate advance elections or discretionary approval by the appropriate
company's benefit management committee. Under the agreement on employee matters,
New GenCorp will indemnify the payment of unfunded obligations assumed by Omnova
Solutions as of the date of the special dividend contemplated by the
Distribution, and Omnova Solutions will indemnify the payment of unfunded
obligations retained by New GenCorp as of the date of the special dividend
contemplated by the Distribution.
ANNUAL BONUSES. Bonus amounts under GenCorp's Executive Incentive
Compensation Plan for the period ending November 30, 1999 will be determined
based upon (1) actual performance up to the date of the special dividend
contemplated by the Distribution, and (2) budgeted performance, for the
remainder of the period, according to GenCorp's annual operating plan. Subject
to legal requirements for employee acquiescence, bonus obligations will be
assumed by Omnova Solutions for all Omnova Solutions employees, and paid in
cash. Bonus obligations will be paid in cash by New GenCorp for all New GenCorp
employees and for terminated GenCorp employees who are not employed by Omnova
Solutions.
LONG-TERM INCENTIVE COMPENSATION. Performance awards under GenCorp's
Long-Term Incentive Program for the three-year performance period ending
November 30, 1999 will be determined based upon (1) actual performance up to the
date of the special dividend contemplated by the Distribution, and (2) budgeted
performance, for the remainder of the period, according to GenCorp's annual
operating plan. Pro rata performance awards will be paid under the GenCorp plan
for the performance periods ending November 30, 2000 and November 30, 2001. Pro
rata performance awards for each partial performance period will be determined
based upon (1) actual performance up to the date of the special dividend
contemplated by the Distribution, and (2) budgeted performance, for the
remainder of the fiscal year ending November 30, 1999, according to GenCorp's
annual operating plan. Subject to legal requirements for employee acquiescence,
performance award obligations will be assumed by Omnova Solutions for all Omnova
Solutions employees and paid in cash. Performance award obligations will be paid
in cash by New GenCorp for all New GenCorp employees and for terminated GenCorp
employees who are not employed by Omnova Solutions.
DIRECTOR COMPENSATION. Subject to legal requirements for director
acquiescence, benefit obligations for GenCorp directors resigning to become
members of the Omnova Solutions Board will be assumed by Omnova Solutions.
Benefit obligations for GenCorp directors remaining on the New GenCorp Board and
retired directors will be retained by New GenCorp.
ENHANCED RETIREMENT AND SEPARATION PAY PLANS. GenCorp adopted a Voluntary
Enhanced Retirement Program (VERP) and Enhanced Involuntary Separation Pay Plan
(EISP) which are associated with and contingent upon the Distribution. The VERP
offers enhanced retirement benefits to eligible salaried employees within a
number of corporate facilities and divisional headquarters. The majority of the
related benefits will be paid from the defined benefit pension and retiree
health care plans of New GenCorp and Omnova Solutions. The maximum estimated
cost of the VERP could range up to $7.6 million. The maximum estimated cost of
the EISP could range up to $2.1 million. The actual cost of both the VERP and
the EISP will be reflected in the financial
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statements of GenCorp prior to the Distribution. The total number of
participants and the timing of their departure are not yet known.
ADMINISTRATIVE SERVICES. For a transition period not to exceed two years
after the Distribution, the Joint Savings Plan and other benefit programs
currently applicable to GenCorp active employees and retirees will be
administered under a transition services arrangement between New GenCorp and
Omnova Solutions. The purpose of the transition services arrangement will be to
allow for an orderly transition of administrative responsibility for ongoing
GenCorp benefit programs to administrative staffs of New GenCorp and Omnova
Solutions. In accordance with the transition services agreement, Omnova
Solutions will reimburse New GenCorp, and New GenCorp will reimburse Omnova
Solutions, for all direct and indirect costs incurred by each to provide these
services on terms believed by New GenCorp and Omnova Solutions to be
commercially reasonable.
With respect to other employee welfare benefit plans, policies, contracts
and arrangements of GenCorp, such as GenCorp's medical reimbursement and
vacation, sick leave and jury duty policies, the agreement on employee matters
will generally provide that Omnova Solutions will adopt, and be solely
responsible for substantially identical, plans, policies, contracts and
arrangements, to be effective from and after the date of the special dividend
contemplated by the Distribution, with respect to individuals who will be
employees of Omnova Solutions and their beneficiaries after the date of the
special dividend contemplated by the Distribution. The agreement on employee
matters also will provide that service with GenCorp prior to the date of the
special dividend contemplated by the Distribution will be counted for purposes
of participation, vesting and, following appropriate asset transfers, benefit
accruals under the plans, policies, contracts and arrangements of Omnova
Solutions following the date of the special dividend contemplated by the
Distribution.
INTELLECTUAL PROPERTY
In connection with the Distribution, intellectual property, including
patents, trademarks, copyrights, trade secrets and inventions used primarily by,
or being developed primarily for, Performance Chemicals and Decorative &
Building Products will be transferred to Omnova Solutions. In addition, a
license agreement will be established, subject to the rights of the U.S.
government, allowing Omnova Solutions to pursue commercialization of fluorinated
oxetane technology and associated oxetane technology originally conceived by
Aerojet, in Omnova Solutions' areas of interest and allowing New GenCorp to
pursue the technology in its areas of interest.
TRANSITION SERVICES AGREEMENT
GenCorp and Omnova Solutions will enter into a transition services
agreement which will provide for Omnova Solutions to continue to supply to New
GenCorp, for periods generally not to exceed two years and subject to
conditions, transitional administrative services for Vehicle Sealing operations,
including accounts receivable collections, payroll, real estate, data
communications and word processing, and to assist in effecting an orderly
transition following the Distribution. Omnova Solutions will be entitled to
reimbursement for all direct and indirect costs of providing these transitional
services on terms believed by Omnova Solutions and New GenCorp to be
commercially reasonable. These costs are not expected to be material.
ITEM 8. LEGAL PROCEEDINGS.
Omnova Solutions is subject to various legal actions, governmental
investigations, and proceedings relating to a wide range of matters. In the
opinion of management, after reviewing the information which is currently
available with respect to these matters and consulting with counsel, any
liability which may ultimately be incurred with respect to these matters will
not materially affect the consolidated financial condition of Omnova Solutions.
The effect of resolution of these matters on results of operations cannot be
predicted because any effect depends on both future results of operations and
the amount and timing of the resolution of these matters.
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ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER
MATTERS.
Omnova Solutions intends to apply to the NYSE for the listing of the Omnova
Solutions common stock. Omnova Solutions initially will have approximately
12,163 stockholders of record based upon the number of shareholders of record of
GenCorp as of May 31, 1999. It is presently anticipated that Omnova Solutions
common stock will be approved for listing on the NYSE prior to the Distribution
date, and trading may commence on a "when-issued" basis prior to the
Distribution. It is also possible that New GenCorp common stock would be traded
on a "when-distributed" basis prior to the Distribution. On the trading day
following the date that certificates for Omnova Solutions common stock are
mailed by the Distribution agent, "when-issued" or "when-distributed" trading,
as applicable, in respect of each of the Omnova Solutions common stock and New
GenCorp common stock would end and "regular-way" trading would begin. The NYSE
will not approve any trading of the Omnova Solutions common stock until the
Securities and Exchange Commission (the "Commission") has declared effective
this Form 10.
There is now no public market for Omnova Solutions common stock. Prices at
which Omnova Solutions common stock may trade prior to the Distribution on a
"when-issued" basis or after the Distribution cannot be predicted. Until the
Omnova Solutions common stock is fully distributed and an orderly market
develops, the prices at which trading in Omnova Solutions common stock occurs
may fluctuate significantly. The price at which Omnova Solutions common stock
trades after the Distribution will be determined by the marketplace and may be
influenced by many factors, including, among others, the depth and liquidity of
the market for Omnova Solutions common stock, investor perception of Omnova
Solutions and the industries in which it participates, Omnova Solutions'
operating results, Omnova Solutions' dividend policy and general economic and
market conditions. Market prices may also be affected by provisions of Omnova
Solutions' articles of incorporation and code of regulations as each will be in
effect following the Distribution, which may have an antitakeover effect. See
"Item 11. Description of Registrant's Securities to be Registered -- Certain
Change in Control Effects of Certain Provisions of the Articles of Incorporation
and Code of Regulations of Omnova Solutions".
The Omnova Solutions common stock distributed to holders of GenCorp common
stock in the Distribution will be freely transferable, except for shares
received by persons who may be deemed to be "affiliates" of Omnova Solutions
under the Securities Act of 1933. Persons who may be deemed to be affiliates of
Omnova Solutions after the Distribution generally include individuals or
entities that control, are controlled by, or are under common control with
Omnova Solutions and include directors and executive officers of Omnova
Solutions. Persons who are affiliates of Omnova Solutions will be permitted to
sell their shares of Omnova Solutions common stock only pursuant to an effective
registration statement under the Securities Act or an exemption from the
registration requirements of the Securities Act, such as the exemption afforded
by Section 4(2) of the Securities Act or by Rule 144.
The Bank of New York will act as the transfer agent and registrar for the
Omnova Solutions common stock after the Distribution is completed.
The dividend policy of Omnova Solutions will be determined by the Omnova
Solutions Board. The payment and level of any cash dividends by Omnova Solutions
after the Distribution will be subject to the discretion of the Omnova Solutions
Board of Directors. Future dividend decisions will depend on a number of
factors, including the future results of operations and financial condition of
Omnova Solutions, state law requirements and other factors. Although there can
be no assurance that Omnova Solutions will pay any dividends, management of
Omnova Solutions intends to pay cash dividends and believes that its cash flows
after the Distribution should be sufficiently strong that, barring unforeseen
circumstances, a cash dividend can be paid for the foreseeable future. It is
anticipated that Omnova Solutions' credit arrangements after the Distribution
will limit its ability to pay dividends.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
Effective June 30, 1999, Omnova Solutions issued to GenCorp 10 shares of
Omnova Solutions common stock in exchange for $1,000. This issuance was exempt
from registration under Section 4(2) of the Securities Act of 1933 because it
was a transaction not involving a public offering.
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ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
AUTHORIZED CAPITAL STOCK
After the Distribution, Omnova Solutions' authorized capital stock will
consist of 150,000,000 shares of common stock, $0.10 par value per share, and
15,000,000 shares of preferred stock, $1.00 par value per share. Based on the
number of shares of GenCorp common stock outstanding on June 30, 1999,
approximately 41,817,650 shares of Omnova Solutions common stock will be
transferred by GenCorp to its shareholders in the Distribution. Currently, there
are no shares of Omnova Solutions preferred stock outstanding.
OMNOVA SOLUTIONS COMMON STOCK
Subject to rights of any holders of preferred stock, each outstanding share
of Omnova Solutions common stock will be entitled to such dividends as may be
declared from time to time by the Board of Directors of Omnova Solutions. See
"Dividend Policies -- Omnova Solutions Dividend Policy." Each outstanding share
of Omnova Solutions common stock will be entitled to one vote on all matters
submitted to a vote of shareholders. After the Distribution, pursuant to the
Omnova Solutions Articles of Incorporation, holders of Omnova Solutions common
stock will not have the right to cumulative voting; therefore, the holders of a
majority of the shares voting for the election of the Board of Directors of
Omnova Solutions will be able to elect all the directors standing for election,
if they so choose. In the event of liquidation, dissolution or winding up of
Omnova Solutions, holders of Omnova Solutions common stock will be entitled to
receive on a pro rata basis any assets remaining after provision for payment of
creditors and any holders of Omnova Solutions Preferred Stock.
NO PREEMPTIVE RIGHTS
Except as may be provided in any Preferred Stock Designation, no holder of
any class of stock of Omnova Solutions authorized at the time of the
Distribution will have any preemptive right to subscribe to any securities of
Omnova Solutions of any kind.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
One of the effects of the existence of unissued and unreserved Omnova
Solutions common stock may be to enable the Omnova Solutions Board to render
more difficult or to discourage an attempt to obtain control of Omnova Solutions
by means of a merger, tender offer, proxy contest or otherwise, and thereby to
protect the continuity of Omnova Solutions' management. If, in the due exercise
of its fiduciary obligations, for example, the Omnova Solutions Board were to
determine that a takeover proposal was not in Omnova Solutions' best interests,
such shares could be issued by the Omnova Solutions Board without shareholder
approval in one or more private placements or other transactions that might
prevent or render more difficult or costly the completion of the takeover
transaction by diluting the voting or other rights of the proposed acquiror or
insurgent shareholder or shareholder group, by creating a substantial voting
block in institutional or other hands that might undertake to support the
position of the incumbent Omnova Solutions Board, or by effecting an acquisition
that might complicate or preclude the takeover.
Although Ohio law and the Omnova Solutions Articles would not require
shareholder approval to issue authorized shares, the NYSE, on which the Omnova
Solutions common stock is expected to be listed, requires shareholder approval
of certain issuances as a condition of listing the additional shares or, in some
instances, of continued listing of the outstanding shares.
In addition, certain other provisions of the Omnova Solutions articles of
incorporation and Omnova Solutions code of regulations, which are described
below, may have the effect, alone or in combination with each other or with the
existence of authorized but unissued shares of capital stock, of rendering more
difficult or discouraging an acquisition of Omnova Solutions deemed undesirable
by the Omnova Solutions Board. See "-- Certain Anti-Takeover Provisions Relating
to Omnova Solutions."
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CERTAIN ANTI-TAKEOVER PROVISIONS RELATING TO OMNOVA SOLUTIONS
Omnova Solutions' articles of incorporation contain several provisions that
may make the acquisition of control of Omnova Solutions by means of a tender
offer, open market purchase, proxy fight, or otherwise more difficult. Omnova
Solutions' code of regulations also contain provisions that could have an
anti-takeover effect.
These provisions of Omnova Solutions' articles of incorporation and code of
regulations are designed to encourage persons seeking to acquire control of
Omnova Solutions to negotiate the terms with the Omnova Solutions Board. Omnova
Solutions believes that, as a general rule, the interest of Omnova Solutions
shareholders would be served best if any change in control results from
negotiations with the Omnova Solutions Board based upon careful consideration of
the proposed terms, such as the price to be paid to shareholders, the form of
consideration to be paid and the anticipated tax effects of the transaction.
The provisions could, however, have the effect of discouraging a
prospective acquiror from making a tender offer or otherwise attempting to
obtain control of Omnova Solutions. To the extent that these provisions
discourage takeover attempts, they could deprive shareholders of opportunities
to realize takeover premiums for their shares. Moreover, these provisions could
discourage accumulations of large blocks of Omnova Solutions common stock, thus
depriving shareholders of any advantages which large accumulations of stock
might provide.
Set forth below is a summary of the relevant provisions of Omnova
Solutions' articles of incorporation and code of regulations and certain
applicable sections of the Ohio General Corporation Law. Such summary does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all of the provisions of Omnova Solutions' articles of
incorporation and code of regulations, which will be filed as exhibits to the
Registration Statement on Form 10 to be filed by Omnova Solutions with the
Securities and Exchange Commission.
CONTROL SHARE ACQUISITIONS
Section 1701.831 of the Ohio General Corporation Law provides that certain
notice and informational filings and special shareholder meeting and voting
procedures must be followed prior to consummation of a proposed "control share
acquisition." The Ohio General Corporation Law defines a "control share
acquisition" as any acquisition of an issuer's shares which would entitle the
acquiror, immediately after that acquisition, directly or indirectly, to
exercise or direct the exercise of voting power of the issuer in the election of
directors within any of the following ranges of that voting power:
- one-fifth or more but less than one-third of that voting power;
- one-third or more but less than a majority of that voting power; or
- a majority or more of that voting power.
Assuming compliance with the notice and information filings prescribed by
statute, the proposed control share acquisition may be made only if, at a
special meeting of shareholders, the acquisition is approved by both a majority
of the voting power of the issuer represented at the meeting and a majority of
the voting power remaining after excluding the combined voting power of the
"interested shares." "Interested shares" are the shares held by the intended
acquiror, the employee-directors and officers of the issuer as well as certain
shares that were acquired after the date of the first public disclosure of the
acquisition but before the record date for the shareholders meeting and shares
that were transferred, together with the voting power thereof, after the record
date for the shareholders meeting.
BUSINESS COMBINATIONS WITH CERTAIN PERSONS
Omnova Solutions is subject to Chapter 1704 of the Ohio General Corporation
Law, which prohibits certain business combinations and transactions between an
"issuing public corporation" and an "Ohio law interested shareholder" for at
least three years after the Ohio law interested shareholder attains 10%
ownership, unless the board of directors of the issuing public corporation
approves the transaction before the Ohio law interested shareholder attains 10%
ownership. An "issuing public corporation" is an Ohio corporation with 50 or
more shareholders that has its principal place of business, principal executive
offices, or substantial assets within the
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State of Ohio, and as to which no close corporation agreement exists. An "Ohio
law interested shareholder" is a beneficial owner of 10% or more of the shares
of a corporation. Examples of transactions regulated by Chapter 1704 include the
disposition of assets, mergers and consolidations, voluntary dissolutions and
the transfer of shares.
Subsequent to the three-year period, a transaction subject to Chapter 1704
may take place provided that certain conditions are satisfied, including:
- prior to the interested shareholder's share acquisition date, the
board of directors approved the purchase of shares by the interested
shareholder;
- the transaction is approved by the holders of shares with at least
66 2/3% of the voting power of the corporation (or a different
proportion set forth in the articles of incorporation), including at
least a majority of the outstanding shares after excluding shares
controlled by the Ohio law interested shareholder; or
- the business combination results in shareholders, other than the
Ohio law interested shareholder, receiving a fair price plus
interest for their shares.
Chapter 1704 is applicable to all corporations formed under Ohio law.
CLASSIFIED BOARD OF DIRECTORS
The Omnova Solutions code of regulations provides for the Omnova Solutions
Board to be divided into three classes of directors, as nearly equal in number
as possible, serving staggered terms. Approximately 1/3 of the Board is to be
elected each year. See "Item 5. Directors and Executive
Officers -- Classification of Omnova Solutions Board."
The provision for a classified board could prevent a party who acquires
control of a majority of the outstanding voting stock from obtaining control of
the Omnova Solutions Board until the second annual shareholders meeting
following the date the acquiror obtains a controlling stock interest. The
classified board provision could have the effect of discouraging a potential
acquiror from making a tender offer or otherwise attempting to obtain control of
Omnova Solutions and could increase the likelihood that incumbent directors will
retain their positions.
Omnova Solutions believes that a classified board will help to assure the
continuity and stability of the Omnova Solutions Board and Omnova Solutions'
business strategies and policies as determined by the Omnova Solutions Board,
because a majority of the directors will eventually have prior experience as
directors of Omnova Solutions.
The classified board provisions should also help to ensure that the Omnova
Solutions Board, if confronted with an unsolicited proposal from a third party
that has acquired a block of the voting stock of Omnova Solutions, will have
sufficient time to review the proposal and appropriate alternatives and to seek
the best available result for all shareholders.
NUMBER OF DIRECTORS; REMOVAL; VACANCIES
The Omnova Solutions code of regulations provides that the number of
directors shall be set either by resolution of the Omnova Solutions Board
adopted by the affirmative vote of a majority of the Omnova Solutions Board or
by the affirmative vote of the holders of at least 80% of the voting power of
Omnova Solutions, voting together as a single class; provided that the number of
directors shall not be fewer than seven or greater than 17.
Pursuant to the Omnova Solutions code of regulations, each director will
serve until his or her successor is duly elected and qualified, unless he or she
resigns, dies, becomes disqualified, or is removed. Omnova Solutions' code of
regulations prohibits the removal of directors from the Omnova Solutions Board
by the shareholders.
42
<PAGE> 43
Further, the Omnova Solutions code of regulations prohibits removal of directors
by the directors, except when the director to be removed:
- has been found by a court of competent jurisdiction to be of unsound
mind, or if he or she is adjudicated bankrupt;
- has failed to qualify as a director by accepting in writing his or
her election or by acting at a meeting of the Omnova Solutions
Board;
- is unable to engage in any substantial gainful activity by reason of
any medically determinable physical or mental impairment that is
expected to be permanent;
- has, since his or her election as a director, been convicted of a
crime constituting a felony or involving fraud, embezzlement or
theft; or
- has, since his or her election as a director, been found by a court
of competent jurisdiction in a civil action to have breached his or
her duty of loyalty to the company or any other company.
The Omnova Solutions code of regulations further provides that generally
vacancies or newly created directorships in the Omnova Solutions Board may only
be filled by a resolution approved by a majority of the Omnova Solutions Board
and any director so chosen will hold office until the next election of the class
for which such director was chosen.
SHAREHOLDER ACTION; SPECIAL MEETINGS
Under the Ohio General Corporation Law, unless prohibited by the articles
of incorporation or the code of regulations, any action by shareholders
generally must be taken at a meeting, unless a written consent stating the
action to be taken is signed by all the shareholders who would be entitled to
notice of the meeting held to consider the subject matter of the written
consent. Omnova Solutions' code of regulations does not prohibit shareholders
from acting by written consent.
Under the Ohio General Corporation Law, a special meeting of shareholders
may be called by the chairman, the president, the directors by action at a
meeting, a majority of the directors voting without a meeting, persons owning
25% of the outstanding shares entitled to vote at that meeting, or a less or
greater proportion as specified in the articles or regulations but not greater
than 50%, or the person(s) authorized to do so by the articles of incorporation
or the code of regulations. Omnova Solutions' code of regulations provides that
special meetings of shareholders may be called by the Chairman of the Omnova
Solutions Board, the President of Omnova Solutions, a majority of the directors
acting with or without a meeting or by any person or persons who hold not less
than 50% of all shares entitled to vote at that shareholders meeting.
SHAREHOLDER PROPOSALS AND NOMINATIONS
Omnova Solutions' code of regulations establishes an advance notice
procedure for shareholder proposals to be brought before an annual or special
meeting of shareholders of Omnova Solutions, including proposed nominations of
persons for election to the Omnova Solutions Board. Shareholders at an annual or
special meeting may only consider proposals or nominations brought before the
meeting by Omnova Solutions, by or at the direction of the Board or by a
shareholder that was a shareholder of record on the record date for the meeting,
that is entitled to vote at the meeting and that has given to Omnova Solutions'
Secretary timely written notice, in proper form, of the shareholder's intention
to bring that business before the meeting.
To be timely, notice by shareholders of nominations or proposals to be
brought before any annual meeting of shareholders, or before any special meeting
of shareholders, must be delivered to the Secretary of Omnova Solutions not less
than 60 nor more than 90 calendar days prior to the first anniversary of the
date on which Omnova Solutions first mailed its proxy materials for the
preceding year's annual meeting of shareholders, provided, however, that if the
date of the annual meeting is advanced more than 30 calendar days prior to or
delayed by more than 30 calendar days after the anniversary of the preceding
year's annual meeting, notice by the shareholder to be timely must be so
delivered not later than the close of business on the later of the 90th calendar
43
<PAGE> 44
day prior to such annual meeting or the 10th calendar day following the day on
which public announcement of the date of such meeting is first made.
Each notice by shareholders must set forth (1) the name and address of the
shareholder who intends to make the nomination or proposal and of any beneficial
owner on whose behalf the nomination or proposal is made and (2) the class and
number of shares of Omnova Solutions common stock that are owned beneficially
and of record by such shareholder and beneficial owner, if any. In the case of a
shareholder proposal, the notice must also set forth a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest of such shareholder or
beneficial owner, if any, in that proposed business. In the case of nomination
of any person for election as a director, the notice must also set forth any
information regarding the nominee proposed by the shareholder that would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Commission and the consent, if so required, of the nominee to be named in
a proxy statement as a candidate for election and to serve as a director of
Omnova Solutions if elected.
Although Omnova Solutions' code of regulations does not give the Omnova
Solutions Board the power to approve or disapprove shareholder nominations of
candidates or proposals regarding other business to be conducted at a special or
annual meeting, Omnova Solutions' code of regulations may have the effect of
precluding the conduct of certain business at a meeting if the proper procedures
are not followed or may discourage or defer a potential acquiror from conducting
a solicitation of proxies to elect its own slate of directors or otherwise
attempting to obtain control of Omnova Solutions.
PREFERRED STOCK
The Omnova Solutions articles of incorporation establish three series of
Omnova Solutions preferred stock, and authorize the Omnova Solutions Board to
determine, with respect to any series, the terms and rights of such series
(other than voting), including dividend and liquidation rights.
The provisions authorizing the Omnova Solutions Board to issue Omnova
Solutions preferred stock in series with such terms as it may designate will
provide Omnova Solutions with flexibility in structuring possible future
financings and acquisitions, and in meeting other corporate needs which might
arise. The authorized shares of Omnova Solutions preferred stock, as well as
shares of Omnova Solutions common stock, will be available for issuance without
further action by shareholders, unless such action is required by applicable law
or the rules of the NYSE. Those rules require shareholder approval as a
prerequisite to listing shares in several instances, including where the present
or potential issuance of shares could result in an increase in the number of
shares of common stock, or in the amount of voting securities outstanding of at
least 20%.
Although the Omnova Solutions Board has no present intention of doing so,
it could issue a series of Omnova Solutions preferred stock that could,
depending on its terms, impede the completion of a takeover attempt, including
one in which shareholders might receive a premium for their stock over the then
current market price.
AMENDMENT OF CHARTER DOCUMENTS
Ohio law permits the adoption of amendments to the articles of
incorporation if those amendments are approved at a meeting held for that
purpose by the holders of shares entitling them to exercise two-thirds of the
voting power of the corporation, or a lesser, but not less than a majority, or
greater vote as specified in the articles of incorporation. Amendment of Omnova
Solutions' articles of incorporation requires the approval of the holders of at
least 66 2/3% of the voting power then outstanding, except that amendment of any
of the following provisions requires the affirmative vote of the holders of
shares of Omnova Solutions entitled to exercise 80% of the voting power of
Omnova Solutions:
- Article V, which relates to the board's ability to determine the
terms and rights of series of Omnova Solutions preferred stock;
- Article VI, which relates to the elimination of cumulative voting;
44
<PAGE> 45
- Article VII, which relates to the elimination of pre-emptive rights;
and
- Article VIII, which relates to the directors' authority to purchase
any securities of Omnova Solutions.
Under the Ohio General Corporation Law, a code of regulations may be
adopted, amended or repealed only by approval of the shareholders either at a
meeting of shareholders by the affirmative vote of the holders of shares
entitling them to exercise a majority of the voting power on that proposal or by
written consent signed by holders of shares entitling them to exercise 66 2/3%
of the voting power on that proposal, or if the regulations so provide, by the
affirmative vote or written consent of the holders of shares entitling them to
exercise a greater or lesser proportion, but not less than a majority of the
voting power. Omnova Solutions' code of regulations provides that the code of
regulations may be amended at any meeting of shareholders, provided that any
such amendment proposed for consideration has been described in the notice of
meeting. Omnova Solutions' code of regulations further provides that amendment
of any of the following provisions requires the affirmative vote of the holders
of shares of Omnova Solutions entitled to exercise 80% of the voting power of
Omnova Solutions:
- Regulation 1, which relates to the time and place of shareholder
meetings;
- Regulation 3(a), which relates to the calling of special shareholder
meetings;
- Regulation 8, which relates to the order of business at shareholder
meetings and advance notification requirements for proposals for
business to be conducted at shareholder meetings;
- Regulation 10, which relates to the number, term, classification and
election of directors;
- Regulation 11, which relates to newly created directorships and
vacant directorships;
- Regulation 12, which relates to removal of directors;
- Regulation 13, which relates to nomination and election of directors
and advance notification requirements relating thereto; and
- Regulation 30, which relates to indemnification for directors and
officers, among others.
SHARE PURCHASE RIGHTS PLAN
It is anticipated that the Omnova Solutions Board will consider and may
adopt a share purchase rights plan on or after the Distribution Date.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Generally, a director of an Ohio corporation will not be found to have
violated his fiduciary duties unless there is proof by clear and convincing
evidence that the director has not acted in good faith, in a manner he
reasonably believes to be in or not opposed to the best interests of the
corporation, or with the care that an ordinarily prudent person in a like
position would use under similar circumstances. In general, a director is liable
for monetary damages for any action or omission as a director only if it is
proved by clear and convincing evidence that such act or omission was undertaken
either with deliberate intent to cause injury to the corporation or with
reckless disregard for the best interests of the corporation.
Under Ohio law, a corporation must indemnify its directors, as well as its
officers, employees and agents, against expenses where any such person is
successful on the merits or otherwise in defense of an action, suit or
proceeding. A corporation may indemnify such persons in actions, suits and
proceedings (including derivative suits) if the individual has acted in good
faith and in a manner that he believes to be in or not opposed to the best
interests of the corporation. In the case of a criminal proceeding, the
individual must also have no reasonable cause to believe that his conduct was
unlawful. Indemnification may be made only if ordered by a court or if
authorized in a specific case upon a determination that the applicable standard
of conduct has been met. Such a determination may be made by a majority of the
disinterested directors, by independent legal counsel or by the shareholders. In
order to obtain reimbursement for expenses in advance of the final disposition
of any action, the individual must provide an undertaking to repay the amount if
it is ultimately determined that he is not entitled to be indemnified.
45
<PAGE> 46
In general, Ohio law requires that all expenses, including attorney's fees,
incurred by a director in defending any action, suit or proceeding be paid by
the corporation as they are incurred in advance of final disposition if the
director agrees to repay such amounts if it is proved by clear and convincing
evidence that his action or omission was undertaken with deliberate intent to
cause injury to the corporation or with reckless disregard for the best
interests of the corporation and if the director reasonably cooperates with the
corporation concerning the action, suit or proceeding.
The code of regulations of Omnova Solutions provide for indemnification
that is coextensive with that permitted under Ohio law. In addition, Omnova
Solutions entered into or will enter into agreements that indemnify its
directors and certain of its officers to the maximum extent permitted by
applicable law. The indemnification so granted is not limited to the
indemnification specifically authorized by the Ohio General Corporation Law.
Each agreement represents a contractual obligation of Omnova Solutions which
cannot be altered unilaterally.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
HISTORICAL FINANCIAL STATEMENTS
The historical financial information required by this item is contained in
the financial statements that are listed on page F-1 of this Form 10 and are
filed herewith.
OMNOVA SOLUTIONS UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined balance sheet as of
February 28, 1999 and the unaudited pro forma condensed statements of combined
income for the three months ended February 28, 1999 and for the year ended
November 30, 1998 give effect to Omnova Solutions as a stand-alone entity. The
pro forma condensed combined balance sheet is presented as if the Distribution
had occurred on February 28, 1999, and the pro forma condensed statements of
combined income are presented as if the Distribution and the 1998 acquisitions
had occurred as of the beginning of the periods presented. These pro forma
combined financial statements reflect the anticipated borrowing by Omnova
Solutions of approximately $188 million and the payment of the borrowings by
Omnova Solutions to GenCorp in the form of a dividend. The actual amount to be
borrowed by Omnova Solutions and paid as a dividend to GenCorp will be
determined at the time of the Distribution. The actual amount will depend, in
part, on the amount of borrowings by GenCorp at that time. GenCorp's borrowings
fluctuate throughout its fiscal year. The pro forma information is presented for
illustrative purposes only and is not necessarily indicative of the results that
would have been obtained had the transactions actually occurred on the dates
assumed, nor is it necessarily indicative of the future combined results of
operations.
The pro forma condensed combined financial statements should be read in
conjunction with the historical combined financial statements and the related
notes thereto of Omnova Solutions included in this Form 10.
46
<PAGE> 47
OMNOVA SOLUTIONS
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
FEBRUARY 28, 1999
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ------------------------
OMNOVA OMNOVA
SOLUTIONS ADJUSTMENTS SOLUTIONS
---------- ----------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
ASSETS:
CURRENT ASSETS
Cash and cash equivalents................................... $ 3 $ 3
Accounts receivable, net.................................... 102 102
Inventories................................................. 58 58
Deferred income taxes....................................... 9 9
Prepaid expenses and other.................................. 3 3
---- ----
TOTAL CURRENT ASSETS........................................ 175 175
Prepaid pension............................................. $ 35(1) 35
Property, plant and equipment, net.......................... 194 13(2) 207
Goodwill, net............................................... 155 155
Patents and other intangible assets, net.................... 76 76
Other assets................................................ 3 3
---- ----- ----
TOTAL ASSETS................................................ $603 $ 48 $651
==== ===== ====
LIABILITIES AND DIVISIONAL EQUITY:
CURRENT LIABILITIES
Notes payable............................................... $ 6 $ 6
Accounts payable............................................ 57 57
Accrued payroll and personal property taxes................. 9 9
Other current liabilities................................... 6 $ 3(1) 25
16(2)
---- ----- ----
TOTAL CURRENT LIABILITIES................................... 78 19 97
Long-term debt.............................................. 188(3) 188
Postretirement benefits other than pensions................. 43(1) 43
Deferred income taxes....................................... 17 (5)(1) 14
2(2)
Other liabilities........................................... 9 16(2) 25
---- ----- ----
TOTAL LIABILITIES........................................... 104 263 367
DIVISIONAL EQUITY........................................... 499 (215)(4) 284
---- ----- ----
TOTAL LIABILITIES AND DIVISIONAL EQUITY..................... $603 $ 48 $651
==== ===== ====
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Balance Sheet as of February
28, 1999.
47
<PAGE> 48
OMNOVA SOLUTIONS NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
FEBRUARY 28, 1999
(1) To record the transfer of net pension assets and retiree medical obligations
and related deferred income taxes from GenCorp to Omnova Solutions. The
estimated prepaid pension asset is attributable to the excess of pension
assets over liabilities related to Omnova Solutions employees and retirees.
The projected prepaid pension asset of $35 million and retiree medical
benefit obligations of $46 million were actuarially determined based on
Omnova Solutions' active and retired participants in the plans and the
actuarial assumptions used were consistent with assumptions previously used
by GenCorp. The pension assets were split based on the requirements of
Section 414(i) of the Internal Revenue Code as prescribed by the Pension
Benefit Guaranty Corporation and other management considerations.
(2) To record the transfer of certain property, plant and equipment, primarily
GenCorp's corporate headquarters, related liabilities and deferred taxes
from GenCorp.
(3) Reflects the anticipated borrowing by Omnova Solutions of approximately $188
million. The proceeds from the borrowing will be used to pay a dividend to
GenCorp.
(4) To record the effect on divisional equity of the pro forma adjustments
referred to in notes (1), (2) and (3) above.
<TABLE>
<CAPTION>
(Dollars in millions)
<S> <C>
Transfer of prepaid pension(1)...................... $ 35
Transfer of postretirement benefits other than
pensions(1)....................................... (46)
Transfer of certain property, plant and equipment
and related liabilities(2)........................ (19)
Deferred income taxes related to (1) and (2)........ 3
Payment of dividend to GenCorp(3)................... (188)
-----
$(215)
=====
</TABLE>
48
<PAGE> 49
OMNOVA SOLUTIONS
UNAUDITED PRO FORMA CONDENSED STATEMENT OF COMBINED INCOME
THREE MONTHS ENDED FEBRUARY 28, 1999
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ----------------------------
OMNOVA OMNOVA
SOLUTIONS ADJUSTMENTS SOLUTIONS
------------ ------------- -----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
NET SALES................................................ $171 $ -- $ 171
COSTS AND EXPENSES
Cost of products sold.................................... 111 (2)(1) 109
Selling, general and administrative...................... 37 (1)(1) 38
2(2)
Depreciation............................................. 5 -- 5
Interest expense......................................... 5 (2)(3) 3
Other (income) expense, net.............................. 2 -- 2
---- ------ -------
160 (3) 157
---- ------ -------
INCOME BEFORE INCOME TAXES............................... 11 3 14
Income taxes............................................. 4 1(4) 5
---- ------ -------
NET INCOME............................................... $ 7 $ 2 $ 9
==== ====== =======
PRO FORMA NET INCOME PER SHARE:
Basic.................................................. $ .22(6)
Diluted................................................ $ .21(6)
WEIGHTED AVERAGE NUMBER OF SHARES (IN THOUSANDS):
Basic.................................................. 41,582
Diluted................................................ 42,034
</TABLE>
See Notes to Unaudited Pro Forma Condensed Statement of Combined Income
for the Three Months Ended February 28, 1999 and for the Year Ended November 30,
1998.
49
<PAGE> 50
OMNOVA SOLUTIONS
UNAUDITED PRO FORMA CONDENSED STATEMENT OF COMBINED INCOME
YEAR ENDED NOVEMBER 30, 1998
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL -------------------------------------------
OMNOVA OMNOVA
SOLUTIONS ADJUSTMENTS ACQUISITIONS(5) SOLUTIONS
---------- ----------- --------------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
NET SALES.................................. $624 $ -- $142 $ 766
COSTS AND EXPENSES
Cost of products sold...................... 407 (4)(1) 87 490
Selling, general and administrative........ 117 (4)(1) 36 158
9(2)
Depreciation............................... 18 1(2) 7 26
Interest expense........................... 8 3(3) -- 11
Other (income) expense, net................ 1 -- -- 1
Unusual items.............................. 3 -- -- 3
---- ------ ---- -------
554 5 130 689
---- ------ ---- -------
INCOME BEFORE INCOME TAXES................. 70 (5) 12 77
Income taxes (benefit)..................... 28 (2)(4) 5 31
---- ------ ---- -------
NET INCOME................................. $ 42 $ (3) $ 7 $ 46
==== ====== ==== =======
PRO FORMA NET INCOME PER SHARE:
Basic.................................... $ 1.11(6)
Diluted.................................. $ 1.09(6)
WEIGHTED AVERAGE NUMBER OF SHARES
(IN THOUSANDS):
Basic.................................... 41,468
Diluted.................................. 42,039
</TABLE>
See Notes to Unaudited Pro Forma Condensed Statement of Combined Income
for the Three Months Ended February 28, 1999 and for the Year Ended November 30,
1998.
50
<PAGE> 51
OMNOVA SOLUTIONS NOTES TO UNAUDITED PRO FORMA
CONDENSED STATEMENTS OF COMBINED INCOME
FOR THE THREE MONTHS ENDED FEBRUARY 28, 1999 AND FOR THE YEAR ENDED NOVEMBER 30,
1998
(1) To record the decrease in pension expense attributable to the transfer of a
portion of the excess of the defined benefit pension plans' assets over the
related obligations for Omnova Solutions employees and retirees.
(2) To transfer corporate costs that will be assumed by Omnova Solutions as a
result of the Distribution. This adjustment also includes the cost
associated with the corporate assets and liabilities transferred from
GenCorp. After the Distribution, these costs will no longer be incurred by
GenCorp. These costs, along with the general and administrative costs
already allocated to Omnova Solutions in its historical combined financial
statements total approximately $22 million in 1998, which management
believes are representative of the annual general and administrative costs
on a stand alone basis.
(3) To adjust interest expense to the amount computed based on the anticipated
borrowing of $188 million as a result of the Distribution. The interest rate
was 5.6% and 5.8% for the three months ended February 28, 1999 and for the
year ended November 30, 1998, respectively. The interest rate was primarily
based on LIBOR plus a margin as specified in GenCorp's credit agreement. A
quarter point change in the interest rate would result in a $.2 million and
a $.5 million change in interest expense for the three months ended February
28, 1999 and for the year ended November 30, 1998, respectively.
(4) To record the estimated income taxes related to the pro forma adjustments
referred to in notes (1), (2) and (3) above at an estimated combined U.S.
federal and state income tax rate of 40%.
(5) Represents the results of operations of the 1998 acquisitions from the
beginning of fiscal year 1998 through the dates of acquisition with
adjustments to reflect the amortization of goodwill and other intangible
amounts together with the related income tax effects at a 40% rate.
(6) The pro forma earnings per share were calculated based on a one for one
share distribution and equivalent stock options being granted to holders of
GenCorp stock options.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements. See page F-1 for a listing of financial
statements filed as part of this Form 10.
(b) Exhibits. See the Exhibit Index beginning on page X-1 of this Form
10 for a list of exhibits filed or to be filed as part of this Form 10.
51
<PAGE> 52
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, on July 9, 1999.
Omnova Solutions Inc.
(Registrant)
By: /s/ Michael E. Hicks
------------------------------------
Its: Senior Vice President and Chief
Financial Officer
52
<PAGE> 53
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
OMNOVA SOLUTIONS INC.
Report of Independent Auditors............................ F-2
Combined Balance Sheets as of November 30, 1998 and 1997
and February 28, 1999 (unaudited)...................... F-3
Statements of Combined Income for the years ended November
30, 1998, 1997 and 1996 and for the three month periods
ended February 28, 1999 and 1998 (unaudited)........... F-4
Statements of Combined Divisional Equity for the years
ended November 30, 1998, 1997 and 1996 and for the
three month period ended February 28, 1999
(unaudited)............................................ F-5
Statements of Combined Cash Flows for the years ended
November 30, 1998, 1997 and 1996 and for the three
month periods ended February 28, 1999 and 1998
(unaudited)............................................ F-6
Notes to Combined Financial Statements.................... F-7
SIGNIFICANT ACQUISITIONS
SEQUA CHEMICALS CORPORATION
Report of Independent Public Accountants.................. F-17
Consolidated Statement of Income for the Period from
January 1, 1998 to October 28, 1998.................... F-18
Consolidated Statement of Cash Flows for the Period from
January 1, 1998 to October 28, 1998.................... F-19
Consolidated Statement of Changes in Shareholders' Equity
for the Period from January 1, 1998 to October 28,
1998................................................... F-20
Notes to Consolidated Financial Statements................ F-21
THE EUROPEAN COMMERCIAL WALLCOVERINGS BUSINESS
Report of Independent Auditors............................ F-25
Combined Profit and Loss Account for the Years Ended
January 31, 1998 and 1997 and for the Six Month Periods
Ended July 31, 1998 and 1997 (unaudited)............... F-26
Combined Statements of Total Recognized Gains and Losses
for the Years Ended January 31, 1998 and 1997 and for
the Six Month Periods Ended July 31, 1998 and 1997
(unaudited)............................................ F-27
Combined Note of Historical Cost Profits and Losses for
the Years Ended January 31, 1998 and 1997 and for the
Six Month Periods Ended July 31, 1998 and 1997
(unaudited)............................................ F-27
Combined Cash Flow Statements for the Years Ended January
31, 1998 and 1997 and for the Six Month Periods Ended
July 31, 1998 and 1997 (unaudited)..................... F-28
Notes to the Combined Financial Statements................ F-31
</TABLE>
F-1
<PAGE> 54
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF GENCORP INC.:
We have audited the accompanying combined balance sheets of Omnova
Solutions Inc. (the Performance Chemicals and Decorative & Building Products
businesses of GenCorp Inc.) as of November 30, 1998 and 1997, and the related
statements of combined income, divisional equity and cash flows for each of the
three years in the period ended November 30, 1998. These financial statements
are the responsibility of GenCorp Inc.'s management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Omnova Solutions
Inc. at November 30, 1998 and 1997, and the combined results of its operations
and its cash flows for each of the three years in the period ended November 30,
1998, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Akron, Ohio
April 14, 1999
F-2
<PAGE> 55
OMNOVA SOLUTIONS
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
NOVEMBER 30,
FEBRUARY 28, ------------
1999 1998 1997
------------ ---- ----
(UNAUDITED)
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
ASSETS:
CURRENT ASSETS
Cash and cash equivalents................................... $ 3 $ 4 $ --
Accounts receivable, net.................................... 102 102 71
Inventories................................................. 58 57 36
Deferred income taxes....................................... 9 9 8
Prepaid expenses and other.................................. 3 2 --
---- ---- ----
TOTAL CURRENT ASSETS........................................ 175 174 115
Property, plant and equipment, net.......................... 194 193 122
Goodwill, net............................................... 155 155 27
Patents and other intangible assets, net.................... 76 76 8
Other assets................................................ 3 5 5
---- ---- ----
TOTAL ASSETS................................................ $603 $603 $277
==== ==== ====
LIABILITIES AND DIVISIONAL EQUITY:
CURRENT LIABILITIES
Notes payable............................................... $ 6 $ -- $ --
Accounts payable............................................ 57 73 58
Accrued payroll and personal property taxes................. 9 12 10
Other current liabilities................................... 6 4 4
---- ---- ----
TOTAL CURRENT LIABILITIES................................... 78 89 72
Deferred income taxes....................................... 17 16 14
Other liabilities........................................... 9 9 9
---- ---- ----
TOTAL LIABILITIES........................................... 104 114 95
DIVISIONAL EQUITY........................................... 499 489 182
---- ---- ----
TOTAL LIABILITIES AND DIVISIONAL EQUITY..................... $603 $603 $277
==== ==== ====
</TABLE>
See notes to combined financial statements.
F-3
<PAGE> 56
OMNOVA SOLUTIONS
STATEMENTS OF COMBINED INCOME
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FEBRUARY 28, YEARS ENDED NOVEMBER 30,
------------ --------------------------
1999 1998 1998 1997 1996
---- ---- ------ ------ ------
(UNAUDITED)
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
NET SALES............................................. $171 $134 $624 $548 $506
COSTS AND EXPENSES
Cost of products sold................................. 111 90 407 369 329
Selling, general and administrative................... 37 27 117 106 97
Depreciation.......................................... 5 4 18 15 14
Interest expense allocated from GenCorp............... 5 1 8 4 8
Other (income) expense, net........................... 2 (1) 1 (3) 1
Unusual items......................................... -- -- 3 -- (4)
---- ---- ---- ---- ----
160 121 554 491 445
---- ---- ---- ---- ----
INCOME BEFORE INCOME TAXES............................ 11 13 70 57 61
Income taxes.......................................... 4 5 28 23 24
---- ---- ---- ---- ----
NET INCOME............................................ $ 7 $ 8 $ 42 $ 34 $ 37
==== ==== ==== ==== ====
</TABLE>
See notes to combined financial statements.
F-4
<PAGE> 57
OMNOVA SOLUTIONS
STATEMENTS OF COMBINED DIVISIONAL EQUITY
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED NOVEMBER 30,
FEBRUARY 28, --------------------------
1999 1998 1997 1996
------------------ ------ ------ ------
(UNAUDITED)
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Balance at beginning of period..................... $489 $182 $147 $146
Net income......................................... 7 42 34 37
Foreign currency translation adjustment............ -- 1 -- --
---- ---- ---- ----
Total comprehensive income......................... 7 43 34 37
Net transactions with GenCorp...................... 3 264 1 (36)
---- ---- ---- ----
Balance at end of period........................... $499 $489 $182 $147
==== ==== ==== ====
</TABLE>
See notes to combined financial statements.
F-5
<PAGE> 58
OMNOVA SOLUTIONS
STATEMENTS OF COMBINED CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FEBRUARY 28, YEARS ENDED NOVEMBER 30,
------------ ------------------------
1999 1998 1998 1997 1996
---- ---- ------ ----- -----
(UNAUDITED)
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................................ $ 7 $ 8 $ 42 $ 34 $ 37
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for unusual item.......................... -- -- 3 -- --
Gain on sale of businesses.......................... -- -- -- -- (4)
Depreciation, amortization and loss/gain on disposal
of fixed assets.................................. 6 4 21 16 14
Deferred income taxes............................... -- -- 1 -- (1)
Changes in operating assets and liabilities net of
effects of acquisitions and dispositions of
businesses:
Accounts receivable.............................. -- 1 (7) (2) (3)
Inventories...................................... -- 3 1 3 --
Other current assets............................. (1) (2) -- -- --
Current liabilities.............................. (26) (14) (7) 5 5
Other non-current assets......................... 11 -- (3) -- 1
Other long-term liabilities...................... -- -- 1 1 2
---- ---- ----- ---- ----
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES... (3) -- 52 57 51
INVESTING ACTIVITIES
Capital expenditures.................................. (7) (3) (18) (11) (15)
Proceeds from business and asset dispositions......... 9 -- -- -- 4
Business acquisitions................................. (3) -- (294) (47) (4)
---- ---- ----- ---- ----
NET CASH USED IN INVESTING ACTIVITIES................. (1) (3) (312) (58) (15)
FINANCING ACTIVITIES
Net transactions with GenCorp......................... 3 3 264 1 (36)
---- ---- ----- ---- ----
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES... 3 3 264 1 (36)
---- ---- ----- ---- ----
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS......................................... (1) -- 4 -- --
Cash and cash equivalents at beginning of period...... 4 -- -- -- --
---- ---- ----- ---- ----
CASH AND CASH EQUIVALENTS AT END OF
PERIOD.............................................. $ 3 $ -- $ 4 $ -- $ --
==== ==== ===== ==== ====
</TABLE>
See notes to combined financial statements.
F-6
<PAGE> 59
OMNOVA SOLUTIONS
NOTES TO COMBINED FINANCIAL STATEMENTS
NOVEMBER 30, 1998, 1997 AND 1996
INFORMATION AS OF AND FOR THE PERIODS ENDED
FEBRUARY 28, 1999 AND 1998 IS UNAUDITED
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION -- On December 17, 1998, GenCorp's (Company) Board of
Directors announced a plan to spin off its Performance Chemicals and Decorative
& Building Products businesses (Omnova Solutions Inc.) to its shareholders.
These businesses have been operated as divisions of GenCorp and include a
subsidiary operated in the United Kingdom. In the spin-off, each of the
Company's shareholders will receive a pro rata share of the voting common stock
of Omnova Solutions Inc. (Omnova Solutions) in a special dividend (Distribution)
and Omnova Solutions will become a separately traded, publicly held company. The
Company has filed a request for a ruling from the U.S. Internal Revenue Service
(the IRS) that this transaction generally would be free from U.S. federal income
taxes. The Distribution is subject to several conditions, including shareholder
approval and the IRS ruling.
The accompanying combined financial statements have been prepared on a
basis which reflects the historical financial statements of Omnova Solutions.
This assumes that the businesses of the Company expected to be contributed to
Omnova Solutions in connection with the Distribution were organized as a
separate legal entity. Generally, only assets and liabilities of the ongoing
Omnova Solutions businesses expected to be transferred to Omnova Solutions prior
to the Distribution were included in the Combined Balance Sheets.
The Company provides certain general and administrative services to Omnova
Solutions including administration, finance, legal, treasury, information
systems and human resources. The cost for these services was allocated to Omnova
Solutions by the Company based upon a formula that includes sales, gross payroll
and average invested capital. Management of the Company believes that the
allocation of cost for these services is reasonable. These allocations were $12
million, $13 million, and $12 million in 1998, 1997 and 1996, respectively, and
$4 million and $3 million for the three month periods ended February 28, 1999
and 1998, respectively. After the Distribution, Omnova Solutions will be
required to perform these general and administrative services using its own
resources or purchased services and will be responsible for the costs and
expenses associated with the management of a public company. Omnova Solutions'
management estimates that the costs of such general and administrative expenses
on a stand-alone basis would have been approximately $22 million in 1998.
As described in Note J, Omnova Solutions' employees and retirees
participate in various Company pension, health care, savings and other benefit
plans. The net expenses related to these plans are included in the Omnova
Solutions combined financial statements generally based on historical pension
asset allocations and actuarial analyses for pension and retiree health care
obligations and based on actual cost for active health care, savings and other
benefit plans.
The Company uses a centralized approach to cash management and financing
for its domestic operations. As a result, cash and cash equivalents and debt
were not allocated to Omnova Solutions' domestic operations in the historical
financial statements. The cash and cash equivalents included in the Combined
Balance Sheets relate to Omnova Solutions' foreign operations. Omnova Solutions
generally has not had borrowings except amounts due to the Company. Interest
expense has been allocated to Omnova Solutions in the combined financial
statements to reflect Omnova Solutions' pro rata share of the financing
structure of the Company. The allocation in the combined financial statements is
based upon the percentage relationship between the average net assets employed
in Omnova Solutions' operations and the Company's overall average net assets. As
a stand alone entity, Omnova Solutions will establish its own credit facilities.
It is anticipated that as of the date of the Distribution, Omnova Solutions will
borrow an amount and pay the Company a dividend. The actual amount to be
borrowed by Omnova Solutions and paid as a dividend to the Company will be
determined at the time of the Distribution. The actual amount will depend, in
part, on the amount of the borrowings by the Company at that time.
F-7
<PAGE> 60
OMNOVA SOLUTIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The allocation methodology followed in preparing the combined financial
statements may not necessarily reflect the results of operations, cash flows, or
financial position of Omnova Solutions in the future, or what the results would
have been had Omnova Solutions been a separate stand-alone public entity for all
periods presented.
The Distribution will be accomplished through a distribution agreement that
will provide for, among other things, the assets to be contributed to Omnova
Solutions and the liabilities to be assumed by Omnova Solutions, certain of
which assets and liabilities have not been included in the accompanying Combined
Balance Sheets. Those assets and liabilities include, among other things, a
defined amount of debt and related corporate assets and liabilities.
The Company and Omnova Solutions will also enter into an employee benefits
and compensation allocation agreement to set forth the manner in which assets
and liabilities under employee benefit plans and other employment related
liabilities will be allocated between them. Certain assets and liabilities
related to the plans have not been included in the accompanying Combined Balance
Sheets. These included, among other things, assets and liabilities for the U.S.
defined benefit pension plans and obligations for health care and other
postretirement benefits that Omnova Solutions is expected to retain for
substantially all of its active and retired U.S. employees.
The final determination of the assets to be contributed to Omnova Solutions
and the liabilities to be assumed by Omnova Solutions and the dividend to be
paid by Omnova Solutions to the Company will be made pursuant to the agreements
to be entered into between the Company and Omnova Solutions in connection with
the Distribution. As of the date of the Distribution, the net effect of the
final transfer and dividend will be treated as a reduction in "Divisional
Equity" in the Combined Balance Sheets.
PRINCIPLES OF COMBINATION -- The combined financial statements of Omnova
Solutions include the accounts of the related businesses. Significant
interdivisional accounts and transactions have been eliminated.
REVENUE RECOGNITION -- Sales are recorded when products are shipped.
USE OF ESTIMATES -- The preparation of the combined financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the combined
financial statements and accompanying notes. Actual results could differ from
those estimates.
ENVIRONMENTAL COSTS -- Omnova Solutions expenses, on a current basis,
recurring costs associated with managing hazardous substances and pollution in
ongoing operations. Omnova Solutions accrues for costs associated with the
remediation of environmental pollution when it becomes probable that a liability
has been incurred and its proportionate share of the amount can be reasonably
estimated. Omnova Solutions recognizes amounts recoverable from insurance
carriers or other third parties when the collection of such amounts is probable
and estimatable. Accruals are not material.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- Omnova Solutions' cash equivalents
bear interest at market rates and therefore their carrying values approximate
their fair values.
INVENTORIES -- Inventories are stated at the lower of cost or market,
primarily using the last-in, first-out method.
LONG-LIVED ASSETS -- Property, plant and equipment are recorded at cost.
Refurbishment costs are capitalized in the property accounts whereas ordinary
maintenance and repair costs are expensed as incurred. Depreciation is computed
principally using the straight-line method. Depreciable lives on buildings and
improvements, and machinery and equipment, range from 10 to 40 years and 3 to 20
years, respectively.
Goodwill represents the excess of the purchase price over the estimated
fair value of the net assets acquired and is amortized on a straight-line basis
over periods ranging from 15 to 40 years. Identifiable intangible assets,
F-8
<PAGE> 61
OMNOVA SOLUTIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
such as patents, trademarks and licenses, are recorded at cost or when acquired
as part of a business combination at their estimated fair value. Identifiable
intangible assets are amortized over their estimated useful lives using the
straight-line method over periods ranging from 3 to 15 years. Accumulated
amortization of goodwill and identifiable intangible assets at November 30, 1998
and 1997 was $4 million and $1 million, respectively.
Impairment of long-lived assets is recognized when events or changes in
circumstances indicate that the carrying amount of the asset or related group of
assets may not be recoverable. If the expected future undiscounted cash flows
are less than the carrying amount of the asset, an impairment loss is recognized
at that time. Measurement of impairment may be based upon appraisal, market
value of similar assets, or discounted cash flows.
INCOME TAXES -- Omnova Solutions is included in the consolidated returns
filed by GenCorp and its subsidiaries in various U.S. and foreign jurisdictions.
The tax provisions reflected in the Statements of Combined Income have been
computed as if Omnova Solutions was a separate company. The accompanying
Combined Balance Sheets include deferred tax amounts applicable to Omnova
Solutions which result from temporary differences between the carrying amount of
assets and liabilities for financial reporting and income tax purposes. Taxes
currently payable and income tax payments are recorded directly by GenCorp and,
as a result, amounts related to Omnova Solutions are included in "Net
transactions with GenCorp" in the Statements of Combined Cash Flows.
EARNINGS PER SHARE -- Historical earnings per share have not been presented
as Omnova Solutions was operated as a division of the Company and had no
outstanding stock.
INTERIM FINANCIAL INFORMATION -- The financial information at February 28,
1999, and for the three months ended February 28, 1999 and 1998 is unaudited but
includes all adjustments (consisting only of normal recurring adjustments) which
Omnova Solutions considers necessary for a fair presentation of its financial
position, operating results and cash flows. Results of these periods are not
necessarily indicative of results expected for the entire year.
NOTE B -- UNUSUAL ITEMS
In 1998, Omnova Solutions recognized unusual expense of $3 million related
to exiting the residential wallcovering business. In 1996, Omnova Solutions
recognized unusual income of $4 million from the sale of the structural urethane
adhesives business.
NOTE C -- NEW ACCOUNTING PRONOUNCEMENTS
Omnova Solutions adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (SFAS 130), as of December 1, 1998, which
established standards for reporting and displaying comprehensive income and its
components in the financial statements. The adoption of SFAS 130, which had no
impact on Omnova Solutions' net income or divisional equity, requires
translation adjustments to be included in other comprehensive income.
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (SFAS 131). This statement is required to be adopted in fiscal year
1999. SFAS 131 requires that annual and interim financial and descriptive
information about reportable operating segments be reported on the same basis
used internally for evaluating segment performance and the allocation of
resources. While Omnova Solutions has not yet determined the impact of adopting
SFAS 131 on its financial statement disclosures, Omnova Solutions does not
expect any change to its primary financial statements.
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which is required to be adopted in fiscal
year 2001. Because of Omnova Solutions' minimal use of
F-9
<PAGE> 62
OMNOVA SOLUTIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
derivatives, management does not anticipate that the adoption of this Statement
will have a significant effect on earnings or the financial position of Omnova
Solutions.
In April 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-5, "Reporting the Costs of
Start-Up Activities" (SOP 98-5). SOP 98-5 is effective beginning on December 1,
1999, and requires that start-up costs capitalized prior to December 1, 1999 be
written off and any future start-up costs be expensed as incurred. Omnova
Solutions has no capitalized start-up costs and therefore, the adoption of SOP
98-5 will not have an effect on the combined financial statements.
In March 1998, the AICPA issued SOP 98-1, "Accounting For the Costs of
Computer Software Developed For or Obtained For Internal Use" (SOP 98-1). SOP
98-1 is effective for Omnova Solutions beginning on December 1, 1999. SOP 98-1
will require the capitalization of certain costs incurred after the date of
adoption in connection with developing or obtaining software for internal use.
Omnova Solutions believes it is in compliance with the standards established by
SOP 98-1 and as such SOP 98-1 will not impact Omnova Solutions' future earnings
or financial position.
NOTE D -- ACQUISITIONS AND DIVESTITURES
ACQUISITIONS
On October 29, 1998, Omnova Solutions acquired certain net assets of Sequa
Chemicals, the specialty chemicals unit of Sequa Corporation, for $108 million
in cash. This acquisition provided technology, customers and increased capacity
for an array of emulsion polymers and polymer hybrids including acrylics and
vinyl acetate. The preliminary purchase price allocation resulted in goodwill
and other intangible assets of approximately $61 million which are being
amortized over periods ranging from 5 to 40 years.
On August 14, 1998, Omnova Solutions acquired the commercial wallcovering
business of Walker Greenbank PLC, which is based in the United Kingdom, for $112
million in cash. The preliminary purchase price allocation resulted in goodwill
and other intangible assets of approximately $80 million which are being
amortized over periods ranging from 5 to 40 years.
On March 1, 1998, Omnova Solutions acquired The Goodyear Tire & Rubber
Company's Calhoun, Georgia latex facility for an aggregate consideration of $78
million, of which $74 million was paid in cash and $4 million was paid through
the retention of receivables. The acquisition resulted in goodwill and other
intangible assets of $59 million which are being amortized over periods ranging
from 3 to 40 years.
On May 7, 1997, Omnova Solutions acquired certain net assets of Printworld
from Technographics, Inc. for $47 million in cash. The acquisition resulted in
goodwill and other intangible assets of $32 million which are being amortized
over periods ranging from 3 to 30 years.
On August 23, 1996, Omnova Solutions purchased the Lytron(R) polystyrene
latex plastic pigment business from Morton International Inc. for approximately
$4 million. The acquisition resulted in intangible assets of $3 million which
are being amortized over 15 years.
All of the above acquisitions were accounted for using the purchase method
and were included in the results of operations of Omnova Solutions from the
respective dates of acquisition.
The following unaudited pro forma information presents a summary of the
combined results of operations of Omnova Solutions as if the fiscal 1998
acquisitions had occurred at the beginning of fiscal 1997, with pro forma
adjustments to reflect the amortization of goodwill and other intangible assets
and interest expense on incurred debt together with the related income tax
effects. The pro forma financial information is not necessarily indicative of
the combined results of operations if the acquisitions had actually occurred at
the beginning of fiscal 1997.
F-10
<PAGE> 63
OMNOVA SOLUTIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C>
NET SALES.............................................. $766 $748
==== ====
NET INCOME............................................. $ 43 $ 35
==== ====
</TABLE>
On December 2, 1998, Omnova Solutions acquired the U.S. acrylic emulsion
polymers business of PolymerLatex, located in Fitchburg, Massachusetts, for $9
million, consisting of cash of $3 million and a note payable of $6 million due
December 1, 1999.
DIVESTITURES
On December 14, 1998, Omnova Solutions sold its residential wallcovering
business to Blue Mountain Wallcoverings, Inc. for an aggregate consideration of
approximately $9 million. The loss on the sale of this business was reflected in
the 1998 results of operations.
On November 19, 1996, Omnova Solutions completed the sale of substantially
all of the assets and certain liabilities of its structural urethane adhesives
business to Ashland Inc. for an aggregate consideration of approximately $4
million.
NOTE E -- RESEARCH AND DEVELOPMENT EXPENSE
Research and development (R&D) expenses were $9 million in 1998 and $8
million in each of 1997 and 1996. R&D expenses include the costs of technical
activities that are useful in developing new products, services, processes or
techniques, as well as those expenses for technical activities that may
significantly improve existing products or processes.
NOTE F -- INCOME TAXES
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
-------------------------
1998 1997 1996
----- ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
INCOME TAXES (BENEFIT)
CURRENT
U.S. federal.............................................. $ 22 $ 19 $ 20
State and local........................................... 5 4 5
----- ----- -----
27 23 25
DEFERRED -- U.S. FEDERAL.................................. 1 -- (1)
----- ----- -----
$ 28 $ 23 $ 24
===== ===== =====
EFFECTIVE INCOME TAX RATE
Statutory federal income tax rate......................... 35.0% 35.0% 35.0%
State and local income taxes, net of federal income tax
benefit................................................. 5.0 5.0 5.0
----- ----- -----
EFFECTIVE INCOME TAX RATE................................. 40.0% 40.0% 40.0%
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
NOVEMBER 30,
----------------------------------------------
1998 1997
--------------------- ---------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------ ----------- ------ -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
DEFERRED TAXES
Accrued estimated costs........................ $13 $-- $11 $--
Depreciation................................... -- 20 -- 17
--- --- --- ---
$13 $20 $11 $17
=== === === ===
</TABLE>
Omnova Solutions' foreign pretax earnings were not material.
F-11
<PAGE> 64
OMNOVA SOLUTIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G -- ACCOUNTS RECEIVABLE
Omnova Solutions' receivables are generally unsecured and are not backed by
collateral from its customers. No one customer represented more than 10 percent
of Omnova Solutions' net trade receivables. The allowance for doubtful accounts
was $4 million and $3 million at November 30, 1998 and 1997, respectively and $4
million at February 28, 1999.
NOTE H -- INVENTORIES
<TABLE>
<CAPTION>
NOVEMBER 30,
FEBRUARY 28, ------------
1999 1998 1997
------------ ---- ----
(UNAUDITED)
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Raw materials and supplies............................... $ 24 $ 25 $ 18
Work-in-process.......................................... 5 5 4
Finished products........................................ 62 60 45
---- ---- ----
Approximate replacement cost of inventories.............. 91 90 67
Reserves, primarily LIFO................................. (33) (33) (31)
---- ---- ----
$ 58 $ 57 $ 36
==== ==== ====
</TABLE>
Inventories using the LIFO method represented 82 percent and 92 percent of
inventories at replacement cost at November 30, 1998 and 1997, respectively and
79 percent at February 28, 1999. The LIFO reserve was $28 million, $27 million
and $28 million at February 28, 1999 and November 30, 1998 and 1997,
respectively.
NOTE I -- PROPERTY, PLANT AND EQUIPMENT, NET
<TABLE>
<CAPTION>
NOVEMBER 30,
FEBRUARY 28, --------------
1999 1998 1997
------------ ----- -----
(UNAUDITED)
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Land................................................... $ 7 $ 7 $ 1
Building and improvements.............................. 72 71 48
Machinery and equipment................................ 255 281 215
Construction in progress............................... 23 15 7
----- ----- -----
357 374 271
Accumulated depreciation............................... (163) (181) (149)
----- ----- -----
$ 194 $ 193 $ 122
===== ===== =====
</TABLE>
NOTE J -- EMPLOYEE BENEFIT PLANS
In February 1998, the FASB issued Statement No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" (SFAS 132). SFAS
132 supersedes the disclosure requirements in Statements No. 87, "Employers'
Accounting for Pensions", No. 88, "Accounting for Settlements and Curtailments
of Defined Benefit Pension Plans and for Termination Benefits", and No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions." SFAS
132 addresses disclosure issues only and did not change the measurement or
recognition provisions specified in those Statements.
PENSION PLANS -- Omnova Solutions participates in a number of GenCorp
sponsored defined benefit pension plans which cover substantially all salaried
and hourly employees. Normal retirement age is generally 65, but certain plan
provisions allow for earlier retirement. The funding policy for the pension
plans is consistent with the
F-12
<PAGE> 65
OMNOVA SOLUTIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
funding requirements of federal law. The pension plans provide for pension
benefits, the amounts of which are calculated under formulas principally based
on average earnings and length of service for salaried employees and under
negotiated nonwage based formulas for hourly employees. The majority of the
pension plans' assets are invested in listed stocks and bonds and short-term
investments.
Pension expense allocated to Omnova Solutions in fiscal 1998, 1997 and 1996
was $6 million, $5 million and $5 million, respectively.
HEALTH CARE PLANS -- Omnova Solutions also participates in a number of
GenCorp sponsored health care and life insurance programs which cover most
retired employees in the United States. The health care programs generally
provide for cost sharing in the form of contributions, deductibles and
coinsurance between GenCorp and the retirees. Retirees in certain other
countries are provided similar benefits by plans sponsored by their governments.
Retiree health care expense allocated to Omnova Solutions for 1998, 1997
and 1996 was $3 million, $3 million and $4 million, respectively.
The following table sets forth the GenCorp plans' funded status and related
accrued pension costs that include Omnova Solutions employees as participants.
<TABLE>
<CAPTION>
PENSION HEALTH CARE
------------ --------------
1998 1997 1998 1997
---- ---- ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year..................... $494 $454 $ 242 $ 232
Service cost.............................................. 8 7 1 1
Interest cost............................................. 33 34 16 17
Amendments................................................ 2 3 -- 3
Actuarial loss............................................ (5) 32 4 12
Benefits paid............................................. (37) (36) (25) (23)
---- ---- ----- -----
BENEFIT OBLIGATION AT END OF YEAR........................... 495 494 238 242
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year.............. 690 626 -- --
Actual return on assets................................... 101 100 -- --
Employer contributions.................................... -- -- 25 23
Benefits paid............................................. (37) (36) (25) (23)
---- ---- ----- -----
FAIR VALUE OF PLAN ASSETS AT END OF YEAR.................... 754 690 -- --
Funded status............................................... 259 196 (238) (242)
Unrecognized actuarial (gain)/loss........................ (142) (88) 25 21
Unrecognized prior service cost........................... 17 17 (7) (7)
Unrecognized transition amount............................ (20) (24) -- --
Minimum funding liability................................. (5) (5) -- --
---- ---- ----- -----
NET AMOUNT RECOGNIZED....................................... $109 $ 96 $(220) $(228)
==== ==== ===== =====
WEIGHTED-AVERAGE ASSUMPTIONS
Discount rate............................................. 7.00% 7.00% 7.00% 7.00%
Expected return on plan assets............................ 8.75% 8.75% N/A N/A
Rate of compensation increase............................. 4.50% 4.50% N/A N/A
</TABLE>
F-13
<PAGE> 66
OMNOVA SOLUTIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $14 million, $12 million, and $0, respectively, as
of November 30, 1998, and $12 million, $11 million, and $0, respectively, as of
November 30, 1997.
For measurement purposes, a 9 percent annual rate of increase in the per
capita cost of retiree health care benefits was assumed for 1999. The rate was
assumed to decrease gradually to 6 percent for 2002 and remain at that level
thereafter.
Because most employer benefits are capped, assumed health care cost trend
rates have a minimal effect on the amounts reported for the health care plans. A
one-percentage point increase/decrease in assumed health care cost trend rates
would increase/decrease the benefit obligation at November 30, 1998 by $4
million and increase/ decrease the aggregate of the service and interest
components of net periodic cost by $0.3 million.
Omnova Solutions participates in a number of GenCorp sponsored defined
contribution pension plans. Participation in these plans is available to
substantially all salaried employees and to certain groups of hourly employees.
Contributions to these plans are based on either a percentage of employee
contributions or on a specified amount per hour based on the provisions of each
plan. The cost of these plans for Omnova Solutions was $2 million in each of
1998 and 1997 and $1 million in 1996.
NOTE K -- LEASE COMMITMENTS
Omnova Solutions leases certain facilities, machinery and equipment and
office buildings under long-term, noncancelable operating leases. The leases
generally provide for renewal options ranging from five to ten years and require
Omnova Solutions to pay for utilities, insurance, taxes and maintenance. Rent
expense was $4 million in 1998 and $3 million in each of 1997 and 1996. Future
minimum commitments at November 30, 1998 for existing operating leases were $14
million with annual amounts declining from $4 million in 1999 to $1 million in
2003. Omnova Solutions' obligation for leases after 2003 is $1 million.
NOTE L -- CONTINGENCIES
Omnova Solutions is subject to various legal actions and proceedings
relating to a wide range of matters. In the opinion of management, after
reviewing the information which is currently available with respect to such
matters and consulting with legal counsel, any liability which may ultimately be
incurred with respect to these matters will not materially affect the financial
condition of Omnova Solutions. The effect of resolution of these matters on
results of operations cannot be predicted because any such effect depends on
both future results of operations and the amount and timing of the resolution of
such matters.
NOTE M -- BUSINESS SEGMENT INFORMATION
Omnova Solutions designs and manufactures performance chemicals and
decorative and building products for industry and consumers. Omnova Solutions is
a leading producer of polymer-based products. Its principal markets include the
paper industry and residential and commercial construction, as well as diverse
consumer and industrial markets that demand a broad range of products and
solutions. No one customer accounts for 10 percent of consolidated sales.
Segment operating profit represents net sales less applicable costs,
expenses and provisions for restructuring and unusual items relating to
operations. Segment operating profit excludes corporate income and expenses,
interest expense and income taxes.
In 1998, Decorative & Building Products recognized unusual expense of $3
million related to exiting the residential wallcovering business. In 1996,
Performance Chemicals recognized unusual income of $4 million from the sale of
the structural urethane adhesives business.
F-14
<PAGE> 67
OMNOVA SOLUTIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Approximately 28% of Omnova Solutions' employees are covered by collective
bargaining agreements. Of the covered employees, approximately 22 percent are
covered by collective bargaining agreements that are due to expire within one
year. Omnova Solutions has not experienced significant work stoppage at any of
its facilities in the past. However, any protracted work stoppage in the future
in Omnova Solutions' facilities could adversely affect Omnova Solutions' results
of operations.
Omnova Solutions' operations are located primarily in the United States and
Europe starting in 1998. Inter-area sales are not significant to the total sales
of any geographic area. Unusual items included in operating profit pertained to
United States operations.
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
BUSINESS SEGMENT INFORMATION
NET SALES
Performance Chemicals....................................... $226 $180 $166
Decorative & Building Products.............................. 398 368 340
---- ---- ----
$624 $548 $506
==== ==== ====
INCOME
Performance Chemicals....................................... $ 35 $ 22 $ 25
Decorative & Building Products.............................. 51 44 45
Unusual items............................................... (3) -- 4
---- ---- ----
SEGMENT OPERATING PROFIT.................................... 83 66 74
Interest expense............................................ (8) (4) (8)
Corporate expenses.......................................... (5) (5) (5)
---- ---- ----
INCOME BEFORE INCOME TAXES.................................. $ 70 $ 57 $ 61
==== ==== ====
IDENTIFIABLE ASSETS
Performance Chemicals....................................... $290 $ 91 $ 87
Decorative & Building Products.............................. 313 186 146
---- ---- ----
TOTAL ASSETS................................................ $603 $277 $233
==== ==== ====
CAPITAL EXPENDITURES
Performance Chemicals....................................... $ 5 $ 6 $ 9
Decorative & Building Products.............................. 13 5 6
---- ---- ----
$ 18 $ 11 $ 15
==== ==== ====
DEPRECIATION
Performance Chemicals....................................... $ 6 $ 5 $ 5
Decorative & Building Products.............................. 12 10 9
---- ---- ----
$ 18 $ 15 $ 14
==== ==== ====
GEOGRAPHIC INFORMATION
NET SALES
Europe...................................................... $ 15 $ -- $ --
United States............................................... 572 512 477
United States export sales.................................. 37 36 29
---- ---- ----
$624 $548 $506
==== ==== ====
</TABLE>
F-15
<PAGE> 68
OMNOVA SOLUTIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
SEGMENT OPERATING PROFIT
Europe...................................................... $ 2 $ -- $ --
United States............................................... 84 66 70
Unusual items............................................... (3) -- 4
---- ---- ----
$ 83 $ 66 $ 74
==== ==== ====
IDENTIFIABLE ASSETS
Europe...................................................... $129 $ -- $ --
United States............................................... 474 277 233
---- ---- ----
TOTAL ASSETS................................................ $603 $277 $233
==== ==== ====
</TABLE>
NOTE N -- SUBSEQUENT EVENT (UNAUDITED)
On April 27, 1999, Omnova Solutions acquired the global latex floor care
business of Morton International Inc. for $8 million.
F-16
<PAGE> 69
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
GenCorp Inc.:
We have audited the accompanying consolidated statements of income, cash
flows and changes in shareholder's equity of Sequa Chemicals Corporation for the
period from January 1, 1998 to October 28, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, Sequa Chemicals Corporation's results of operations
and cash flows for the period from January 1, 1998 to October 28, 1998, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
March 31, 1999
F-17
<PAGE> 70
SEQUA CHEMICALS CORPORATION
CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIOD FROM JANUARY 1, 1998 TO OCTOBER 28, 1998
<TABLE>
<S> <C>
SALES, net.................................................. $74,004,195
COSTS AND EXPENSES:
Cost of sales............................................. 56,777,038
Selling, general and administrative....................... 10,088,467
Depreciation and amortization............................. 3,662,093
Research and development.................................. 1,672,625
-----------
Total costs and expenses.......................... 72,200,223
-----------
OPERATING INCOME............................................ 1,803,972
INTEREST EXPENSE............................................ 1,474,264
-----------
Income before income taxes................................ 329,708
INCOME TAX PROVISION........................................ 206,249
-----------
Net income................................................ $ 123,459
===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-18
<PAGE> 71
SEQUA CHEMICALS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1998 TO OCTOBER 28, 1998
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 123,459
Adjustments to reconcile net cash provided by operating
activities --
Depreciation and amortization.......................... 3,662,093
Provision for losses on receivables.................... 228,511
Other cash flows from operating activities --
Changes in operating assets and liabilities --
Receivables.......................................... (1,397,118)
Inventories.......................................... (689,832)
Other current assets................................. 52,269
Other noncurrent assets.............................. (144,271)
Accounts payable and accrued expenses................ 302,421
Other noncurrent liabilities......................... 147,711
-----------
Net cash provided by operating activities......... 2,285,243
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment................. (4,230,835)
-----------
Net cash used in investing activities............. (4,230,835)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from Sequa Corporation......................... 1,540,559
-----------
Net cash provided by financing activities......... 1,540,559
-----------
Net decrease in cash and cash equivalents......... (405,033)
CASH AND CASH EQUIVALENTS, beginning of period.............. 643,114
-----------
CASH AND CASH EQUIVALENTS, end of period.................... $ 238,081
===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-19
<PAGE> 72
SEQUA CHEMICALS CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
FOR THE PERIOD FROM JANUARY 1, 1998 TO OCTOBER 28, 1998
<TABLE>
<CAPTION>
ACCUMULATED
CAPITAL IN OTHER TOTAL
EXCESS OF COMPREHENSIVE RETAINED SHAREHOLDER'S
COMMON STOCK PAR VALUE INCOME (LOSS) EARNINGS EQUITY
------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1998...... $80,782 $14,662,955 $(28,413) $27,714,544 $42,429,868
------- ----------- -------- ----------- -----------
Net income.................. 123,459 123,459
Foreign currency translation
adjustment............... (55,332) (55,332)
-----------
Comprehensive income........ 68,127
------- ----------- -------- ----------- -----------
BALANCE, October 28, 1998..... $80,782 $14,662,955 $(83,745) $27,838,003 $42,497,995
======= =========== ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-20
<PAGE> 73
SEQUA CHEMICALS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 1, 1998 TO OCTOBER 28, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
BASIS OF PRESENTATION
Through October 28, 1998, Sequa Chemicals, Inc. ("Sequa Chemicals" or the
"Company") was a wholly owned subsidiary of Sequa Corporation. The consolidated
financial statements of Sequa Chemicals have been prepared on a stand-alone
basis and include the accounts of its majority owned subsidiaries. All
intercompany accounts have been eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent 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.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers time
deposits, certificates of deposit and marketable securities with original
maturities of three months or less when purchased to be cash equivalents.
PROPERTY, PLANT AND EQUIPMENT
For financial reporting purposes, depreciation and amortization of
property, plant and equipment costs are computed using the straight-line method
over their estimated useful lives which range between 10 and 30 years.
Accelerated depreciation methods are used for income tax purposes.
The Company reviews properties for impairment whenever events or changes in
circumstances indicate that the carrying value of an asset may not be fully
recoverable. If the estimated future cash flows expected to result from the use
of an asset and its eventual disposition are less than the carrying amount of
the asset, then the property is written down to its fair market value.
Upon sale or retirement of properties, the related costs and accumulated
depreciation are removed from the accounts, and any gain or loss is reflected
currently. For the period from January 1, 1998 to October 28, 1998, total
depreciation expense was $2,789,527.
GOODWILL AND OTHER INTANGIBLES
Excess of cost over net assets of companies acquired (goodwill) is being
amortized on a straight-line basis over periods not exceeding forty years. The
recoverability of goodwill is evaluated at the operating unit level by an
analysis of operating results and consideration of other significant events or
changes in the business environment. If an operating unit has current operating
losses, and based upon projections there is a likelihood that such operating
losses will continue, the Company evaluates whether impairment exists on the
basis of undiscounted expected future cash flows from operations before interest
during the remaining amortization period. If impairment exists, the carrying
amount of the goodwill is reduced to market value.
The Company has also acquired patents and trademarks related to certain
manufacturing related processes. Such patents and trademarks are being amortized
over a period of eleven years.
Amortization expense related to goodwill and other intangibles for the
period from January 1, 1998 to October 28, 1998 was $872,566.
F-21
<PAGE> 74
SEQUA CHEMICALS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOREIGN CURRENCY TRANSLATION
The financial position and results of operations of the Company's foreign
subsidiaries are measured using local currency as the functional currency.
Assets and liabilities of operations denominated in foreign currencies are
translated into U.S. dollars at exchange rates in effect at year-end, while
revenues and expenses are translated at weighted average exchange rates
prevailing during the year. The resulting translation gains and losses on assets
and liabilities are charged or credited directly to cumulative translation
adjustment, a component of shareholder's equity, and are not included in net
income until realized through sale or liquidation of the investment.
ENVIRONMENTAL REMEDIATION AND COMPLIANCE
It is the Company's policy to accrue environmental remediation costs for
identified sites when it is probable that a liability has been incurred and the
amount of loss can be reasonably estimated. Accrued environmental remediation
and compliance costs include remedial investigation and feasibility studies,
outside legal, consulting and remediation project management fees, projected
cost of remediation activities, site closure and post-remediation monitoring
costs. For the period from January 1, 1998 to October 28, 1998, the total amount
charged to selling, general and administrative expense for environmental and
remediation compliance efforts was approximately $3,000,000.
REVENUE RECOGNITION
Sales are recorded when title passes to the customer, which is when
products are shipped.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred.
COMPREHENSIVE INCOME
Effective January 1, 1998, Sequa Chemicals adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." This
statement establishes standards for the reporting of comprehensive income and
its components in financial statements. Comprehensive income consists of net
income and other gains and losses affecting shareholder's equity that, under
generally accepted accounting principles, are excluded from net income. For
Sequa Chemicals, these items consist of foreign currency translation
adjustments. The adoption of SFAS No. 130 did not have a material effect on
Sequa Chemical's primary financial statements, but did affect the presentation
of the accompanying consolidated statement of changes in shareholder's equity.
SEGMENT INFORMATION
Sequa Chemicals adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." Sequa Chemicals has only one segment,
Chemicals, and accordingly no additional segment information has been provided.
F-22
<PAGE> 75
SEQUA CHEMICALS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. TRANSACTIONS WITH PARENT
The Company participates in various corporate programs administered by
Sequa Corporation. Expenses representing the cost to operate Sequa Chemicals on
a stand-alone basis have been included in the accompanying consolidated
statement of income. Such costs include the following:
<TABLE>
<S> <C>
Selling, general and administrative expenses................ $1,170,963
401(k) expenses............................................. 1,011,296
Insurance expenses.......................................... 1,763,708
EPA costs................................................... 3,000,000
Interest expense on average debt............................ 1,474,264
----------
Total corporate expense..................................... $8,420,231
==========
</TABLE>
There were no other material related party transactions for the period.
3. INCOME TAXES
Income taxes are recognized during the year in which transactions enter
into the determination of financial statement income, with deferred taxes being
provided for temporary differences between amounts of assets and liabilities
recorded for tax and financial reporting purposes. The income tax provision
included in the consolidated statement of income has been prepared as if Sequa
Chemicals was a stand-alone entity for the period from January 1, 1998 to
October 28, 1998.
The income tax provision for the period from January 1, 1998 to October 28,
1998, consisted of:
<TABLE>
<S> <C>
United States federal
Current................................................... $ 828,959
Deferred.................................................. (700,216)
State and local............................................. 77,506
---------
$ 206,249
=========
</TABLE>
The income tax provision is different from the amount computed by applying
the U.S. federal statutory income tax rate of 35% to income before income taxes.
The reasons for this difference for the period from January 1, 1998 to October
28, 1998, are as follows:
<TABLE>
<S> <C>
Computed income taxes at statutory rate..................... $115,398
State and local taxes, net of federal income tax benefit.... 50,379
Meals and entertainment..................................... 40,472
--------
$206,249
========
</TABLE>
No provision has been made for U.S. or additional foreign taxes on
undistributed earnings of foreign subsidiaries as those earnings are intended to
be permanently reinvested. Such earnings would become taxable upon the sale or
liquidation of these foreign subsidiaries or upon the remittance of dividends.
The components of income before income taxes for the period from January 1,
1998 to October 28, 1998, were:
<TABLE>
<S> <C>
Domestic.................................................... $323,613
Foreign..................................................... 6,095
--------
$329,708
========
</TABLE>
F-23
<PAGE> 76
SEQUA CHEMICALS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. SUBSEQUENT EVENT
On October 29, 1998, Sequa Corporation sold the net operating assets of
Sequa Chemicals to GenCorp Inc. for approximately $108 million in cash.
F-24
<PAGE> 77
EUROPEAN COMMERCIAL WALLCOVERINGS BUSINESS
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF GENCORP INC.
In our opinion, the accompanying combined profit and loss account, combined
statement of total recognised gains and losses and combined statement of cash
flows present fairly, in all material respects, the combined profit and combined
cash flows of the European Commercial Wallcoverings Business for the years ended
January 31, 1998 and January 31, 1997 in conformity with accounting principles
generally accepted in the United Kingdom. These financial statements are the
responsibility of the management of the European Commercial Wallcoverings
Business; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United Kingdom
which are substantially the same as 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Accounting principles generally accepted in the United Kingdom vary in
certain significant respects from accounting principles generally accepted in
the United States. The application of the latter would have affected the
determination of combined profit expressed in pounds sterling for both of the
two years in the period ended January 31, 1998 to the extent summarised in note
12 to the combined financial statements.
PRICEWATERHOUSECOOPERS
PRICEWATERHOUSECOOPERS
Chartered Accountants
St Albans, England
May 27, 1999
F-25
<PAGE> 78
EUROPEAN COMMERCIAL WALLCOVERINGS BUSINESS
COMBINED PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED 6 MONTHS ENDED 6 MONTHS ENDED
JANUARY 31, JANUARY 31, JULY 31, 1998 JULY 31, 1997
1998 1997 (UNAUDITED) (UNAUDITED)
NOTE POUNDS '000 POUNDS '000 POUNDS '000 POUNDS '000
---- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
TURNOVER.............................. 3 40,727 40,657 19,372 19,357
Cost of sales......................... (14,394) (15,653) (6,418) (6,526)
------- ------- ------ ------
GROSS PROFIT.......................... 26,333 25,004 12,954 12,831
Distribution costs.................... (10,740) (11,012) (6,124) (5,948)
Administrative expenses............... (9,702) (9,331) (3,783) (3,961)
Other income.......................... 212 203 1 8
------- ------- ------ ------
OPERATING PROFIT...................... 4 6,103 4,864 3,048 2,930
Investment income and interest
receivable.......................... 5 99 107 49 12
Interest payable and similar
charges............................. 6 (88) (131) (19) (50)
------- ------- ------ ------
PROFIT ON ORDINARY ACTIVITIES BEFORE
TAXATION............................ 6,114 4,840 3,078 2,892
Tax on profit on ordinary
activities.......................... 9 (1,897) (1,734) (978) (1,084)
------- ------- ------ ------
PROFIT FOR THE PERIOD................. 4,217 3,106 2,100 1,808
======= ======= ====== ======
</TABLE>
F-26
<PAGE> 79
EUROPEAN COMMERCIAL WALLCOVERINGS BUSINESS
COMBINED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED 6 MONTHS ENDED 6 MONTHS ENDED
JANUARY 31, JANUARY 31, JULY 31, 1998 JULY 31, 1997
1998 1997 (UNAUDITED) (UNAUDITED)
POUNDS '000 POUNDS '000 POUNDS '000 POUNDS '000
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Profit for the financial period............. 4,217 3,106 2,100 1,808
Currency translation differences............ 117 119 55 74
----- ----- ----- -----
Total recognised gains and losses relating
to the period............................. 4,334 3,225 2,155 1,882
===== ===== ===== =====
</TABLE>
COMBINED NOTE OF HISTORICAL COST PROFITS AND LOSSES
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED 6 MONTHS ENDED 6 MONTHS ENDED
JANUARY 31, JANUARY 31, JULY 31, 1998 JULY 31, 1997
1998 1997 (UNAUDITED) (UNAUDITED)
POUNDS '000 POUNDS '000 POUNDS '000 POUNDS '000
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Profit on ordinary activities before
taxation.................................. 6,114 4,840 3,078 2,892
Difference between historical cost
depreciation charge and actual
depreciation charge....................... 22 22 11 11
----- ----- ----- -----
Historical cost profit on ordinary
activities before taxation................ 6,136 4,862 3,089 2,903
----- ----- ----- -----
Historical cost profit for the period after
taxation.................................. 4,232 3,121 2,107 1,815
===== ===== ===== =====
</TABLE>
F-27
<PAGE> 80
EUROPEAN COMMERCIAL WALLCOVERINGS BUSINESS
COMBINED CASH FLOW STATEMENT
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED 6 MONTHS ENDED 6 MONTHS ENDED
JANUARY 31, JANUARY 31, JULY 31, 1998 JULY 31, 1997
1998 1997 (UNAUDITED) (UNAUDITED)
NOTE POUNDS '000 POUNDS '000 POUNDS '000 POUNDS '000
---- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH INFLOW/(OUTFLOW) FROM
OPERATING ACTIVITIES................. a 5,235 5,705 (3,779) (33)
RETURNS ON INVESTMENT AND SERVICING OF
FINANCE
Interest received...................... 99 107 49 12
Interest paid.......................... (88) (131) (19) (50)
------ ------ ------ ------
NET CASH INFLOW/(OUTFLOW) FROM RETURNS
ON INVESTMENT AND SERVICING OF
FINANCE.............................. 11 (24) 30 (38)
TAXATION
Corporation tax received/(paid)........ 122 (793) (123) (14)
CAPITAL EXPENDITURE AND FINANCIAL
INVESTMENT
Payments to acquire tangible fixed
assets............................... (2,426) (5,061) (787) (1,075)
Proceeds from sales of tangible fixed
assets............................... 182 82 10 15
------ ------ ------ ------
NET CASH OUTFLOW FROM INVESTING
ACTIVITIES........................... (2,244) (4,979) (777) (1,060)
------ ------ ------ ------
NET CASH INFLOW/(OUTFLOW) BEFORE AND
AFTER FINANCING...................... 3,124 (91) (4,649) (1,145)
====== ====== ====== ======
</TABLE>
F-28
<PAGE> 81
EUROPEAN COMMERCIAL WALLCOVERINGS BUSINESS
NOTES TO THE COMBINED CASH FLOW STATEMENT
A RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM OPERATIONS
<TABLE>
<CAPTION>
6 MONTHS ENDED
YEAR ENDED YEAR ENDED JULY 31, 6 MONTHS ENDED
JANUARY 31, JANUARY 31, 1998 JULY 31, 1997
1998 1997 (UNAUDITED) (UNAUDITED)
POUNDS '000 POUNDS '000 POUNDS '000 POUNDS '000
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Operating profit.......................... 6,103 4,864 3,048 2,930
Depreciation.............................. 1,371 1,150 675 651
(Profit)/loss on disposal of fixed
assets.................................. (10) 29 6 --
Decrease/(Increase) in stock.............. 247 (1,020) 623 104
(Increase)/Decrease in debtors............ (2,346) (730) (5,412) (1,198)
(Decrease)/Increase in creditors.......... (130) 1,412 (2,719) (2,520)
------- ------ ------ ------
Net cash inflow/(outflow) from operating
activities.............................. 5,235 5,705 (3,779) (33)
====== ====== ====== ======
</TABLE>
B RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
<TABLE>
<CAPTION>
6 MONTHS ENDED
YEAR ENDED YEAR ENDED JULY 31, 6 MONTHS ENDED
JANUARY 31, JANUARY 31, 1998 JULY 31, 1997
1998 1997 (UNAUDITED) (UNAUDITED)
POUNDS '000 POUNDS '000 POUNDS '000 POUNDS '000
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Increase/(decrease) in cash for period.... 3,124 (91) (4,649) (1,145)
Translation difference.................... (29) (40) -- (33)
------ ------ ------ ------
Change in net debt........................ 3,095 (131) (4,649) (1,178)
Net cash opening.......................... 2,455 2,586 5,550 2,455
------ ------ ------ ------
Net cash closing.......................... 5,550 2,455 901 1,277
====== ====== ====== ======
</TABLE>
C ANALYSIS OF CHANGE IN NET DEBT
<TABLE>
<CAPTION>
AT EXCHANGE AT
FEBRUARY 1, 1997 CASH FLOW MOVEMENT JANUARY 31, 1998
POUNDS '000 POUNDS '000 POUNDS '000 POUNDS '000
---------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
Cash at bank and in hand..................... 3,254 2,325 (29) 5,550
Bank overdraft............................... (799) 799 -- --
----- ----- --- -----
2,455 3,124 (29) 5,550
===== ===== === =====
</TABLE>
F-29
<PAGE> 82
EUROPEAN COMMERCIAL WALLCOVERINGS BUSINESS
NOTES TO COMBINED CASH FLOW STATEMENT -- (CONTINUED)
<TABLE>
<CAPTION>
AT EXCHANGE AT
FEBRUARY 1, 1996 CASH FLOW MOVEMENT JANUARY 31, 1997
POUNDS '000 POUNDS '000 POUNDS '000 POUNDS '000
---------------- ---------- ------------ ----------------
<S> <C> <C> <C> <C>
Cash at bank and in hand..................... 3,672 (378) (40) 3,254
Bank overdraft............................... (1,086) 287 -- (799)
------ ---- --- -----
2,586 (91) (40) 2,455
====== ==== === =====
</TABLE>
<TABLE>
<CAPTION>
AT EXCHANGE AT
FEBRUARY 1, 1998 CASH FLOW MOVEMENT JULY 31, 1998
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
POUNDS '000 POUNDS '000 POUNDS '000 POUNDS '000
-------------- ------------- ----------- ----------------
<S> <C> <C> <C> <C>
Cash at bank and in hand..................... 5,550 (4,349) -- 1,201
Bank overdraft............................... -- (300) -- (300)
----- ------ --- -----
5,550 (4,649) -- 901
===== ====== === =====
</TABLE>
<TABLE>
<CAPTION>
AT EXCHANGE AT
FEBRUARY 1, 1997 CASH FLOW MOVEMENT JULY 31, 1997
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
POUNDS '000 POUNDS '000 POUNDS '000 POUNDS '000
-------------- ------------- ----------- ----------------
<S> <C> <C> <C> <C>
Cash at bank and in hand..................... 3,254 (1,944) (33) 1,277
Bank overdraft............................... (799) 799 -- --
----- ------ --- -----
2,455 (1,145) (33) 1,277
===== ====== === =====
</TABLE>
F-30
<PAGE> 83
EUROPEAN COMMERCIAL WALLCOVERINGS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
INFORMATION FOR THE 6 MONTH PERIODS ENDED JULY 31, 1998 AND JULY 31, 1997 IS
UNAUDITED.
1. BASIS OF PREPARATION
The combined financial statements reflect the combined operations of
Brymor, Muraspec, Muraspec Belgium and Muraspec SARL, which together formed the
commercial wallcoverings business ("the European Commercial Wallcoverings
Business") purchased by GenCorp Inc. in a transaction completed on August 13,
1998. Brymor, Muraspec and Muraspec Belgium were operating divisions within the
Walker Greenbank PLC group whilst Muraspec SARL was a wholly-owned subsidiary
whose ultimate parent company was Walker Greenbank PLC.
The combined financial statements comprise a combined profit and loss
account, a combined statement of total recognised gains and losses and a
combined statement of cash flows, together with related accounting policies and
footnotes, for the European Commercial Wallcoverings Business. The combined
financial statements cover the years ended January 31, 1998 and January 31, 1997
and the six month periods ended July 31, 1998 and July 31, 1997.
No balance sheets are presented in these combined financial statements.
Accounting policies in respect of balance sheet items are included only in
respect of their relevance to the reconciliation of movement in shareholders'
funds.
The information presented for the years ended January 31, 1998 and January
31, 1997 is audited ("Audited Combined Financial Statements"). Information for
the 6 month periods ended July 31, 1998 and July 31, 1997 is unaudited
("Unaudited Combined Financial Statements").
The accompanying unaudited combined profit and loss account and cash flows
for the six months ended July 31, 1998 and July 31, 1997 have been prepared on
the same basis as the Audited Combined Financial Statements and, in the opinion
of management, include all adjustments necessary to present fairly the financial
information set forth therein.
During the periods included in these combined financial statements the
European Commercial Wallcoverings Business did not constitute a separate group
or company; however, for the purpose of this presentation, Brymor, Muraspec,
Muraspec Belgium and Muraspec SARL were each accounted for on a stand-alone
basis. In view of the historical structure of the European Commercial
Wallcoverings Business a separate combination of the individual entities has
been prepared for the financial statement periods presented in these financial
statements. These financial statements are the responsibility of GenCorp Inc.
The combined financial statements are based on an aggregation of the
results of Brymor, Muraspec, Muraspec Belgium and Muraspec SARL. Transactions
and balances between these four elements have been eliminated on aggregation.
The combined profit and loss account of the European Commercial Wallcoverings
Business include all material revenues and expenses that would have been
incurred had the European Commercial Wallcoverings Business operated on a
stand-alone basis.
The financial statements have been prepared in all material respects in
accordance with Generally Accepted Accounting Principles in the UK ("UK GAAP")
and are expressed in pounds sterling ("GBP").
INTEREST
The European Commercial Wallcoverings Business has participated in cash
sweep arrangements operated by Walker Greenbank PLC, whereby certain cash
balances have been cleared periodically to central accounts held by Walker
Greenbank PLC. Similarly, to the extent that the European Commercial
Wallcoverings Business has had short-term borrowing requirements it has borrowed
from Walker Greenbank PLC. No interest has generally been received or charged in
respect of balances with Walker Greenbank PLC.
F-31
<PAGE> 84
EUROPEAN COMMERCIAL WALLCOVERINGS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION FOR THE 6 MONTH PERIODS ENDED JULY 31, 1998 AND JULY 31, 1997 IS
UNAUDITED.
TAXATION
During the periods included in these combined financial statements only
Muraspec SARL constituted a separate company for taxation purposes. Brymor,
Muraspec and Muraspec Belgium were operating divisions within Walker Greenbank
PLC. For the purposes of these combined financial statements, separate
corporation and deferred tax calculations have been prepared as if the three
operating divisions had been stand-alone companies. The assumption has been made
that any tax liabilities arising that were not paid by the European Commercial
Wallcoverings Business were settled by Walker Greenbank PLC as a capital
contribution to the European Commercial Wallcoverings business.
GROUP MANAGEMENT CHARGES
During the periods covered by these combined financial statements, the
European Commercial Wallcoverings Business received charges for head office
services carried out, or costs incurred on its behalf, by Walker Greenbank PLC.
These management charges were allocated between the businesses making up the
Walker Greenbank PLC group on bases that Walker Greenbank PLC management
determined to be reasonable. These bases have varied during the periods covered
by those combined financial statements.
It is possible that the level of cost incurred for such services would have
been different had the European Commercial Wallcoverings Business existed as a
stand-alone entity during those periods.
PENSIONS
During the periods covered by these combined financial statements certain
employees of the European Commercial Wallcoverings Business were members of
either one of two separate defined benefit group pension schemes operated by
Walker Greenbank PLC. Separate actuarial calculations have been performed to
determine an appropriate pensions charge for these employees under UK generally
accepted accounting practice.
SUBSEQUENT EVENTS
No account has been taken of changes in accounting policy, estimates or
judgement arising directly from the acquisition by GenCorp Inc. on August 13,
1998.
2. ACCOUNTING POLICIES
The principal accounting policies are set out below.
ACCOUNTING CONVENTION
The financial statements are prepared under the historical cost convention
modified for the revaluation of certain properties and in accordance with
applicable accounting standards.
PATTERN BOOKS AND SHADE CARDS
The cost of pattern books and shade cards for ranges launched in the year
is charged directly to the profit and loss account.
Costs incurred in developing pattern books and shade cards for ranges not
yet launched are held within work in progress in stocks and are written off in
the year of launch. Pattern books and shade cards held for resale are included
in finished goods at the lower of cost and net realisable value.
F-32
<PAGE> 85
EUROPEAN COMMERCIAL WALLCOVERINGS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION FOR THE 6 MONTH PERIODS ENDED JULY 31, 1998 AND JULY 31, 1997 IS
UNAUDITED.
FOREIGN CURRENCY
Monetary assets and liabilities denominated in foreign currencies are
translated at the rate of exchange ruling at the balance sheet date.
Transactions in foreign currencies are recorded at the rate ruling at the date
of the transaction or, if hedged, at the forward contract rate.
The balance sheets of overseas entities are translated at the rates of
exchange ruling at the balance sheet date. The profit and loss accounts are
translated at the average rates of exchange applicable to the accounting period.
TURNOVER
The group turnover represents the invoiced value, excluding VAT, of sales
to external customers.
STOCKS
Stocks and work in progress are stated at the lower of cost and net
realisable value. Cost comprises direct materials, on a first-in, first-out
basis, and direct labour plus attributable production overheads based on a
normal level of activity. Net realisable value is based on estimated selling
prices less anticipated costs to disposal.
PENSIONS
The cost of providing retirement pensions and related benefits is charged
to the profit and loss account over the periods during which members are
employed. Any surplus of assets over liabilities is apportioned over the
expected remaining service lives of current employees in the schemes.
RESEARCH AND DEVELOPMENT
Costs incurred in setting up production lines for new product ranges are
capitalised and amortised over the expected lives of those ranges. Other
research and development expenditure is written off as incurred.
FIXED ASSETS
Depreciation is charged on a straight-line basis on the original cost or
subsequent valuation of assets (excluding freehold land) after deduction of any
estimated residual value.
The principal annual rates are:
<TABLE>
<S> <C>
Freehold Buildings 2%
Short and Long Leaseholds Over the unexpired period of lease
Plant, Equipment and Vehicles Between 5% and 33%
</TABLE>
Land and buildings are stated at cost plus any revaluation reserve less
provision for permanent diminution in value.
The direct costs of developing computer software for internal use are
capitalised as part of fixed assets within the category of Plant, Equipment and
Vehicles.
LEASING AND HIRE PURCHASE COMMITMENTS
Rentals paid under operating leases are charged to income as incurred.
F-33
<PAGE> 86
EUROPEAN COMMERCIAL WALLCOVERINGS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION FOR THE 6 MONTH PERIODS ENDED JULY 31, 1998 AND JULY 31, 1997 IS
UNAUDITED.
DEFERRED TAXATION
Deferred taxation is provided on all timing differences only to the extent
that they are expected to reverse in the foreseeable future, calculated at the
rate at which it is estimated that tax will be payable.
3. TURNOVER
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED 6 MONTHS ENDED 6 MONTHS ENDED
JANUARY 31, JANUARY 31, JULY 31, 1998 JULY 31, 1997
1998 1997 (UNAUDITED) (UNAUDITED)
POUNDS '000 POUNDS '000 POUNDS '000 POUNDS '000
----------- ------------- ----------- ----------------
<S> <C> <C> <C> <C>
Analysis by geographical market:
United Kingdom.............................. 30,130 30,676 14,699 14,627
Continental Europe.......................... 6,782 5,743 2,793 2,888
Other....................................... 3,815 4,238 1,880 1,842
------ ------ ------ ------
40,727 40,657 19,372 19,357
====== ====== ====== ======
</TABLE>
4. OPERATING PROFIT
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED 6 MONTHS ENDED 6 MONTHS ENDED
JANUARY 31, JANUARY 31, JULY 31, 1998 JULY 31, 1997
1998 1997 (UNAUDITED) (UNAUDITED)
POUNDS '000 POUNDS '000 POUNDS '000 POUNDS '000
----------- ------------- ----------- ----------------
<S> <C> <C> <C> <C>
Operating profit is stated after charging:
Depreciation of fixed assets................ 1,371 1,150 675 651
Auditor's remuneration - audit services..... 44 39 22 22
- non-audit
services.................................. 25 9 7 9
Operating lease rentals
- - land and buildings........................ 674 733 355 342
- - others.................................... 650 578 295 327
Group management charges.................... 1,833 1,833 879 877
====== ====== ====== ======
</TABLE>
5. INVESTMENT INCOME AND INTEREST RECEIVABLE
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED 6 MONTHS ENDED 6 MONTHS ENDED
JANUARY 31, JANUARY 31, JULY 31, 1998 JULY 31, 1997
1998 1997 (UNAUDITED) (UNAUDITED)
POUNDS '000 POUNDS '000 POUNDS '000 POUNDS '000
----------- ------------- ----------- ----------------
<S> <C> <C> <C> <C>
Interest received and receivable
Bank interest............................... 99 107 49 12
====== ====== ====== ======
</TABLE>
F-34
<PAGE> 87
EUROPEAN COMMERCIAL WALLCOVERINGS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION FOR THE 6 MONTH PERIODS ENDED JULY 31, 1998 AND JULY 31, 1997 IS
UNAUDITED.
6. INTEREST PAYABLE AND SIMILAR CHARGES
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED 6 MONTHS ENDED 6 MONTHS ENDED
JANUARY 31, JANUARY 31, JULY 31, 1998 JULY 31, 1997
1998 1997 (UNAUDITED) (UNAUDITED)
POUNDS '000 POUNDS '000 POUNDS '000 POUNDS '000
----------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
On bank loans and overdrafts repayable
within five years......................... 50 90 19 31
Interest on parent company loan............. 38 41 -- 19
------ ------ ------ ------
88 131 19 50
====== ====== ====== ======
</TABLE>
7. INFORMATION ON EMPLOYEES
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED 6 MONTHS ENDED 6 MONTHS ENDED
JANUARY 31, JANUARY 31, JULY 31, 1998 JULY 31, 1997
1998 1997 (UNAUDITED) (UNAUDITED)
POUNDS '000 POUNDS '000 POUNDS '000 POUNDS '000
----------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
Staff costs
Wages and salaries.......................... 10,854 10,782 5,341 5,554
Social Security costs....................... 1,079 1,104 537 558
Other pension costs......................... 832 834 426 417
------ ------ ------ ------
12,765 12,720 6,304 6,529
====== ====== ====== ======
</TABLE>
The average number of employees during the year was as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED 6 MONTHS ENDED 6 MONTHS ENDED
JANUARY 31, JANUARY 31, JULY 31, 1998 JULY 31, 1997
1998 1997 (UNAUDITED) (UNAUDITED)
NUMBER NUMBER NUMBER NUMBER
----------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
Sales/warehouse............................. 240 242 232 238
Management and administration............... 61 60 56 60
Production.................................. 139 134 134 130
Development/marketing....................... 40 40 35 40
------ ------ ------ ------
480 476 457 468
====== ====== ====== ======
</TABLE>
No information is presented for directors' emoluments as the European
Commercial Wallcoverings Business had no directors during the periods covered by
these financial statements.
8. PENSION COSTS
Qualifying employees of the European Commercial Wallcoverings Business were
members of one of two defined benefit pension schemes operated by Walker
Greenbank PLC during the periods covered by these financial statements. The
assets of the schemes are held in separate trustee administered funds.
The pension costs are assessed in accordance with the advice of an
independent qualified actuary using the projected unit method. These schemes are
subjected to triennial actuarial reviews with the most recent ones having been
at 6 April 1996 for the major scheme and 6 April 1995 for the Abaris Holdings
Limited Pension Scheme (formerly Warner Fabrics Scheme).
F-35
<PAGE> 88
EUROPEAN COMMERCIAL WALLCOVERINGS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION FOR THE 6 MONTH PERIODS ENDED JULY 31, 1998 AND JULY 31, 1997 IS
UNAUDITED.
The principal actuarial assumptions applied for the two schemes were as
follows:
<TABLE>
<S> <C>
Investment returns 9.0% per annum
Salary growth 7.0% per annum
Pension increases 5.0% per annum in excess of Guaranteed Minimum Pension
</TABLE>
Assets have been valued using the discounted income method assuming a
dividend growth rate of 4.5% per annum.
At the latest actuarial valuation, the aggregate market value of the assets
of the major scheme was L22,173,000. The actuarial value of the assets of the
scheme was sufficient to cover 106% of the liability for benefits which have
accrued to members on an ongoing basis.
At the last actuarial valuation, the aggregate market value of the assets
of the Abaris Holdings Limited Pension scheme (formerly Warner Fabrics Scheme)
was L2,423,000. The actuarial value of the assets of the scheme was sufficient
to cover 205% of the liability for benefits which have accrued to members on an
ongoing basis.
9. TAX ON PROFIT ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED 6 MONTHS ENDED 6 MONTHS ENDED
JANUARY 31, JANUARY 31, JULY 31, 1998 JULY 31, 1997
1998 1997 (UNAUDITED) (UNAUDITED)
POUNDS '000 POUNDS '000 POUNDS '000 POUNDS '000
----------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
The taxation (credit)/charge comprises:
UK corporation tax
- - current year.............................. 1,630 1,376 900 836
Overseas corporation tax.................... 104 (44) 59 60
Deferred tax................................ 163 402 19 188
----- ----- --- -----
1,897 1,734 978 1,084
===== ===== === =====
</TABLE>
10. OPERATING LEASES COMMITMENTS
Annual commitments due under non-cancellable operating leases are as
follows:
<TABLE>
<CAPTION>
6 MONTHS ENDED
YEAR ENDED JULY 31, 1998
JANUARY 31, 1998 (UNAUDITED)
---------------------------- ------------------------------
LAND & BUILDINGS OTHERS LAND & BUILDINGS OTHERS
POUNDS '000 POUNDS '000 POUNDS '000 POUNDS '000
---------------- ----------- ---------------- -----------
<S> <C> <C> <C> <C>
Within one year................................. 522 275 706 167
Between one and five years...................... 1,389 488 1,431 338
Over five years................................. 92 -- -- --
----- --- ----- ---
2,003 763 2,137 505
===== === ===== ===
</TABLE>
F-36
<PAGE> 89
EUROPEAN COMMERCIAL WALLCOVERINGS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION FOR THE 6 MONTH PERIODS ENDED JULY 31, 1998 AND JULY 31, 1997 IS
UNAUDITED.
11. COMBINED RECONCILIATION OF MOVEMENTS IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED 6 MONTHS ENDED 6 MONTHS ENDED
JANUARY 31, JANUARY 31, JULY 31, 1998 JULY 31, 1997
1998 1997 (UNAUDITED) (UNAUDITED)
POUNDS '000 POUNDS '000 POUNDS '000 POUNDS '000
----------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
Retained profit for the year................ 4,217 3,106 2,100 1,808
Currency translation differences............ 117 119 55 74
Capital contribution........................ 1,602 1,319 959 895
------ ------ ------ ------
Net addition to net assets.................. 5,936 4,544 3,114 2,777
Opening net assets.......................... 43,651 39,107 49,587 43,651
------ ------ ------ ------
Closing net assets.......................... 49,587 43,651 52,701 46,428
====== ====== ====== ======
</TABLE>
Capital contribution relates to tax liabilities settled by Walker Greenbank
PLC on behalf of the European Commercial Wallcoverings Business.
12. DESCRIPTION OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP
The combined financial statements are prepared in accordance with generally
accepted accounting principles in the United Kingdom ("UK GAAP"), which differ
in certain respects from generally accepted accounting principles in the United
States ("US GAAP").
The principal differences between UK GAAP and US GAAP are presented below
together with explanations of certain adjustments that affect consolidated net
income and total shareholders' equity as of and for the years ended January 31,
1998 and January 31, 1997 and for the six month periods ended July 31, 1998 and
July 31, 1997:
(1) CAPITALISED PRODUCT AND COMPUTER SOFTWARE DEVELOPMENT COSTS
The European Commercial Wallcoverings Business has a policy of capitalising
certain development costs in respect of new product ranges and computer software
development costs. These development costs are amortised over a three year
period. Under US GAAP, such development costs are expensed as incurred.
(2) REVALUATION OF PROPERTY AND EQUIPMENT
Under UK GAAP, companies are permitted to perform revaluations of property
on a periodic basis and adjust the carrying values to the revalued fair market
value. The related depreciation is calculated on the revalued amounts where
applicable. Any surplus or deficit on the revaluation of property and equipment
is taken directly to a revaluation reserve, which is part of shareholders'
funds.
Under US GAAP, such revaluations are not permitted and depreciation is
provided on the original cost of property and equipment.
(3) PENSIONS
Under UK GAAP, an actuarial valuation method must be used to determine
annual pension cost. The valuation is normally performed every three years. The
benefit obligation is discounted at a long term risk adjusted rate and the plan
assets are valued on an actuarial basis. The expected cost of pensions is
charged to the profit and loss account so as to spread the variation from the
regular cost over the expected remaining service lives of employees.
F-37
<PAGE> 90
EUROPEAN COMMERCIAL WALLCOVERINGS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION FOR THE 6 MONTH PERIODS ENDED JULY 31, 1998 AND JULY 31, 1997 IS
UNAUDITED.
Under US GAAP, annual actuarial valuations must be carried out for defined
benefit pension obligations. The present value of the benefit obligation is
determined using a current market discount rate such as that of a high quality,
fixed rate debt instrument and the plan assets are valued on a market or market
related basis. Actuarial gains and losses that arise within a prescribed
"corridor" do not have to be amortised. Actuarial gains and losses outside the
corridor are amortised over the average expected remaining service of employees.
The principal actuarial assumptions for the two Walker Greenbank PLC UK
pension plans under SFAS Nos. 87 and 132 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 31, 6 MONTHS ENDED 6 MONTHS ENDED
1998 1997 JULY 31, 1998 JULY 31, 1997
----------- ----------- -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Discount rate............................... 6.75% 8% 6.25% 7.75%
Expected return on plan assets.............. 9% 9% 9% 9%
Rate of compensation increase............... 5% 6% 5.25% 5.5%
==== == ==== ====
</TABLE>
F-38
<PAGE> 91
EUROPEAN COMMERCIAL WALLCOVERINGS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION FOR THE 6 MONTH PERIODS ENDED JULY 31, 1998 AND JULY 31, 1997 IS
UNAUDITED.
The components of pension expense which arise under SFAS Nos. 87 and 132
are as follows:
<TABLE>
<CAPTION>
JANUARY 31, 1998 JANUARY 31, 1997 JULY 31, 1998 JULY 31, 1997
POUNDS '000 POUNDS '000 POUNDS '000 POUNDS '000
---------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of
year.................................. 8,013 6,003 11,354 8,013
Service cost............................ 747 571 421 366
Interest cost........................... 641 510 384 321
Plan participants' contributions........ 372 367 187 187
Actuarial gain.......................... 1,581 562 1,813 (299)
------ ----- ------ ------
BENEFIT OBLIGATION AT END OF YEAR....... 11,354 8,013 14,159 8,588
====== ===== ====== ======
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning
of year............................... 9,427 7,185 12,248 9,427
Actual return on plan assets............ 2,094 1,287 1,319 706
Contribution by employer................ 355 588 -- 178
Contributions by plan participants...... 372 367 187 187
------ ----- ------ ------
FAIR VALUE OF PLAN ASSETS AT END OF
YEAR.................................. 12,248 9,427 13,754 10,498
====== ===== ====== ======
FUNDED STATUS
Projected benefit obligations........... 11,354 8,013 14,159 8,588
Plan assets at fair value............... 12,248 9,427 13,754 10,498
Funded status........................... 894 1,414 (405) 1,910
Unrecognised transition amount.......... (472) (551) (433) (512)
Unrecognised prior service cost......... -- -- 1,307 (660)
Unrecognised net (gain) or loss......... 256 (79) -- --
------ ----- ------ ------
PREPAID BENEFIT COST.................... 678 784 469 738
====== ===== ====== ======
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost............................ 747 571 421 366
Interest cost........................... 641 510 384 321
Expected return on plan assets.......... (848) (647) (551) (424)
Amortisation of transitional asset...... (79) (79) (39) (39)
Recognised net actuarial gain........... -- -- (6) --
------ ----- ------ ------
NET PERIODIC BENEFIT COST............... 461 355 209 224
====== ===== ====== ======
</TABLE>
(4) COMPREHENSIVE INCOME
Under UK GAAP, the Statement of Total Recognised Gains and Losses presents
the components of other comprehensive income net of tax. Under US GAAP,
disclosure of the amount of income tax expense or benefit separately allocated
to the components of other comprehensive income should be provided. The tax
effect related to comprehensive income -- currency translation
differences -- for the periods ended January 31, 1998 and 1997, and for the six
month periods ended July 31, 1998 and 1997, is L36,000, L43,000, L17,000 and
L28,000 respectively.
F-39
<PAGE> 92
EUROPEAN COMMERCIAL WALLCOVERINGS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION FOR THE 6 MONTH PERIODS ENDED JULY 31, 1998 AND JULY 31, 1997 IS
UNAUDITED.
(5) OTHER DIFFERENCES
Other minor differences exist between UK GAAP and US GAAP in respect of
certain items reflected in the consolidated financial statements. Such
differences are immaterial to the reconciliation of net income and shareholders
funds and accordingly have been excluded from the reconciliations on the
following pages.
(6) EFFECT ON NET INCOME OF DIFFERENCES BETWEEN UK GAAP AND US GAAP
<TABLE>
<CAPTION>
JANUARY 31, 1998 JANUARY 31, 1997 JULY 31, 1998 JULY 31, 1997
POUNDS POUNDS POUNDS POUNDS
---------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C>
Reconciliation of net income:
Net income reported under UK GAAP....... 4,217 3,106 2,100 1,808
US GAAP adjustments:
Capitalised product development
costs................................. (101) (113) (9) (50)
Capitalised computer software
development costs..................... (12) (70) (7) (5)
Depreciation of fixed assets.......... 22 22 11 11
Pension expense....................... 152 107 154 83
Deferred tax effect of US GAAP
adjustments........................... (19) 18 (46) (12)
----- ----- ----- -----
Presentation of net income under US
GAAP.................................. 4,259 3,070 2,203 1,835
===== ===== ===== =====
</TABLE>
(7) EFFECT ON NET ASSETS OF DIFFERENCES BETWEEN UK GAAP AND US GAAP
RECONCILIATION OF NET ASSETS:
<TABLE>
<CAPTION>
JANUARY 31, 1998 JANUARY 31, 1997 JULY 31, 1998 JULY 31, 1997
POUNDS POUNDS POUNDS POUNDS
---------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C>
Total net assets under UK GAAP.......... 49,587 43,651 52,701 46,428
US GAAP adjustments:
Cumulative write-off of capitalised
product development costs............. (214) (113) (223) (163)
Cumulative write-off of capitalised
computer development costs............ (82) (70) (89) (75)
Accumulated depreciation on revalued
assets................................ 110 88 121 99
Revaluation of assets................... (1,942) (1,942) (1,942) (1,942)
Prepaid pension costs................... 810 658 964 741
Deferred tax effect on US GAAP
adjustments........................... 447 480 400 446
------ ------ ------ ------
Net assets in accordance with US GAAP... 48,716 42,752 51,932 45,534
====== ====== ====== ======
</TABLE>
F-40
<PAGE> 93
EUROPEAN COMMERCIAL WALLCOVERINGS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION FOR THE 6 MONTH PERIODS ENDED JULY 31, 1998 AND JULY 31, 1997 IS
UNAUDITED.
CHANGES IN US GAAP NET ASSETS ARE AS FOLLOWS:
<TABLE>
<S> <C>
Net assets at January 31, 1996.............................. 38,192
Net income for the period................................... 3,070
Currency translation adjustment............................. 83
------
Capital contribution........................................ 1,319
Net assets at January 31, 1997.............................. 42,664
Net income for the period................................... 4,259
Currency translation adjustment............................. 81
------
Capital contribution........................................ 1,602
Net assets at January 31, 1998.............................. 48,606
Net income for the period................................... 2,203
Currency translation adjustment............................. 43
------
Capital contribution........................................ 959
Net assets at July 31, 1998................................. 51,811
======
</TABLE>
(8) CONSOLIDATED STATEMENT OF CASH FLOWS
The Company's consolidated cash flow statement is prepared in accordance
with UK Financial Reporting Standard No 1 "Cash Flow Statements" and presents
substantially the same information as that required under US GAAP. However,
there are certain differences in classification of items within the cash flow
statement and with regard to the definition of cash and cash equivalents between
UK and US GAAP.
Under UK GAAP cash flows represent increases or decreases in cash, which is
comprised of cash in hand and deposits repayable on demand less overdrafts. Cash
flows are presented in the following categories (i) operating activities (ii)
returns on investments and servicing of finance (iii) taxation (iv) capital
expenditure and financial investment (v) acquisitions and disposals (vi) equity
dividends paid (vii) management of liquid resource and (viii) financing
activities.
Under US GAAP cash flows represent increases or decreases in cash and cash
equivalents, which include short term highly liquid investments with original
maturities of less than 90 days and exclude overdrafts. Cash flows are reported
in only three categories of operating activities, investing activities and
financing activities.
Cash flows from taxation and returns on investments and servicing of
finance are operating activities under US GAAP. The payment of dividends and
debt issue costs are included under financing activities. Capitalised interest
is included under investing activities for US GAAP purposes.
Cash flows from capital expenditure and financial investment as well as
cash flows from acquisitions and disposals are included as investing activities
under US GAAP. Cash flows from the management of liquid resources are included
in the overall cash movement since liquid resources are considered cash
equivalents under US GAAP.
Cash, for purposes of the cash flow under UK GAAP, includes bank overdrafts
but excludes liquid resources. Under US GAAP bank overdrafts are considered
loans and the movements thereon are included in financing activities. Liquid
resources are considered cash equivalents and the movements thereon are included
in the overall cash movement.
F-41
<PAGE> 94
EUROPEAN COMMERCIAL WALLCOVERINGS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION FOR THE 6 MONTH PERIODS ENDED JULY 31, 1998 AND JULY 31, 1997 IS
UNAUDITED.
The following table summarises the statement of cash flows for the European
Commercial Wallcoverings Business as if they had been presented in accordance
with US GAAP and included the adjustment which reconcile cash and cash
equivalents under UK GAAP to cash and cash equivalents under US GAAP.
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31, JULY 31, JULY 31,
1998 1997 1998 1997
----------- ----------- -------- --------
<S> <C> <C> <C> <C>
Reconciliation of cash flows
Net cash flow from operating activities................ 5,224 4,724 (3,928) (1,790)
Net cash provided by (used in) investing activities.... (2,244) (4,979) (777) (1,060)
Net cash provided by (used in) financing activities.... (799) (287) 300 799
------ ------ ------ ------
Net increase/(decrease) in cash and cash equivalents
under US GAAP........................................ 2,181 (542) (4,405) (2,051)
Effect of exchange rates on cash and cash
equivalents.......................................... 115 124 56 74
Cash and cash equivalents under US GAAP at beginning of
period............................................... 3,254 3,672 5,550 3,254
------ ------ ------ ------
Cash and cash equivalents under US GAAP at end of
period............................................... 5,550 3,254 1,201 1,277
====== ====== ====== ======
Additional cash flow information
Interest paid.......................................... (88) (131) (19) 50
Income tax paid........................................ -- (793) (123) (14)
====== ====== ====== ======
</TABLE>
F-42
<PAGE> 95
OMNOVA SOLUTIONS INC.
EXHIBIT INDEX TO
FORM 10 REGISTRATION STATEMENT
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
2.1 Form of Distribution Agreement between OMNOVA Solutions Inc.
("Omnova Solutions") and GenCorp Inc ("GenCorp").
3.1 Composite Articles of Incorporation of Omnova Solutions (as
amended).
3.2 Form of Amended and Restated Articles of Incorporation of
Omnova Solutions.
3.3 Code of Regulations of Omnova Solutions.
3.4 Form of Amended and Restated Code of Regulation of Omnova
Solutions.
10.1 Employment Agreement dated October 15, 1993 (with
amendments) between GenCorp and John B. Yasinsky, to be
assumed by Omnova Solutions.
10.2 Employment Agreement dated May 10, 1996 between GenCorp and
Nathaniel J. Mass, to be assumed by Omnova Solutions.
10.3 Employment Agreement dated July 16, 1996 between GenCorp and
Kevin M. McMullen, to be assumed by Omnova Solutions.
10.4 Severance Agreement to be granted to John B. Yasinsky by
Omnova Solutions.
10.5 Severance Agreement to be granted to Nathaniel J. Mass by
Omnova Solutions
10.6 Form of Severance Agreement to be granted to certain
executive officers of Omnova Solutions (other than the
officers identified above).
10.7 Omnova Solutions 1999 Equity and Performance Incentive Plan.
10.8 Omnova Solutions Deferred Compensation Plan for Nonemployee
Directors.
10.9 Retirement Plan for Nonemployee Directors of Omnova
Solutions.
10.10 Omnova Solutions Executive Incentive Compensation Program.
10.11 Benefits Restoration Plan for Salaried Employees of Omnova
Solutions.
10.12 Omnova Solutions Deferred Bonus Plan.
10.13 1999 GenCorp Key Employee Retention Plan.
10.14 Form of Key Employee Retention Letter Agreement.
10.15 Form of Tax Matters Agreement between Omnova Solutions and
GenCorp.
10.16 Form of Alternative Dispute Resolution Agreement between
Omnova Solutions and GenCorp.
10.17 Form of Agreement on Employee Matters between Omnova
Solutions and GenCorp.
10.18 Form of Services and Support Agreement between Omnova
Solutions and GenCorp.
10.19 Form of Director and Officer Indemnification Agreement.
10.20 Form of Director Indemnification Agreement.
10.21 Form of Officer Indemnification Agreement.
27.1 Financial Data Schedule.
</TABLE>
X-1
<PAGE> 1
Exhibit 2.1
DISTRIBUTION AGREEMENT
Dated _________, 1999
Between
GENCORP INC.,
and
OMNOVA SOLUTIONS INC.
<PAGE> 2
CONTENTS
--------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
I. Definitions............................................................
II. Contribution...........................................................
2.01 Assets Contributed ...............................................
2.02 Retained Assets ..................................................
2.03 Assumed Liabilities ..............................................
2.04 Retained Liabilities .............................................
2.05 Issuance of Shares................................................
2.06 Closing ..........................................................
2.07 Assignment of Assets .............................................
2.08 Termination of Certain Contracts .................................
2.09 Disclaimer .......................................................
III. Distribution
3.01 Record Date......................................................
3.02. Distribution.....................................................
3.03. Delivery ........................................................
IV. Certain Covenants
4.01. Interim Use of GenCorp's Corporate Name..........................
4.02. Transition and Further Assurances................................
4.03. Assets Administration............................................
4.04. Correspondence...................................................
4.05. Interim Permit Operations........................................
4.06. Agreement for Exchange of Information............................
4.07. Witness Services.................................................
4.08. Confidentiality..................................................
4.09. Certain Tax Matters..............................................
V. Indemnification
5.01. Indemnification by GenCorp.......................................
5.02. Indemnification by OMNOVA........................................
5.03. Third Party Claim Procedures.....................................
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
VI. Miscellaneous Provisions
6.01 Notices
6.02 Entire Agreement......................................................
6.03 Assignment............................................................
6.04 Captions .............................................................
6.05 Waiver; Consent.......................................................
6.06 No Third Party Beneficiaries..........................................
6.07 Survival of Agreements................................................
6.08 Expenses .............................................................
6.09 Group Performance.....................................................
6.10 Counterparts..........................................................
6.11 Gender .............................................................
6.12 Governing Law.........................................................
6.13 Interpretation........................................................
6.14 Blue Pencil...........................................................
6.15 Conflicts.............................................................
</TABLE>
<PAGE> 4
DISTRIBUTION AGREEMENT
----------------------
THIS DISTRIBUTION AGREEMENT (the "Agreement") dated ____________, 1999,
is by and between OMNOVA SOLUTIONS INC., an Ohio corporation ("OMNOVA"), and
GENCORP INC., an Ohio corporation ("GenCorp").
WHEREAS, the Board of Directors of GenCorp has determined that it is in
the best interests of GenCorp and its shareholders to transfer the Contributed
Assets to OMNOVA and to cause OMNOVA to assume the Assumed Liabilities, all as
more fully described in this Agreement and the Ancillary Agreements (the
"Separation");
WHEREAS, the Board of Directors of GenCorp has further determined that
it is appropriate and desirable, on the terms and conditions contemplated
hereby, for GenCorp to distribute to the holders of GenCorp Common Shares all of
the outstanding common shares, $0.10 par value, of OMNOVA (the "OMNOVA Common
Stock"), owned by GenCorp (the "Distribution"); and
WHEREAS, it is appropriate and desirable to set forth the principal
corporate transactions required to effect the Separation and the Distribution
and certain other agreements that will govern certain matters relating to the
Separation and the Distribution and the relationship of GenCorp and OMNOVA
following the Distribution.
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein contained, OMNOVA and GenCorp hereby agree as follows:
ARTICLE I: DEFINITIONS
---------- -----------
Section 1.01. Terms used in this Agreement shall have the meanings
ascribed to them by definition in this Agreement.
"ACTION" means any demand, action, suit, countersuit, arbitration,
inquiry, proceeding or investigation by or before any federal, state, local,
foreign or international Governmental Authority or any arbitration or mediation
tribunal, except as between the parties which shall be subject to the
Alternative Dispute Resolution Agreement.
"ADDITIONAL ASSETS" means the following assets, properties and rights
of GenCorp:
(a) the real property described in Schedule 1.01(a), including
all rights, easements and privileges appertaining or relating thereto and all
buildings, fixtures and improvements located thereon and therein and all such
items under construction, including;
(b) all apparatus, computers and other electronic data
processing equipment, fixtures, machinery, equipment, furniture, office
equipment, automobiles, trucks, dies, molds, patterns, aircraft, vessels, motor
vehicles and other transportation equipment, special and general
<PAGE> 5
2
tools, test devices, prototypes and models and other tangible personal property
whether, owned or leased, which is used, held for use or being developed for use
primarily for the GenCorp Corporate Headquarters, the GenCorp Corporate
Technology Center or the GenCorp Flight Operations, including, without
limitation, personal property described on Schedule 1.01(b);
(c) all inventories of materials, parts, raw materials,
supplies used, held for use or being developed for use primarily for the GenCorp
Corporate Headquarters, the GenCorp Corporate Technology Center or the GenCorp
Flight Operations;
(d) all computer applications, programs and other software and
all related data, user and system documentation and instructions, source code,
functional and design specifications, network software, design software, design
tools and all internet protocol internet addresses used, held for use or
developed for use primarily for the GenCorp Corporate Headquarters, the GenCorp
Technology Center or the GenCorp Flight Operations;
(e) the Additional Technology; and
(f) all Contracts, Intellectual Property, Records and Claims
which pertain primarily to the items described in (a), (b), (c), (d) or (e)
above.
"ADDITIONAL TECHNOLOGY" means any Intellectual Property of GenCorp
which pertains to coatings, adhesives, specialty polymers, polymer surface
modification and/or processes, non-PVC substrates, rubber and plastic blends and
alloys, and processing technologies, including, without limitation, the items
described on Schedule 1.01(c), but excluding any of the same which pertains
primarily to the Vehicle Sealing Division of GenCorp.
"AGREEMENT" means this Distribution Agreement, including all of the
Schedules hereto.
"ANCILLARY AGREEMENTS" mean the Agreement on Employee Matters, the Tax
Matters Agreement, the Services and Support Agreement, the Alternative Dispute
Resolutions Agreement and such deeds, stock powers, bills of sale, certificates
of title, assignments, assumptions and other agreements, instruments and
conveyances as are executed and delivered by a party pursuant to this Agreement.
"BUSINESS DAY" means any day on which commercial banks are not required
or authorized by law to close in the City of New York, State of New York, U.S.A.
"CAA" means the United States Clean Air Act.
"CERCLA" means the United States Comprehensive Environmental Response,
Compensation and Liability Act.
"CWA" means the United States Clean Water Act.
<PAGE> 6
3
"CLAIM" means any cause of action, judgment, right of recovery, right
of set-off, credit, rebate, indemnity or other claim against other Persons, of
whatever kind or nature, known or unknown, accrued or to accrue, including,
without limitation, all rights of rescission, replevin and reclamation, all
rights and claims in respect of past infringement, all credits or rebates due in
respect of charges incurred, goods received or services rendered and all rights
under any express or implied warranties, representations or guarantees made by
suppliers, contractors or others
"CONTRACTS" means any agreements, contract rights, license agreements,
leases of personal property, open purchase orders for raw materials, supplies,
parts or services, unfilled orders for the manufacture and sale of products and
other contracts, agreements or commitments.
"DISCONTINUED OPERATIONS" means any terminated, divested or
discontinued businesses or operations of GenCorp, any GenCorp Entity, or any
OMNOVA Entity and the matters listed on Schedule 1.01(d); provided, however,
that (except for the matters listed on Schedule 1.01(d)), Discontinued
Operations shall not include: (i) a business or operation to the extent it was
conducted at a facility listed on Schedule 1.01(f) and (ii) the matters listed
on Schedule 1.01(h).
"DISTRIBUTION AGENT" means Bank of New York, or such other
trust company or bank designated by GenCorp, to act as the agent responsible for
the distribution of the OMNOVA Common Stock in the Distribution.
"DOLLARS" or "$" means United States dollars.
"ENVIRONMENTAL LAW" means any federal, state, local, foreign or
international statute, ordinance, rule, regulation, code license, permit,
authorization, approval, consent, common law doctrine (including tort,
contribution, strict liability, negligence, trespass and nuisance), order,
judgment, decree, injunction, requirement or agreement with any Governmental
Authority, now or hereafter in effect relating to health, safety, pollution or
the environment (including ambient air, surface water, groundwater, land
surface, subsurface strata and natural resources) or to emissions, discharges,
releases or threatened releases of any substance currently or at any time
hereafter listed, defined, designated or classified as hazardous, toxic, waste,
radioactive or dangerous, or otherwise regulated, under any of the foregoing, or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of any such substances, including,
without limitation, CERCLA, RCRA, CWA, CAA, TSCA and comparable provisions in
state, local, foreign or international law.
"ENVIRONMENTAL LIABILITIES" means all Liabilities relating to, arising
out of or resulting from any Environmental Law or contract or agreement relating
to environmental, health or safety matters (including all removal, remediation
or cleanup costs, investigatory costs, governmental response costs, natural
resources damages, property damages, personal injury damages, costs of
compliance with any settlement, judgment or other determination of Liability and
indemnity, contribution or similar obligations) and all costs and expenses
(including allocated costs of in-
<PAGE> 7
4
house counsel and other personnel), interest, fines, penalties or other monetary
sanctions in connection therewith.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, in effect
from time to time.
"GENCORP ENTITY" means any corporation, partnership, joint venture,
limited liability company, alliance, association or legal entity in which
GenCorp, directly or indirectly, has or had any equity, ownership, investment,
profit, management or other interest including, without limitation, the Persons
listed on Schedule 1.01(e), but excluding the OMNOVA Entities.
"GENCORP GROUP" means GenCorp and the GenCorp Entities.
"GENCORP COMMON STOCK" means the Common Shares, $.10 par value per
share, of GenCorp.
"GOVERNMENTAL AUTHORITY" means (i) the United States of America, any
State thereof, or any court, department, commission, board, bureau, agency or
instrumentality of the United States of America, any State thereof, or political
subdivision of any of them, (ii) any other body, authority or agency exercising
any form of regulatory authority under any applicable Legal Requirement, (iii)
any quasi-governmental court, body, agency or authority, (iv) any corporation
established by or at the direction of any of the foregoing and authorized by
statute to exercise regulatory authority, and (v) any foreign government or
governmental authority comparable to any of the foregoing.
"GROUP" means the OMNOVA Group or the GenCorp Group.
"INFORMATION" means information, whether or not patentable or
copyrightable, in written, oral, electronic or other tangible or intangible
forms, stored in any medium, including studies, reports, records, books,
contracts, instruments, surveys, discoveries, ideas, concepts, know-how,
techniques, designs, specifications, drawings, blueprints, diagrams, models,
prototypes, samples, flow charts, data, computer data, disks, diskettes, tapes,
computer programs or other software, marketing plans, customer names,
communications by or to attorneys (including attorney-client privileged
communications), memos and other materials prepared by attorneys or under their
direction (including attorney work product), and other technical, financial,
employee or business information or data.
"INSURANCE POLICIES" means the insurance policies written by insurance
carriers pursuant to which GenCorp OMNOVA or any GenCorp Member (or their
respective officers or directors) are insured.
"INTELLECTUAL PROPERTY" means any and all United States and foreign:
(a) patents (including, without limitation, utility patents, design patents,
reissued and reexamined patents industrial designs and utility models),
inventors certificates and patent applications (including docketed
<PAGE> 8
5
patent disclosures awaiting filing determination or preparation, reissues,
revisions, reexaminations, divisions, continuations, continuations-in-part and
extensions), all extensions, the right to claim priority, and any improvements
to any of the foregoing; (b) trademarks, trade names, service marks, service
names, fictitious names, telephone numbers, trade dress, symbols, marks, logos,
business and product names, slogans and rights to obtain renewals and extensions
thereof and registrations and applications for registration thereof together
with all translations, adaptations, derivations, and combinations thereof; (c)
works authorship (whether or not copyrightable and/or registerable and whether
or not registered), including, without limitation, work of art and computer
software, patterns and designs and copyright registrations, registration
applications and right to obtain renewals and extensions thereof; (d) inventions
(whether patentable or unpatentable and whether or not reduced to practice),
processes, designs, formulae, trade secrets, proprietary knowledge, know-how,
industrial models, technical information, manufacturing, engineering and
technical drawings, product specifications, compositions, research and
development, manufacturing and production processes and techniques; (e) mask
work and other semiconductor chip rights and registrations thereof; (f) computer
applications, programs and other software and all related data, user and system
documentation and instructions, source code, functional and design
specifications, network software, design software, design tools and, web sites
and addresses; (g) intellectual property rights similar to any of the foregoing;
(h) all books, records, documents, drawings, tapes, disks or other media or
tangible embodiments of any of the foregoing (in whatever form or media,
including electronic and magnetic media) and (i) all goodwill pertaining to any
of the foregoing.
"LEGAL REQUIREMENT" means any federal, state, local, municipal,
foreign, international, or administrative, constitution, law, ordinance,
principle of common law, regulation, statute, treaty or order, including,
without limitation the Environmental Laws.
"LOSSES" means all Actions and threatened Actions, and all damages,
costs, expenses, losses, liabilities, judgments, awards, fines, sanctions,
orders, consent decrees, diminution in value, penalties, charges and settlement
payments, whether absolute or contingent, foreseen, unforeseen, accrued or
unaccrued, known or unknown, liquidated or unliquidated, matured or unmatured,
now existing or which may arise in the future (including, without limitation,
all reasonable costs, fees and expenses of attorneys, experts, accountants,
appraisers, consultants, witnesses, and investigators in connection with
defending or settling an Action or threatened Action) and interest on cash
disbursements in respect of any of the foregoing at the Reference Rate from the
date each such cash disbursement is made until the party incurring the same
shall have been indemnified in respect thereof.
"OMNOVA BUSINESS" means the business and operations of: (a) the
Performance Chemicals Division of GenCorp and the matters described in
Schedule 1.01(h), and (b) the Decorative & Building Products Division of
GenCorp and the matters described in Schedule 1.01(h); provided,
however, that the OMNOVA Business excludes all Discontinued Operations.
"OMNOVA BUSINESS ASSETS" means any and all assets, properties and
rights of GenCorp which are used, held for use or being developed for use
primarily for the OMNOVA Business,
<PAGE> 9
6
wherever located (including in the possession of vendors or other third parties
or elsewhere), whether real, personal or mixed, tangible, intangible or
contingent, in each case whether or not recorded or reflected or required to be
recorded or reflected on the books and records or financial statements of
GenCorp, including, without limitation, the following:
(a) All interests in real property of whatever nature, whether
owned, leased, licensed or otherwise, including all rights, easements and
privileges appertaining or relating thereto and all buildings, fixtures and
improvements located thereon and therein and all such items under construction
including, without limitation, the real property listed on Schedule 1.01(f);
(b) All apparatus, computers and other electronic data
processing equipment, fixtures, machinery, equipment, furniture, office
equipment, automobiles, trucks, dies, molds, patterns, vessels, motor vehicles
and other transportation equipment, special and general tools, test devices,
prototypes and models and other tangible personal property, whether owned or
leased;
(c) All inventories of materials, parts, raw materials,
supplies, work-in-process and finished goods and products;
(d) All capital stock of the OMNOVA Entities;
(e) All rights under any Contracts;
(f) All rights under any deposits, letters of credit and
performance and surety bonds;
(g) All accounts, accounts receivable, notes receivable,
security and other deposits, advance payments, prepayments and credits, whether
recorded or unrecorded;
(h) All rights under any Intellectual Property;
(i) All Records;
(j) All rights under any Claim;
(k) all rights under insurance policies and all rights in the
nature of insurance, indemnification or contribution;
(l) all bank accounts, lock boxes and other deposit
arrangements; and
(m) all goodwill.
"OMNOVA ENTITIES" means the Persons listed on Schedule 1.01(g).
<PAGE> 10
7
"OMNOVA GROUP" means OMNOVA and the OMNOVA Entities.
"PARTIES" means OMNOVA and GenCorp.
"PERMITS" means any authorization, approval, franchise, orders,
consent, license, permit, registration, waiver or certificate issued, granted,
given, or otherwise made available by or under the authority of any Governmental
Authority or pursuant to any Legal Requirement.
"PERSON" means any individual, partnership, trust, incorporated or
unincorporated association, joint venture, joint stock company, estate, trust,
organization, labor union, Governmental Authority or other legal entity of any
kind, other than the parties.
"RCRA" means the United States Resource Conservation and Recovery Act.
"RECORDS" means books, records, files, plans, surveys, studies,
reports, manuals, handbooks, catalogs, brochures, correspondence, documents and
other materials, whether in hard copy, electronic or any other form or media,
including, without limitation, any of the same pertaining to accounting, sales,
costs, pricing, marketing, advertising, promotions, suppliers, customers,
personnel, human resources, inventory, engineering, manufacturing, business
plans and strategies and product development
"REFERENCE RATE" means the interest rate equal to the prime rate as
publicly announced by Citibank, N.A., New York, New York, from time to time.
"RETAINED ASSETS" is defined in Section 2.02.
"RETURN" is defined in the Tax Matters Agreement.
"SPIN-OFF TAXES" is defined in the Tax Matters Agreement.
"TSCA" means the United States Toxic Substances Control Act.
"TAXES" is defined in the Tax Matters Agreement.
"TAX MATTERS AGREEMENT" means the Tax Matters Agreement dated
________, 1999 between GenCorp and OMNOVA.
<PAGE> 11
8
"THIRD PARTY CLAIM" means with respect to any party, the assertion of a
claim or demand or commencement of any Action against such party by any Person.
"TRANSACTION DOCUMENTS" means this Agreement and the Ancillary
Agreements.
ARTICLE II: CONTRIBUTION
------------------------
Section 2.01. ASSETS CONTRIBUTED. Upon the terms and subject to the
conditions of this Agreement, at the Closing Time, GenCorp shall contribute to
OMNOVA and OMNOVA shall accept from GenCorp all right, title and interest of
GenCorp in and to the following (collectively, the "Contributed Assets"):
(a) the OMNOVA Business Assets; and
(b) the Additional Assets.
Section 2.02. RETAINED ASSETS. Upon the terms and subject to the
conditions of this Agreement, notwithstanding Section 2.01, the following
rights, properties, assets are not included in and are excluded from the
Contributed Assets (the "Retained Assets"):
(a) All cash;
(b) All minute books, stock records, corporation records,
corporate seals, treasury shares and tax returns and supporting schedules of
GenCorp and any GenCorp Entity;
(c) Subject to Section 4.01, the name "GenCorp";
(d) Subject to Section 4.09, all casualty, liability or other
insurance policies owned by or obtained on behalf of GenCorp and all claims or
rights under any such insurance policies;
(e) Subject to the Employee Matters Agreement, all employee
benefit plans;
(f) All of the capital stock, equity or other interests in any
GenCorp Entity; and
(g) Any other right, property or asset not described in
Section 2.01.
Section 2.03. ASSUMED LIABILITIES. Upon the terms and subject to the
conditions of this Agreement, at the Closing Time OMNOVA will assume and
thereafter pay, perform and discharge the following liabilities and obligations
(the "Assumed Liabilities"):
<PAGE> 12
9
(a) all liabilities and obligations of GenCorp to the extent
arising primarily out of the OMNOVA Business; and
(b) all liabilities and obligations of GenCorp to the extent
arising primarily out of the Additional Assets.
Section 2.04. RETAINED LIABILITIES. Except for the Assumed Liabilities
and notwithstanding anything to the contrary, OMNOVA and the OMNOVA Entities do
not assume and GenCorp and the GenCorp Entities shall, without any
responsibility or liability of, or recourse to OMNOVA or any OMNOVA Entity, or
any director, officer, employee or agent of OMNOVA or any OMNOVA Entity,
absolutely and irrevocably retain and be solely responsible for any and all
liabilities or obligations of any nature of GenCorp, any GenCorp Entity or any
Discontinued Operations, or claims of such liability or obligation, whether
arising under contract, tort or any other legal theory and whether absolute or
contingent, foreseen or unforeseen, accrued or unaccrued, known or unknown,
liquidated or unliquidated, matured or unmatured, now existing or which may
arise in the future (collectively, the "Retained Liabilities") including,
without limitation, any and all liabilities or obligations arising out of or
related to the Distribution, the Retained Assets, any Environmental Liabilities
and the liabilities and obligations of GenCorp under this Agreement and any
Ancillary Agreements. For purposes of this Agreement, the Retained Liabilities
shall be deemed to include all liabilities and obligations described in the
previous sentence and for purposes of this Agreement no such liability or
obligation shall be deemed a liability or obligation of OMNOVA or an OMNOVA
Entity even if by operation of law any such liability or obligation is or
becomes a liability or obligation of OMNOVA or an OMNOVA Entity.
Section 2.05. ISSUANCE OF SHARES. In exchange for the contribution of
the Contributed Assets and the assumption of the Assumed Liabilities, on or
before the Distribution Date, OMNOVA shall issue to GenCorp that number of
shares of Common Stock, $0.10 par value per share, of OMNOVA (the "OMNOVA Common
Stock") as is necessary to effect the Distribution. The shares of OMNOVA Common
Stock shall initially be represented by one stock certificate.
Section 2.06. CLOSING. The closing of the transactions contemplated by
this Agreement shall take place on ________________ "Closing Time"). The
"Closing" shall mean the making of the deliveries to be made by OMNOVA and
GenCorp respectively pursuant to this Section 2.06 and shall be deemed to have
occurred for all purposes at ___ p.m. on ___________. At or prior to the Closing
Time the parties will executive and deliver such deeds, stock powers, bills of
sale, certificates of title, assignments, transfers, assumptions and other
agreements, instruments and conveyances as necessary to carry out this Agreement
and the transactions contemplated hereby.
Section 2.07. ASSIGNMENT OF ASSETS. Anything in this Agreement to the
contrary notwithstanding, unless OMNOVA shall otherwise determine, this
Agreement shall not constitute a sale, assignment, transfer or conveyance (a
"Transfer") or an agreement to Transfer any Contributed Asset, or any claim,
right or benefit arising thereunder or resulting therefrom
<PAGE> 13
10
(collectively, the "Interests") if an attempted Transfer thereof, without the
consent, waiver, confirmation, novation or approval (a "Consent") of a third
party, would constitute a breach or other contravention thereof, be ineffective
or in any way adversely affect any rights thereunder, unless and until such
Interest can be effectively Transferred without such breach, contravention or
adverse effect, at which time each such Interest shall be deemed to be so
Transferred. Until such Transfer, all such Interests shall be held in trust by
GenCorp for the sole benefit of OMNOVA. GenCorp shall use all reasonable efforts
to promptly obtain all necessary Consents to Transfer all such Interests and
GenCorp shall pay and discharge all costs of obtaining any such Consent whether
before or after the Closing Time. To the extent any Consents necessary to
Transfer any Interest have not been obtained or are not in effect as of the
Closing Time, GenCorp and OMNOVA shall, during the remaining term of such
Interest, use all reasonable efforts to (i) cooperate in any reasonable and
lawful arrangements designed to provide the benefits of such Interest to OMNOVA,
in which case OMNOVA shall pay or satisfy the corresponding obligations for the
enjoyment of such benefits to the extent OMNOVA would have been responsible
therefor if such Consent had been obtained and such Interest had been
transferred to OMNOVA; and (ii) enforce, at the request of OMNOVA, any rights of
GenCorp arising from such Interest against the issuer thereof or the other party
or parties thereto (including the right to elect to terminate any such Interest
in accordance with the terms thereof with the consent of OMNOVA). Nothing in
this Section 2.07 shall be deemed a waiver by the OMNOVA of its right to receive
at the Closing Time an effective Transfer of all of the Contributed Assets nor
shall this Section 2.07 be deemed to constitute an agreement to exclude any
asset, property or right from the Contributed Assets.
Section 2.08. TERMINATION OF CERTAIN CONTRACTS. Except with respect to
this Agreement and the Ancillary Agreements (and agreements expressly
contemplated herein or therein to survive the Distribution by their terms),
GenCorp and OMNOVA (on their own behalf and on behalf of the members of the
GenCorp Group and OMNOVA Group, respectively) hereby terminate, any and all
written or oral agreements, arrangements, commitments or understandings, between
or among them, effective as of the Distribution Date including, without
limitation, the items listed on Schedule 2.08. Each party shall, at the
reasonable request of any other party, take, or cause to be taken, such other
actions as may be necessary to effect such termination.
Section 2.09. DISCLAIMER. (a) Each of the parties understands and agree
that no party hereto is (whether in this Agreement, in any Ancillary Agreement
or otherwise) is making any representation or warranty, express, implied or
otherwise, including any representation or warranty as to (i) the assets,
businesses or liabilities retained, transferred or assumed, (ii) any consents,
authorizations or approvals of third parties (including Governmental
Authorities) required for the transfer or assumption by such party of any asset
or liability, (iii) the value of any asset or freedom of any asset from any
lien, claim, equity, encumbrance or other security interest or adverse claim,
(iv) the absence of any defenses or right of set-off or freedom from
counterclaim with respect to any claim or asset, or (v) the legal sufficiency to
convey title to any asset.
(b) Each party hereto understands and agrees that there are no
representations or warranties, express, implied or otherwise whatsoever,
including, without limitation, no
<PAGE> 14
11
warranty, as to the merchantability or fitness of any of the Contributed Assets
transferred to pursuant to this Agreement or any Ancillary Agreement, and all
such Contributed Assets so transferred shall be transferred on an "AS IS, WHERE
IS" basis.
(c) Nothing contained in Section 2.09(a) or (b) shall alter,
diminish or impair the obligations of the parties under any other provision of
this Agreement or any Ancillary Agreement including, without limitation, under
Article V hereof.
ARTICLE III: DISTRIBUTION
------------ ------------
Section 3.01. RECORD DATE. Subject to all applicable Legal
Requirements, the Board of Directors of GenCorp shall in its sole discretion
establish the record date for the Distribution (the "Distribution Record Date"),
the date for the Distribution (the "Distribution Date") and any appropriate
procedures in connection with the Distribution; provided, however, that, in no
event will the Distribution occur prior to such time as (i) a registration
statement on Form 10 (the "Form 10") filed by OMNOVA with the SEC to effect the
registration of the OMNOVA Common Stock pursuant to the Exchange Act, shall have
been declared effective by the SEC and (ii) the Closing shall have occurred.
Section 3.02. DISTRIBUTION. In the Distribution, GenCorp shall
distribute (i) to each holder of record on the Distribution Record Date of
shares of GenCorp Common Stock one share of OMNOVA Common Stock for every one
share of GenCorp Common Stock so held.
Section 3.03. DELIVERY. On the Distribution Date, GenCorp shall deliver
to the Distribution Agent one or more stock certificates representing all the
outstanding shares of OMNOVA Common Stock and shall instruct the Distribution
Agreement to effect the Distribution. OMNOVA shall provide all stock
certificates that the Distribution Agent may require in order to effect the
Distribution. The Distribution shall be effective at 12:01 a.m. on the
Distribution Date.
ARTICLE IV: CERTAIN COVENANTS
----------- -----------------
Section 4.01. INTERIM USE OF GENCORP'S CORPORATE NAME. OMNOVA may,
after the Closing Time, utilize without further obligation to compensate
GenCorp, the trademarks or trade names "GenCorp" in connection with the items
described below:
(a) All stationery, forms, labels, product literature,
invoices, purchase orders and other similar documents and supplies included in
the Contributed Assets may be used by OMNOVA until the supply is exhausted.
(b) All inventory included in the Contributed Assets may be
sold or otherwise disposed of by OMNOVA without remarking.
<PAGE> 15
12
(c) All molds, dies and similar items included in the
Contributed Assets which produce products displaying GenCorp's trademark, trade
name or corporate name, and all products produced using such molds or dies, may
be used and produced until such time as such molds dies and similar items are
exhausted and replaced.
(d) All sample goods (tip cards, swatch books, loose swatches,
binders and similar goods) both in stock and at distributors, specifiers, or
others may be used until discontinuation of all product lines to which such
sample goods pertain.
(e) As the corporate name for any OMNOVA Entity for a
reasonable period until a name change can be registered and approved by the
applicable Governmental Authority.
(f) As signage, e-mail addresses and similar uses for a
reasonable period after the Distribution Date.
Section 4.02. TRANSITION AND FURTHER ASSURANCES.
(a) GenCorp shall, at any time and from time to time after the
Closing Time, upon the reasonable request of OMNOVA and at GenCorp's expense,
execute, acknowledge and deliver of cause to be executed, acknowledged and
delivered all such further deeds, stock powers, bills of sale, certificates of
title, assignments, transfers, conveyances, powers of attorney and assurances
and take such other action as may be reasonably requested by OMNOVA for the more
effective assigning, transferring, granting, conveying, assuring and confirming
to OMNOVA, or to its successors and assigns, any of the Contributed Assets or
aiding and assisting in collecting and reducing to possession by OMNOVA any or
all of the Contributed Assets, and to protect the right, title and interest of
OMNOVA therein and the enjoyment by OMNOVA thereof, and otherwise to carry out
the purpose and intent of this Agreement.
(b) Without limiting of any provision hereof, GenCorp agrees
that as of the Closing Time, OMNOVA, shall be constituted and appointed the true
and lawful attorney of GenCorp with respect to the Contributed Assets, with full
power of substitution, in the name of OMNOVA or in the name of such GenCorp or
otherwise and for the benefit and at the sole expense of OMNOVA, to institute
and prosecute all proceedings which OMNOVA may deem proper in order to collect,
assert or enforce any claim, right or title of any kind in and to the
Contributed Assets, to defend or compromise any and all suits and proceedings in
respect of any of the Contributed Assets, and to do all such acts and things in
relation thereto as OMNOVA in its sole discretion as may deem advisable. GenCorp
acknowledges that the foregoing powers are coupled with an interest and shall
not be revocable by GenCorp. OMNOVA shall be entitled to retain for its own
account any amounts collected pursuant to the foregoing powers.
Section 4.03. ASSETS ADMINISTRATION. In the event that at any time or
from time to time any party or member of such party's Group, shall receive or
otherwise possess a right, property or asset that is owned by or was assigned
pursuant to this Agreement or any Ancillary Agreement
<PAGE> 16
13
to the other party or a member of the other party's Group, such party or member
shall promptly notify the other party and transfer or cause to be transferred,
such right, property or asset to such other party so entitled thereto without
any hold back or set-off. Prior to such transfer, such party or Group member
receiving or possessing such right, property or asset shall hold such right,
property or asset in trust for such other party.
Section 4.04. CORRESPONDENCE. GenCorp hereby authorizes OMNOVA, on and
after the Distribution Date, to receive and open mail addressed to GenCorp and
to deal with the contents thereof in a responsible manner. OMNOVA shall promptly
deliver to GenCorp any mail addressed to GenCorp that relates (or reasonably
appears to relate) to the Retained Assets or Retained Liabilities.
Section 4.05. INTERIM PERMIT OPERATIONS. Each party hereto shall
prepare and file with the appropriate licensing and permitting authorities for
the transfer or issuance, as may be necessary or advisable in connection with
the transactions contemplated hereby, of all Permits required in order for
OMNOVA to operate the Contributed Assets following the Contribution. OMNOVA
shall have the right to operate the Contributed Assets after the Closing Time
under any Permits held by GenCorp which was not transferred to OMNOVA at the
Closing Time and with respect to which notice has been given to the issuing
Governmental Authority.
Section 4.06. AGREEMENT FOR EXCHANGE OF INFORMATION.
(a) Each of GenCorp and OMNOVA agrees to provide to the other,
and to cause the members of its Group to provide, as soon as reasonably
practicable after written request therefor, any Information in its possession or
under its control which the requesting party reasonably needs (i) to comply with
reporting, disclosure, filing or other requirements imposed on the requesting
party (including under applicable securities or tax laws) by a Governmental
Authority having jurisdiction over the requesting party, (ii) for use in any
other judicial, regulatory, administrative, tax or other proceeding or in order
to satisfy audit, accounting, claims, regulatory, litigation, tax or other
similar requirements, or (iii) to comply with its obligations under this
Agreement or any Ancillary Agreement; provided, however, that in the event that
any party determines that any such provision of Information could be
commercially detrimental, violate any law or agreement, or waive any
attorney-client privilege, the parties shall take all reasonable measures to
permit the compliance with such obligations in a manner that avoids any such
harm or consequence.
(b) Any Information owned by GenCorp or OMNOVA that is
provided to a requesting party pursuant to this Section 4.06 shall be deemed to
remain the property of the providing party. Unless specifically set forth
herein, nothing contained in this Agreement shall be construed as granting or
conferring rights of license or otherwise in any such Information.
(c) The party requesting such Information agrees to reimburse
the other party for the reasonable costs, if any, of creating, gathering and
copying such Information, to
<PAGE> 17
14
the extent that such costs are incurred for the benefit of the requesting party.
(d) The parties agree to use their reasonable efforts to
retain all Information in their respective possession or control on the
Distribution Date for a period of six years and, with respect to the Information
pertaining to Taxes, until the expiration of the applicable statute of
limitations or as otherwise required by a Legal Requirement. No party will
destroy or dispose of, or permit any member of its Group to destroy or disposal
of, any Information which the other party may have the right to obtain pursuant
to this Agreement prior to the sixth anniversary of the date hereof or the
expiration of any such statute of limitations without first using its reasonable
efforts to notify the other party of the proposed destruction or disposal and
giving the other party the opportunity to take possession of such Information
prior to such destruction.
(e) The rights and obligations granted under this Section 4.06
are subject to any specific limitations, qualifications or additional provisions
regarding the sharing, exchange or confidential treatment of Information set
forth in any Ancillary Agreement.
Section 4.07. WITNESS SERVICES. At all times from and after the
Distribution Date, each of GenCorp and OMNOVA shall use its reasonable efforts
to make available to the other party's Group, upon reasonable written request,
the officers, directors, employees and agents of the members of its Group for
the fact finding, consultation or interviews and as witnesses to the extent that
such persons may reasonably be required in connection with the prosecution or
defense of any action in which the requesting party or any member of its Group
may from time to time be involved. Except as otherwise agreed, a party providing
witness services to any other party under this Section 4.07 shall be entitled to
reimbursement from the recipient of such services upon the presentation of
invoices therefor, for reasonable costs and expenses incurred in connection with
providing such witness services.
Section 4.08. CONFIDENTIALITY. Each of GenCorp and OMNOVA, on behalf of
itself and each member of its Group, agrees to hold, and to cause its respective
directors, officers, employees and agents to hold, in strict confidence, all
Information concerning the other Group furnished by any such other Group or its
respective directors, officers, employees or agents, at any time pursuant to
this Agreement, any Ancillary Agreement or otherwise, and shall not use any such
Information other than for such purposes as shall be expressly permitted
hereunder or thereunder, except, in each case, to the extent that such
Information has been (a) in the public domain through no fault of such party or
any member of its Group or any of their respective directors, officers,
employees or agents, (b) later lawfully acquired from other sources by such
party (or any member of such party's Group) which sources are not themselves
bound by a confidentiality obligation), or (c) independently generated without
reference to any proprietary or confidential Information of the other party.
Each party agrees not to release or disclose, or permit to be released or
disclosed, any such Information to any other Person, except its directors,
officers, employees and agents who need to know such Information (who shall be
advised of their obligations hereunder with respect to such Information).
Without limiting the
<PAGE> 18
15
foregoing, when any Information is no longer needed for the purposes
contemplated by this Agreement or any Ancillary Agreement, each party will
promptly after request of the other party either return to the other party all
Information in a tangible form (including all copies thereof and all notes,
extracts or summaries based thereon) or certify to the other party that it has
destroyed such Information (and such copies thereof and such notes, extracts or
summaries based thereon). Notwithstanding the immediately two preceding
sentences, in the event that a member of a Group either determines on the advice
of its counsel that it is required to disclose any Information pursuant to
applicable law or receives any demand under lawful process or from any
Governmental Authority to disclose or provide Information of any other party (or
any Group member of the other party) that is subject to the confidentiality
provisions hereof, such party shall notify the other party prior to disclosing
or providing such Information and shall cooperate at the expense of the
requesting party in seeking any reasonable protective arrangements requested by
such other party. Subject to the foregoing, the Person that received such
request may thereafter disclose or provide Information to the extent required by
such law (as so advised by counsel) or by lawful process or such Governmental
Authority.
Section 4.09. CERTAIN TAX MATTERS. (a) Neither the GenCorp Group nor
the OMNOVA Group shall take any action inconsistent with, nor fail to take any
action described in the Ruling Request or the Ruling, unless such Party (the
"Proposing Party") has obtained the prior written consent of the other Party
(the "Non-Proposing Party") which consent shall not be unreasonably withheld.
The Non-Proposing Party shall grant its consent to an action proposed by the
Proposing Party if the Proposing Party either (i) obtains a ruling with respect
to the proposed action from the IRS or other applicable Tax Authority that is
reasonably satisfactory, in form and substance, to the Non-Proposing Party and
its tax counsel (except that the Proposing Party shall not submit any ruling
request for the purpose of complying with this Section 4.09 if the Non-Proposing
Party reasonably determines that filing such request might adversely affect the
Non-Proposing Party), or (ii) obtains an opinion from tax counsel reasonably
satisfactory to the Non-Proposing Party (both as to choice of counsel and the
opinion given). Each of the Parties covenants that it will cooperate in
connection with any future submissions to the IRS in connection with the Ruling
Request and the Ruling, and will certify to the extent it can do so, upon
reasonable request, that the factual statements, representations and other
similar conditions contained therein are true, correct and complete in all
material respects. Each of the Parties represents that neither it nor any of its
Affiliates has any plan or intention to take any action which is inconsistent
with any factual statements, representations or other similar conditions
contained in the Ruling Request or in the Ruling.
(b) ACTIVE BUSINESS; CONTINUITY OF BUSINESS ENTERPRISE.
GenCorp and OMNOVA each represents that it has no plan or intent to reduce,
eliminate or otherwise discontinue its business relied upon in the Ruling
Request. GenCorp and OMNOVA each will not take any action which might result in
a contraction or elimination of such business (for purposes of Section 355(b) of
the Code and the "continuity of business enterprise" requirement for tax-free
distributions under Section 355 of the Code) within the five year period
beginning on the Distribution Date, without the prior written consent of the
other Party which consent
<PAGE> 19
16
shall not be unreasonably withheld.
(c) CHANGE IN CONTROL. GenCorp and OMNOVA each represents
that, apart from the Spin-off, it has no plan or intention to engage in any
transaction or transactions having the effect of a change in the ownership or
50% or more of its outstanding stock (by vote or value), within the meaning of
section 355(e) of the Code.
ARTICLE V: INDEMNIFICATION
---------- ---------------
Section 5.01. INDEMNIFICATION BY GENCORP. Subject to Section 5.03 and
5.04, GenCorp shall indemnify, defend and hold harmless OMNOVA, each OMNOVA
Entity and each of their respective directors, officers, employees and agents,
and each of the heirs, successors and assigns of any of the foregoing (the
"OMNOVA Indemnitees") from and against all Losses, (collectively, "Indemnifiable
Losses") arising out of, associated with, or resulting from:
(a) any failure to perform or breach of any covenant or
agreement made by a GenCorp in this Agreement or in any Ancillary Agreement;
(b) any Retained Liability; or
(c) any Spin-Off Taxes excluding any Spin-Off Taxes described
in Section 5.02(c).
Section 5.02. INDEMNIFICATION BY OMNOVA. Subject to Section 5.03 and
5.04 OMNOVA shall indemnify, defend and hold harmless GenCorp, each GenCorp
Entity and each of their respective directors, officers, employees and agents,
and each of the heirs, successors and assigns of any of the foregoing (the
"GenCorp Indemnitees") from and against all Losses arising out of, associated
with, or resulting from:
(a) any failure to perform or breach of any covenant or
agreement made by OMNOVA in this Agreement or in any Additional Document
delivered by OMNOVA;
(b) any Assumed Liability; or
(c) any Spin-Off Taxes resulting from any member of the
OMNOVA Group or any employee, officer or director of such member acting in his
or her capacity as such, taking or failing to take any action following the
Spin-Off (including any actions specified in Section 4.09 or any change in
ownership of OMNOVA stock whether or not OMNOVA has acted or failed to act in
connection with such change), to the extent that such action or failure
to act causes the Spin-Off to fail to qualify as fully tax-free under
Sections 368(a)(1)(D), 355, and 361, or any other provisions of the Code.
<PAGE> 20
17
Section 5.03. THIRD PARTY CLAIM PROCEDURES. If a party receives notice
of the assertion of any Third Party Claim in respect of which such party may
have a claim under Section 5.01 or 5.02 then the following shall apply:
(a) The party against whom any such Third Party Claim is made
(the "Indemnified Party"), shall promptly provide written notice (an "Indemnity
Notice") of such Third Party Claim to the other party (the "Indemnifying
Party"). Such Indemnity Notice shall describe in reasonable detail the nature of
the Third Party Claim and the basis for its claim under Section 5.01 or 5.02;
provided that the failure to provide such notice shall not affect a party's
rights under Section 5.01 or 5.02 except to the extent the other party is
prejudiced by the failure to give such notice. An Indemnity Notice by a party
shall not preclude such party from giving subsequent Indemnity Notices with
respect to other claims, whether arising before or after the claims for which
prior notice is given.
(b) Upon receipt of an Indemnity Notice, the Indemnifying
Party shall have the right to promptly assume, at its sole cost and expense, the
defense or settlement of such Third Party Claim with counsel reasonably
acceptable to the Indemnified Party, provided that the Indemnifying Party has
irrevocably agreed in writing to defend, indemnify and hold harmless the
Indemnified Party in respect of all Indemnifiable Losses arising or resulting
from such Third Party Claim. The Indemnified Party shall give prompt written
notice to the Indemnified Party of its intent to enter into such agreement and
assume the defense of any such Third Party Claim and shall conduct the defense
and/or settlement of such Third Party Claim diligently and in good faith. If the
Indemnified Party enters into such agreement and assumes such defense then for
so long as the Indemnifying Party is defending such Third Party Claim in
accordance with its obligations hereunder then the Indemnified Party shall not
admit any liability with respect to, or settle, any said Third Party Claim
without the Indemnifying Party's prior written consent; provided, however, that
the Indemnified Party shall have the right to settle, compromise or discharge
such Third Party Claim without the consent of the Indemnifying Party if the
Indemnified Party releases the Indemnifying Party from its indemnification
obligation hereunder with respect to such Third Party Claim. If requested by the
Indemnifying Party, the Indemnified Party shall cooperate fully in the defense
or prosecution of any Third Party the defense of which has been assumed by the
Indemnifying Party, and the Indemnified Party shall furnish such records,
information and testimony and attend all such conferences, discovery
proceedings, hearings, trials and appeals as may be reasonably requested in
connection therewith, but the Indemnifying Party will reimburse the Indemnified
Party for any reasonable fees or expenses incurred by it in so cooperating or
acting at the request of the Indemnifying Party.
(c) Notwithstanding Section 5.02(b), if (i) an Indemnified
Party is obligated to permit an insurer or other Third Party having liability
therefore to assume the defense of a Third Party Claim, or (ii) an Indemnified
Party determines in good faith that there is a reasonable possibility that a
Third Party Claim may materially and adversely affect it or its assets or
business other than as a result of the payment of monetary damages, or (iii) the
Indemnifying Party and Indemnified Party are both named parties in a Third Party
Claim and there are legal defenses
<PAGE> 21
18
available to the Indemnified Party which are different from or in addition to
those available to the Indemnifying Party or (iv) if the Indemnifying Party
fails, after reasonable notice from the Indemnified Party, to diligently and in
good faith defend such Third Party Claim, then, at the option of the Indemnified
Party, the Indemnifying Party shall not have the right to assume the defense of
such Third Party Claim and the Indemnified Party may, by notice to the
Indemnifying Party, reassume the defense of any such Third Party Claim
previously assumed by the Indemnifying Party. No retention or reassumption of
any such defense by the Indemnified Party shall prejudice any rights of the
Indemnified Party under Section 5.01 or 5.02.
(d) If the Indemnifying Party does not give notice and assume
the defense of such Third Party Claim in accordance with Section 5.03(b) or is
not entitled to assume or retain the defense thereof, the Indemnified Party
shall have full authority to defend and/or settle any such Third Party Claim for
the account of and at the sole risk, cost and expense of the Indemnifying Party.
If the Indemnified Party undertakes the defense and/or settlement of any such
Third Party Claim it shall do so diligently and in good faith and the
Indemnifying Party shall from time to time upon the request of the Indemnified
Party reimburse the Indemnified Party for the costs incurred by the Indemnified
Party in defending and/or settling such Third Party Claim. The Indemnifying
Party shall be bound by any settlement entered into by the Indemnified Party to
the extent that such settlement is commercially reasonably measured in the
context of the matter settled and by any judgment resulting from such Third
Party Claim. If the Indemnifying Party had the right to assume the defense and
settlement of such Third Party Claim and did not do so then, in any dispute
between the Indemnifying Party and Indemnified Party regarding the defense or
settlement of such Third Party Claim the Indemnifying Party shall have the
burden to prove that the Indemnified Party did not defend such Third Party Claim
diligently and in good faith and/or settle such claim in a commercially
reasonable manner.
(e) The parties agree that the Indemnified Party may join the
Indemnifying Party in any legal proceeding brought by the third party asserting
such Third Party Claim as to which any right under Section 5.01 or 5.02 would or
might apply, for the purpose of enforcing any such right.
(f) The Indemnifying Party shall not admit any liability,
settle, compromise, pay or discharge, without the consent of the Indemnified
Party, any Third Party Claim being defended by it unless with respect to any
settlement (i) the Indemnified Party is not obligated to perform or to refrain
from performing any act under such settlement and there is no encumbrance on any
assets of the Indemnified Party; (ii) there is no finding or admission of any
violation of any Legal Requirement, violation of the rights of any Person by the
Indemnified Party or any other liability of the Indemnified Party to any Person;
and (iii) the Indemnified Party receives, as a part of such settlement, complete
a release, in form and substance reasonably satisfactory to Indemnified Party.
(g) The party controlling the defense of a Third Party Claim
shall keep the other party reasonably informed at all stages of the defense
and/or settlement of such Third Party
<PAGE> 22
19
Claim. The party not controlling the defense of any such Third Party Claim shall
have the right, at its sole cost and expense, to participate in, but not
control, the defense of any such Third Party Claim.
ARTICLE VI. MISCELLANEOUS PROVISIONS
----------- ------------------------
Section 6.01. NOTICES. All notices, demands and other communications
which may or are required to be given to or made by either party to the other in
connection with this Agreement shall be in writing (including telex, fax or
other similar writing) and shall be deemed to have been duly given or made: (a)
if sent by registered or certified mail, five days after the posting thereof
with first class postage attached, (b) if sent by hand or overnight delivery,
upon the delivery thereof and (c) if sent by telex or fax, upon confirmation of
receipt of such telex or fax, in each case addressed to the respective parties
as follows:
GenCorp: GenCorp Inc.
175 Ghent Road
Fairlawn, Ohio 44333
Attn: Secretary
OMNOVA: OMNOVA
Highway 50 & Aerojet Road
Rancho Cordova, CA 5670
Attn: Secretary
or to such other address and to the attention of such other persons as either
party hereto may specify from time to time by notice to the other party.
Section 6.02. ENTIRE AGREEMENT. This Agreement, the Schedules hereto
and the Ancillary Agreements embody the entire agreement of the parties hereto
with respect to the subject matter hereof, and supersede all prior and
contemporaneous agreements, oral or written, relative to said subject matter.
Section 6.03. ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto without the prior written consent of the other party; provided, however,
that no such assignment shall relieve the assigning party of any liabilities or
obligations hereunder. Any transfer or assignment of any of the rights,
interests or obligations hereunder in violation of the terms hereof shall be
void and of no force or effect.
<PAGE> 23
20
Section 6.04. CAPTIONS. The Table of Contents and Article and Section
headings of this Agreement are inserted for convenience only and shall not
constitute a part of this Agreement in construing or interpreting any provision
hereof.
Section 6.05. WAIVER; CONSENT. This Agreement may not be changed,
amended, terminated, augmented, rescinded or discharged (other than by
performance), in whole or in part, except by a writing executed by the parties
hereto, and no waiver of any of the provisions or conditions of this Agreement
or any of the rights of a party hereto shall be effective or binding unless such
waiver shall be in writing and signed by the party claimed to have given or
consented thereto. Except to the extent that a party hereto may have otherwise
agreed in writing, no waiver by that party of any breach by the other party of
any of its obligations hereunder shall be deemed to be a waiver of any other
subsequent or prior breach of the same or any other obligation by the other
party, nor shall any forbearance by the first party to seek a remedy for any
noncompliance or breach by the other party be deemed to be a waiver by the first
party of its rights and remedies with respect to such noncompliance or breach.
Section 6.06. NO THIRD PARTY BENEFICIARIES. Except as provided in
Article V hereto nothing herein, expressed or implied, is intended or shall be
construed to confer upon or give to any Person any legal or equitable right,
remedy, claim or other benefit under or by reason of this Agreement.
Section 6.07. SURVIVAL OF AGREEMENTS. All covenants and agreements of
the parties contained in this Agreement shall survive the Distribution Date.
Section 6.08. EXPENSES. Except as otherwise set forth in this Agreement
or any Ancillary Agreement, all costs and expenses incurred on or prior to the
Distribution Date (whether or not paid on or prior to the Distribution Date) in
connection with the preparation, execution, delivery and implementation of this
Agreement and any Ancillary Agreement, the Distribution and the consummation of
the transactions contemplated thereby shall be charged to and paid by GenCorp.
Except as otherwise set forth in this Agreement or any Ancillary Agreement, each
party shall bear its own costs and expenses incurred after the Distribution
Date.
Section 6.09. GROUP PERFORMANCE. Each of the parties hereto shall cause
to be performed, and hereby guarantees the performance of, all actions,
agreement and obligations set forth herein to be performed by a member of its
Group.
Section 6.10. COUNTERPARTS. This Agreement may be executed
simultaneously in multiple counterparts, each of which shall be deemed an
original, but all of which taken together shall constitute one and the same
instrument.
Section 6.11. GENDER. Whenever the context requires, words used in the
singular shall be construed to mean or include the plural and vice versa, and
pronouns of any gender shall be deemed to include and designate the masculine,
feminine or neuter gender.
<PAGE> 24
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Section 6.12. GOVERNING LAW. This Agreement shall in all respects be
construed in accordance with and governed by the laws of the State of Ohio
exclusive of laws relating to conflicts of law.
Section 6.13. INTERPRETATION. It is acknowledged by OMNOVA and GenCorp
that this Agreement has undergone several drafts with the negotiated suggestions
of each and, therefore, no presumptions shall arise favoring either party by
virtue of the authorship of any provision of this Agreement.
Section 6.14. BLUE PENCIL. Any term or provision of this Agreement that
is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction. If the final judgment of a
court of competent jurisdiction declares that any term or provision hereof is
invalid or unenforceable, the court making the determination of invalidity or
unenforceability shall have the power to delete specific words or phrases, or to
replace any invalid or unenforceable term or provision with a term or provision
that is valid and enforceable and that comes closest to expressing the intention
of the invalid or unenforceable term or provision, and this Agreement shall be
enforceable as so modified after the expiration of the time within which the
judgment may be appealed.
Section 6.15. CONFLICTS. Notwithstanding any other provision of this
Agreement, in the event of any conflict between this Agreement and the
Employment Matters Agreement or this Agreement and the Tax Matters Agreement,
the Employment Matters Agreement or the Tax Matters Agreement, as the case may
be, shall control.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year first above written.
OMNOVA SOLUTIONS INC. GENCORP INC.
By:____________________ By:______________________
Name:__________________ Name:____________________
Title:_________________ Title:___________________
<PAGE> 1
Exhibit 3.1
COMPOSITE
ARTICLES OF INCORPORATION
(AS AMENDED THROUGH JULY 2, 1999)
(UNDER CHAPTER 1701 OF THE OHIO REVISED CODE)
PROFIT CORPORATION
The undersigned, desiring to form a corporation, for profit, under
Sections 1701.01 et seq. of the Ohio Revised Code, do hereby state the
following:
FIRST: The name of said corporation shall be Omnova Solutions Inc.
SECOND: The place in Ohio where its principal office is to be located
is Cleveland, Cuyahoga County, Ohio.
THIRD: The purpose for which this corporation is formed is to engage in
any lawful act or activity for which Corporations may be formed under Sections
1701.01 to 1701.98, inclusive, of the Ohio Revised Code.
FOURTH: The number of shares which the corporation is authorized to
have outstanding is 850 shares of Common Stock, without par value.
FOR ADDITIONAL PROVISIONS, SEE ATTACHMENT A ATTACHED HERETO AND INCORPORATED
HEREIN.
<PAGE> 2
ATTACHMENT A
FIFTH: The Corporation will commence business without any allocation to
stated capital.
SIXTH: No holders of any class of shares of the Corporation shall have
any preemptive right to purchase or have offered to them for purchase any shares
or other securities of the Corporation.
SEVENTH: The Corporation may from time to time, pursuant to
authorization by the Directors and without action by the shareholders, purchase
or otherwise acquire shares of the Corporation of any class or classes in such
manner, upon such terms and in such amounts as the Directors shall determine;
subject, however, to such limitation or restriction, if any, as is contained in
the express terms of any class of shares of the Corporation outstanding at the
time of the purchase or acquisition in question.
EIGHTH: Notwithstanding any provision of the Ohio Revised Code now or
hereafter in force requiring for any purpose the vote, consent, waiver or
release of the holders of shares entitling them to exercise two-thirds, or any
other proportion, of the voting power of the Corporation or of any class or
classes of shares thereof, such action, unless otherwise expressly required by
statute or by these Articles, may be taken by the vote, consent, waiver or
release of the holders of shares entitling them to exercise a majority of the
voting power of the Corporation or of such class or classes.
NINTH: Any and every statute of the State of Ohio hereafter enacted,
whereby the rights, powers or privileges of corporations or of the shareholders
of corporations organized under the laws of the State of Ohio are increased or
diminished or in any way affected, or whereby effect is given to the action
taken by any number, less than all, of the shareholders of any such corporation,
shall apply to the Corporation and shall be binding not only upon the
<PAGE> 3
Corporation but upon every shareholder of the Corporation to the same extent as
if such statute had been in force at the date of filing these Articles of
Incorporation of the Corporation in the office of the Secretary of State of
Ohio.
<PAGE> 1
Exhibit 3.2
FORM OF AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
OMNOVA SOLUTIONS INC.
ARTICLE I
---------
The name of the corporation is Omnova Solutions Inc. (the
"Corporation").
ARTICLE II
----------
The place in the State of Ohio where the Corporation's principal office
is located is the City of Fairlawn, Summit County.
ARTICLE III
-----------
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be formed under Sections 1701.01 to 1701.98,
inclusive, of the Ohio Revised Code.
ARTICLE IV
----------
A. AUTHORIZED CAPITAL STOCK. The Corporation is authorized to issue One
Hundred Fifty Million (150,000,000) shares of capital stock, consisting of
Fifteen Million (15,000,000) shares of preferred stock, par value $1.00 per
share ("Preferred Stock"), and One Hundred Thirty-Five Million (135,000,000)
shares of common stock, par value $0.10 per share ("Common Stock").
B. PREFERRED STOCK. The Board of Directors shall have authority to
issue Preferred Stock from time to time in one or more series.
1. Series A Preferred Stock. In addition to the voting rights
set forth relating to Series A Preferred Stock in any Preferred Stock
Designation, Series A Preferred Stock is also entitled to one hundred
votes for each share of such stock upon all matters presented to the
shareholders; and except as otherwise provided in these Articles or in
any Preferred Stock Designation, the holders of Series A Preferred
Stock and the holders of Common Stock shall vote together as one class
on all matters.
2. Series B Preferred Stock. In addition to the voting rights
set forth relating to Series B Preferred Stock in any Preferred Stock
Designation, Series B
<PAGE> 2
Preferred Stock is also entitled to one vote for each share of such
stock upon all matters presented to the shareholders; and except as
otherwise provided in these Articles or in any Preferred Stock
Designation, the holders of Series B Preferred Stock and the holders of
Common Stock shall vote together as one class on all matters.
3. Series C Preferred Stock. Other than as provided in any
Preferred Stock Designation, Series C Preferred Stock is not entitled
to vote.
C. COMMON STOCK. Subject to any Preferred Stock Designation, the
holders of shares of Common Stock shall be entitled to one vote on each matter
submitted to a vote at a meeting of shareholders for each share of Common Stock
held of record by such holder as of the record date for such meeting.
ARTICLE V
---------
The Board of Directors shall be authorized hereby to exercise all
powers now or hereafter permitted by law providing rights to the Board of
Directors to adopt amendments to these Articles of Incorporation to fix or
change the express terms of any unissued or treasury shares of any class,
including, without limiting the generality of the foregoing: division of such
shares into series and the designation and authorized number of shares of each
series; voting rights of such shares (to the extent now or hereafter permitted
by law); dividend or distribution rate; dates of payment of dividends or
distributions and the dates from which they are cumulative; liquidation price;
redemption rights and price; sinking fund requirements; conversion rights; and
restrictions on the issuance of shares of the same series or any other class or
series; all as may be established by resolution of the Board of Directors from
time to time (collectively, a "Preferred Stock Designation").
ARTICLE VI
----------
Except as may be provided in any Preferred Stock Designation, holders
of shares of capital stock of the Corporation shall not be entitled to
cumulative voting rights in the election of directors.
ARTICLE VII
-----------
Except as may be provided in any Preferred Stock Designation, no holder
of any shares of capital stock of the Corporation shall have any preemptive
right to acquire any shares of unissued capital stock of any class or series,
now or hereafter authorized,
- 2 -
<PAGE> 3
or any treasury shares or securities convertible into such shares or carrying a
right to subscribe to or acquire such shares of capital stock.
ARTICLE VIII
------------
The Corporation may from time to time, pursuant to authorization by the
Board of Directors and without action by the shareholders, purchase or otherwise
acquire capital stock of the Corporation of any class or classes in such manner,
upon such terms and in such amounts as the Board of Directors shall determine;
subject, however, to such limitation or restriction, if any, as is contained in
any Preferred Stock Designation at the time of such purchase or acquisition.
ARTICLE IX
----------
Notwithstanding anything to the contrary contained in these Articles of
Incorporation, the affirmative vote of the holders of at least 80% of the voting
power of the Corporation, voting together as a single class, shall be required
to amend or repeal, or adopt any provision inconsistent with, Article V, Article
VI, Article VII, Article VIII or this Article IX; provided, however, that this
Article IX shall not alter the voting entitlement of shares that, by virtue of
any Preferred Stock Designation, are expressly entitled to vote on any amendment
to these Articles of Incorporation. For purposes of these Articles of
Incorporation, "voting power of the Corporation" means the aggregate voting
power of (1) all the outstanding shares of Common Stock of the Corporation and
(2) all the outstanding shares of any class or series of capital stock of the
Corporation that has (i) rights to distributions senior to those of the Common
Stock including, without limitation, any relative, participating, optional, or
other special rights and privileges of, and any qualifications, limitations or
restrictions on, such shares and (ii) voting rights entitling such shares to
vote generally in the election of directors.
ARTICLE X
---------
Any and every statute of the State of Ohio hereafter enacted, whereby
the rights, powers or privileges of corporations or of the shareholders of
corporations organized under the laws of the State of Ohio are increased or
diminished or in any way affected, or whereby effect is given to the action
taken by any number, less than all, of the shareholders of any such corporation,
shall apply to the Corporation and shall be binding not only upon the
Corporation but upon every shareholder of the Corporation to the same extent as
if such statute had been in force at the date of filing these Articles of
Incorporation in the office of the Secretary of State of Ohio.
- 3 -
<PAGE> 1
Exhibit 3.3
R E G U L A T I O N S
OF
Omnova Solutions Inc.
<PAGE> 2
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
SHAREHOLDERS' MEETINGS
Section 1. Annual Meeting 1
Section 2. Special Meetings 1
Section 3. Place of Meetings 2
Section 4. Notice of Meetings 2
Section 5. Shareholders Entitled to
Notice and to Vote 3
Section 6. Inspectors of Election;
List of Shareholders 3
Section 7. Quorum 4
Section 8. Voting 4
Section 9. Reports to Shareholders 4
Section 10. Action Without a Meeting 4
Section 11. Chairman of Meeting 5
ARTICLE II
DIRECTORS
Section 1. Election, Number and
Term of Office 5
Section 2. Meetings 6
Section 3. Quorum and Voting 7
Section 4. Action Without a Meeting 7
Section 5. Committees 7
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE III
OFFICERS
Section 1. Officers 9
Section 2. Authority and Duties
of Officers 9
ARTICLE IV
INDEMNIFICATION AND INSURANCE
Section 1. Indemnification 9
Section 2. Insurance 11
Section 3. Agreements 11
ARTICLE V
MISCELLANEOUS
Section 1. Transfer and Registration
of Certificates 12
Section 2. Substituted Certificates 12
Section 3. Voting of Shares Held by
the Corporation 12
Section 4. Amendments 13
</TABLE>
-ii-
<PAGE> 4
R E G U L A T I O N S
OF
Omnova Solutions Inc.
ARTICLE I
SHAREHOLDERS' MEETINGS
Section 1. Annual Meeting.
The annual meeting of shareholders shall be held at such date
and time as may be designated from time to time by the Directors, for the
election of Directors and the consideration of reports to be laid before such
meeting. Upon due notice, there may also be considered and acted upon at an
annual meeting any matter which could properly be considered and acted upon at a
special meeting, in which case and for which purpose the annual meeting shall
also be considered as, and shall be, a special meeting. When the annual meeting
is not held or Directors are not elected thereat, they may be elected at a
special meeting called for that purpose.
Section 2. Special Meetings.
Special meetings of shareholders may be called by (i) the
Chairman of the Board or the President or a Vice President, (ii) the Directors
by action at a meeting, or by a majority of the Directors acting without a
meeting, or (iii) the person or persons who hold not less than 50% percent of
all shares outstanding and entitled to be voted at said meeting.
Upon request in writing delivered either in person or by
registered mail to the President or Secretary by any person or persons entitled
to call a meeting of shareholders, such officer
-1-
<PAGE> 5
shall forthwith cause to be given, to the shareholders entitled thereto, notice
of a meeting to be held not less than seven nor more than 60 days after the
receipt of such request, as such officer shall fix. If such notice is not given
within 20 days after the delivery or mailing of such request, the person or
persons calling the meeting may fix the time of the meeting and give, or cause
to be given, notice in the manner hereinafter provided.
Section 3. Place of Meetings.
Any meeting of shareholders may be held either at the
principal office of the Corporation or at such other place within or without the
State of Ohio as may be designated in the notice of said meeting.
Section 4. Notice of Meetings.
Not more than 60 days nor less than seven days before the date
fixed for a meeting of shareholders, whether annual or special, written notice
of the time, place and purposes of such meeting shall be given by or at the
direction of the President, a Vice President, the Secretary or an Assistant
Secretary. Such notice shall be given either by personal delivery or by mail to
each shareholder of record entitled to notice of such meeting. If such notice is
mailed, it shall be addressed to the shareholders at their respective addresses
as they appear on the records of the Corporation, and notice shall be deemed to
have been given on the day so mailed. Notice of adjournment of a meeting need
not be given if the time and place to which it is adjourned are fixed and
announced at such meeting.
-2-
<PAGE> 6
Section 5. Shareholders Entitled to Notice and to Vote.
If a record date shall not be fixed pursuant to statutory
authority, the record date for the determination of shareholders who are
entitled to notice of, or who are entitled to vote at, a meeting of
shareholders, shall be the close of business on the date next preceding the day
on which notice is given, or the close of business on the date next preceding
the day on which the meeting is held, as the case may be.
Section 6. Inspectors of Election; List of Shareholders.
Inspectors of election may be appointed to act at any
meeting of shareholders in accordance with the Ohio General Corporation Law.
At any meeting of shareholders, an alphabetically arranged
list, or classified lists, of the shareholders of record as of the applicable
record date who are entitled to vote, showing their respective addresses and the
number and classes of shares held by each, shall be produced on the request of
any shareholder.
Section 7. Quorum.
To constitute a quorum at any meeting of shareholders, there
shall be present in person or by proxy shareholders of record entitled to
exercise not less than a majority of the voting power of the Corporation in
respect of any one of the purposes for which the meeting is called.
The holders of a majority of the voting power represented in
person or by proxy at a meeting of shareholders, whether or not a quorum be
present, may adjourn the meeting from time to time.
-3-
<PAGE> 7
Section 8. Voting.
In all cases, except as otherwise expressly required by
statute, the Articles of Incorporation of the Corporation or these Regulations,
a majority of the votes cast at a meeting of shareholders shall control. An
abstention shall not represent a vote cast.
Section 9. Reports to Shareholders.
At the annual meeting, or the meeting held in lieu thereof,
the officers of the Corporation shall lay before the shareholders a financial
statement as required by the Ohio General Corporation Law.
Section 10. Action Without a Meeting.
Except as otherwise provided in these Regulations, any
action which may be authorized or taken at a meeting of the shareholders may be
authorized or taken without a meeting with the affirmative vote or approval of,
and in a writing or writings signed by, all of the shareholders who would be
entitled to notice of a meeting for such purpose, which writing or writings
shall be filed with or entered upon the records of the Corporation.
Section 11. Chairman of Meeting.
The chairman of any meeting of shareholders shall be the
Chairman of the Board or, if the Directors have not elected a Chairman of the
Board, the President of the Corporation. The Chairman of the Board or, if the
Directors have not elected a Chairman of the Board or the Chairman of the Board
is unavailable to do so, the President may appoint any other officer of the
Corporation to act as chairman of any shareholders' meeting.
-4-
<PAGE> 8
Notwithstanding the foregoing, the Directors may appoint any individual to act
as chairman of any shareholders' meeting.
ARTICLE II
DIRECTORS
Section 1. Election, Number and Term of Office.
The Directors shall be elected at the annual meeting of
shareholders, or if not so elected, at a special meeting of shareholders called
for that purpose, and each Director shall hold office until the date fixed by
these Regulations for the next succeeding annual meeting of shareholders and
until his successor is elected, or until his earlier resignation, removal from
office or death. At any meeting of shareholders at which Directors are to be
elected, only persons nominated as candidates shall be eligible for election.
The number of Directors, which shall not be less than three
(unless all of the shares of the Corporation are owned of record by one or two
shareholders, in which case the number of Directors may be less than three but
not less than the number of shareholders), may be fixed or changed at a meeting
of the shareholders called for the purpose of electing Directors at which a
quorum is present, by the affirmative vote of the holders of a majority of the
shares represented at the meeting and entitled to vote on such proposal. In case
the shareholders at any meeting for the election of Directors shall fail to fix
the number of Directors to be elected, the number elected shall be deemed to be
the number of Directors so fixed.
-5-
<PAGE> 9
Section 2. Meetings.
Regular meetings of the Directors shall be held immediately
after the annual meeting of shareholders and at such other times and places as
may be fixed by the Directors, and such meetings may be held without further
notice.
Special meetings of the Directors may be called by the
Chairman of the Board or by the President or by a Vice President or by the
Secretary of the Corporation, or by not less than one-third of the Directors.
Notice of the time and place of a special meeting shall be served upon or
telephoned to each Director at least 24 hours, or mailed, telegraphed or cabled
to each Director at least 48 hours, prior to the time of the meeting.
Section 3. Quorum and Voting.
A majority of the number of Directors then in office (but in
no event more than a majority shall be necessary to constitute a quorum for the
transaction of business, but if at any meeting of the Directors there shall be
less than a quorum present, a majority of those present may adjourn the meeting
from time to time without notice other than announcement at the meeting until a
quorum shall attend. In all cases, except as otherwise expressly required by
statute, the Articles of Incorporation of the Corporation or these Regulations,
the act of a majority of the Directors present at a meeting at which a quorum is
present is the act of the Directors.
Section 4. Action Without a Meeting.
Any action which may be authorized or taken at a meeting of
the Directors may be authorized or taken without a meeting with
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<PAGE> 10
the affirmative vote or approval of, and in a writing or writings signed by, all
of the Directors, which writing or writings shall be filed with or entered upon
the records of the Corporation.
Section 5. Committees.
The Directors may from time to time create a committee or
committees of Directors to act in the intervals between meetings of the
Directors and may delegate to such committee or committees any of the authority
of the Directors other than that of filling vacancies among the Directors or in
any committee of the Directors. No committee shall consist of less than three
Directors. The Directors may appoint one or more Directors as alternate members
of any such committee, who may take the place of any absent member or members at
any meeting of such committee.
In particular, the Directors may create and define the powers
and duties of an Executive Committee. Except as above provided and except to the
extent that its powers are limited by the Directors, the Executive Committee
during the intervals between meetings of the Directors shall possess and may
exercise, subject to the control and direction of the Directors, all of the
powers of the Directors in the management and control of the business of the
Corporation, regardless of whether such powers are specifically conferred by
these Regulations. All action taken by the Executive Committee shall be reported
to the Directors at their first meeting thereafter.
Unless otherwise ordered by the Directors, a majority of the
members of any committee appointed by the Directors pursuant to
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<PAGE> 11
this section shall constitute a quorum at any meeting thereof, and the act of a
majority of the members present at a meeting at which a quorum is present shall
be the act of such committee. Action may be taken by any such committee without
a meeting by a writing or writings signed by all of its members. Any such
committee shall prescribe its own rules for calling and holding meetings and its
method of procedure, subject to any rules prescribed by the Directors, and shall
keep a written record of all action taken by it.
ARTICLE III
OFFICERS
Section 1. Officers.
The Corporation may have a Chairman of the Board (who shall be
a Director) and shall have a President, a Secretary and a Treasurer. The
Corporation may also have one or more Vice Presidents and such other officers
and assistant officers as the Directors may deem necessary. All of the officers
and assistant officers shall be elected by the Directors.
Section 2. Authority and Duties of Officers.
The officers of the Corporation shall have such authority
and shall perform such duties as are customarily incident to their respective
offices, or as may be specified from time to time by the Directors, regardless
of whether such authority and duties are customarily incident to such office.
-8-
<PAGE> 12
ARTICLE IV
INDEMNIFICATION AND INSURANCE
Section 1. Indemnification.
The Corporation shall indemnify, to the full extent then
permitted by law, any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was a member of the Board of Directors or an officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, trustee, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation, and with respect to any criminal action or
proceedings, had no reasonable cause to believe his conduct was unlawful. The
Corporation shall pay, to the full extent then required by law, expenses,
including attorney's fees, incurred by a member of the Board of Directors in
defending any such action, suit or proceeding as they are incurred, in advance
of the final disposition thereof, and may pay, in the same manner and to the
full extent then permitted by law, such expenses incurred by any other person.
The indemnification and payment of expenses provided hereby shall not be
exclusive of, and shall be in addition to, any other rights granted to those
seeking indemnification under any law, the Articles of Incorporation, any
agreement, vote of shareholders or disinterested members of the Board of
Directors, or otherwise, both as to action in official
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<PAGE> 13
capacities and as to action in another capacity while he is a member of the
Board of Directors, officer, employee or agent of the Corporation, and shall
continue as to a person who has ceased to be a member of the Board of Directors,
trustee, officer, employee or agent and shall inure to the benefit of the heirs,
executors, and administrators of such a person.
Section 2. Insurance.
The Corporation may, to the full extent then permitted by law
and authorized by the Directors, purchase and maintain insurance or furnish
similar protection, including but not limited to trust funds, letters of credit
or self-insurance, on behalf of or for any persons described in Section 1
against any liability asserted against and incurred by any such person in any
such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify such person against such
liability. Insurance may be purchased from or maintained with a person in which
the Corporation has a financial interest.
Section 3. Agreements.
The Corporation, upon approval by the Board of Directors, may
enter into agreements with any persons whom the Corporation may indemnify under
these Regulations or under law and undertake thereby to indemnify such persons
and to pay the expenses incurred by them in defending any action, suit or
proceeding against them, whether or not the Corporation would have the power
under these Regulations or law to indemnify any such person.
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<PAGE> 14
ARTICLE V
MISCELLANEOUS
Section 1. Transfer and Registration of Certificates.
The Directors shall have authority to make such rules and
regulations as they deem expedient concerning the issuance, transfer and
registration of certificates for shares and the shares represented thereby and
may appoint transfer agents and registrars thereof.
Section 2. Substituted Certificates.
Any person claiming a certificate for shares to have been
lost, stolen or destroyed shall make an affidavit or affirmation of that fact,
shall give the Corporation and its registrar or registrars and its transfer
agent or agents a bond of indemnity satisfactory to the Directors or to the
Executive Committee or to the President or a Vice President and the Secretary or
the Treasurer, and, if required by the Directors or the Executive Committee or
such officers, shall advertise the same in such manner as may be required,
whereupon a new certificate may be executed and delivered of the same tenor and
for the same number of shares as the one alleged to have been lost, stolen or
destroyed.
Section 3. Voting of Shares Held by the Corporation.
Unless otherwise ordered by the Directors, any officer or
assistant officer of the Corporation, in person or by proxy or
proxies appointed by him, shall have full power and authority on behalf of the
Corporation to vote, act and consent with respect to any shares issued by other
corporations which the Corporation may own.
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<PAGE> 15
Section 4. Amendments.
These Regulations may be amended by the affirmative vote or
the written consent of the shareholders of record entitled to exercise a
majority of the voting power on such proposal; provided, however, that if an
amendment is adopted by written consent without a meeting of the shareholders,
the Secretary shall mail a copy of such amendment to each shareholder of record
who would have been entitled to vote thereon and did not participate in the
adoption thereof.
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<PAGE> 1
Exhibit 3.4
- --------------------------------------------------------------------------------
OMNOVA SOLUTIONS INC.
FORM OF AMENDED AND RESTATED
CODE OF REGULATIONS
As Adopted and in
Effect on __________, 1999
- --------------------------------------------------------------------------------
<PAGE> 2
SHAREHOLDER MEETINGS
--------------------
1. TIME AND PLACE OF MEETINGS. All meetings of the
shareholders for the election of directors or for any other purpose will be held
at such time and place, within or without the State of Ohio, as may be
designated by the Board of Directors or, in the absence of a designation by the
Board of Directors, the Chairman of the Board of Directors, if any (the
"Chairman"), the President, or the Secretary, and stated in the notice of
meeting. The Board of Directors may postpone and reschedule any previously
scheduled annual or special meeting of the shareholders.
2. ANNUAL MEETING. An annual meeting of the shareholders will
be held at such date and time as may be designated from time to time by the
Board of Directors, at which meeting the shareholders will elect directors to
succeed those directors whose terms expire at such meeting and will transact
such other business as may be brought properly before the meeting in accordance
with Regulation 8.
3. SPECIAL MEETINGS. (a) Special meetings of shareholders may
be called by the Chairman or the President or by a majority of the Board of
Directors acting with or without a meeting or by any person or persons who hold
not less than 50% of all the shares outstanding and entitled to be voted on any
proposal to be submitted at said meeting. Special meetings of the holders of
shares that are entitled to call a special meeting by virtue of any Preferred
Stock Designation may call such meetings in the manner and for the purposes
provided in the applicable terms of such Preferred Stock Designation. For
purposes of this Code of Regulations, "Preferred Stock Designation" means the
express terms of shares of any class or series of capital stock of the
Corporation, whether now or hereafter issued, with rights to distributions
senior to those of the Common Stock including, without limitation, any relative,
participating, optional, or other special rights and privileges of, and any
qualifications or restrictions on, such shares.
(b) Upon written request by any person or persons entitled to
call a meeting of shareholders delivered in person or by registered mail to the
Chairman, the President or the Secretary, such officer shall forthwith cause
notice of the meeting to be given to the shareholders entitled to notice of such
meeting in accordance with Regulation 4. If such notice shall not be given
within 60 days after the delivery or mailing of such request, the person or
persons requesting the meeting may fix the time of the meeting and give, or
cause to be given, notice in the manner provided in Regulation 4.
4. NOTICE OF MEETINGS. Written notice of every meeting of the
shareholders called in accordance with these Regulations, stating the time,
place, and purposes for which the meeting is called, will be given by or at the
direction of the President, a Vice President, the Secretary or an Assistant
Secretary (or in case of their refusal, by the person or persons entitled to
call the meeting under Regulation 3). Such notice will be given not less than 7
nor more than 60 calendar days before the date of the meeting to each
shareholder of record entitled to notice of such meeting. If such notice is
mailed, it shall be addressed to the shareholders at their respective addresses
as they appear on the records of the Corporation, and notice shall be deemed to
have been given on the day so mailed. Notice of adjournment of a meeting need
not be given if the time and place to which it is adjourned are fixed and
announced at such meeting.
5. INSPECTORS. Inspectors of election may be appointed to act
at any meeting of shareholders in accordance with Ohio law.
6. QUORUM. To constitute a quorum at any meeting of
shareholders, there shall be present in person or by proxy shareholders of
record entitled to exercise not less than a majority of the voting power of the
Corporation in respect of any one of the purposes for which the meeting is
called, unless a greater or lesser number is expressly provided for with respect
to a particular class or series of capital stock by the terms of any applicable
Preferred Stock Designation. Except as may be otherwise provided in any
Preferred Stock Designation, the holders of a majority of the voting power of
the Corporation represented in person or by proxy at a meeting of shareholders,
whether or not a quorum be present, may adjourn the meeting from time to time.
For purposes of this Code of Regulations, "voting power of the Corporation"
means the aggregate voting power of (a) all the outstanding shares of Common
Stock of the Corporation and (b) all the outstanding shares of any class or
series of capital stock of the Corporation
<PAGE> 3
that has (i) rights to distributions senior to those of the Common Stock
including, without limitation, any relative, participating, optional, or other
special rights and privileges of, and any qualifications or restrictions on,
such shares and (ii) voting rights entitling such shares to vote generally in
the election of directors.
7. VOTING. Except as otherwise expressly required by law, the
Articles of Incorporation or this Code of Regulations, at any meeting of
shareholders at which a quorum is present, a majority of the votes cast, whether
in person or by proxy, on any matter properly brought before such meeting in
accordance with Regulation 8 will be the act of the shareholders. An abstention
shall not represent a vote cast. Every proxy must be in a form permitted by
chapter 1701 of the Ohio Revised Code (or any successor provision). A
shareholder may revoke any proxy that is not irrevocable by attending the
meeting and voting in person or by filing with the Secretary written notice of
revocation or a later appointment. The vote upon any question brought before a
meeting of the shareholders may be by voice vote, unless otherwise required by
law, the Articles of Incorporation or this Code of Regulations or unless the
presiding officer otherwise determines. Every vote taken by written ballot will
be counted by the inspectors of election, if inspectors of election are
appointed.
8. ORDER OF BUSINESS. (a) The Chairman, or such other officer
of the Corporation designated by a majority of the total number of directors
that the Corporation would have if there were no vacancies on the Board of
Directors (such number being referred to as the "Whole Board"), will call
meetings of shareholders to order and will act as presiding officer thereof.
Unless otherwise determined by the Board of Directors prior to the meeting, the
presiding officer of the meeting of shareholders will also determine the order
of business and have the authority in his or her sole discretion to regulate the
conduct of any such meeting including, without limitation, by imposing
restrictions on the persons (other than shareholders of the Corporation or their
duly appointed proxies) who may attend any such shareholders' meeting, by
ascertaining whether any shareholder or his proxy may be excluded from any
meeting of shareholders based upon any determination by the presiding officer,
in his sole discretion, that any such person has unduly disrupted or is likely
to disrupt the proceedings of the meeting, and by determining the circumstances
in which any person may make a statement or ask questions at any meeting of
shareholders.
(b) At an annual meeting of the shareholders, only such
business will be conducted or considered as is properly brought before the
meeting. To be properly brought before an annual meeting, business must be (i)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the President, a Vice President, the Secretary or an Assistant
Secretary in accordance with Regulation 4, (ii) otherwise properly brought
before the meeting by the presiding officer or by or at the direction of a
majority of the Whole Board, or (iii) otherwise properly requested to be brought
before the meeting by a shareholder of the Corporation in accordance with
Regulation 8(c).
(c) For business to be properly requested by a shareholder to
be brought before an annual meeting, (i) the shareholder must be a shareholder
of the Corporation of record at the time of the giving of the notice for such
annual meeting provided for in this Code of Regulations, (ii) the shareholder
must be entitled to vote at such meeting, (iii) the shareholder must have given
timely notice thereof in writing to the Secretary, and (iv) if the shareholder,
or the beneficial owner on whose behalf any business is brought before the
meeting, has provided the Corporation with a Proposal Solicitation Notice, as
that term is defined in this Regulation 8(c) below, such shareholder or
beneficial owner must have delivered a proxy statement and form of proxy to the
holders of at the least the percentage of shares of the Corporation entitled to
vote required to approve such business that the shareholder proposes to bring
before the annual meeting and included in such materials the Proposal
Solicitation Notice. To be timely, a shareholder's notice must be delivered to
or mailed and received at the principal executive offices of the Corporation not
less than 60 nor more than 90 calendar days prior to the first anniversary of
date on which the Corporation first mailed its proxy materials for the preceding
year's annual meeting of shareholders; PROVIDED, HOWEVER, that if the date of
the annual meeting is advanced more than 30 calendar days prior to or delayed by
more than 30 calendar days after the anniversary of the preceding year's annual
meeting, notice by the shareholder to be timely must be so delivered not later
than the close of business on the later of the 90th calendar prior to such
annual meeting or the 10th calendar day following the day on which public
announcement of the date of such meeting is first made. In no event shall the
public announcement
-2-
<PAGE> 4
of an adjournment of an annual meeting commence a new time period for the giving
of a shareholder's notice as described above. A shareholder's notice to the
Secretary must set forth as to each matter the shareholder proposes to bring
before the annual meeting (A) a description in reasonable detail of the business
desired to be brought before the annual meeting and the reasons for conducting
such business at the annual meeting, (B) the name and address, as they appear on
the Corporation's books, of the shareholder proposing such business and of the
beneficial owner, if any, on whose behalf the proposal is made, (C) the class
and number of shares of the Corporation that are owned beneficially and of
record by the shareholder proposing such business and by the beneficial owner,
if any, on whose behalf the proposal is made, (D) any material interest of such
shareholder proposing such business and the beneficial owner, if any, on whose
behalf the proposal is made in such business and (E) whether either such
shareholder or beneficial owner intends to deliver a proxy statement and form of
proxy to holders of at least the percentage of shares of the Corporation
entitled to vote required to approve the proposal (an affirmative statement of
such intent, a "Proposal Solicitation Notice"). Notwithstanding the foregoing
provisions of this Code of Regulations, a shareholder must also comply with all
applicable requirements of the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder with respect to the matters set forth in
this Regulation 8(c). For purposes of this Regulation 8(c) and Regulation 13,
"public announcement" means disclosure in a press release reported by the Dow
Jones News Service, Associated Press, or comparable national news service or in
a document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Sections 13, 14, or 15(d) of the Securities Exchange Act
of 1934, as amended, or publicly filed by the Corporation with any national
securities exchange or quotation service through which the Corporation's stock
is listed or traded, or furnished by the Corporation to its shareholders.
Nothing in this Regulation 8(c) will be deemed to affect any rights of
shareholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as
amended.
(d) At a special meeting of shareholders, only such business
may be conducted or considered as is properly brought before the meeting. To be
properly brought before a special meeting, business must be (i) specified in the
notice of the meeting (or any supplement thereto) given by or at the direction
of the President, a Vice President, the Secretary or an Assistant Secretary (or
in case of their failure to give any required notice, the other persons entitled
to give notice) in accordance with Regulation 4 or (ii) otherwise brought before
the meeting by the presiding officer or by or at the direction of a majority of
the Whole Board.
(e) The determination of whether any business sought to be
brought before any annual or special meeting of the shareholders is properly
brought before such meeting in accordance with this Regulation 8 will be made by
the presiding officer of such meeting. If the presiding officer determines that
any business is not properly brought before such meeting, he or she will so
declare to the meeting and any such business will not be conducted or
considered.
DIRECTORS
---------
9. FUNCTION. Except where the law, the Articles of
Incorporation, or this Code of Regulations requires action to be authorized or
taken by the shareholders, all of the authority of the Corporation shall be
exercised by or under the direction of the Board of Directors.
10. NUMBER, ELECTION, AND TERMS OF DIRECTORS. Except as may be
otherwise provided in any Preferred Stock Designation, the number of the
directors of the Corporation will not be less than seven nor more than seventeen
as may be determined from time to time only (i) by a vote of a majority of the
Whole Board, or (ii) by the affirmative vote of the holders of at least 80% of
the voting power of the Corporation, voting together as a single class. The
directors, other than those who may be expressly elected by virtue of the terms
of any Preferred Stock Designation, will be classified with respect to the time
for which they severally hold office into three classes, as nearly equal in size
as possible and consisting of not less than three directors in each class,
designated Class I, Class II, and Class III. The directors first appointed to
Class I will hold office for a term expiring at the annual meeting of
shareholders to be held in [2000]; the directors first appointed to Class II
will hold office for a term expiring at the annual meeting of shareholders to be
held in [2001]; and the directors first appointed to Class III will hold office
for a term
-3-
<PAGE> 5
expiring at the annual meeting of shareholders to be held in [2002], with the
members of each class to hold office until their successors are elected. Except
as may be otherwise provided in any Preferred Stock Designation, at each annual
meeting of the shareholders of the Corporation, the successors of the class of
directors whose terms expire at that meeting shall be elected by plurality vote
of all votes cast at such meeting to hold office for a term expiring at the
annual meeting of shareholders held in the third year following the year of
their election. Except as may be otherwise provided in any Preferred Stock
Designation, directors may be elected by the shareholders only at an annual
meeting of shareholders. No decrease in the number of directors constituting the
Board of Directors may shorten the term of any incumbent director. Election of
directors of the Corporation need not be by written ballot unless requested by
the presiding officer or by the holders of a majority of the voting power of the
Corporation present in person or represented by proxy at a meeting of the
shareholders at which directors are to be elected.
11. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Except as may
be otherwise provided in any Preferred Stock Designation, any vacancy (including
newly created directorships resulting from any increase in the number of
directors and any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal, or other cause) may be filled only (i)
by the affirmative vote of a majority of the remaining directors then in office,
even though less than a quorum of the Board of Directors, or by a sole remaining
director or (ii) by the affirmative vote of the shareholders after a vote to
increase the number of directors at a meeting called for that purpose in
accordance with this Code of Regulations. Any director elected in accordance
with the preceding sentence will hold office for the remainder of the full term
of the class of directors in which the new directorship was created or the
vacancy occurred and until such director's successor has been elected.
12. REMOVAL. Except as may be otherwise provided in any
Preferred Stock Designation, directors may not be removed from the Board of
Directors by the shareholders or otherwise, except that a majority of the
Directors then in office may remove a Director if the Director to be removed (i)
is unable to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment that is expected to be
permanent; (ii) has, since his or her election as a director, been convicted of
a crime constituting a felony or involving fraud, embezzlement or theft; or
(iii) has, since his or her election as a director, been found by a court of
competent jurisdiction in a civil action to have breached his or her duty of
loyalty to the Corporation or any other company.
13. NOMINATIONS OF DIRECTORS; ELECTION. (a) Except as may be
otherwise provided in any Preferred Stock Designation, only persons who are
nominated in accordance with this Regulation 13 will be eligible for election at
a meeting of shareholders to be members of the Board of Directors of the
Corporation.
(b) Nominations of persons for election as directors of the
Corporation may be made only at an annual meeting of shareholders (i) by or at
the direction of the Board of Directors or a committee thereof or (ii) by any
shareholder who is a shareholder of record at the time of giving of notice
provided for in this Regulation 13, who is entitled to vote for the election of
directors at such meeting, and who complies with the procedures set forth in
this Regulation 13. If a shareholder, or a beneficial owner on whose behalf any
such nomination is made, has provided the Corporation with a Nomination
Solicitation Notice, as that term is defined in Regulation 13(c) below, such
shareholder or beneficial owner must have delivered a proxy statement and form
of proxy to the holders of at least the percentage of shares of the Corporation
entitled to vote required to approve such nomination and included in such
materials the Nomination Solicitation Notice. All nominations by shareholders
must be made pursuant to timely notice in proper written form to the Secretary.
(c) To be timely, a shareholder's notice must be delivered to
or mailed and received at the principal executive offices of the Corporation not
less than 60 nor more than 90 calendar days prior to the first anniversary of
the date on which the Corporation first mailed its proxy materials for the
preceding year's annual meeting of shareholders; PROVIDED, HOWEVER, that if the
date of the annual meeting is advanced more than 30 calendar days prior to or
delayed by more than 30 calendar days after the anniversary of the preceding
year's annual meeting, notice by the shareholder to be timely must be so
delivered not later than the close of business on the later of the 90th calendar
day prior to such annual meeting or the 10th calendar day following the day on
which public announcement of the date of such
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<PAGE> 6
meeting is first made. In no event shall the public announcement of an
adjournment of an annual meeting commence a new time period for the giving of a
shareholder's notice as described above. To be in proper written form, such
shareholder's notice must set forth or include: (i) the name and address, as
they appear on the Corporation's books, of the shareholder giving the notice and
of the beneficial owner, if any, on whose behalf the nomination is made; (ii) a
representation that the shareholder giving the notice is a holder of record of
stock of the Corporation entitled to vote at such annual meeting and intends to
appear in person or by proxy at the annual meeting to nominate the person or
persons specified in the notice; (iii) the class and number of shares of stock
of the Corporation owned beneficially and of record by the shareholder giving
the notice and by the beneficial owner, if any, on whose behalf the nomination
is made; (iv) a description of all arrangements or understandings between or
among any of (A) the shareholder giving the notice, (B) the beneficial owner on
whose behalf the notice is given, (C) each nominee, and (D) any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the shareholder giving the notice; (v) such other
information regarding each nominee proposed by the shareholder giving the notice
as would be required to be included in a proxy statement filed pursuant to the
proxy rules of the Securities and Exchange Commission had the nominee been
nominated, or intended to be nominated, by the Board of Directors; (vi) the
signed consent of each nominee to serve as a director of the Corporation if so
elected; and (vii) whether either such shareholder or beneficial owner intends
to deliver a proxy statement and form of proxy to holders of at least the
percentage of shares of the Corporation entitled to vote required to elect such
nominee or nominees (an affirmative statement of such intent, a "Nomination
Solicitation Notice"). The presiding officer of any annual meeting may, if the
facts warrant, determine that a nomination was not made in accordance with this
Regulation 13, and if he or she should so determine, he or she will so declare
to the meeting, and the defective nomination will be disregarded.
Notwithstanding the foregoing provisions of this Regulation 13, a shareholder
must also comply with all applicable requirements of the Securities Exchange Act
of 1934, as amended, and the rules and regulations thereunder with respect to
the matters set forth in this Regulation 13.
14. RESIGNATION. Any director may resign at any time by giving
written notice of his resignation to the Chairman or the Secretary. Any
resignation will be effective upon actual receipt by any such person or, if
later, as of the date and time specified in such written notice.
15. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held immediately after the annual meeting of the shareholders
and at such other time and place either within or without the State of Ohio as
may from time to time be determined by a majority of the Whole Board. Notice of
regular meetings of the Board of Directors need not be given.
16. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman or the President on one day's notice to
each director by whom such notice is not waived, given either personally or by
mail, telephone, telegram, telex, facsimile, or similar medium of communication,
and will be called by the Chairman or the President, in like manner and on like
notice, on the written request of not less than one-third of the Whole Board.
Special meetings of the Board of Directors may be held at such time and place
either within or without the State of Ohio as is determined by a majority of the
Whole Board or specified in the notice of any such meeting.
17. QUORUM AND VOTE. At all meetings of the Board of
Directors, a majority of the total number of directors will constitute a quorum
for the transaction of business. Except for the designation of committees as
hereinafter provided and except for actions required by this Code of Regulations
to be taken by a majority of the Whole Board, the act of a majority of the
directors present at any meeting at which a quorum is present will be the act of
the Board of Directors. If a quorum is not present at any meeting of the Board
of Directors, the directors present thereat may adjourn the meeting from time to
time to another time or place, without notice other than announcement at the
meeting, until a quorum is present.
18. PARTICIPATION IN MEETINGS BY COMMUNICATIONS EQUIPMENT.
Meetings of the Board of Directors or of any committee of the Board of Directors
may be held through any means of communications equipment if all persons
participating can hear each other, and such participation will constitute
presence in person at such meeting.
-5-
<PAGE> 7
19. COMMITTEES. The Board of Directors may from time to time
create an executive committee or any other committee or committees of directors
to act in the intervals between meetings of the Board of Directors and may
delegate to such committee or committees any of its authority other than that of
filling vacancies among the Board of Directors or in any committee of the Board
of Directors. No committee shall consist of less than three directors. The Board
of Directors may appoint one or more directors as alternate members of any such
committee to take the place of absent committee members at meetings of such
committee. Unless otherwise ordered by the Board of Directors, a majority of the
members of any committee appointed by the Board of Directors pursuant to this
Regulation 19 shall constitute a quorum at any meeting thereof, and the act of a
majority of the members present at a meeting at which a quorum is present shall
be the act of such committee. Action may be taken by any such committee without
a meeting by a writing or writings signed by all of its members. Any such
committee shall prescribe its own rules for calling and holding meetings and its
method of procedure, subject to any rules prescribed by the Board of Directors,
and will keep a written record of all action taken by it.
20. COMPENSATION. The Board of Directors may establish the
compensation and expense reimbursement policies for directors in exchange for
membership on the Board of Directors and on committees of the Board of
Directors, attendance at meetings of the Board of Directors or committees of the
Board of Directors, and for other services by directors to the Corporation or
any of its subsidiaries.
21. BYLAWS. The Board of Directors may adopt Bylaws for the
conduct of its meetings and those of any committees of the Board of Directors
that are not inconsistent with the Articles of Incorporation or this Code of
Regulations.
OFFICERS
--------
22. GENERALLY. The Corporation may have a Chairman, elected by
the directors from among their number, and shall have a President, a Secretary
and a Treasurer. The Corporation may also have one or more Vice Presidents and
such other officers and assistant officers as the Board of Directors may deem
appropriate. If the Board of Directors so desires, it may elect a Chief
Executive Officer to manage the affairs of the Corporation, subject to the
direction and control of the Board of Directors. All of the officers shall be
elected by the Board of Directors. Notwithstanding the foregoing, by specific
action, the Board of Directors may authorize the Chairman or the President to
appoint any person to any office other than Chairman, President, Secretary, or
Treasurer. Any number of offices may be held by the same person, and no two
offices must be held by the same person. Any of the offices may be left vacant
from time to time as the Board of Directors may determine. In case of the
absence or disability of any officer of the Corporation or for any other reason
deemed sufficient by a majority of the Board of Directors, the Board of
Directors may delegate the absent or disabled officer's powers or duties to any
other officer or to any director.
23. AUTHORITY AND DUTIES OF OFFICERS. The officers of the
Corporation shall have such authority and shall perform such duties as are
customarily incident to their respective offices, or as may be specified from
time to time by the Board of Directors regardless of whether such authority and
duties are customarily incident to such office.
24. COMPENSATION. The compensation of all officers and agents
of the Corporation who are also members of the Board of Directors of the
Corporation will be fixed by the Board of Directors or by a committee of the
Board of Directors. The Board of Directors may fix, or delegate the power to
fix, the compensation of the other officers and agents of the Corporation to the
Chief Executive Officer or any other officer of the Corporation.
25. SUCCESSION. The officers of the Corporation will hold
office until their successors are elected. Any officer may be removed at any
time by the affirmative vote of a majority of the Whole Board. Any vacancy
occurring in any office of the Corporation may be filled by the Board of
Directors or by the Chairman or President as provided in Regulation 22.
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<PAGE> 8
STOCK
-----
26. TRANSFER AND REGISTRATION OF CERTIFICATES. The Board of
Directors shall have authority to make such rules and regulations as they deem
expedient concerning the issuance, transfer and registration of certificates for
shares and the shares represented thereby and may appoint transfer agents and
registrars thereof.
27. SUBSTITUTED CERTIFICATES. Any person claiming a
certificate for shares to have been lost, stolen or destroyed shall make an
affidavit or affirmation of that fact, shall give the Corporation and its
registrar or registrars and its transfer agent or agents a bond of indemnity
satisfactory to the Board of Directors or a committee thereof or to the
President or a Vice President and the Secretary or the Treasurer, whereupon a
new certificate may be executed and delivered of the same tenor and for the same
number of shares as the one alleged to have been lost, stolen or destroyed.
28. VOTING OF SHARES HELD BY THE CORPORATION. Unless otherwise
ordered by the Board of Directors, the President in person or by proxy or
proxies appointed by him shall have full power and authority on behalf of the
Corporation to vote, act and consent with respect to any shares issued by other
corporations which the Corporation may own.
29. RECORD DATES AND OWNERS. (a) In order that the Corporation
may determine the shareholders entitled to notice of or to vote at any meeting
of shareholders or any adjournment thereof, the Board of Directors may fix a
record date, which will not be less than 7 nor more than 60 calendar days before
the date of such meeting. If no record date is fixed by the Board of Directors,
the record date for determining shareholders entitled to notice of or to vote at
a meeting of shareholders will be the date next preceding the day on which
notice is given, or, if notice is waived, at the date next preceding the day on
which the meeting is held.
(b) The Corporation will be entitled to treat the person in
whose name shares are registered on the books of the Corporation as the absolute
owner thereof, and will not be bound to recognize any equitable or other claim
to, or interest in, such share on the part of any other person, whether or not
the Corporation has knowledge or notice thereof, except as expressly provided by
applicable law.
INDEMNIFICATION AND INSURANCE
-----------------------------
30. INDEMNIFICATION. The Corporation shall indemnify, to the
full extent then permitted by law, any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was a member of the Board of Directors or an
officer, employee, member, manager or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, trustee, officer,
employee or agent of another corporation, limited liability company, or a
partnership, joint venture, trust or other enterprise. The Corporation shall
pay, to the full extent then required by law, expenses, including attorney's
fees, incurred by a member of the Board of Directors in defending any such
action, suit or proceeding as they are incurred, in advance of the final
disposition thereof, and may pay, in the same manner and to the full extent then
permitted by law, such expenses incurred by any other person. The
indemnification and payment of expenses provided hereby shall not be exclusive
of, and shall be in addition to, any other rights granted to those seeking
indemnification under any law, the Articles of Incorporation, any agreement,
vote of shareholders or disinterested members of the Board of Directors, or
otherwise, both as to action in official capacities and as to action in another
capacity while he or she is a member of the Board of Directors, or an officer,
employee or agent of the Corporation, and shall continue as to a person who has
ceased to be a member of the Board of Directors, trustee, officer, employee or
agent and shall inure to the benefit of the heirs, executors, and administrators
of such a person.
31. INSURANCE. The Corporation may, to the full extent then
permitted by law and authorized by the Board of Directors, purchase and maintain
insurance or furnish similar protection, including but not limited to trust
funds, letters of credit or self-insurance, on behalf of or for any persons
described in Regulation 30 against any liability asserted against and incurred
by any such person in any such capacity,
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<PAGE> 9
or arising out of his status as such, whether or not the Corporation would have
the power to indemnify such person against such liability. Insurance may be
purchased from or maintained with a person in which the Corporation has a
financial interest.
32. AGREEMENTS. The Corporation, upon approval by the Board of
Directors, may enter into agreements with any persons whom the Corporation may
indemnify under this Code of Regulations or under law and undertake thereby to
indemnify such persons and to pay the expenses incurred by them in defending any
action, suit or proceeding against them, whether or not the Corporation would
have the power under law or this Code of Regulations to indemnify any such
person.
GENERAL
-------
33. FISCAL YEAR. The fiscal year of the Corporation will end
on the thirtieth day of November in each calendar year or such other date as may
be fixed from time to time by the Board of Directors.
34. SEAL. The Board of Directors may adopt a corporate seal
and use the same by causing it or a facsimile thereof to be impressed or affixed
or reproduced or otherwise.
35. AMENDMENTS. Except as otherwise provided by law or by the
Articles of Incorporation or this Code of Regulations, these Regulations or any
of them may be amended in any respect or repealed at any time at any meeting of
shareholders, provided that any amendment or supplement proposed to be acted
upon at any such meeting has been described or referred to in the notice of such
meeting. Notwithstanding the foregoing sentence or anything to the contrary
contained in the Articles of Incorporation or this Code of Regulations,
Regulations 1, 3(a), 8, 10, 11, 12, 13, 30 and 35 may not be amended or repealed
by the shareholders, and no provision inconsistent therewith may be adopted by
the shareholders, without the affirmative vote of the holders of at least 80% of
the voting power of the Corporation, voting together as a single class.
Notwithstanding the foregoing provisions of this Regulation 35, no amendment to
Regulations 30, 31 or 32 will be effective to eliminate or diminish the rights
of persons specified in those Regulations existing at the time immediately
preceding such amendment.
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<PAGE> 10
[NEWCO]
CODE OF REGULATIONS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SHAREHOLDER MEETINGS....................................................................... 1
1. Time and Place of Meetings............................. 1
2. Annual Meeting......................................... 1
3. Special Meetings....................................... 1
4. Notice of Meetings..................................... 1
5. Inspectors............................................. 1
6. Quorum................................................. 1
7. Voting................................................. 2
8. Order of Business...................................... 2
DIRECTORS.................................................................................. 3
9. Function............................................... 3
10. Number, Election, and Terms of Directors............... 3
11. Newly Created Directorships and Vacancies.............. 4
12. Removal................................................ 4
13. Nominations of Directors; Election..................... 4
14. Resignation............................................ 5
15. Regular Meetings....................................... 5
16. Special Meetings....................................... 5
17. Quorum and Vote........................................ 5
18. Participation in Meetings by Communications Equipment.. 5
19. Committees............................................. 6
20. Compensation........................................... 6
21. Bylaws................................................. 6
OFFICERS................................................................................... 6
22. Generally.............................................. 6
23. Authority and Duties of Officers....................... 6
24. Compensation........................................... 6
25. Succession............................................. 6
STOCK...................................................................................... 7
26. Transfer and Registration of Certificates.............. 7
27. Substituted Certificates............................... 7
28. Voting Of Shares Held by the Corporation............... 7
29. Record Dates and Owners................................ 7
INDEMNIFICATION AND INSURANCE.............................................................. 7
30. Indemnification........................................ 7
31. Insurance.............................................. 7
32. Agreements............................................. 8
GENERAL.................................................................................... 8
33. Fiscal Year............................................ 8
34. Seal................................................... 8
35. Amendments............................................. 8
</TABLE>
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<PAGE> 1
Exhibit 10.1
[GENCORP LOGO]
175 Ghent Road
Fairlawn, Ohio 44333-3300
A. William Reynolds Tel: (216) 869-4400
Chairman and
Chief Executive Officer
October 15, 1993
Mr. John B. Yasinsky
503 West Manor Drive
Pittsburgh, PA 15238
Dear John:
I am delighted that you will be joining GenCorp. We are excited about
you and Marlene becoming part of the GenCorp family. This will confirm our
understanding concerning, and further define, the terms and conditions of your
employment with GenCorp.
1. You will initially be employed as the President and Chief
Operating Officer ("President"). In this capacity, you will
devote your full time and efforts to the performance of those
duties customarily and usually performed by the President,
subject at all times to the direction of the Chairman and
Chief Executive Officer ("Chairman") and the Board of
Directors ("Directors"). At their next meeting, the Directors
will elect you as a corporate officer and as a Director.
2. We anticipate that the Directors will elect you Chairman and
Chief Executive Officer ("Chairman") of GenCorp at or before
the July 1995 meeting of Directors. If the Directors remove
you as President prior to such meeting or fail to elect you
Chairman at or before such meeting, or if, after electing you
as Chairman, remove you from such position prior to your
attaining age 65, you may elect to terminate your employment
and receive the termination payment specified in paragraph 3
and the supplemental pension specified in paragraph 8. The
preceding sentence notwithstanding, you shall not be entitled
to either the termination payment specified in paragraph 3 or
the supplemental pension specified in paragraph 8 if the
Directors decide to remove you as either President or Chairman
or not to elect you Chairman for or due to cause. As used
herein, "cause" means any willful (i) failure to follow any
instruction or
<PAGE> 2
John B. Yasinsky
October 15, 1993
Page 2
policy of GenCorp, the Directors, or the Chairman, (ii)
commission of any felony, (iii) falsification of any company
document or (iv) act committed to provoke dismissal.
3. The term of your employment will be indefinite in duration
and, therefore, subject to termination at will by notice from
you or GenCorp. However, if GenCorp elects to terminate your
employment before you reach age 65 for any reason except cause
or you elect to terminate your employment due to any decision
of the Directors which is specified in paragraph 2 and which
is not based on or due to cause, GenCorp will pay you an
amount equal to two times the sum of (i) your annual base
salary at the time of such termination and (ii) the year-end
bonus which GenCorp paid to you in respect of the last fiscal
year preceding such termination; provided that you execute and
deliver to GenCorp a release of all claims and/or causes of
action that arise during or in connection with the termination
of your employment, except claims (i) to the termination
payment specified in this paragraph 3, the supplemental
pension specified in paragraph 8, and any other payment herein
specified, and (ii) under any stock option awarded to you or
any employee compensation and/or benefit plan of GenCorp.
4. GenCorp will pay you as President annual compensation
comprising a base salary and a year-end bonus, which amounts
are subject to adjustment on an annual basis. Your initial
annual base salary as President will be $460,000 per year and
will be payable in twenty-four semi-monthly installments in
accordance with GenCorp's normal pay practices. Additionally,
your initial year-end bonus for fiscal year 1994 will be not
less than $200,000, which will be payable by February 1, 1995
in accordance with GenCorp's normal pay practices.
5. After commencement of your employment with GenCorp, GenCorp
will pay you the following amounts:
(a) a one-time payment of $300,000 to compensate you for
loss of any bonus payment by Westinghouse Electric,
Inc. ("Westinghouse"). Such payment will be reduced
by the amount of any bonus payment which you receive
from Westinghouse for services performed in 1993.
Such payment, if any, will be made prior to March 1,
1994.
(b) A one-time payment of $500,000 to compensate you for
any other payments, benefits, or entitlements which
you may lose or forfeit under any employee
compensation or benefit plan or program of
Westinghouse, including but not limited to any bonus,
long-term incentive compensation, pension, stock
option or other plan of
<PAGE> 3
John B. Yasinsky
October 15, 1993
Page 3
Westinghouse. Such payment will be made promptly
after commencement of your employment with GenCorp.
The payments specified in this paragraph 5 are in lieu of any
and all rights, benefits, and entitlements which you may lose
or forfeit due to the termination of your employment with
Westinghouse and GenCorp will have no obligation to make any
other payment to you in respect thereof.
6. Concurrent with commencement of your employment with GenCorp,
the Directors will grant you an award of 100,000 shares under
GenCorp's 1993 Stock Option Plan. Such award will be effective
as of the first day of your employment and the share price
will be based on the market price of GenCorp's shares on the
date of the award as provided in the 1993 Stock Option Plan.
7. As President, you will be eligible to participate in GenCorp's
Long Term Incentive Program (a copy of which is enclosed
herewith) and you will be deemed to be a participant therein
during the entire 1993-1995 performance period. As you know,
each performance period comprises three consecutive years. If
GenCorp achieves specified performance targets, you would be
entitled to receive an incentive payment equal to
approximately 30% of your average annual compensation during
the performance period. However, such payments cannot exceed
60% of your average annual compensation during any such
period.
8. You will be entitled to participate in GenCorp's Pension Plan
for Salaried Employees ("Pension Plan") and, in addition, you
will be eligible to receive a supplemental pension as set
forth in this paragraph.
(a) For purposes of calculating your supplemental
pension, you shall be credited with 30 years of
service upon commencement of your employment and you
will receive one additional year of credit for each
year of service that you complete following
commencement of your employment with GenCorp.
(b) Your supplemental pension will be an annual amount
which is determined as a single-life annuity
commencing at age 65 in the manner provided in the
Pension Plan and is equal to the number of your total
years of credited service multiplied by 1.47% of your
average annual compensation, reduced by the sum of
any and all pension payments (determined for this
purpose as the actuarial equivalent single-life
annuity) (i) which GenCorp makes to you or to which
you are entitled under any other pension plan of
GenCorp, whether qualified or non-qualified
(including GenCorp's Benefits Restoration Plan), and
(ii) which Westinghouse makes to you or to
<PAGE> 4
John B. Yasinsky
October 15, 1993
Page 4
which you would be entitled under any pension plan of
Westinghouse, whether qualified or non-qualified,
assuming retirement at the same time as your
retirement from GenCorp. For this purpose, "average
annual compensation" means the sum of (x) one-fifth
of the aggregate base salary paid to you during the
60 months (consecutive or non-consecutive) in the 120
month period prior to your retirement (including
employment at Westinghouse), during which your base
salary was the highest, plus (y) the average of your
five highest year-end bonus payments in the 10-year
period prior to your retirement (including employment
at Westinghouse).
(c) You shall be entitled to retire at any time after
your sixty-second birthday without any reduction in
the amount of your supplemental pension due to
retirement prior to age 65. If you retire prior to
age 62, the amount of your supplemental pension shall
be reduced by 0.4 percent for each month by which
your pension commencement date precedes your
sixty-second birthday and in a manner consistent with
the Pension Plan.
(d) Your supplemental pension will be payable monthly at
the same time and in the same manner that pensions
are paid under the Pension Plan. Each monthly payment
shall be 1/12 of the annual amount determined
pursuant to subparagraphs (b) and (c). Additionally,
you may elect payment of the supplemental pension in
the form of (i) a single-sum amount or (ii) a 100% or
50% joint and survivor annuity, with your wife as the
joint annuitant. Either of such optional forms of
payment shall be the actuarial equivalent of the
monthly pension amount, calculated in accordance with
the terms and procedures applicable under the Pension
Plan.
(e) If you die before electing a joint and survivor
annuity, whether or not you have attained age 62,
GenCorp will pay the supplemental pension to your
surviving wife for her life, calculated as if you had
attained age 62, retired, and elected a joint and
100% survivor annuity on the last day of the month
prior to your death.
(f) If you become totally disabled and unable to perform
your duties as President or Chairman, GenCorp shall
pay you a monthly disability benefit equal to 60% of
your base monthly salary until you reach age 62, at
which time you shall be eligible to retire and
receive the supplemental pension under the terms of
this paragraph. However, such disability benefit
shall be reduced by the amount of any disability
benefit payments which you are entitled to receive
under federal laws until such time as you retire.
<PAGE> 5
John B. Yasinsky
October 15, 1993
Page 5
9. You will be eligible to participate in GenCorp's Benefit
Restoration Plan which is designed to restore benefits under
the Pension Plan and the GenCorp Savings Plan which a
participant otherwise would lose as a result of limitations
imposed by the Internal Revenue Code.
10. GenCorp will pay or reimburse you for relocation expenses
which you incur pursuant to GenCorp's Relocation Program,
including assistance on the sale of your residence,
transportation of household goods, purchase of a residence in
the greater Akron/Cleveland area. A copy of this Program is
being sent to you under separate cover.
11. You will be entitled to four weeks paid vacation during each
year of your employment. Any unused vacation may not be
carried forward nor will you be entitled to receive pay in
lieu of any unused vacation. In 1993, the period December 27
through December 31 will be company-paid holidays. If
necessary to meet your previous family commitment, additional
vacation days will be available to you during this holiday
period.
12. During your employment, GenCorp will provide for your business
and personal use a U.S. manufactured automobile which you may
select. Personal use will be calculated in accordance with
GenCorp's established practice and treated as income to you.
13. GenCorp has entered into an agreement with AYCO to provide
individual financial counseling for its corporate officers.
This arrangement will be available to you on a cost-sharing
basis. If you elect to participate, your cost will be 10% of
the annual fees charged by AYCO. The first year total charge
is estimated to be $10,080. AYCO is currently charging $5,040
for subsequent years. You will have an imputed income
liability for the company-paid 90%. You may be able to offset
this expense if you are able to itemize deductions for these
financial counseling services. Consult your personal tax
advisor for information regarding deductibility.
14. Building and maintaining business relationships with community
leaders, customers, and suppliers is an important function
which the President is expected to perform. GenCorp will pay
or reimburse you for membership fees and dues at a local
country club for your business and personal use. In addition,
GenCorp will reimburse you for the one-time cost of purchasing
from Westinghouse the surety bond for the Pittsburgh Field
Club membership. All such payments and reimbursements will be
treated as personal income to you in accordance with and as
required by law.
15. GenCorp will provide you the opportunity to receive a physical
examination at the Greenbrier Clinic or any other qualified
medical center that you may select. The frequency and extent
of any such examination
<PAGE> 6
John B. Yasinsky
October 15, 1993
Page 6
will be pursuant and subject to the provisions of GenCorp's
Executive Physical Directive.
16. You will be eligible to participate in the GenCorp Savings
Plan which provides matching contributions equal to 75% of the
first six percent of a participant's contributions from base
salary and year-end bonus compensation. The Savings Plan
allows supplemental contributions from eligible compensation
on a pre-tax and after-tax basis. The contribution rate may be
limited by certain restrictions imposed by the Internal
Revenue Code. All matching contributions vest immediately.
17. In addition to the above-mentioned employee benefit plans, you
will be eligible to participate in the other employee benefit
plans which GenCorp has established for its salaried employees
(in each case, subject to and in accordance with the
provisions of the applicable plan), including the following:
- Comprehensive Health Care
- Dental Care
- Life Insurance
- Supplemental Group Universal Life Insurance
- Long Term Disability Insurance
Nothing herein will be deemed to preclude GenCorp from
changing or terminating any employee benefit plan, program, or
practice applicable to you and other employees or require
GenCorp to employ you for any specific period of time.
Participation in some of these plans is voluntary and requires
employee contributions.
18. The provisions herein contained are in lieu of a severance
agreement of the type which GenCorp heretofore has entered
into with its executive officers to provide certain severance
payments in the event of any "change in control" of GenCorp
(as defined in such severance agreement). However, if any such
change in control occurs after commencement of your
employment, you may exercise any right of termination provided
in paragraph 2, if any. Additionally, if GenCorp breaches any
material obligation hereunder after any such change in
control, you may terminate this agreement and receive the
termination payment specified in paragraph 2 and the
supplemental pension specified in paragraph 8.
If the foregoing meets with your understanding and approval,
please acknowledge by executing and returning to me the enclosed copy. Following
that, I will submit this agreement to the Directors as soon as possible. Upon
their approval, the agreement will then become effective.
<PAGE> 7
John B. Yasinsky
October 15, 1993
Page 7
Yours truly,
GENCORP INC.
By /s/ A. William Reynolds
------------------------
A. William Reynolds
Enclosure
Approved and accepted this
18th day of October, 1993
/s/ John B. Yasinsky
- ---------------------------
John B. Yasinsky
copy: H. A. Shaw, Chairman of the Nominating Committee
<PAGE> 8
[GENCORP LOGO]
175 Ghent Road
Fairlawn, Ohio 44333-3300
Samuel W. Harmon Tel: (330) 869-4320
Vice President Fax: (330) 869-4211
Human Resources
November 8, 1995
Mr. John B. Yasinsky
1984 Stockbridge Road
Akron, OH 44313
Re: Employment Agreement Dated October 15, 1993
Dear John:
This letter confirms the changes in your Employment Agreement dated
October 15, 1993 that we have discussed.
1. The directors have authorized GenCorp to enter into a Severance
Agreement with you in the form attached hereto as Exhibit A. The Severance
Agreement will be effective as of November 8, 1995 after you sign and remit to
GenCorp the duplicate original copy thereof.
2. Accordingly, the first sentence of paragraph 18 of your Employment
Agreement hereby is deleted. However, as we have agreed, you will not be
entitled to payment of both the full Severance Amount under the Severance
Agreement and the full amount of termination pay under your Employment
Agreement in the event your employment is terminated after a change in control
(as defined in the Severance Agreement). Rather, in such event, the Severance
Amount payable under Section 3.1 of the Severance Agreement will be reduced by
the total amount of the termination pay payable to you hereunder.
3. Paragraph 12 of your Employment Agreement hereby is deleted
retroactively to November 30, 1994. Hereafter, GenCorp will pay to you during
the period of your employment the sum of $16,000 per year in lieu of providing
an automobile for your business and personal use. Such amount will be payable
in December of each year during your employment.
4. This letter agreement is incorporated by reference and made a part of
your Employment Agreement. In the event of any conflict between the provisions
of this letter agreement and your Employment Agreement, this letter agreement
will be deemed to have superseded your Employment Agreement and exclusively
will govern the matter in question.
I trust that you will find the foregoing satisfactory. If so, indicate
your agreement by signing and remitting a duplicate original copy of this
letter.
Sincerely,
<PAGE> 9
John B. Yasinsky
October 15, 1993
Page 9
GENCORP INC.
By: /s/ Samuel W. Harmon
---------------------------------
Samuel W. Harmon
Accepted and Agreed
this 8th day of November, 1995
/s/ John B. Yasinsky
- ----------------------------------
John B. Yasinsky
<PAGE> 10
AMENDMENT TO JOHN YASINSKY'S EMPLOYMENT AGREEMENT
ADOPTED BY GENCORP'S BOARD OF DIRECTORS ON MAY 11, 1999
RESOLVED that Mr. J.B. Yasinsky's October 15, 1993 Employment Agreement
("Employment Agreement") be, and it hereby is, amended to provide that the
normal form of payment of the supplemental pension thereunder will be a 50% or
100% joint and survivor annuity, unless Mr. Yasinsky changes the payment form
to a lump-sum payment by means of (1) an election which is made at least one
year in advance of termination of employment; (ii) an election which is made
both (a) at least six months in advance of termination of employment, and (b)
in the calendar year prior to termination of employment; or (iii) a request for
a lump-sum payment which is approved by the Administrative Committee, in its
full discretion; and further
RESOLVED that the Employment Agreement be, and it hereby is, amended to
provide that the amount of any lump-sum payment of Mr. Yasinsky's supplemental
pension thereunder be calculated using the then-current interest rate for
30-year Treasury securities, as previously approved by this Board for the
calculation of lump-sum payments under all benefit plans and deferred
compensation arrangements.
<PAGE> 1
Exhibit 10.2
[GENCORP LOGO]
175 Ghent Road
Fairlawn, Ohio 44333-3300
John B. Yasinsky Tel: (216) 869-4300
Chairman and Fax: (216) 869-4410
Chief Execution Officer
May 10, 1996-Revised
Nathaniel J. Mass
768 Main Street
Hingham, MA 02043-3630
Dear Nat:
I am pleased on behalf of GenCorp Inc. to extend to you an offer of employment
on and subject to the terms and conditions set forth herein.
1. You will be employed as the Sr. V.P., Strategic Growth. In this capacity,
you will devote your full time and efforts to the performance of those
duties customarily performed in this capacity, subject to the direction of
the Chairman and Chief Executive Officer ("Chairman") and the Board of
Directors ("Directors") of GenCorp and in compliance with GenCorp's
published policies and directives. At the next meeting, the Directors will
elect you as a corporate officer.
2. You will commence employment with GenCorp on or before June 7, 1996.
3. Your compensation will comprise a base salary and an incentive bonus for
each fiscal year (i.e., December 1 through November 30) as follows:
(a) Your initial base salary for the first full year of employment will be
$300,000 and thereafter, will be subject to review and adjustment at the
end of GenCorp's 1996 fiscal year and each subsequent fiscal year in
accordance with GenCorp's established practice. Effective February 1, 1997,
your base salary will be increased to at least $325,000. Your base salary
will be payable in twenty-four semi-monthly installments in accordance with
GenCorp's regular pay practices.
(b) You will receive a hiring bonus of $150,000 that will be paid upon
commencement of your employment with GenCorp. This bonus is in lieu of the
expected bonus payment from your current employer due in June 1996.
(c) You will be eligible to participate in GenCorp's Executive Incentive
Compensation Program, beginning with GenCorp's 1996 fiscal year. Based on
<PAGE> 2
May 10, 1996-Revised
Page 2
GenCorp's achievement of specified objectives and GenCorp's evaluation of
your personal performance, you will have the opportunity to earn an
incentive bonus in an amount ranging up to 100% of your base salary and
payable in cash and shares of GenCorp's stock. Bonuses are payable in
January or February following the end of GenCorp's fiscal year and in
accordance with GenCorp's regular pay practices and discretion of the CEO.
Your 1996 bonus will be prorated with a minimum of $75,000.
(d) All bonus payments under the Executive Incentive Compensation Program,
require that you be employed by GenCorp on the date of payment.
4. At the next regularly scheduled meeting of the Organization and
Compensation Committee of the Board of Directors we will recommend an award
of 75,000 shares of GenCorp's common stock pursuant to GenCorp's 1993 Stock
Option Plan. The share price will be based on the market price of GenCorp's
shares on your commencement date.
5. You will be eligible to participate in GenCorp's Long Term Incentive
Program and you will be deemed to be a participant therein during the
entire 1996-1998 performance period. Performance targets will be set ? at
which time a copy of the program will be given to our participants. If
GenCorp achieves specified performance goals, you will be entitled to
receive an incentive award of shares of GenCorp's stock having a value
which equals between 10% and 40% of your average annual compensation during
the performance period.
6. You will be eligible to participate in the GenCorp Retirement Savings Plan.
GenCorp currently matches up to 6% (first 3% at 100%, next 3% at 50%) of
the participant's contributions from base salary and year-end bonus
compensation. The Retirement Savings Plan also allows participants to make
supplemental contributions from eligible compensation on a pre-tax and
after-tax basis. Your contribution rate may be limited by certain
restrictions imposed by the Internal Revenue Code. GenCorp's matching
contributions vest immediately.
7. You will be entitled to participate in GenCorp's Pension Plan for Salaried
Employees ("Pension Plan").
8. You will be eligible to participate in GenCorp's Benefit Restoration Plan.
The Benefit Restoration Plan's purpose is to restore retirement plan
benefits that you would otherwise lose because of certain Internal Revenue
Code limitations on participation in such plans. One of those restrictions
is a cap on the amount of an individual employee's compensation upon which
contributions to the GenCorp Retirement Savings Plan may be based. The IRS
compensation cap for the
<PAGE> 3
May 10, 1996-Revised
Page 3
current plan year (which began January 1, 1996) is $150,000. The attached
illustration (Attachment 1) assumes 5% salary growth, a bonus of 58% of
base pay and 8% return in the account. In addition, you can contribute more
than the 6% assumed for the GenCorp Retirement Savings Plan (Attachment 2).
9. GenCorp will pay or reimburse you for reasonable expenses which you incur
in connection with your transfer and relocation of your home to the Akron
area pursuant to GenCorp's Relocation Directive, including assistance in
the sale of your current residence, transportation of household goods, and
purchase of a residence in the Akron area. A copy of this program is
enclosed. You will be treated under the transferred employee provision of
the plan. GenCorp will provide you with temporary housing, including
utilities, for a period of approximately one year and a reasonable number
of trips for you or your family during this period.
10. You will be entitled to four weeks of vacation with pay during each year of
your employment. You may not carry forward to a subsequent year any unused
vacation nor will you be entitled to receive pay in lieu of any unused
vacation. Additionally, you will enjoy all paid holidays which GenCorp
designates for its salaried employees in the Fairlawn area. GenCorp's
practice in recent years has been to close its offices during the period
between Christmas and New Year's Day.
11. In addition to the above-mentioned employee benefit plans, you will be
eligible to participate in the other employee benefit plans which GenCorp
has established for its salaried employees (in each case, subject to and in
accordance with the provisions of the applicable plan), including the
following:
- Comprehensive Health Care
- Dental Care
- Life Insurance
- Supplemental Group Universal Life Insurance
- Long Term Disability Insurance
Nothing herein will be deemed to preclude GenCorp from changing or
terminating any employee benefit plan, program, or practice applicable to
you and other employees or require GenCorp to employ you for any specific
period of time. Participation in some of these plans is voluntary and
requires employee contributions.
<PAGE> 4
May 10, 1996-Revised
Page 4
You should enroll for medical coverage under COBRA with your current
employer upon resignation. GenCorp will reimburse you for the COBRA
charges. Upon entry into our regular medical plan, GenCorp will reimburse
you for mental health related expenses at 100% up to a maximum life time
reimbursement of $70,000 less amounts previously covered by McKinsey.
12. The term of your employment will be indefinite in duration and, therefore,
subject to termination at will by notice from you or GenCorp. In the event
that (i) your employment is terminated by GenCorp for reasons other than
cause or due to disability or mandatory retirement, and (ii) you execute an
Enhanced Employment Separation Agreement (as defined under the Involuntary
Separation Plan), you will be eligible to receive separation pay in the
form of:
(a) continuing base salary at the rate in effect on the date of
termination, payable at the times regular salary payments are payable,
subject to normal tax withholding; plus
(b) continuing bonus payments, each in the annualized amount of your last
bonus payment preceding your date of termination (or bonus guarantee, if an
actual bonus has not yet be paid out), payable at the time bonuses are
normally payable, subject to normal tax withholding;
for a period not to exceed the shortest of (I) two (2) years from your date
of termination, (ii) until you obtain "Comparable Employment (as determined
under the Involuntary Separation Plan)."
The Company will also enter into a severance agreement with you containing
the standard terms and conditions utilized for the Company's executive
officers and containing an additional provision which requires that any
amount which may become payable under that severance agreement be offset by
any amount which may be paid under this employment agreement as a results
of the termination of your employment due to a change in control.
It is the policy of GenCorp that all offers of employment are contingent upon
your submitting to a pre-employment medical examination and satisfying the
job-related physical requirements. We offer a drug-free work environment. A
pre-hire alcohol and drug screen is required and will be included in your
pre-employment medical examination.
<PAGE> 5
May 10, 1996-Revised
Page 5
If the foregoing is satisfactory to you, please indicate your agreement by
signing and remitting a duplicate copy of this letter.
Yours truly,
GENCORP INC.
By /s/ John B. Yasinsky
---------------------------
John B. Yasinsky
Agreed and accepted this
13th day of May, 1996
/s/ Nathaniel J. Mass
- ----------------------------
Nathaniel J. Mass
Attachments
<PAGE> 1
Exhibit 10.3
[GENCORP LOGO]
175 Ghent Road
Fairlawn, Ohio 44333-3300
John B. Yasinsky Tel: (216) 869-4300
Chairman and Fax: (216) 869-4410
Chief Execution Officer
July 16, 1996-Revised
Mr. Kevin M. McMullen
2257 South Overlook Road
Cleveland Heights, Ohio 44106
Dear Kevin:
I am very impressed with your capabilities and demonstrated performance at G.E.
Your enthusiasm, business acumen, and fresh insights would be a welcome addition
to our executive team. On behalf of GenCorp Inc., I am extending to you an offer
of employment as follows:
1. You will be employed as the President of Decorative Products. In this
capacity, you will devote your full time and efforts to the performance
of those duties customarily performed in this capacity, subject to the
direction of the Chairman and Chief Executive Officer ("Chairman") and
the Board of Directors ("Directors") of GenCorp and in compliance with
GenCorp's published policies and directives. At the next meeting, the
Directors will elect you as a corporate officer.
2. You will commence employment with GenCorp on or before August 5, 1996.
3. Your compensation will comprise a base salary and an incentive bonus
for each fiscal year (i.e., December 1 through November 30) as follows:
(a) Your initial base salary will be $250,000 and thereafter, will be
subject to review and pro-rata adjustment at the end of GenCorp's 1996
fiscal year and each subsequent fiscal year in accordance with
GenCorp's established practice. Your base salary will be payable in
twenty-four semi-monthly installments in accordance with GenCorp's
regular pay practices.
(b) You will receive a hiring bonus of $95,000 that will be paid upon
commencement of your employment with GenCorp.
(c) Your 1996 incentive compensation bonus for 1996 will be $125,000.
(d) You will be eligible to participate in GenCorp's Executive
Incentive Compensation Program, beginning with GenCorp's 1997 fiscal
year. Based on GenCorp's achievement of specified objectives and
GenCorp's evaluation of your
<PAGE> 2
July 16, 1996-Revised
Page 2
personal performance, you will have the opportunity to earn an
incentive bonus in an amount ranging up to 100% of your base salary and
payable in cash and shares of GenCorp's stock. Bonuses are payable in
January or February following the end of GenCorp's fiscal year and in
accordance with GenCorp's regular pay practices and discretion of the
CEO.
(e) All bonus payments under the Executive Incentive Compensation
Program, require that you be employed by GenCorp on the date of
payment.
4. At the next regularly scheduled meeting of the Organization and
Compensation Committee of the Board of Directors we will recommend an
award of 75,000 shares of GenCorp's common stock pursuant to GenCorp's
1993 Stock Option Plan. The share price will be based on the market
price of GenCorp's shares on that date.
5. You will be eligible to participate in GenCorp's Long Term Incentive
Program and you will be deemed to be a participant therein during the
entire 1996-1998 performance period. Performance targets will be set in
July, at which time a copy of the program will be given to our
participants. If GenCorp achieves specified performance goals, you will
be entitled to receive an incentive award of shares of GenCorp's stock
having a value which equals between 10% and 40% of your average annual
compensation during the performance period.
6. You will be eligible to participate in the GenCorp Retirement Savings
Plan. GenCorp currently matches up to 6% (first 3% at 100%, next 3% at
50%) of the participant's contributions from base salary and year-end
bonus compensation. The Retirement Savings Plan also allows
participants to make supplemental contributions from eligible
compensation on a pre-tax and after-tax basis. Your contribution rate
may be limited by certain restrictions imposed by the Internal Revenue
Code. GenCorp's matching contributions vest immediately.
7. You will be entitled to participate in GenCorp's Pension Plan for
Salaried Employees ("Pension Plan").
8. You will be eligible to participate in GenCorp's Benefit Restoration
Plan. The Benefit Restoration Plan's purpose is to restore retirement
plan benefits that you would otherwise lose because of certain Internal
Revenue Code limitations on participation in such plans. One of those
restrictions is a cap on the amount of an individual employee's
compensation upon which contributions to the GenCorp Retirement Savings
Plan may be based. The IRS compensation cap for the current plan year
(which began January 1, 1996) is $150,000. The attached illustration
assumes 5% salary growth, a bonus of 61% of base pay and 8% return in
the account. In addition, you can contribute more than the 6% assumed
for the GenCorp Retirement Savings Plan.
<PAGE> 3
July 16, 1996-Revised
Page 3
9. You will be entitled to four weeks of vacation with pay during each
year of your employment. You may not carry forward to a subsequent year
any unused vacation nor will you be entitled to receive pay in lieu of
any unused vacation. Additionally, you will enjoy all paid holidays
which GenCorp designates for its salaried employees in the Fairlawn
area. GenCorp's practice in recent years has been to close its offices
during the period between Christmas and New Year's Day.
10. In addition to the above-mentioned employee benefit plans, you will be
eligible to participate in the other employee benefit plans which
GenCorp has established for its salaried employees (in each case,
subject to and in accordance with the provisions of the applicable
plan), including the following:
- Comprehensive Health Care
- Dental Care
- Life Insurance
- Supplemental Group Universal Life Insurance
- Long Term Disability Insurance
Nothing herein will be deemed to preclude GenCorp from changing or
terminating any employee benefit plan, program, or practice applicable
to you and other employees or require GenCorp to employ you for any
specific period of time. Participation in some of these plans is
voluntary and requires employee contributions.
11. The term of your employment will be indefinite in duration and,
therefore, subject to termination at will by notice from you or
GenCorp. In the event that (i) your employment is terminated by GenCorp
for reasons other than cause or due to disability or mandatory
retirement, and (ii) you execute an Enhanced Employment Separation
Agreement (as defined under the Involuntary Separation Plan), you will
be eligible to receive separation pay in the form of continuing base
salary at the rate in effect on the date of termination, payable at the
times regular salary payments are payable, subject to normal tax
withholding; for a period not to exceed the shortest of (I) 18 months
from your date of termination, (ii) until you obtain "Comparable
Employment (as determined under the Involuntary Separation Plan)."
The Company will also enter into a severance agreement with you
containing the standard terms and conditions utilized for the Company's
executive officers and containing an additional provision which
requires that any amount which may become payable under that severance
agreement be offset by any amount which may be paid under this
employment agreement as a results of the termination of your employment
due to a change in control.
<PAGE> 4
July 16, 1996-Revised
Page 4
It is the policy of GenCorp that all offers of employment are contingent upon
your submitting to a pre-employment medical examination and satisfying the
job-related physical requirements. We offer a drug-free work environment. A
pre-hire alcohol and drug screen is required and will be included in your
pre-employment medical examination.
If the foregoing is satisfactory to you, please indicate your agreement by
signing and remitting a duplicate copy of this letter.
Yours truly,
GENCORP INC.
By /s/ John B. Yasinsky
-----------------------------
John B. Yasinsky
Agreed and accepted this
26th day of September, 1996
- ----
/s/ Kevin McMullen
- -----------------------------
Kevin M. McMullen
<PAGE> 1
Exhibit 10.4
SEVERANCE AGREEMENT
-------------------
THIS AMENDED AND RESTATED SEVERANCE AGREEMENT (this
"Agreement"), dated as of ______ __, 1999, is made and entered by and between
Omnova Solutions Inc., an Ohio corporation (the "Company"), and John B. Yasinsky
(the "Executive").
WITNESSETH:
-----------
WHEREAS, the Executive is a senior executive or a key employee
of the Company or one or more of its Subsidiaries and has made and is expected
to continue to make major contributions to the short- and long-term
profitability, growth and financial strength of the Company;
WHEREAS, the Company recognizes that, as is the case for most
publicly held companies, the possibility of a Change in Control (as defined
below) exists;
WHEREAS, the Company desires to assure itself of both present
and future continuity of management and desires to establish certain minimum
severance benefits for certain of its senior executives and key employees,
including the Executive, applicable in the event of a Change in Control;
WHEREAS, the Company wishes to ensure that its senior
executives and key employees are not practically disabled from discharging their
duties in respect of a proposed or actual transaction involving a Change in
Control; and
WHEREAS, the Company desires to provide additional inducement
for the Executive to continue to remain in the ongoing employ of the Company.
NOW, THEREFORE, the Company and the Executive agree as
follows:
1. CERTAIN DEFINED TERMS. In addition to terms defined
elsewhere herein, the following terms have the following meanings when used in
this Agreement with initial capital letters:
(a) "Base Pay" means the Executive's annual base salary at a
rate not less than the Executive's annual fixed or base compensation as
in effect for Executive immediately prior to the occurrence of a Change
in Control or such higher rate as may be determined from time to time
by the Board or a committee thereof.
(b) "Board" means the Board of Directors of the Company.
(c) "Cause" means that, prior to any termination pursuant to
Section 3(b) or Section 3(c), the Executive shall have committed:
(i) a criminal violation involving fraud, embezzlement
or theft in connection with his duties or in the course of his
employment with the Company or any Subsidiary;
<PAGE> 2
(ii) intentional wrongful damage to property of the
Company or any Subsidiary;
(iii) intentional wrongful disclosure of secret processes
or confidential information of the Company or any Subsidiary;
or
(iv) intentional wrongful engagement in any Competitive
Activity;
and any such act shall have been demonstrably and materially harmful to
the Company. For purposes of this Agreement, no act or failure to act
on the part of the Executive shall be deemed "intentional" if it was
due primarily to an error in judgment or negligence, but shall be
deemed "intentional" only if done or omitted to be done by the
Executive not in good faith and without reasonable belief that his
action or omission was in the best interest of the Company.
Notwithstanding the foregoing, the Executive shall not be deemed to
have been terminated for "Cause" hereunder unless and until there shall
have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of not less than two-thirds of the
Board then in office at a meeting of the Board called and held for such
purpose, after reasonable notice to the Executive and an opportunity
for the Executive, together with his counsel (if the Executive chooses
to have counsel present at such meeting), to be heard before the Board,
finding that, in the good faith opinion of the Board, the Executive had
committed an act constituting "Cause" as herein defined and specifying
the particulars thereof in detail. Nothing herein will limit the right
of the Executive or his beneficiaries to contest the validity or
propriety of any such determination.
(d) "Change in Control" means the occurrence during the Term
of any of the following events, subject to the provisions of Section
1(d)(v) hereof:
(i) All or substantially all of the assets of the
Company are sold or transferred to another corporation or
entity, or the Company is merged, consolidated or reorganized
into or with another corporation or entity, with the result
that upon conclusion of the transaction less than 51% of the
outstanding securities entitled to vote generally in the
election of directors or other capital interests of the
acquiring corporation or entity are owned directly or
indirectly, by the shareholders of the Company generally prior
to the transaction; or
(ii) There is a report filed on Schedule 13D or
Schedule 14D-1 (or any successor schedule, form or report),
each as promulgated pursuant to the
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<PAGE> 3
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 (a "Person")) has become the beneficial owner (as
the term "beneficial owner" is defined under Rule 13d-3 or any
successor rule or regulation promulgated under the Exchange
Act (a "Beneficial Owner")) of securities representing 20% or
more of the combined voting power of the then-outstanding
voting securities of the Company; or
(iii) The individuals who, at the beginning of any
period of two consecutive calendar years, constituted the
Directors of the Company cease for any reason to constitute at
least a majority thereof unless the nomination for election by
the Company's stockholders of each new Director of the Company
was approved by a vote of at least two-thirds of the Directors
of the Company still in office who were Directors of the
Company at the beginning of any such period; or
(iv) The Board determines that (A) any particular
actual or proposed merger, consolidation, reorganization, sale
or transfer of assets, accumulation of shares or tender offer
for shares of the Company or other transaction or event or
series of transactions or events will, or is likely to, if
carried out, result in a Change in Control falling within
Section 1(d)(i), (ii) or (iii) and (B) it is in the best
interests of the Company and its shareholders, and will serve
the intended purposes of this Agreement, if this Agreement
shall thereupon become immediately operative.
(v) Notwithstanding the foregoing provisions of this
Section 1(d):
(A) If any such merger, consolidation,
reorganization, sale or transfer of assets, or tender
offer or other transaction or event or series of
transactions or events mentioned in Section 1(d)(iv)
shall be abandoned, or any such accumulations of
shares shall be dispersed or otherwise resolved, the
Board may, by notice to the Executive, nullify the
effect thereof and reinstate this Agreement as
previously in effect, but without prejudice to any
action that may have been taken prior to such
nullification.
(B) Unless otherwise determined in a
specific case by the Board, a "Change in Control"
shall not be deemed to have occurred for purposes of
Section (1)(d)(ii) solely because (X) the Company,
(Y) a Subsidiary, or (Z) any Company-sponsored
employee stock ownership plan or any other employee
benefit plan of the Company or any Subsidiary either
files or becomes obligated to file a report or a
proxy statement under or in response to Schedule 13D,
Schedule 14D-1, Form 8-K or Schedule
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<PAGE> 4
14A (or any successor schedule, form or report or
item therein) under the Exchange Act disclosing
Beneficial Ownership by it of shares of the
then-outstanding voting securities of the Company,
whether in excess of 20% or otherwise, or because the
Company reports that a change in control of the
Company has occurred or will occur in the future by
reason of such beneficial ownership.
(e) "Competitive Activity" means the Executive's
participation, without the written consent of an officer of the
Company, in the management of any business enterprise if such
enterprise engages in substantial and direct competition with the
Company and such enterprise's sales of any product or service
competitive with any product or service of the Company amounted to 25%
of such enterprise's net sales for its most recently completely fiscal
year and if the Company's net sales of said product or service amounted
to 25% of the Company's net sales for its most recently completed
fiscal year. "Competitive Activity" will not include (i) the mere
ownership of securities in any such enterprise and the exercise of
rights appurtenant thereto or (ii) participation in the management of
any such enterprise other than in connection with the competitive
operations of such enterprise.
(f) "Employee Benefits" means the perquisites, benefits and
service credit for benefits as provided under any and all employee
retirement income and welfare benefit policies, plans, programs or
arrangements in which Executive is entitled to participate, including
without limitation any stock option, performance share, performance
unit, stock purchase, stock appreciation, savings, pension,
supplemental executive retirement, or other retirement income or
welfare benefit, deferred compensation, incentive compensation, group
or other life, health, medical/hospital or other insurance (whether
funded by actual insurance or self-insured by the Company), disability,
salary continuation, expense reimbursement and other employee benefit
policies, plans, programs or arrangements that may now exist or any
equivalent successor policies, plans, programs or arrangements that may
be adopted hereafter by the Company or a Subsidiary.
(g) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(h) "Incentive Pay" means an annual amount equal to not less
than the average of the annual bonus made or to be made in regard to
services rendered in any fiscal year during the three fiscal years
immediately preceding, or, if greater, 75% of the maximum bonus
opportunity for, the fiscal year in which the Change in Control occurs
pursuant to the Executive Incentive Compensation Program or similar
annual bonus plan, program or arrangement (whether or not funded) of
the Company, or any successor thereto.
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<PAGE> 5
(i) "Severance Period" means the period of time commencing on
the date of the first occurrence of a Change in Control and continuing
until the earliest of (i) the third anniversary of the occurrence of
the Change in Control, (ii) the Executive's death, or (iii) the
Executive's attainment of age 65.
(j) "Subsidiary" means a corporation, company or other entity
(i) more than 50% of whose outstanding shares or securities
(representing the right to vote for the election of directors or other
managing authority) are, or (ii) 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% 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 except that for purposes of determining
whether any person may be a Participant for purposes of any grant of
incentive stock options, "Subsidiary" means any corporation in which at
the time the Company owns or controls, directly or indirectly, more
than 50% of the total combined voting power represented by all classes
of stock issued by such corporation.
(k) "Term" means the period commencing as of the date hereof
and expiring as of the later of (i) the close of business on December
31, 2002, or (ii) the expiration of the Severance Period; PROVIDED,
HOWEVER, that (A) commencing on January 1, 2001 and each January 1
thereafter, the term of this Agreement will automatically be extended
for an additional year unless, not later than September 30 of the
immediately preceding year, the Company or the Executive shall have
given notice that it or the Executive, as the case may be, does not
wish to have the Term extended and (B) subject to the last sentence of
Section 9, if, prior to a Change in Control, the Executive ceases for
any reason to be an employee of the Company and any Subsidiary,
thereupon without further action the Term shall be deemed to have
expired and this Agreement will immediately terminate and be of no
further effect. For purposes of this Section 1(k), the Executive shall
not be deemed to have ceased to be an employee of the Company and any
Subsidiary by reason of the transfer of Executive's employment between
the Company and any Subsidiary, or among any Subsidiaries.
(l) "Termination Date" means the date on which the Executive's
employment is terminated (the effective date of which shall be the date
of termination, or such other date that may be specified by the
Executive if the termination is pursuant to Section 3(b) or Section
3(c)).
2. OPERATION OF AGREEMENT. This Agreement will be effective
and binding immediately upon its execution, but, anything in this Agreement to
the contrary notwithstanding, this Agreement will not be operative unless and
until a Change in Control occurs. Upon the occurrence of a Change in Control at
any time during the Term, without further action, this Agreement shall become
immediately operative.
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<PAGE> 6
3. TERMINATION FOLLOWING A CHANGE IN CONTROL.
(a) If the Executive's employment is terminated by the Company
or any Subsidiary during the Severance Period, the Executive shall be
entitled to the benefits provided by Section 4 unless such termination
is the result of the occurrence of one or more of the following events:
(i) The Executive's death;
(ii) If the Executive becomes permanently disabled
within the meaning of, and begins actually to receive disability
benefits pursuant to, the long-term disability plan in effect for, or
applicable to, Executive immediately prior to the Change in Control; or
(iii) Cause.
(b) If the Executive terminates his employment with the
Company and its Subsidiaries during the Severance Period, the Executive
shall be entitled to the benefits provided by Section 4 if such
termination follows the occurrence of one or more of the following
events (regardless of whether any other reason, other than Cause as
hereinabove provided, for such termination exists or has occurred,
including without limitation other employment):
(i) Failure to elect or reelect or otherwise to
maintain the Executive in the office or the position, or a
substantially equivalent office or position, of or with the
Company and/or a Subsidiary, as the case may be, which the
Executive held immediately prior to a Change in Control, or
the failure to reelect or the removal of the Executive as a
Director of the Company (or any successor thereto) if the
Executive shall have been a Director of the Company
immediately prior to the Change in Control;
(ii) (A) A significant adverse change in the nature
or scope of the authorities, powers, functions,
responsibilities or duties attached to the position with the
Company and any Subsidiary which the Executive held
immediately prior to the Change in Control, (B) a reduction in
the Executive's Base Pay, (C) a reduction in the Executive's
opportunities for Incentive Pay (including but not limited to
a reduction in target bonus percentage or target award
opportunity (whether measured by dollar amount or management
objectives)) provided by the Company, or (D) the termination
or denial of the Executive's rights to Employee Benefits or a
reduction in the scope or aggregate value thereof, any of
which is not remedied by the Company within ten calendar days
after receipt by the Company of written notice from the
Executive of such change, reduction or termination, as the
case may be;
(iii) A determination by the Executive (which
determination will be conclusive and binding upon the parties
hereto provided it has been made in good faith and in all
events will be presumed to have been made in good faith unless
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<PAGE> 7
otherwise shown by the Company by clear and convincing
evidence) that a change in circumstances has occurred
following a Change in Control, including, without limitation,
a change in the scope of the business or other activities for
which the Executive was responsible immediately prior to the
Change in Control, which has rendered the Executive
substantially unable to carry out, has substantially hindered
Executive's performance of, or has caused Executive to suffer
a substantial reduction in, any of the authorities, powers,
functions, responsibilities or duties attached to the position
held by the Executive immediately prior to the Change in
Control, which situation is not remedied within ten calendar
days after written notice to the Company from the Executive of
such determination;
(iv) The liquidation, dissolution, merger,
consolidation or reorganization of the Company or transfer of
all or substantially all of its business and/or assets, unless
the successor or successors (by liquidation, merger,
consolidation, reorganization, transfer or otherwise) to which
all or substantially all of its business and/or assets have
been transferred (directly or by operation of law) assumed all
duties and obligations of the Company under this Agreement
pursuant to Section 12(a);
(v) The Company relocates its principal executive
offices, or requires the Executive to have his principal
location of work changed, to any location that is in excess of
thirty miles from the location thereof immediately prior to
the Change in Control, or requires the Executive to travel
away from his office in the course of discharging his
responsibilities or duties of his employment more than
fourteen consecutive calendar days or an aggregate of more
than ninety calendar days in any consecutive 365 calendar-day
period, without, in either case, his prior written consent; or
(vi) Without limiting the generality or effect of the
foregoing, any material breach of this Agreement by the
Company or any successor thereto which is not remedied by the
Company within ten calendar days after receipt by the Company
of written notice from the Executive of such breach.
(c) Notwithstanding anything contained in this Agreement to
the contrary, in the event of a Change in Control ), the Executive may
terminate employment with the Company and any Subsidiary for any
reason, or without reason, during the thirty-day period immediately
following the date six months after the first occurrence of a Change in
Control with the right to severance compensation as provided in Section
4.
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<PAGE> 8
(d) A termination by the Company pursuant to Section 3(a)
(other than as described in Section 3(a)(i), (ii) or (iii)) or by the
Executive pursuant to Section 3(b) or Section 3(c) will not affect any
rights that the Executive may have pursuant to any agreement, policy,
plan, program or arrangement of the Company providing Employee
Benefits, which rights shall be governed by the terms thereof.
4. SEVERANCE COMPENSATION.
(a) Severance benefits to which the Executive is entitled
pursuant to Section 3 are described on Annex A. The Company will pay to
the Executive the amounts described in Paragraphs (1), (2) and (3) of
Annex A within five business days after the Termination Date or, if
later, upon the expiration of the revocation period provided for in
Annex C. The benefits and perquisites described in Paragraphs (4), (5),
(6) and (7) of Annex A will be provided to the Executive as described
therein.
(b) Without limiting the rights of the Executive at law or in
equity, if the Company fails to make any payment or provide any benefit
required to be made or provided hereunder on a timely basis, the
Company will pay interest on the amount or value thereof at an
annualized rate of interest equal to the so-called composite "prime
rate" as quoted from time to time during the relevant period in the
Midwest Edition of THE WALL STREET JOURNAL. Such interest will be
payable as it accrues on demand. Any change in such prime rate will be
effective on and as of the date of such change.
(c) Notwithstanding any provision of this Agreement to the
contrary, the parties' respective rights and obligations under this
Section 4 and under Sections 5 and 7 will survive any termination or
expiration of this Agreement or the termination of the Executive's
employment following a Change in Control for any reason whatsoever.
5. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event that this Agreement shall become
operative and it shall be determined (as hereafter provided) that any
payment or distribution by the Company or any of its affiliates to or
for the benefit of the Executive, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise pursuant to or by reason of any other agreement, policy,
plan, program or arrangement, including without limitation any stock
option, performance share, performance unit, stock appreciation right
or similar right, or the lapse or termination of any restriction on, or
the vesting or exercisability of, any of the foregoing (a "Payment"),
would be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code") (or any
successor provision thereto) by reason of being considered "contingent
on a change in ownership or control" of the Company, within the meaning
of Section 280G of the Code (or any successor provision thereto) or to
any similar tax imposed by state or local law, or any interest or
penalties with respect to such tax (such tax or taxes, together with
any such interest and penalties, being hereafter collectively referred
to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment or payments (collectively, a "Gross-Up
Payment"); PROVIDED, HOWEVER, that no Gross-up Payment shall be made
with respect to the Excise Tax, if any, attributable to (i) any
incentive stock
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<PAGE> 9
option, as defined by Section 422 of the Code ("ISO") granted prior to
the execution of this Agreement, or (ii) any stock appreciation or
similar right, whether or not limited, granted in tandem with any ISO
described in clause (i). The Gross-Up Payment shall be in an amount
such that, after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including
any Excise Tax imposed upon the Gross-Up Payment, the Executive retains
an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Payment.
(b) Subject to the provisions of Section 5(f), all
determinations required to be made under this Section 5, including
whether an Excise Tax is payable by the Executive and the amount of
such Excise Tax and whether a Gross-Up Payment is required to be paid
by the Company to the Executive and the amount of such Gross-Up
Payment, if any, shall be made by a nationally recognized accounting
firm (the "Accounting Firm") selected by the Executive in his sole
discretion. The Executive shall direct the Accounting Firm to submit
its determination and detailed supporting calculations to both the
Company and the Executive within 30 calendar days after the Termination
Date, if applicable, and any such other time or times as may be
requested by the Company or the Executive. If the Accounting Firm
determines that any Excise Tax is payable by the Executive, the Company
shall pay the required Gross-Up Payment to the Executive within five
business days after receipt of such determination and calculations with
respect to any Payment to the Executive. If the Accounting Firm
determines that no Excise Tax is payable by the Executive, it shall, at
the same time as it makes such determination, furnish the Company and
the Executive an opinion that the Executive has substantial authority
not to report any Excise Tax on his federal, state or local income or
other tax return. As a result of the uncertainty in the application of
Section 4999 of the Code (or any successor provision thereto) and the
possibility of similar uncertainty regarding applicable state or local
tax law at the time of any determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have
been made by the Company should have been made (an "Underpayment"),
consistent with the calculations required to be made hereunder. In the
event that the Company exhausts or fails to pursue its remedies
pursuant to Section 5(f) and the Executive thereafter is required to
make a payment of any Excise Tax, the Executive shall direct the
Accounting Firm to determine the amount of the Underpayment that has
occurred and to submit its determination and detailed supporting
calculations to both the Company and the Executive as promptly as
possible. Any such Underpayment shall be promptly paid by the Company
to, or for the benefit of, the Executive within five business days
after receipt of such determination and calculations.
(c) The Company and the Executive shall each provide the
Accounting Firm access to and copies of any books, records and
documents in the possession of the Company or the Executive, as the
case may be, reasonably requested by the Accounting Firm, and otherwise
cooperate with the Accounting Firm in connection with the preparation
and issuance of the determinations and calculations contemplated by
Section 5(b). Any determination by the Accounting Firm as to the amount
of the Gross-Up Payment shall be binding upon the Company and the
Executive.
(d) The federal, state and local income or other tax returns
filed by the Executive shall be prepared and filed on a consistent
basis with the determination of the
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<PAGE> 10
Accounting Firm with respect to the Excise Tax payable by the
Executive. The Executive shall make proper payment of the amount of any
Excise Payment, and at the request of the Company, provide to the
Company true and correct copies (with any amendments) of his federal
income tax return as filed with the Internal Revenue Service and
corresponding state and local tax returns, if relevant, as filed with
the applicable taxing authority, and such other documents reasonably
requested by the Company, evidencing such payment. If prior to the
filing of the Executive's federal income tax return, or corresponding
state or local tax return, if relevant, the Accounting Firm determines
that the amount of the Gross-Up Payment should be reduced, the
Executive shall within five business days pay to the Company the amount
of such reduction.
(e) The fees and expenses of the Accounting Firm for its
services in connection with the determinations and calculations
contemplated by Section 5(b) shall be borne by the Company. If such
fees and expenses are initially paid by the Executive, the Company
shall reimburse the Executive the full amount of such fees and expenses
within five business days after receipt from the Executive of a
statement therefor and reasonable evidence of his payment thereof.
(f) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service or any other taxing authority
that, if successful, would require the payment by the Company of a
Gross-Up Payment. Such notification shall be given as promptly as
practicable but no later than ten business days after the Executive
actually receives notice of such claim and the Executive shall further
apprise the Company of the nature of such claim and the date on which
such claim is requested to be paid (in each case, to the extent known
by the Executive). The Executive shall not pay such claim prior to the
earlier of (i) the expiration of the thirty calendar-day period
following the date on which he gives such notice to the Company and
(ii) the date that any payment of amount with respect to such claim is
due. If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the
Executive shall:
(i) provide the Company with any written records or
documents in his possession relating to such claim reasonably
requested by the Company;
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing
from time to time, including without limitation accepting
legal representation with respect to such claim by an attorney
competent in respect of the subject matter and reasonably
selected by the Company;
(iii) cooperate with the Company in good faith in
order effectively to contest such claim; and
(iv) permit the Company to participate in any
proceedings relating to such claim;
PROVIDED, HOWEVER, that the Company shall bear and pay directly all
costs and expenses (including interest and penalties) incurred in
connection with such contest and shall
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<PAGE> 11
indemnify and hold harmless the Executive, on an after-tax basis, for
and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such
representation and payment of costs and expenses. Without limiting the
foregoing provisions of this Section 5(f), the Company shall control
all proceedings taken in connection with the contest of any claim
contemplated by this Section 5(f) and, at its sole option, may pursue
or forego any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim
(provided, however, that the Executive may participate therein at his
own cost and expense) and may, at its option, either direct the
Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute
such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts, as
the Company shall determine; PROVIDED, HOWEVER, that if the Company
directs the Executive to pay the tax claimed and sue for a refund, the
Company shall advance the amount of such payment to the Executive on an
interest-free basis and shall indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or income or other
tax, including interest or penalties with respect thereto, imposed with
respect to such advance; and PROVIDED FURTHER, HOWEVER, that any
extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which the
contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of any such
contested claim shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other issue
raised by the Internal Revenue Service or any other taxing authority.
(g) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 5(f), the Executive
receives any refund with respect to such claim, the Executive shall
(subject to the Company's complying with the requirements of Section
5(f)) promptly pay to the Company the amount of such refund (together
with any interest paid or credited thereon after any taxes applicable
thereto). If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 5(f), a determination is made that
the Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its
intent to contest such denial or refund prior to the expiration of
thirty calendar days after such determination, then such advance shall
be forgiven and shall not be required to be repaid and the amount of
any such advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid by the Company to the Executive
pursuant to this Section 5.
6. NO MITIGATION OBLIGATION. The Company hereby acknowledges
that it will be difficult and may be impossible for the Executive to find
reasonably comparable employment following the Termination Date and that the
non-competition covenant contained in Section 8 will further limit the
employment opportunities for the Executive. In addition, the Company
acknowledges that its severance pay plans applicable in general to its salaried
employees do not provide for mitigation, offset or reduction of any severance
payment received thereunder. Accordingly, the payment of the severance
compensation by the Company to the Executive in accordance with the terms of
this Agreement is hereby acknowledged by the Company to be reasonable, and the
Executive will not be required to mitigate the amount of any payment provided
for in this Agreement by seeking other employment or otherwise, nor will any
profits,
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<PAGE> 12
income, earnings or other benefits from any source whatsoever create any
mitigation, offset, reduction or any other obligation on the part of the
Executive hereunder or otherwise, except as expressly provided in the last
sentences of Paragraphs (2) and (4) of Annex A.
7. FUNDING; PROFESSIONAL FEES AND EXPENSES.
(a) It is the intent of the Company that the Executive not be
required to incur fees and related expenses for the retention of
attorneys, accountants, actuaries, consultants, and/or other
professionals ("professionals") in connection with the interpretation,
enforcement or defense of Executive's rights under this Agreement by
litigation or otherwise because the cost and expense thereof would
substantially detract from the benefits intended to be extended to the
Executive hereunder. Accordingly, if it should appear to the Executive
that the Company has failed to comply with any of its obligations under
this Agreement or in the event that the Company or any other person
takes or threatens to take any action to declare this Agreement void or
unenforceable, or institutes any litigation or other action or
proceeding designed to deny, or to recover from, the Executive the
benefits provided or intended to be provided to the Executive
hereunder, the Company irrevocably authorizes the Executive from time
to time to retain one or more professionals of the Executive's choice,
at the expense of the Company as hereafter provided, to advise and
represent the Executive in connection with any such interpretation,
enforcement or defense, including without limitation the initiation or
defense of any litigation or other legal action, whether by or against
the Company or any Director, officer, stockholder or other person
affiliated with the Company, in any jurisdiction. Notwithstanding any
existing or prior relationship between the Company and such
professional, the Company irrevocably consents to the Executive's
entering into a relationship with any such professional, and in that
connection the Company and the Executive agree that a confidential
relationship shall exist between the Executive and any such
professional. Without respect to whether the Executive prevails, in
whole or in part, in connection with any of the foregoing, the Company
will pay and be solely financially responsible for any and all
reasonable fees and related expenses incurred by the Executive in
connection with any of the foregoing.
(b) Without limiting the obligations of the Company pursuant
to this Agreement, in the event a Change in Control occurs, the
performance of the Company's obligations under this Agreement shall be
secured by amounts deposited or to be deposited in trust pursuant to
certain trust agreements to which the Company shall be a party,
providing, among other things for the payment of severance compensation
to the Executive pursuant to Section 4, and the Gross-Up Payment to the
Executive pursuant to Section 5, and providing that the reasonable fees
and related expenses of one or more professionals selected from time to
time by the Executive pursuant to Section 7(a) shall be paid, or
reimbursed to the Executive if paid by the Executive, either in
accordance with the terms of such trust agreements, or, if not so
provided, on a regular, periodic basis upon presentation by the
Executive to the trustee of a statement or statements prepared by such
professional in accordance with its customary practices. Any failure by
the Company to satisfy any of its obligations under this Section 7(b)
shall not limit the rights of the Executive hereunder. Upon the earlier
to occur of (i) a Change of a Control or (ii) a declaration by the
Board that a Change in Control is imminent, the Company shall
-12-
<PAGE> 13
promptly to the extent it has not previously done so, and in any event
within five business days:
(A) transfer to trustees of such trust agreements to
be added to the principal of the trusts a sum equal to (I) the
present value on the date of the Change in Control (or on such
fifth business day if the Board has declared a Change in
Control to be imminent) of the payments to be made to the
Executive under the provisions of Sections 4 and 5 hereof,
such present value to be computed using the assumptions set
forth on Annex B, less (II) the balance in the Executive's
accounts provided for in such trust agreements as of the most
recent completed valuation thereof, as certified by the
trustee under each trust agreement; provided, however, that if
the trustee under any trust agreement, respectively, does not
so certify by the end of the fourth business day after the
earlier of such Change in Control or declaration, then the
balance of such respective account shall be deemed to be zero.
Any payments of severance compensation or other benefits
hereunder by the trustee pursuant to any trust agreement
shall, to the extent thereof, discharge the Company's
obligation to pay severance compensation and other benefits
hereunder, it being the intent of the Company that assets in
such trusts be held as security for the Company's obligation
to pay severance compensation and other benefits under this
Agreement; and
(B) transfer to the trustees to be added to the
principal of the trusts under the trust agreements the sum of
FIVE HUNDRED THOUSAND DOLLARS ($500,000) less any principal in
such trusts on such fifth business day dedicated to the
payment of the Company's obligations under Section 7(a)
hereto. Any payments of the Executive's reasonable
professional fees and related expenses by the trustees
pursuant to the trust agreements shall, to the extent thereof,
discharge the Company's obligation hereunder, it being the
intent of the Company that assets in such trust be held as
security for the Company's obligation under Section 7(a)
hereof. The Executive understands and acknowledges that the
corpus of the trust, or separate portion thereof, dedicated to
the payment of the Company's obligations under Section 7(a)
hereto will be $500,000 and that such amount will be available
to discharge not only the obligations of the Company to the
Executive under Section 7(a) hereof, but also similar
obligations of the Company to other executives and employees
under similar provisions of other agreements.
(c) Subject to the foregoing, the Executive shall have the
status of a general unsecured creditor of the Company and shall have no
right to, or security interest in, any assets of the Company or any
Subsidiary.
8. COMPETITIVE ACTIVITY. During a period ending three (3)
years following the Termination Date, if the Executive shall have received or
shall be receiving benefits under Section 4, the Executive shall not, without
the prior written consent of the Company, which consent shall not be
unreasonably withheld, engage in any Competitive Activity.
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<PAGE> 14
9. EMPLOYMENT RIGHTS. Nothing expressed or implied in this
Agreement will create any right or duty on the part of the Company or the
Executive to have the Executive remain in the employment of the Company or any
Subsidiary prior to or following any Change in Control. Any termination of
employment of the Executive or the removal of the Executive from the office or
position in the Company or any Subsidiary following the commencement of any
action by or discussion with a third person that ultimately results in a Change
in Control shall be deemed to be a termination or removal of the Executive after
a Change in Control for purposes of this Agreement entitling the Executive to
severance benefits provided by Section 4.
10. RELEASE. Payment of the severance compensation set forth
in Section 4 hereto is conditioned upon the Executive executing and delivering a
release (the "Release") substantially in the form provided in Annex C.
11. WITHHOLDING OF TAXES. The Company may withhold from any
amounts payable under this Agreement all federal, state, city or other taxes as
the Company is required to withhold pursuant to any law or government regulation
or ruling.
12. SUCCESSORS AND BINDING AGREEMENT.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation, reorganization or
otherwise) to all or substantially all of the business or assets of the
Company, by agreement in form and substance satisfactory to the
Executive, expressly to assume and agree to perform this Agreement in
the same manner and to the same extent the Company would be required to
perform if no such succession had taken place. This Agreement will be
binding upon and inure to the benefit of the Company and any successor
to the Company, including without limitation any persons acquiring
directly or indirectly all or substantially all of the business or
assets of the Company whether by purchase, merger, consolidation,
reorganization or otherwise (and such successor shall thereafter be
deemed the "Company" for the purposes of this Agreement), but will not
otherwise be assignable, transferable or delegable by the Company.
(b) This Agreement will inure to the benefit of and be
enforceable by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees and
legatees.
(c) This Agreement is personal in nature and neither of the
parties hereto shall, without the consent of the other, assign,
transfer or delegate this Agreement or any rights or obligations
hereunder except as expressly provided in Sections 12(a) and 12(b).
Without limiting the generality or effect of the foregoing, the
Executive's right to receive payments hereunder will not be assignable,
transferable or delegable, whether by pledge, creation of a security
interest, or otherwise, other than by a transfer by Executive's will or
by the laws of descent and distribution and, in the event of any
attempted assignment or transfer contrary to this Section 12(c), the
Company shall have no liability to pay any amount so attempted to be
assigned, transferred or delegated.
13. NOTICES. For all purposes of this Agreement, all
communications, including without limitation notices, consents, requests or
approvals, required or permitted to be
-14-
<PAGE> 15
given hereunder will be in writing and will be deemed to have been duly given
when hand delivered or dispatched by electronic facsimile transmission (with
receipt thereof orally confirmed), or five business days after having been
mailed by United States registered or certified mail, return receipt requested,
postage prepaid, or three business days after having been sent by a nationally
recognized overnight courier service such as Federal Express, UPS, or Purolator,
addressed to the Company (to the attention of the Secretary of the Company) at
its principal executive office and to the Executive at his principal residence,
or to such other address as any party may have furnished to the other in writing
and in accordance herewith, except that notices of changes of address shall be
effective only upon receipt.
14. GOVERNING LAW. The validity, interpretation, construction
and performance of this Agreement will be governed by and construed in
accordance with the substantive laws of the State of Ohio, without giving effect
to the principles of conflict of laws of such State.
15. VALIDITY. If any provision of this Agreement or the
application of any provision hereof to any person or circumstances is held
invalid, unenforceable or otherwise illegal, the remainder of this Agreement and
the application of such provision to any other person or circumstances will not
be affected, and the provision so held to be invalid, unenforceable or otherwise
illegal will be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid or legal.
16. MISCELLANEOUS. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and the Company. No waiver by
either party hereto at any time of any breach by the other party hereto or
compliance with any condition or provision of this Agreement to be performed by
such other party will be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, expressed or implied with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. References to Sections are to references to
Sections of this Agreement.
17. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same agreement.
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<PAGE> 16
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed and delivered as of the date first above written.
-------------------------------
John B. Yasinsky
OMNOVA SOLUTIONS INC.
By:
-----------------------------
Gregory T. Troy
Senior Vice President, Human Resources
By:
-----------------------------
Cynthia A. Slack
Secretary
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<PAGE> 17
Annex A
-------
Severance Compensation
----------------------
1. BASE PAY AND ANNUAL BONUS. A lump sum payment in an amount
equal to (a) any unpaid Base Pay through the date of the Executive's termination
of employment and (b) any annual bonus payable in the year in which the
Executive's termination of employment occurs, determined in accordance with the
provisions of the Executive Incentive Compensation Program.
2. SEVERANCE PAY. A lump sum payment in an amount equal to
three (3) times the sum of (A) Base Pay (at the highest rate in effect for any
period prior to the Termination Date), plus (B) Incentive Pay (determined in
accordance with the standards set forth in Section 1(h)), but not less than 375%
of Base Pay (at the highest rate in effect for any period prior to the
Termination Date). If the Executive is entitled to a severance payment under
this Agreement and termination pay under his Employment Agreement dated October
15, 1993, due to the termination of his employment after a Change in Control,
then the severance payment described in the preceding sentence will be reduced
by the total amount of the termination pay which is paid or payable to the
Executive under the Employment Agreement as a result of such termination.
3. PERFORMANCE AWARDS: Upon an Executive's termination of
employment pursuant to Section 3(b) or 3(c), all performance awards under the
Omnova Solutions Inc. 1999 Equity and Performance Incentive Plan, if any, will
be paid in accordance with the provisions of such Plan.
4. HEALTH AND LIFE BENEFITS. For a period of 36 months
following the Termination Date (the "Continuation Period"), the Company will
arrange to provide the Executive with Employee Benefits that provide health and
life benefits (but not disability, stock option, performance share, performance
unit, stock purchase, stock appreciation or similar compensatory benefits)
substantially similar to those that the Executive was receiving or entitled to
receive immediately prior to the Termination Date (or, if greater, immediately
prior to the reduction, termination, or denial described in Section 3(b)(ii)),
except that the level of any such Employee Benefits to be provided to the
Executive may be reduced in the event of a corresponding reduction generally
applicable to all recipients of or participants in such Employee Benefits. If
and to the extent that any benefit described in this Paragraph 4 is not or
cannot be paid or provided under any policy, plan, program or arrangement of the
Company or any Subsidiary, as the case may be, then the Company will itself pay
or provide for the payment to the Executive, his dependents and beneficiaries,
of such Employee Benefits. Employee Benefits otherwise receivable by the
Executive pursuant to this Paragraph 4 will be reduced to the extent comparable
welfare benefits are actually received by the Executive from another employer
during the Continuation Period following the Executive's Termination Date, and
any such benefits actually received by the Executive shall be reported by the
Executive to the Company.
<PAGE> 18
5. RETIREMENT BENEFITS. Retirement benefits under the
applicable qualified pension plan sponsored by the Company or Subsidiary and the
Benefits Restoration Plan for Salaried Employees of Omnova Solutions Inc. and
Certain Subsidiary Companies ("Benefits Restoration Plan") that are accrued but
not vested at the time of the Executive's termination of employment will be
vested in accordance with the provisions of the Benefits Restoration Plan.
6. OUTPLACEMENT SERVICES. Outplacement services for a period
of up to twelve months by a firm selected by the Executive, at the expense of
the Company in an amount up to 20% of the Executive's Base Pay.
7. FINANCIAL COUNSELING. Financial counseling for the
Continuation Period as defined in Paragraph (4) of this Annex A in a manner
similar to that provided to executive officers prior to a Change in Control.
A-2
<PAGE> 19
Annex B
-------
Funding Assumptions
-------------------
In calculating the present value of payments to be made to the Executive under
Sections 4 and 5 of the Agreement, as required by Section 7(b)(B) of the
Agreement, the Company shall:
(1) Assume that all payments to be made to the Executive shall be paid
on a date which is six (6) months following the date of the Change in Control;
and
(2) Apply a discount factor which is equal to the yield to maturity, as
reported in the Midwest Edition of THE WALL STREET JOURNAL, of the 26-week
Treasury Bill most recently issued as of the date of the Change in Control.
<PAGE> 20
Annex C
-------
Form of Release
---------------
WHEREAS, the Executive's employment has been terminated in
accordance with Section 3(a) (other than as described in Section 3(a)(i), (ii)
or (iii)), (b) or (c) of the Severance Agreement dated as of _________ , 1999,
by and between _______________________________________ (the "Executive") and
Omnova Solutions Inc. (the "Agreement").
WHEREAS, the Executive is required to sign this Release in
order to receive the Severance Compensation as described in Annex A of the
Agreement and the other benefits described in the Agreement.
NOW THEREFORE, in consideration of the promises and agreements
contained herein and other good and valuable consideration, the sufficiency and
receipt of which are hereby acknowledged, and intending to be legally bound, the
Executive agrees as follows:
1. This Release is effective on the date hereof and will continue in
effect as provided herein.
2. In consideration of the payments to be made and the benefits to be
received by the Executive pursuant to the Agreement, which the Executive
acknowledges are in addition to payments and benefits which the Executive would
be entitled to receive absent the Agreement, the Executive, for himself and his
dependents, successors, assigns, heirs, executors and administrators (and his
and their legal representatives of every kind), hereby releases, dismisses,
remises and forever discharges GenCorp Inc., its predecessors, parents,
subsidiaries, divisions, related or affiliated companies, officers, directors,
stockholders, members, employees, heirs, successors, assigns, representatives,
agents and counsel (the "Company") from any and all arbitrations, claims,
including claims for attorney's fees, demands, damages, suits, proceedings,
actions and/or causes of action of any kind and every description, whether known
or unknown, which Executive now has or may have had for, upon, or by reason of
any cause whatsoever ("claims"), against the Company, including but not limited
to:
(a) any and all claims arising out of or relating to
Executive's employment by or service with the Company and his
termination from the Company;
(b) any and all claims of discrimination, including but not
limited to claims of discrimination on the basis of sex, race, age,
national origin, marital status, religion or handicap, including,
specifically, but without limiting the generality of the foregoing, any
claims under the Age Discrimination in Employment Act, as amended,
Title VII of the Civil Rights Act of 1964, as amended, the Americans
with Disabilities Act, Ohio Revised Code Section 4101.17 and Ohio
Revised Code Chapter 4112, including Sections 4112.02 and 4112.99
thereof; and
<PAGE> 21
(c) any and all claims of wrongful or unjust discharge or
breach of any contract or promise, express or implied.
3. Executive understands and acknowledges that the Company does not
admit any violation of law, liability or invasion of any of his rights and that
any such violation, liability or invasion is expressly denied. The consideration
provided for this Release is made for the purpose of settling and extinguishing
all claims and rights (and every other similar or dissimilar matter) that
Executive ever had or now may have against the Company to the extent provided in
this Release. Executive further agrees and acknowledges that no representations,
promises or inducements have been made by the Company other than as appear in
the Agreement.
4. Executive further agrees and acknowledges that:
(a) The release provided for herein releases claims to and
including the date of this Release;
(b) He has been advised by the Company to consult with legal
counsel prior to executing this Release, has had an opportunity to
consult with and to be advised by legal counsel of his choice, fully
understands the terms of this Release, and enters into this Release
freely, voluntarily and intending to be bound;
(c) He has been given a period of 21 days to review and
consider the terms of this Release, prior to its execution and that he
may use as much of the 21 day period as he desires; and
(d) He may, within 7 days after execution, revoke this
Release. Revocation shall be made by delivering a written notice of
revocation to the Vice President of Human Resources at the Company. For
such revocation to be effective, written notice must be actually
received by the Vice President of Human Resources at the Company no
later than the close of business on the 7th day after Executive
executes this Release. If Executive does exercise his right to revoke
this Release, all of the terms and conditions of the Release shall be
of no force and effect and the Company shall not have any obligation to
make payments or provide benefits to Executive as set forth in Sections
4, 5 and 7 of the Agreement.
5. Executive agrees that he will never file a lawsuit or other
complaint asserting any claim that is released in this Release.
C-2
<PAGE> 22
6. Executive waives and releases any claim that he has or may have to
reemployment after __________________.
IN WITNESS WHEREOF, the Executive has executed and delivered
this Release on the date set forth below.
Dated:_____________________ ___________________________________
Executive
C-3
<PAGE> 1
Exhibit 10.5
SEVERANCE AGREEMENT
-------------------
THIS AMENDED AND RESTATED SEVERANCE AGREEMENT (this
"Agreement"), dated as of __________, 1999, is made and entered by and between
Omnova Solutions Inc., an Ohio corporation (the "Company"), and Nathaniel J.
Mass (the "Executive").
WITNESSETH:
-----------
WHEREAS, the Executive is a senior executive or a key employee
of the Company or one or more of its Subsidiaries and has made and is expected
to continue to make major contributions to the short- and long-term
profitability, growth and financial strength of the Company;
WHEREAS, the Company recognizes that, as is the case for most
publicly held companies, the possibility of a Change in Control (as defined
below) exists;
WHEREAS, the Company desires to assure itself of both present
and future continuity of management and desires to establish certain minimum
severance benefits for certain of its senior executives and key employees,
including the Executive, applicable in the event of a Change in Control;
WHEREAS, the Company wishes to ensure that its senior
executives and key employees are not practically disabled from discharging their
duties in respect of a proposed or actual transaction involving a Change in
Control; and
WHEREAS, the Company desires to provide additional inducement
for the Executive to continue to remain in the ongoing employ of the Company.
NOW, THEREFORE, the Company and the Executive agree as
follows:
1. CERTAIN DEFINED TERMS. In addition to terms defined
elsewhere herein, the following terms have the following meanings when used in
this Agreement with initial capital letters:
(a) "Base Pay" means the Executive's annual base salary at a
rate not less than the Executive's annual fixed or base compensation as
in effect for Executive immediately prior to the occurrence of a Change
in Control or such higher rate as may be determined from time to time
by the Board or a committee thereof.
(b) "Board" means the Board of Directors of the Company.
(c) "Cause" means that, prior to any termination pursuant to
Section 3(b), the Executive shall have committed:
(i) a criminal violation involving fraud, embezzlement
or theft in connection with his duties or in the course of his
employment with the Company or any Subsidiary;
<PAGE> 2
(ii) intentional wrongful damage to property of the
Company or any Subsidiary;
(iii) intentional wrongful disclosure of secret processes
or confidential information of the Company or any Subsidiary;
or
(iv) intentional wrongful engagement in any Competitive
Activity;
and any such act shall have been demonstrably and materially harmful to
the Company. For purposes of this Agreement, no act or failure to act
on the part of the Executive shall be deemed "intentional" if it was
due primarily to an error in judgment or negligence, but shall be
deemed "intentional" only if done or omitted to be done by the
Executive not in good faith and without reasonable belief that his
action or omission was in the best interest of the Company.
Notwithstanding the foregoing, the Executive shall not be deemed to
have been terminated for "Cause" hereunder unless and until there shall
have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of not less than two-thirds of the
Board then in office at a meeting of the Board called and held for such
purpose, after reasonable notice to the Executive and an opportunity
for the Executive, together with his counsel (if the Executive chooses
to have counsel present at such meeting), to be heard before the Board,
finding that, in the good faith opinion of the Board, the Executive had
committed an act constituting "Cause" as herein defined and specifying
the particulars thereof in detail. Nothing herein will limit the right
of the Executive or his beneficiaries to contest the validity or
propriety of any such determination.
(d) "Change in Control" means the occurrence during the Term
of any of the following events, subject to the provisions of Section
1(d)(v) hereof:
(i) All or substantially all of the assets of the
Company are sold or transferred to another corporation or
entity, or the Company is merged, consolidated or reorganized
into or with another corporation or entity, with the result
that upon conclusion of the transaction less than 51% of the
outstanding securities entitled to vote generally in the
election of directors or other capital interests of the
acquiring corporation or entity are owned directly or
indirectly, by the shareholders of the Company generally prior
to the transaction; or
(ii) There is a report filed on Schedule 13D or
Schedule 14D-1 (or any successor schedule, form or report),
each as promulgated pursuant to the
-2-
<PAGE> 3
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 (a "Person")) has become the beneficial owner (as
the term "beneficial owner" is defined under Rule 13d-3 or any
successor rule or regulation promulgated under the Exchange
Act (a "Beneficial Owner")) of securities representing 20% or
more of the combined voting power of the then-outstanding
voting securities of the Company; or
(iii) The individuals who, at the beginning of any
period of two consecutive calendar years, constituted the
Directors of the Company cease for any reason to constitute at
least a majority thereof unless the nomination for election by
the Company's stockholders of each new Director of the Company
was approved by a vote of at least two-thirds of the Directors
of the Company still in office who were Directors of the
Company at the beginning of any such period; or
(iv) The Board determines that (A) any particular
actual or proposed merger, consolidation, reorganization, sale
or transfer of assets, accumulation of shares or tender offer
for shares of the Company or other transaction or event or
series of transactions or events will, or is likely to, if
carried out, result in a Change in Control falling within
Section 1(d)(i), (ii) or (iii) and (B) it is in the best
interests of the Company and its shareholders, and will serve
the intended purposes of this Agreement, if this Agreement
shall thereupon become immediately operative.
(v) Notwithstanding the foregoing provisions of this
Section 1(d):
(A) If any such merger, consolidation,
reorganization, sale or transfer of assets, or tender
offer or other transaction or event or series of
transactions or events mentioned in Section 1(d)(iv)
shall be abandoned, or any such accumulations of
shares shall be dispersed or otherwise resolved, the
Board may, by notice to the Executive, nullify the
effect thereof and reinstate this Agreement as
previously in effect, but without prejudice to any
action that may have been taken prior to such
nullification.
(B) Unless otherwise determined in a
specific case by the Board, a "Change in Control"
shall not be deemed to have occurred for purposes of
Section (1)(d)(ii) solely because (X) the Company,
(Y) a Subsidiary, or (Z) any Company-sponsored
employee stock ownership plan or any other employee
benefit plan of the Company or any Subsidiary either
files or becomes obligated to file a report or a
proxy statement under or in response to Schedule 13D,
Schedule 14D-1, Form 8-K or Schedule
-3-
<PAGE> 4
14A (or any successor schedule, form or report or
item therein) under the Exchange Act disclosing
Beneficial Ownership by it of shares of the
then-outstanding voting securities of the Company,
whether in excess of 20% or otherwise, or because the
Company reports that a change in control of the
Company has occurred or will occur in the future by
reason of such beneficial ownership.
(e) "Competitive Activity" means the Executive's
participation, without the written consent of an officer of the
Company, in the management of any business enterprise if such
enterprise engages in substantial and direct competition with the
Company and such enterprise's sales of any product or service
competitive with any product or service of the Company amounted to 25%
of such enterprise's net sales for its most recently completely fiscal
year and if the Company's net sales of said product or service amounted
to 25% of the Company's net sales for its most recently completed
fiscal year. "Competitive Activity" will not include (i) the mere
ownership of securities in any such enterprise and the exercise of
rights appurtenant thereto or (ii) participation in the management of
any such enterprise other than in connection with the competitive
operations of such enterprise.
(f) "Employee Benefits" means the perquisites, benefits and
service credit for benefits as provided under any and all employee
retirement income and welfare benefit policies, plans, programs or
arrangements in which Executive is entitled to participate, including
without limitation any stock option, performance share, performance
unit, stock purchase, stock appreciation, savings, pension,
supplemental executive retirement, or other retirement income or
welfare benefit, deferred compensation, incentive compensation, group
or other life, health, medical/hospital or other insurance (whether
funded by actual insurance or self-insured by the Company), disability,
salary continuation, expense reimbursement and other employee benefit
policies, plans, programs or arrangements that may now exist or any
equivalent successor policies, plans, programs or arrangements that may
be adopted hereafter by the Company or a Subsidiary.
(g) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(h) "Incentive Pay" means an annual amount equal to not less
than the average of the annual bonus made or to be made in regard to
services rendered in any fiscal year during the three fiscal years
immediately preceding, or, if greater, 75% of the maximum bonus
opportunity for, the fiscal year in which the Change in Control occurs
pursuant to the Executive Incentive Compensation Program or similar
annual bonus plan, program or arrangement (whether or not funded) of
the Company, or any successor thereto.
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(i) "Severance Period" means the period of time commencing on
the date of the first occurrence of a Change in Control and continuing
until the earliest of (i) the third anniversary of the occurrence of
the Change in Control, (ii) the Executive's death, or (iii) the
Executive's attainment of age 65.
(j) "Subsidiary" means a corporation, company or other entity
(i) more than 50% of whose outstanding shares or securities
(representing the right to vote for the election of directors or other
managing authority) are, or (ii) 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% 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 except that for purposes of determining
whether any person may be a Participant for purposes of any grant of
incentive stock options, "Subsidiary" means any corporation in which at
the time the Company owns or controls, directly or indirectly, more
than 50% of the total combined voting power represented by all classes
of stock issued by such corporation.
(k) "Term" means the period commencing as of the date hereof
and expiring as of the later of (i) the close of business on December
31, 2002, or (ii) the expiration of the Severance Period; PROVIDED,
HOWEVER, that (A) commencing on January 1, 2001 and each January 1
thereafter, the term of this Agreement will automatically be extended
for an additional year unless, not later than September 30 of the
immediately preceding year, the Company or the Executive shall have
given notice that it or the Executive, as the case may be, does not
wish to have the Term extended and (B) subject to the last sentence of
Section 9, if, prior to a Change in Control, the Executive ceases for
any reason to be an employee of the Company and any Subsidiary,
thereupon without further action the Term shall be deemed to have
expired and this Agreement will immediately terminate and be of no
further effect. For purposes of this Section 1(k), the Executive shall
not be deemed to have ceased to be an employee of the Company and any
Subsidiary by reason of the transfer of Executive's employment between
the Company and any Subsidiary, or among any Subsidiaries.
(l) "Termination Date" means the date on which the Executive's
employment is terminated (the effective date of which shall be the date
of termination, or such other date that may be specified by the
Executive if the termination is pursuant to Section 3(b)).
2. OPERATION OF AGREEMENT. This Agreement will be effective
and binding immediately upon its execution, but, anything in this Agreement to
the contrary notwithstanding, this Agreement will not be operative unless and
until a Change in Control occurs. Upon the occurrence of a Change in Control at
any time during the Term, without further action, this Agreement shall become
immediately operative.
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3. TERMINATION FOLLOWING A CHANGE IN CONTROL.
(a) If the Executive's employment is terminated by the Company
or any Subsidiary during the Severance Period, the Executive shall be
entitled to the benefits provided by Section 4 unless such termination
is the result of the occurrence of one or more of the following events:
(i) The Executive's death;
(ii) If the Executive becomes permanently disabled
within the meaning of, and begins actually to receive disability
benefits pursuant to, the long-term disability plan in effect for, or
applicable to, Executive immediately prior to the Change in Control; or
(iii) Cause.
(b) If the Executive terminates his employment with the
Company and its Subsidiaries during the Severance Period, the Executive
shall be entitled to the benefits provided by Section 4 if such
termination follows the occurrence of one or more of the following
events (regardless of whether any other reason, other than Cause as
hereinabove provided, for such termination exists or has occurred,
including without limitation other employment):
(i) Failure to elect or reelect or otherwise to
maintain the Executive in the office or the position, or a
substantially equivalent office or position, of or with the
Company and/or a Subsidiary, as the case may be, which the
Executive held immediately prior to a Change in Control, or
the failure to reelect or the removal of the Executive as a
Director of the Company (or any successor thereto) if the
Executive shall have been a Director of the Company
immediately prior to the Change in Control;
(ii) (A) A significant adverse change in the nature
or scope of the authorities, powers, functions,
responsibilities or duties attached to the position with the
Company and any Subsidiary which the Executive held
immediately prior to the Change in Control, (B) a reduction in
the Executive's Base Pay, (C) a reduction in the Executive's
opportunities for Incentive Pay (including but not limited to
a reduction in target bonus percentage or target award
opportunity (whether measured by dollar amount or management
objectives)) provided by the Company, or (D) the termination
or denial of the Executive's rights to Employee Benefits or a
reduction in the scope or aggregate value thereof, any of
which is not remedied by the Company within ten calendar days
after receipt by the Company of written notice from the
Executive of such change, reduction or termination, as the
case may be;
(iii) A determination by the Executive (which
determination will be conclusive and binding upon the parties
hereto provided it has been made in good faith and in all
events will be presumed to have been made in good faith unless
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otherwise shown by the Company by clear and convincing
evidence) that a change in circumstances has occurred
following a Change in Control, including, without limitation,
a change in the scope of the business or other activities for
which the Executive was responsible immediately prior to the
Change in Control, which has rendered the Executive
substantially unable to carry out, has substantially hindered
Executive's performance of, or has caused Executive to suffer
a substantial reduction in, any of the authorities, powers,
functions, responsibilities or duties attached to the position
held by the Executive immediately prior to the Change in
Control, which situation is not remedied within ten calendar
days after written notice to the Company from the Executive of
such determination;
(iv) The liquidation, dissolution, merger,
consolidation or reorganization of the Company or transfer of
all or substantially all of its business and/or assets, unless
the successor or successors (by liquidation, merger,
consolidation, reorganization, transfer or otherwise) to which
all or substantially all of its business and/or assets have
been transferred (directly or by operation of law) assumed all
duties and obligations of the Company under this Agreement
pursuant to Section 12(a);
(v) The Company relocates its principal executive
offices, or requires the Executive to have his principal
location of work changed, to any location that is in excess of
thirty miles from the location thereof immediately prior to
the Change in Control, or requires the Executive to travel
away from his office in the course of discharging his
responsibilities or duties of his employment more than
fourteen consecutive calendar days or an aggregate of more
than ninety calendar days in any consecutive 365 calendar-day
period, without, in either case, his prior written consent; or
(vi) Without limiting the generality or effect of the
foregoing, any material breach of this Agreement by the
Company or any successor thereto which is not remedied by the
Company within ten calendar days after receipt by the Company
of written notice from the Executive of such breach.
(c) A termination by the Company pursuant to Section 3(a)
(other than as described in Section 3(a)(i), (ii) or (iii)) or by the
Executive pursuant to Section 3(b) will not affect any rights that the
Executive may have pursuant to any agreement, policy, plan, program or
arrangement of the Company providing Employee Benefits, which rights
shall be governed by the terms thereof.
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4. SEVERANCE COMPENSATION.
(a) Severance benefits to which the Executive is entitled
pursuant to Section 3 are described on Annex A. The Company will pay to
the Executive the amounts described in Paragraphs (1), (2) and (3) of
Annex A within five business days after the Termination Date or, if
later, upon the expiration of the revocation period provided for in
Annex C. The benefits and perquisites described in Paragraphs (4), (5),
(6) and (7) of Annex A will be provided to the Executive as described
therein.
(b) Without limiting the rights of the Executive at law or in
equity, if the Company fails to make any payment or provide any benefit
required to be made or provided hereunder on a timely basis, the
Company will pay interest on the amount or value thereof at an
annualized rate of interest equal to the so-called composite "prime
rate" as quoted from time to time during the relevant period in the
Midwest Edition of THE WALL STREET JOURNAL. Such interest will be
payable as it accrues on demand. Any change in such prime rate will be
effective on and as of the date of such change.
(c) Notwithstanding any provision of this Agreement to the
contrary, the parties' respective rights and obligations under this
Section 4 and under Sections 5 and 7 will survive any termination or
expiration of this Agreement or the termination of the Executive's
employment following a Change in Control for any reason whatsoever.
5. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event that this Agreement shall become
operative and it shall be determined (as hereafter provided) that any
payment or distribution by the Company or any of its affiliates to or
for the benefit of the Executive, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise pursuant to or by reason of any other agreement, policy,
plan, program or arrangement, including without limitation any stock
option, performance share, performance unit, stock appreciation right
or similar right, or the lapse or termination of any restriction on, or
the vesting or exercisability of, any of the foregoing (a "Payment"),
would be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code") (or any
successor provision thereto) by reason of being considered "contingent
on a change in ownership or control" of the Company, within the meaning
of Section 280G of the Code (or any successor provision thereto) or to
any similar tax imposed by state or local law, or any interest or
penalties with respect to such tax (such tax or taxes, together with
any such interest and penalties, being hereafter collectively referred
to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment or payments (collectively, a "Gross-Up
Payment"); PROVIDED, HOWEVER, that no Gross-up Payment shall be made
with respect to the Excise Tax, if any, attributable to (i) any
incentive stock option, as defined by Section 422 of the Code ("ISO")
granted prior to the execution of this Agreement, or (ii) any stock
appreciation or similar right, whether or not limited, granted in
tandem with any ISO described in clause (i). The Gross-Up Payment shall
be in an amount such that, after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such
taxes), including any Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of
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the Gross-Up Payment equal to the Excise Tax imposed upon the Payment.
(b) Subject to the provisions of Section 5(f), all
determinations required to be made under this Section 5, including
whether an Excise Tax is payable by the Executive and the amount of
such Excise Tax and whether a Gross-Up Payment is required to be paid
by the Company to the Executive and the amount of such Gross-Up
Payment, if any, shall be made by a nationally recognized accounting
firm (the "Accounting Firm") selected by the Executive in his sole
discretion. The Executive shall direct the Accounting Firm to submit
its determination and detailed supporting calculations to both the
Company and the Executive within 30 calendar days after the Termination
Date, if applicable, and any such other time or times as may be
requested by the Company or the Executive. If the Accounting Firm
determines that any Excise Tax is payable by the Executive, the Company
shall pay the required Gross-Up Payment to the Executive within five
business days after receipt of such determination and calculations with
respect to any Payment to the Executive. If the Accounting Firm
determines that no Excise Tax is payable by the Executive, it shall, at
the same time as it makes such determination, furnish the Company and
the Executive an opinion that the Executive has substantial authority
not to report any Excise Tax on his federal, state or local income or
other tax return. As a result of the uncertainty in the application of
Section 4999 of the Code (or any successor provision thereto) and the
possibility of similar uncertainty regarding applicable state or local
tax law at the time of any determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have
been made by the Company should have been made (an "Underpayment"),
consistent with the calculations required to be made hereunder. In the
event that the Company exhausts or fails to pursue its remedies
pursuant to Section 5(f) and the Executive thereafter is required to
make a payment of any Excise Tax, the Executive shall direct the
Accounting Firm to determine the amount of the Underpayment that has
occurred and to submit its determination and detailed supporting
calculations to both the Company and the Executive as promptly as
possible. Any such Underpayment shall be promptly paid by the Company
to, or for the benefit of, the Executive within five business days
after receipt of such determination and calculations.
(c) The Company and the Executive shall each provide the
Accounting Firm access to and copies of any books, records and
documents in the possession of the Company or the Executive, as the
case may be, reasonably requested by the Accounting Firm, and otherwise
cooperate with the Accounting Firm in connection with the preparation
and issuance of the determinations and calculations contemplated by
Section 5(b). Any determination by the Accounting Firm as to the amount
of the Gross-Up Payment shall be binding upon the Company and the
Executive.
(d) The federal, state and local income or other tax returns
filed by the Executive shall be prepared and filed on a consistent
basis with the determination of the Accounting Firm with respect to the
Excise Tax payable by the Executive. The Executive shall make proper
payment of the amount of any Excise Payment, and at the request of the
Company, provide to the Company true and correct copies (with any
amendments) of his federal income tax return as filed with the Internal
Revenue Service and corresponding state and local tax returns, if
relevant, as filed with the applicable
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<PAGE> 10
taxing authority, and such other documents reasonably requested by the
Company, evidencing such payment. If prior to the filing of the
Executive's federal income tax return, or corresponding state or local
tax return, if relevant, the Accounting Firm determines that the amount
of the Gross-Up Payment should be reduced, the Executive shall within
five business days pay to the Company the amount of such reduction.
(e) The fees and expenses of the Accounting Firm for its
services in connection with the determinations and calculations
contemplated by Section 5(b) shall be borne by the Company. If such
fees and expenses are initially paid by the Executive, the Company
shall reimburse the Executive the full amount of such fees and expenses
within five business days after receipt from the Executive of a
statement therefor and reasonable evidence of his payment thereof.
(f) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service or any other taxing authority
that, if successful, would require the payment by the Company of a
Gross-Up Payment. Such notification shall be given as promptly as
practicable but no later than ten business days after the Executive
actually receives notice of such claim and the Executive shall further
apprise the Company of the nature of such claim and the date on which
such claim is requested to be paid (in each case, to the extent known
by the Executive). The Executive shall not pay such claim prior to the
earlier of (i) the expiration of the thirty calendar-day period
following the date on which he gives such notice to the Company and
(ii) the date that any payment of amount with respect to such claim is
due. If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the
Executive shall:
(i) provide the Company with any written records or
documents in his possession relating to such claim reasonably
requested by the Company;
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing
from time to time, including without limitation accepting
legal representation with respect to such claim by an attorney
competent in respect of the subject matter and reasonably
selected by the Company;
(iii) cooperate with the Company in good faith in
order effectively to contest such claim; and
(iv) permit the Company to participate in any
proceedings relating to such claim;
PROVIDED, HOWEVER, that the Company shall bear and pay directly all
costs and expenses (including interest and penalties) incurred in
connection with such contest and shall indemnify and hold harmless the
Executive, on an after-tax basis, for and against any Excise Tax or
income tax, including interest and penalties with respect thereto,
imposed as a result of such representation and payment of costs and
expenses. Without limiting the foregoing provisions of this Section
5(f), the Company shall control all proceedings taken in connection
with the contest of any claim contemplated by this Section 5(f) and,
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<PAGE> 11
at its sole option, may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim (provided, however, that the
Executive may participate therein at his own cost and expense) and may,
at its option, either direct the Executive to pay the tax claimed and
sue for a refund or contest the claim in any permissible manner, and
the Executive agrees to prosecute such contest to a determination
before any administrative tribunal, in a court of initial jurisdiction
and in one or more appellate courts, as the Company shall determine;
PROVIDED, HOWEVER, that if the Company directs the Executive to pay the
tax claimed and sue for a refund, the Company shall advance the amount
of such payment to the Executive on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from
any Excise Tax or income or other tax, including interest or penalties
with respect thereto, imposed with respect to such advance; and
PROVIDED FURTHER, HOWEVER, that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the
Executive with respect to which the contested amount is claimed to be
due is limited solely to such contested amount. Furthermore, the
Company's control of any such contested claim shall be limited to
issues with respect to which a Gross-Up Payment would be payable
hereunder and the Executive shall be entitled to settle or contest, as
the case may be, any other issue raised by the Internal Revenue Service
or any other taxing authority.
(g) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 5(f), the Executive
receives any refund with respect to such claim, the Executive shall
(subject to the Company's complying with the requirements of Section
5(f)) promptly pay to the Company the amount of such refund (together
with any interest paid or credited thereon after any taxes applicable
thereto). If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 5(f), a determination is made that
the Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its
intent to contest such denial or refund prior to the expiration of
thirty calendar days after such determination, then such advance shall
be forgiven and shall not be required to be repaid and the amount of
any such advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid by the Company to the Executive
pursuant to this Section 5.
6. NO MITIGATION OBLIGATION. The Company hereby acknowledges
that it will be difficult and may be impossible for the Executive to find
reasonably comparable employment following the Termination Date and that the
non-competition covenant contained in Section 8 will further limit the
employment opportunities for the Executive. In addition, the Company
acknowledges that its severance pay plans applicable in general to its salaried
employees do not provide for mitigation, offset or reduction of any severance
payment received thereunder. Accordingly, the payment of the severance
compensation by the Company to the Executive in accordance with the terms of
this Agreement is hereby acknowledged by the Company to be reasonable, and the
Executive will not be required to mitigate the amount of any payment provided
for in this Agreement by seeking other employment or otherwise, nor will any
profits, income, earnings or other benefits from any source whatsoever create
any mitigation, offset, reduction or any other obligation on the part of the
Executive hereunder or otherwise, except as expressly provided in the last
sentences of Paragraphs (2) and (4) of Annex A.
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7. FUNDING; PROFESSIONAL FEES AND EXPENSES.
(a) It is the intent of the Company that the Executive not be
required to incur fees and related expenses for the retention of
attorneys, accountants, actuaries, consultants, and/or other
professionals ("professionals") in connection with the interpretation,
enforcement or defense of Executive's rights under this Agreement by
litigation or otherwise because the cost and expense thereof would
substantially detract from the benefits intended to be extended to the
Executive hereunder. Accordingly, if it should appear to the Executive
that the Company has failed to comply with any of its obligations under
this Agreement or in the event that the Company or any other person
takes or threatens to take any action to declare this Agreement void or
unenforceable, or institutes any litigation or other action or
proceeding designed to deny, or to recover from, the Executive the
benefits provided or intended to be provided to the Executive
hereunder, the Company irrevocably authorizes the Executive from time
to time to retain one or more professionals of the Executive's choice,
at the expense of the Company as hereafter provided, to advise and
represent the Executive in connection with any such interpretation,
enforcement or defense, including without limitation the initiation or
defense of any litigation or other legal action, whether by or against
the Company or any Director, officer, stockholder or other person
affiliated with the Company, in any jurisdiction. Notwithstanding any
existing or prior relationship between the Company and such
professional, the Company irrevocably consents to the Executive's
entering into a relationship with any such professional, and in that
connection the Company and the Executive agree that a confidential
relationship shall exist between the Executive and any such
professional. Without respect to whether the Executive prevails, in
whole or in part, in connection with any of the foregoing, the Company
will pay and be solely financially responsible for any and all
reasonable fees and related expenses incurred by the Executive in
connection with any of the foregoing.
(b) Without limiting the obligations of the Company pursuant
to this Agreement, in the event a Change in Control occurs, the
performance of the Company's obligations under this Agreement shall be
secured by amounts deposited or to be deposited in trust pursuant to
certain trust agreements to which the Company shall be a party,
providing, among other things for the payment of severance compensation
to the Executive pursuant to Section 4, and the Gross-Up Payment to the
Executive pursuant to Section 5, and providing that the reasonable fees
and related expenses of one or more professionals selected from time to
time by the Executive pursuant to Section 7(a) shall be paid, or
reimbursed to the Executive if paid by the Executive, either in
accordance with the terms of such trust agreements, or, if not so
provided, on a regular, periodic basis upon presentation by the
Executive to the trustee of a statement or statements prepared by such
professional in accordance with its customary practices. Any failure by
the Company to satisfy any of its obligations under this Section 7(b)
shall not limit the rights of the Executive hereunder. Upon the earlier
to occur of (i) a Change of a Control or (ii) a declaration by the
Board that a Change in Control is imminent, the Company shall promptly
to the extent it has not previously done so, and in any event within
five business days:
(A) transfer to trustees of such trust agreements to
be added to the principal of the trusts a sum equal to (I) the
present value on the date of the
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Change in Control (or on such fifth business day if the Board
has declared a Change in Control to be imminent) of the
payments to be made to the Executive under the provisions of
Sections 4 and 5 hereof, such present value to be computed
using the assumptions set forth on Annex B, less (II) the
balance in the Executive's accounts provided for in such trust
agreements as of the most recent completed valuation thereof,
as certified by the trustee under each trust agreement;
provided, however, that if the trustee under any trust
agreement, respectively, does not so certify by the end of the
fourth business day after the earlier of such Change in
Control or declaration, then the balance of such respective
account shall be deemed to be zero. Any payments of severance
compensation or other benefits hereunder by the trustee
pursuant to any trust agreement shall, to the extent thereof,
discharge the Company's obligation to pay severance
compensation and other benefits hereunder, it being the intent
of the Company that assets in such trusts be held as security
for the Company's obligation to pay severance compensation and
other benefits under this Agreement; and
(B) transfer to the trustees to be added to the
principal of the trusts under the trust agreements the sum of
FIVE HUNDRED THOUSAND DOLLARS ($500,000) less any principal in
such trusts on such fifth business day dedicated to the
payment of the Company's obligations under Section 7(a)
hereto. Any payments of the Executive's reasonable
professional fees and related expenses by the trustees
pursuant to the trust agreements shall, to the extent thereof,
discharge the Company's obligation hereunder, it being the
intent of the Company that assets in such trust be held as
security for the Company's obligation under Section 7(a)
hereof. The Executive understands and acknowledges that the
corpus of the trust, or separate portion thereof, dedicated to
the payment of the Company's obligations under Section 7(a)
hereto will be $500,000 and that such amount will be available
to discharge not only the obligations of the Company to the
Executive under Section 7(a) hereof, but also similar
obligations of the Company to other executives and employees
under similar provisions of other agreements.
(c) Subject to the foregoing, the Executive shall have the
status of a general unsecured creditor of the Company and shall have no
right to, or security interest in, any assets of the Company or any
Subsidiary.
8. COMPETITIVE ACTIVITY. During a period ending three (3)
years following the Termination Date, if the Executive shall have received or
shall be receiving benefits under Section 4, the Executive shall not, without
the prior written consent of the Company, which consent shall not be
unreasonably withheld, engage in any Competitive Activity.
9. EMPLOYMENT RIGHTS. Nothing expressed or implied in this
Agreement will create any right or duty on the part of the Company or the
Executive to have the Executive remain in the employment of the Company or any
Subsidiary prior to or following any Change in Control. Any termination of
employment of the Executive or the removal of the Executive from the office or
position in the Company or any Subsidiary following the commencement of any
action by or discussion with a third person that ultimately results in a Change
in Control shall be
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<PAGE> 14
deemed to be a termination or removal of the Executive after a Change in Control
for purposes of this Agreement entitling the Executive to severance benefits
provided by Section 4.
10. RELEASE. Payment of the severance compensation set forth
in Section 4 hereto is conditioned upon the Executive executing and delivering a
release (the "Release") substantially in the form provided in Annex C.
11. WITHHOLDING OF TAXES. The Company may withhold from any
amounts payable under this Agreement all federal, state, city or other taxes as
the Company is required to withhold pursuant to any law or government regulation
or ruling.
12. SUCCESSORS AND BINDING AGREEMENT.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation, reorganization or
otherwise) to all or substantially all of the business or assets of the
Company, by agreement in form and substance satisfactory to the
Executive, expressly to assume and agree to perform this Agreement in
the same manner and to the same extent the Company would be required to
perform if no such succession had taken place. This Agreement will be
binding upon and inure to the benefit of the Company and any successor
to the Company, including without limitation any persons acquiring
directly or indirectly all or substantially all of the business or
assets of the Company whether by purchase, merger, consolidation,
reorganization or otherwise (and such successor shall thereafter be
deemed the "Company" for the purposes of this Agreement), but will not
otherwise be assignable, transferable or delegable by the Company.
(b) This Agreement will inure to the benefit of and be
enforceable by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees and
legatees.
(c) This Agreement is personal in nature and neither of the
parties hereto shall, without the consent of the other, assign,
transfer or delegate this Agreement or any rights or obligations
hereunder except as expressly provided in Sections 12(a) and 12(b).
Without limiting the generality or effect of the foregoing, the
Executive's right to receive payments hereunder will not be assignable,
transferable or delegable, whether by pledge, creation of a security
interest, or otherwise, other than by a transfer by Executive's will or
by the laws of descent and distribution and, in the event of any
attempted assignment or transfer contrary to this Section 12(c), the
Company shall have no liability to pay any amount so attempted to be
assigned, transferred or delegated.
13. NOTICES. For all purposes of this Agreement, all
communications, including without limitation notices, consents, requests or
approvals, required or permitted to be given hereunder will be in writing and
will be deemed to have been duly given when hand delivered or dispatched by
electronic facsimile transmission (with receipt thereof orally confirmed), or
five business days after having been mailed by United States registered or
certified mail, return receipt requested, postage prepaid, or three business
days after having been sent by a nationally recognized overnight courier service
such as Federal Express, UPS, or Purolator, addressed to the Company (to the
attention of the Secretary of the Company) at its
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<PAGE> 15
principal executive office and to the Executive at his principal residence, or
to such other address as any party may have furnished to the other in writing
and in accordance herewith, except that notices of changes of address shall be
effective only upon receipt.
14. GOVERNING LAW. The validity, interpretation, construction
and performance of this Agreement will be governed by and construed in
accordance with the substantive laws of the State of Ohio, without giving effect
to the principles of conflict of laws of such State.
15. VALIDITY. If any provision of this Agreement or the
application of any provision hereof to any person or circumstances is held
invalid, unenforceable or otherwise illegal, the remainder of this Agreement and
the application of such provision to any other person or circumstances will not
be affected, and the provision so held to be invalid, unenforceable or otherwise
illegal will be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid or legal.
16. MISCELLANEOUS. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and the Company. No waiver by
either party hereto at any time of any breach by the other party hereto or
compliance with any condition or provision of this Agreement to be performed by
such other party will be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, expressed or implied with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. References to Sections are to references to
Sections of this Agreement.
17. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same agreement.
-15-
<PAGE> 16
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed and delivered as of the date first above written.
-------------------------------
Nathaniel J. Mass
OMNOVA SOLUTIONS INC.
By:
-----------------------------
John B. Yasinsky
Chairman and Chief Executive Officer
By:
-----------------------------
Cynthia A. Slack
Secretary
-16-
<PAGE> 17
Annex A
-------
Severance Compensation
----------------------
1. BASE PAY AND ANNUAL BONUS. A lump sum payment in an amount
equal to (a) any unpaid Base Pay through the date of the Executive's termination
of employment and (b) any annual bonus payable in the year in which the
Executive's termination of employment occurs, determined in accordance with the
provisions of the Executive Incentive Compensation Program.
2. SEVERANCE PAY. A lump sum payment in an amount equal to
three (3) times the sum of (A) Base Pay (at the highest rate in effect for any
period prior to the Termination Date), plus (B) Incentive Pay (determined in
accordance with the standards set forth in Section 1(h)), but not less than 375%
of Base Pay (at the highest rate in effect for any period prior to the
Termination Date). If the Executive is entitled to a severance payment under
this Agreement and termination pay under his Employment Agreement dated May 10,
1996, due to the termination of his employment after a Change in Control, then
the severance payment described in the preceding sentence will be reduced by the
total amount of the termination pay which is paid or payable to the Executive
under the Employment Agreement as a result of such termination.
3. PERFORMANCE AWARDS: Upon an Executive's termination of
employment pursuant to Section 3(b), all performance awards under the Omnova
Solutions Inc. 1999 Equity and Performance Incentive Plan, if any, will be paid
in accordance with the provisions of such Plan.
4. HEALTH AND LIFE BENEFITS. For a period of 36 months
following the Termination Date (the "Continuation Period"), the Company will
arrange to provide the Executive with Employee Benefits that provide health and
life benefits (but not disability, stock option, performance share, performance
unit, stock purchase, stock appreciation or similar compensatory benefits)
substantially similar to those that the Executive was receiving or entitled to
receive immediately prior to the Termination Date (or, if greater, immediately
prior to the reduction, termination, or denial described in Section 3(b)(ii)),
except that the level of any such Employee Benefits to be provided to the
Executive may be reduced in the event of a corresponding reduction generally
applicable to all recipients of or participants in such Employee Benefits. If
and to the extent that any benefit described in this Paragraph 4 is not or
cannot be paid or provided under any policy, plan, program or arrangement of the
Company or any Subsidiary, as the case may be, then the Company will itself pay
or provide for the payment to the Executive, his dependents and beneficiaries,
of such Employee Benefits. Employee Benefits otherwise receivable by the
Executive pursuant to this Paragraph 4 will be reduced to the extent comparable
welfare benefits are actually received by the Executive from another employer
during the Continuation Period following the Executive's Termination Date, and
any such benefits actually received by the Executive shall be reported by the
Executive to the Company.
<PAGE> 18
5. RETIREMENT BENEFITS. Retirement benefits under the
applicable qualified pension plan sponsored by the Company or Subsidiary and the
Benefits Restoration Plan for Salaried Employees of Omnova Solutions Inc. and
Certain Subsidiary Companies ("Benefits Restoration Plan") that are accrued but
not vested at the time of the Executive's termination of employment will be
vested in accordance with the provisions of the Benefits Restoration Plan.
6. OUTPLACEMENT SERVICES. Outplacement services for a period
of up to twelve months by a firm selected by the Executive, at the expense of
the Company in an amount up to 20% of the Executive's Base Pay.
7. FINANCIAL COUNSELING. Financial counseling for the
Continuation Period as defined in Paragraph (4) of this Annex A in a manner
similar to that provided to executive officers prior to a Change in Control.
A-2
<PAGE> 19
Annex B
-------
Funding Assumptions
-------------------
In calculating the present value of payments to be made to the Executive under
Sections 4 and 5 of the Agreement, as required by Section 7(b)(B) of the
Agreement, the Company shall:
(1) Assume that all payments to be made to the Executive shall be paid
on a date which is six (6) months following the date of the Change in Control;
and
(2) Apply a discount factor which is equal to the yield to maturity, as
reported in the Midwest Editions of THE WALL STREET JOURNAL, of the 26-week
Treasury Bill most recently issued as of the date of the Change in Control.
<PAGE> 20
Annex C
-------
Form of Release
---------------
WHEREAS, the Executive's employment has been terminated in
accordance with Section 3(a) (other than as described in Section 3(a)(i), (ii)
or (iii)) or (b) of the Severance Agreement dated as of __________ , 1999, by
and between __________________________ (the "Executive") and Omnova Solutions
Inc. (the "Agreement").
WHEREAS, the Executive is required to sign this Release in
order to receive the Severance Compensation as described in Annex A of the
Agreement and the other benefits described in the Agreement.
NOW THEREFORE, in consideration of the promises and agreements
contained herein and other good and valuable consideration, the sufficiency and
receipt of which are hereby acknowledged, and intending to be legally bound, the
Executive agrees as follows:
1. This Release is effective on the date hereof and will continue in
effect as provided herein.
2. In consideration of the payments to be made and the benefits to be
received by the Executive pursuant to the Agreement, which the Executive
acknowledges are in addition to payments and benefits which the Executive would
be entitled to receive absent the Agreement, the Executive, for himself and his
dependents, successors, assigns, heirs, executors and administrators (and his
and their legal representatives of every kind), hereby releases, dismisses,
remises and forever discharges Omnova Solutions Inc., its predecessors, parents,
subsidiaries, divisions, related or affiliated companies, officers, directors,
stockholders, members, employees, heirs, successors, assigns, representatives,
agents and counsel (the "Company") from any and all arbitrations, claims,
including claims for attorney's fees, demands, damages, suits, proceedings,
actions and/or causes of action of any kind and every description, whether known
or unknown, which Executive now has or may have had for, upon, or by reason of
any cause whatsoever ("claims"), against the Company, including but not limited
to:
(a) any and all claims arising out of or relating to
Executive's employment by or service with the Company and his
termination from the Company;
(b) any and all claims of discrimination, including but not
limited to claims of discrimination on the basis of sex, race, age,
national origin, marital status, religion or handicap, including,
specifically, but without limiting the generality of the foregoing, any
claims under the Age Discrimination in Employment Act, as amended,
Title VII of the Civil Rights Act of 1964, as amended, the Americans
with Disabilities Act, Ohio Revised Code Section 4101.17 and Ohio
Revised Code Chapter 4112, including Sections 4112.02 and 4112.99
thereof; and
<PAGE> 21
(c) any and all claims of wrongful or unjust discharge or
breach of any contract or promise, express or implied.
3. Executive understands and acknowledges that the Company does not
admit any violation of law, liability or invasion of any of his rights and that
any such violation, liability or invasion is expressly denied. The consideration
provided for this Release is made for the purpose of settling and extinguishing
all claims and rights (and every other similar or dissimilar matter) that
Executive ever had or now may have against the Company to the extent provided in
this Release. Executive further agrees and acknowledges that no representations,
promises or inducements have been made by the Company other than as appear in
the Agreement.
4. Executive further agrees and acknowledges that:
(a) The release provided for herein releases claims to and
including the date of this Release;
(b) He has been advised by the Company to consult with legal
counsel prior to executing this Release, has had an opportunity to
consult with and to be advised by legal counsel of his choice, fully
understands the terms of this Release, and enters into this Release
freely, voluntarily and intending to be bound;
(c) He has been given a period of 21 days to review and
consider the terms of this Release, prior to its execution and that he
may use as much of the 21 day period as he desires; and
(d) He may, within 7 days after execution, revoke this
Release. Revocation shall be made by delivering a written notice of
revocation to the Vice President of Human Resources at the Company. For
such revocation to be effective, written notice must be actually
received by the Vice President of Human Resources at the Company no
later than the close of business on the 7th day after Executive
executes this Release. If Executive does exercise his right to revoke
this Release, all of the terms and conditions of the Release shall be
of no force and effect and the Company shall not have any obligation to
make payments or provide benefits to Executive as set forth in Sections
4, 5 and 7 of the Agreement.
5. Executive agrees that he will never file a lawsuit or other
complaint asserting any claim that is released in this Release.
C-2
<PAGE> 22
6. Executive waives and releases any claim that he has or may have to
reemployment after __________________.
IN WITNESS WHEREOF, the Executive has executed and delivered
this Release on the date set forth below.
Dated:_____________________ ___________________________________
Executive
C-3
<PAGE> 1
Exhibit 10.6
SEVERANCE AGREEMENT
-------------------
THIS AMENDED AND RESTATED SEVERANCE AGREEMENT (this
"Agreement"), dated as of _________, 1999, is made and entered by and between
Omnova Solutions Inc., an Ohio corporation (the "Company"), and
_____________________ (the "Executive").
WITNESSETH:
-----------
WHEREAS, the Executive is a senior executive or a key employee
of the Company or one or more of its Subsidiaries and has made and is expected
to continue to make major contributions to the short- and long-term
profitability, growth and financial strength of the Company;
WHEREAS, the Company recognizes that, as is the case for most
publicly held companies, the possibility of a Change in Control (as defined
below) exists;
WHEREAS, the Company desires to assure itself of both present
and future continuity of management and desires to establish certain minimum
severance benefits for certain of its senior executives and key employees,
including the Executive, applicable in the event of a Change in Control;
WHEREAS, the Company wishes to ensure that its senior
executives and key employees are not practically disabled from discharging their
duties in respect of a proposed or actual transaction involving a Change in
Control; and
WHEREAS, the Company desires to provide additional inducement
for the Executive to continue to remain in the ongoing employ of the Company.
NOW, THEREFORE, the Company and the Executive agree as
follows:
1. CERTAIN DEFINED TERMS. In addition to terms defined
elsewhere herein, the following terms have the following meanings when used in
this Agreement with initial capital letters:
(a) "Base Pay" means the Executive's annual base salary at a
rate not less than the Executive's annual fixed or base compensation as
in effect for Executive immediately prior to the occurrence of a Change
in Control or such higher rate as may be determined from time to time
by the Board or a committee thereof.
(b) "Board" means the Board of Directors of the Company.
(c) "Cause" means that, prior to any termination pursuant to
Section 3(b), the Executive shall have committed:
<PAGE> 2
(i) a criminal violation involving fraud,
embezzlement or theft in connection with his duties or in the
course of his employment with the Company or any Subsidiary;
(ii) intentional wrongful damage to property of the
Company or any Subsidiary;
(iii) intentional wrongful disclosure of secret
processes or confidential information of the Company or any
Subsidiary; or
(iv) intentional wrongful engagement in any
Competitive Activity;
and any such act shall have been demonstrably and materially harmful to
the Company. For purposes of this Agreement, no act or failure to act
on the part of the Executive shall be deemed "intentional" if it was
due primarily to an error in judgment or negligence, but shall be
deemed "intentional" only if done or omitted to be done by the
Executive not in good faith and without reasonable belief that his
action or omission was in the best interest of the Company.
Notwithstanding the foregoing, the Executive shall not be deemed to
have been terminated for "Cause" hereunder unless and until there shall
have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of not less than two-thirds of the
Board then in office at a meeting of the Board called and held for such
purpose, after reasonable notice to the Executive and an opportunity
for the Executive, together with his counsel (if the Executive chooses
to have counsel present at such meeting), to be heard before the Board,
finding that, in the good faith opinion of the Board, the Executive had
committed an act constituting "Cause" as herein defined and specifying
the particulars thereof in detail. Nothing herein will limit the right
of the Executive or his beneficiaries to contest the validity or
propriety of any such determination.
(d) "Change in Control" means the occurrence during the Term
of any of the following events, subject to the provisions of Section
1(d)(v) hereof:
(i) All or substantially all of the assets of the
Company are sold or transferred to another corporation or
entity, or the Company is merged, consolidated or reorganized
into or with another corporation or entity, with the result
that upon conclusion of the transaction less than 51% of the
outstanding securities entitled to vote generally in the
election of directors or other capital interests of the
acquiring corporation or entity are owned directly or
indirectly, by the shareholders of the Company generally prior
to the transaction; or
(ii) There is a report filed on Schedule 13D or
Schedule 14D-1 (or any successor schedule, form or report),
each as promulgated pursuant to the
-2-
<PAGE> 3
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 (a "Person")) has become the beneficial owner (as
the term "beneficial owner" is defined under Rule 13d-3 or any
successor rule or regulation promulgated under the Exchange
Act (a "Beneficial Owner")) of securities representing 20% or
more of the combined voting power of the then-outstanding
voting securities of the Company; or
(iii) The individuals who, at the beginning of any
period of two consecutive calendar years, constituted the
Directors of the Company cease for any reason to constitute at
least a majority thereof unless the nomination for election by
the Company's stockholders of each new Director of the Company
was approved by a vote of at least two-thirds of the Directors
of the Company still in office who were Directors of the
Company at the beginning of any such period; or
(iv) The Board determines that (A) any particular
actual or proposed merger, consolidation, reorganization, sale
or transfer of assets, accumulation of shares or tender offer
for shares of the Company or other transaction or event or
series of transactions or events will, or is likely to, if
carried out, result in a Change in Control falling within
Section 1(d)(i), (ii) or (iii) and (B) it is in the best
interests of the Company and its shareholders, and will serve
the intended purposes of this Agreement, if this Agreement
shall thereupon become immediately operative.
(v) Notwithstanding the foregoing provisions of this
Section 1(d):
(A) If any such merger, consolidation,
reorganization, sale or transfer of assets, or tender
offer or other transaction or event or series of
transactions or events mentioned in Section 1(d)(iv)
shall be abandoned, or any such accumulations of
shares shall be dispersed or otherwise resolved, the
Board may, by notice to the Executive, nullify the
effect thereof and reinstate this Agreement as
previously in effect, but without prejudice to any
action that may have been taken prior to such
nullification.
(B) Unless otherwise determined in a
specific case by the Board, a "Change in Control"
shall not be deemed to have occurred for purposes of
Section (1)(d)(ii) solely because (X) the Company,
(Y) a Subsidiary, or (Z) any Company-sponsored
employee stock ownership plan or any other employee
benefit plan of the Company or any Subsidiary either
files or becomes obligated to file a report or a
proxy statement under or in response to Schedule 13D,
Schedule 14D-1, Form 8-K or Schedule
-3-
<PAGE> 4
14A (or any successor schedule, form or report or
item therein) under the Exchange Act disclosing
Beneficial Ownership by it of shares of the
then-outstanding voting securities of the Company,
whether in excess of 20% or otherwise, or because the
Company reports that a change in control of the
Company has occurred or will occur in the future by
reason of such beneficial ownership.
(e) "Competitive Activity" means the Executive's
participation, without the written consent of an officer of the
Company, in the management of any business enterprise if such
enterprise engages in substantial and direct competition with the
Company and such enterprise's sales of any product or service
competitive with any product or service of the Company amounted to 25%
of such enterprise's net sales for its most recently completely fiscal
year and if the Company's net sales of said product or service amounted
to 25% of the Company's net sales for its most recently completed
fiscal year. "Competitive Activity" will not include (i) the mere
ownership of securities in any such enterprise and the exercise of
rights appurtenant thereto or (ii) participation in the management of
any such enterprise other than in connection with the competitive
operations of such enterprise.
(f) "Employee Benefits" means the perquisites, benefits and
service credit for benefits as provided under any and all employee
retirement income and welfare benefit policies, plans, programs or
arrangements in which Executive is entitled to participate, including
without limitation any stock option, performance share, performance
unit, stock purchase, stock appreciation, savings, pension,
supplemental executive retirement, or other retirement income or
welfare benefit, deferred compensation, incentive compensation, group
or other life, health, medical/hospital or other insurance (whether
funded by actual insurance or self-insured by the Company), disability,
salary continuation, expense reimbursement and other employee benefit
policies, plans, programs or arrangements that may now exist or any
equivalent successor policies, plans, programs or arrangements that may
be adopted hereafter by the Company or a Subsidiary.
(g) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(h) "Incentive Pay" means an annual amount equal to not less
than the average of the annual bonus made or to be made in regard to
services rendered in any fiscal year during the three fiscal years
immediately preceding, or, if greater, 75% of the maximum bonus
opportunity for, the fiscal year in which the Change in Control occurs
pursuant to the Executive Incentive Compensation Program or similar
annual bonus plan, program or arrangement (whether or not funded) of
the Company, or any successor thereto.
-4-
<PAGE> 5
(i) "Severance Period" means the period of time commencing on
the date of the first occurrence of a Change in Control and continuing
until the earliest of (i) the third anniversary of the occurrence of
the Change in Control, (ii) the Executive's death, or (iii) the
Executive's attainment of age 65.
(j) "Subsidiary" means a corporation, company or other entity
(i) more than 50% of whose outstanding shares or securities
(representing the right to vote for the election of directors or other
managing authority) are, or (ii) 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% 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 except that for purposes of determining
whether any person may be a Participant for purposes of any grant of
incentive stock options, "Subsidiary" means any corporation in which at
the time the Company owns or controls, directly or indirectly, more
than 50% of the total combined voting power represented by all classes
of stock issued by such corporation.
(k) "Term" means the period commencing as of the date hereof
and expiring as of the later of (i) the close of business on December
31, 2002, or (ii) the expiration of the Severance Period; PROVIDED,
HOWEVER, that (A) commencing on January 1, 2001 and each January 1
thereafter, the term of this Agreement will automatically be extended
for an additional year unless, not later than September 30 of the
immediately preceding year, the Company or the Executive shall have
given notice that it or the Executive, as the case may be, does not
wish to have the Term extended and (B) subject to the last sentence of
Section 9, if, prior to a Change in Control, the Executive ceases for
any reason to be an employee of the Company and any Subsidiary,
thereupon without further action the Term shall be deemed to have
expired and this Agreement will immediately terminate and be of no
further effect. For purposes of this Section 1(k), the Executive shall
not be deemed to have ceased to be an employee of the Company and any
Subsidiary by reason of the transfer of Executive's employment between
the Company and any Subsidiary, or among any Subsidiaries.
(l) "Termination Date" means the date on which the Executive's
employment is terminated (the effective date of which shall be the date
of termination, or such other date that may be specified by the
Executive if the termination is pursuant to Section 3(b)).
2. OPERATION OF AGREEMENT. This Agreement will be effective
and binding immediately upon its execution, but, anything in this Agreement to
the contrary notwithstanding, this Agreement will not be operative unless and
until a Change in Control occurs. Upon the occurrence of a Change in Control at
any time during the Term, without further action, this Agreement shall become
immediately operative.
-5-
<PAGE> 6
3. TERMINATION FOLLOWING A CHANGE IN CONTROL.
(a) If the Executive's employment is terminated by the Company
or any Subsidiary during the Severance Period, the Executive shall be
entitled to the benefits provided by Section 4 unless such termination
is the result of the occurrence of one or more of the following events:
(i) The Executive's death;
(ii) If the Executive becomes permanently disabled
within the meaning of, and begins actually to receive disability
benefits pursuant to, the long-term disability plan in effect for, or
applicable to, Executive immediately prior to the Change in Control; or
(iii) Cause.
(b) If the Executive terminates his employment with the
Company and its Subsidiaries during the Severance Period, the Executive
shall be entitled to the benefits provided by Section 4 if such
termination follows the occurrence of one or more of the following
events (regardless of whether any other reason, other than Cause as
hereinabove provided, for such termination exists or has occurred,
including without limitation other employment):
(i) Failure to elect or reelect or otherwise to
maintain the Executive in the office or the position, or a
substantially equivalent office or position, of or with the
Company and/or a Subsidiary, as the case may be, which the
Executive held immediately prior to a Change in Control, or
the failure to reelect or the removal of the Executive as a
Director of the Company (or any successor thereto) if the
Executive shall have been a Director of the Company
immediately prior to the Change in Control;
(ii) (A) A significant adverse change in the nature
or scope of the authorities, powers, functions,
responsibilities or duties attached to the position with the
Company and any Subsidiary which the Executive held
immediately prior to the Change in Control, (B) a reduction in
the Executive's Base Pay, (C) a reduction in the Executive's
opportunities for Incentive Pay (including but not limited to
a reduction in target bonus percentage or target award
opportunity (whether measured by dollar amount or management
objectives)) provided by the Company, or (D) the termination
or denial of the Executive's rights to Employee Benefits or a
reduction in the scope or aggregate value thereof, any of
which is not remedied by the Company within ten calendar days
after receipt by the Company of written notice from the
Executive of such change, reduction or termination, as the
case may be;
(iii) A determination by the Executive (which
determination will be conclusive and binding upon the parties
hereto provided it has been made in good faith and in all
events will be presumed to have been made in good faith unless
-6-
<PAGE> 7
otherwise shown by the Company by clear and convincing
evidence) that a change in circumstances has occurred
following a Change in Control, including, without limitation,
a change in the scope of the business or other activities for
which the Executive was responsible immediately prior to the
Change in Control, which has rendered the Executive
substantially unable to carry out, has substantially hindered
Executive's performance of, or has caused Executive to suffer
a substantial reduction in, any of the authorities, powers,
functions, responsibilities or duties attached to the position
held by the Executive immediately prior to the Change in
Control, which situation is not remedied within ten calendar
days after written notice to the Company from the Executive of
such determination;
(iv) The liquidation, dissolution, merger,
consolidation or reorganization of the Company or transfer of
all or substantially all of its business and/or assets, unless
the successor or successors (by liquidation, merger,
consolidation, reorganization, transfer or otherwise) to which
all or substantially all of its business and/or assets have
been transferred (directly or by operation of law) assumed all
duties and obligations of the Company under this Agreement
pursuant to Section 12(a);
(v) The Company relocates its principal executive
offices, or requires the Executive to have his principal
location of work changed, to any location that is in excess of
thirty miles from the location thereof immediately prior to
the Change in Control, or requires the Executive to travel
away from his office in the course of discharging his
responsibilities or duties of his employment more than
fourteen consecutive calendar days or an aggregate of more
than ninety calendar days in any consecutive 365 calendar-day
period, without, in either case, his prior written consent; or
(vi) Without limiting the generality or effect of the
foregoing, any material breach of this Agreement by the
Company or any successor thereto which is not remedied by the
Company within ten calendar days after receipt by the Company
of written notice from the Executive of such breach.
(c) A termination by the Company pursuant to Section 3(a)
(other than as described in Section 3(a)(i), (ii) or (iii)) or by the
Executive pursuant to Section 3(b) will not affect any rights that the
Executive may have pursuant to any agreement, policy, plan, program or
arrangement of the Company providing Employee Benefits, which rights
shall be governed by the terms thereof.
-7-
<PAGE> 8
4. SEVERANCE COMPENSATION.
(a) Severance benefits to which the Executive is entitled
pursuant to Section 3 are described on Annex A. The Company will pay to
the Executive the amounts described in Paragraphs (1), (2) and (3) of
Annex A within five business days after the Termination Date or, if
later, upon the expiration of the revocation period provided for in
Annex C. The benefits and perquisites described in Paragraphs (4), (5),
(6) and (7) of Annex A will be provided to the Executive as described
therein.
(b) Without limiting the rights of the Executive at law or in
equity, if the Company fails to make any payment or provide any benefit
required to be made or provided hereunder on a timely basis, the
Company will pay interest on the amount or value thereof at an
annualized rate of interest equal to the so-called composite "prime
rate" as quoted from time to time during the relevant period in the
Midwest Edition of THE WALL STREET JOURNAL. Such interest will be
payable as it accrues on demand. Any change in such prime rate will be
effective on and as of the date of such change.
(c) Notwithstanding any provision of this Agreement to the
contrary, the parties' respective rights and obligations under this
Section 4 and under Sections 5 and 7 will survive any termination or
expiration of this Agreement or the termination of the Executive's
employment following a Change in Control for any reason whatsoever.
5. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event that this Agreement shall become
operative and it shall be determined (as hereafter provided) that any
payment or distribution by the Company or any of its affiliates to or
for the benefit of the Executive, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise pursuant to or by reason of any other agreement, policy,
plan, program or arrangement, including without limitation any stock
option, performance share, performance unit, stock appreciation right
or similar right, or the lapse or termination of any restriction on, or
the vesting or exercisability of, any of the foregoing (a "Payment"),
would be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code") (or any
successor provision thereto) by reason of being considered "contingent
on a change in ownership or control" of the Company, within the meaning
of Section 280G of the Code (or any successor provision thereto) or to
any similar tax imposed by state or local law, or any interest or
penalties with respect to such tax (such tax or taxes, together with
any such interest and penalties, being hereafter collectively referred
to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment or payments (collectively, a "Gross-Up
Payment"); PROVIDED, HOWEVER, that no Gross-up Payment shall be made
with respect to the Excise Tax, if any, attributable to (i) any
incentive stock option, as defined by Section 422 of the Code ("ISO")
granted prior to the execution of this Agreement, or (ii) any stock
appreciation or similar right, whether or not limited, granted in
tandem with any ISO described in clause (i). The Gross-Up Payment shall
be in an amount such that, after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such
taxes), including any Excise Tax imposed upon
-8-
<PAGE> 9
the Gross-Up Payment, the Executive retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payment.
(b) Subject to the provisions of Section 5(f), all
determinations required to be made under this Section 5, including
whether an Excise Tax is payable by the Executive and the amount of
such Excise Tax and whether a Gross-Up Payment is required to be paid
by the Company to the Executive and the amount of such Gross-Up
Payment, if any, shall be made by a nationally recognized accounting
firm (the "Accounting Firm") selected by the Executive in his sole
discretion. The Executive shall direct the Accounting Firm to submit
its determination and detailed supporting calculations to both the
Company and the Executive within 30 calendar days after the Termination
Date, if applicable, and any such other time or times as may be
requested by the Company or the Executive. If the Accounting Firm
determines that any Excise Tax is payable by the Executive, the Company
shall pay the required Gross-Up Payment to the Executive within five
business days after receipt of such determination and calculations with
respect to any Payment to the Executive. If the Accounting Firm
determines that no Excise Tax is payable by the Executive, it shall, at
the same time as it makes such determination, furnish the Company and
the Executive an opinion that the Executive has substantial authority
not to report any Excise Tax on his federal, state or local income or
other tax return. As a result of the uncertainty in the application of
Section 4999 of the Code (or any successor provision thereto) and the
possibility of similar uncertainty regarding applicable state or local
tax law at the time of any determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have
been made by the Company should have been made (an "Underpayment"),
consistent with the calculations required to be made hereunder. In the
event that the Company exhausts or fails to pursue its remedies
pursuant to Section 5(f) and the Executive thereafter is required to
make a payment of any Excise Tax, the Executive shall direct the
Accounting Firm to determine the amount of the Underpayment that has
occurred and to submit its determination and detailed supporting
calculations to both the Company and the Executive as promptly as
possible. Any such Underpayment shall be promptly paid by the Company
to, or for the benefit of, the Executive within five business days
after receipt of such determination and calculations.
(c) The Company and the Executive shall each provide the
Accounting Firm access to and copies of any books, records and
documents in the possession of the Company or the Executive, as the
case may be, reasonably requested by the Accounting Firm, and otherwise
cooperate with the Accounting Firm in connection with the preparation
and issuance of the determinations and calculations contemplated by
Section 5(b). Any determination by the Accounting Firm as to the amount
of the Gross-Up Payment shall be binding upon the Company and the
Executive.
(d) The federal, state and local income or other tax returns
filed by the Executive shall be prepared and filed on a consistent
basis with the determination of the Accounting Firm with respect to the
Excise Tax payable by the Executive. The Executive shall make proper
payment of the amount of any Excise Payment, and at the request of the
Company, provide to the Company true and correct copies (with any
amendments) of his federal income tax return as filed with the Internal
Revenue Service and corresponding state and local tax returns, if
relevant, as filed with the applicable
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<PAGE> 10
taxing authority, and such other documents reasonably requested by the
Company, evidencing such payment. If prior to the filing of the
Executive's federal income tax return, or corresponding state or local
tax return, if relevant, the Accounting Firm determines that the amount
of the Gross-Up Payment should be reduced, the Executive shall within
five business days pay to the Company the amount of such reduction.
(e) The fees and expenses of the Accounting Firm for its
services in connection with the determinations and calculations
contemplated by Section 5(b) shall be borne by the Company. If such
fees and expenses are initially paid by the Executive, the Company
shall reimburse the Executive the full amount of such fees and expenses
within five business days after receipt from the Executive of a
statement therefor and reasonable evidence of his payment thereof.
(f) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service or any other taxing authority
that, if successful, would require the payment by the Company of a
Gross-Up Payment. Such notification shall be given as promptly as
practicable but no later than ten business days after the Executive
actually receives notice of such claim and the Executive shall further
apprise the Company of the nature of such claim and the date on which
such claim is requested to be paid (in each case, to the extent known
by the Executive). The Executive shall not pay such claim prior to the
earlier of (i) the expiration of the thirty calendar-day period
following the date on which he gives such notice to the Company and
(ii) the date that any payment of amount with respect to such claim is
due. If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the
Executive shall:
(i) provide the Company with any written records or
documents in his possession relating to such claim reasonably
requested by the Company;
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing
from time to time, including without limitation accepting
legal representation with respect to such claim by an attorney
competent in respect of the subject matter and reasonably
selected by the Company;
(iii) cooperate with the Company in good faith in
order effectively to contest such claim; and
(iv) permit the Company to participate in any
proceedings relating to such claim;
PROVIDED, HOWEVER, that the Company shall bear and pay directly all
costs and expenses (including interest and penalties) incurred in
connection with such contest and shall indemnify and hold harmless the
Executive, on an after-tax basis, for and against any Excise Tax or
income tax, including interest and penalties with respect thereto,
imposed as a result of such representation and payment of costs and
expenses. Without limiting the foregoing provisions of this Section
5(f), the Company shall control all proceedings taken in connection
with the contest of any claim contemplated by this Section 5(f) and,
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<PAGE> 11
at its sole option, may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim (provided, however, that the
Executive may participate therein at his own cost and expense) and may,
at its option, either direct the Executive to pay the tax claimed and
sue for a refund or contest the claim in any permissible manner, and
the Executive agrees to prosecute such contest to a determination
before any administrative tribunal, in a court of initial jurisdiction
and in one or more appellate courts, as the Company shall determine;
PROVIDED, HOWEVER, that if the Company directs the Executive to pay the
tax claimed and sue for a refund, the Company shall advance the amount
of such payment to the Executive on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from
any Excise Tax or income or other tax, including interest or penalties
with respect thereto, imposed with respect to such advance; and
PROVIDED FURTHER, HOWEVER, that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the
Executive with respect to which the contested amount is claimed to be
due is limited solely to such contested amount. Furthermore, the
Company's control of any such contested claim shall be limited to
issues with respect to which a Gross-Up Payment would be payable
hereunder and the Executive shall be entitled to settle or contest, as
the case may be, any other issue raised by the Internal Revenue Service
or any other taxing authority.
(g) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 5(f), the Executive
receives any refund with respect to such claim, the Executive shall
(subject to the Company's complying with the requirements of Section
5(f)) promptly pay to the Company the amount of such refund (together
with any interest paid or credited thereon after any taxes applicable
thereto). If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 5(f), a determination is made that
the Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its
intent to contest such denial or refund prior to the expiration of
thirty calendar days after such determination, then such advance shall
be forgiven and shall not be required to be repaid and the amount of
any such advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid by the Company to the Executive
pursuant to this Section 5.
6. NO MITIGATION OBLIGATION. The Company hereby acknowledges
that it will be difficult and may be impossible for the Executive to find
reasonably comparable employment following the Termination Date and that the
non-competition covenant contained in Section 8 will further limit the
employment opportunities for the Executive. In addition, the Company
acknowledges that its severance pay plans applicable in general to its salaried
employees do not provide for mitigation, offset or reduction of any severance
payment received thereunder. Accordingly, the payment of the severance
compensation by the Company to the Executive in accordance with the terms of
this Agreement is hereby acknowledged by the Company to be reasonable, and the
Executive will not be required to mitigate the amount of any payment provided
for in this Agreement by seeking other employment or otherwise, nor will any
profits, income, earnings or other benefits from any source whatsoever create
any mitigation, offset, reduction or any other obligation on the part of the
Executive hereunder or otherwise, except as expressly provided in the last
sentences of Paragraphs (2) and (4) of Annex A.
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<PAGE> 12
7. FUNDING; PROFESSIONAL FEES AND EXPENSES.
(a) It is the intent of the Company that the Executive not be
required to incur fees and related expenses for the retention of
attorneys, accountants, actuaries, consultants, and/or other
professionals ("professionals") in connection with the interpretation,
enforcement or defense of Executive's rights under this Agreement by
litigation or otherwise because the cost and expense thereof would
substantially detract from the benefits intended to be extended to the
Executive hereunder. Accordingly, if it should appear to the Executive
that the Company has failed to comply with any of its obligations under
this Agreement or in the event that the Company or any other person
takes or threatens to take any action to declare this Agreement void or
unenforceable, or institutes any litigation or other action or
proceeding designed to deny, or to recover from, the Executive the
benefits provided or intended to be provided to the Executive
hereunder, the Company irrevocably authorizes the Executive from time
to time to retain one or more professionals of the Executive's choice,
at the expense of the Company as hereafter provided, to advise and
represent the Executive in connection with any such interpretation,
enforcement or defense, including without limitation the initiation or
defense of any litigation or other legal action, whether by or against
the Company or any Director, officer, stockholder or other person
affiliated with the Company, in any jurisdiction. Notwithstanding any
existing or prior relationship between the Company and such
professional, the Company irrevocably consents to the Executive's
entering into a relationship with any such professional, and in that
connection the Company and the Executive agree that a confidential
relationship shall exist between the Executive and any such
professional. Without respect to whether the Executive prevails, in
whole or in part, in connection with any of the foregoing, the Company
will pay and be solely financially responsible for any and all
reasonable fees and related expenses incurred by the Executive in
connection with any of the foregoing.
(b) Without limiting the obligations of the Company pursuant
to this Agreement, in the event a Change in Control occurs, the
performance of the Company's obligations under this Agreement shall be
secured by amounts deposited or to be deposited in trust pursuant to
certain trust agreements to which the Company shall be a party,
providing, among other things for the payment of severance compensation
to the Executive pursuant to Section 4, and the Gross-Up Payment to the
Executive pursuant to Section 5, and providing that the reasonable fees
and related expenses of one or more professionals selected from time to
time by the Executive pursuant to Section 7(a) shall be paid, or
reimbursed to the Executive if paid by the Executive, either in
accordance with the terms of such trust agreements, or, if not so
provided, on a regular, periodic basis upon presentation by the
Executive to the trustee of a statement or statements prepared by such
professional in accordance with its customary practices. Any failure by
the Company to satisfy any of its obligations under this Section 7(b)
shall not limit the rights of the Executive hereunder. Upon the earlier
to occur of (i) a Change of a Control or (ii) a declaration by the
Board that a Change in Control is imminent, the Company shall promptly
to the extent it has not previously done so, and in any event within
five business days:
(A) transfer to trustees of such trust agreements to
be added to the principal of the trusts a sum equal to (I) the
present value on the date of the
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<PAGE> 13
Change in Control (or on such fifth business day if the Board
has declared a Change in Control to be imminent) of the
payments to be made to the Executive under the provisions of
Sections 4 and 5 hereof, such present value to be computed
using the assumptions set forth on Annex B, less (II) the
balance in the Executive's accounts provided for in such trust
agreements as of the most recent completed valuation thereof,
as certified by the trustee under each trust agreement;
provided, however, that if the trustee under any trust
agreement, respectively, does not so certify by the end of the
fourth business day after the earlier of such Change in
Control or declaration, then the balance of such respective
account shall be deemed to be zero. Any payments of severance
compensation or other benefits hereunder by the trustee
pursuant to any trust agreement shall, to the extent thereof,
discharge the Company's obligation to pay severance
compensation and other benefits hereunder, it being the intent
of the Company that assets in such trusts be held as security
for the Company's obligation to pay severance compensation and
other benefits under this Agreement; and
(B) transfer to the trustees to be added to the
principal of the trusts under the trust agreements the sum of
FIVE HUNDRED THOUSAND DOLLARS ($500,000) less any principal in
such trusts on such fifth business day dedicated to the
payment of the Company's obligations under Section 7(a)
hereto. Any payments of the Executive's reasonable
professional fees and related expenses by the trustees
pursuant to the trust agreements shall, to the extent thereof,
discharge the Company's obligation hereunder, it being the
intent of the Company that assets in such trust be held as
security for the Company's obligation under Section 7(a)
hereof. The Executive understands and acknowledges that the
corpus of the trust, or separate portion thereof, dedicated to
the payment of the Company's obligations under Section 7(a)
hereto will be $500,000 and that such amount will be available
to discharge not only the obligations of the Company to the
Executive under Section 7(a) hereof, but also similar
obligations of the Company to other executives and employees
under similar provisions of other agreements.
(c) Subject to the foregoing, the Executive shall have the
status of a general unsecured creditor of the Company and shall have no
right to, or security interest in, any assets of the Company or any
Subsidiary.
8. COMPETITIVE ACTIVITY. During a period ending [THREE
(3)/TWO(2)] years following the Termination Date, if the Executive shall have
received or shall be receiving benefits under Section 4, the Executive shall
not, without the prior written consent of the Company, which consent shall not
be unreasonably withheld, engage in any Competitive Activity.
9. EMPLOYMENT RIGHTS. Nothing expressed or implied in this
Agreement will create any right or duty on the part of the Company or the
Executive to have the Executive remain in the employment of the Company or any
Subsidiary prior to or following any Change in Control. Any termination of
employment of the Executive or the removal of the Executive from the office or
position in the Company or any Subsidiary following the commencement of any
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<PAGE> 14
action by or discussion with a third person that ultimately results in a Change
in Control shall be deemed to be a termination or removal of the Executive after
a Change in Control for purposes of this Agreement entitling the Executive to
severance benefits provided by Section 4.
10. RELEASE. Payment of the severance compensation set forth
in Section 4 hereto is conditioned upon the Executive executing and delivering a
release (the "Release") substantially in the form provided in Annex C.
11. WITHHOLDING OF TAXES. The Company may withhold from any
amounts payable under this Agreement all federal, state, city or other taxes as
the Company is required to withhold pursuant to any law or government regulation
or ruling.
12. SUCCESSORS AND BINDING AGREEMENT.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation, reorganization or
otherwise) to all or substantially all of the business or assets of the
Company, by agreement in form and substance satisfactory to the
Executive, expressly to assume and agree to perform this Agreement in
the same manner and to the same extent the Company would be required to
perform if no such succession had taken place. This Agreement will be
binding upon and inure to the benefit of the Company and any successor
to the Company, including without limitation any persons acquiring
directly or indirectly all or substantially all of the business or
assets of the Company whether by purchase, merger, consolidation,
reorganization or otherwise (and such successor shall thereafter be
deemed the "Company" for the purposes of this Agreement), but will not
otherwise be assignable, transferable or delegable by the Company.
(b) This Agreement will inure to the benefit of and be
enforceable by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees and
legatees.
(c) This Agreement is personal in nature and neither of the
parties hereto shall, without the consent of the other, assign,
transfer or delegate this Agreement or any rights or obligations
hereunder except as expressly provided in Sections 12(a) and 12(b).
Without limiting the generality or effect of the foregoing, the
Executive's right to receive payments hereunder will not be assignable,
transferable or delegable, whether by pledge, creation of a security
interest, or otherwise, other than by a transfer by Executive's will or
by the laws of descent and distribution and, in the event of any
attempted assignment or transfer contrary to this Section 12(c), the
Company shall have no liability to pay any amount so attempted to be
assigned, transferred or delegated.
13. NOTICES. For all purposes of this Agreement, all
communications, including without limitation notices, consents, requests or
approvals, required or permitted to be given hereunder will be in writing and
will be deemed to have been duly given when hand delivered or dispatched by
electronic facsimile transmission (with receipt thereof orally confirmed), or
five business days after having been mailed by United States registered or
certified mail, return receipt requested, postage prepaid, or three business
days after having been sent by a nationally recognized overnight courier service
such as Federal Express, UPS, or
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<PAGE> 15
Purolator, addressed to the Company (to the attention of the Secretary of the
Company) at its principal executive office and to the Executive at his principal
residence, or to such other address as any party may have furnished to the other
in writing and in accordance herewith, except that notices of changes of address
shall be effective only upon receipt.
14. GOVERNING LAW. The validity, interpretation, construction
and performance of this Agreement will be governed by and construed in
accordance with the substantive laws of the State of Ohio, without giving effect
to the principles of conflict of laws of such State.
15. VALIDITY. If any provision of this Agreement or the
application of any provision hereof to any person or circumstances is held
invalid, unenforceable or otherwise illegal, the remainder of this Agreement and
the application of such provision to any other person or circumstances will not
be affected, and the provision so held to be invalid, unenforceable or otherwise
illegal will be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid or legal.
16. MISCELLANEOUS. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and the Company. No waiver by
either party hereto at any time of any breach by the other party hereto or
compliance with any condition or provision of this Agreement to be performed by
such other party will be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, expressed or implied with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. References to Sections are to references to
Sections of this Agreement.
17. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same agreement.
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<PAGE> 16
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed and delivered as of the date first above written.
-------------------------------
Executive
OMNOVA SOLUTIONS INC.
By:
------------------------------------
John B. Yasinsky
Chairman and Chief Executive Officer
By:
------------------------------------
Cynthia A. Slack
Secretary
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<PAGE> 17
Annex A
-------
Severance Compensation
----------------------
1. BASE PAY AND ANNUAL BONUS. A lump sum payment in an amount
equal to (a) any unpaid Base Pay through the date of the Executive's termination
of employment and (b) any annual bonus payable in the year in which the
Executive's termination of employment occurs, determined in accordance with the
provisions of the Executive Incentive Compensation Program.
2. SEVERANCE PAY. A lump sum payment in an amount equal to
[THREE (3)/TWO(2)] times the sum of (A) Base Pay (at the highest rate in effect
for any period prior to the Termination Date), plus (B) Incentive Pay
(determined in accordance with the standards set forth in Section 1(h))[, BUT IN
THE EVENT THE EXECUTIVE HAD A SEVERANCE AGREEMENT WITH GENCORP INC. IN EFFECT ON
NOVEMBER 11, 1997, NOT LESS THAN 375% OF BASE PAY (AT THE HIGHEST RATE IN EFFECT
FOR ANY PERIOD PRIOR TO THE TERMINATION DATE)].
3. PERFORMANCE AWARDS: Upon an Executive's termination of
employment pursuant to Section 3(b), all performance awards under the Omnova
Solutions Inc. 1999 Equity and Performance Incentive Plan, if any, will be paid
in accordance with the provisions of such Plan.
4. HEALTH AND LIFE BENEFITS. For a period of [36/24] months
following the Termination Date (the "Continuation Period"), the Company will
arrange to provide the Executive with Employee Benefits that provide health and
life benefits (but not disability, stock option, performance share, performance
unit, stock purchase, stock appreciation or similar compensatory benefits)
substantially similar to those that the Executive was receiving or entitled to
receive immediately prior to the Termination Date (or, if greater, immediately
prior to the reduction, termination, or denial described in Section 3(b)(ii)),
except that the level of any such Employee Benefits to be provided to the
Executive may be reduced in the event of a corresponding reduction generally
applicable to all recipients of or participants in such Employee Benefits. If
and to the extent that any benefit described in this Paragraph 4 is not or
cannot be paid or provided under any policy, plan, program or arrangement of the
Company or any Subsidiary, as the case may be, then the Company will itself pay
or provide for the payment to the Executive, his dependents and beneficiaries,
of such Employee Benefits. Employee Benefits otherwise receivable by the
Executive pursuant to this Paragraph 4 will be reduced to the extent comparable
welfare benefits are actually received by the Executive from another employer
during the Continuation Period following the Executive's Termination Date, and
any such benefits actually received by the Executive shall be reported by the
Executive to the Company.
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<PAGE> 18
5. RETIREMENT BENEFITS. Retirement benefits under the
applicable qualified pension plan sponsored by the Company or Subsidiary and the
Benefits Restoration Plan for Salaried Employees of Omnova Solutions Inc. and
Certain Subsidiary Companies ("Benefits Restoration Plan") that are accrued but
not vested at the time of the Executive's termination of employment will be
vested in accordance with the provisions of the Benefits Restoration Plan.
6. OUTPLACEMENT SERVICES. Outplacement services for a period
of up to twelve months by a firm selected by the Executive, at the expense of
the Company in an amount up to 20% of the Executive's Pay.
7. FINANCIAL COUNSELING. Financial counseling for the
Continuation Period as defined in Paragraph (4) of this Annex A in a manner
similar to that provided to executive officers prior to a Change in Control.
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<PAGE> 19
Annex B
-------
Funding Assumptions
-------------------
In calculating the present value of payments to be made to the Executive under
Sections 4 and 5 of the Agreement, as required by Section 7(b)(B) of the
Agreement, the Company shall
(1) Assume that all payments to be made to the Executive shall
be paid on a date which is six (6) months following the date of the
Change in Control; and
(2) Apply a discount factor which is equal to the yield to
maturity, as reported in the Midwest Edition of THE WALL STREET
JOURNAL, of the 26-week Treasury Bill most recently issued as of the
date of the Change in Control.
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<PAGE> 20
Annex C
-------
Form of Release
---------------
WHEREAS, the Executive's employment has been terminated in accordance
with Section 3(a) (other than as described in Section 3(a)(i), (ii) or (iii)) or
(b) of the Severance Agreement dated as of ________________ , 1999, by and
between ______________________________ (the "Executive") and Omnova Solutions
Inc. (the "Agreement").
WHEREAS, the Executive is required to sign this Release in order to
receive the Severance Compensation as described in Annex A of the Agreement and
the other benefits described in the Agreement.
NOW THEREFORE, in consideration of the promises and agreements
contained herein and other good and valuable consideration, the sufficiency and
receipt of which are hereby acknowledged, and intending to be legally bound, the
Executive agrees as follows:
1. This Release is effective on the date hereof and will continue in
effect as provided herein.
2. In consideration of the payments to be made and the benefits to be
received by the Executive pursuant to the Agreement, which the Executive
acknowledges are in addition to payments and benefits which the Executive would
be entitled to receive absent the Agreement, the Executive, for himself and his
dependents, successors, assigns, heirs, executors and administrators (and his
and their legal representatives of every kind), hereby releases, dismisses,
remises and forever discharges Omnova Solutions Inc., its predecessors, parents,
subsidiaries, divisions, related or affiliated companies, officers, directors,
stockholders, members, employees, heirs, successors, assigns, representatives,
agents and counsel (the "Company") from any and all arbitrations, claims,
including claims for attorney's fees, demands, damages, suits, proceedings,
actions and/or causes of action of any kind and every description, whether known
or unknown, which Executive now has or may have had for, upon, or by reason of
any cause whatsoever ("claims"), against the Company, including but not limited
to:
(a) any and all claims arising out of or relating to
Executive's employment by or service with the Company and his
termination from the Company;
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<PAGE> 21
(b) any and all claims of discrimination, including but not
limited to claims of discrimination on the basis of sex, race, age,
national origin, marital status, religion or handicap, including,
specifically, but without limiting the generality of the foregoing, any
claims under the Age Discrimination in Employment Act, as amended,
Title VII of the Civil Rights Act of 1964, as amended, the Americans
with Disabilities Act, Ohio Revised Code Section 4101.17 and Ohio
Revised Code Chapter 4112, including Sections 4112.02 and 4112.99
thereof; and
(c) any and all claims of wrongful or unjust discharge or
breach of any contract or promise, express or implied.
3. Executive understands and acknowledges that the Company does not admit
any violation of law, liability or invasion of any of his rights and that any
such violation, liability or invasion is expressly denied. The consideration
provided for this Release is made for the purpose of settling and extinguishing
all claims and rights (and every other similar or dissimilar matter) that
Executive ever had or now may have against the Company to the extent provided in
this Release. Executive further agrees and acknowledges that no representations,
promises or inducements have been made by the Company other than as appear in
the Agreement.
4. Executive further agrees and acknowledges that:
(a) The release provided for herein releases claims to and
including the date of this Release;
(b) He has been advised by the Company to consult with legal
counsel prior to executing this Release, has had an opportunity to
consult with and to be advised by legal counsel of his choice, fully
understands the terms of this Release, and enters into this Release
freely, voluntarily and intending to be bound;
(c) He has been given a period of 21 days to review and
consider the terms of this Release, prior to its execution and that
he may use as much of the 21 day period as he desires; and
(d) He may, within 7 days after execution, revoke this
Release. Revocation shall be made by delivering a written notice of
revocation to the Vice President of Human Resources at the Company.
For such revocation to be effective, written notice must be actually
received by the Vice President of Human Resources at the Company no
later than the close of business on the 7th
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<PAGE> 22
day after Executive executes this Release. If Executive does exercise his right
to revoke this Release, all of the terms and conditions of the Release shall be
of no force and effect and the Company shall not have any obligation to make
payments or provide benefits to Executive as set forth in Sections 4, 5 and 7 of
the Agreement.
5. Executive agrees that he will never file a lawsuit or other
complaint asserting any claim that is released in this Release.
6. Executive waives and releases any claim that he has or may have to
reemployment after _______________________ .
IN WITNESS WHEREOF, the Executive has executed and delivered this
Release on the date set forth below.
Dated:_____________________ ___________________________________
Executive
C-3
<PAGE> 1
Exhibit 10.7
OMNOVA SOLUTIONS INC.
1999 EQUITY AND PERFORMANCE INCENTIVE PLAN
1. PURPOSE. The purpose of the 1999 Equity and Performance
Incentive Plan is to attract and retain directors, officers and other key
employees for Omnova Solutions Inc., an Ohio corporation and its Subsidiaries
and to provide to such persons incentives and rewards for superior performance.
2. DEFINITIONS. As used in this Plan,
"Appreciation Right" means a right granted pursuant to Section
5 of this Plan, and shall include both Tandem Appreciation Rights and
Free-Standing Appreciation Rights.
"Base Price" means the price to be used as the basis for
determining the Spread upon the exercise of a Free-Standing Appreciation Right
and a Tandem Appreciation Right.
"Board" means the Board of Directors of the Company and, to
the extent of any delegation by the Board to a committee (or subcommittee
thereof) pursuant to Section 16 of this Plan, such committee (or subcommittee).
"Change in Control" shall have the meaning provided in Section
12 of this Plan.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time.
"Common Shares" means the Common Shares, par value $0.10 per
share, of the Company or any security into which such Common Shares may be
changed by reason of any transaction or event of the type referred to in Section
11 of this Plan.
"Company" means Omnova Solutions Inc., an Ohio corporation.
"Covered Employee" means a Participant who is, or is
determined by the Board to be likely to become, a "covered employee" within the
meaning of Section 162(m) of the Code (or any successor provision).
"Date of Grant" means the date specified by the Board on which
a grant of Option Rights, Appreciation Rights, Performance Shares or Performance
Units or a grant or sale of Restricted Shares or Deferred Shares shall become
effective which date shall not be earlier than the date on which the Board takes
action with respect thereto.
<PAGE> 2
"Deferral Period" means the period of time during which
Deferred Shares are subject to deferral limitations under Section 7 of this
Plan.
"Deferred Shares" means an award made pursuant to Section 7
of this Plan of the right to receive Common Shares at the end of a specified
Deferral Period.
"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.
"Free-Standing Appreciation Right" means an Appreciation Right
granted pursuant to Section 5 of this Plan that is not granted in tandem with an
Option Right.
"Immediate Family" has the meaning ascribed thereto in Rule
16a-1(e) under the Exchange Act (or any successor rule to the same effect) as in
effect from time to time.
"Incentive Stock Options" means Option Rights that are
intended to qualify as "incentive stock options" under Section 422 of the Code
or any successor provision.
"Management Objectives" means the measurable performance
objective or objectives established pursuant to this Plan for Participants who
have received grants of Performance Shares or Performance Units or, when so
determined by the Board, Option Rights, Appreciation Rights, Restricted Shares
and dividend credits pursuant to this Plan. Management Objectives may be
described in terms of Company-wide objectives or objectives that are related to
the performance of the individual Participant or of the Subsidiary, division,
department, region or function within the Company or Subsidiary in which the
Participant is employed. The Management Objectives may be made relative to the
performance of other corporations. The Management Objectives applicable to any
award to a Covered Employee shall be based on specified levels of or growth in
one or more of the following criteria:
1. cash flow;
2. earnings per share;
3. earnings before interest and taxes;
4. earnings per share growth;
5. net income;
6. return on assets;
7. return on assets employed;
8. return on equity;
9. return on invested capital;
10. return on total capital;
11. revenue growth;
12. stock price;
13. total return to stockholders;
14. economic value added; and
15. operating profit growth; or
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any combination of the foregoing.
If the Committee determines that a change in the business,
operations, corporate structure or capital structure of the Company, or the
manner in which it conducts its business, or other events or circumstances
render the Management Objectives unsuitable, the Committee may in its discretion
modify such Management Objectives or the related minimum acceptable level of
achievement, in whole or in part, as the Committee deems appropriate and
equitable, except in the case of a Covered Employee where such action would
result in the loss of the otherwise available exemption of the award under
Section 162(m) of the Code. In such case, the Committee shall not make any
modification of the Management Objectives or minimum acceptable level of
achievement.
"Market Value per Share" means (i) the closing price of Common
Shares as reported in the New York Stock Exchange Composite Transactions in the
WALL STREET JOURNAL or similar publication selected by the Board for the
relevant date if Common Shares were traded on such day or, if none were then
traded, the last prior day on which Common Shares were so traded, or (ii) if
clause (i) does not apply, the fair market value of the Common Shares as
determined by the Board.
"Nonemployee Director" means a Director who is not an employee
of the Company or any Subsidiary.
"Optionee" means the optionee named in an agreement evidencing
an outstanding Option Right.
"Option Price" means the purchase price payable on exercise of
an Option Right.
"Option Right" means the right to purchase Common Shares upon
exercise of an option granted pursuant to Section 4 or Section 9 of this Plan.
"Participant" means a person who is selected by the Board to
receive benefits under this Plan and who is at the time an officer or other key
employee of the Company or any one or more of its Subsidiaries, or who has
agreed to commence serving in any of such capacities within 30 days of the Date
of Grant, and shall also include each Nonemployee Director who receives an award
of Option Rights or Restricted Shares.
"Performance Period" means, in respect of a Performance Share
or Performance Unit, a period of time established pursuant to Section 8 of this
Plan within which the Management Objectives relating to such Performance Share
or Performance Unit are to be achieved.
"Performance Share" means a bookkeeping entry that records the
equivalent of one Common Share awarded pursuant to Section 8 of this Plan.
"Performance Unit" means a bookkeeping entry that records a
unit equivalent to $1.00 awarded pursuant to Section 8 of this Plan.
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"Plan" means this Omnova Solutions Inc. 1999 Equity and
Performance Incentive Plan.
"Restricted Shares" means Common Shares granted or sold
pursuant to Section 6 or Section 9 of this Plan as to which neither the
substantial risk of forfeiture nor the prohibition on transfers referred to in
such Section 6 has expired.
"Rule 16b-3" means Rule 16b-3 under the Exchange Act (or any
successor rule to the same effect) as in effect from time to time.
"Spread" means the excess of the Market Value per Share on the
date when an Appreciation Right is exercised, or on the date when Option Rights
are surrendered in payment of the Option Price of other Option Rights, over the
Option Price or Base Price provided for in the related Option Right or
Free-Standing Appreciation Right, respectively.
"Subsidiary" means a corporation, company or other entity (i)
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
(ii) 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 except that for purposes of determining
whether any person may be a Participant for purposes of any grant of Incentive
Stock Options, "Subsidiary" means any corporation in which, at the time, the
Company owns or controls, directly or indirectly, more than 50 percent of the
total combined voting power represented by all classes of stock issued by such
corporation.
"Tandem Appreciation Right" means an Appreciation Right
granted pursuant to Section 5 of this Plan that is granted in tandem with an
Option Right.
"Voting Power" means at any time, the total votes relating to
the then-outstanding securities entitled to vote generally in the election of
Directors.
3. SHARES AVAILABLE UNDER THE PLAN. (a) Subject to adjustment as
provided in Section 3(b) and Section 11 of this Plan, the number of Common
Shares that may be issued or transferred (i) upon the exercise of Option Rights
or Appreciation Rights, (ii) as Restricted Shares and released from substantial
risks of forfeiture thereof, (iii) as Deferred Shares, (iv) in payment of
Performance Shares or Performance Units that have been earned, (v) as awards to
Nonemployee Directors or (vi) in payment of dividend equivalents paid with
respect to awards made under the Plan shall not exceed in the aggregate
2,400,000 (Two Million Four Hundred Thousand) Common Shares, plus any shares
described in Section 3(b). Such shares may be shares of original issuance or
treasury shares or a combination of the foregoing.
(b) The number of shares available in Section 3(a) above shall
be adjusted to account for shares relating to awards that expire, are forfeited
or are transferred, surrendered or relinquished upon the payment of any Option
Price by the transfer to the Company of Common
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<PAGE> 5
Shares or upon satisfaction of any withholding amount. Upon payment in cash of
the benefit provided by any award granted under this Plan, any shares that were
covered by that award shall again be available for issue or transfer hereunder.
(c) Notwithstanding anything in this Section 3, or elsewhere
in this Plan, to the contrary and subject to adjustment as provided in Section
11 of this Plan, (i) the aggregate number of Common Shares actually issued or
transferred by the Company upon the exercise of Incentive Stock Options shall
not exceed 900,000 Common Shares; (ii) no Participant shall be granted Option
Rights and Appreciation Rights, in the aggregate, for more than 900,000 Common
Shares during any period of 3 consecutive years; (iii) the number of shares
issued as Restricted Shares, Deferred Shares or Performance Shares shall not in
the aggregate exceed 800,000 Common Shares; (iv) during any period of three
consecutive fiscal years, the maximum number of Common Shares covered by awards
of Restricted Shares, Deferred Shares or Performance Shares granted to any one
Participant shall not exceed 800,000 Common Shares; and (v) no Nonemployee
Director shall be granted Option Rights, Appreciation Rights and Restricted
Shares, in the aggregate, for more than 100,000 Common Shares during any fiscal
year of the Company.
(d) Notwithstanding any other provision of this Plan to the
contrary, in no event shall any Participant in any one calendar year receive an
award of Performance Shares or Performance Units having an aggregate maximum
value as of their respective Date of Grant in excess of $2,000,000.
4. OPTION RIGHTS. The Board may, from time to time and upon
such terms and conditions as it may determine, authorize the granting to
Participants of options to purchase Common Shares. Each such grant may utilize
any or all of the authorizations, and shall be subject to all of the
requirements contained in the following provisions:
(a) Each grant shall specify the number of Common Shares to
which it pertains subject to the limitations set forth in Section 3 of this
Plan.
(b) Each grant shall specify an Option Price per share, which
may not be less than the Market Value per Share on the Date of Grant.
(c) Each grant shall specify whether the Option Price shall be
payable (i) in cash or by check acceptable to the Company, (ii) by the actual or
constructive transfer to the Company of Common Shares owned by the Optionee for
at least 6 months (or other consideration authorized pursuant to Section 4(d))
having a value at the time of exercise equal to the total Option Price, or (iii)
by a combination of such methods of payment.
(d) The Board may determine, at or after the Date of Grant,
that payment of the Option Price of any Option Right (other than an Incentive
Stock Option) may also be made in whole or in part in the form of Restricted
Shares or other Common Shares that are forfeitable or subject to restrictions on
transfer, Deferred Shares, Performance Shares (based, in each case, on the
Market Value per Share on the date of exercise), other Option Rights (based on
the Spread on the date of exercise) or Performance Units. Unless otherwise
determined by the Board at or after
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<PAGE> 6
the Date of Grant, whenever any Option Price is paid in whole or in part by
means of any of the forms of consideration specified in this Section 4(d), the
Common Shares received upon the exercise of the Option Rights shall be subject
to such risks of forfeiture or restrictions on transfer as may correspond to any
that apply to the consideration surrendered, but only to the extent, determined
with respect to the consideration surrendered, of (i) the number of shares or
Performance Shares, (ii) the Spread of any unexercisable portion of Option
Rights, or (iii) the stated value of Performance Units.
(e) Any grant may provide for deferred payment of the Option
Price from the proceeds of sale through a bank or broker on a date satisfactory
to the Company of some or all of the shares to which such exercise relates.
(f) Any grant may provide for payment of the Option Price, at
the election of the Optionee, in installments, with or without interest, upon
terms determined by the Board.
(g) Successive grants may be made to the same Participant
whether or not any Option Rights previously granted to such Participant remain
unexercised.
(h) Each grant shall specify the period or periods of
continuous service by the Optionee with the Company or any Subsidiary that is
necessary before the Option Rights or installments thereof will become
exercisable and may provide for the earlier exercise of such Option Rights in
the event of a Change in Control.
(i) Any grant of Option Rights may specify Management
Objectives that must be achieved as a condition to the exercise of such rights.
(j) Option Rights granted under this Plan may be (i) options,
including, without limitation, Incentive Stock Options, that are intended to
qualify under particular provisions of the Code, (ii) options that are not
intended so to qualify, or (iii) combinations of the foregoing.
(k) The Board may, at or after the Date of Grant of any Option
Rights (other than Incentive Stock Options), provide for the payment of dividend
equivalents to the Optionee on either a current or deferred or contingent basis
or may provide that such equivalents shall be credited against the Option Price.
(l) The exercise of an Option Right shall result in the
cancellation on a share- for-share basis of any Tandem Appreciation Right
authorized under Section 5 of this Plan.
(m) No Option Right shall be exercisable more than 10 years
from the Date of Grant.
(n) Each grant of Option Rights shall be evidenced by an
agreement executed on behalf of the Company by an officer and delivered to the
Optionee and containing such terms and provisions, consistent with this Plan, as
the Board may approve.
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<PAGE> 7
5. APPRECIATION RIGHTS. (a) The Board may authorize the granting (i) to
any Optionee, of Tandem Appreciation Rights in respect of Option Rights granted
hereunder, and (ii) to any Participant, of Free-Standing Appreciation Rights. A
Tandem Appreciation Right shall be a right of the Optionee, exercisable by
surrender of the related Option Right, to receive from the Company an amount
determined by the Board, which shall be expressed as a percentage of the Spread
(not exceeding 100 percent) at the time of exercise. Tandem Appreciation Rights
may be granted at any time prior to the exercise or termination of the related
Option Rights; provided, however, that a Tandem Appreciation Right awarded in
relation to an Incentive Stock Option must be granted concurrently with such
Incentive Stock Option. A Free-Standing Appreciation Right shall be a right of
the Participant to receive from the Company an amount determined by the Board,
which shall be expressed as a percentage of the Spread (not exceeding 100
percent) at the time of exercise.
(b) Each grant of Appreciation Rights may utilize any or all
of the authorizations, and shall be subject to all of the requirements,
contained in the following provisions:
(i) Any grant may specify that the amount payable on
exercise of an Appreciation Right may be paid by the Company in cash,
in Common Shares or in any combination thereof and may either grant to
the Participant or retain in the Board the right to elect among those
alternatives.
(ii) Any grant may specify that the amount payable on
exercise of an Appreciation Right may not exceed a maximum specified by
the Board at the Date of Grant.
(iii) Any grant may specify waiting periods before
exercise and permissible exercise dates or periods.
(iv) Any grant may specify that such Appreciation
Right may be exercised only in the event of, or earlier in the event
of, a Change in Control.
(v) Any grant may provide for the payment to the
Participant of dividend equivalents thereon in cash or Common Shares on
a current, deferred or contingent basis.
(vi) Any grant of Appreciation Rights may specify
Management Objectives that must be achieved as a condition of the
exercise of such Rights.
(vii) Each grant of Appreciation Rights shall be
evidenced by an agreement executed on behalf of the Company by an
officer and delivered to and accepted by the Participant, which
agreement shall describe such Appreciation Rights, identify the related
Option Rights (if applicable), state that such Appreciation Rights are
subject to all the terms and conditions of this Plan, and contain such
other terms and provisions, consistent with this Plan, as the Board may
approve.
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<PAGE> 8
(c) Any grant of Tandem Appreciation Rights shall provide that
such Rights may be exercised only at a time when the related Option Right is
also exercisable and at a time when the Spread is positive, and by surrender of
the related Option Right for cancellation.
(d) Regarding Free-standing Appreciation Rights only:
(i) Each grant shall specify in respect of each
Free-standing Appreciation Right a Base Price, which shall be
equal to or greater or less than the Market Value per Share on
the Date of Grant;
(ii) Successive grants may be made to the same
Participant regardless of whether any Free-standing
Appreciation Rights previously granted to the Participant
remain unexercised; and
(iii) No Free-standing Appreciation Right granted
under this Plan may be exercised more than 10 years from the
Date of Grant.
6. RESTRICTED SHARES. The Board may also authorize the grant or sale of
Restricted Shares to Participants. Each grant or sale of Restricted Stock may
utilize any or all of the authorizations, and shall be subject to all of the
requirements, contained in the following provisions:
(a) Each such grant or sale shall constitute an immediate
transfer of the ownership of Common Shares to the Participant in consideration
of the performance of services, entitling such Participant to voting, dividend
and other ownership rights, but subject to the substantial risk of forfeiture
and restrictions on transfer hereinafter referred to.
(b) Each such grant or sale may be made without additional
consideration or in consideration of a payment by such Participant that is less
than Market Value per Share at the Date of Grant.
(c) Each such grant or sale shall provide that the Restricted
Shares covered by such grant or sale shall be subject to a "substantial risk of
forfeiture" within the meaning of Section 83 of the Code for a period of not
less than 3 years to be determined by the Board at the Date of Grant and may
provide for the earlier lapse of such substantial risk of forfeiture in the
event of a Change in Control. If the Board conditions the nonforfeitability of
shares of Restricted Stock upon service alone, such vesting may not occur before
three years from the Date of Grant of such shares of Restricted Stock, and if
the Board conditions the nonforfeitability of shares of Restricted Stock on
Management Objectives, such nonforfeitability may not occur before one year from
the Date of Grant of such shares of Restricted Stock.
(d) Each such grant or sale shall provide that during the
period for which such substantial risk of forfeiture is to continue, the
transferability of the Restricted Shares shall be prohibited or restricted in
the manner and to the extent prescribed by the Board at the Date of Grant (which
restrictions may include, without limitation, rights of repurchase or first
refusal in
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<PAGE> 9
the Company or provisions subjecting the Restricted Shares to a continuing
substantial risk of forfeiture in the hands of any transferee).
(e) Any grant of Restricted Shares may specify Management
Objectives that, if achieved, will result in termination or early termination of
the restrictions applicable to such shares. Each grant may specify in respect of
such Management Objectives a minimum acceptable level of achievement and may set
forth a formula for determining the number of Restricted Shares on which
restrictions will terminate if performance is at or above the minimum level, but
falls short of full achievement of the specified Management Objectives.
(f) Any such grant or sale of Restricted Shares may require
that any or all dividends or other distributions paid thereon during the period
of such restrictions be automatically deferred and reinvested in additional
Restricted Shares, which may be Subject to the same restrictions as the
underlying award.
(g) Each grant or sale of Restricted Shares shall be evidenced
by an agreement executed on behalf of the Company by any officer and delivered
to and accepted by the Participant and shall contain such terms and provisions,
consistent with this Plan, as the Board may approve. Unless otherwise directed
by the Board, all certificates representing Restricted Shares shall be held in
custody by the Company until all restrictions thereon shall have lapsed,
together with a stock power or powers executed by the Participant in whose name
such certificates are registered, endorsed in blank and covering such Shares.
7. DEFERRED SHARES. The Board may also authorize the granting or sale
of Deferred Shares to Participants. Each grant or sale of Deferred Shares may
utilize any or all of the authorizations, and shall be subject to all of the
requirements contained in the following provisions:
(a) Each such grant or sale shall constitute the agreement by
the Company to deliver Common Shares to the Participant in the future in
consideration of the performance of services, but subject to the fulfillment of
such conditions during the Deferral Period as the Board may specify.
(b) Each such grant or sale may be made without additional
consideration or in consideration of a payment by such Participant that is less
than the Market Value per Share at the Date of Grant.
(c) Each such grant or sale shall be subject to a Deferral
Period of not less than one year, as determined by the Board at the Date of
Grant, and may provide for the earlier lapse or other modification of such
Deferral Period in the event of a Change in Control. If the Board conditions the
nonforfeitability of shares of Deferred Stock upon service alone, such vesting
may not occur before three years from the Date of Grant of such shares of
Deferred Stock, and if the Board conditions the nonforfeitability of shares of
Deferred Stock on Management Objectives, such nonforfeitability may not occur
before one year from the Date of Grant of such shares of Deferred Stock.
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<PAGE> 10
(d) During the Deferral Period, the Participant shall have no
right to transfer any rights under his or her award and shall have no rights of
ownership in the Deferred Shares and shall have no right to vote them, but the
Board may, at or after the Date of Grant, authorize the payment of dividend
equivalents on such Shares on either a current or deferred or contingent basis,
either in cash or in additional Common Shares.
(e) Each grant or sale of Deferred Shares shall be evidenced
by an agreement executed on behalf of the Company by any officer and delivered
to and accepted by the Participant and shall contain such terms and provisions,
consistent with this Plan, as the Board may approve.
8. PERFORMANCE SHARES AND PERFORMANCE UNITS. The Board may also
authorize the granting of Performance Shares and Performance Units that will
become payable to a Participant upon achievement of specified Management
Objectives. Each such grant may utilize any or all of the authorizations, and
shall be subject to all of the requirements, contained in the following
provisions:
(a) Each grant shall specify the number of Performance Shares
or Performance Units to which it pertains, which number may be subject to
adjustment to reflect changes in compensation or other factors; provided,
however, that no such adjustment shall be made in the case of a Covered Employee
where such action would result in the loss of the otherwise available exemption
of the award under Section 162(m) of the Code.
(b) The Performance Period with respect to each Performance
Share or Performance Unit shall be such period of time not less than 1 year,
commencing with the Date of Grant as shall be determined by the Board at the
time of grant which may be subject to earlier lapse or other modification in the
event of a Change in Control as set forth in the agreement specified in Section
8(g).
(c) Any grant of Performance Shares or Performance Units shall
specify Management Objectives which, if achieved, will result in payment or
early payment of the award, and each grant may specify in respect of such
specified Management Objectives a minimum acceptable level of achievement and
shall set forth a formula for determining the number of Performance Shares or
Performance Units that will be earned if performance is at or above the minimum
level, but falls short of full achievement of the specified Management
Objectives. The grant of Performance Shares or Performance Units shall specify
that, before the Performance Shares or Performance Units shall be earned and
paid, the Board must certify that the Management Objectives have been satisfied.
(d) Each grant shall specify the time and manner of payment of
Performance Shares or Performance Units that have been earned. Any grant may
specify that the amount payable with respect thereto may be paid by the Company
in cash, in Common Shares or in any combination thereof and may either grant to
the Participant or retain in the Board the right to elect among those
alternatives.
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(e) Any grant of Performance Shares may specify that the
amount payable with respect thereto may not exceed a maximum specified by the
Board at the Date of Grant. Any grant of Performance Units may specify that the
amount payable or the number of Common Shares issued with respect thereto may
not exceed maximums specified by the Board at the Date of Grant.
(f) The Board may, at or after the Date of Grant of
Performance Shares, provide for the payment of dividend equivalents to the
holder thereof on either a current or deferred or contingent basis, either in
cash or in additional Common Shares.
(g) Each grant of Performance Shares or Performance Units
shall be evidenced by an agreement executed on behalf of the Company by any
officer and delivered to and accepted by the Participant, which agreement shall
state that such Performance Shares or Performance Units are subject to all the
terms and conditions of this Plan, and contain such other terms and provisions,
consistent with this Plan, as the Board may approve.
9. AWARDS TO NONEMPLOYEE DIRECTORS. The Board may, from time to time
and upon such terms and conditions as it may determine, authorize the granting
to Nonemployee Directors of Option Rights and may also authorize the grant or
sale of Restricted Shares to Nonemployee Directors.
(a) Each grant of Option Rights awarded pursuant to this
Section 9 shall be upon terms and conditions consistent with Section 4 of this
Plan and shall be evidenced by an agreement in such form as shall be approved by
the Board. Each grant shall specify an Option Price per share, which shall not
be less than the Market Value per Share on the Date of Grant. Each such Option
Right granted under the Plan shall expire not more than 10 years from the Date
of Grant and shall be subject to earlier termination as hereinafter provided.
Unless otherwise determined by the Board, such Option Rights shall be subject to
the following additional terms and conditions:
(i) Each grant shall specify the number of Common Shares to
which it pertains subject to the limitations set forth in Section 3 of
this Plan.
(ii) Each such Option Right shall become exercisable six (6)
months after the Date of Grant. Such Option Rights shall become
exercisable in full immediately in the event of a Change in Control or
other similar transaction or event.
(iii) In the event of the termination of service on the Board
by the holder of any such Option Rights, other than by reason of
disability, death or retirement, the then outstanding Option Rights of
such holder may be exercised to the extent that they would be
exercisable on the date of such termination until the date that is one
year after the date of such termination, but in no event after the
expiration date of the term of such Option Rights.
(iv) In the event of the death , disability or retirement of
the holder of any such Option Rights, each of the then outstanding
Option Rights of such holder may
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<PAGE> 12
be exercised at any time within one (1) year after such death,
disability or retirement, but in no event after the expiration date of
the term of such Option Rights.
(v) If a Nonemployee Director subsequently becomes an employee
of the Company or a Subsidiary while remaining a member of the Board,
any Option Rights held under the Plan by such individual at the time of
such commencement of employment shall not be affected thereby.
(vi) Option Rights may be exercised by a Nonemployee Director
only upon payment to the Company in full of the Option Price of the
Common Shares to be delivered. Such payment shall be made in cash or in
Common Shares then owned by the optionee for at least six months, or in
a combination of cash and such Common Shares.
(b) Each grant or sale of Restricted Shares pursuant to this
Section 9 shall be upon terms and conditions consistent with Section 6 of this
Plan.
10. TRANSFERABILITY. (a) Except as otherwise determined by the Board,
no Option Right, Appreciation Right or other derivative security granted under
the Plan shall be transferable by a Participant other than by will or the laws
of descent and distribution. Except as otherwise determined by the Board, Option
Rights and Appreciation Rights shall be exercisable during the Optionee's
lifetime only by him or her or by his or her guardian or legal representative.
(b) The Board may specify at the Date of Grant that part or all of
the Common Shares that are (i) to be issued or transferred by the Company upon
the exercise of Option Rights or Appreciation Rights, upon the termination of
the Deferral Period applicable to Deferred Shares or upon payment under any
grant of Performance Shares or Performance Units or (ii) no longer subject to
the substantial risk of forfeiture and restrictions on transfer referred to in
Section 6 of this Plan, shall be subject to further restrictions on transfer.
(c) Notwithstanding the provisions of Section 10(a), Option Rights
(other than Incentive Stock Options), shall be transferable by a Participant,
without payment of consideration therefor by the transferee, to any one or more
members of the Participant's Immediate Family (or to one or more trusts
established solely for the benefit of one or more members of the Participant's
Immediate Family or to one or more partnerships in which the only partners are
members of the Participant's Immediate Family); provided, however, that (i) no
such transfer shall be effective unless reasonable prior notice thereof is
delivered to the Company and such transfer is thereafter effected in accordance
with any terms and conditions that shall have been made applicable thereto by
the Company or the Board and (ii) any such transferee shall be subject to the
same terms and conditions hereunder as the Participant].
11. ADJUSTMENTS. The Board may make or provide for such adjustments in
the numbers of Common Shares covered by outstanding Option Rights, Appreciation
Rights, Deferred Shares, and Performance Shares granted hereunder, in the Option
Price and Base Price provided in outstanding Appreciation Rights, and in the
kind of shares covered thereby, as the Board, in its sole discretion, exercised
in good faith, may determine is equitably required to
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<PAGE> 13
prevent dilution or enlargement of the rights of Participants or Optionees that
otherwise would result from (a) any stock dividend, stock split, combination of
shares, recapitalization or other change in the capital structure of the
Company, or (b) any merger, consolidation, spin-off, split-off, spin-out,
split-up, reorganization, partial or complete liquidation or other distribution
of assets, issuance of rights or warrants to purchase securities, or (c) any
other corporate transaction or event having an effect similar to any of the
foregoing. Moreover, in the event of any such transaction or event, the Board,
in its discretion, may provide in substitution for any or all outstanding awards
under this Plan such alternative consideration as it, in good faith, may
determine to be equitable in the circumstances and may require in connection
therewith the surrender of all awards so replaced. The Board may also make or
provide for such adjustments in the numbers of shares specified in Section 3 of
this Plan as the Board in its sole discretion, exercised in good faith, may
determine is appropriate to reflect any transaction or event described in this
Section 11; provided, however, that any such adjustment to the number specified
in Section 3(c)(i) shall be made only if and to the extent that such adjustment
would not cause any Option intended to qualify as an Incentive Stock Option to
fail so to qualify.
12. CHANGE IN CONTROL. For purposes of this Plan, except as may be
otherwise prescribed by the Board in an agreement evidencing a grant or award
made under the Plan, a "Change in Control" shall mean the occurrence during the
term of any of the following events, subject to the provisions of Section 12 (f)
hereof:
(a) All or substantially all of the assets of the Company are sold
or transferred to another corporation or entity, or the Company is merged,
consolidated or reorganized into or with another corporation or entity, with the
result that upon conclusion of the transaction less than 51% of the outstanding
securities entitled to vote generally in the election of directors or other
capital interests of the acquiring corporation or entity are owned directly or
indirectly, by the shareholders of the Company generally prior to the
transaction; or
(b) There is a report filed on Schedule 13D or Schedule 14D-1 (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 (a "Person")) has
become the beneficial owner (as the term "beneficial owner" is defined under
Rule 13d-3 or any successor rule or regulation promulgated under the Exchange
Act (a "Beneficial Owner")) of securities representing 20% or more of the
combined voting power of the then-outstanding voting securities of the Company;
or
(c) The individuals who, at the beginning of any period of two
consecutive calendar years, constituted the Directors of the Company cease for
any reason to constitute at least a majority thereof unless the nomination for
election by the Company's stockholders of each new Director of the Company was
approved by a vote of at least two-thirds of the Directors of the Company still
in office who were Directors of the Company at the beginning of any such period;
or
(d) There shall be an announcement of the intent of any Person
(other than the Company, any wholly-owned Subsidiary of the Company, or any
employee stock
13
<PAGE> 14
ownership or other employee benefit plan of the Company or any wholly-owned
Subsidiary of the Company) to commence a tender offer or exchange offer to
acquire (when added to any shares as to which such Person is the Beneficial
Owner immediately prior to such tender or exchange offer) beneficial ownership
of 30% or more of the combined voting power of the then-outstanding voting
securities of the Company; or
(e) The Board determines that (A) any particular actual or proposed
merger, consolidation, reorganization, sale or transfer of assets, accumulation
of shares or tender offer for shares of the Company or other transaction or
event or series of transactions or events will, or is likely to, if carried out,
result in a Change in Control falling within Subsections (a), (b), (c) or (d)
and (B) it is in the best interests of the Company and its shareholders, and
will serve the intended purposes of this Section 12, if the provisions of awards
which provide for earlier exercise or earlier lapse of restrictions or
conditions upon a change in Control shall thereupon become immediately
operative.
(f) Notwithstanding the foregoing provisions of this Section (12):
(i) If any such merger, consolidation, reorganization, sale or
transfer of assets, or tender offer or other transaction or event or series of
transactions or events mentioned in Section (12)(e) shall be abandoned, or any
such accumulations of shares shall be dispersed or otherwise resolved, the Board
may, by notice to the Employee, nullify the effect thereof and reinstate the
award as previously in effect, but without prejudice to any action that may have
been taken prior to such nullification.
(ii) Unless otherwise determined in a specific case by the
Board, a "Change in Control" shall not be deemed to have occurred for purposes
of Section (12)(b) or 12(d) solely because (X) the Company, (Y) a Subsidiary, or
(Z) any Company-sponsored employee stock ownership plan or any other employee
benefit plan of the Company or any Subsidiary either files or becomes obligated
to file a report or a proxy statement under or in response to Schedule 13D,
Schedule 14D-1, 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 the then-outstanding voting securities of the Company,
whether in excess of 20% or otherwise, or because the Company reports that a
change in control of the Company has occurred or will occur in the future by
reason of such beneficial ownership.
13. FRACTIONAL SHARES. The Company shall not be required to issue any
fractional Common Shares pursuant to this Plan. The Board may provide for the
elimination of fractions or for the settlement of fractions in cash.
14. WITHHOLDING TAXES. To the extent that the Company is required to
withhold federal, state, local or foreign taxes in connection with any payment
made or benefit realized by a Participant or other person under this Plan, and
the amounts available to the Company for such withholding are insufficient, it
shall be a condition to the receipt of such payment or the realization of such
benefit that the Participant or such other person make arrangements
14
<PAGE> 15
satisfactory to the Company for payment of the balance of such taxes required to
be withheld, which arrangements (in the discretion of the Board) may include
relinquishment of a portion of such benefit. Common Shares or benefits shall not
be withheld in excess of the minimum number required for such tax withholding.
The Company and a Participant or such other person may also make arrangements
with respect to the payment in cash of any taxes with respect to which
withholding is not required.
15. FOREIGN EMPLOYEES. In order to facilitate the making of any grant
or combination of grants under this Plan, the Board may provide for such special
terms for awards to Participants who are foreign nationals or who are employed
by the Company or any Subsidiary outside of the United States of America as the
Board may consider necessary or appropriate to accommodate differences in local
law, tax policy or custom. Moreover, the Board may approve such supplements to
or amendments, restatements or alternative versions of this Plan as it may
consider necessary or appropriate for such purposes, without thereby affecting
the terms of this Plan as in effect for any other purpose, and the Secretary or
other appropriate officer of the Company may certify any such document as having
been approved and adopted in the same manner as this Plan. No such special
terms, supplements, amendments or restatements, however, shall include any
provisions that are inconsistent with the terms of this Plan as then in effect
unless this Plan could have been amended to eliminate such inconsistency without
further approval by the shareholders of the Company.
16. ADMINISTRATION OF THE PLAN. (a) This Plan shall be administered by
the Board, which may from time to time delegate all or any part of its authority
under this Plan to a committee of the Board (or subcommittee thereof) consisting
entirely of three Nonemployee Directors appointed by the Board. A majority of
the committee (or subcommittee) shall constitute a quorum, and the action of the
members of the committee (or subcommittee) present at any meeting at which a
quorum is present, or acts unanimously approved in writing, shall be the acts of
the committee (or subcommittee). To the extent of any such delegation,
references in this Plan to the Board shall be deemed to be references to any
such committee or subcommittee.
(b) The interpretation and construction by the Board of any
provision of this Plan or of any agreement, notification or document evidencing
the grant of Option Rights, Appreciation Rights, Restricted Shares, Deferred
Shares, Performance Shares or Performance Units and any determination by the
Board pursuant to any provision of this Plan or of any such agreement,
notification or document shall be final and conclusive. No member of the Board
shall be liable for any such action or determination made in good faith.
17. AMENDMENTS, ETC. (a) The Board may at any time and from time to
time amend the Plan in whole or in part; provided, however, that any amendment
which must be approved by the shareholders of the Company in order to comply
with applicable law or the rules of the New York Stock Exchange or, if the
Common Shares are not traded on the New York Stock Exchange, the principal
national securities exchange upon which the Common Shares are traded or quoted,
shall not be effective unless and until such approval has been obtained.
Presentation of this Plan or any amendment hereof for shareholder approval shall
not be construed to limit the
15
<PAGE> 16
Company's authority to offer similar or dissimilar benefits under other plans
without shareholder approval.
(b) The Board shall not, without the further approval of the
shareholders of the Company, authorize the amendment of any outstanding Option
Right to reduce the Option Price. Furthermore, no Option Right shall be
cancelled and replaced with awards having a lower Option Price without further
approval of the shareholders of the Company. This Section 17(b) is intended to
prohibit the repricing of "underwater" Option Rights and shall not be construed
to prohibit the adjustments provided for in Section 11 of this Plan.
(c) The Board also may permit Participants to elect to defer the
issuance of Common Shares or the settlement of awards in cash under the Plan
pursuant to such rules, procedures or programs as it may establish for purposes
of this Plan. The Board also may provide that deferred issuances and settlements
include the payment or crediting of dividend equivalents or interest on the
deferral amounts.
(d) The Board may condition the grant of any award or combination
of awards authorized under this Plan on the surrender or deferral by the
Participant of his or her right to receive a cash bonus or other compensation
otherwise payable by the Company or a Subsidiary to the Participant.
(e) In case of termination of employment by reason of death,
disability or normal or early retirement, or in the case of hardship or other
special circumstances, of a Participant who holds an Option Right or
Appreciation Right not immediately exercisable in full, or any Restricted Shares
as to which the substantial risk of forfeiture or the prohibition or restriction
on transfer has not lapsed, or any Deferred Shares as to which the Deferral
Period has not been completed, or any Performance Shares or Performance Units
which have not been fully earned, or who holds Common Shares subject to any
transfer restriction imposed pursuant to Section 10(b) of this Plan, the Board
may, in its sole discretion, accelerate the time at which such Option Right or
Appreciation Right may be exercised or the time at which such substantial risk
of forfeiture or prohibition or restriction on transfer will lapse or the time
when such Deferral Period will end or the time at which such Performance Shares
or Performance Units will be deemed to have been fully earned or the time when
such transfer restriction will terminate or may waive any other limitation or
requirement under any such award.
(f) This Plan shall not confer upon any Participant any right with
respect to continuance of employment or other service with the Company or any
Subsidiary, nor shall it interfere in any way with any right the Company or any
Subsidiary would otherwise have to terminate such Participant's employment or
other service at any time.
(g) To the extent that any provision of this Plan would prevent any
Option Right that was intended to qualify as an Incentive Stock Option from
qualifying as such, that provision shall be null and void with respect to such
Option Right. Such provision, however, shall remain in effect for other Option
Rights and there shall be no further effect on any provision of this Plan.
16
<PAGE> 17
18. TERMINATION. No grant shall be made under this Plan more than 10
years after the date on which this Plan is first approved by the shareholders of
the Company, but all grants made on or prior to such date shall continue in
effect thereafter subject to the terms thereof and of this Plan.
19. EXCLUSION FROM CERTAIN RESTRICTIONS. Notwithstanding anything in
this Plan to the contrary, not more than seventy-two thousand (72,000) Common
Shares in the aggregate available under this Plan may be subject to awards as
follows:
(a) in the case of grants of Restricted Stock, which do not meet
the requirements of the last sentence of Section 6(c);
(b) in the case of grants of Restricted Stock as to which the Board
may accelerate or waive any restrictions imposed under Section 6(d);
(c) in the case of grants of Deferred Stock, which do not meet the
requirements of the last sentence of Section 7(c); or
(d) in the case of Performance Shares and Performance Units, which
do not meet the requirements of Section 8(b).
17
<PAGE> 1
Exhibit 10.8
OMNOVA SOLUTIONS INC.
DEFERRED COMPENSATION PLAN
FOR NONEMPLOYEE DIRECTORS
(Effective October 1, 1999)
<PAGE> 2
OMNOVA SOLUTIONS INC.
DEFERRED COMPENSATION PLAN
FOR NONEMPLOYEE DIRECTORS
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Article Section Page
- ------- ------- ----
<S> <C> <C> <C>
1 Establishment of Plan 1
---------------------
2 Definitions and Construction
----------------------------
2.1 Definitions 1
2.2 Construction 9
3 Eligibility and Participation 10
-----------------------------
4 Deferral of Director Fees
4.1 Deferral Election 10
4.2 Irrevocability 12
5 Investment Programs
-------------------
5.1 Individual Accounts 12
5.2 No Trust Fund 13
5.3 Description of Investment
Programs 13
5.4 Responsibility for Investment
Choices 16
6 Distribution of Deferred Amounts
--------------------------------
6.1 Distribution 16
6.2 Survivor Benefits 17
6.3 Conflict of Interest 18
6.4 Change in Control 18
6.5 Conversion and Adjustment in
Event of Recapitalization 19
7 Miscellaneous
-------------
7.1 Finality of Determinations 20
7.2 Plan Administration 20
7.3 Amendment, Suspension or
Termination of the Plan 21
7.4 Limitations on Transfer 21
7.5 Governing Law 21
7.6 Expenses of Administration 21
</TABLE>
<PAGE> 3
OMNOVA SOLUTIONS INC.
DEFERRED COMPENSATION PLAN
FOR NONEMPLOYEE DIRECTORS
Article 1
Establishment of Plan
---------------------
Omnova Solutions Inc. ("Company"), hereby adopts the deferred
compensation plan set forth herein, effective as of October 1, 1999. The purpose
of the Plan is to provide the Company's Nonemployee Directors with the
opportunity to defer the receipt of Director Fees on a pre-tax basis and to earn
investment income on the amount of their deferred fees.
In addition, the Company has assumed (subject to legal requirements for
director acquiescence) the obligations of GenCorp Inc. as of September 30, 1999
to pay deferred compensation, under the GenCorp Inc. Deferred Compensation Plan
for Nonemployee Directors to all GenCorp Directors resigning to become members
of the Company's Board as of October 1, 1999. Such assumed obligations will be
credited to investment programs and distributed in accordance with the terms of
this Plan.
Article 2
Definitions and Construction
----------------------------
2.1 DEFINITIONS. The following capitalized words and phrases when used
in the text of the Plan shall have the meanings set forth below:
(a) "Board" means the Board of Directors of the Company.
<PAGE> 4
(b) "Calendar Year" means each consecutive twelve-month period
commencing January l and ending December 31.
(c) CHANGE IN CONTROL: The occurrence of any of the following
events, subject to the provisions of paragraph (5) hereof:
(1) All or substantially all of the assets of the Company
are sold or transferred to another corporation or
entity, or the Company is merged, consolidated or
reorganized into or with another corporation or entity,
with the result that upon conclusion of the transaction
less than 51% of the outstanding securities entitled to
vote generally in the election of directors or other
capital interests of the acquiring corporation or entity
are owned directly or indirectly, by the shareholders of
the Company generally prior to the transaction; or
(2) There is a report filed on Schedule 13D or Schedule
14D-1 (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 (a
"Person")) has become the beneficial owner (as the term
"beneficial owner" is defined under Rule 13d-3 or any
successor rule or regulation promulgated under the
Exchange Act (a "Beneficial Owner")) of securities
representing 20% or more of the combined voting power of
the then-outstanding voting securities of the Company;
or
<PAGE> 5
(3) The individuals who, at the beginning of any period of
two consecutive calendar years, constituted the
Directors of the Company cease for any reason to
constitute at least a majority thereof unless the
nomination for election by the Company's stockholders of
each new Director of the Company was approved by a vote
of at least two-thirds of the Directors of the Company
still in office who were Directors of the Company at the
beginning of any such period; or
(4) The Board determines that (A) any particular actual or
proposed merger, consolidation, reorganization, sale or
transfer of assets, accumulation of shares or tender
offer for shares of the Company or other transaction or
event or series of transactions or events will, or is
likely to, if carried out, result in a Change in Control
falling within paragraph (1), (2) or (3) hereof and (B)
it is in the best interests of the Company and its
shareholders, and will serve the intended purposes of
the Change in Control provisions of this Program and
other compensation and benefit programs, plans and
agreements of the Company, if a Change in Control shall
be deemed to have occurred.
(5) Notwithstanding the foregoing provisions of this Section
2.1(c):
(A) If any such merger, consolidation, reorganization,
sale or transfer of assets, or tender offer or
other transaction or event or series of
transactions or events mentioned in paragraph (iv)
hereof shall be abandoned, or any such
<PAGE> 6
accumulations of shares shall be dispersed or
otherwise resolved, the Board may determine that
a Change in Control has not occurred and, by
notice to the Executive, nullify the effect
thereof, but without prejudice to any action
that may have been taken prior to such
nullification.
(B) Unless otherwise determined in a specific case
by the Board, a Change in Control shall not be
deemed to have occurred for purposes of
paragraph (2) hereof solely because (i) the
Company, (ii) a subsidiary of the Company, or
(iii) any Company-sponsored employee stock
ownership plan or any other employee benefit
plan of the Company or any subsidiary of the
Company either files or becomes obligated to
file a report or a proxy statement under or in
response to Schedule 13D, Schedule 14D-1, 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 the then-outstanding voting
securities of the Company, whether in excess of
20% or otherwise, or because the Company reports
that a change in control of the Company has
occurred or will occur in the future by reason
of such beneficial ownership.
(c) "Company" means Omnova Solutions Inc.
<PAGE> 7
(d) "Deferral Dates" means the dates on which Director Fees are
paid, namely January 15, April 15, July 15 and October 15.
(e) "Director" means a member of the Board.
(f) "Director Fees" means the aggregate compensation payable by the
Company to a Director, including annual retainer, chairman's fee
and meeting attendance fees.
(g) "Effective Date" means October 1, 1999.
(h) "Market Value" means
(1) in the case of shares of Omnova Solutions Common Stock
(except as otherwise provided in Section 6.4 hereof),
the closing price (or if no trading occurs on any
trading day, the mean between the closing bid and asked
prices) as quoted in the New York Stock Exchange
Composite Transactions as published in the Wall Street
Journal (or, if not so listed, as quoted on such other
exchange on which such securities shall then be listed,
or if unlisted, the mean average between the
over-the-counter high bid and low asked quotation) on
the day for which the determination is to be made, or if
such day is not a trading day, the trading day
immediately preceding such day, and as used in Section
6.5 hereof, in the event of a Recapitalization, the
weighted average of the trading prices on the day (or
the weighted average of such trading prices on such
trading days) following the occurrence thereof as
determined by the
<PAGE> 8
Organization and Compensation Committee of the Board in
its discretion, or in the event of an issuer tender
offer in connection with a Recapitalization, the
weighted average of the trading prices on the trading
day immediately following the termination date of such
issuer tender offer, or any extensions thereof (or the
weighted average of such trading prices on the five
trading days immediately following such termination
date) as determined by the Organization and Compensation
Committee in its discretion, and
(2) in the case of shares of the Designated Equity Fund (i)
for a bank commingled fund, the closing price of a share
as determined by the trustee of such fund, (ii) for a
closed-end fund, the closing price of a share on the New
York Stock Exchange, or (iii) for an open-end mutual
fund, the net asset value per share of a share as
determined by such fund, on the date for which the
determination is to be made, or if such date is not a
trading day, the trading day immediately preceding such
determination date.
(i) "Nonemployee Director" means a Director who is not an employee
of the Company.
(j) "Participant" means a Nonemployee Director who elects to defer
all or a portion of his Director Fees in accordance with Article
4.
(k) "Plan" means the Omnova Solutions Inc. Deferred Compensation
Plan for Nonemployee Directors, as amended from time to time.
<PAGE> 9
(l) "Recapitalization" means a significant change in the capital
structure of the Company (which may include an issuer tender
offer made to all of the Company's shareholders to purchase
outstanding shares of the Company's Common Stock), as
determined in the discretion of the Board as constituted
immediately prior to the occurrence thereof.
2.2 CONSTRUCTION. Whenever any word is used herein in the
singular form, it shall be construed as though it were also used in the plural
form in all cases where it would so apply. Headings of articles and sections are
inserted for convenience and reference, and they constitute no part of the Plan.
Except where otherwise indicated by the context, any masculine terminology
herein shall include the feminine and neuter.
Article 3
Eligibility and Participation
-----------------------------
Any Nonemployee Director shall be eligible to participate in the Plan.
A Nonemployee Director may become a Participant in the Plan by electing to defer
all or a portion of his Director Fees in accordance with Article 4.
Article 4
Deferral of Director Fees
-------------------------
4.1 DEFERRAL ELECTION. By written notice to the Secretary of the
Company which is either received by the Secretary or postmarked not later than
December 31
<PAGE> 10
preceding the beginning of a Calendar Year, any Nonemployee Director
may elect to defer all or a portion of the Director Fees which may be payable to
him for services rendered during such Calendar Year and to have such deferred
Director Fees held for his benefit under the terms of this Plan. Any election
made by a Participant pursuant to this Section 4.1 must specify his amount of
deferral, investment choice[s] and time and manner of distribution, as described
in subsections (a), (b) and (c) below:
(a) AMOUNT OF DEFERRAL. Subject to a minimum annual deferral of
$5,000, a Participant must specify the amount of his deferral
as
(1) his total Director Fees for the Calendar Year,
(2) a percentage of his total Director Fees for the
Calendar Year, or
(3) a flat annual dollar amount not in excess of his
total Director Fees for the Calendar Year.
If a Participant elects to defer less than 100 percent of his
Director Fees, deferrals pursuant to paragraphs (2) or (3)
will be deducted by the Company on a pro rata basis from the
regular quarterly payments of Director Fees. Notwithstanding
any other provisions hereof, a Participant may not defer any
portion of his Director Fees which is attributable to
attendance at meetings held prior to the Effective Date.
(b) INVESTMENT CHOICES. A Participant must specify the amount or
percentage of his deferred Director Fees to be applied to one
or more of the following investment programs as further
described in Article 5:
(1) Omnova Solutions Stock Fund;
<PAGE> 11
(2) Designated Equity Fund;
(3) Cash Deposit Fund.
(c) DISTRIBUTION. A Participant must elect to receive the cash
value of his deferred Director Fees, plus earnings thereon,
(1) in either (i) a single payment, or (ii) in two or
more approximately equal annual installments, not to
exceed ten; and
(2) commencing, at his election, (i) 30 days following
the date he ceases to be a Director, (ii) on a fixed
future date specified in the written election notice,
or (iii) upon the Participant's attainment of an age
specified by him in the written election notice.
In addition, a Participant may elect to have the cash value of
his deferred Director Fees, plus earnings thereon, distributed
as a single payment within 60 days in the event of his death
or termination of service on the Board due to physical or
mental disability, notwithstanding any election made by the
Participant pursuant to paragraphs (1) and (2) above.
4.2 IRREVOCABILITY. Deferral elections made under this Plan with
respect to any Calendar Year will be final and, after commencement of such
Calendar Year, cannot be amended or revoked in respect of Director Fees for
services rendered during such Calendar Year.
Article 5
Investment Programs
-------------------
<PAGE> 12
5.1 INDIVIDUAL ACCOUNTS. When a Participant has made a deferral
election pursuant to Section 4.1, the Company shall establish an account on its
books in his name and shall, in the case of the investment programs described in
Sections 5.3(a) and (b), cause to be credited to such account as of each
Deferral Date the number of full and fractional phantom shares which could be
purchased with the amount deferred on such Deferral Date and, in the case of the
investment program described in Section 5.3(c), cause to be credited to such
account as of each Deferral Date the dollar amount deferred on such Deferral
Date.
5.2 NO TRUST FUND. The Company shall not be required to reserve or
otherwise set aside funds for the payment of any amounts credited to any account
created hereunder. In addition, the Company shall not, and shall not be required
to, actually purchase any stock, security or mutual fund units described in
Sections 5.3 (a) and (b).
5.3 DESCRIPTION OF INVESTMENT PROGRAMS.
(a) OMNOVA SOLUTIONS STOCK FUND. Under this program, the
Participant's account shall be credited with the number of
full and fractional phantom shares of Omnova Solutions Common
Stock which would be purchasable at the Market Value on the
Deferral Date with the deferred amount designated for this
investment program.
(1) In the event that the shares of Omnova Solutions
Common Stock shall be increased or decreased or
changed into or exchanged for a different number or
kind of shares of stock or other securities of the
Company or of another corporation, whether through
<PAGE> 13
reorganization, merger, consolidation,
recapitalization, stock split-up, combination of
shares, stock offerings, spin-off or otherwise, such
number of phantom shares of Omnova Solutions Common
Stock as shall be credited to the account of any
Participant as of the record date for such action
shall be proportionately or appropriately adjusted as
of the payment or effective date to reflect such
action. If any such adjustment shall result in a
fractional share, such fractional phantom share shall
also be credited to the account of the Participant.
(2) The Participant's account shall further be credited
with the number of phantom shares, including
fractions, which would be purchasable at the Market
Value on the date a dividend is paid on Omnova
Solutions Common Stock, with an aggregate amount
equal to any dividend or the value of any other
distribution (other than a distribution for which an
adjustment in the number of phantom shares in the
account is made pursuant to paragraph (1)) paid on
that number of shares of Omnova Solutions Common
Stock which is equivalent to the number of phantom
shares credited to the Participant's account on the
record date of such dividend or other distribution.
(b) DESIGNATED EQUITY FUND.
(1) The Designated Equity Fund initially shall be the
Bankers Trust Company BT Pyramid Commingled S&P 500
Equity Index Fund, a bank commingled
<PAGE> 14
fund, which is designed to match the performance of
and changes in Standard and Poor's 500 Index. The
Designated Equity Fund may be changed from time to
time by action of the Board, except that such change
shall be only for future application and shall not
affect the phantom shares previously credited to the
account of any Participant.
(2) Under this program, the Participant's account is
credited with the number of full and fractional
phantom shares of the Designated Equity Fund, which
could be purchased at the Market Value on the
Deferral Date with the deferred amount designated for
this investment program.
(3) If and when any dividend is declared and paid, the
Participant's account shall further be credited with
the number of phantom shares, including fractions,
which could be purchased at the Market Value on the
dividend payment date with an aggregate amount equal
to any ordinary or capital cash dividend paid on that
number of shares of the Designated Equity Fund which
is equivalent to the number of phantom shares
credited to the Participant's account on the dividend
record date.
(c) CASH DEPOSIT FUND. Under this program, the Participant's
account is credited on the Deferral Date with that deferred
dollar amount designated for this investment program. After
the end of each Calendar Year quarter, there shall further be
credited to each Participant's account an amount equal to
three months' interest on the average
<PAGE> 15
balance credited to such account during such quarter computed
at the prime interest rate payable by the Company at the
beginning of each such quarter as determined by the Treasurer
of the Company.
5.4 RESPONSIBILITY FOR INVESTMENT CHOICES. Each Nonemployee
Director is solely responsible for his decision to participate in the Plan and
accepts all investment risks entailed by his participation and/or selection of
an investment program, including the risk of loss of and a decrease in the value
of his deferred Director Fees.
Article 6
Distribution of Deferred Amounts
--------------------------------
6.1 DISTRIBUTION. Subject to the terms of Sections 6.2, 6.3, 6.4
and 6.5, a Participant's interests in the Plan shall be distributed to him in
accordance with his elections made pursuant to Section 4.1(c). All amounts shall
be distributed in cash.
In the case of phantom shares credited to a Participant's account in
the Omnova Solutions Stock Fund or Designated Equity Fund of the Plan, the value
of a Participant's interest on any distribution date elected by a Participant,
whether such distribution is to be made in a single payment or in annual
installments, will be the product of the pro rata portion of the Participant's
phantom shares which is to be distributed on such date multiplied by the Market
Value of Omnova Solutions Common Stock or shares of the Designated Equity Fund,
as the case may be, on such distribution date. In the case of annual
installments, the value of a Participant's interest on each annual distribution
date after the initial distribution will be calculated
<PAGE> 16
in a like manner based upon the applicable Market Value on each subsequent
distribution date.
In the case of the Cash Deposit Fund, if a single payment has been
elected, the entire cash value of a Participant's account on the distribution
date will be paid in a single payment. Where annual installments have been
elected, the cash value of the pro rata portion of the Participant's account
balance to be distributed on such date (plus accrued interest thereon), shall be
paid to the Participant on each annual installment distribution date.
6.2 SURVIVOR BENEFITS. If a Participant dies before all or any
portion of his interests under the Plan have been distributed to him, the
interests remaining to be paid shall be distributed, on the date or dates and in
the manner specified in such Participant's written deferral elections, to such
beneficiary or beneficiaries as the Participant may have designated in writing
to the Company or, in the absence of any such designation to his estate or to,
or as directed by, his legal representatives.
6.3 CONFLICT OF INTEREST. Notwithstanding any election made by a
Participant, in the event that a Participant terminates his service on the Board
due to a conflict of interest resulting from such Participant becoming a
proprietor, director, officer, partner, employee, or otherwise becoming
affiliated with any business that is in competition with the Company or any of
its subsidiaries, directly or indirectly, or becoming employed by any
governmental agency having jurisdiction over the activities of the Company or
any of its subsidiaries, the entire balance of his deferred Director Fees,
including earnings thereon, shall be paid immediately to him in a single
payment.
<PAGE> 17
6.4 CHANGE IN CONTROL.
(a) Notwithstanding any other provisions of the Plan, in the event
a director?s service on the Board is terminated involuntarily
within three years following a Change in Control, each
Participant shall be immediately paid, in a single payment,
the sum of (1) the Cash Value of his Omnova Solutions Stock
Fund account, (2) the Market Value of his Designated Equity
Fund account and (3) the cash value of his Cash Deposit Fund
account.
(b) For purposes of this Section 6.4, the Cash Value of a
Participant's Omnova Solutions Stock Fund account shall be
determined using as a conversion price the greater of (1) the
tender offer or exchange offer price (if any), or (2) the
highest market value of Omnova Solutions Common Stock (or
other security for which Omnova Solutions Common Stock may
have been exchanged pursuant to Section 5.3(a)(1)) during the
ninety-day period preceding the Change in Control.
6.5 CONVERSION AND ADJUSTMENT IN EVENT OF RECAPITALIZATION.
Notwithstanding any other provisions of the Plan, upon the occurrence
of a Recapitalization, all shares credited to the Participant's account in the
Omnova Solutions Stock Fund ("Shares") shall first be adjusted to a Cash Value
either (x) in the event of a Recapitalization not occurring in connection with
an issuer tender offer, by multiplying the aggregate number of Shares by an
amount, on a per share basis, equal to the prorated value as determined by the
Organization and Compensation Committee of the Board of the (A) Cash and Market
Value of any security or property distributed to shareholders in connection with
the Recapitalization, (B) Cash and
<PAGE> 18
Market Value of any security or property paid to shareholders in exchange for
Omnova Solutions Common Stock in connection with the Recapitalization, and (C)
Market Value of Omnova Solutions Common Stock (or its successor), or (y) in the
event of a Recapitalization occurring in connection with an issuer tender offer,
by determining the sum of A + B obtained pursuant to the following calculations:
Tender Offer
Aggregate X Proration X Tender = A
Shares Rate Offer Price
and
Tender Offer
Aggregate X one - Proration X Market = B
Shares Rate Value
For purposes of the foregoing calculations, the term Tender Offer
Proration Rate shall mean the ratio (excluding consideration of any odd lot
shares tendered or repurchased) of the number of shares repurchased by the
Company in an issuer tender offer to the number of shares tendered to the
Company in connection with such offer.
The Cash Value of Shares determined in (x) or (y) above, together with
the aggregate Market Value of the Participant's interests, if any, in the
Designated Equity Fund, and the cash value, if any, of the Participant's
interests in the Cash Deposit Fund shall be payable to the Participant in a
single payment within thirty days thereafter.
Article 7
Miscellaneous
-------------
<PAGE> 19
7.1 FINALITY OF DETERMINATIONS. Authority to determine contested issues
or claims arising under the Plan shall be vested in the Omnova Solutions
Administrative Committee, and any determination by the Administrative Committee
pursuant to such authority shall be final and binding for all purposes and upon
all interested persons and their heirs, successors, and personal
representatives.
7.2 PLAN ADMINISTRATION. Authority and responsibility for
administration of the Plan, including maintenance of Participants' accounts
hereunder and preparation and delivery of individual annual account statements
to Participants, shall be vested in the Omnova Solutions Administrative
Committee. Responsibility for oversight of investment programs, and reporting on
the performance thereof to the Board, shall be vested in the Omnova Solutions
Benefits Management Committee.
7.3 AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN. The Board may
amend, suspend or terminate the Plan in whole or in part at any time, provided
that such amendment, suspension or termination shall not adversely affect rights
or obligations with respect to funds or interests previously credited to the
account of any Participant.
7.4 LIMITATIONS ON TRANSFER. Participants shall have no rights to any
funds or interests credited to their accounts except as set forth in this Plan.
Such rights may not be anticipated, assigned, alienated or transferred, except
in writing to a designated beneficiary or beneficiaries or by will or by the
laws of descent and distribution. Any attempt to alienate, sell, exchange,
transfer, assign, pledge, hypothecate or otherwise encumber or dispose of any
such funds or interests by a Participant shall be void and of no effect. The
foregoing limitations shall apply with
20
<PAGE> 20
equal force and effect to any beneficiary or beneficiaries designated by a
Participant hereunder.
7.5 GOVERNING LAW. The Plan shall be governed by the laws of the State
of Ohio. The Plan is not governed by the Employee Retirement Income Security Act
of 1974.
7.6 EXPENSES OF ADMINISTRATION. All costs and expenses incurred in the
operation and administration of this Plan shall be borne by the Company.
<PAGE> 1
Exhibit 10.9
RETIREMENT PLAN FOR NONEMPLOYEE DIRECTORS
OF OMNOVA SOLUTIONS INC.
Effective October 1, 1999
Section 1. PURPOSE
The purpose of the Plan is to provide nonemployee directors of the
Company with additional compensation for their services on the Board and to
assist the Company in attracting and retaining qualified individuals to serve as
directors.
Section 2. DEFINITIONS
"Change in Control" shall mean the occurrence of any of the following
events, subject to the provisions of paragraph (v) hereof:
(i) All or substantially all of the assets of the
Company are sold or transferred to another corporation or
entity, or the Company is merged, consolidated or reorganized
into or with another corporation or entity, with the result
that upon conclusion of the transaction less than 51% of the
outstanding securities entitled to vote generally in the
election of directors or other capital interests of the
acquiring corporation or entity are owned directly or
indirectly, by the shareholders of the Company generally prior
to the transaction; or
(ii) There is a report filed on Schedule 13D or
Schedule 14D-1 (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 (a "Person"))
has become the beneficial owner (as the term "beneficial
owner" is defined under Rule 13d-3 or any successor rule or
regulation promulgated under the Exchange Act (a "Beneficial
Owner")) of securities representing 20% or more of the
combined voting power of the then-outstanding voting
securities of the Company; or
(iii) The individuals who, at the beginning of any
period of two consecutive calendar years, constituted the
Directors of the Company cease for any reason to constitute at
least a majority thereof unless the nomination for election by
the Company's stockholders of each new Director of the Company
was approved by a vote of at least two-thirds of the Directors
of the Company still in office who were Directors of the
Company at the beginning of any such period; or
(iv) The Board determines that (A) any particular
actual or
<PAGE> 2
proposed merger, consolidation, reorganization, sale or
transfer of assets, accumulation of shares or tender offer for
shares of the Company or other transaction or event or series
of transactions or events will, or is likely to, if carried
out, result in a Change in Control falling within paragraph
(i), (ii) or (iii) hereof and (B) it is in the best interests
of the Company and its shareholders, and will serve the
intended purposes of the Change in Control provisions of this
Program and other compensation and benefit programs, plans and
agreements of the Company, if a Change in Control shall be
deemed to have occurred.
(v) Notwithstanding the foregoing provisions of this
Section 2.1(d):
(A) If any such merger, consolidation,
reorganization, sale or transfer of assets, or tender
offer or other transaction or event or series of
transactions or events mentioned in paragraph (iv)
hereof shall be abandoned, or any such accumulations
of shares shall be dispersed or otherwise resolved,
the Board may determine that a Change in Control has
not occurred and, by notice to the Executive, nullify
the effect thereof, but without prejudice to any
action that may have been taken prior to such
nullification.
(B) Unless otherwise determined in a
specific case by the Board, a Change in Control shall
not be deemed to have occurred for purposes of
paragraph (ii) hereof solely because (1) the Company,
(2) a subsidiary of the Company, or (3) any
Company-sponsored employee stock ownership plan or
any other employee benefit plan of the Company or any
subsidiary of the Company either files or becomes
obligated to file a report or a proxy statement under
or in response to Schedule 13D, Schedule 14D-1, 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
the then-outstanding voting securities of the
Company, whether in excess of 20% or otherwise, or
because the Company reports that a change in control
of the Company has occurred or will occur in the
future by reason of such beneficial ownership.
"Company" shall mean Omnova Solutions Inc.
"Credited Service" shall mean all service as a director of the Company,
including service as a director prior to the Effective Date.
"Director" shall mean a member or former member of the Board of
Directors of the Company who is not and has never been an employee of the
Company or any of its
2
<PAGE> 3
subsidiaries.
"Effective Date" of the Plan shall be October 1, 1999.
"Plan" shall mean the Retirement Plan for Nonemployee Directors of
Omnova Solutions Inc.
"Plan Administrator" shall mean the Secretary of the Company or any
other officer designated by the Chairman.
"Retainer" shall mean the fee established by the Board of Directors of
the Company and paid for service as a director, but excluding meeting fees,
committee fees and expense reimbursement.
Section 3. PARTICIPATION
All persons who were directors on and after the Effective Date shall be
eligible to participate in the Plan.
Section 4. ELIGIBILITY FOR BENEFITS
Only those directors whose service on the Board of Directors of the
Company terminates after 60 whole or partial months of Credited Service
following his first election or appointment to the Board shall be entitled to
benefits under the Plan.
Section 5. AMOUNT OF BENEFITS
The benefit hereunder shall be an annual amount equal to the Retainer
in effect on the date the director's service terminates, payable in consecutive
monthly installments until the number thereof equals the lesser of (a) the total
number of calendar months (including any partial months) of service by the
individual as a director or (b) 120 monthly installments, commencing in the
month following his or her termination of service as a director or age 65,
whichever is later.
In addition, the Company has assumed (subject to legal requirements for
director acquiescence) the obligations of GenCorp Inc. as of September 30, 1999
to pay retirement income under the Retirement Plan for Nonemployee Directors of
GenCorp Inc. to all GenCorp Directors resigning to become a Director of the
Company as of October 1, 1999. Such assumed obligations will be paid as
retirement income in
3
<PAGE> 4
accordance with the terms of this Plan.
Section 6. PAYMENT OF BENEFITS
(A) Monthly Installments.
--------------------
(i) The normal form of benefit payments hereunder
shall be monthly installments continuing during the life of
the former director until the number thereof equals the lesser
of (a) the total number of calendar months (including any
partial months) of service by the individual as a director or
(b) 120 monthly installments hereunder.
(ii) If a former director dies prior to receipt of
the applicable maximum number of monthly installments
specified in paragraph (A)(i) of this Section 6, the aggregate
amount of such unpaid monthly installments shall be paid, in a
lump sum, to the surviving spouse of or other beneficiary
designated by such former director or, if neither survive the
former director, then the former director's estate.
(B) Lump Sum Payments.
-----------------
(i) ELECTION. Amounts due to a participant under this
Plan may be paid in a lump sum in accordance with the
following:
(1) FORMER DIRECTORS will be able to elect a
lump sum payment of their deferred interest,
subject to a 10% "haircut" and all
applicable tax withholding.
(2) ACTIVE DIRECTORS may receive lump-sum
payments upon termination of Board service
based upon:
(A) an election made at least one year
in advance of termination; or
(B) an election which is made both (1)
at least six months in advance of
termination, and (2) in the
calendar year prior to termination;
or
(C) where an advance election is not
possible (E.G., in the case of a
short-notice involuntary
termination), a request for a
4
<PAGE> 5
lump sum payment which is approved by the
Administration Committee in its full
discretion.
(ii) AMOUNT. The amount of any lump sum payment
hereunder will be computed using the then-current interest
rate for 30-year Treasury securities.
(C) CHANGE IN CONTROL. In the event a director's service on
the Board is terminated involuntarily within three years following a
Change in Control, (i) such director will be fully vested in and
eligible to receive benefits based upon the number of whole or partial
months of Credited Service actually completed, even if he or she has
not completed at least 60 whole or partial months of Credited Service,
and (ii) all benefits accrued for such director under this Plan will be
immediately paid in a single payment, calculated using a discount
factor which is equal to the yield to maturity, as reported in the
Midwest Edition of THE WALL STREET JOURNAL, of the 30-year Treasury
Bond most recently issued as of the date of the Change in Control, plus
50 basis points.
Section 7. SUSPENSION OF BENEFITS
If a former director who is receiving benefits hereunder returns to
service as a director, payment thereof shall be suspended during such service
and shall commence again on the last day of the month following the month in
which such subsequent service terminates. The amount of each monthly payment
following such termination shall be equal to one-twelfth of the Retainer in
effect at the time of such subsequent termination. Other provisions hereof
notwithstanding, the total number of monthly benefit payments hereunder to a
former director and/or his or her spouse, beneficiary or estate, including
payments both before and after a period of subsequent service, shall not exceed
the applicable maximum number specified in Section 6 above.
Section 8. EMPLOYMENT BY THE COMPANY
If a director or former director becomes an employee of the Company or
any of its subsidiaries, benefit payments under the Plan shall cease and such
individual will have no right to any further benefits under the Plan.
Section 9. FUNDING
No promise under this Plan shall be secured by any specific assets of
the Company, nor shall any assets of the Company be designated as attributable
or allocated to the satisfaction of such promises. Benefit payments shall be
made from the Company's treasury.
5
<PAGE> 6
Section 10. ADMINISTRATION
The Plan Administrator shall have full power and authority to
administer the Plan including the power to promulgate rules of Plan
administration, the power to settle any disputes as to rights or benefits
arising from the Plan, the power to appoint agents and delegate its duties, and
the power to make such decisions or take such action as the Plan Administrator,
in its sole discretion, deems necessary or advisable to aid in the proper
administration of the Plan. The Treasurer of the Company shall provide the Plan
Administrator with such assistance as is requested by the Plan Administrator
with regard to the administration of the Plan.
Section 11. ALIENATION OF BENEFITS
No benefit under the Plan shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or
charge; and any attempt thereat shall be void. No such benefit shall, prior to
receipt thereof by an individual, be in any manner liable for or subject to such
individual's debts, contracts, liabilities, engagements, or torts.
Section 12. WITHHOLDING TAXES
The Company shall deduct from the amount of any payments hereunder, all
taxes required to be withheld by applicable laws.
Section 13. GOVERNING LAW
This Plan shall be governed and construed by the laws of the State of
Ohio.
Section 14. AMENDMENT, MODIFICATION, OR TERMINATION OF THE PLAN
The Board of Directors at any time may terminate and in any respect,
amend or modify the Plan.
6
<PAGE> 1
Exhibit 10.10
OMNOVA SOLUTIONS INC.
EXECUTIVE INCENTIVE COMPENSATION PROGRAM
Effective October 1, 1999
<PAGE> 2
OMNOVA SOLUTIONS INC.
EXECUTIVE INCENTIVE COMPENSATION PROGRAM
(Effective October 1, 1999)
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Establishment, Purpose and Duration of Program.............................................................. 1
1.1 Establishment................................................................................. 1
1.2 Purpose....................................................................................... 1
1.3 Effective Date................................................................................ 1
1.4 Duration of Program........................................................................... 1
2. Definitions and Interpretation.............................................................................. 1
2.1 Definitions................................................................................... 1
2.2 Gender and Number............................................................................. 6
2.3 Time of Exercise.............................................................................. 6
2.4 Amendments.................................................................................... 6
2.5 Severability.................................................................................. 6
3. Overview of the Program..................................................................................... 7
4. Incentive Bonus............................................................................................. 7
4.1 Eligibility for Incentive Bonus............................................................... 7
4.2 Performance Objectives........................................................................ 7
4.3 Incentive Opportunity......................................................................... 7
4.4 Amount of Incentive Bonus..................................................................... 7
5. Payment of Incentive Bonus.................................................................................. 8
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
5.1 Payment of Incentive Bonus.................................................................... 8
5.2 Nontransferability............................................................................ 8
5.3 Tax Withholding............................................................................... 8
6. Rights to Incentive Bonus After Death, Disability,
Retirement or Other Termination of Employment .............................................................. 9
6.1 Death......................................................................................... 9
6.2 Disability.................................................................................... 9
6.3 Retirement.................................................................................... 9
6.4 Involuntary Termination....................................................................... 9
6.5 Termination for Other Reasons................................................................. 9
6.6 Change in Control............................................................................. 9
7. Beneficiary Designation..................................................................................... 10
7.1 Designation................................................................................... 10
7.2 Effectiveness................................................................................. 10
7.3 Revocation.................................................................................... 10
8. Rights of Employees......................................................................................... 10
8.1 Participation................................................................................. 10
8.2 Employment.................................................................................... 10
8.3 Transfer...................................................................................... 10
9. Administration.............................................................................................. 11
9.1 Committee..................................................................................... 11
9.2 Power of the Committee........................................................................ 11
9.3 Committee Decisions........................................................................... 11
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
9.4 Delegation.................................................................................... 11
10. Disputes................................................................................................... 11
10.1 Disputes...................................................................................... 11
10.2 Notice........................................................................................ 11
10.3 Decision...................................................................................... 12
10.4 Lawsuit....................................................................................... 12
11. Amendment and Termination.................................................................................. 12
11.1 Amendment and Termination..................................................................... 12
11.2 Amendment..................................................................................... 12
12. Indemnification............................................................................................ 12
12.1 Indemnity..................................................................................... 12
12.2 Additional Right.............................................................................. 12
13. Miscellaneous.............................................................................................. 13
13.1 Unfunded Program.............................................................................. 13
13.2 Costs of Program.............................................................................. 13
13.3 Governing Law................................................................................. 13
</TABLE>
iii
<PAGE> 5
OMNOVA SOLUTIONS INC.
---------------------
EXECUTIVE INCENTIVE COMPENSATION PROGRAM
----------------------------------------
(EFFECTIVE OCTOBER 1, 1999)
1. ESTABLISHMENT, PURPOSE AND DURATION OF PROGRAM
-------------------------------------------------
1.1 ESTABLISHMENT: Omnova Solutions Inc. hereby establishes a bonus
program, as set forth herein, which will be called the "Omnova Solutions Inc.
Executive Incentive Compensation Program."
1.2 PURPOSE: The purpose of the Program is to motivate Participants to
achieve key team and individual performance targets, to reward Participants for
outstanding performance, and to enhance the value of the Company by linking the
personal interests of Participants to the interests of the Company's
shareholders. The Program also is intended to provide to the Company flexibility
in its ability to hire, motivate, and retain the services of Participants whose
judgment, interest and efforts contribute significantly to the successful
conduct of the Company's business.
1.3 EFFECTIVE DATE: The Program is effective October 1, 1999; however,
except for Incentive Bonus obligations assumed from the GenCorp Inc. Executive
Incentive Compensation Program, no Incentive Bonuses shall be paid hereunder for
any period prior to the Fiscal Year commencing December 1, 1999.
1.4 DURATION OF PROGRAM: The Program will remain in effect until
terminated by the Committee in accordance with Section 11.1.
2. DEFINITIONS AND INTERPRETATION
------------------------------
2.1 DEFINITIONS: Whenever used in the Program, the following words
shall have the meanings set forth in this Section 2.1 and, when such meaning is
intended, the initial letter of the word will be capitalized.
(a) BASE PAY: An amount equal to the annual base salary
(excluding bonus, commissions, expense reimbursements, employee
benefits, and all other non-base salary amounts) paid to a Participant
in a Fiscal Year.
(b) BENEFICIARY: The person or persons determined in
accordance with Article 8.
(c) BOARD: The Board of Directors of the Company.
(d) CHANGE IN CONTROL: The occurrence of any of the following
events, subject to the provisions of paragraph (v) hereof:
1
<PAGE> 6
(i) All or substantially all of the assets of the
Company are sold or transferred to another corporation or
entity, or the Company is merged, consolidated or reorganized
into or with another corporation or entity, with the result
that upon conclusion of the transaction less than 51% of the
outstanding securities entitled to vote generally in the
election of directors or other capital interests of the
acquiring corporation or entity are owned directly or
indirectly, by the shareholders of the Company generally prior
to the transaction; or
(ii) There is a report filed on Schedule 13D or
Schedule 14D-1 (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 (a "Person"))
has become the beneficial owner (as the term "beneficial
owner" is defined under Rule 13d-3 or any successor rule or
regulation promulgated under the Exchange Act (a "Beneficial
Owner")) of securities representing 20% or more of the
combined voting power of the then-outstanding voting
securities of the Company; or
(iii) The individuals who, at the beginning of any
period of two consecutive calendar years, constituted the
Directors of the Company cease for any reason to constitute at
least a majority thereof unless the nomination for election by
the Company's stockholders of each new Director of the Company
was approved by a vote of at least two-thirds of the Directors
of the Company still in office who were Directors of the
Company at the beginning of any such period; or
(iv) The Board determines that (A) any particular
actual or proposed merger, consolidation, reorganization, sale
or transfer of assets, accumulation of shares or tender offer
for shares of the Company or other transaction or event or
series of transactions or events will, or is likely to, if
carried out, result in a Change in Control falling within
paragraph (i), (ii) or (iii) hereof and (B) it is in the best
interests of the Company and its shareholders, and will serve
the intended purposes of the Change in Control provisions of
this Program and other compensation and benefit programs,
plans and agreements of the Company, if a Change in Control
shall be deemed to have occurred.
2
<PAGE> 7
(v) Notwithstanding the foregoing provisions of this
Section 2.1(d):
(A) If any such merger, consolidation,
reorganization, sale or transfer of assets, or tender
offer or other transaction or event or series of
transactions or events mentioned in paragraph (iv)
hereof shall be abandoned, or any such accumulations
of shares shall be dispersed or otherwise resolved,
the Board may determine that a Change in Control has
not occurred and, by notice to the Executive, nullify
the effect thereof, but without prejudice to any
action that may have been taken prior to such
nullification.
(B) Unless otherwise determined in a
specific case by the Board, a Change in Control shall
not be deemed to have occurred for purposes of
paragraph (ii) hereof solely because (1) the Company,
(2) a subsidiary of the Company, or (3) any
Company-sponsored employee stock ownership plan or
any other employee benefit plan of the Company or any
subsidiary of the Company either files or becomes
obligated to file a report or a proxy statement under
or in response to Schedule 13D, Schedule 14D-1, 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
the then-outstanding voting securities of the
Company, whether in excess of 20% or otherwise, or
because the Company reports that a change in control
of the Company has occurred or will occur in the
future by reason of such beneficial ownership.
(e) CHIEF EXECUTIVE OFFICER: The Chief Executive Officer of
the Company.
(f) CODE: The Internal Revenue Code of 1986.
(g) COMMITTEE: The Organization and Compensation Committee of
the Board, or such other committee of Outside Directors appointed
annually by the Board.
(h) COMPANY: Omnova Solutions Inc., an Ohio corporation,
having its registered offices at 175 Ghent Road, Fairlawn, Ohio
44333-3300.
(i) EFFECTIVE DATE: October 1, 1999. However, except for
Incentive Bonus obligations assumed from the GenCorp Inc. Executive
Incentive Compensation Program, no Incentive Bonuses shall be paid
hereunder for any period prior to the Fiscal Year commencing December
1, 1999.
3
<PAGE> 8
(j) EMPLOYEE: A full-time salaried employee (including,
without limitation, a director who also is an employee) of the Company
or a Participating Subsidiary, who is not in a bargaining unit
represented by a labor organization.
(k) FISCAL YEAR: The Company's fiscal year which is the
annually recurring period of twelve (12) consecutive calendar months,
commencing on December 1 and ending on November 30.
(l) INCENTIVE BONUS: A dollar amount determined pursuant to
Article 4 and paid to a Participant pursuant to Article 5.
(m) INCENTIVE OPPORTUNITY: An amount expressed as a percentage
of a Participant's Base Pay which shall be determined by the Chief
Executive Officer, with the approval of the Committee, for each
Participant for each Fiscal Year as the maximum Incentive Bonus for
which the Participant shall be eligible for the Fiscal Year.
(n) MARKET VALUE: The closing price for Shares as reported in
the New York Stock Exchange Composite Transactions in the Wall Street
Journal or similar publication selected by the Committee for the
relevant date if Shares were traded on such day or, if none were then
traded, the last prior day on which Shares were so traded.
(o) NET BONUS: The amount of a Participant's Incentive Bonus,
after deduction of (i) any pre-tax contribution pursuant to any
election which the Participant may have in effect under the terms of
any employee benefit plan of the Company, (ii) any federal, state or
local taxes of any kind required by law to be withheld, and (iii) any
after-tax contribution pursuant to any election which the Participant
may have in effect under the terms of any employee benefit plan of the
Company.
(p) OUTSIDE DIRECTOR: A member of the Board who
(i) is not a current employee of the Company or a
Participating Subsidiary;
(ii) is not a former employee of the Company or a
Participating Subsidiary who receives compensation for prior
services (other than benefits under a tax-qualified retirement
plan) during the Fiscal Year;
(iii) has not been an officer of the Company; and
(iv) does not receive remuneration from the Company
or a Participating Subsidiary in any capacity other than as a
director.
4
<PAGE> 9
(q) PROGRAM: The Omnova Solutions Inc. Executive Incentive
Compensation Program, as described in this document.
(r) PARTICIPANT: An Employee who is employed, during a Fiscal
Year, in a position determined by the Chief Executive Officer to have
sufficient scope, authority and impact on the Company?s performance to
qualify for participation in the Program.
(s) PARTICIPATING SUBSIDIARY: Any domestic corporation in
which the Company owns directly, or indirectly through a subsidiary, at
least fifty percent (50%) of the total combined voting power of all
classes of stock and whose directors adopt and ratify the Program in a
manner determined by the Committee.
(t) PERFORMANCE OBJECTIVES: The measures of achievement in the
categories of Financial Results, Continuous Improvement, Special
Objectives and Leadership determined by the Chief Executive Officer to
apply to a Participant for a specific Fiscal Year and set forth in the
Performance Objectives Worksheet for that Fiscal Year in accordance
with Section 4.2.
(u) SHARE: A share of the Company?s ten-cent (10?) par-value
common stock.
2.2 GENDER AND NUMBER: Except as otherwise indicated by the context,
any masculine term used herein also includes the feminine; any singular term
includes the plural thereof; and any plural term includes the singular thereof.
2.3 TIME OF EXERCISE: Any action or right specified in the Program may
be taken or exercised at any time and from time to time unless a specific time
is designated herein for the taking or exercise thereof.
2.4 AMENDMENTS: The Program and each law and/or regulation mentioned
herein will be deemed to include each and every amendment thereof.
2.5 SEVERABILITY: If any provision of the Program is held illegal or
invalid for any reason, the illegal or invalid provision will be severed and, to
the extent possible, the remaining provisions of the Program will be enforced as
if such illegal or invalid provision had not been included herein.
5
<PAGE> 10
3. OVERVIEW OF THE PROGRAM
-----------------------
The Program is designed to allow a Participant to earn an Incentive
Bonus based upon attainment by the Company and/or the Participant of specific
Performance Objectives. Each Fiscal Year, the Chief Executive Officer, with the
approval of the Committee, will determine for each Participant (i) the
Performance Objectives, (ii) the Incentive Opportunity, (iii) the degree to
which the Performance Objectives are achieved, and (iv) the amount of the
Incentive Bonus. Under certain conditions as set forth in Section 5.1, each
Participant who is a member of the GenCorp Leadership Council will have part of
his Incentive Bonus paid in the form of Shares.
4. INCENTIVE BONUS
---------------
4.1 ELIGIBILITY FOR INCENTIVE BONUS: Upon a determination by the
Committee that the applicable Performance Objectives and other specific terms
and conditions established in accordance with this Article 4 have been achieved,
each Participant shall be eligible to receive an Incentive Bonus following the
conclusion of the applicable Fiscal Year.
4.2 PERFORMANCE OBJECTIVES: Within a reasonable period after the
beginning of each Fiscal Year, the Chief Executive Officer, with the approval of
the Committee, shall determine and communicate to each Participant the
Performance Objectives for the Participant for such Fiscal Year in the
categories of Financial Results, Continuous Improvement, Special Objectives and
Leadership. Different Performance Objectives may be established for each
Participant. Performance Objectives for each Participant for each Fiscal Year
shall be set forth in the Participant?s Performance Objectives Worksheet.
4.3 INCENTIVE OPPORTUNITY: Within a reasonable period after the
beginning of each Fiscal Year, the Chief Executive Officer, with the approval of
the Committee, shall determine and communicate to each Participant the Incentive
Opportunity for the Participant for such Fiscal Year, expressed as a percentage
of a Participant?s Base Pay for the Fiscal Year. Each Participant?s aggregate
Incentive Opportunity for a Fiscal Year may be the sum of separate percentages
specified for the Performance Objective categories of Financial Results,
Continuous Improvement, Special Objectives and Leadership. The Incentive
Opportunity for each Participant for each Fiscal Year shall be set forth in the
Participant?s Performance Objectives Worksheet.
4.4 AMOUNT OF INCENTIVE BONUS: The amount of Incentive Bonus that may
be paid to a Participant for any Fiscal Year shall be determined as a dollar
amount for each Participant by the Committee within 90 days after the end of
such Fiscal Year.
6
<PAGE> 11
5. PAYMENT OF INCENTIVE BONUS
--------------------------
5.1 PAYMENT OF INCENTIVE BONUS: Following the conclusion of a Fiscal
Year, payment in settlement of a Participant's Incentive Bonus, if any, for such
Fiscal Year shall be made in cash, except as provided hereafter in this Section
5.1. If a Participant is an elected officer of the Company who is subject to the
Company's Common Stock Ownership Guidelines, 20% of the Participant's Incentive
Bonus shall be paid in Shares, subject to the following conditions:
(a) Prior to converting any portion of the Participant's
Incentive Bonus into Shares, the Company shall, with respect to the
entire dollar amount of the Participant's Incentive Bonus, first (i)
deduct any pre-tax contribution pursuant to any election which the
Participant may have in effect under the terms of any employee benefit
plan of the Company, (ii) deduct and pay over to the applicable taxing
authority any federal, state or local taxes of any kind required by law
to be withheld, and (iii) deduct any after-tax contribution pursuant to
any election which the Participant may have in effect under the terms
of any employee benefit plan of the Company. The amount remaining after
the foregoing deductions shall be the Participant?s ?Net Bonus.?
(b) A Participant's Net Bonus shall be divided into two parts
-- (i) an amount to be paid in cash, equal to 80% of the Participant's
Net Bonus, and (ii) an amount, equal to 20% of the Participant's Net
Bonus, to be converted to a number of Shares having a Market Value, on
the date determined by the Committee, equal to such amount.
(c) Shares payable to a Participant in respect of an Incentive
Bonus for any Fiscal Year shall be issued in the name of the
Participant on one stock certificate, and such stock certificate shall
be delivered to the Participant.
5.2 NONTRANSFERABILITY: All rights to payment under an Incentive Bonus
shall be nontransferable other than by will or by the laws of descent and
distribution in accordance with Article 6 hereof.
5.3 TAX WITHHOLDING: The Company shall have the right to deduct from
any payment made under the Program any federal, state or local taxes of any kind
required by law to be withheld with respect to such payments or to take such
other action as may be necessary in the opinion of the Company to satisfy all
obligations for the payment of such taxes.
7
<PAGE> 12
6. RIGHTS TO INCENTIVE BONUS AFTER DEATH, DISABILITY,
RETIREMENT OR OTHER TERMINATION OF EMPLOYMENT
---------------------------------------------
6.1 DEATH: If a Participant's employment with the Company or a
Participating Subsidiary terminates by reason of death, the Participant's
Beneficiary shall be entitled to receive, at such times as normally payable, (i)
any Incentive Bonus due to the Participant at the time of his death for any
Fiscal Year already completed, and (ii) a prorated Incentive Bonus for any
Fiscal Year which has not been completed at the time of his death.
6.2 DISABILITY: If a Participant's employment with the Company or a
Participating Subsidiary terminates by reason of disability, the Participant
shall be entitled to receive, at such times as normally payable, (i) any
Incentive Bonus due to the Participant at the time of his employment termination
for any Fiscal Year already completed, and (ii) a prorated Incentive Bonus for
any Fiscal Year which has not been completed at the time of his employment
termination.
6.3 RETIREMENT: Subject to Section 6.6, if a Participant's employment
with the Company or a Participating Subsidiary terminates by reason of
retirement, the Participant shall be entitled to receive, at such times as
normally payable, (i) any Incentive Bonus due to the Participant at the time of
his retirement for any Fiscal Year already completed, and (ii) a prorated
Incentive Bonus for any Fiscal Year which has not been completed at the time of
his retirement.
6.4 INVOLUNTARY TERMINATION: Subject to Section 6.6, if a Participant?s
employment with the Company or a Participating Subsidiary is involuntarily
terminated due to action by the Company or the Participating Subsidiary, the
Participant shall be entitled to receive, at such times as normally payable, any
Incentive Bonus due to the Participant at the time of his termination for any
Fiscal Year already completed.
6.5 TERMINATION FOR OTHER REASONS: Subject to Section 6.6, upon
termination of a Participant's employment with the Company or a Participating
Subsidiary for any reason other than those specified in Sections 6.1 through 6.4
above, the Participant shall not be entitled to receive any Incentive Bonus for
any Fiscal Year already completed or for any current Fiscal Year.
6.6 CHANGE IN CONTROL: Notwithstanding the foregoing provisions of this
Article 6, in the event a Participant's employment with the Company or a
Participating Subsidiary is terminated within three years following a Change in
Control either involuntarily (other than for death, disability or cause) or
voluntarily pursuant to Section 3(b) of a Severance Agreement between the
Participant and the Company, the
8
<PAGE> 13
Participant shall be entitled to immediate payment of (a) any Incentive Bonus
due to him at the time of his termination for any Fiscal Year already completed,
and (b) an Incentive Bonus for any Fiscal Year which has not been completed at
the time of his termination, in an amount equal to the greater of (i) an amount
determined under the Program on the basis of actual performance during such
Fiscal Year, or (ii) 75% of such Participant's annualized Base Pay for such
Fiscal Year as if such Fiscal Year had been completed.
7. BENEFICIARY DESIGNATION
-----------------------
7.1 DESIGNATION: A Participant may name any Beneficiary (contingently
or successively) to whom any benefit under the Program is to be paid if the
Participant dies before receiving such benefit. Absent such designation, any
benefit which is due but not paid to a Participant under the Program during his
lifetime will be payable to the Participant's estate.
7.2 EFFECTIVENESS: The designation of a Beneficiary will be effective
only when the Participant designates his Beneficiary in the form prescribed by
the Company and delivers it to the Company's Secretary during the Participant's
lifetime.
7.3 REVOCATION: The designation of a Beneficiary as herein provided
will revoke each prior designation of a Beneficiary by the Participant.
8. RIGHTS OF EMPLOYEES
-------------------
8.1 PARTICIPATION: Except as provided in Article 4, no Employee will
have the right to participate in the Program or, having been a Participant for
any Fiscal Year, to continue to be a Participant in any subsequent Fiscal Year.
8.2 EMPLOYMENT: Nothing in the Program will interfere with or limit the
right of the Company or a Participating Subsidiary to terminate any
Participant's employment, nor confer to any Participant any right to continue in
the employ of the Company or a Participating Subsidiary.
8.3 TRANSFER: For purposes of the Program, transfer of a Participant's
employment between the Company and a Participating Subsidiary or between
Participating Subsidiaries will not be deemed a termination of employment.
9
<PAGE> 14
9. ADMINISTRATION
--------------
9.1 COMMITTEE: The Compensation Committee of the Board will administer
the Program. No member of the Committee may be an Employee.
9.2 POWER OF THE COMMITTEE: The Committee will have full authority and
power to (i) interpret and construe the Program; and (ii) establish, amend
and/or waive rules and regulations for the Program's administration.
9.3 COMMITTEE DECISIONS: The Committee will make all determinations and
decisions hereunder by not less than a majority of its members. The Committee
may act or take action by written instrument or vote at a meeting convened after
reasonable notice. The Committee's determinations and decisions hereunder, and
related orders or resolutions of the Board, will be final, binding and
conclusive on all persons, including the Company, its stockholders,
Participating Subsidiaries, employees, Participants and Beneficiaries.
9.4 DELEGATION: The Committee may delegate any authority or power
conferred to it under the Program as and to the extent permitted by law.
10. DISPUTES
--------
10.1 DISPUTES: The Committee will have full and exclusive authority to
determine all disputes and controversies concerning the interpretation of the
Program to the fullest extent permitted by law.
10.2 NOTICE: If any Participant disputes any decision or determination
by the Committee, the Company or any Participating Subsidiary concerning the
administration of the Program or any provision of the Program, the Participant
must give written notice to the Committee as to such dispute at least ninety
(90) days prior to commencing any lawsuit or legal proceeding in connection
therewith. The Participant must give such notice of dispute by delivering to the
Company's Secretary written notice which identifies the dispute and any
provision of the Program in question. Such notice will be a condition of
participation in the Program, and failure to satisfy such condition will
extinguish all rights of the Participant to any payment pursuant to the Program.
10
<PAGE> 15
10.3 DECISION: Promptly (but within seventy-five (75) days after notice
of dispute), the Committee will review and decide the dispute and give the
Participant written notice of its decision. Except as provided in Section 11.4,
the Committee's decision will be final and binding on the Company, the Company's
stockholders Participating Subsidiaries, and the Participant (including his
Beneficiary).
10.4 LAWSUIT: A Participant may institute a lawsuit in connection with
the Committee's decision involving his rights under the Program within one
hundred and eighty (180) days after receiving the Committee's decision, but such
lawsuit will be limited to whether the Committee acted in good faith and whether
its decision was reasonable under the circumstances and in light of the
information available to and considered by the Committee.
11. AMENDMENT AND TERMINATION
-------------------------
11.1 AMENDMENT AND TERMINATION: The Committee may terminate, amend or
modify the Program at any time or for any reason.
11.2 INCENTIVE BONUSES: No termination, amendment, or modification of
the Program will in any manner adversely affect any Participant's rights to
receive an Incentive Bonus previously earned under the Program.
12. INDEMNIFICATION
12.1 INDEMNITY: The Company will defend and indemnify each person who
is or has been a member of the Committee in respect of any claim which is
asserted against him and is based on his action or failure to take action under
or in connection with the Program or any agreement related to the Program;
provided that such person gives the Company notice of such claim, cooperates
with the Company in defense of such claim, permits the Company to control the
defense of such claim prior to his undertaking any defense on his own behalf and
confers to the Company full authority to compromise and settle the claim.
12.2 ADDITIONAL RIGHT: The indemnity provided under Section 12.1 will
be in addition to, and not in lieu of, any other right of indemnification to
which such person may be entitled under the Company's Code of Regulations, as a
matter of law or otherwise, and will not exclude any other power that the
Company may have to defend and indemnify him.
11
<PAGE> 16
13. MISCELLANEOUS
-------------
13.1 UNFUNDED PROGRAM: The Program shall be unfunded and the Company
shall not be required to segregate any assets that may at any time be
represented by Incentive Bonuses under the Program. Any liability of the Company
to any person with respect to any Incentive Bonus under the Program shall be
based solely upon any contractual obligations that may be effected pursuant to
the Program. No such obligation of the Company shall be deemed to be secured by
any pledge of, or other encumbrance on, any property of the Company.
13.2 COSTS OF PROGRAM: The costs and expenses of administering the
Program shall be borne by the Company or the Participating Subsidiary.
13.3 GOVERNING LAW: To the extent not preempted by federal law, the
Program and all agreements hereunder will be governed by and interpreted in
accordance with the laws of the State of Ohio.
13.4 ASSUMPTION OF OBLIGATIONS: The Company has assumed (subject to
legal requirements for employee acquiescence) the obligations of GenCorp Inc. to
pay Incentive Bonuses under the GenCorp Inc. Executive Incentive Compensation
Program for the fiscal year ending November 30, 1999 to (i) active employees who
transferred to the Company as of October 1, 1999 and (ii) retired employees who
terminated employment from active business locations of the Company. Such
assumed Incentive Bonus obligations will be paid on or about January 3, 2000.
Omnova Executive Incentive Compensation Program
12
<PAGE> 1
Exhibit 10.11
BENEFITS RESTORATION PLAN FOR SALARIED EMPLOYEES
OF OMNOVA SOLUTIONS INC. AND CERTAIN SUBSIDIARY COMPANIES
(Effective October 1, 1999)
PURPOSE
-------
The purpose of this Plan is to restore the pension and profit sharing
plan benefits which eligible employees and their beneficiaries would otherwise
lose as a result of Internal Revenue Code limitations upon contributions to, and
payment of benefits from, tax qualified pension and profit sharing plans. By
restoring such benefits, this Plan permits the total benefits of such employees
to be provided on the same basis as is applicable to all other employees under
such plans. The terms and provisions of this Plan are as follows:
SECTION 1
---------
DEFINITIONS
-----------
Wherever used herein:
(i) "Administrative Committee" means the Administrative Committee of
Omnova Solutions Inc.
(ii) "Beneficiary" means a named beneficiary, joint annuitant or
surviving spouse of a deceased Participant.
(iii) "Code" means the Internal Revenue Code of 1986, as presently in
effect or hereafter amended.
(iv) "Company" means Omnova Solutions Inc.
(v) "Effective Date" means October 1, 1999, except as otherwise
specifically provided.
(vi) "Member Company" means the Company and any subsidiary of the
Company which is designated as a Member Company by the Company's Administrative
Committee.
(vii) "Participant" means an employee of a Member Company who is a
participant under the Pension or Profit Sharing Plans (as defined below) or is a
Beneficiary receiving a benefit under such plans, provided, however, that no
employee shall become a Participant prior to the date such employee's employer
became a Member Company.
(viii) "Pension or Profit Sharing Plans" means the pension, savings and
profit sharing plans of the Company applicable to salaried employees.
<PAGE> 2
(ix) "Plan" means the plan set forth in this instrument known as the
"Benefits Restoration Plan for Salaried Employees of Omnova Solutions Inc. and
Certain Subsidiary Companies," as it may be amended from time to time.
(x) "Change in Control" means the occurrence of any of the following
events, subject to the provisions of paragraph (E) hereof:
(A) All or substantially all of the assets of the Company are
sold or transferred to another corporation or entity, or the Company is
merged, consolidated or reorganized into or with another corporation or
entity, with the result that upon conclusion of the transaction less
than 51% of the outstanding securities entitled to vote generally in
the election of directors or other capital interests of the acquiring
corporation or entity are owned directly or indirectly, by the
shareholders of the Company generally prior to the transaction; or
(B) There is a report filed on Schedule 13D or Schedule 14D-1
(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 (a "Person")) has become the beneficial owner (as the term
"beneficial owner" is defined under Rule 13d-3 or any successor rule or
regulation promulgated under the Exchange Act (a "Beneficial Owner"))
of securities representing 20% or more of the combined voting power of
the then-outstanding voting securities of the Company; or
(C) The individuals who, at the beginning of any period of two
consecutive calendar years, constituted the Directors of the Company
cease for any reason to constitute at least a majority thereof unless
the nomination for election by the Company's stockholders of each new
Director of the Company was approved by a vote of at least two-thirds
of the Directors of the Company still in office who were Directors of
the Company at the beginning of any such period; or
(D) The Board determines that (1) any particular actual or
proposed merger, consolidation, reorganization, sale or transfer of
assets, accumulation of shares or tender offer for shares of the
Company or other transaction or event or series of transactions or
events will, or is likely to, if carried out, result in a Change in
Control falling within paragraph (A), (B) or (C) hereof and (2) it is
in the best interests of the Company and its shareholders, and will
serve the intended purposes of the Change in Control provisions of this
Program and other compensation and benefit programs, plans and
agreements of the Company, if a Change in Control shall be deemed to
have occurred.
(E) Notwithstanding the foregoing provisions of this Section
1(x):
(1) If any such merger, consolidation,
reorganization, sale or transfer of assets, or tender offer or
other transaction or event or series of transactions or events
mentioned in paragraph (D) hereof shall be abandoned, or any
such
2
<PAGE> 3
accumulations of shares shall be dispersed or otherwise
resolved, the Board may, by notice to the Executive, nullify
the effect thereof and a Change in Control shall be deemed not
to have occurred, but without prejudice to any action that may
have been taken prior to such nullification.
(2) Unless otherwise determined in a specific case by
the Board, a Change in Control shall not be deemed to have
occurred for purposes of paragraph (B) hereof solely because
(a) the Company, (b) a subsidiary of the Company, or (c) any
Company-sponsored employee stock ownership plan or any other
employee benefit plan of the Company or any subsidiary of the
Company either files or becomes obligated to file a report or
a proxy statement under or in response to Schedule 13D,
Schedule 14D-1, 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 the
then-outstanding voting securities of the Company, whether in
excess of 20% or otherwise, or because the Company reports
that a change in control of the Company has occurred or will
occur in the future by reason of such beneficial ownership.
SECTION 2
---------
ELIGIBILITY
-----------
2.1 ELIGIBILITY. A Participant who qualifies for a benefit under either
the Pension or Profit Sharing Plans and who incurs a reduction in such benefit
as a result of the Code's limitations upon contributions to, and payment of
benefits from, such plans (except a reduction mandated by the Actual Deferral
Percentage test contained in Section 401(k) of the Code shall be eligible to
participate in this Plan.
SECTION 3
---------
BENEFITS
--------
3.1 AMOUNT OF BENEFIT. The benefit provided by this Plan shall be an
amount equal to the difference, if any, between (a) the aggregate amount of
benefit to which the Participant would be entitled under each of the Pension or
Profit Sharing Plans computed without regard to the Code's limitations upon
contributions to, and payment of benefit from, such plans (except a reduction
mandated by the Actual Deferral Percentage test contained in Section 401(k) of
the Code), and (b) the aggregate amount of benefit to which the Participant
would be entitled under each of the Pension or Profit Sharing Plans after giving
effect to all such limitations and all such exclusions. In addition, each
allocation under this Plan attributable to the restoration of profit sharing
plan benefits shall be credited with a rate of investment return which the
Participant
3
<PAGE> 4
would have earned if he were credited with plan shares in the profit sharing
plan in which the employee is a participant, except, however, that for purposes
of this Plan, all profit sharing plan elections to participate in the Omnova
Solutions Stock Fund shall be treated as elections to participate in the
Interest Income Fund.
In addition, the Company has assumed (subject to legal requirements for
employee acquiescence) the obligations of GenCorp to pay benefits under the
Benefits Restoration Plan for Salaried Employees of GenCorp Inc. and Certain
Subsidiary Companies to (i) all active employees transferred to the Company as
of October 1, 1999 and (ii) all former employees who terminated employment from
active business locations of the Company. Such assumed obligations will be
administered and paid as benefits in accordance with the terms of this Plan.
3.2 ALLOCATIONS. Except as hereinafter specifically provided, the
allocation to plan accounts under this Plan attributable to the restoration of
profit sharing plan benefits shall be made in the same manner and shall be
subject to the same conditions as would have been applicable if such allocations
were made to the profit sharing plan, except, however, that (a) with respect to
contributions pursuant to a Section 401(k) election, a Plan Participant must
continue to contribute to this Plan for the remainder of any calendar year in
which the Code Section 415 limitations are reached at the same rate as he was
contributing to his profit sharing plan accounts at the time the Section 415
limitations were reached, and (b) 401(k) after tax contributions shall be
treated as deferred income, provided an appropriate deferral election is signed
by the Plan Participant.
3.3 BENEFIT PAYMENTS. The benefit payable under this Plan which is
attributable to the restoration of profit sharing plan benefits shall be paid to
the Participant (or to the Participant's Beneficiary under such plan in case of
the Participant's death) in a single lump sum as soon as practicable following
the Participant's termination of employment or, if the Participant so elects, in
five annual installments beginning not later than 60 days after the
Participant's termination of employment date. The benefit payable under this
Plan which is attributable to the restoration of pension plan benefits shall be
paid in the same manner and to the same persons prescribed by the provisions of
the pension plan which would have been applicable if such benefit were paid
under the pension plan. Benefits under this Plan shall be payable from the
general assets of the Company, and participation hereunder shall not cause a
Participant to have any title to, or beneficial ownership in, any of the assets
of the Company. Nothing in this Plan shall operate or be construed to modify,
amend or affect the terms and provisions of the Pension or Profit Sharing Plans
in any way.
3.4. CHANGE IN CONTROL. Notwithstanding any other provision of this
Plan, upon the occurrence of a Change in Control, benefits will be determined
and paid in accordance with this Section 3.4:
(a) VESTING. Upon the occurrence of a Change in Control , the
(i) benefits of a Participant with whom the Company has entered into a
Severance Agreement which
4
<PAGE> 5
have accrued but not vested under this Plan, and (ii) benefits of such
a Participant which have accrued but not vested under the applicable
Pension or Profit Sharing Plans, shall become vested and payable in
accordance with the terms of this Plan.
(b) Funding.
--------
(i) Upon the occurrence of a Change in Control, the
performance of the Company's obligations under this Plan shall
be secured by amounts deposited or to be deposited in trust
pursuant to a trust agreement to which the Company shall be a
party, providing for payment of benefits in accordance with
the terms of this Plan. Any failure by the Company to satisfy
its obligations under this Section 3.4(b) shall not limit the
rights of any Participant hereunder.
(ii) Upon the earlier to occur of (A) a Change of a
Control or (B) a declaration by the Board of Directors of the
Company that a Change in Control is imminent, the Company
shall promptly, to the extent it has not previously done so,
and in any event within five business days, transfer to the
trustee of such trust, to be added to the principal of the
trust, a sum equal to
(I) the aggregate account balances, on the
date of the Change in Control (or on such fifth
business day if the Board has declared a Change in
Control to be imminent), of Participants who have
benefits to be paid hereunder with respect to the
applicable Profit Sharing Plans, plus
(II) the present value on the date of the
Change in Control (or on such fifth business day if
the Board has declared a Change in Control to be
imminent) of the benefits to be paid to the
Participants hereunder with respect to any applicable
Pension Plans, such present value to be computed (a)
assuming that benefit payments to any Participant
will commence on such Participant's earliest
retirement date under the applicable Pension Plan,
and (b) applying a discount factor which is equal to
the yield to maturity, as reported in the Midwest
Edition of THE WALL STREET JOURNAL, of the 26-week
Treasury Bill most recently issued as of the date of
the Change in Control.
Any payments of benefits hereunder by the trustee shall, to
the extent thereof, discharge the Company's obligation to pay
benefits hereunder, it being the intent of the Company that
assets in such trusts be held as security for the Company's
obligation to pay benefits under this Plan.
(iii) Subject to the foregoing, a Participant shall
have the status of a general unsecured creditor of the Company
and shall have no right to, or security interest in, any
assets of the Company.
5
<PAGE> 6
3.5 Lump Sum Payments.
------------------
(a) ELECTION. Amounts due to a participant under this Plan may
be paid in a lump sum in accordance with the following:
(i) FORMER EMPLOYEES will be able to elect a
lump sum payment of their deferred interest,
subject to a 10% "haircut" and all
applicable tax withholding.
(ii) ACTIVE EMPLOYEES may receive lump-sum
payments upon termination of employment
based upon:
(A) an election made at least one year
in advance of termination; or
(B) an election which is made both (1)
at least six months in advance of
termination, and (2) in the calendar
year prior to termination; or
(C) where an advance election is not
possible (E.G., in the case of a
short-notice involuntary
termination), a request for a lump
sum payment which is approved by the
Administration Committee in its full
discretion.
(b) AMOUNT. The amount of any lump sum payment hereunder will
be computed using the then-current interest rate for 30-year Treasury
securities.
SECTION 4
---------
ADMINISTRATION
--------------
4.1 ADMINISTRATIVE COMMITTEE AND POWERS. The Administrative Committee
shall administer this Plan and shall have, exercise and perform all of the
powers, rights, authority and duties set forth in each of the Pension or Profit
Sharing Plans with the same effect as if similarly set forth herein with respect
to this Plan. Any determination or decision of the Administrative Committee
shall be conclusive and binding on all persons having or claiming to have any
interest whatever under this Plan.
6
<PAGE> 7
SECTION 5
---------
MISCELLANEOUS
-------------
5.1 AMENDMENT AND TERMINATION. The Company reserves the right at any
time and from time to time, by resolution of its Board of Directors, to amend or
terminate this Plan; provided, however, that no such amendment or termination
shall operate retroactively so as to affect adversely any rights to which a
Participant may be entitled under the provisions of this Plan as in effect prior
to such action.
5.2 NO ALIENATION OF BENEFITS. No Participant may assign, anticipate or
otherwise encumber any payment due under this Plan. Except as may otherwise be
required by law, any payment due under this Plan shall be exempt from the claims
of the Participant's creditors.
5.3 NO ENLARGEMENT OF EMPLOYMENT RIGHTS. The provisions of the Pension
or Profit Sharing Plans relative to employment rights shall be applicable to
this Plan with the same effect as though set forth in full herein.
5.4 NO REQUIREMENT TO FUND. The Company shall not be required to
reserve or otherwise set aside funds for the payment of its obligations
hereunder.
5.5 LAWS GOVERNING. This Plan shall be construed in accordance with and
governed by the laws of the State of Ohio.
Benefits Restoration Plan For Salaried Employees
7
<PAGE> 1
Exhibit 10.12
OMNOVA SOLUTIONS INC.
AND PARTICIPATING SUBSIDIARIES
DEFERRED BONUS PLAN
EFFECTIVE OCTOBER 1, 1999
1. PURPOSE
-------
The purpose of the Plan is to provide a means whereby cash bonuses
payable by the Company and its Participating Subsidiaries to key personnel may
be deferred to some period after termination of employment and invested without
dilution of income taxes payable to maximize benefits obtainable from such
bonuses in the Employee's post-retirement planning. It is also the purpose of
this Plan to motivate such key personnel to continue to make contributions to
the growth and profits of the Company and its Participating Subsidiaries.
In addition, the Company has assumed (subject to legal requirements for
employee acquiescence) the obligations of GenCorp Inc. as of September 30, 1999
to pay deferred bonuses under the GenCorp Inc. and Participating Subsidiaries
Deferred Bonus Plan to (i) all active employees transferred to the Company as of
October 1, 1999 and (ii) all former employees who terminated employment from
active business locations of the Company. Such assumed obligations will be
administered and distributed in accordance with the terms of this Plan.
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<PAGE> 2
2. DEFINITIONS
-----------
(a) "Company" shall mean Omnova Solutions Inc.
(b) "Participating Subsidiaries" shall mean such subsidiaries
of the Company or of any Participating Subsidiary as the Board may from
time to time designate as a Participating Subsidiary and whose board of
directors shall, subsequent to such designations, adopt and ratify this
Plan so long as the Company or any Participating Subsidiary either
jointly or separately shall own or control shares entitling the holders
thereof to exercise more than 50% of the voting power of such company.
The Board may from time to time eliminate any Participating Subsidiary
from such classification but such elimination shall not affect any
interests in any program under this Plan held by Employees of such
Participating Subsidiary prior to such action.
(c) "Board" shall mean the Board of Directors of the Company.
(d) "Committee" shall mean the Organization and Compensation
Committee as appointed from time to time by the Board consisting of not
less than three members of the Board.
(e) "Plan" shall mean the Omnova Solutions Inc. and
Participating Subsidiaries Deferred Bonus Plan, effective October 1,
1999, and as amended from time to time.
(f) "Fiscal Year" shall mean the twelve-month period
commencing December l and ending November 30.
2
<PAGE> 3
(g) "Employee" shall mean any eligible Employee or former
Employee of the Company or a Participating Subsidiary or his designated
beneficiary, surviving spouse, estate, or legal representative, who
elects to have any bonus deferred under this Plan.
(h) "Market Value" shall mean (a) in the case of Common Stock
of the Company (except as otherwise provided in Article 15 hereof), the
mean average of the high and low (or if no trading occurs the mean
between the bid and asked) on the New York Stock Exchange (or, if not
so listed, such other exchange on which such securities shall then be
listed or if unlisted the mean average between the over-the-counter bid
and asked quotation) on the day for which the determination is to be
made or if such day not be a trading day the trading day immediately
preceding such day, and as used in Section 16 hereof, in the event of a
Recapitalization, the weighted average of the trading prices on the day
(or the weighted average of such trading prices on such trading days)
following the occurrence thereof as determined by the Committee in its
discretion, or in the event of an issuer tender offer in connection
with a Recapitalization, the weighted average of the trading prices on
the trading day immediately following the termination date of such
issuer tender offer, or any extensions thereof (or the weighted average
of such trading prices on the five trading days immediately following
such
3
<PAGE> 4
termination date) as determined by the Committee in its discretion, and
(b) in the case of shares of the regulated investment company, the
offering price of such company's shares as quoted by the National
Association of Securities Dealers or other quoting source on the day
for which such determination is to be made or if there be no quote for
such day the next preceding day for which there is a quote.
(i) "Cash Value" shall mean, in the case of any life annuity
policy, the cash surrender value or any other liquidation value of such
policy on the day for which the determination is to be made and in the
case of any cash deposit, the amount of such deposit.
(j) "Distribution Date" shall mean the first day of the fourth
month following the end of the month in which any Employee's employment
is terminated.
(k) "Recapitalization" shall mean a significant change in the
capital structure of the Company (which may include an issuer tender
offer made to all of the Company's shareholders to purchase outstanding
shares of the Company's Common Stock), as determined in the discretion
of the Board as constituted immediately prior to the occurrence
thereof.
3. ELIGIBILITY
-----------
4
<PAGE> 5
Any regular, full-time, salaried Employee of the Company or any
Participating Subsidiary including officers and directors shall be eligible to
elect to have any bonus payable deferred under the terms of this Plan.
4. ELECTION TO DEFER
-----------------
At any time prior to the beginning of the fiscal year for which a bonus
is payable, any Eligible Employee may, by written notice to the Company or the
Participating Subsidiary which employs him and the Committee, elect to have all,
or any part (but not less than $2,000), of any bonus which may be payable to him
for such fiscal year deferred and held for his benefit under the terms of this
Plan. The election may be either in dollar amount or percentage of total bonus
payable. Such election may be modified or terminated by subsequent written
notice to the Company or the Participating Subsidiary which employs him and the
Committee, except that no modification or termination can affect any election
previously made as to any bonus payable for the fiscal year during which such
subsequent notice is given.
5. METHODS OF DEFERRAL
-------------------
(a) Any bonus which is deferred may, at the election of the
Employee, be applied to one or more of the following programs:
(i) Common Stock of the Company;
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<PAGE> 6
(ii) Shares of a regulated investment company
(Mutual Fund);
(iii) Life Annuity;
(iv) Cash Deposit;
provided that at least $2,000 must be applied to each program elected
for any one bonus.
(b) On or before the last day of February following the end of
the fiscal year for which any bonus which the Employee has previously
elected to have deferred is payable, the Employee shall, by written
notice to the Committee, designate to which program or programs he
wishes his bonus applied and if more than one, the amount in each. Any
election given prior to such last day of February may be modified by
written notice to the Committee at any time prior to such date. If no
notice is given to the Committee it will apply any bonus previously
elected to be deferred to the Cash Deposit Program.
(c) At such time as the amount of any bonus payable to him
which the Employee has previously elected to have deferred has been
determined by the Company or the Participating Subsidiary which employs
him, such Company or Subsidiary shall notify the Committee of the
deferred amount payable. The Committee shall cause to be credited to
the account of the Employee on the last day of February following the
end of the fiscal year for
6
<PAGE> 7
which the bonus is payable the number of full and fractional shares, in
the case of programs (i) or (ii); the monthly annuity amount of the
policy, in the case of program (iii); or the dollar amount on deposit,
in the case of program (iv) purchasable with the amount of the bonus
deferred as applied to each program as previously directed by the
Employee. The number of full and fractional shares purchasable, in the
case of program (i) or (ii) shall be determined by dividing the Market
Value of such shares on the last day of February following the end of
the fiscal year for which the bonus is payable into the amount of the
bonus deferred and applied to those programs. The monthly annuity
amount of the policy, in the case of program (iii), shall be the
largest monthly annuity that the amount of the bonus deferred and
applied to this program can purchase for that Employee based upon the
terms as selected by the Employee as of the last day of February
following the end of the fiscal year for which the bonus is payable and
the rates of the Insurer at such date. The dollar amount on deposit, in
the case of program (iv), shall be the amount of the bonus deferred and
applied to this program. The Committee shall, as soon as practicable
thereafter, notify the Employee of such credit or credits and the
aggregate amount previously credited to his account under each program
together with any adjustments therein previously made.
7
<PAGE> 8
6. DESCRIPTION OF PROGRAMS
-----------------------
(a) COMMON STOCK OF THE COMPANY. The Employee's account is
credited with the number of full and fractional shares of Common Stock
of the Company purchasable with such bonus as set forth in Article 5
above. In the event that the shares of Common Stock of the Company
shall be increased or decreased or changed into or exchanged for a
different number or kind of shares of stock or other securities of the
Company or of another corporation, whether through reorganization,
merger, consolidation, recapitalization, stock split-up, combination of
shares, stock offerings, spin-off or otherwise, such number of shares
of Common Stock of the Company as shall be credited to the account of
any Employee as of the record date for such action shall be
proportionately or appropriately adjusted as of the payment or
effective date to reflect such action. If any such adjustment shall
result in a fractional share, such fractional share shall also be
credited to the account of the Employee. The Employee's account shall
further be credited with the number of shares, including fractions,
purchasable at the Market Value at the date the dividend is paid with
an amount equal to any dividend or the value of any other distribution
(other than a distribution for which an adjustment in the number of
shares in the account is made) paid on the same number of shares of
Common Stock of
8
<PAGE> 9
the Company (or other stock or securities which are represented by the
account) which, on the record date of such dividend or other
distribution, is credited to the Employee's account.
(b) SHARES OF A REGULATED INVESTMENT COMPANY (MUTUAL FUND).
The Employee's account is credited with the number of full and
fractional shares of any regulated investment company, commonly known
as a Mutual Fund, purchasable with such bonus as set forth in Article 5
above. The Mutual Fund shall be designated by the Committee and may be
changed from time to time, except that such change shall be only for
future application and shall not affect the shares previously credited
to the account of any Employee. The Employee's account shall further be
credited with the number of shares, including fractions, purchasable at
the Market Value at the date the dividend is paid with an amount equal
to any ordinary or capital cash dividend paid on the same number of
shares of the Mutual Fund which, on the record date for such dividend,
is credited to his account.
(c) LIFE ANNUITY. The Employee's account is credited with the
monthly annuity amount of a fully-paid life annuity policy purchasable
for that Employee with each bonus as set forth in Article 5 above. The
type of policy, the issuing company, whether it has a cash surrender
and/or loan value, and other terms and conditions shall be determined
by the Committee
9
<PAGE> 10
and may be changed from time to time for future application of bonus
credits. If the type of policy selected allows choice of annuity
options such as joint and survivor, term certain, or other options
which may be elected by the insured, the Employee shall designate to
the Committee at the time he selects the method of deferral provided in
Article 5(a)(iii) which option or options he elects.
(d) CASH DEPOSIT. The Employee's account is credited with the
amount of the cash bonus deferred. After the end of each fiscal
quarter, there shall further be credited to the account of each
Employee for whom an account is established under this program an
amount equal to three months' interest on the average balance on credit
to the Employee's account during such quarter computed at the prime
interest rate payable by the Company at the beginning of such quarter.
7. DISTRIBUTION OF DEFERRED INTERESTS
----------------------------------
(a) Subject to the provision of Article 8 hereof, at the time
the employment of an Employee with the Company or any Participating
Subsidiary is terminated, unless such employment shall be terminated by
transfer to a subsidiary of the Company other than a Participating
Subsidiary, in which case his employment shall be deemed to continue
until terminated by such other subsidiary, the Committee shall cause
his interests
10
<PAGE> 11
in the respective programs to be terminated and distributed to him in the
following manner:
(l) INTEREST IN THE COMPANY'S COMMON STOCK PROGRAM OR
THE REGULATED INVESTMENT COMPANY STOCK PROGRAM. The Employee's
interest in either such program shall be distributed to him or
his beneficiary or estate in ten approximately equal annual
installments commencing on the Distribution Date following
termination of his employment. Distribution shall be made, at
the election of the Committee, either in shares of Common
Stock of the Company or shares of the regulated investment
company, as the case may be, or in cash equal to the Market
Value thereof on each such Distribution Date; provided,
however, that if on any Distribution Date an Employee is, or
during the six-month period preceding such Distribution Date
was, a director or officer of the Company, any distribution
from the Company's Common Stock Program shall be made only in
cash equal to the Market Value of such distribution. The
Committee may require that, in accepting any distribution of
the Company's Common shares, the Employee agree with, and
represent to, the Company that he is acquiring such shares for
the purpose of investment and with no present intention to
transfer, sell or otherwise dispose of such shares
11
<PAGE> 12
except such distribution by a legal representative as shall be
required by will or the laws of any jurisdiction in winding up
the estate of any Employee.
(2) INTEREST IN THE LIFE ANNUITY PROGRAM. On the
first Distribution Date following termination of employment,
if such termination be other than death where the Employee has
not elected a joint and survivor annuity or his joint
annuitant does not survive him, the Committee shall cause to
be issued to him a policy or policies of fully-paid insurance
in the aggregate monthly annuity amount credited to his
account at such Distribution Date. However, the Committee, in
its sole discretion may pay on such Distribution Date the cash
value of any policy in lieu of causing such policy to issue.
If such termination be by reason of death and the Employee had
not elected a joint annuitant policy or such joint annuitant
has not survived him, the Committee shall cause the Cash Value
of the amount of insurance credited to his account on such
Distribution Date to be paid to his beneficiary or estate.
(3) INTEREST IN THE CASH DEPOSIT PROGRAM. The
Employee's interest in such program shall be distributed to
him or his beneficiary
12
<PAGE> 13
or estate in ten approximately equal annual installments
commencing on the Distribution Date following termination of
his employment.
(b) If the Employee dies before all installments have been
paid, the remaining installments as due shall be paid to such
beneficiary or beneficiaries as such Employee may have designated in
writing to the Committee or, in the absence of any such designation to
his estate or to, or as directed by, his legal representatives.
(c) The Committee may, in its sole discretion, provide for the
distribution in whole or in part of any Employee's interest while he is
still employed at such time and in such manner as the Committee may
direct and in addition the Committee in its sole discretion may
accelerate any installments payable to any Employee, his beneficiary or
beneficiaries, his estate, or his legal representatives after
termination of employment of the Employee to such date or dates as the
Committee shall determine; provided, however, that such acceleration
may be made only upon a finding by the Committee that a real emergency
resulting in a hardship to him beyond his control has occurred and that
the amount distributed shall not be in excess of that amount which is
necessary for him to meet the emergency.
(d) LUMP SUM PAYMENTS.
------------------
13
<PAGE> 14
(1) ELECTION. Amounts due to a participant under this
Plan may be paid in a lump sum in accordance with the
following:
(A) FORMER EMPLOYEES will be able to
elect a lump sum payment of their
deferred interest, subject to a 10%
"haircut" and all applicable tax
withholding.
(B) ACTIVE EMPLOYEES may receive
lump-sum payments upon termination
of employment based upon:
(i) an election made at
least one year in
advance of
termination; or
(ii) an election which is
made both (1) at
least six months in
advance of
termination, and (2)
in the calendar year
prior to
termination; or
(iii) where an advance
election is not
possible (E.G., in
the case of a
short-notice
involuntary
termination), a
request for a lump
sum payment which is
approved by the
Administration
Committee in its
full discretion.
14
<PAGE> 15
(2) AMOUNT. The amount of any lump sum payment
hereunder will be computed using the then-current interest rate for 30-year
Treasury securities.
8. LIMITATIONS ON DISTRIBUTION OF
------------------------------
DEFERRED INTEREST
-----------------
If after termination of employment the Employee should subsequently
return to the employ of the Company or any subsidiary, payment of any
installments still payable shall be suspended until such subsequent employment
is terminated. Grants of leave of absence either required by statute or approved
by the Company shall not be considered as termination of employment. If the
Employee shall return to the employ of the Company or any subsidiary following
expiration of the leave of absence, the period of the leave of absence shall for
purposes of this Plan be considered continued employment. If the Employee shall
not so return, his or her employment shall be deemed to have terminated at the
time the leave of absence expired, unless the Employee should become disabled or
die, in which cases his or her employment shall be deemed to have terminated at
the time of such death or disability. If the Company or any subsidiary shall
have offered the Employee employment in a comparable position and salary
following expiration of the leave of absence and the Employee does not accept,
he or she shall be deemed to have voluntarily terminated his or her employment
at the time the leave of absence
15
<PAGE> 16
expired. For the purpose of making any distribution under Article 7 above, the
Distribution Date shall be deemed to be the first day of the month following the
month in which the leave of absence expired or the month in which the Employee
dies or becomes disabled while on such leave.
9. FINALITY OF DETERMINATIONS
--------------------------
A determination by the Company, the Board, or the Committee in carrying
out or administering this Plan shall be final and binding for all purposes and
upon all interested persons and their heirs, successors, and personal
representatives.
10. LIMITATIONS
-----------
No Employee shall at any time have any right to be granted a bonus for
any fiscal year, and no person shall have authority pursuant to this Plan to
enter into an agreement for the making or payment of a bonus or the continuation
of employment, or to make any representation or warranty with respect to either.
Employees shall have no rights to any interest credited to their
accounts except as set forth in this Plan. Except as provided in Article 7
hereof, and except for the right of the Company or any subsidiary to apply any
distribution to any sums owing to the Company or any subsidiary by the Employee,
such rights may not be assigned or transferred except by will or by the laws of
descent and distribution and in the event that any attempt shall be made to
sell, exchange, transfer, pledge, hypothecate or otherwise dispose of any
interest credited to the account of the
16
<PAGE> 17
Employee or if any such interests shall be attached, garnished or otherwise
levied upon, whether by operation of law or otherwise, or if the Employee shall
file a petition in bankruptcy or for a reorganization or shall make a general
assignment for the benefit of creditors or shall be adjudicated a bankrupt or
debtor under any insolvency act, or a receiver or trustee shall be appointed for
him or his property, then such interests shall be forfeited to the Company.
Neither the action of the Company in establishing the Plan, nor any
action taken by it or by the Board or the Committee under the Plan, nor any
provision of the Plan, shall be construed as giving to any person the right to
be retained in the employ of the Company or any Participating Subsidiary.
11. AMENDMENT, SUSPENSION OR
-------------------------
TERMINATION OF THE PLAN IN WHOLE OR IN PART
-------------------------------------------
The Board may amend, suspend or terminate the Plan in whole or in part
at any time; provided that such amendment shall not adversely affect rights or
obligations with respect to interests previously credited to the account of any
Employee. Any amendment shall be submitted to the Board of Directors of each
Participating Subsidiary for ratification.
12. GOVERNING LAW
-------------
The Plan shall be governed by the laws of the State of Ohio.
17
<PAGE> 18
13. EXPENSES OF ADMINISTRATION
--------------------------
All costs and expenses incurred in the operation and administration of this
Plan shall be borne by the Company.
14. EFFECTIVE DATE AND TERMINATION
------------------------------
This Plan will become effective as of October 1, 1999 as to the Company
and as of the day following the date of ratification and adoption by its Board
of Directors as to any Participating Subsidiary. An Employee may defer any bonus
payable for each fiscal year of the Company or any Participating Subsidiary
commencing after the effective date and continuing until this Plan is terminated
by the Board.
15. CHANGE IN CONTROL PROVISIONS
----------------------------
Notwithstanding any other provisions of the Plan, upon the occurrence
of a "Change in Control" of the Company, which for purposes of this Section 15
shall be deemed to occur if:
(a) pursuant to a vote of the shareholders of Omnova Common
Stock, all of Omnova's Common Stock (or such other security which is then
represented in the accounts of Employees credited to the Common Stock
Program as a result of any prior adjustments pursuant to Section 6(a) or
this
18
<PAGE> 19
Section 15 hereof) is exchanged solely for the voting securities of a
successor corporation (a "Share Exchange"); or
(b) all or substantially all of the assets of the Company are
purchased (an "Asset Purchase"); or
(c) either (i) all of Omnova's Common Stock is exchanged or purchased
pursuant to a vote of the shareholders of GenCorp Common Stock for a
consideration other than solely for the voting securities of a successor
corporation, or (ii) the beneficial ownership of 40% or more of the
outstanding GenCorp Common Stock (or such other security) is acquired, by
tender offer or otherwise, by any unaffiliated entity or group (a "Stock
Acquisition"), the accounts of Employees which are then credited to the
Common Stock Program shall, in the event of a Share Exchange, be credited
with an equivalent number of phantom voting securities of the successor
corporation, and in the event of an Asset Purchase or Stock Acquisition, be
converted to a Cash Value using as a conversion price the greater of (A)
the tender offer or exchange offer price (if any), or (B) the highest
market value of Omnova Common Stock (or such other security) during the
ninety-day period preceding the Change in Control. Thereafter, the Cash
Value of such Common Stock Account, the Market Value of the Mutual Fund
Account, the Cash Value of the Cash Deposit Account, and the Cash Value
(except in any case where
19
<PAGE> 20
fully paid policies of insurance have previously been issued pursuant to
Section 7(a)(2) of the Plan) of the Life Annuity Account, shall be payable
to Employees in a lump sum within thirty days following the Change in
Control.
20
<PAGE> 21
16. CONVERSION AND ADJUSTMENT IN EVENT
----------------------------------
OF RECAPITALIZATION
-------------------
Notwithstanding any other provisions of the Plan, upon the occurrence
of a Recapitalization, all shares credited to the Employee's Common Stock
Account ("Shares") shall first be adjusted to a Cash Value either (x) in the
event of a Recapitalization not occurring in connection with an issuer tender
offer, by multiplying the aggregate number of Shares by an amount, on a per
share basis, equal to the prorated value as determined by the Committee of the
(A) Cash and Market Value of any security or property distributed to
shareholders in connection with the Recapitalization, (B) Cash and Market Value
of any security or property paid to shareholders in exchange for Common Stock of
the Company in connection with the Recapitalization, and (C) Market Value of
Common Stock of the Company (or its successor), or (y) in the event of a
Recapitalization occurring in connection with an issuer tender offer, by
determining the sum of A + B obtained pursuant to the following calculations:
Tender Offer
Aggregate X Proration X Tender = A
Shares Rate Offer Price
and
Tender Offer
Aggregate X one - Proration X Market = B
Shares Rate Price
21
<PAGE> 22
For purposes of the foregoing calculations, the term Tender Offer
Proration Rate shall mean the ratio (excluding consideration of any odd lot
shares tendered or repurchased) of the number of shares repurchased by the
Company in an issuer tender offer to the number of shares tendered to the
Company in connection with such offer.
The Cash Value of Shares determined in (x) or (y) above, together with
the aggregate Market Value of the Employee's interests, if any, in the Mutual
Fund Account, and the Cash Value, if any, of the Employee's interests in the
Cash Deposit Account and the Life Annuity Account (except in any case where
fully paid policies of insurance have previously been issued pursuant to Section
7(a)(2) of the Plan) shall be payable to Employees in a lump sum within thirty
days thereafter.
22
<PAGE> 1
Exhibit 10.13
1999 GENCORP KEY EMPLOYEE RETENTION PLAN
ARTICLE 1
INTRODUCTION
------------
1.1 GenCorp Inc. ("GenCorp") hereby adopts this 1999 GenCorp Key
Employee Retention Plan ("Plan"), effective as of February 1, 1999, to provide
periodic cash payments ("Retention Benefits") to Eligible Employees who
satisfactorily continue their employment with GenCorp, attain specified
performance objectives (including the "spin-off" of the GenCorp Performance
Chemicals and Decorative & Building Products Divisions), AND meet all Plan
provisions.
1.2 The term of the Plan is expected to extend beyond the proposed
"spin-off" of GenCorp's Performance Chemicals and Decorative & Building Products
Divisions to a new entity (currently unnamed, but designated herein as "NewCo").
After the "spin-off" occurs, all references herein to GenCorp should be
construed as reference to GenCorp and/or NewCo, as applicable to the Eligible
Employee.
1.3 GenCorp intends to pay the Retention Benefits provided hereunder
from the general assets of GenCorp; however, GenCorp reserves the right to fund
and provide all or part of the Retention Benefits hereunder through one or more
welfare trusts.
1.4 This plan document contains all information required by law to be
provided to employees. Information regarding the Plan, its claims procedures and
employees' rights under the Employee Retirement Income Security Act of 1974
("ERISA") are included as Section 5.7 and Articles 6 and 8.
1.5 This Plan shall be administered, in all respects, by the
Organization and Compensation Committee of the GenCorp Board of Directors or its
adopted designee (the "Committee"), including sole responsibility for
determining eligibility for benefits under the Plan, interpreting Plan terms,
and resolving disputes under the Plan, all of which is set forth herein.
<PAGE> 2
ARTICLE 2
ELIGIBILITY FOR RETENTION BENEFITS
----------------------------------
2.1 ELIGIBILITY: Subject to the exclusions contained in Section 2.2, an
employee must satisfy all of the following conditions, during the term of this
Plan as defined in Section 5.5, or such shorter term as designated by the
Committee, to be eligible for Retention Benefits under this Plan:
(a) GenCorp must offer such employee a Letter Agreement
incorporating the terms and conditions of this Plan and setting forth
the Retention Benefits, if any, available to the employee under Article
3 hereof. The identity of employees to be offered a Letter Agreement
will be decided by GenCorp, in its sole and complete discretion;
(b) The employee must execute and deliver to GenCorp the
Letter Agreement within the time period set forth in the Letter
Agreement;
(c) The employee must work diligently in the best interests of
GenCorp throughout the period that (i) GenCorp prepares to "spin-off"
its Performance Chemicals and Decorative & Building Products Divisions;
(ii) the "spinoff" occurs; and (iii) GenCorp and NewCo complete all
post-spinoff transactions and filings; and
(d) Upon payment of the final installment of Retention
Benefits for which the Employee is eligible under the Plan or in the
event of involuntary employment termination for other than cause during
the term of the Plan and/or Letter Agreement, the employee must execute
and deliver a Release in substantially the form attached hereto as
Exhibit "A".
An employee who satisfies the foregoing conditions shall be deemed to be an
"Eligible Employee."
2.2 EXCLUSION: Notwithstanding the satisfaction by an employee of all
of the conditions in Section 2.1, the following employees are not Eligible
Employees:
(a) Any employee who refuses Comparable Employment with
GenCorp or Newco. As used herein, "Comparable Employment" means
employment in any capacity, whether as an employee, consultant,
independent contractor, leased employee or otherwise, which is broadly
within the career scope indicated by the employee's present and
previous training and positions, and for which his annualized cash
compensation (salary and any incentive bonus) is at least equal to his
annual cash compensation at the time of offer.
2
<PAGE> 3
(b) Any employee who voluntarily retires or resigns from
employment.
(c) Any employee whose employment is terminated "for cause" as
defined in Article 4, below.
2.3 FAILURE OF PURPOSE:
(a) In the event that the spinoff does not occur before
February 1, 2000, for whatever reason, only a pro-rata share of those
Retention Benefits payable as of February 1, 2000 shall be paid (based
on the number of months between February 1, 1999 and the date that the
proposed spin-off is formally cancelled), and there shall be no
obligation to pay ANY FUTURE Retention Benefits, contemplated,
anticipated or accrued. Pro-rata Retention Benefits shall be paid
within thirty (30) days of formal spinoff cancellation
(b) In the event that a "Change in Control" of GenCorp occurs
(as defined in applicable severance agreements) prior to completion of
the spinoff, this Plan and related Letter Agreements shall be
cancelled, and any obligation to pay ANY Retention Benefits,
contemplated, anticipated or accrued, shall be deemed null and void.
ARTICLE 3
RETENTION BENEFITS
------------------
3.1 RETENTION BENEFITS: Subject to the terms of the Plan, up to two (2)
annual cash retention payments ("Retention Benefits") will be designated in the
Letter Agreement for each potentially Eligible Employee. All Retention Benefits
are taxable compensation subject to normal tax withholding.
3.2 PAYMENT DATE: As a condition of payment of any Retention Benefit,
an Eligible Employee must be actively employed by GenCorp or NewCo on the
designated Payment Date, and no pro-rata payments shall be made, except for the
reasons set forth in Section 2.3(a) above and 3.4 below.
3.3 INVOLUNTARY EMPLOYMENT TERMINATION: In the event of involuntary
employment termination for any reason, (other than Termination Without
Compensation as defined in Article 4 below), and subject to Section 2.3 above,
an Eligible Employee shall be paid all unpaid Retention Benefits in the
amount(s) set forth in his Letter Agreement within thirty (30) days of
employment termination, and conditioned upon execution of the Release attached
hereto as Exhibit "A".
3
<PAGE> 4
3.4 PENSION ENHANCEMENTS: In the event that an age and service pension
enhancement is offered and elected by an Eligible Employee, a pro-rata portion
of those Retention Benefits payable as of February 1, 2000 will be paid to the
Eligible Employee base on the number of months between February 1, 1999 and the
date that the proposed spin-off becomes effective. The pro-rata retention
benefits payable under this provision shall be paid on or about February 1,
2000.
ARTICLE 4
TERMINATION WITHOUT COMPENSATION
--------------------------------
4.1 Other provisions of this Plan notwithstanding, GenCorp will have no
obligation to pay Retention Benefits to any employee whose employment is
terminated according to Section 4.2 or 4.3.
4.2 "Termination Without Compensation" means circumstances where the
employment termination results from any activity of the employee deemed contrary
to the best interests of GenCorp, its subsidiaries or its operating business
units, as determined in the sole discretion of the Committee. Such determination
is to be approved by the GenCorp Senior Vice President of Human Resources, or
his designee. For the purposes of this Plan, "Termination Without Compensation"
shall be defined as:
(a) A material violation of any of GenCorp's published Company
Policies.
(b) A serious violation of facility rules adopted to promote
the safety of employees, protect GenCorp's property or reputation, or
maintain general working conditions and employee discipline.
(c) The commission of any crime against GenCorp, such as
embezzlement or falsification or theft of documents or records.
(d) Any material act deliberately committed to provoke
dismissal in order to obtain termination pay.
4.3 "Termination Without Compensation" may also occur in the
event of unsatisfactory work performance.
4
<PAGE> 5
ARTICLE 5
GENERAL PROVISIONS
------------------
5.1 OTHER PLANS:
(a) Benefits received under this Plan will not be included in
compensation or earnings for purposes of determining benefits,
including pension benefits, under any other employee benefit plan of
GenCorp.
(b) Except as otherwise provided in this Plan, payment of
benefits under this Plan will not adversely affect an Eligible
Employee's rights under any other employee benefit plan of GenCorp,
including any other plan, program or agreement that provides other
severance benefits. An Eligible Employee's rights under such other
plans shall be governed by the terms of the plans in effect at the time
of the Eligible Employee's termination from GenCorp.
5.2 REDUCTIONS: GenCorp may setoff and reduce the amount of Retention
Benefits to recover any amounts which an Eligible Employee owes to GenCorp.
5.3 NO RIGHTS TO EMPLOYMENT: Nothing herein, or in any Letter Agreement
offered or executed hereunder, or in oral discussions regarding this Plan shall
constitute a commitment for employment for any specified duration, or be deemed
to limit GenCorp's right or power to terminate the employment of any employee.
5.4 NO RIGHT TO TRANSFER OR ASSIGN BENEFITS: Benefits under this Plan
are intended for the exclusive benefit of Eligible Employees. Present and future
benefits cannot be subjected to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, or charge (except as required by law), and any
attempt to do so is null and void.
5.5 DURATION/AMENDMENT/TERMINATION OF THE PLAN:
(a) This Plan will be effective as of February 1, 1999 and,
unless modified or terminated in accordance with Section 5.5(b), will
terminate on February 1, 2001, or, if earlier, upon the announcement by
GenCorp's Chief Executive Officer that GenCorp has ceased further
consideration of the spinoff of its Performance Chemicals and
Decorative & Building Products Divisions.
(b) The Committee retains the right to modify or terminate the
Plan, at any time, in its entirety or in part, with or without prior
notice to employees. However, any such amendment or termination shall
not adversely affect an Eligible Employee's right to Retention Benefits
if all conditions set forth in Section 2.1 as currently written are
thereafter satisfied.
5
<PAGE> 6
5.6 PLAN ADMINISTRATION:
(a) The Plan constitutes an employee welfare benefit plan as
defined by the Employee Retirement Income Security Act of 1974. The
Plan Administrator for the Plan is the Organization and Compensation
Committee of the Board of Directors of GenCorp Inc., 175 Ghent Road,
Fairlawn, OH 44333-3300, (330) 869-4220.
(b) Legal matters, including service of process, relating to
the Plan should be addressed to the GenCorp Senior Vice President, Law;
General Counsel, at the address shown above.
(c) Records for the Plan are kept on a plan year basis,
beginning December 1 and ending the following November 30.
(d) For government reporting purposes, the Employer
Identification Number for GenCorp is 34-02244000. In addition, the Plan
is identified by the following official name and plan number:
1999 GenCorp Key Employee Retention Plan
Plan Number: ___
This plan name and number should be used in any formal correspondence
relating to the Plan.
ARTICLE 6
CLAIMS PROCEDURE
----------------
6.1 CLAIM:
(a) An Eligible Employee need not present a formal claim in
order to qualify for rights or benefits under this Plan. However, if
GenCorp fails to provide any benefit to which an Eligible Employee is
entitled hereunder or if any Eligible Employee believes (i) that the
Plan is not being administered or operated in accordance with its
terms, (ii) that fiduciaries of the Plan have breached their duties, or
(iii) that his or her own legal rights are being violated with respect
to the Plan (a "claimant"), the claimant must file a formal claim under
the procedures set forth in this Article 6. The procedures in this
Article 6 shall apply to all claims that any person has with respect to
the Plan, including claims against fiduciaries and former fiduciaries,
except to the extent the Plan Administrator determines, in its sole
discretion, that it does not have the power to grant, in substance, all
relief reasonably being sought by the claimant.
6
<PAGE> 7
(b) A claim by any person shall be presented to GenCorp's
Senior Vice President of Human Resources ("Claims Official") in writing
within ninety (90) days of the date upon which the claimant (or his or
her predecessor in interest) first knew (or should have known) of the
facts upon which the claim is based, unless the Plan Administrator in
writing consents otherwise. The Claims Official shall, within ninety
(90) days of receiving the claim, consider the claim and issue his or
her determination thereon in writing. The Claims Official may extend
the determination period for up to an additional ninety days by giving
the claimant written notice. If the claim is granted, the benefits or
relief the claimant seeks will be provided.
6.2 DENIAL: If the claim is wholly or partially denied, the Claims
Official shall, within ninety (90) days (or such longer period as described
above), provide the claimant with written notice of the denial, setting forth,
in a manner calculated to be understood by the claimant,
(a) the specific reason or reasons for the denial,
(b) specific references to pertinent Plan provisions on which
the denial is based,
(c) a description of any additional material or information
necessary for the claimant to perfect the claim and an explanation of
why the material or information is necessary, and
(d) an explanation of the Plan's claim review procedure.
With the consent of the claimant, this determination period can be extended
further. If the Claims Official fails to respond to the claim in a timely
manner, the claimant may treat the claim as having been denied by the claims
official.
6.3 APPEAL: Each claimant may appeal in writing the Claims Official's
denial of a claim to the Committee within sixty (60) days after receipt by the
claimant of written notice of the claim denial, or within sixty (60) days after
such written notice was due, if the written notice was not sent. In connection
with the review proceeding, the claimant or his or her duly authorized
representative may review pertinent documents and may submit issues and comments
in writing. The claimant may only present evidence and theories during the
review which the claimant presented during the claims procedure, except for
information which the Claims Official requested the claimant to provide to
perfect the claim (see Section 6.2(c). Any claims which the claimant does not in
good faith pursue through the review stage of the procedure shall be treated as
having been irrevocably waived.
6.4 REVIEW PROCEDURES: The Committee shall adopt procedures pursuant to
which claims shall be reviewed and may adopt different procedures for different
claims
7
<PAGE> 8
without being bound by past actions. Any procedures adopted, however, shall be
designed to afford a claimant a full and fair review of his or her claim.
6.5 FINAL DECISION: The decision by the review official upon review of
a claim shall be made not later than sixty (60) days after the written request
for review is received by the Committee, unless special circumstances require an
extension of time for processing, in which case a decision shall be rendered as
soon as possible, but not later than one hundred twenty (120) days after receipt
of the request for review, unless the claimant agrees to a greater extension of
that deadline.
6.6 FORM: The decision on review shall be in writing and shall include
specific reasons for the decision written in a manner calculated to be
understood by the claimant, with specific references to the pertinent Plan
provisions on which the decision is based.
6.7 LEGAL EFFECT: To the extent permitted by law, the decision of the
Claims Official (if no review thereof is requested as herein provided) or the
decision of the Committee, as the case may be, shall be final and binding on all
parties. Any claims which the claimant does not pursue through the review and
appeal stages of the procedures herein provided shall be deemed waived, finally
and irrevocably. No legal action for benefits under the Plan shall be brought
unless and until the claimant has exhausted his or her remedies under this
Article 6. If, after exhausting the claims and appeal procedures, a claimant
institutes any legal action against the Plan and/or GenCorp, the claimant may
present only the evidence and theories which the claimant presented during the
claims and appeal procedures. Judicial review of the claimant's denied claim
shall be limited to a determination of whether the denial was an abuse of
discretion based on the evidence and theories which were presented to and
considered by the Committee during the claims and appeal procedure.
ARTICLE 7
EFFECT OF FIDUCIARY ACTION
--------------------------
7.1 PLAN INTERPRETATION: The Plan Administrator shall administer the
Plan in accordance with its terms and the intended meanings of the Plan and any
other welfare or pension benefit plan of GenCorp. The Plan Administrator shall
have the discretion to make any findings of fact needed in the administration of
the Plan.
7.2 AUTHORITY OF COMMITTEE: The Committee shall have the discretion to
interpret or construe the terms of the Plan, whether express or implied, and
resolve any ambiguities, including but not limited to terms governing the
eligibility of employees and the administration of the Plan, and fashion any
remedy which the Committee, in its sole judgment, deems appropriate. The
validity of any such finding of fact, interpretation, construction or decision
shall not be given DE NOVO review if challenged
8
<PAGE> 9
in court, by arbitration or in any other forum, and shall be upheld unless
clearly arbitrary or capricious.
7.3 EXERCISE OF DISCRETION: To the extent the Plan Administrator or the
Committee has been granted discretionary authority under the Plan, such
fiduciary's prior exercise of such authority shall not obligate it to exercise
its authority in a like fashion thereafter.
7.4 INTENT: If, due to errors in drafting, any Plan provision does not
accurately reflect its intended meaning, as demonstrated by consistent
interpretations or other evidence of intent, or as determined by the Committee
in its sole and exclusive judgment, the provision shall be considered ambiguous
and shall be interpreted by the Plan Administrator in a fashion consistent with
its intent, as determined by the Committee in its sole discretion. The
Committee, without the need for Board of Directors' approval, may amend the Plan
retroactively to cure any such ambiguity.
7.5 CONSISTENCY: This Article 7 may not be invoked by any person to
require the Plan to be administered in a manner which is inconsistent with its
interpretation by the Committee.
7.6 FINAL AND BINDING: All actions taken and all determinations made in
good faith by the Plan Administrator or by the Committee shall be final and
binding upon all persons claiming any interest in or under the Plan.
ARTICLE 8
THE PLAN AND ERISA
------------------
8.1 ERISA REQUIREMENTS: "ERISA" -- the Employee Retirement Income
Security Act of 1974 -- is a comprehensive law that sets standards and
procedures for employee benefit plans.
You have the right under ERISA to get further information about the
Plan. Specifically, you are entitled to:
- Examine without charge, at the Plan Administrator's office or
upon request at your local Human Resources Department, all
documents related to the Plan and copies of all documents
filed by the Plan with the U.S. Department of Labor, such as
Annual Reports and Plan Descriptions.
- Obtain copies of all documents related to the Plan and other
Plan information upon written request to the Plan
Administrator. The Plan Administrator may make a reasonable
charge for the copies.
9
<PAGE> 10
8.2 DISCRIMINATION: In addition to creating rights for participants,
ERISA imposes duties upon the persons who are responsible for the operation of
the Plan. The persons who operate the Plan, called "fiduciaries" of the Plan,
have a duty to do so prudently in your interest and that of other participants
and beneficiaries. No one may fire you or otherwise discriminate against you in
any way to prevent you from obtaining benefits or exercising your rights under
ERISA. If your claim for a benefit is denied in whole or in part, you must
receive a written explanation of the reason for the denial. You have the right
to have your claim reviewed and reconsidered. (See Article 7, above).
8.3 ERISA CLAIMS: Under ERISA, there are steps you can take to enforce
the above rights. For instance, if you request materials from the Plan
Administrator and do not receive them within thirty days, you may file suit in a
federal court. In such a case, the court may require the Plan Administrator to
provide the materials and pay you up to one hundred dollars a day until you
receive the materials, unless the materials were not sent because of reasons
beyond the Plan Administrator's control. If you have a claim for benefits which
is denied or ignored, in whole or in part, you may file suit in a state or
federal court. If you are discriminated against for asserting your rights, you
may seek assistance from the U.S. Department of Labor, or you may file suit in a
federal court. The court will decide who should pay court costs and legal fees.
If you are successful, the court may order the person you have sued to pay these
costs and fees. If you lose and the court finds that your claim is frivolous,
the court may order you to pay these costs and fees.
8.4 INFORMATION REQUESTS: If you have any questions about the Plan, you
should contact the Plan Administrator. If you have any questions about your
rights under ERISA, you should contact the nearest area office of the U.S.
Labor-Management Services Administration, Department of Labor. GenCorp supports
both the spirit and letter of ERISA and is committed to assuring proper
treatment and full disclosure of all pertinent information to plan participants.
It is the policy of GenCorp that no employee will be fired or discriminated
against, either to prevent him from obtaining benefits or for exercising his
rights under ERISA.
10
<PAGE> 11
This Plan is hereby adopted and approved this_______ day of March,
1999.
GenCorp Inc.
By: /S/ SAMUEL W. HARMON
-------------------------------
Samuel W. Harmon,
Senior Vice President,
Human Resources
APPROVED AS TO FORM:
- ------------------------
William Gorenc, Jr., Esq.
GenCorp key employee retention
11
<PAGE> 12
EXHIBIT "A"
SETTLEMENT AGREEMENT AND RELEASE
--------------------------------
This SETTLEMENT AGREEMENT AND RELEASE ("Agreement") between GENCORP
INC. ("GenCorp"), including any successor or partial successor, and their
subsidiaries and operating business units (collectively referred to herein as
"the Company") and _____________ ("Employee") has been concluded in connection
with certain Retention Benefits paid to assure Employee's continued employment
with the Company.
In consideration of the mutual provisions hereof, the Company and
Employee agree as follows:
ONE: BENEFITS:
---- ---------
GenCorp has paid Employee the benefits to which the Employee, by
entering into this Agreement, has become eligible under the 1999 GenCorp Key
Employee Retention Plan and the related Letter Agreement between the Employee
and the Company (the "Plan"). The Employee agrees that these payments were more
than the Company is required to pay under its normal policies and procedures.
TWO: LIMITED RELEASE:
---- ----------------
The Employee irrevocably and unconditionally releases any and all
claims, demands, actions, or causes of action specifically related to benefits
under the Plan which he may now or hereafter have against GenCorp Inc., all
related, affiliated or subsidiary companies of GenCorp, and their predecessors,
successors and assigns; and, with respect to each such entity, all of its past
and present employees, officers, directors, stockholders, owners,
representatives, assigns, attorneys, agents, insurers, employee benefit programs
(and the trustees, administrators, fiduciaries and insurers of such programs)
and any other persons acting by, through, under or in concert with any of the
persons or entities listed in this subsection.
This release covers both claims that the Employee knows about and those
he may not know about related to the Plan. The Employee expressly waives all
rights afforded by any statute which limits the effect of this release with
respect to unknown claims. This waiver includes protections afforded by any
statute, including Section 1542 of the Civil Code of the State of California,
which provides:
12
<PAGE> 13
A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the
release which if known or suspected to exist.
The Employee understands the significance of his release of unknown claims and
his waiver of statutory protection against a release of unknown claims related
to the Plan.
THREE: EMPLOYEE'S PROMISES:
------ --------------------
In addition to the release of claims provided for in Section Two, the
Employee also agrees to the following:
(a) NO PURSUIT OF RELEASED CLAIMS: The Employee promises never to file
or prosecute a lawsuit or other complaint or charge asserting any claims that
are released by the Agreement.
(b) COMPANY PROPERTY TO BE RETURNED: The Employee promises that, on or
before the Employee's last day of work, the Employee will return to the Company
all files, memoranda, documents, records, copies of the foregoing, credit cards,
keys and any other Company property in the Employee's possession or control.
(c) EMPLOYEE NOT TO HARM THE COMPANY: The Employee agrees not to incur
any expenses or obligations or liabilities on behalf of the Company and agrees
not to criticize, denigrate or otherwise disparage the Company or any other
Releasees.
(d) COOPERATION REQUIRED: The Employee agrees that, to the extent and
in the manner requested by the Company, the Employee will fully cooperate with
the Company and assist the Company in effecting a smooth transition of the
Employee's responsibilities.
(e) CONDUCT: In the future, the Employee will not act in any manner
which could damage the business or reputation of the Company, or any other
subsidiary or affiliate of the Company. Specifically, the Employee also shall
not disclose confidential and/or proprietary information about the Company to
anyone. This prohibition against disclosure of confidential and/or proprietary
information includes all non-public information regarding the Company, its
businesses, employees and/or agents which the Employee acquired during the
performance of his duties for the Company, including without limitation,
information regarding customers, price data, marketing plans, sales and sales
forecasts, engineering data, manufacturing processes and costs, financial
information, potential liabilities, and/or any other similar information not
available to the general public. The Employee acknowledges that in addition to
protection of such information as part of his responsibilities as a Company
executive, such information also constitutes "trade secrets," the disclosure of
which may result in criminal prosecution under the Economic Espionage Act of
1996, 18 U.S.C. Section 1832.
13
<PAGE> 14
FOUR: CONSEQUENCES OF EMPLOYEE'S VIOLATION OF PROMISES:
----- -------------------------------------------------
If the Employee breaches any of the Employee's promises in this
Agreement, for example, by filing or prosecuting a lawsuit or charge based on
claims that the Employee has released, or if any representation made by the
Employee in this Agreement was false when made, the Employee (1) shall forfeit
any rights to future benefits under this Agreement, the Plan, and/or the Letter
Agreement, (2) must repay all Retention Benefits previously received, upon the
Company's demand, and (3) must pay reasonable attorneys' fees and all other
costs incurred as a result of the Employee's breach or false representation,
such as the cost of defending any suit brought with respect to a released claim
by the Employee or other owner of a released claim.
FIVE: SEVERABILITY:
----- -------------
The provisions of this Agreement are severable. If any part of it is
found to be unenforceable, all other provisions shall remain fully valid and
enforceable.
SIX: CHOICE OF LAWS:
---- ---------------
This Agreement shall be governed in all respects by the laws of the
State of Ohio.
SEVEN: NATURE, EFFECT AND INTERPRETATION OF THIS AGREEMENT:
------ ----------------------------------------------------
(a) ENTIRE AGREEMENT: This is the entire Agreement between the Employee
and the Company; it may not be modified or cancelled in any manner except by a
writing signed by the Company and the Employee. The Company has not made any
promises to the Employee other than those in this Agreement.
(b) SUCCESSORS AND ASSIGNEES: This Agreement shall bind the Employee's
heirs, administrators, representatives, executors, successors and assigns, and
shall inure to the benefit of all Releasees and their respective heirs,
administrators, representatives, executors, successors and assigns.
(c) INTERPRETATION: This Agreement shall be construed as a whole
according to its fair meaning, and not strictly for or against any of the
parties. Unless the context indicates otherwise, the term "or" shall be deemed
to include the term "and" and the singular or plural number shall be deemed to
include the other. Paragraph headings used in this Agreement are intended solely
for convenience of reference and shall not be used in the interpretation of any
of this Agreement.
14
<PAGE> 15
PLEASE READ THIS AGREEMENT CAREFULLY AND CONSULT A LAWYER IF YOU HAVE
ANY QUESTIONS OR CONCERNS. IT CONTAINS A RELEASE OF ALL CLAIMS, PRESENT AND
FUTURE, WHETHER KNOWN OR UNKNOWN.
Executed at __________________, ____________, this ____ day of
_______________, ______.
EMPLOYEE
---------------------
Signature of Employee
GENCORP INC.
By:
----------------------------
GenCorp key employee limited release
15
<PAGE> 1
Exhibit 10.14
[GENCORP LOGO] 175 Ghent Road
Fairlawn, Ohio 44333-3300
SAMUEL W. HARMON Tel: 330-869-4320
Senior Vice President Fax: 330-869-4410
Human Resources
FORM OF KEY EMPLOYEE RETENTION LETTER
-------------------------------------
Date
RE: Key Employee Retention Letter Agreement
Dear _______:
As you are aware, GenCorp Inc. ("GenCorp") has announced a plan to
"spin-off" its Performance Chemicals and Decorative & Building Products
Divisions during the current 1999 fiscal year. For this spinoff plan to succeed,
GenCorp, including its operating business units (the "Company"), must continue
to meet established performance expectations. Your leadership is an important
part of achieving these expectations.
At the same time, GenCorp recognizes that the spinoff plan may create
some uncertainty for you about your future, while the need for your continuing
commitment and undivided attention to management of the Company is more
essential than ever.
Accordingly, GenCorp has adopted, and designated you as one of a select
number of leaders eligible for benefits under, the 1999 GenCorp Key Employee
Retention Plan (the "Plan"), a copy of which accompanies this Letter Agreement
and is incorporated herein by reference. The purpose of this Plan is to provide
key designated GenCorp employees with certain Retention Benefits in order to
assure their continued employment and dedication to the Company.
As set forth in the attached Plan, there are several conditions you
must fulfill in order to be eligible for Retention Benefits. First and foremost,
you must continue to satisfactorily perform the duties of your current position,
or those of any comparable position to which you may be assigned by the Company.
This performance commitment includes the flawless execution of the spinoff plan,
in accordance with the established timetable. Additional eligibility
requirements are set forth in Article 2 of the Plan.
If the proposed spinoff is cancelled, or does not occur before February
1, 2000, you will still be eligible for a benefit payment equal to a pro-rata
share of the amount due
<PAGE> 2
Page 2
on February 1, 2000. This pro-rata payment will be made within thirty (30) days
after the proposed spinoff is formally cancelled.
If your employment with the Company is involuntarily terminated for
other than cause, all unpaid Retention Benefits will be paid within thirty (30)
days of employment termination.
Once accepted and signed by you, this Letter Agreement will constitute
the agreement of GenCorp to provide you Retention Benefits under the Plan, as
described below.
I. RETENTION BENEFITS
------------------
(a) RETENTION BENEFIT AMOUNTS:
-------------------------
Subject to the terms of the Plan, you are eligible for the
following Retention Benefits:
<TABLE>
<CAPTION>
AMOUNT PAYMENT DATE
------ ------------
<S> <C>
$ Feb. 1, 2000
$ Feb. 1, 2001
$
</TABLE>
(b) ACTIVE EMPLOYMENT ON PAYMENT DATE:
----------------------------------
Pursuant to the Plan, you must be actively employed
by the Company on the designated Payment Date in order to
receive benefits (subject to the relief provisions if
involuntary employment termination for other than cause
occurs). Benefits will be paid, in cash, on or about the
designated Payment Date, subject to normal tax withholding.
<PAGE> 3
Page 3
II. PERFORMANCE EXPECTATIONS
------------------------
As stated, the Plan also requires that you continue to satisfactorily
perform your assigned responsibilities and work diligently to implement the
proposed spinoff, which includes meeting the following Performance Expectations:
(a) You must provide your full cooperation and support to the
entire spinoff process; and
(b) The spinoff must occur before December 1, 1999.
I am confident that you can meet these Performance Expectations and
successfully conclude the spinoff of the Performance Chemical and Decorative &
Building Products Divisions.
In order to be eligible for the Retention Benefits described above,
please indicate your acceptance of all terms and conditions of the Plan and this
Letter Agreement by signing below and returning this Letter Agreement to me
within ten (10) business days of the date of this Letter Agreement.
Sincerely,
GenCorp, Inc.
By:
---------------------------------
Samuel W. Harmon
Senior Vice President
Human Resources
Accepted and Agreed:
- ------------------------------
Date:
-------------------------
<PAGE> 1
Exhibit 10.15
TAX MATTERS AGREEMENT
BY AND BETWEEN
GENCORP INC.
AND
OMNOVA SOLUTIONS INC.
<PAGE> 2
TAX MATTERS AGREEMENT
BY AND BETWEEN
GENCORP INC.
AND
OMNOVA SOLUTIONS INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
RECITALS .........................................................................................1
ARTICLE I DEFINITIONS..............................................................................2
ARTICLE II ALLOCATION OF TAX LIABILITIES............................................................6
2.01 Liability for United States Federal Taxes................................................6
2.02 Liability for State Taxes................................................................6
2.03 Liability for Foreign Taxes..............................................................6
2.04 Spin-off Taxes...........................................................................7
2.05 Method of Allocating Taxes for Straddle Periods..........................................7
2.06 Tax Accounting Practices.................................................................7
ARTICLE III PREPARATION AND FILING OF TAX RETURNS....................................................8
3.01 General..................................................................................8
3.02 Consolidated, Combined and Joint Returns.................................................8
3.05 Right to Review Returns..................................................................9
ARTICLE IV TAX REFUNDS AND CARRYOVERS...............................................................9
4.01 Refunds..................................................................................9
4.02 Carrybacks or Claims for Refund.........................................................10
4.03 Carryovers from Pre-Distribution Periods to Post-Distribution Periods...................10
4.04 State Tax Credits.......................................................................11
ARTICLE V TAX PAYMENTS............................................................................11
5.01 Payment of Consolidated United States Federal Taxes
for Pre-Distribution Periods............................................................11
5.02 Payment of State and Foreign Taxes for Which
GenCorp has Filing Responsibility.......................................................11
5.03 Indemnification Payments................................................................11
5.04 Tax Treatment of Tax and Indemnification Payments.......................................12
ARTICLE VI TAX AUDITS AND APPEALS....................................................................
6.01 Notice..................................................................................12
6.02 Control of Audits and Appeals...........................................................12
6.03 Consent to Settlements..................................................................13
6.04 Information.............................................................................13
6.05 Expenses................................................................................13
6.06 Adverse Effect Issues...................................................................13
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE VII SPECIAL RULES PERTAINING TO GENCORP SERVICES, INC.......................................16
7.01 Liability for State Taxes...............................................................16
7.02 GSI Tax Returns.........................................................................16
ARTICLE VIII MISCELLANEOUS MATTERS.....................................................................
8.01 No Inconsistent Actions.................................................................16
8.02 Amendment and Waiver....................................................................17
8.03 Tax Allocation Agreements, Etc..........................................................17
8.04 Entire Agreement; Inconsistent Provisions...............................................17
8.05 Affiliate Obligations...................................................................17
8.06 Further Action..........................................................................17
8.07 Time for Notice.........................................................................18
8.08 Notices.................................................................................18
8.09 Remedies................................................................................18
8.10 Successors and Assigns..................................................................18
8.11 Severability............................................................................18
8.12 Counterparts............................................................................19
8.13 Descriptive Headings....................................................................19
8.14 No Third-Party Beneficiaries............................................................19
8.15 Construction............................................................................19
8.16 Form of Payments and Late Payments......................................................19
8.17 Governing Law...........................................................................19
</TABLE>
ii
<PAGE> 4
TAX MATTERS AGREEMENT
BY AND BETWEEN
GENCORP INC.
AND
OMNOVA SOLUTIONS INC.
THIS TAX MATTERS AGREEMENT (the "Agreement") is made and entered into
as of ___________, 1999, by and between GenCorp Inc. ("GenCorp"), an Ohio
corporation, and OMNOVA Solutions Inc. ("OMNOVA"), an Ohio corporation, on
behalf of themselves and their respective Affiliates.
RECITALS:
---------
WHEREAS, the Board of Directors of GenCorp has determined that it is
appropriate and desirable to separate GenCorp's Decorative & Building Products
and Performance Chemicals businesses from its other businesses by means of a
series of transactions, including (1) a transfer to OMNOVA of the assets of such
businesses in exchange for all the issued and outstanding stock of OMNOVA and
other consideration (the "Separation") and (2) a dividend consisting of all the
issued and outstanding stock of OMNOVA, on a pro rata basis, to the holders of
the GenCorp common stock (the "Distribution"), in transactions that will qualify
for tax-free treatment for purposes of United States Federal Taxes under
Sections 368(a)(1)(D) and 355 of the Code (the Transfer, the Distribution and
related transactions described in the Ruling Request and in the Ruling being,
collectively, the "Spin-off"); and
WHEREAS, GenCorp and OMNOVA have set forth the principal corporate
transactions required to effect the Spin-off, together with the terms of such
transactions and related matters, in an agreement between GenCorp and OMNOVA,
dated as of ___________, 1999 (the "Distribution Agreement"); and
WHEREAS, after the Spin-off OMNOVA and its Affiliates will cease to be
members of the affiliated group (within the meaning of Section 1504(a) of the
Code) of which GenCorp is the common parent, effective as of the Distribution
Date; and
WHEREAS, GenCorp and OMNOVA desire to provide for and agree upon (1)
the allocation of liabilities for Taxes with respect to the Parties prior to,
arising out of, and subsequent to the Spin-off, (2) the preparation and filing
of Tax Returns along with the payment of Taxes shown due and payable thereon,
(3) the retention and maintenance of records necessary to prepare and file
appropriate Tax Returns and to handle any Tax Contests, as well as the provision
for appropriate access to those records by the Parties, (4) the conduct of
audits, examinations and proceedings by governmental entities which could result
in a redetermination of Taxes of the Parties to this Agreement, (5) the
responsibility for any Tax deficiencies and the treatment of refunds of Taxes
and Carryovers and Carrybacks of the Parties, (6) the cooperation of the Parties
with one another in order to fulfill their duties and responsibilities under
this
<PAGE> 5
Agreement and under the Code and other applicable Law, and (7) any other matters
related to Taxes;
NOW, THEREFORE, in consideration of the foregoing, and of the mutual
promises, covenants and conditions hereinafter contained, the Parties agree as
follows:
ARTICLE I
---------
DEFINITIONS
-----------
"Affiliate" means any Person that directly or indirectly controls, is
under the control of, or is under common control with, the Person in question.
"Control" of a Person means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of such Person,
whether through ownership or voting securities, by contract or otherwise. Except
as otherwise provided herein, the term "Affiliate" shall refer to Affiliates of
a Person determined immediately after the Distribution Date, provided, however,
that, after the Spin-off, GenCorp and OMNOVA (in each case together with the
members of their respective Groups) shall not be Affiliates of each another.
"Adverse Effect Issue" has the meaning set forth in Section 6.06(b).
"Affected Party" has the meaning set forth in Section 6.06(b).
"Affiliate" means a Person which, directly or indirectly, alone or
through one or more intermediaries, controls, is controlled by, or is under
common control with, another Person.
"Agreement" has the meaning set forth in the introduction.
"Carryover" and "Carryback" mean any net operating loss, net capital
loss, excess tax credit, or other similar Tax item which may or must be carried
forward or back, respectively, from one Tax Period to another under the Code or
other applicable Law.
"Code" means the United States Internal Revenue Code of 1986, as
amended, or any successor law.
"Distribution" has the meaning set forth in the Recitals.
"Distribution Agreement" has the meaning set forth in the Recitals.
"Distribution Date" means the effective date of the Distribution as set
forth in the Distribution Agreement.
"Examined Party" has the meaning set forth in Section 6.06(a).
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<PAGE> 6
"Foreign Taxes" means any Taxes imposed or collected by any foreign
government, together with any interest and any penalties, additions to tax or
additional amounts with respect thereto, and "Foreign Tax" means any one of the
foregoing Foreign Taxes.
"GenCorp" has the meaning set forth in the introduction.
"GenCorp Group" means GenCorp and its Affiliates.
"Granting Party" has the meaning set forth in Section 6.02(b).
"Group" means each of the GenCorp Group and the OMNOVA Group whenever
no distinction is otherwise required between them.
"GSI" has the meaning set forth in Section 7.01.
"Including" has the meaning set forth in Section 8.15.
"Indemnification Payment" means a payment subject to Section 5.04.
"Indemnified Party" and "Indemnifying Party" have the meanings set
forth in Section 5.03(b).
"IRS" means the United States Internal Revenue Service and any
successor department, agency or organization of the United States.
"Joint Contest" means any Tax Contest seeking a redetermination of
Taxes which involves or could involve one or more members of the GenCorp Group
and the OMNOVA Group.
"Law" means the law of any governmental entity or political subdivision
thereof, other than the Code, relating to any Tax.
"Participating Party" has the meaning set forth in Section 6.02(b).
"Parties" means GenCorp and OMNOVA.
"Party" means either GenCorp or OMNOVA.
"Person" means any individual and any partnership, joint venture,
corporation, limited liability company, trust, unincorporated organization or
other business entity formed or operating under United States or foreign law.
"Post-Distribution Period" means any Tax Period beginning after the
Distribution Date and, in the case of any Straddle Period, the portion of such
Tax Period ending after the Distribution Date.
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<PAGE> 7
"Pre-Distribution Period" means any Tax Period ending on or before the
Distribution Date and, in the case of any Straddle Period, the portion of such
Tax Period ending on the Distribution Date.
"Prime Rate" means the prime interest rate published in the Wall Street
Journal from time to time.
"Return" means any return or report of Taxes due, any information
return or statement with respect to Taxes, or any other similar report,
statement, declaration, or document required to be filed under the Code or other
Laws, any claims for refund of Taxes paid, and any amendments or supplements to
any of the foregoing.
"Ruling" means the private letter ruling, dated June 30, 1999, issued
by the Service in reply to the Ruling Request (including any amendment or
supplement thereto).
"Ruling Request" means the private letter ruling request filed by the
Parties with the Service on February 24, 1999, (as modified or supplemented by
any materials submitted to the Service), seeking rulings that, inter alia, the
Spin-off will qualify for Federal income tax purposes for tax-free treatment
under Sections 368(a)(1)(D) and 355 of the Code.
"Separate Contest" means a Tax Contest which involves (i) only GenCorp
and members of the GenCorp Group, or (ii) only OMNOVA and members of the OMNOVA
Group.
"Short Period" means any Tax period which is based on an accounting
period which is shorter than the normal accounting period used for determining
such Tax (e.g., in the case of the United States Federal income Tax, any Tax
Period of less than one year).
"OMNOVA" has the meaning set forth in the introduction.
"OMNOVA Group" means OMNOVA and its Affiliates.
"OMNOVA Group Carryback" has the meaning set forth in Section 4.02.
"Spin-off" has the meaning set forth in the Recitals.
"Spin-off Taxes" means any Taxes incurred by or imposed on GenCorp or
OMNOVA (or their respective Affiliates) resulting from the Spin-off and any
disposition of stock or assets undertaken to separate the OMNOVA Group from the
GenCorp Group, in accordance with the terms of the Distribution Agreement.
"State Taxes" means all Taxes imposed or collected by any state or
local government in the United States (including possessions and territories of
the United States), and "State Tax" means any one of the foregoing State Taxes.
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<PAGE> 8
"Straddle Period" means (i) any Tax Period that begins before and ends
after the Distribution Date, (ii) any Short Period that ends on the Distribution
Date and (iii) any Short Period that begins on the first day following the
Distribution Date.
"Tax Authority" means, with respect to any Tax, the governmental entity
or political subdivision thereof that imposes such Tax and any governmental
department, office or agency (if any) charged with the determination or
collection of such Tax for such entity or subdivision.
"Tax Benefit" means any refund, credit, Carryover, Carryback or other
reduction in otherwise required Tax payments. Such term does not include a
decrease in any Tax in one Tax Period that results from a Tax Adjustment in
another Tax Period, such as an increase in a deduction for depreciation that
results from a determination that, in a previous Tax Period, an expenditure is
capitalized and not deducted, or an item of gain is recognized.
"Tax Contest" means an audit, review, examination or any other
administrative or judicial proceeding with the purpose or effect of
redetermining Taxes of any member of any of the GenCorp Group or the OMNOVA
Group for (1) any Pre-Distribution Period, (2) any Straddle Period or (3) any
Post-Distribution Period, if such proceeding could result in any Tax Adjustment
or Tax Benefit for any Pre-Distribution Period or Straddle Period (without
regard to whether such matter was initiated by an appropriate Tax Authority or
in response to a claim for a refund of Taxes).
"Taxes" means all Federal, state, territorial, local, foreign and other
net income, gross income, gross receipts, sales, use, value added, ad valorem,
transfer, franchise, profits, license, lease, service, service use, withholding,
payroll, employment, unemployment insurance, workers compensation, social
security, excise, severance, stamp, business license, occupation, premium,
property, environmental, windfall profits, customs, duties, alternative minimum,
estimated or other taxes, fees, premiums, assessments or charges or any kind
whatever imposed or collected by any governmental entity or political
subdivision thereof, which any member of the GenCorp Group or of the OMNOVA
Group is required to pay, collect or withhold, together with any interest and
any penalties, additions to Tax or additional amounts with respect thereto, and
"Tax" means any one of the foregoing Taxes.
"Tax Period" means, with respect to any Tax, the period for which the
Tax is reported as provided under the Code or other applicable Laws.
"Tax Records" has the meaning set forth in Section 6.01(a).
"Transfer" has the meaning set forth in the Recitals.
"United States Federal Taxes" means all Taxes imposed or collected by
the United States Federal Government, and "United States Federal Tax" means any
one of the foregoing United States Federal Taxes.
"1999 Fiscal Year" has the meaning set forth in Section 3.02(a).
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<PAGE> 9
ARTICLE II
----------
ALLOCATION OF TAX LIABILITIES
-----------------------------
2.01 LIABILITY FOR UNITED STATES FEDERAL TAXES.
(a) Subject to Sections 2.04, 2.05, 4.01, and 4.02, GenCorp
shall be liable for, and shall indemnify and hold the OMNOVA Group harmless
from:
(1) any United States Federal Taxes imposed on GenCorp,
OMNOVA and all members of their respective Groups for any Pre-Distribution
Period and
(2) any United States Federal Taxes imposed on any members
of the GenCorp Group for any Post-Distribution Period.
(b) Subject to Sections 2.04, 2.05, 4.01, and 4.02,
OMNOVA shall be liable for, and shall indemnify and hold the GenCorp Group
harmless from all United States Federal Taxes imposed on any members of the
OMNOVA Group for any Post-Distribution Period.
2.02 LIABILITY FOR STATE TAXES.
(a) Subject to Sections 2.04, 2.05, 4.01, 4.02, and 7.01,
GenCorp shall be liable for, and shall indemnify and hold the OMNOVA Group
harmless from:
(1) any State Taxes imposed on GenCorp or OMNOVA and all
members of their respective Groups for any Pre-Distribution Period and
(2) any State Taxes imposed on any members of the GenCorp
Group for any Post-Distribution Period.
(b) Subject to Sections 2.04, 2.05, 4.01, 4.02, and 7.01,
OMNOVA shall be liable for, and shall indemnify and hold the GenCorp Group
harmless from any State Taxes imposed on any members of the OMNOVA Group for any
Post-Distribution Period.
2.03 LIABILITY FOR FOREIGN TAXES.
(a) Subject to Sections 2.04, 2.05, 4.01, and 4.02, GenCorp
shall be liable for, and shall indemnify and hold the OMNOVA Group harmless
from:
(1) any Foreign Taxes imposed on GenCorp, OMNOVA or their
respective Groups for any Pre-Distribution Period and
(2) any Foreign Taxes imposed on the GenCorp Group for any
Post-Distribution Period.
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<PAGE> 10
(b) Subject to Sections 2.04, 2.05, 4.01, and 4.02, OMNOVA
shall be liable for, and shall indemnify and hold the GenCorp Group harmless
from all Foreign Taxes imposed on the OMNOVA Group for any Post-Distribution
Period.
2.04 SPIN-OFF TAXES. Except as otherwise provided in Section
5.02(c) of the Distribution Agreement, GenCorp shall be liable for, and shall
indemnify and hold the OMNOVA Group harmless from all Spin-off Taxes.
2.05 METHOD OF ALLOCATING TAXES FOR STRADDLE PERIODS.
(a) To the extent required or allowed by applicable law, the
Parties shall apportion their respective liabilities for Taxes relating to a
Straddle Period that begins before and ends after the Distribution Date in
accordance with an actual or hypothetical closing of the books on the
Distribution Date in the case of income Taxes or other Taxes based on actual
events and activities of such Party.
(b) Except as provided in Section 2.05(a), Taxes for any
Straddle Period, with respect to any member of the GenCorp Group and the OMNOVA
Group shall be apportioned between Pre-Distribution and Post-Distribution
Periods as follows: First, Taxes for Tax Periods or portions thereof ending on
the last day of the calendar month preceding the Distribution Date (such date is
hereinafter referred to as the "Cutoff Date") shall be based on actual events
and activities through the Cutoff Date and in accordance with past accounting
practices. Second, Taxes for the period from the Cutoff Date through the
Distribution Date shall be computed by prorating the activities of the calendar
month which includes the Distribution Date on a daily pro rata basis.
Notwithstanding the foregoing provisions of this Section 2.05(b), (i)
depreciation, amortization and depletion for any Straddle Period shall be
apportioned on a daily pro rata basis and (ii) extraordinary items not arising
in the ordinary course of business shall be apportioned to the Tax Period in
which the event giving rise to such item occurs.
(c) For purposes of this Agreement, franchise Taxes shall be
allocated to the Periods in which the items with respect to which the Tax is
imposed occur, regardless of whether the Tax is imposed with respect to one or
more other Periods.
(d) For purposes of this Agreement, any taxes computed on a
unitary method shall be allocated between the members of the GenCorp Group and
the OMNOVA Group consistent with past accounting practice and consistent with
applicable law.
2.06 TAX ACCOUNTING PRACTICES. Any Straddle Period Returns prepared
by any member of the GenCorp Group or the OMNOVA Group shall be filed in
accordance with past Tax accounting practices used with respect to the Tax
Returns in question, and to the extent any items are not covered by past
practices, in accordance with reasonable Tax accounting practices selected by
GenCorp or OMNOVA, as the case may be (except that accounting elections and
determinations shall be made by each Party, where reasonably possible, in a
manner that minimizes the net Tax incurred by the other Party and its
Affiliates). In the event any member of the GenCorp Group or the OMNOVA Group
files Tax Returns for Straddle Periods
7
<PAGE> 11
inconsistently with such past Tax accounting practices, then, notwithstanding
any provision of this Agreement to the contrary, in addition to any other
remedies available, the other Party shall only be responsible for the amount of
Taxes it would owe if such Tax Returns had been filed consistently with such
past Tax accounting practices. The Parties shall consult regarding any such
proposed changes in accounting methods and attempt in good faith to agree as to
procedures to be followed and the amount of any indemnity hereunder.
ARTICLE III
-----------
PREPARATION AND FILING OF TAX RETURNS
-------------------------------------
3.01 GENERAL. Except as otherwise provided in this Article III, Tax
Returns shall be prepared and filed by the Person liable for the Tax reported on
such Tax Return, or otherwise obligated to file such Return, under the Code or
other applicable Law. Schedule 3.01 sets forth the United States Federal and
State Tax Returns relating to income Taxes to be filed under this provision and
the Person responsible for filing each such Return. Without limiting the
foregoing, in accordance with Article VI, the Person responsible for filing such
a Return shall also be responsible for responding to any revenue agent request
or any other formal or informal request for information or otherwise relating to
such Return by the IRS or any other applicable Tax Authority. The Parties shall
render assistance and cooperate with one another in accordance with the
Distribution Agreement.
3.02 CONSOLIDATED, COMBINED AND JOINT RETURNS.
(a) Any Tax Returns for United States Federal Taxes imposed
for any Pre-Distribution Period which reflect Taxes for which any member of the
GenCorp Group has liability under Article II (including, without limitation,
GenCorp's consolidated Federal income Tax Return for the Tax Period in which the
Distribution occurs) shall be prepared by and filed by GenCorp. In furtherance
of, and not by limitation of, the cooperation and assistance required by the
Distribution Agreement OMNOVA shall, in connection with any Tax Return for
United States Federal income Taxes for any Pre-Distribution Period filed after
the Distribution Date for which GenCorp has filing responsibility under this
Agreement and which reflects income or transactions attributable to the OMNOVA
Group, provide GenCorp with (i) true and correct separate Federal income Tax
Returns for the OMNOVA Group, together with all accompanying work papers and
other computations of separate Federal income Tax liability for the OMNOVA
Group; (ii) a true and correct reconciliation of book income to Federal taxable
income for the OMNOVA Group, and (iii) any other information or documentation
reasonably requested by GenCorp in connection with such Tax Return; provided,
however, that the Parties shall consult regarding the type and extent of the
information required by GenCorp hereunder.
(b) With respect to the Period ending on November 30, 1999,
or, where applicable to any Group member, the corresponding 52-53 week Period
(the "1999 Fiscal Year"), OMNOVA hereby agrees to provide GenCorp with all such
Returns, work papers and computations relating to Federal Taxes on or before May
15, 2000, and with all such Returns, work papers and computations relating to
State Taxes on or before on or before June 15, 2000.
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<PAGE> 12
(c) If, without reasonable cause, OMNOVA fails to provide any
information required by this Section 3.02 within the time frame specified
herein, GenCorp may file the applicable Returns based on the information
available at the time such Returns are due and OMNOVA shall be liable for, and
shall indemnify GenCorp from, any interest or penalties relating to Taxes,
additions to Tax or other costs imposed on GenCorp as a result of OMNOVA's
failure to provide such information. Provided, however, that in no event will
OMNOVA be liable to reimburse GenCorp for or indemnify GenCorp against any
increase in tax liability (excluding interest, penalties, additions to tax and
the like) resulting from such information. The Parties shall attempt in good
faith to reach agreement regarding the information to be provided by OMNOVA to
GenCorp and the time such information is needed.
(d) Any Tax Returns for State Taxes for any Pre-Distribution
Period which reflect Taxes for which the GenCorp Group has liability under
Article II, shall be prepared and filed by GenCorp. Sections 3.02(a) and 3.02(c)
shall apply mutatis mutandis to all State Tax Returns for any Pre-Distribution
Period that GenCorp must prepare and/or file under this Agreement that is
measured by income and that includes any income or transactions attributable to
OMNOVA or any member of the OMNOVA Group.
(e) Any Tax Returns for Foreign Taxes for any Pre-Distribution
Period which reflect Taxes for which the GenCorp Group has liability under
Article II, shall be prepared and filed by GenCorp. Any Tax Returns for Foreign
Taxes for any Post-Distribution Period (including any such Straddle Period)
which reflect Taxes for which the OMNOVA Group has liability under Article II,
shall be prepared and filed by OMNOVA. For any Straddle Period Tax Returns
prepared and filed by OMNOVA, the liability for Taxes reflected on such Tax
Return will be divided between the Pre-Distribution Period and the
Post-Distribution Period in accordance with Section 2.05.
3.03 RIGHT TO REVIEW RETURNS. Upon the request of either Party, the
other Party shall make available for inspection and copying all Tax Returns (and
related work papers) with respect to Taxes to the extent that (i) such Return
relates to Taxes for which the requesting Party may be liable under this
Agreement, (ii) such Return relates to Taxes for which the requesting Party may
have a claim for Tax Benefits hereunder, or (iii) the requesting Party
reasonably determines that it must inspect such Return to confirm any Person's
compliance with the terms of this Agreement. The Parties shall attempt in good
faith to resolve any issues arising out of the review of such Returns.
ARTICLE IV
----------
TAX REFUNDS AND CARRYOVERS
--------------------------
4.01 REFUNDS. Except as provided in Section 4.02, any refund of any
Taxes for any Pre-Distribution Period shall belong to GenCorp. In the event
OMNOVA or any of its Affiliates receives a refund for any Pre-Distribution
Period, the Person receiving such refund shall immediately remit such refund to
GenCorp. A refund includes the application of an amount otherwise refundable as
a reduction of amounts owed or to be owed notwithstanding that no cash is
transferred.
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<PAGE> 13
4.02 CARRYBACKS OR CLAIMS FOR REFUND.
(a) At the request of OMNOVA and at OMNOVA's expense, GenCorp
or one of its Affiliates will file one or more claims for refund (including any
tentative carryback or refund adjustment under Section 6411 of the Code) of
Taxes with respect to any Pre-Distribution Period resulting from any Carryback
generated by any member of the OMNOVA Group from a Post-Distribution Period
("OMNOVA Group Carryback"), provided (subject to Section 4.02(b)) that such
refund does not result in any increase in the liability of any member of
GenCorp's Group for Taxes for any Tax Period. In the event GenCorp or one of its
Affiliates receives a refund for any Pre-Distribution Period resulting from any
OMNOVA Group Carryback from a Post-Distribution Period, GenCorp shall
immediately remit such refund to OMNOVA.
(b) In the event GenCorp or one of its Affiliates files one or
more claims for refund (including any tentative carryback or refund adjustment
under Section 6411 of the Code) of Taxes with respect to any Pre-Distribution
Period resulting from any OMNOVA Group Carryback from a Post-Distribution Period
that results in any increase in the liability of any member of GenCorp's Group
for Taxes for any Tax Period, GenCorp or any of its Affiliates shall be entitled
to retain that portion of the refund that exactly offsets the additional Taxes
for which it becomes liable as a result of filing the refund claim, and the
balance of such refund shall be refunded immediately to OMNOVA. To the extent
the increased liability for Taxes of GenCorp or any of its Affiliates with
respect to any Pre-Distribution Period resulting from any OMNOVA Group Carryback
from a Post-Distribution Period is reversed for any Tax Period, the amount of
any Tax Benefit resulting from such reversal shall be paid immediately to OMNOVA
on the date when the Return is filed for the year in which the Tax Benefit
arises or, if such return has already been filed, then immediately after GenCorp
or any of its Affiliates receives a payment reflecting the Tax Benefit in
question. Similarly, to the extent the increased liability for Taxes of GenCorp
or any of its Affiliates with respect to any Pre-Distribution Period resulting
from any OMNOVA Group Carryback from a Post-Distribution Period for any Period
arises after the refund has been paid to OMNOVA, GenCorp shall inform OMNOVA of
the amount of such increase, and OMNOVA shall pay the amount of such increase to
GenCorp promptly. Procedures similar to those in Section 5.03 shall apply. All
computations under this Section 4.02 shall be adjusted to take into account
interest payable by or to GenCorp, and any Tax Benefit resulting therefrom.
4.03 CARRYOVERS FROM PRE-DISTRIBUTION PERIODS TO POST-DISTRIBUTION
PERIODS.
(a) If GenCorp or any of its Affiliates (determined for this
purpose as of immediately before the Distribution Date) is entitled to carry
over any Tax Benefit from a Pre-Distribution Period to a Post-Distribution
Period, and if the proper person to claim such Tax Benefit is a member of the
OMNOVA Group, OMNOVA or such member shall, upon request of GenCorp and at
GenCorp's expense, file any return or report reasonably requested by GenCorp in
a manner that claims such Tax Benefit and shall pay the full amount of such Tax
Benefit to GenCorp promptly upon receipt, provided (subject to Section 4.03(b))
that such Tax Benefit does
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<PAGE> 14
not result in any increase in the liability of any member of the OMNOVA Group
for Taxes for any Tax Period.
(b) If OMNOVA or any of its Affiliates claims a carryover of a
Tax Benefit described in Section 4.03(a) that results in any increase in the
liability of any member of the OMNOVA Group for Taxes for any Tax Period, the
provisions of Section 4.02(b) shall apply, mutatis mutandis, to OMNOVA's
obligation to refund such Tax Benefit to GenCorp.
4.04 STATE TAX CREDITS. Notwithstanding any other provision of this
Agreement, the Parties shall consult and shall attempt in good faith to agree
concerning the allocation between them of credits for State Taxes.
ARTICLE V
---------
TAX PAYMENTS
------------
5.01 PAYMENT OF CONSOLIDATED UNITED STATES FEDERAL TAXES FOR
PRE-DISTRIBUTION PERIODS. GenCorp shall pay all Taxes due, be entitled to the
benefit of all overpayments of estimated income tax, and, except as provided in
Section 4.02, shall receive all refunds in connection with, the filing of
GenCorp's Tax Returns relating to U.S. Federal Taxes for all Pre-Distribution
Periods, including GenCorp's consolidated Federal income Tax Return for the 1999
Fiscal Year.
5.02 PAYMENT OF STATE AND FOREIGN TAXES FOR WHICH GENCORP HAS
FILING RESPONSIBILITY. GenCorp shall pay to the appropriate Tax Authority all
State and Foreign Taxes for Tax Returns with respect to which GenCorp (or
another member of the GenCorp Group) has filing responsibility pursuant to
Article III.
5.03 INDEMNIFICATION PAYMENTS.
(a) The Parties shall attempt to agree upon procedures for the
payment of indemnities under this Agreement. In the absence of any such
Agreement, the procedures set forth in paragraph (b) shall be followed.
(b) Upon payment of any Taxes with respect to which either
Party is entitled to receive indemnification hereunder, such member (the
"Indemnified Party") shall send to the other Party (the "Indemnifying Party") an
invoice accompanied by evidence of payment and a statement detailing the Taxes
paid and describing in reasonable detail the particulars relating thereto. The
Indemnifying Party (or such one or more members of the Indemnifying Party's
Group as it shall nominate) shall remit payment for Taxes for which the
Indemnifying Party is liable for indemnification hereunder to the Indemnified
Party (or such one or more members of the Indemnified Party's Group as it shall
nominate) within 30 days of receipt of such invoice, evidence of payment and
statement, or at any earlier time identified by the Indemnifying Party.
Notwithstanding any provision in this Agreement to the contrary, to the extent
the Indemnified Party receives a refund of Taxes for which it has been
indemnified, it shall remit the refund to the Indemnifying Party (or such one or
more members of the Indemnifying Party's Group as it
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shall nominate) immediately. The amount of any payment under this Section 5.03
that is attributable to interest paid to a Tax Authority shall be adjusted to
take into account the Tax Benefit resulting therefrom.
5.04 TAX TREATMENT OF TAX AND INDEMNIFICATION PAYMENTS. The Parties
agree that, in the absence of any change in law, any Tax or indemnification
payments made under this Agreement or the Distribution Agreement (including
payments made under Sections 2.04, 4.01, 4.02, 4.03, and 5.03) shall be reported
for Tax purposes by the payor and the recipient as capital contributions or
dividends, as appropriate, relating back to the period beginning before the
Distribution Date. The Parties will file their respective Tax Returns on this
basis, unless agreed otherwise in writing by the Indemnified Party and the
Indemnifying Party.
ARTICLE VI
----------
TAX AUDITS AND APPEALS
----------------------
6.01 NOTICE. Each Party shall provide prompt notice to the other
Party of any pending or threatened Tax Contest of which it becomes aware
relating to Taxes for Tax Periods for which it is indemnified by the other
Party. Such notice shall contain factual information (to the extent known)
describing any asserted Tax liability in reasonable detail and shall be
accompanied by copies of any notice or other document received from any Tax
Authority in respect of any such matter. If either Party has knowledge of an
asserted Tax liability with respect to a matter for which it is to be
indemnified hereunder and such Party fails to give the Indemnifying Party notice
of such asserted Tax liability within 30 days after it has received written
notice thereof, then, unless such failure has no material adverse effect upon
the Indemnifying Party's ability to participate in the Tax Contest, the
Indemnifying Party shall have no obligation to indemnify the Indemnified Party
for any Taxes arising out of such asserted Tax liability.
6.02 CONTROL OF AUDITS AND APPEALS.
(a) SEPARATE CONTESTS. Any Separate Contest shall be
controlled solely by the Party involved in the Tax Contest.
(b) JOINT CONTESTS. With respect to any Joint Contest, the
Party that filed the Return shall control the proceeding. The personnel and
outside advisers (including counsel) of the Party not controlling the proceeding
may participate, at the expense of such Party, in the proceeding to the extent
such proceeding relates to items or adjustments for which such Party may incur
indemnity liability under this Agreement. Such participation shall be reflected
by the grant of appropriate powers of attorney. The Party granting such power of
attorney (the "Granting Party") shall have the right to revoke the power of
attorney if the Granting Party reasonably determines that the actions or failure
to act on the part of the other Person (the "Participating Party") in the
proceeding has resulted, or can be reasonably expected to result, in the
hindrance or delay of any resolution or settlement of the proceeding. In the
event the Participating Party fails to participate timely and fully in any
proceeding to the extent to which such proceeding relates to items or
adjustments for which the Participating Party has indemnity liability under this
Agreement, the Participating Party shall be liable for, in addition to all Taxes
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for which the Participating Party shall be liable under this Agreement, any and
all costs imposed on, or incurred by, the Granting Party as a result of the
Participating Party's failure to participate. The revocation of any power of
attorney under this Section 6.02 shall in no way limit the Participating Party's
indemnity liability under this Agreement.
6.03 CONSENT TO SETTLEMENTS.
(a) Subject to Sections 6.03(b) and (c), neither Party shall
agree to any Tax liability or compromise any Tax claim in a Joint Contest for
the account of any member of the other Group without the consent of such other
Party, which consent shall not be withheld unreasonably. Decisions regarding
settlement of a Joint Contest shall be made jointly by the Parties and their
respective representatives.
(b) If GenCorp refuses to accept a settlement proposal in a
Joint Contest that OMNOVA wishes to accept, then the contest shall continue, and
(i) OMNOVA's liability to GenCorp with respect to such adjustment shall be
determined as if the settlement proposal had been accepted; (ii) GenCorp shall
indemnify OMNOVA from and against any Taxes resulting from an outcome of the
contest less favorable than the settlement and any other costs resulting from
the continuation of the contest, and (iii) GenCorp shall be entitled to all
benefits resulting from any outcome of the contest that is more favorable than
the settlement (less any costs to OMNOVA, against which GenCorp shall indemnify
OMNOVA).
(c) If OMNOVA refuses to accept a settlement proposal in a
Joint Contest that GenCorp wishes to accept, then the contest shall continue and
(i) GenCorp's liability to OMNOVA with respect to such adjustment shall be
determined as if the settlement proposal had been accepted, (ii) OMNOVA shall
indemnify GenCorp from and against any Taxes resulting from an outcome of the
contest less favorable than the settlement and any other costs resulting from
the continuation of the contest, and (iii) OMNOVA shall be entitled to all
benefits resulting from any outcome of the contest that is more favorable than
the settlement (less any costs to GenCorp, against which OMNOVA shall indemnify
GenCorp).
6.04 INFORMATION. Each Party shall provide the other Party with
information pertaining to any increase or decrease in its Taxes that might
affect the liability for Taxes of the other Party for any Period. In addition,
upon reasonable request, each Party shall provide information to the other Party
regarding the Tax treatment of any item.
6.05 EXPENSES. Each Party shall bear its own Group's expenses
incurred in connection with any Tax Contest.
6.06 ADVERSE EFFECT ISSUES
(a) The procedures set forth in Sections 6.06(c) through
6.06(f) shall apply if -
13
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(i) in an examination of a Federal income Tax Return of
one of the Parties or any member of its Group (the "Examined Party"), the IRS
raises one or more Adverse Effect Issues, or
(ii) the Examined Party (whether or not in the course of
any audit, examination or other proceeding relating to the determination of its
liability for Federal income Taxes) files an amended Federal income Tax Return
or claim for refund of federal income Taxes or otherwise takes a position with
the IRS inconsistent with a Federal income Tax Return already filed, if such
amended Federal income Tax Return, claim or position is likely, itself or in
combination with other issues, to be an Adverse Effect Issue.
(b) One or more issues are "Adverse Effect Issues" if, in the
reasonable judgment of the Examined Party, the aggregate effect of all such
issues with respect to the Periods within an examination cycle or similar
proceeding of the Examined Party is significantly likely to increase the
liability for Federal income Taxes (less interest) of the Other Party and the
members of its Group (the "Affected Party") by at least $250,000. Only for
purposes of determining whether an issue is an Adverse Effect Issue, the amount
of such increase in liability for Federal income Taxes shall be measured under
the following principles:
(i) All increases (less any offsetting decreases resulting
from the same or a related item) in the Affected Party's liability for Federal
income Tax likely to result from such Adverse Effect Issue for all Periods shall
be taken into account, provided, however, that any decrease in liability for
Federal income Tax that may result from the sale or disposition of property not
expected to be sold or disposed of (for example, stock of an operating
subsidiary), or similar items, shall not be taken into account.
(ii) Computations of liability for Federal income Tax
shall be based on the highest marginal rate of Federal income Tax applicable to
the Affected Party for each of the Periods involved.
(iii) There shall be taken into account only increases in
liability for Federal income Tax as compared with the return position taken by
the Affected Party.
(c) In each case, the Parties shall use their best reasonable
efforts to identify issues that are, or in combination with other issues could
become, Adverse Effect Issues.
(i) Promptly upon becoming aware that any Adverse Effect
Issue has been raised as described in Section 6.06(a)(i), the Examined Party
shall provide notice of such event to the Affected Party. Such notice shall
include a description of the Adverse Effect Issue, a computation (as described
in Section 6.06(b)(ii)) showing the expected increase in the Affected Party's
liability for Federal income Tax resulting therefrom, and copies of all
correspondence between the Examined Party and the IRS (including information
document requests, responses thereto and notices of proposed adjustment).
14
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(ii) No less than 30 days before filing any amended return
or claim for refund or taking any action described in Section 6.06(a)(ii), the
Examined Party shall (x) provide notice to the Affected Party (such Notice to
include the information and material listed with respect to the notice provided
in Section 6.06(c)(i) and copies of all amended returns, claims for refund or
other documents proposed to be filed with the IRS with respect to such Adverse
Effect Issue) and (y) consult with the Affected Party regarding such action.
(d) Within 30 days after the notice provided in Section
6.06(c)(i) or Section 6.06(c)(ii), the Affected Party may notify the Examined
Party that the Affected Party wishes to participate in proceedings relating to
the disposition of any or all of the Adverse Effect Issues. If the Affected
Party provides such notice, the procedures for Joint Contest set forth in
Section 6.02(b) shall apply, with the Examined Party being in control of the
proceeding. Provided, however, that (i) if the Affected Party does not provide
such notice within such time period, the proceeding shall continue without
participation of the Affected Party and without regard to Sections 6.06(e) and
6.06(f), and (ii) the Affected Party's right to participate in the proceedings
shall terminate if the Examined Party makes a reasonable determination, after
consultation with the Affected Party, that, notwithstanding the Adverse Effect
Items, the total net increase in the Affected Party's liability for Taxes
(determined as set forth in Section 6.06(b)) from all adjustments relating to
the Period or Periods in the examination cycle or similar proceeding is less
than the amount set forth in Section 6.06(b).
(e) Subject to Section 6.06(f), the Examined Party shall
settle any Adverse Effect Issue with the IRS only with the prior consent of the
Affected Party. The Parties shall attempt in good faith to agree as to the terms
of a proposed settlement. If the Parties are unable to agree, the procedures set
forth in Section 6.03(b) or Section 6.03(c), as the case may be, shall apply to
such Adverse Effect Issue.
(f) Notwithstanding Section 6.06(e), the Examined Party may
settle with the IRS any Adverse Effect Issue without consent of the Affected
Party, if, after consultation with the Affected Party, the Examined Party
reasonably determines that (i) a settlement of such Adverse Effect Issue is
desirable to the Examined Party; (ii) in light of all the circumstances
(including the likelihood of various positions of the Parties being sustained in
further proceedings, the cost of such proceedings and the impact of settlement
on other issues), the overall terms of the settlement do not discriminate
against the Affected Party; and (iii) other issues (which may or may not be
Adverse Effect Issues) will be settled, and it is not practical to settle such
other issues on the proposed terms without a settlement of the Adverse Effect
Issue. Before determining that a proposed settlement of other issues is not
practical without a settlement of the Adverse Effect Issue, the Examined Party
will use its reasonable best efforts to secure a settlement of the other issues
while leaving the Adverse Effect Issue open for further proceedings (for
example, by entering into an agreement on IRS Form 870AD or similar form to
close proceedings relating to one or more Periods but reserving the Adverse
Effect Issue for further proceedings).
15
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ARTICLE VII
-----------
SPECIAL RULES PERTAINING TO GENCORP SERVICES, INC.
--------------------------------------------------
7.01 LIABILITY FOR STATE TAXES. Notwithstanding Section 2.02(b),
OMNOVA shall be responsible for, and shall indemnify GenCorp against, (a) all
liabilities for State Taxes of GenCorp Services, Inc., a Ohio corporation
("GSI"), and (b) any liability to GSI or to any member of the GenCorp Group for
adjustments to State Taxes resulting from transactions or arrangements between
GSI and any other member of the GenCorp Group or the OMNOVA Group. Such
liabilities for any Straddle Year in jurisdictions using the unitary method
shall be determined in accordance with Section 2.05(d).
7.02 GSI TAX RETURNS.Notwithstanding Sections 3.01 and 3.02, OMNOVA
shall file all State Tax Returns for GSI, with the exception of unitary returns
set forth on Schedule 3.01, and any tax audit or other proceeding pertaining to
any State Tax of GSI shall be a Separate Contest of the OMNOVA Group. GenCorp
shall provide notice to OMNOVA of any issue raised by a Tax Authority that could
reasonably result in the application of this Article VIII.
ARTICLE VIII
------------
MISCELLANEOUS MATTERS
---------------------
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8.01 AMENDMENT AND WAIVER. This Agreement shall not be amended or
modified in any manner whatsoever without the written consent of each of the
Parties. No failure by any GenCorp or OMNOVA to insist upon the strict
performance of any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof shall
constitute waiver of any such breach or any other covenant, duty, agreement or
condition.
8.02 TAX ALLOCATION AGREEMENTS, ETC. Immediately prior to the
Distribution, GenCorp shall cause any and all tax allocation, tax sharing and
similar agreements or arrangements existing between GenCorp and all members of
the OMNOVA Group to be terminated as of the Distribution Date, and shall cause
any amounts due under such agreements or arrangements to be settled in the
manner agreed to by the Parties prior to the Distribution Date. Upon such
termination and settlement, no further payments made by one Party to the other
with respect to such agreements or arrangements shall be made, and all other
rights and obligations resulting from such agreements or arrangements between
the Parties shall cease as of such time. This Agreement shall supercede any such
agreements or arrangements to the extent inconsistent therewith.
8.03 ENTIRE AGREEMENT; INCONSISTENT PROVISIONS. The Parties agree
that this Agreement constitutes the entire Agreement between them in respect of
the subject matter of this Agreement, and that, in the event of a conflict or
other inconsistency between any provision or term of this Agreement and any
other Agreement, including any provision or term of the Distribution Agreement,
then insofar as such matter relates to Taxes, this Agreement shall prevail.
8.04 AFFILIATE OBLIGATIONS. To the extent that the provisions of
this Agreement pertain to an Affiliate of GenCorp or OMNOVA, GenCorp and OMNOVA
hereby respectively agree that they shall cause such Affiliate to carry out the
terms of this Agreement.
8.05 FURTHER ACTION. The Parties shall execute and deliver all
documents, provide all information, and take or refrain from taking any action
as may be necessary or appropriate to achieve the purposes of this Agreement.
Without limiting the preceding sentence, the members of each Group shall provide
the members of the other Group with such powers of attorney or other authorizing
documentation as is reasonably necessary to empower then to execute and file Tax
Returns they are responsible for hereunder, file claims for refunds and
equivalent claims for Taxes for which they are responsible, and contest, settle
and resolve any Tax Contests that they control under Article VII.
17
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8.06 TIME FOR NOTICE. Notice of any indemnification claim under
this Agreement must be received by the Party against which such claim is made no
later than 30 days from the date on which the Taxes to which such claim relates
have been paid.
8.07 NOTICES. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when delivered personally
to the recipient or when sent to the recipient by telecopy (receipt confirmed),
one business day after the date when sent to the recipient by reputable express
courier service (charges prepaid) or two business days after the date when
mailed to the recipient by certified or registered mail, return receipt
requested and postage prepaid. Such notices, demands and other communications
shall be sent to the Parties at their addresses indicated below:
If to GenCorp: GenCorp Inc.
Highway 50 & Aerojet Road
Rancho Cordova, California 95670
Attention: Yasmin Seyal
If to OMNOVA: OMNOVA Solutions Inc.
175 Ghent Road
Fairlawn, Ohio 44333-3300
Attention: Secretary
or to such other address or to the attention of such other Person as the
recipient has specified by prior written notice to the sending Party.
8.08 REMEDIES. Any Person having any rights under any provision of
this Agreement shall have all rights and remedies set forth in this Agreement
and all rights and remedies which such Person may have been granted at any time
under any other agreement or contract and all of the rights which such Person
may have under any law. Any such Person shall be entitled to enforce such rights
specifically, without posting a bond or other security, to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law.
8.09 SUCCESSORS AND ASSIGNS. No Party hereto may assign or delegate
any of such Party's rights or obligations under or in connection with this
Agreement without the written consent of the other Party. All covenants and
agreements contained in this Agreement by or on behalf of any of the Parties
shall be binding upon and enforceable against the respective successors and
assigns of such Party and shall be enforceable by and shall inure to the benefit
of the respective successors and permitted assigns of such Party.
8.10 SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision
18
<PAGE> 22
shall be ineffective only to the extent of such prohibition or invalidity,
without invalidating the remainder of this Agreement.
8.11 COUNTERPARTS. This Agreement may be executed simultaneously in
three or more counterparts, any one of which need not contain the signatures of
more than one Party, but all such counterparts taken together shall constitute
one and the same Agreement.
8.12 DESCRIPTIVE HEADINGS. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
8.13 NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer
any rights or remedies upon any Person other than the Parties, the members of
their respective Groups and their respective successors and permitted assigns.
8.14 CONSTRUCTION. The language used in this Agreement shall be
deemed to be the language mutually chosen by the Parties to express their mutual
intent and no rule of strict construction shall be applied against any Party
hereto. The use of the word "including" in this Agreement means "including
without limitation" and is intended by the Parties to be by way of example
rather than limitation.
8.15 FORM OF PAYMENTS AND LATE PAYMENTS. Any payments owed by any
member of either Group to any member of the other Group under this Agreement
shall be made in the currency in which the Tax to which such payment relates is
assessed by the Tax Authority, and shall be paid in immediately available funds
and in such other manner as the Person to whom such payment is owed may
reasonably request. Any payments required by this Agreement that are not made
when due shall bear interest at the Prime Rate plus - basic points from the due
date of the payment to the date paid.
8.16 GOVERNING LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION,
VALIDITY AND INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY THE INTERNAL
LAW, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF OHIO.
19
<PAGE> 23
IN WITNESS WHEREOF, the Agreement has been duly executed as of the day
and year first above written.
GENCORP INC.
By________________________
Name: [_________________]
Title: [_________________]
Attest:
_____________________
Secretary
OMNOVA SOLUTIONS INC..
By________________________
Name: [_________________]
Title: [_________________]
Attest:
_____________________
Secretary
20
<PAGE> 1
Exhibit 10.16
ALTERNATIVE DISPUTE RESOLUTION AGREEMENT
----------------------------------------
ALTERNATIVE DISPUTE RESOLUTION AGREEMENT (the "Agreement") dated as of
________________ by and between GENCORP INC., an Ohio corporation ("GenCorp")
and OMNOVA Solutions Inc., an Ohio corporation ("OMNOVA").
This Agreement is made pursuant to the Distribution Agreement dated as
of ______________ between GenCorp and OMNOVA ("Distribution Agreement"). Each
term used herein which is defined in the Distribution Agreement shall have the
same meaning when used herein as it is given in the Distribution Agreement.
WHEREAS, GenCorp and OMNOVA have determined that it is necessary and
desirable to agree on the procedures described in this Agreement as the sole and
exclusive method or remedy for them to resolve every dispute, controversy or
claim (hereinafter "Dispute," whether sounding in contract, tort or otherwise)
which: (i) has arisen prior to the distribution of the shares of OMNOVA to the
shareholders of GenCorp (the "Distribution"); or, (ii) may from time to time
arise under or out of, or is in any way related to, the Transaction Documents
(as herein defined); and,
WHEREAS, this Agreement shall apply whether such Dispute is based on a
breach of one party or its obligations under the Transaction Documents or
disagreement between the parties as to the meaning or application of the
Transaction Documents or in any manner related
<PAGE> 2
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to or arising under or out of the Distribution or the transactions contemplated
by the Transaction Documents (including all actions taken in furtherance of said
Distribution).
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained in this Agreement, the parties hereby agree as follows:
ARTICLE I
As used in this Agreement, the following terms shall have the following
meaning (such meanings to be equally applicable to both the singular and plural
forms of the terms defined):
AMOUNT IN CONTROVERSY: the monetary value of any Dispute plus the
monetary value of any future related Dispute or series of related
Disputes.
CPR: the Center for Public Resources, Inc., New York, NY.
DEMAND: a written demand for arbitration under Article IV of this
Agreement which shall contain a statement setting forth the nature of
the Dispute and the Amount in Controversy.
DISPUTE: is defined in the recitals to this Agreement.
<PAGE> 3
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ESCALATION NOTICE: a written notice demanding a meeting of the
respective Chief Executive Officers of the parties for the purpose of
resolving a Dispute.
REQUEST: a written request for mediation under Article III of this
Agreement which shall set forth the nature of the Dispute and the
Amount in Controversy.
TRANSACTION DOCUMENTS: the Distribution Agreement together with the
Ancillary Agreements and other documents referenced in the Distribution
Agreement.
ARTICLE II
RESOLUTION OF DISPUTES
Section 2.01. INTENT. It is the intent of the parties to use their
respective reasonable efforts to resolve expeditiously and on a mutually
acceptable negotiated basis any Dispute between them that may arise from time to
time.
Section 2.02. WAIVER OF RIGHTS. The procedures in this Agreement shall
be the sole and exclusive remedy in connection with any Dispute. Each party to
this Agreement hereby irrevocably waives any rights it may have to trial by jury
or to commence any action in any court of law or equity or before any other
governmental authority with respect to any Dispute, except as expressly
otherwise provided in Sections 4.05(b) and 4.06 of Article IV of this Agreement.
<PAGE> 4
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Section 2.03. PROCEDURE. All Disputes between the parties should be
resolved promptly through consultation and good faith negotiation at the working
levels of GenCorp and OMNOVA. All Disputes which cannot be resolved by the
parties at the working level shall first be subjected to escalation as provided
in Section 2.04 of this Article. If escalation does not resolve the Dispute, the
Dispute shall next be submitted to mediation pursuant to Article III of this
Agreement. If a Dispute cannot be resolved through mediation, then such Dispute
shall be submitted to binding Arbitration pursuant to Article IV of this
Agreement.
Section 2.04. ESCALATION. If the parties are unable to resolve a
Dispute at working levels within GenCorp and OMNOVA, either party may deliver an
Escalation Notice to the other party demanding an in-person meeting for the
purpose of resolving the Dispute between the CEO's of both parties in Denver,
Colorado, within thirty days of receipt of the Escalation Notice. The Escalation
Notice shall be delivered in accordance with Section 5.04 of Article V of this
Agreement. The CEO's of the parties shall have fifteen days following their
meeting to resolve the Dispute. If the Dispute is not resolved within the
foregoing period, and in any event after forty-five days following receipt of an
Escalation Notice, either party may initiate mediation of the Dispute in
accordance with Article III of this Agreement.
ARTICLE III
MEDIATION
Section 3.01. REQUEST FOR MEDIATION. Following completion of the
escalation procedure described in Section 2.04 of Article II of this Agreement,
either party may initiate mediation by
<PAGE> 5
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delivering a Request to the other party in accordance with Section 5.04 of
Article V of this Agreement.
Section 3.02. APPOINTMENT OF MEDIATOR. Unless the parties otherwise
agree in writing, a single mediator will be appointed by the two parties from
among the former directors of GenCorp who left the GenCorp Board of Directors
prior to the Distribution. In the event the parties are unable to agree upon a
mediator, the parties shall apply to CPR to appoint a single mediator from the
CPR Panel of Neutrals, which appointment shall be made by CPR within 15 days
after such application.
Section 3.03. DATE, TIME AND PLACE. Unless the parties otherwise agree
in writing, all mediation proceedings shall take place in Denver, Colorado. The
date, time and place of each mediation session shall be determined by agreement
of the parties or, if the parties cannot agree within a reasonable period of
time, by the mediator; provided that the first mediation session shall be held
within fifteen (15) days of the date on which the mediator is appointed.
Section 3.04. ROLE OF THE MEDIATOR. The mediator shall aid the parties
in their discussions and negotiations by informally advising the parties. Any
opinion expressed by the mediator shall be strictly advisory and shall not be
binding on the parties; provided, however, any opinion expressed by the mediator
shall be admissible in any arbitration proceedings.
Section 3.05. COSTS OF MEDIATION. Costs of the mediation shall be borne
equally by the parties, except that each party shall be responsible for its own
expenses.
<PAGE> 6
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Section 3.06. TERMINATION. The mediation proceedings shall be
terminated upon the happening of any of the following: (i) execution of a
settlement agreement by the parties; (ii) receipt of a written declaration of
the mediator that further efforts at mediation are no longer worthwhile; or,
(iii) receipt of a written declaration of one or both parties that the mediation
proceedings are terminated, which is delivered (in accordance with Section 5.04
of Article V of this Agreement) not earlier than completion of the first
mediation session.
ARTICLE IV
ARBITRATION
Section 4.01. DEMAND FOR ARBITRATION. (a) At any time after the
termination of mediation as described in Section 3.06 of Article III of this
Agreement, any party may, unless the Applicable Deadline has occurred, make a
Demand that the Dispute be resolved by binding arbitration, which Demand shall
be delivered in the manner set forth in Section 5.04 of Article V of this
Agreement. In the event that any party shall deliver a Demand, the other party
may itself deliver a Demand to such first party with respect to any related
Dispute (with respect to which the Applicable Deadline has not passed) without
the requirement of delivering an Escalation Notice or a Request. In the event
that any party delivers a Demand with respect to any Dispute that is the subject
of any then pending arbitration proceeding or of a previously delivered Demand,
all such Disputes shall be resolved in the arbitration proceeding for which a
Demand was first delivered unless the arbitrator in his or her sole discretion
determines that it is impracticable or otherwise inadvisable to do so.
<PAGE> 7
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(b) Except as may be expressly provided in any Transaction
Document, any Demand must be given prior to one year and 45 days after the later
of the occurrence of the act or event giving rise to the underlying claim or the
date on which such act or event was, or should have been, in the exercise of
reasonable due diligence, discovered by the party asserting the claim
(hereinafter, the "Applicable Deadline"). The parties may specifically agree in
writing to extend or waive the Applicable Deadline with respect to any Dispute;
however, no discussions, negotiations or mediations between the parties pursuant
to this Agreement, or otherwise, will toll the Applicable Deadline unless
expressly agreed in writing by the parties. Each of the parties agrees that if a
Demand is not given prior to the expiration of the Applicable Deadline, as
between or among the parties, such Dispute will be barred. Subject to Sections
4.05(c) and 4.06 of Article IV of this Agreement, upon delivery of Demand prior
to the Applicable Deadline, the Dispute shall be decided by a sole arbitrator in
accordance with the rules set forth in this Article IV.
Section 4.02. ARBITRATORS. (a) Within 15 days after a valid Demand is
received, the parties shall attempt to select a sole arbitrator satisfactory to
both parties.
(b) In the event that the parties are not able jointly to
select a sole arbitrator within such 15-day period, the parties shall each
appoint an arbitrator (who need not be disinterested as to the parties or the
matter) within 30 days after delivery of the Demand. If one party appoints an
arbitrator within such time period and the other party fails to appoint an
<PAGE> 8
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arbitrator within such time period, the arbitrator appointed by the one party
shall be the sole arbitrator of the matter.
(c) In the event that a sole arbitrator is not selected
pursuant to paragraph (a) or (b) above and, instead, two arbitrators are
selected pursuant to paragraph (b) above, the two arbitrators will, within 30
days after the appointment of the later of them to be appointed, select an
additional arbitrator who shall act as the sole arbitrator of the dispute. After
selection of such sole arbitrator, the initial arbitrators shall have no further
role with respect to the dispute. In the event that the arbitrators so appointed
do not, within 30 days after the appointment of the later of them to be
appointed, agree on the selection of the sole arbitrator, any party involved in
such dispute may apply to CPR to select the sole arbitrator, which selection
shall be made by CPR within 30 days after such application. Any arbitrator
selected pursuant to this paragraph (c) shall be disinterested with respect to
any of the parties and the matter and shall be reasonably competent in the
applicable subject matter of the Dispute.
(d) The sole arbitrator selected pursuant to paragraph (a),
(b) or (c) above will set a time for the hearing of the matter which will
commence no later than 90 days after the date of appointment of the sole
arbitrator pursuant to paragraph (a), (b) or (c) above and which hearing will be
no longer than 30 days (unless in the judgment of the arbitrator the matter is
unusually complex and sophisticated and thereby requires a longer time, in which
event such hearing shall be no longer than 90 days). The final decision of such
arbitrator will be rendered in writing to the parties not later than 60 days
after the last hearing date, unless otherwise agreed by the parties in writing.
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(e) The place of any arbitration hereunder will be Denver,
Colorado, unless otherwise agreed by the parties.
Section 4.03. HEARINGS. Within the time period specified in Section
4.02(d) of Article IV of this Agreement, the matter shall be presented to the
arbitrator at a hearing by means of written submissions of memoranda and
verified witness statements, filed simultaneously, and responses, if necessary
in the judgment of the arbitrator or both parties. If the arbitrator deems it to
be essential to a fair resolution of the dispute, live cross-examination or
direct examination may be permitted, but is not generally contemplated to be
necessary. The arbitrator shall actively manage the arbitration with a view to
achieving a just, speedy and cost-effective resolution of the Dispute. The
arbitrator may, in his or her discretion, set time and other limits on the
presentation of each party's case, its memoranda or other submissions, and
refuse to receive any proffered evidence, which the arbitrator, in his or her
discretion, finds to be cumulative, unnecessary, irrelevant or of low probative
nature. Except as otherwise set forth herein, any arbitration hereunder will be
conducted in accordance with the CPR Rules for Non-Administered Arbitration of
Business Disputes then prevailing (except that the fee schedule of CPR will not
apply). Except as expressly set forth in Section 4.06 of Article IV of this
Agreement, the decision of the arbitrator will be final and binding on the
parties, and judgment thereon may be had and will be enforceable in any court
having jurisdiction over the parties. Arbitration awards will bear interest at
an annual rate of the Prime Rate plus 2% per annum. To the extent that the
provisions of this Agreement and the prevailing rules of the CPR conflict, the
provisions of this Agreement shall govern.
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Section 4.04. DISCOVERY AND CERTAIN OTHER MATTERS. (a) Any party may
request limited document production from the other party of specific and
expressly relevant documents, with the reasonable expenses of the producing
party incurred in such production paid by the requesting party. Any such
discovery (under which rights to documents shall be substantially less than
document discovery rights prevailing under the Federal Rules of Civil Procedure)
shall be conducted expeditiously and shall not cause the hearing provided for in
Section 4.03 of Article IV of this Agreement to be adjourned except upon consent
of both parties or upon an extraordinary showing of cause demonstrating that
such adjournment is necessary to permit discovery essential to a party to the
proceeding. Depositions, interrogatories or other forms of discovery (other than
the document production set forth above) shall only be permitted upon an
extraordinary showing that such discovery is essential to a party to the
proceeding or upon consent of the parties involved in the applicable Dispute.
Disputes concerning the scope of discovery (including document production and
enforcement of the document production requests) will be determined by written
agreement of the parties or, failing such agreement, will be referred to the
arbitrator for resolution. All discovery requests will be subject to the
parties' rights to claim any applicable privilege. The arbitrator will adopt
procedures to protect the proprietary rights of the parties and to maintain the
confidential treatment of the arbitration proceedings (except as may be required
by law). Subject to the foregoing, the arbitrator shall have the power to issue
subpoenas to compel discovery.
(b) The arbitrator shall have full power and authority to
determine issues of arbitrability but shall otherwise be limited to interpreting
or construing the applicable provisions
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of the Transaction Documents, including this Agreement, and will have no
authority or power to limit, expand, alter, amend, modify, revoke or suspend any
condition or provision of any of the Transaction Documents, including this
Agreement; it being understood, however, that the arbitrator will have full
authority to implement the provisions of, and to fashion appropriate remedies
for breaches of, the Transaction Documents including this Agreement (including
interim or permanent injunctive relief); provided that the arbitrator shall not
have: (i) any authority in excess of the authority a court having jurisdiction
over the parties and the Dispute would have absent these arbitration provisions;
or, (ii) any right or power to award punitive, treble or consequential damages.
It is the intention of the parties that in rendering a decision the arbitrator
give effect to the applicable provisions of the Transaction Documents including
this Agreement, and the laws of the State of Ohio without regard to the
principles of conflicts of law thereof (it being understood and agreed that this
sentence shall not give rise to a right of judicial review of the arbitrator's
award).
(c) If a party fails or refuses to appear at and participate
in an arbitration hearing after due notice, the arbitrator may hear and
determine the controversy upon evidence produced by the appearing party.
(d) Arbitration costs will be borne equally by each party,
except that each party will be responsible for its own attorney's fees and its
other costs and expenses, including the costs of witnesses selected by such
party and all internal costs.
<PAGE> 12
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Section 4.05. CERTAIN ADDITIONAL MATTERS. (a) Any arbitration award
shall be a bare award limited to a holding for or against a party and shall be
without findings as to facts, issues or conclusions of law (including awards
with respect to any matters relating to the validity or infringement of patents
or patent applications) and shall be without a statement of the reasoning on
which the award rests, but must be in adequate form so that a judgment of a
court may be entered thereupon. Judgment upon any arbitration award hereunder
may be entered in any court having jurisdiction thereof.
(b) Prior to the time at which an arbitrator is appointed
pursuant to Section 4.02 of Section IV of this Agreement, any party may seek one
or more temporary restraining orders in a court of competent jurisdiction if
necessary in order to preserve and protect the status quo. Neither the request
for, or grant or denial of, any such temporary restraining order shall be deemed
a waiver of the obligation to arbitrate as set forth herein and the arbitrator
may dissolve, continue or modify any such order. Any such temporary restraining
order shall remain in effect until the first to occur of the expiration of the
order in accordance with its terms or the dissolution thereof by the arbitrator.
(c) In the event that at any time the sole arbitrator shall
fail to serve as an arbitrator for any reason, the parties shall select a new
arbitrator who shall be disinterested as to the parties and the matter in
accordance with the procedures set forth herein for the selection of the initial
arbitrator. The extent, if any, to which testimony previously given shall be
repeated or as to which the replacement arbitrator elects to rely on the
stenographic record (if there is one) of such testimony shall be determined by
the replacement arbitrator.
<PAGE> 13
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Section 4.06. LIMITED COURT ACTIONS. (a) Notwithstanding anything
herein to the contrary, in the event that any party reasonably determines the
amount in controversy in any Dispute (or series of related Disputes) is, or is
reasonably likely to be, in excess of $100 million and if such party desires to
commence a lawsuit in lieu of complying with the arbitration provisions of this
Article IV, such party shall so state in its Demand or by notice given to the
other parties within 20 days after receipt of a Demand with respect thereto. If
the other party to the arbitration does not agree that the amount in controversy
in such Dispute (or series of related Disputes) is, or is reasonably likely to
be, in excess of $100 million, the arbitrator selected pursuant to Section 4.02
hereof shall decide whether the amount in controversy in such Dispute (or series
of related Disputes) is, or is reasonably likely to be, in excess of $100
million. The arbitrator shall set a date that is no later than ten days after
the date of his or her appointment for submissions by the parties with respect
to such issue. There shall not be any discovery in connection with such issue.
The arbitrator shall render his or her decision on such issue within five days
of such date so set to the arbitrator. In the event that the arbitrator
determines that the amount in controversy in such Dispute (or such series of
related Disputes) is, or is reasonably likely to be, in excess of $100 million,
the provisions of Sections 4.01, 4.02, 4.03, 4.04, and 4.05 of Article IV of
this Agreement shall not apply, and on or before (but, except as expressly set
forth in Section 4.06(b), not after) the tenth business day after the date of
such decision, either party to the arbitration may elect, in lieu of
arbitration, to commence a lawsuit with respect to such Dispute in any court of
competent jurisdiction. If the arbitrator does not so determine, the provisions
of this Article IV (including with respect to time periods) shall apply as if no
determinations were sought or made pursuant to this Section 4.06(a).
<PAGE> 14
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(b) In the event that an arbitration award in excess of $100
million is issued in any arbitration proceeding commenced hereunder, any party
may, within 60 days after the date of such award, submit the Dispute giving rise
thereto to a court of competent jurisdiction, regardless of whether such party
or any other party sought to commence lawsuit in lieu of proceeding with
arbitration in accordance with Section 4.06(a) of Article IV of this Agreement.
In such event, the applicable court may elect to rely on the record developed in
the arbitration or, if it determines that it would be advisable in connection
with the matter, allow the parties to seek additional discovery or to present
additional evidence. Each party shall be entitled to present arguments to the
court with respect to whether any such additional discovery or evidence shall be
permitted and with respect to all other matters relating to the Dispute.
(c) No party shall raise as a defense the statute of
limitations if the applicable Demand was delivered on or prior to the Applicable
Deadline and, if applicable, if the matter is submitted to a court of competent
jurisdiction within the 60-day period specified in Section 4.06(b) of Article IV
of this Agreement.
Section 4.07. CONTINUITY OF SERVICE AND PERFORMANCE. Unless otherwise
agreed in writing, the parties will continue to provide service and honor all
other commitments under the Transaction Documents during the course of
arbitration pursuant to the provisions of this Article IV with respect to all
matters not subject to such Dispute.
ARTICLE V
<PAGE> 15
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MISCELLANEOUS
Section 5.01. COMPLETE AGREEMENT; CONSTRUCTION. This Agreement and the
Transaction Documents and other agreements and documents referred to therein,
shall constitute the entire agreement between the parties with respect to the
subject matter hereof and shall supersede all previous negotiations, commitments
and writings with respect to such subject matter.
Section 5.02. SURVIVAL OF AGREEMENTS. All covenants and agreements of
the parties contained in this Agreement shall survive the Distribution Date.
Section 5.03. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Ohio without regard to the
principles of conflicts of law thereof.
Section 5.04. NOTICE. All notices and other communications required or
permitted to be given or made under this Agreement shall, unless otherwise
provided herein, be in writing and shall be deemed to have been given: (i) on
the date of personal delivery; or, (ii) provided such notice or communication is
actually received by the party to which it is addressed in the ordinary course
of delivery, on the date of (A) deposit in the United States mail, postage
prepaid, by registered or certified mail, return receipt requested, (B)
transmission by telegram, cable, telex or facsimile transmission, or (C)
delivery to a nationally-recognized overnight courier service, in each case
addressed as set forth below, or to such other person, entity or address as
either party shall designate by notice to the other in accordance herewith:
<PAGE> 16
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To GenCorp: ____________________________
____________________________
____________________________
Attention: General Counsel
To OMNOVA: ____________________________
____________________________
____________________________
Attention: General Counsel
Section 5.05. WAIVER. No waiver by any party of any of the provisions
of this Agreement will be deemed, or will constitute, a waiver of any other
provision, whether similar, not will any waiver constitute a continuing waiver.
No waiver will be binding unless executed in writing by the party making the
waiver.
Section 5.06. ASSIGNMENT. Neither party may assign, by operation of
law, merger or otherwise, license, sublicense or otherwise transfer any or all
of its rights or obligations under this Agreement to any other person or entity
without obtaining the prior written consent of the other party.
Section 5.07. AMENDMENTS. This Agreement may not be modified or amended
except by an agreement in writing signed by the parties.
<PAGE> 17
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Section 5.08. SUCCESSORS AND ASSIGNS. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
and their respective successors and permitted assigns.
Section 5.09. SUBSIDIARIES. Each of the parties hereto shall cause to
be performed, and hereby guarantees the performance of, all actions, agreements,
and obligations set forth herein or arising hereunder to be performed by any
Subsidiary of such party on and after the Distribution Date.
Section 5.10. NO THIRD PARTY BENEFICIARIES. This Agreement is solely
for the benefit of the parties hereto and their respective Group members and
shall not be deemed to confer upon third parties any remedy, claim, right or
reimbursement or other right.
Section 5.11. TITLES AND HEADINGS. Titles and headings to articles and
sections herein are inserted for the convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation of this
Agreement.
Section 5.12. CONFIDENTIALITY. Except as required by law, the parties
shall hold, and shall cause their respective officers, directors, employees,
agents and other representatives to hold, the existence, content and result of
any escalation, mediation or arbitration in confidence in accordance with the
requirements of the Transaction Documents, except as may be required in
<PAGE> 18
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order to enforce any award. Each of the parties shall request that any mediator
or arbitrator comply with such confidentiality requirement.
Section 5.13. SEVERABILITY. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. Without prejudice to any
rights or remedies otherwise available to any party hereto, each party
acknowledges that damages would be an inadequate remedy for any breach of the
provisions of this Agreement and agrees that the obligations of the parties
hereunder shall be specifically enforceable.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
GENCORP INC.
By: ____________________________
Title:
OMNOVA SOLUTIONS INC.
By: ____________________________
Title
<PAGE> 1
Exhibit 10.17
AGREEMENT ON EMPLOYEE MATTERS
This Agreement on Employee Matters ("Agreement") dated as of ____ __,
1999, is made and entered into by and between GENCORP INC., an Ohio corporation
("GenCorp"), and OMNOVA SOLUTIONS INC., an Ohio corporation ("Omnova") which, as
of the date hereof, is a wholly owned subsidiary of GenCorp.
WITNESSETH:
WHEREAS, the Board of Directors of GenCorp has determined that it is
advisable to distribute substantially all of the stock of Omnova to its
shareholders in a transaction intended to qualify under Section 355 of the
Internal Revenue Code (variously, the "Distribution" or the "Spin-Off");
WHEREAS, GenCorp and Omnova are entering into a Distribution Agreement
which, among other things, together with the Schedules thereto, sets forth the
principal corporate transactions required to effect the Distribution and sets
forth other agreements that will govern certain other matters following the
Distribution; and
WHEREAS, in connection with the distribution, GenCorp and Omnova desire
to provide for the allocation of certain assets and liabilities and for certain
other matters all relating to employment, employee benefit plans and
compensation arrangements.
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the parties hereto hereby agree as follows:
<PAGE> 2
ARTICLE I
DEFINITIONS
1.1 Terms used but not defined herein shall have the meanings set forth
in the Distribution Agreement. As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
(a) DISTRIBUTION DATE. The date on which the shares of Omnova are
distributed to the shareholders of GenCorp.
(b) ERISA. The Employee Retirement Income Security Act of 1974, as
amended.
(c) GENCORP CONTROLLED GROUP. Collectively, GenCorp and any GenCorp
Group member whose employees are required by Section 414 of the Code to be
treated as if they were employed by a single employer.
(d) GENCORP MEDICAL PLAN. The GenCorp Medical and Dental and Plans.
(e) GENCORP HOURLY PENSION PLAN. The Non-Contributory Pension Plan
of GenCorp Inc., as in effect on the day before the Distribution Date.
(f) GENCORP PENSION PLAN TRUSTEE. The trustee or trustees appointed
pursuant to the GenCorp Salaried Pension Plan.
(g) GENCORP SALARIED PENSION PLAN. The Pension Plan for Salaried
Employees of GenCorp Inc., as in effect on the day before the Distribution Date.
(h) GENCORP STOCK FUND. The GenCorp Stock Fund under the Joint
Savings Plan.
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(i) JOINT SAVINGS PLAN. The GenCorp Retirement Savings Plan and the
GenCorp Profit Sharing Retirement and Savings Plan, as amended to be a
multiple-employer plan or plans jointly sponsored by GenCorp and Omnova.
(j) OMNOVA CONTROLLED GROUP. Collectively, Omnova and any Omnova
Group member whose employees are required by Section 414 of the Code to be
treated as if they were employed by a single employer.
(k) OMNOVA EMPLOYEES. Any person who at the Closing Time is
employed primarily in the Omnova Business, including any such employee on an
approved leave of absence (including disability) as of the Closing Time. Omnova
Employees shall include Omnova Salaried Employees and Omnova Hourly Employees.
(l) OMNOVA HOURLY EMPLOYEES. Omnova Employees other than Omnova
Salaried Employees.
(m) OMNOVA HOURLY PENSION PLAN. The Non-Contributory Pension Plan
of Omnova Solutions Inc.
(n) OMNOVA MEDICAL PLAN. The medical and dental benefit plans
adopted by Omnova for the benefit of its employees after the Distribution Date
and the separate medical and dental benefit programs maintained by Omnova
pursuant to collective bargaining agreements.
(o) OMNOVA PENSION PLAN TRUSTEE. The trustee or trustees appointed
pursuant to the trust agreement under the Omnova Pension Plan.
(p) OMNOVA SALARIED EMPLOYEES. Omnova Employees who are compensated
on a salaried basis.
(q) OMNOVA SALARIED PENSION PLAN. The Pension Plan for Salaried
Employees of Omnova Solutions Inc.
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(r) OMNOVA STOCK FUND. The Omnova Stock Fund under the Joint
Savings Plan.
(s) UNFUNDED DEFERRED COMPENSATION. Unfunded obligations of GenCorp
as of the Distribution Date to pay deferred compensation and retirement income
under its Benefits Restoration Plan, Deferred Bonus Plan, Non-Employee Directors
Retirement and Deferred Compensation Plans, 1996 Supplemental Retirement Plan
for Management Employees, individual employment agreements, and other
miscellaneous plans related to discontinued operations, including such
additional amounts as may be attributable to earnings growth after the
Distribution Date in accordance with the terms of the specific plan or
agreement.
(t) UNION EMPLOYEES. Any Omnova Employee who is included in a
collective bargaining unit.
ARTICLE II
EMPLOYMENT AND BENEFIT PLANS
2.1 EMPLOYMENT OF OMNOVA EMPLOYEES AND UNION EMPLOYEES.
(a) Omnova shall employ or continue to employ, effective as of
the Distribution Date, all Omnova employees. Subject to the terms and conditions
of, and except as otherwise provided in, this Agreement, effective as of the
Distribution Date, Omnova shall provide the Omnova employees with terms and
conditions of employment, including, without limitation, employee benefits and
other perquisites, that are substantially similar to those provided to the
Omnova Employees immediately prior to the Distribution Date. However, nothing
contained in this Agreement shall impair Omnova's ability to make such changes
in such terms and conditions of employment following the Distribution as Omnova
may deem to be necessary or appropriate for the operation of Omnova.
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(b) Subject to entering into mutually acceptable novation
agreements with the applicable Unions, Omnova shall assume all collective
bargaining agreements in place at locations which it owns or operates which are
in effect as of the Distribution Date, and following the Distribution it will
continue to employ all Union Employees pursuant to the terms and conditions of
such collective bargaining agreements.
2.2 JOINT SAVINGS PLAN. (a) Effective on or prior to the Distribution
Date, the GenCorp Retirement Savings Plan and the GenCorp Profit Sharing
Retirement and Savings Plan will become a multiple employer plan or plans
("Joint Savings Plan") in which both GenCorp and Omnova will be unrelated
participating employers. The Joint Savings Plan will be administered pursuant to
the separate Services and Support Agreement between GenCorp and Omnova.
(b) On and after the Distribution Date, employer matching
contributions on behalf of GenCorp employees will be made solely by GenCorp and
solely to the GenCorp Stock Fund and employer matching contributions on behalf
of Omnova Employees will be made solely by Omnova and solely to the Omnova Stock
Fund. Not later than the later of October 31, 2001 or two years after the
Distribution Date, the accounts of Omnova Employees and former Omnova Employees
will be transferred to a new separate savings plan to be established by Omnova.
Thereafter, neither Omnova nor its employees will participate in the GenCorp
Retirement Savings Plan.
(c) Following the Distribution, Omnova common stock held in the
accounts of GenCorp employees that is attributable to contributions made before
the Distribution may be retained in the Omnova Stock Fund, transferred to the
GenCorp Stock Fund or transferred to any other investment funds in the Joint
Savings Plan at the participant's election in accordance with the terms of the
Joint Savings Plan. Except as provided in the preceding sentence, contributions
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made to or held under the Joint Savings Plan on behalf of GenCorp employees may
not be invested in the Omnova Stock Fund. Omnova common stock held in the
accounts of GenCorp Employees that is attributable to employer matching
contributions that have been in the plan for at least two full plan years may be
withdrawn, in cash or in kind. Any dividends on Omnova common stock in accounts
of GenCorp employees will be reinvested in the Omnova Stock Fund.
(d) Following the Distribution, GenCorp common stock held in the
accounts of Omnova employees that is attributable to contributions made before
the Distribution may be retained in the GenCorp Stock Fund, transferred to the
Omnova Stock Fund or transferred to any other investment fund in the Joint
Savings Plan at the Participant's election in accordance with the terms of the
Joint Savings Plan. Except as provided in the preceding sentence, contributions
made to or held under the Joint Savings Plan on behalf of Omnova employees may
not be invested in the GenCorp Stock Fund. GenCorp common stock held in the
accounts of Omnova Employees that is attributable to employer matching
contributions that have been in the plan at least two full plan years may be
withdrawn, in cash or in kind. Any dividends after the Distribution Date on
GenCorp common stock in accounts of Omnova employees will be reinvested in the
GenCorp Stock Fund.
2.3 OMNOVA SALARIED PENSION PLAN. (a) Omnova shall implement, as of the
Closing Time, the Omnova Salaried Pension Plan, a qualified defined benefit plan
substantially similar to the GenCorp Salaried Pension Plan for the benefit of
Omnova Salaried Employees. Omnova Salaried Employees who participate in the
GenCorp Salaried Pension Plan immediately before the Closing Time shall be
eligible for immediate participation in the Omnova Salaried Pension Plan as of
the Closing Time. Omnova Salaried Employees shall be credited under the Omnova
Salaried Pension Plan, for eligibility and vesting purposes, with the service
credited to them
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under the GenCorp Salaried Pension Plan. An Omnova Salaried Employee shall be
credited under the Omnova Salaried Pension Plan, for benefit accrual purposes,
with the service credited to him or her under the GenCorp Salaried Pension Plan
only if a transfer described in subsection (b) of this Section is made with
respect to such Omnova Salaried Employee. On and after the Distribution Date,
the GenCorp Salaried Pension Plan shall retain all liabilities and obligations
for benefits attributable to employees of Omnova who terminated employment with
Omnova prior to the Distribution Date.
(b) As soon as practicable after the Distribution Date, GenCorp
shall cause the GenCorp Pension Plan Trustee to segregate within the GenCorp
Pension Plan Trust the Segregated Salaried Pension Assets (as defined in the
following sentence) determined to be allocable with respect to accrued benefits
of Omnova Salaried Employees as of the Closing Time. For purposes of the
preceding sentence, the Segregated Salaried Pension Assets allocable as of the
Closing Time with respect to accrued benefits of Omnova Salaried Employees shall
mean assets with a value equal to the present value as of the Closing Time of
the benefits of the Omnova Salaried Employees under the GenCorp Salaried Pension
Plan, determined by the plan's actuary using interest assumptions prescribed by
the PBGC for valuing annuities in plan termination situations, and allocated in
proportion to the allocation of liabilities in accordance with ERISA section
4044.
(c) As soon as practicable after the Distribution Date, GenCorp and
Omnova shall make or cause to be made all required filings and submissions to
appropriate governmental and regulatory authorities and all necessary or
appropriate amendments to the GenCorp Salaried Pension Plan and the Omnova
Salaried Pension Plan, and shall take all other steps necessary and appropriate,
to permit the transfer of the Segregated Salaried Pension Assets from the
GenCorp
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Pension Plan Trustee to the Omnova Pension Plan Trustee. As soon as practicable
after the filings, submissions, amendments and other steps described in this
subsection are completed, and after the expiration of any waiting periods
imposed under applicable law, GenCorp shall direct the GenCorp Pension Plan
Trustee to transfer to the Omnova Pension Plan Trustee, and Omnova shall direct
the Omnova Pension Plan Trustee to accept assets of the GenCorp Salaried Pension
Plan equal to the Segregated Salaried Pension Assets, as adjusted for
contributions, benefit payments, expenses and investment experience through the
date of such transfer. Such transfer shall be in cash, securities or other
property or a combination thereof, as mutually determined by GenCorp and Omnova
and acceptable to both the GenCorp Pension Plan Trustee and the Omnova Pension
Plan Trustee. After such transfer, each Omnova Salaried Employee for whom such
transfer was made shall be credited with benefits under the Omnova Salaried
Pension Plan attributable to service prior to the Closing Time at least equal to
his or her accrued benefit under the GenCorp Salaried Pension Plan, and the
GenCorp Salaried Pension Plan shall have no further obligations with respect to
such accrued benefit. GenCorp and Omnova shall prepare a list, certified by a
duly authorized officer of each, of all Omnova Salaried Employees with respect
to which a transfer pursuant to this subsection has been made.
(d) GenCorp shall have no obligation to direct the transfer
described in subsection (c) of this Section unless and until GenCorp receives
either a favorable determination letter issued by the IRS as to the qualified
status of the Omnova Salaried Pension Plan under Section 401(a) of the code or
an opinion of counsel to Omnova that the Omnova Salaried Pension Plan meets the
requirements of Section 401(a) of the Code as to form. The Omnova Pension Plan
Trustee shall have no obligation to accept any transfer from the GenCorp
Salaried Pension Plan unless and until Omnova and the Omnova Pension Plan
Trustee receives either a
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favorable determination letter issued by the IRS as to the qualified status of
the GenCorp Salaried Pension Plan under Section 401(a) of the Code or an opinion
of counsel to GenCorp that the GenCorp Salaried Pension Plan meets the
requirements of Section 401(a) of the Code as to form. GenCorp and Omnova will
cooperate as necessary to facilitate obtaining such favorable determination
letters.
(e) The Omnova Salaried Pension Plan shall be a continuation of the
GenCorp Salaried Pension Plan as to the Omnova Employees for whom the transfer
described in subsection (c) of this Section was made and the transfer of assets
and liabilities from the GenCorp Salaried Pension Plan to the Omnova Pension
Plan Trustee pursuant to this Agreement shall not be deemed a termination or
partial termination of the GenCorp Salaried Pension Plan.
(f) In the event a former employee of GenCorp who participated in
the GenCorp Salaried Pension Plan prior to the Distribution Date becomes an
Omnova Employee eligible to participate in the Omnova Salaried Pension Plan
after the Distribution Date, GenCorp and Omnova may agree that the liabilities
of such individual and the assets attributable to such liabilities, in an amount
which (based on the certification of the actuary for the Plans) meets the
requirements of Section 414(1) of the Code and the regulations thereunder, will
be transferred by the GenCorp Pension Plan Trustee from the GenCorp Salaried
Pension Plan to the Omnova Salaried Pension Plan and the Omnova Pension Plan
Trustee in the manner described in, and in compliance with, Section 414(1) of
the Code and the regulations thereunder.
(g) The GenCorp Salaried Pension Plan shall provide that an
individual who is an employee of Omnova on the Distribution Date shall not be
eligible to commence receiving benefits from the GenCorp Salaried Pension Plan
until he terminates employment with Omnova after the Distribution Date. Until
the completion of the transfer of assets and liabilities from the
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GenCorp Salaried Pension Plan to the Omnova Salaried Pension Plan and the Omnova
Pension Plan Trustee described in subsection (c) of this Section, benefits under
the Omnova Salaried Pension Plan payable to a Omnova Salaried Employee
thereunder shall be computed on the basis of his or her total service with
GenCorp and Omnova, but shall be reduced by any benefits accrued by such Omnova
Salaried Employee under the GenCorp Salaried Pension Plan.
2.4 OMNOVA HOURLY PENSION PLAN. (a) Omnova shall implement, as of the
Closing Time, the Omnova Hourly Pension Plan, a qualified defined benefit plan
substantially similar to the GenCorp Hourly Pension Plan for the benefit of
Omnova Hourly Employees. Omnova Hourly Employees who participate in the GenCorp
Hourly Pension Plan immediately before the Closing Time shall be eligible for
immediate participation in the Omnova Hourly Pension Plan as of the Closing
Time. Omnova Hourly Employees shall be credited under the Omnova Hourly Pension
Plan, for eligibility and vesting purposes, with the service credited to them
under the GenCorp Hourly Pension Plan. An Omnova Hourly Employee shall be
credited under the Omnova Hourly Pension Plan, for benefit accrual purposes,
with the service credited to him or her under the GenCorp Hourly Pension Plan
only if a transfer described in subsection (b) of this Section is made with
respect to such Omnova Hourly Employee. On and after the Distribution Date, the
GenCorp Hourly Pension Plan shall retain all liabilities and obligations for
benefits attributable to employees of Omnova who terminated employment with
Omnova prior to the Distribution Date.
(b) As soon as practicable after the Distribution Date, GenCorp
shall cause the GenCorp Pension Plan Trustee to segregate within the GenCorp
Pension Plan Trust the Segregated Hourly Pension Assets (as defined in the
following sentence) determined to be allocable with respect to accrued benefits
of Omnova Hourly Employees as of the Closing Time.
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For purposes of the preceding sentence, the Segregated Hourly Pension Assets
allocable as of the Closing Time with respect to accrued benefits of Omnova
Hourly Employees shall mean assets with a value equal to the present value as of
the Closing Time of the benefits of the Omnova Hourly Employees under the
GenCorp Hourly Pension Plan, determined by the plan's actuary using interest
assumptions prescribed by the PBGC for valuing annuities in plan termination
situations, and allocated in proportion to the allocation of liabilities in
accordance with ERISA section 4044.
(c) As soon as practicable after the Distribution Date, GenCorp and
Omnova shall make or cause to be made all required filings and submissions to
appropriate governmental and regulatory authorities and all necessary or
appropriate amendments to the GenCorp Hourly Pension Plan and the Omnova Hourly
Pension Plan, and shall take all other steps necessary and appropriate, to
permit the transfer of the Segregated Hourly Pension Assets from the GenCorp
Pension Plan Trustee to the Omnova Pension Plan Trustee. As soon as practicable
after the filings, submissions, amendments and other steps described in this
subsection are completed, and after the expiration of any waiting periods
imposed under applicable law, GenCorp shall direct the GenCorp Pension Plan
Trustee to transfer to the Omnova Pension Plan Trustee, and Omnova shall direct
the Omnova Pension Plan Trustee to accept assets of the GenCorp Hourly Pension
Plan equal to the Segregated Hourly Pension Assets, as adjusted for
contributions, benefit payments, expenses and investment experience through the
date of such transfer. Such transfer shall be in cash, securities or other
property or a combination thereof, as mutually determined by GenCorp and Omnova
and acceptable to both the GenCorp Pension Plan Trustee and the Omnova Pension
Plan Trustee. After such transfer, each Omnova Hourly Employee for whom such
transfer was made shall be credited with benefits under the Omnova Hourly
Pension Plan
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attributable to service prior to the Closing Time at least equal to his or her
accrued benefit under the GenCorp Hourly Pension Plan, and the GenCorp Hourly
Pension Plan shall have no further obligations with respect to such accrued
benefit. GenCorp and Omnova shall prepare a list, certified by a duly authorized
officer of each, of all Omnova Hourly Employees with respect to which a transfer
pursuant to this Subsection has been made.
(d) GenCorp shall have no obligation to direct the transfer
described in subsection (c) of this Section unless and until GenCorp receives
either a favorable determination letter issued by the IRS as to the qualified
status of the Omnova Hourly Pension Plan under Section 401 (a) of the code or an
opinion of counsel to Omnova that the Omnova Hourly Pension Plan meets the
requirements of Section 401(a) of the Code as to form. The Omnova Pension Plan
Trustee shall have no obligation to accept any transfer from the GenCorp Hourly
Pension Plan unless and until Omnova and the Omnova Pension Plan Trustee
receives either a favorable determination letter issued by the IRS as to the
qualified status of the GenCorp Hourly Pension Plan under Section 401(a) of the
Code or an opinion of counsel to GenCorp that the GenCorp Hourly Pension Plan
meets the requirements of Section 401(a) of the Code as to form. GenCorp and
Omnova will cooperate as necessary to facilitate obtaining such favorable
determination letters.
(e) The Omnova Hourly Pension Plan shall be a continuation of the
GenCorp Hourly Pension Plan as to the Omnova Employees for whom the transfer
described in subsection (c) of this Section was made and the transfer of assets
and liabilities from the GenCorp Hourly Pension Plan to the Omnova Pension Plan
Trustee pursuant to this Agreement shall not be deemed a termination or partial
termination of the GenCorp Hourly Pension Plan.
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(f) The GenCorp Hourly Pension Plan shall provide that an
individual who is an employee of Omnova on the Distribution Date shall not be
eligible to commence receiving benefits from the GenCorp Hourly Pension Plan
until he terminates employment with Omnova after the Distribution Date. Until
the completion of the transfer of assets and liabilities from the GenCorp Hourly
Pension Plan to the Omnova Hourly Pension Plan and the Omnova Pension Plan
Trustee described in subsection (c) of this Section, benefits under the Omnova
Hourly Pension Plan payable to an Omnova Hourly Employee thereunder shall be
computed on the basis of his or her total service with GenCorp and Omnova, but
shall be reduced by any benefits accrued by such Omnova Hourly Employee under
the GenCorp Hourly Pension Plan.
2.5 OMNOVA WELFARE BENEFIT PLANS. (a) OMNOVA MEDICAL PLAN. As of the
Closing Time, Omnova Employees (and their eligible dependent(s)) shall be
covered by the Omnova Medical Plan, which shall be substantially identical to
the medical plan coverage provided to Omnova Employees immediately prior to the
Closing Time. The Omnova Medical Plan made available to Omnova Employees and
their dependent(s) as of the Closing Time shall waive any applicable waiting
periods for coverage of Omnova Employees and their dependent(s) which did not
exist with respect to such Omnova Employee or dependent(s) immediately prior to
the Closing Time. The Omnova Medical Plan shall not contain any exclusion or
limitation with respect to any pre-existing condition of any Omnova Employee or
dependent(s) which did not apply with respect to such Omnova Employee or
dependent immediately prior to the Closing Time. For purposes of the two
preceding sentences, service with GenCorp and Omnova prior to the Closing Time
shall be taken into account for purposes of meeting any such waiting period or
pre-existing condition, exclusion or limitation.
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(b) OMNOVA EMPLOYEE MEDICAL CLAIMS. As of the Closing Time, the
Omnova Medical Plan shall have sole responsibility for all obligations,
financial and otherwise, with respect to medical claims for expenses incurred by
Omnova Employees and their dependent(s) from and after the Closing Time. Medical
claims for expenses incurred by Omnova Employees and their dependent(s) prior to
the Closing Time which remain unpaid as of the Closing Time shall be the
responsibility of the GenCorp Medical Plan and will be processed and paid by
GenCorp's third party administrator.
(c) CLAIM APPEALS. As of the Closing Time, Omnova shall have sole
responsibility for the determination of claim appeals filed by Omnova Employees
under the Omnova Medical Plan. Claim appeals filed by employees of Omnova under
the GenCorp Medical Plan will be determined by GenCorp under the GenCorp Medical
Plan.
(d) FLEXIBLE BENEFIT PLANS. (i) Omnova shall implement, as of the
Closing Time, a flexible spending account plan, a dependent care reimbursement
plan, a health care reimbursement plan and a pre-tax premium plan (collectively
referred to as the "Omnova Flexible Benefit Plan") with provisions substantially
similar to similar plans provided to Omnova Employees by GenCorp prior to the
Closing Time; and (ii) Plan Year 1999 deferrals and reimbursements by or to
Omnova Employees under the GenCorp Flexible Benefit Plan, shall be carried over
and applied to their accounts under the Omnova Flexible Benefit Plan.
2.6 POSTRETIREMENT BENEFITS. GenCorp currently provides certain health
care and life insurance benefits to most retired employees in the United States
with varied coverage by employee groups. The health care plans generally provide
for cost sharing in the form of retiree contributions, deductibles and
coinsurance between the company and its retirees. The unfunded benefit
obligation reported in GenCorp's financial statements for such postretirement
benefits
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will be allocated between GenCorp and Omnova as follows: (1) $303 million for
active employees remaining GenCorp employees and former employees who do not
become employees of Omnova will be retained by GenCorp; and (2) $46 million for
active employees transferred to Omnova and former employees who terminated
employment from active business locations of Omnova will be assumed by Omnova.
2.7 GENCORP 1993 AND 1997 STOCK OPTION PLANS. (a) Prior to the
Distribution Date, exercisable options under the GenCorp 1993 and 1997 Stock
Option Plans for (1) active employees, (2) retirees, and (3) other former
employees whose options remain exercisable, will be split into options to
acquire GenCorp common stock and Omnova common stock. Except with respect to
options held by the chief executive officers of GenCorp and Omnova, the number
of exercisable options in each company will each equal the number of exercisable
options under the GenCorp Stock Option Plans. With respect to exercisable
options held by the chief executive officers, (1) Mr. Wolfe's options will be
converted into 66 2/3% GenCorp options and 33 1/3% Omnova options, and (2) Mr.
Yasinsky's options will be converted into 66 2/3% Omnova options and 33 1/3%
GenCorp options. The exercise price of each resulting option will bear the same
ratio to the market price, as of the Distribution Date, of the respective
company's stock, as the exercise price of the original GenCorp option bore to
the market price of GenCorp shares immediately before the Distribution Date.
GenCorp and Omnova agree that each will issue the appropriate
shares of their common stock to non-employees who exercise the options described
in this subsection (a).
(b) Unexercisable options under the GenCorp 1997 Stock Option Plan
for GenCorp employees will be replaced with a number of unexercisable GenCorp
options under that plan which will, based upon (1) the market price of GenCorp
shares immediately after the
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Distribution Date and (2) the exercise prices for those options, have an
aggregate intrinsic value equal to that of the unexercisable GenCorp options
immediately before the Distribution Date.
(c) Unexercisable options under the GenCorp 1997 Stock Option Plan
for Omnova employees will be replaced with a number of unexercisable Omnova
options which will, based upon (1) the market price of Omnova shares immediately
after the Distribution Date and (2) the exercise price for such options, have an
aggregate intrinsic value equal to that of the unexercisable GenCorp options
immediately before the Distribution.
(d) In converting the stock option plans for the Distribution, the
exercisable and unexercisable aggregate intrinsic value of the options
immediately after the conversion will be equal to the aggregate intrinsic value
immediately before the conversion. The ratio of the exercise price per option to
the market value per share will not be reduced and the vesting provisions and
option period of the Omnova and GenCorp options will be the same as for the
original GenCorp options. Accordingly, no compensation expense will be
recognized by Omnova or GenCorp.
2.8 UNFUNDED DEFERRED COMPENSATION.
(a) Subject to legal requirements for employee acquiescence,
GenCorp's legal obligation to pay Unfunded Deferred Compensation for: (1) all
active employees transferred to Omnova, (2) all retired employees who terminated
employment from active business locations of Omnova, and (3) all GenCorp
directors resigning to become members of the Omnova Board will be assumed by
Omnova.
(b) The legal obligation to pay Unfunded Deferred Compensation for:
(1) all active employees remaining GenCorp employees, (2) all GenCorp directors
remaining on the
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GenCorp Board, (3) all other retired employees, and (4) all retired directors,
will be retained by GenCorp.
(c) Former employees and directors of GenCorp or Omnova will be
able to elect a lump-sum payment of their Unfunded Deferred Compensation,
subject to (1) a 10% reduction in order to avoid adverse tax consequences, and
(2) all applicable tax withholding. Active employees and directors may receive
lump-sum payments of their Unfunded Deferred Compensation upon termination of
employment or board service with GenCorp or Omnova based upon appropriate
advance elections or discretionary approval by the company's benefit management
committee.
(d) GenCorp hereby indemnifies Omnova for the obligations to pay
Unfunded Deferred Compensation assumed by Omnova pursuant to subsection (a), and
will pay only those amounts of such Unfunded Deferred Compensation that Omnova
proves it is unable to pay.
(e) Omnova hereby indemnifies GenCorp for the obligation to pay
Unfunded Deferred Compensation retained by GenCorp pursuant to subsection (b),
and will pay only those amounts of Unfunded Deferred Compensation that GenCorp
proves it is unable to pay.
2.9 ANNUAL BONUSES. Bonus amounts under GenCorp's Executive Incentive
Compensation Plan for the period ending November 30, 1999 will be determined
based upon (1) actual performance up to the Distribution Date, and (2) budgeted
performance, for the remainder of the period, according to GenCorp's annual
operating plan. Subject to all legal requirements for employee acquiescence,
bonus obligations will be assumed by Omnova for all Omnova employees, and paid
in cash on January 3, 2000. Bonus obligations will be paid in cash on January 3,
2000 by GenCorp for all GenCorp employees and for terminated GenCorp employees
who are not employed by Omnova.
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2.10 LONG TERM INCENTIVE COMPENSATION. Performance awards under
GenCorp's Long-Term Incentive Program for the three-year performance period
ending November 30, 1999 will be determined based upon (1) actual performance up
to the Distribution Date, and (2) budgeted performance, for the remainder of the
period, according to GenCorp's annual operating plan. Pro rata performance
awards will be paid under the GenCorp plan for the performance periods ending
November 30, 2000 and November 30, 2001. Pro rata performance awards for each
partial performance period will be determined based upon (1) actual performance
up to the Distribution Date, and (2) budgeted performance, for the remainder of
the fiscal year ending November 30, 1999, according to GenCorp's annual
operating plan. Subject to legal requirements for employee acquiescence,
performance award obligations for the three-year performance period ending
November 30, 1999 will be assumed by Omnova for all Omnova employees and paid in
cash on January 3, 2000. Performance award obligations for the three-year
performance period ending November 30, 1999 will be paid in cash on January 3,
2000 by GenCorp for all GenCorp employees and for terminated GenCorp employees
who are not employed by Omnova. All pro rata performance awards will be paid in
cash to all eligible employees of GenCorp and Omnova by GenCorp on the day
preceding the Distribution Date.
2.11 DIRECTOR COMPENSATION. Subject to legal requirements for director
acquiescence, benefit obligations under the Retirement Plan for Nonemployee
Directors of GenCorp Inc. and the Deferred Compensation Plan for Nonemployee
Directors of GenCorp Inc. (hereafter the "GenCorp Director Plans") for GenCorp
directors resigning to become members of the Omnova Board will be assumed by
Omnova. Benefit obligations under the GenCorp Director Plans for GenCorp
directors remaining on the GenCorp Board and retired directors will be retained
by GenCorp.
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2.12 ENHANCED RETIREMENT AND SEPARATION PAY PLANS. GenCorp adopted a
Voluntary Enhanced Retirement Program (VERP) and Enhanced Involuntary Separation
Pay Plan (EISP) which are associated with and contingent upon the Distribution.
Pension and Separation Pay obligations under the VERP and EISP for GenCorp
Employees who become Omnova employees in connection with the Spin-Off will be
assumed and paid by Omnova. Pension and Separation Pay obligations under the
VERP and EISP for GenCorp employees who do not become employed by Omnova in
connection with the Spin-Off will be retained and paid by GenCorp. The total
number and identity of participants and the timing of their departure are not
yet known.
2.13 TRANSITION ADMINISTRATIVE SERVICES. For a transition period
extending up to October 31, 2001, the Joint Savings Plan and other benefit
programs currently applicable to GenCorp active employees and retirees will be
administered under a Services and Support Agreement between GenCorp and Omnova.
The purpose of the transition services arrangement will be to allow for an
orderly transition of administrative responsibility for ongoing GenCorp benefit
programs to administrative staffs of GenCorp, and for the implementation and
administration of new employee benefit plans for Omnova. In accordance with the
Services and Support Agreement, (i) GenCorp will reimburse Omnova specified
allocated costs plus all direct expenses incurred by Omnova on behalf of
GenCorp, and (ii) Omnova will reimburse GenCorp specified allocated costs plus
all direct expenses incurred by GenCorp on behalf of Omnova.
2.14 LIABILITIES TO OMNOVA EMPLOYEES ARISING PRIOR TO DISTRIBUTION
DATE. GenCorp shall retain sole responsibility for (a) payments of any and all
wages, vacation pay, bereavement pay, jury duty pay, disability income,
supplemental unemployment benefits, fringe benefits or other perquisites of
employment, or similar benefits, payroll taxes and other payroll related
expenses, (b) workers' compensation claims or related litigation claims, (c)
claims filed with the
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equal Employment Opportunity Commission or related litigation claims and (d)
other similar employment-related claims, in any such case arising out of or
relating to (i) the employment of the Omnova Employees by GenCorp prior to the
Closing Time or (ii) the employment of former employees whose employment with
Omnova or GenCorp or the Controlled Group of either terminated on or before the
Closing Time.
2.15 AT WILL EMPLOYMENT. Nothing in this Agreement shall limit the at
will nature of the employment of any of the Omnova Employees who do not have any
other contractual rights with respect to employment by Omnova or the right of
GenCorp or Omnova to alter or terminate any employee benefit plan.
2.16 SEPARATION PAY. GenCorp and Omnova agree that with respect to
individuals who, in connection with the Distribution, cease to be employees of
GenCorp and become employees of Omnova at any time prior to the day after the
Distribution, such cessation shall not be deemed a severance of employment from
GenCorp for purposes of the GenCorp Involuntary Separation Pay Plan. GenCorp
shall retain and be solely responsible for, and shall indemnify Omnova against,
all liabilities and obligations whatsoever in connection with claims made by or
on behalf of former employees of GenCorp in respect of separation pay and
similar obligations relating to the termination or alleged termination of any
such person's employment from GenCorp on or before the Distribution Date.
2.17 INTERNAL REVENUE SERVICE FORMS. GenCorp and Omnova agree that,
pursuant to the "Alternative Procedure" provided in Section 5 of Revenue
Procedure 84-77, 1984-2 C.B. 753, with respect to filing and furnishing Internal
Revenue Service Forms W-2, W-3 and 941, respectively: (a) GenCorp and Omnova
shall report on a "predecessor-successor" basis as set forth therein; (b)
GenCorp shall be relieved from furnishing Forms W-2 to GenCorp's
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employees whose employment is transferred to Omnova in connection with the
Spin-Off and to whom GenCorp would have been obligated to furnish such Forms;
and (c) Omnova shall assume GenCorp's obligation to furnish such Forms to all
such employees for the full 1997 calendar year. Upon Omnova's request, GenCorp
will promptly provide Omnova with the information relating to periods ending on
the Closing Time necessary for Omnova to prepare and distribute Forms W-2 to
such employees for the year ending December 31, 1997, which Forms W-2 will
include all remuneration earned by such employees from both GenCorp and Omnova
during the year ending December 31, 1997.
ARTICLE III
ACCESS AND SHARING OF INFORMATION
3.1 SHARING OF INFORMATION. GenCorp agrees to provide Omnova, as soon
as practicable after the Distribution Date (with the cooperation of Omnova to
the extent that relevant information is in the possession of Omnova), with a
list of the Omnova Employees who were, to the best knowledge of GenCorp,
participants in or otherwise entitled to benefits under GenCorp's employee
benefit plans prior to the Distribution Date, together with a listing of each
such Omnova Employee's term of service for eligibility, vesting and benefit
accrual purposes under such Plans and a listing of each such Omnova Employee's
accrued benefit under the GenCorp Salaried or Hourly Pension Plan. GenCorp
shall, as soon as practicable after the Distribution Date, provide Omnova with
such additional information (in the possession of GenCorp and not already in the
possession of Omnova) as may be reasonably requested by Omnova and necessary in
order for Omnova to establish and administer effectively the Omnova employee
benefit plans.
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3.2 ACCESS TO INFORMATION. (a) From and after the Closing Time each
party hereto shall afford the other party and its accountants, counsel and other
designated representative reasonable access (including using reasonable efforts
to give duplicating rights during normal business hours) to all records, books,
contracts, instruments, computer data and other data and information in such
party's possession relating to the business and affairs of such other party
(other than data and information subject to an attorney/client or other
privilege), insofar as such access is reasonably required by such other party
including, without limitation, for audit, accounting and litigation purposes and
administration of employee benefit plans, as well as for purposes of fulfilling
disclosure and reporting obligations.
(b) For a period of up to 24 months from and after the Distribution
Date, (or longer as required in connection with the Joint Savings Plan) each
party shall make available to the other during normal business hours and in a
manner which will not unreasonably interfere with such party's business, its
financial, tax, accounting, legal, employee benefits and such other staff and
services to the extent that the same may be reasonably required in connection
with the preparation of tax returns, audits, claims, administration of employee
benefit plans and otherwise to assist in effecting an orderly transition
following the Distribution.
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ARTICLE IV
MISCELLANEOUS
4.1 COMPLETE AGREEMENT. This Agreement, together with the Distribution
Agreement, and the exhibits thereto, shall constitute the entire agreement
between the parties hereto with respect to the subject matter hereof and shall
supersede all previous negotiations, commitments and writings with respect to
such subject matter.
4.2 GOVERNING LAW. This Agreement and (unless otherwise provided) all
amendments hereof shall be governed by the internal laws of the State of Ohio,
without regard to the conflicts of law principles thereof.
4.3 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, mailed by
registered or certified mail (return receipt requested) or sent by telecopy or
by a recognized overnight courier service, addressed as follows:
To Omnova at: Omnova Solutions Inc.
175 Ghent Road
Fairlawn, Ohio 44333-3300
Attention: General Counsel
Fax Number: 330-869-4272
To GenCorp at: GenCorp Inc.
P.O. Box 13222
Attention: General Counsel
Fax Number: 916-351-8665
or to such other address as any party hereto may have furnished to the other
parties by a notice in writing in accordance with this Section.
4.4 AMENDMENT. This Agreement may be amended, modified or supplemented
only by a written agreement signed by all the parties hereto.
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4.5 WAIVER. No waiver by any party of any of the provisions of this
Agreement will be deemed, or will constitute, a waiver of any other provision,
whether similar, nor will any waiver constitute a continuing waiver. No waiver
will be binding unless executed in writing by the party making the waiver.
4.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original instrument and all of
which together shall constitute one and the same instrument.
4.7 INTERPRETATION. The Section headings contained in this Agreement
are solely for the purpose of reference, are not part of the agreement of the
parties hereto and shall not in any way affect the meaning or interpretation of
this Agreement.
4.8 TERMINATION. Notwithstanding any provision hereof, this Agreement
may be terminated at any time prior to the Distribution. Any termination of the
Distribution Agreement shall result in the termination of this Agreement. In the
event of such termination, no party hereto shall have any liability to any
person by reason of this Agreement.
4.9 NO THIRD PARTY BENEFICIARY. Nothing in this Agreement, express or
implied, shall confer on any person other than the parties any rights or
remedies under or by virtue of this Agreement.
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4.10 DISPUTE RESOLUTION. Any dispute between the parties concerning the
performance of this Agreement which cannot be resolved by good faith negotiation
of the parties shall be determined in accordance with the provisions of the
Alternative Dispute Resolution Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
GENCORP INC.
By:
---------------------------------------
Name:
---------------------------------------
Title:
---------------------------------------
OMNOVA SOLUTIONS INC.
By:
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Name:
---------------------------------------
Title:
---------------------------------------
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Exhibit 10.18
SERVICES AND SUPPORT AGREEMENT
This Services and Support Agreement ("Agreement"), dated as of July __,
1999, is made and entered into by and between GENCORP INC., an Ohio corporation
("GenCorp"), and OMNOVA SOLUTIONS INC., an Ohio corporation ("Omnova") which, as
of the date hereof, is a wholly-owned subsidiary of GenCorp.
WITNESSETH:
WHEREAS, the Board of Directors of GenCorp has determined that it is
advisable to distribute substantially all of the stock of Omnova to its
shareholders in a transaction intended to qualify under Section 355 of the
Internal Revenue Code (variously, the "Distribution" or the "Spin-Off");
WHEREAS, GenCorp and Omnova are entering into a Distribution Agreement
(the "Distribution Agreement") which, among other things, together with the
exhibits thereto, sets forth the principal corporate transactions required to
effect the Distribution and sets forth other agreements that will govern certain
other matters following the Distribution; and
WHEREAS, in connection with the Distribution, GenCorp and Omnova have
agreed to enter into this Agreement in order for Omnova and GenCorp each to
assist the other by providing to the other certain services and support not
otherwise specified in any of the Other Agreements (as defined in the
Distribution Agreement);
NOW THEREFORE, in consideration of these premises and the mutual
promises and conditions contained herein, GenCorp and Omnova hereby agree as
follows:
<PAGE> 2
ARTICLE I
TERM
1.1 TERM OF THE AGREEMENT. The term of this Agreement shall be from the
date hereof (the "Effective Date") to and including the later of (i) the second
anniversary of the Distribution, and (ii) October 31, 2001, although the actual
duration of specific services may be for a shorter period as mutually determined
by GenCorp and Omnova (the "Term"). The Term may be extended by the mutual
agreement of GenCorp and Omnova.
ARTICLE II
SERVICES
2.1 SERVICES PROVIDED BY OMNOVA. Omnova shall provide to GenCorp during
the Term of this Agreement the services listed on Schedule A attached hereto
(collectively, the "Services"). The Services are based on the understanding of
the parties hereto of the support and administrative services reasonably
required by GenCorp at the date of this Agreement. If, following the
Distribution, GenCorp reasonably determines that additional services consistent
with the recent historical practice of GenCorp should be provided by Omnova, the
parties agree to negotiate in good faith to modify this Agreement appropriately
with respect to such additional services, together with such additional services
as, from time to time, the parties hereto mutually agree in writing to be
provided hereunder. In the event the parties agree that GenCorp shall provide
such additional services, the parties hereto further agree that such agreement
to provide such additional services shall also amend Schedule A hereto to
reflect such agreement of the parties.
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2.2 PAYMENT FOR SERVICES PROVIDED BY OMNOVA. (a) GenCorp shall pay
Omnova on a monthly basis, for Services provided to GenCorp by Omnova hereunder,
(i) amounts specified as "Costs Allocated to GenCorp" on Schedule A, (ii)
reasonable direct expenses incurred by Omnova in connection with providing
Services, (iii) benefit claims of GenCorp employees under GenCorp's unfunded
benefit plans, and (iv) charges by third party service providers which are
attributable to services provided to or for GenCorp.
(b) Charges for the services shall be invoiced on or about the
tenth (10th) day of the calendar month next following the calendar month in
which the Services have been performed, and such invoice shall be paid within
thirty (30) days following receipt thereof.
2.3 SERVICES PROVIDED BY GENCORP. GenCorp shall provide to Omnova
during the Term of this Agreement the services listed on Schedule B attached
hereto (collectively, the "Services"). The Services are based on the
understanding of the parties hereto of the support and administrative services
reasonably required by Omnova at the date of this Agreement. If, following the
Distribution, Omnova reasonably determines that additional services consistent
with the recent historical practice of Omnova should be provided by GenCorp, the
parties agree to negotiate in good faith to modify this Agreement appropriately
with respect to such additional services, together with such additional services
as, from time to time, the parties hereto mutually agree in writing to be
provided hereunder. In the event the parties agree that Omnova shall provide
such additional services, the parties hereto further agree that such agreement
to provide such additional services shall also amend Schedule B hereto to
reflect such agreement of the parties.
2.4 PAYMENT FOR SERVICES PROVIDED BY GENCORP.
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(a) Omnova shall pay GenCorp on a monthly basis, for Services
provided to Omnova by GenCorp hereunder, (i) amounts specified as "Costs
Allocated to Omnova" on Schedule B, (ii) reasonable direct expenses incurred by
GenCorp in connection with providing Services, (iii) benefit claims of Omnova
employees under Omnova's unfunded benefit plans, and (iv) charges by third party
service providers which are attributable to services provided to or for Omnova.
(b) Charges for the services shall be invoiced on or about the
tenth (10th) day of the calendar month next following the calendar month in
which the Services have been performed, and such invoice shall be paid within
thirty (30) days following receipt thereof.
ARTICLE III
TERMINATION
3.1 AUTOMATIC TERMINATION. This Agreement automatically shall terminate
at the conclusion of the Term unless such Term is extended in accordance with
Section 1.1 hereto.
3.2 TERMINATION WITH NOTICE. If either GenCorp or Omnova (the
"Defaulting Party") shall fail adequately to perform in any material respect any
of its material obligations under this Agreement, whether voluntarily or
involuntarily, the other may terminate this Agreement upon one hundred twenty
(120) days' written notice to the Defaulting Party that it has so failed to
perform its obligations under this Agreement, unless during such period the
Defaulting Party shall have remedied such failure.
3.3 MUTUAL COOPERATION AND ADDITIONAL ASSUMPTIONS. Prior to the
termination of this Agreement, the parties shall work together in good faith to
facilitate an orderly transition of responsibility for the Services, and each
party shall deliver to the other party copies of such
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documents, records and information as are necessary to achieve such transition.
Upon the termination of this Agreement, each party promptly shall deliver to the
other party copies of all remaining documents, records and information in such
party's possession that may be necessary for the other party to assume complete
internal responsibility for all of the Services.
ARTICLE IV
GENERAL
4.1 NON-WAIVER. The failure of either party to enforce at any time or
for any of the provisions hereof shall not be construed to be a waiver of such
provisions or of the right of such party thereafter to enforce each and every
such provision.
4.2 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be delivered by hand,
mailed by registered or certified mail (return receipt requested), or sent by
telecopy or by a recognized overnight courier service, to the parties at the
following addresses (or such other addresses for a party as shall be specified
by like notice) and shall be deemed given on the date on which such notice is
received:
To Omnova at: Omnova Solutions Inc.
175 Ghent Road
Fairlawn, Ohio 44333-3300
Attention: General Counsel
Fax Number: 330-869-4272
To GenCorp at: GenCorp Inc.
P. O. Box 13222
Attention: General Counsel
Fax Number: 916-351-8665
4.3 GOVERNING LAW. This Agreement shall be governed by and enforced in
accordance with the internal laws of the State of Ohio, without regard to the
conflicts of law principles thereof.
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4.4 LEVEL OF SERVICE. Omnova and GenCorp each severally undertake to
use the same degree of care in rendering services under this Agreement as it
respectively utilizes in rendering such services for its own operations.
4.5 SEVERABILITY. In the event any provision of this Agreement or
portion thereof is found to be wholly or partially invalid, illegal or
unenforceable in any judicial proceeding, then such provision shall be deemed to
be modified or restricted to the extent and in the manner necessary to render
the same valid and enforceable or shall be deemed excised from this Agreement,
as the case may require, and this Agreement shall be construed and enforced to
the maximum extent permitted by law as if such provision had been originally
incorporated herein as so modified or restricted, or as if such provision had
not been originally incorporated herein, as the case may be.
4.6 ENTIRE AGREEMENT. This Agreement supersedes and cancels any and all
previous agreements, written or oral, between the parties relating to the
subject matter hereof. This Agreement and the Other Agreements expresses the
complete and final understanding of the parties with respect to the subject
matter thereto and may not be changed in any way, except by an instrument in
writing signed by both parties.
4.7 ASSIGNMENT. Neither of the parties shall assign any of its rights
or obligations under this Agreement without the prior written consent of the
other party, which consent shall not unreasonably be withheld.
IN WITNESS WHEREOF, the parties have hereunto signed this Agreement as
of the day and year first above written.
GENCORP INC.
By:
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Name:
------------------------
Title:
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OMNOVA SOLUTIONS INC.
By:
--------------------------
Name:
------------------------
Title:
-----------------------
7
<PAGE> 1
Exhibit 10.19
DIRECTOR AND OFFICER INDEMNIFICATION AGREEMENT
----------------------------------------------
This Director and Officer Indemnification Agreement, dated as of
____________ __, 1999 (this "Agreement"), is made by and between Omnova
Solutions Inc., an Ohio corporation (the "Company"), and ____________________
(the "Indemnitee"), a director and an officer of the Company.
RECITALS
--------
A. The Indemnitee is presently serving as a director and an officer of
the Company, and the Company desires that the Indemnitee continue serving in
such capacities. The Indemnitee is willing, subject to certain conditions
including the execution and performance of this Agreement by the Company, to
continue serving in such capacities.
B. In addition to the indemnification to which the Indemnitee is
entitled under the code of regulations of the Company (the "Regulations"), the
Company has obtained, at its sole expense, insurance protecting the Company and
its officers and directors, including the Indemnitee, against certain losses
arising out of any threatened, pending or completed action, suit, or proceeding
to which such persons may be made or are threatened to be made parties.
NOW, THEREFORE, in order to induce the Indemnitee to continue to serve
in his present capacity, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Indemnitee agree as follows:
1. CONTINUED SERVICE
-----------------
The Indemnitee shall continue to serve, at the will of the Company or
in accordance with a separate contract, to the extent that such a contract is in
effect at the time in question, as a director and an officer of the Company so
long as he is duly elected in accordance with the Regulations or until he
resigns in writing in accordance with applicable law.
2. INITIAL INDEMNITY
-----------------
(a) The Company shall indemnify the Indemnitee if or when he is a party
or is threatened to be made a party to any threatened, pending, or completed
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative (other than an action by or in the right of the Company), by
reason of the fact that he is or was a director or an officer of the Company or
is or was serving at the request of the Company as a director, trustee, officer,
employee, member, manager or agent of another corporation, domestic or foreign,
nonprofit or for profit, a limited liability company, or a partnership, joint
venture, trust, or other enterprise, or
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<PAGE> 2
by reason of any action alleged to have been taken or omitted in any such
capacity, against any and all costs, charges, expenses (including fees and
expenses of attorneys or others; all such costs, charges and expenses being
herein jointly referred to as "Expenses"), judgments, fines, and amounts paid in
settlement, actually and reasonably incurred by the Indemnitee in connection
therewith, including any appeal of or from any judgment or decision, unless it
is proved by clear and convincing evidence in a court of competent jurisdiction
that the Indemnitee's action or failure to act involved an act or omission
undertaken with deliberate intent to cause injury to the Company or undertaken
with reckless disregard for the best interests of the Company. In addition, with
respect to any criminal action or proceeding, indemnification hereunder shall be
made only if the Indemnitee had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, or conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the Indemnitee did not satisfy
the foregoing standard of conduct to the extent applicable thereto.
(b) The Company shall indemnify the Indemnitee if or when he is a
party, or is threatened to be made a party, to any threatened, pending, or
completed action, suit, or proceeding by or in the right of the Company to
procure a judgment in its favor, by reason of the fact that the Indemnitee is or
was a director or an officer of the Company or is or was serving at the request
of the Company as a director, trustee, officer, employee, member, manager or
agent of another corporation, domestic or foreign, nonprofit or for profit, a
limited liability company, or a partnership, joint venture, trust, or other
enterprise, against any and all Expenses actually and reasonably incurred by the
Indemnitee in connection with the defense or settlement thereof or any appeal of
or from any judgment or decision, unless it is proved by clear and convincing
evidence in a court of competent jurisdiction that the Indemnitee's action or
failure to act involved an act or omission undertaken with deliberate intent to
cause injury to the Company or undertaken with reckless disregard for the best
interests of the Company, except that no indemnification pursuant to this
Section 2(b) shall be made in respect of any action or suit in which the only
liability asserted against the Indemnitee is pursuant to Section 1701.95 of the
Ohio Revised Code (the "ORC").
(c) Any indemnification under Section 2(a) or 2(b) (unless ordered by a
court) shall be made by the Company only as authorized in the specific case upon
a determination that indemnification of the Indemnitee is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Section 2(a) or 2(b). Such authorization shall be made (i) by the Board of
Directors of the Company (the "Board") by a majority vote of a quorum consisting
of directors who were not and are not parties to or threatened with such action,
suit, or proceeding, or (ii) if such a quorum of disinterested directors is not
available or if a majority of such quorum so directs, in a written opinion by
independent legal counsel (designated for such purpose by the Board) which shall
not be an attorney, or a firm having associated with it an attorney, who has
been retained by or who has performed services for the Company, or any person to
be indemnified, within the five years preceding such determination, or (iii) by
the shareholders of the Company (the "Shareholders"), or (iv) by the court of
common pleas or other court in which such action, suit, or proceeding was
brought.
(d) To the extent that the Indemnitee has been successful on the merits
or otherwise, including the dismissal of an action without prejudice, in defense
of any action, suit, or
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<PAGE> 3
proceeding referred to in Section 2(a) or 2(b), or in defense of any claim,
issue, or matter therein, he shall be indemnified against Expenses actually and
reasonably incurred by him in connection therewith.
(e) Expenses actually and reasonably incurred by the Indemnitee in
defending any such action, suit, or proceeding referred to in Section 2(a) or
2(b), or in defense of any claim, issue or matter therein, shall be paid by the
Company as they are incurred in advance of the final disposition of action,
suit, or proceeding under the procedure set forth in Section 4(b) hereof.
(f) For purposes of this Agreement, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on the Indemnitee with respect to any employee benefit
plan; references to "serving at the request of the Company" shall include any
service as a director, officer, employee, or agent of the Company which imposes
duties on, or involves services by, the Indemnitee with respect to an employee
benefit plan, its participants or beneficiaries; references to the masculine
shall include the feminine; references to the singular shall include the plural
and vice versa; the word including is used by way of illustration only and not
by way of limitation; and with respect to conduct by Indemnitee in his capacity
as a trustee, administrator or other fiduciary of any employee benefit plan of
the Company, if the Indemnitee acted in good faith and in a manner he reasonably
believed to be in the interest of the participants or beneficiaries of such
employee benefit plan, he shall be deemed to have acted in a manner "not opposed
to the best interests of the Company" as referred to herein.
(g) No amendment to the articles of incorporation of the Company (the
"Articles") or the Regulations shall deny, diminish, or encumber the
Indemnitee's rights to indemnity pursuant to the Regulations, the ORC, or any
other applicable law as applied to any act or failure to act occurring in whole
or in part prior to the date (the "Effective Date") upon which the amendment was
approved by the Shareholders. In the event that the Company shall purport to
adopt any amendment to its Articles or Regulations or take any other action the
effect of which is to deny, diminish, or encumber the Indemnitee's rights to
indemnity pursuant to the Articles, the Regulations, the ORC, or any such other
law, such amendment shall apply only to acts or failures to act occurring
entirely after the Effective Date thereof.
3. ADDITIONAL INDEMNIFICATION
--------------------------
(a) Pursuant to Section 1701.13(E)(6) of the ORC, without limiting any
right which the Indemnitee may have pursuant to Section 2 hereof or any other
provision of this Agreement or the Articles, the Regulations, the ORC, any
policy of insurance, or otherwise, but subject to any limitation on the maximum
permissible indemnity which may exist under applicable law at the time of any
request for indemnity hereunder and subject to the following provisions of this
Section 3, the Company shall indemnify the Indemnitee against any amount which
he is or becomes obligated to pay relating to or arising out of any claim made
against him because of any act, failure to act, or neglect or breach of duty,
including any actual or alleged error, misstatement, or misleading statement,
that he commits, suffers, permits, or acquiesces in while acting in his capacity
as a director or an officer of the Company. The payments which the
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<PAGE> 4
Company is obligated to make pursuant to this Section 3 shall include any and
all Expenses, judgments, fines, and amounts paid in settlement, actually and
reasonably incurred by the Indemnitee in connection therewith including any
appeal of or from any judgment or decision; PROVIDED, HOWEVER, that the Company
shall not be obligated under this Section 3 to make any payment in connection
with any claim against the Indemnitee:
(i) to the extent of any fine or similar governmental
imposition which the Company is prohibited by
applicable law from paying which results from a
final, nonappealable order; or
(ii) to the extent based upon or attributable to the
Indemnitee having actually realized a personal gain
or profit to which he was not legally entitled,
including profit from the purchase and sale by the
Indemnitee of equity securities of the Company which
are recoverable by the Company pursuant to Section
16(b) of the Securities Exchange Act of 1934, or
profit arising from transactions in publicly traded
securities of the Company which were effected by the
Indemnitee in violation of Section 10(b) of the
Securities Exchange Act of 1934, or Rule 10b-5
promulgated thereunder.
(b) A determination as to whether the Indemnitee shall be entitled to
indemnification under this Section 3 shall be made in accordance with Section
4(a) hereof. Expenses incurred by the Indemnitee in defending any claim to which
this Section 3 applies shall be paid by the Company as they are actually and
reasonably incurred in advance of the final disposition of such claim under the
procedure set forth in Section 4(b) hereof.
4. CERTAIN PROCEDURES RELATING TO INDEMNIFICATION
-----------------------------------------------
(a) For purposes of pursuing his rights to indemnification under
Section 3 hereof, the Indemnitee shall (i) submit to the Board a sworn statement
of request for indemnification substantially in the form of Exhibit l attached
hereto and made a part hereof (the "Indemnification Statement") averring that he
is entitled to indemnification hereunder; and (ii) present to the Company
reasonable evidence of all amounts for which indemnification is requested.
Submission of an Indemnification Statement to the Board shall create a
presumption that the Indemnitee is entitled to indemnification hereunder, and
the Company shall, within 60 calendar days after submission of the
Indemnification Statement, make the payments requested in the Indemnification
Statement to or for the benefit of the Indemnitee, unless (A) within such
60-calendar-day period the Board shall resolve by vote of a majority of the
directors at a meeting at which a quorum is present that the Indemnitee is not
entitled to indemnification under Section 3 hereof, (B) such vote shall be based
upon clear and convincing evidence (sufficient to rebut the foregoing
presumption), and (C) the Board shall notify Indemnitee within such period of
such vote, which notice shall disclose with particularity the evidence upon
which the vote is based. The foregoing notice shall be sworn to by all persons
who participated in the vote and voted to deny indemnification. The provisions
of this Section 4(a) are intended to be procedural only and shall not affect the
right of Indemnitee to indemnification under Section 3 of this Agreement so
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<PAGE> 5
long as Indemnitee follows the prescribed procedure, and any determination by
the Board that Indemnitee is not entitled to indemnification and any failure to
make the payments requested in the Indemnification Statement shall be subject to
judicial review by any court of competent jurisdiction.
(b) For purposes of obtaining payments of Expenses in advance of final
disposition pursuant to the last sentence of Section 2(d) or the last sentence
of Section 3(b) hereof, the Indemnitee shall submit to the Company a sworn
request for advancement of Expenses substantially in the form of Exhibit 2
attached hereto and made a part hereof (the "Undertaking"), averring that he has
reasonably incurred or will reasonably incur actual Expenses in defending an
action, suit or proceeding referred to in Section 2(a) or 2(b) or any claim
referred to in Section 3, or pursuant to Section 8 hereof. Unless at the time of
the Indemnitee's act or omission at issue, the Articles or the Regulations
prohibit such advances by specific reference to ORC Section l70l.l3(E)(5)(a) or
unless the only liability asserted against the Indemnitee in the subject action,
suit or proceeding is pursuant to ORC Section 1701.95, the Indemnitee shall be
eligible to execute Part A of the Undertaking by which he undertakes to: (i)
repay such amount if it is proved by clear and convincing evidence in a court of
competent jurisdiction that the Indemnitee's action or failure to act involved
an act or omission undertaken with deliberate intent to cause injury to the
Company or undertaken with reckless disregard for the best interests of the
Company; and (ii) reasonably cooperate with the Company concerning the action,
suit, proceeding or claim. In all cases, the Indemnitee shall be eligible to
execute Part B of the Undertaking by which he undertakes to repay such amount if
it ultimately is determined that he is not entitled to be indemnified by the
Company under this Agreement or otherwise. In the event that the Indemnitee is
eligible to and does execute both Part A and Part B of the Undertaking, the
Expenses which are paid by the Company pursuant thereto shall be required to be
repaid by the Indemnitee only if he is required to do so under the terms of both
Part A and Part B of the Undertaking. Upon receipt of the Undertaking, the
Company shall thereafter promptly pay such Expenses of the Indemnitee as are
noticed to the Company in reasonable detail arising out of the matter described
in the Undertaking. No security shall be required in connection with any
Undertaking.
5. LIMITATION ON INDEMNITY
-----------------------
Notwithstanding anything contained herein to the contrary, the Company
shall not be required hereby to indemnify the Indemnitee with respect to any
action, suit, or proceeding that was initiated by the Indemnitee unless (a) such
action, suit, or proceeding was initiated by the Indemnitee to enforce any
rights to indemnification arising hereunder and such person shall have been
formally adjudged to be entitled to indemnity by reason hereof, (b) authorized
by another agreement to which the Company is a party whether heretofore or
hereafter entered, or (c) otherwise ordered by the court in which the suit was
brought.
6. SUBROGATION; DUPLICATION OF PAYMENTS
------------------------------------
(a) In the event of payment under this Agreement, the Company shall be
subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee, who shall
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<PAGE> 6
execute all papers required and shall do everything that may be necessary to
secure such rights, including the execution of such documents necessary to
enable the Company effectively to bring suit to enforce such rights.
(b) The Company shall not be liable under this Agreement to make any
payment in connection with any claim made against Indemnitee to the extent
Indemnitee has actually received payment (under any insurance policy, the
Regulations or otherwise) of the amounts otherwise payable hereunder.
7. SHAREHOLDER RATIFICATION
------------------------
The Company may, at its option, propose at any future meeting of
Shareholders that this Agreement be ratified by the Shareholders; PROVIDED,
HOWEVER, that the Indemnitee's rights hereunder shall be fully enforceable in
accordance with the terms hereof whether or not such ratification is sought or
obtained.
8. FEES AND EXPENSES OF ENFORCEMENT
--------------------------------
It is the intent of the Company that the Indemnitee not be required to
incur the expenses associated with the enforcement of his rights under this
Agreement by litigation or other legal action because the cost and expense
thereof would substantially detract from the benefits intended to be extended to
the Indemnitee hereunder. Accordingly, if it should appear to the Indemnitee
that the Company has failed to comply with any of its obligations under this
Agreement or in the event that the Company or any other person takes any action
to declare this Agreement void or unenforceable, or institutes any action, suit
or proceeding to deny, or to recover from, the Indemnitee the benefits intended
to be provided to the Indemnitee hereunder, the Company irrevocably authorizes
the Indemnitee from time to time to retain counsel of his choice, at the expense
of the Company as hereafter provided, to represent the Indemnitee in connection
with the initiation or defense of any litigation or other legal action, whether
by or against the Company or any director, officer, shareholder, or other person
affiliated with the Company, in any jurisdiction. Regardless of the outcome
thereof, the Company shall pay and be solely responsible for any and all costs,
charges, and expenses, including fees and expenses of attorneys and others,
reasonably incurred by the Indemnitee pursuant to this Section 8.
9. MERGER OR CONSOLIDATION
-----------------------
In the event that the Company shall be a constituent corporation in a
consolidation, merger, or other reorganization, the Company, if it shall not be
the surviving, resulting, or acquiring corporation therein, shall require as a
condition thereto that the surviving, resulting, or acquiring corporation agree
to assume all of the obligations of the Company hereunder and to indemnify the
Indemnitee to the full extent provided herein. Whether or not the Company is the
resulting, surviving, or acquiring corporation in any such transaction, the
Indemnitee shall stand in
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the same position under this Agreement with respect to the resulting,
surviving, or acquiring corporation as he would have with respect to the Company
if its separate existence had continued.
10. NONEXCLUSIVITY; NO THIRD PARTY BENEFICIARIES; SEVERABILITY
----------------------------------------------------------
(a) The rights to indemnification provided by this Agreement shall not
be exclusive of any other rights of indemnification to which the Indemnitee may
be entitled under the Articles, the Regulations, the ORC or any other statute,
any insurance policy, agreement, or vote of shareholders or directors or
otherwise, as to any actions or failures to act by the Indemnitee, and shall
continue after he has ceased to be a director, officer, employee, or agent of
the Company or other entity for which his service gives rise to a right
hereunder, and shall inure to the benefit of his heirs, executors and
administrators.
(b) Except as provided in Section 10(a), the rights to indemnification
provided by this Agreement are personal to Indemnitee and are non-transferable
by Indemnitee, and no party other than the Indemnitee is entitled to
indemnification under this Agreement.
(c) If any provision of this Agreement or the application of any
provision hereof to any person or circumstances is held invalid, unenforceable
or otherwise illegal, the remainder of this Agreement and the application of
such provision to other persons or circumstances shall not be affected, and the
provision so held to be invalid, unenforceable or otherwise illegal shall be
reformed to the extent (and only to the extent) necessary to make it
enforceable, valid and legal.
11. SECURITY
--------
To ensure that the Company's obligations pursuant to this Agreement can
be enforced by Indemnitee, the Company may, at its option, establish a trust
pursuant to which the Company's obligations pursuant to this Agreement and other
similar agreements can be funded.
12. NOTICES
-------
All notices and other communications hereunder shall be in writing and
shall be personally delivered or sent by recognized overnight courier service
(a) if to the Company, to the then-current principal executive offices of the
Company (Attention: General Counsel) or (b) if to the Indemnitee, to the last
known address of Indemnitee as reflected in the Company's records. Either party
may change its address or the delivery of notices or other communications
hereunder by providing notice to the other party as provided in this Section 12.
All notices shall be effective upon actual delivery by the methods specified in
this Section 12.
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13. GOVERNING LAW
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of Ohio, without giving effect to the principles of
conflict of laws thereof.
14. MODIFICATION
------------
This Agreement and the rights and duties of the Indemnitee and the
Company hereunder may be modified only by an instrument in writing signed by
both parties hereto.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
OMNOVA SOLUTIONS INC.
By:
-----------------------------
Name:
Title:
----------------------------------
[Signature of Indemnitee]
-8-
<PAGE> 9
EXHIBIT 1
---------
INDEMNIFICATION STATEMENT
-------------------------
STATE OF ________________)
) SS
COUNTY OF _______________)
I, ________________ , being first duly sworn, do depose and
say as follows:
1. This Indemnification Statement is submitted pursuant to the
Indemnification Agreement, dated __________ __ 19__, between Omnova Solutions
Inc., an Ohio corporation (the "Company"), and the undersigned.
2. I am requesting indemnification against costs, charges,
expenses (which may include fees and expenses of attorneys and/or others),
judgments, fines, and amounts paid in settlement (collectively, "Liabilities"),
which have been actually and reasonably incurred by me in connection with a
claim referred to in Section 3 of the aforesaid Indemnification Agreement.
3. With respect to all matters related to any such claim, I am
entitled to be indemnified as herein contemplated pursuant to the aforesaid
Indemnification Agreement.
4. Without limiting any other rights which I have or may have,
I am requesting indemnification against Liabilities which have or may arise out
of
------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------.
----------------------------
[Signature of Indemnitee]
Subscribed and sworn to before me, a Notary Public in and for
said County and State, this ____ day of ____________, 1997.
----------------------------
[Seal]
My commission expires the ____ day of _____________, 19__.
<PAGE> 10
EXHIBIT 2
---------
UNDERTAKING
-----------
STATE OF ________________
SS
COUNTY OF _______________
I, _____________________ , being first duly sworn, do depose
and say as follows:
l. This Undertaking is submitted pursuant to the
Indemnification Agreement, dated __________ __ , 19__, between Omnova Solutions
Inc., an Ohio corporation (the "Company") and the undersigned.
2. I am requesting payment of costs, charges, and expenses
which I have reasonably incurred or will reasonably incur in defending an
action, suit or proceeding, referred to in Section 2(a) or 2(b) or any claim
referred to in Section 3, or pursuant to Section 8, of the aforesaid
Indemnification Agreement.
3. The costs, charges, and expenses for which payment is
requested are, in general, all expenses related to
-----------------------------
- -------------------------------------------------------------------------------.
4. PART A(1)
---------
I hereby undertake to (a) repay all amounts paid pursuant
hereto if it is proved by clear and convincing evidence in a court of competent
jurisdiction that my action or failure to act which is the subject of the matter
described herein involved an act or omission undertaken with deliberate intent
to cause injury to the Company or undertaken with reckless disregard for the
best
- --------
(1) The Indemnitee shall not be eligible to execute Part A of this Undertaking
if, at the time of the Indemnitee's act or omission at issue, the articles
of incorporation or code of regulations of the Company prohibit such
advances by specific reference to the Ohio Revised Code (the "ORC") Section
l70l.l3(E)(5)(a) or if the only liability asserted against the Indemnitee is
in an action, suit or proceeding on the Company's behalf pursuant to ORC
Section 1701.95. In the event that the Indemnitee is eligible to and does
execute both Part A and Part B hereof, the costs, charges and expenses which
are paid by the Company pursuant hereto shall be required to be repaid by
the Indemnitee only if he is required to do so under the terms of both Part
A and Part B hereof.
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<PAGE> 11
interests of the Company and (b) reasonably cooperate with the Company
concerning the action, suit, proceeding or claim.
-------------------------
[Signature of Indemnitee]
4. PART B
------
I hereby undertake to repay all amounts paid pursuant hereto
if it ultimately is determined that I am not entitled to be indemnified by the
Company under the aforesaid Indemnification Agreement or otherwise.
-------------------------
[Signature of Indemnitee]
Subscribed and sworn to before me, a Notary Public in and for
said County and State, this ____ day of ___________, 1997.
[Seal]
-------------------------
My commission expires the _____ day of _______________, 19__.
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<PAGE> 1
Exhibit 10.20
DIRECTOR INDEMNIFICATION AGREEMENT
----------------------------------
This Director Indemnification Agreement, dated as of ___________ __,
1999 (this "Agreement"), is made by and between Omnova Solutions Inc., an Ohio
corporation (the "Company"), and _______________ (the "Indemnitee"), a director
of the Company.
RECITALS
--------
A. The Indemnitee is presently serving as a director of the Company,
and the Company desires that the Indemnitee continue serving in such capacity.
The Indemnitee is willing, subject to certain conditions including the execution
and performance of this Agreement by the Company, to continue serving in such
capacity.
B. In addition to the indemnification to which the Indemnitee is
entitled under the code of regulations of the Company (the "Regulations"), the
Company has obtained, at its sole expense, insurance protecting the Company and
its officers and directors, including the Indemnitee, against certain losses
arising out of any threatened, pending or completed action, suit, or proceeding
to which such persons may be made or are threatened to be made parties.
NOW, THEREFORE, in order to induce the Indemnitee to continue to serve
in his present capacity, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Indemnitee agree as follows:
1. CONTINUED SERVICE
-----------------
The Indemnitee shall continue to serve at the will of the Company as a
director of the Company so long as he is duly elected in accordance with the
Regulations or until he resigns in writing in accordance with applicable law.
2. INITIAL INDEMNITY
-----------------
(a) The Company shall indemnify the Indemnitee if or when he is a party
or is threatened to be made a party to any threatened, pending, or completed
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative (other than an action by or in the right of the Company), by
reason of the fact that he is or was a director of the Company or is or was
serving at the request of the Company as a director, trustee, officer, employee,
member, manager or agent of another corporation, domestic or foreign, nonprofit
or for profit, a limited liability company, or a partnership, joint venture,
trust, or other enterprise, or by reason of any action alleged to have been
taken or omitted in any such capacity, against any and all costs, charges,
expenses (including fees and expenses of attorneys or others; all such costs,
charges and
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<PAGE> 2
expenses being herein jointly referred to as "Expenses"), judgments, fines, and
amounts paid in settlement actually and reasonably incurred by the Indemnitee in
connection therewith, including any appeal of or from any judgment or decision,
unless it is proved by clear and convincing evidence in a court of competent
jurisdiction that the Indemnitee's action or failure to act involved an act or
omission undertaken with deliberate intent to cause injury to the Company or
undertaken with reckless disregard for the best interests of the Company. In
addition, with respect to any criminal action or proceeding, indemnification
hereunder shall be made only if the Indemnitee had no reasonable cause to
believe his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, or conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the Indemnitee did not satisfy the foregoing standard of conduct to the extent
applicable thereto.
(b) The Company shall indemnify the Indemnitee if or when he is a party
or is threatened to be made a party, to any threatened, pending, or completed
action, suit, or proceeding by or in the right of the Company to procure a
judgment in its favor, by reason of the fact that the Indemnitee is or was a
director of the Company or is or was serving at the request of the Company as a
director, trustee, officer, employee, member, manager or agent of another
corporation, domestic or foreign, nonprofit or for profit, a limited liability
company, or a partnership, joint venture, trust, or other enterprise, against
any and all Expenses actually and reasonably incurred by the Indemnitee in
connection with the defense or settlement thereof or any appeal of or from any
judgment or decision, unless it is proved by clear and convincing evidence in a
court of competent jurisdiction that the Indemnitee's action or failure to act
involved an act or omission undertaken with deliberate intent to cause injury to
the Company or undertaken with reckless disregard for the best interests of the
Company, except that no indemnification pursuant to this Section 2(b) shall be
made in respect of any action or suit in which the only liability asserted
against the Indemnitee is pursuant to Section 1701.95 of the Ohio Revised Code
(the "ORC").
(c) Any indemnification under Section 2(a) or 2(b) (unless ordered by a
court) shall be made by the Company only as authorized in the specific case upon
a determination that indemnification of the Indemnitee is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Section 2(a) or 2(b). Such authorization shall be made (i) by the Board of
Directors of the Company (the "Board") by a majority vote of a quorum consisting
of directors who were not and are not parties to or threatened with such action,
suit, or proceeding, or (ii) if such a quorum of disinterested directors is not
available or if a majority of such quorum so directs, in a written opinion by
independent legal counsel (designated for such purpose by the Board) which shall
not be an attorney, or a firm having associated with it an attorney, who has
been retained by or who has performed services for the Company, or any person to
be indemnified, within the five years preceding such determination, or (iii) by
the shareholders of the Company (the "Shareholders"), or (iv) by the court of
common pleas or other court in which such action, suit, or proceeding was
brought.
(d) To the extent that the Indemnitee has been successful on the merits
or otherwise, including the dismissal of an action without prejudice, in defense
of any action, suit, or proceeding referred to in Section 2(a) or 2(b), or in
defense of any claim, issue, or matter therein,
-2-
<PAGE> 3
he shall be indemnified against Expenses actually and reasonably incurred by
him in connection therewith.
(e) Expenses actually and reasonably incurred by the Indemnitee in
defending any action, suit, or proceeding referred to in Section 2(a) or 2(b),
or in defense of any claim, issue or matter therein, shall be paid by the
Company as they are incurred in advance of the final disposition of such action,
suit, or proceeding under the procedure set forth in Section 4(b) hereof.
(f) For purposes of this Agreement, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on the Indemnitee with respect to any employee benefit
plan; references to "serving at the request of the Company" shall include any
service as a director, officer, employee, member, manager or agent of the
Company which imposes duties on, or involves services by, the Indemnitee with
respect to an employee benefit plan, its participants or beneficiaries;
references to the masculine shall include the feminine; references to the
singular shall include the plural and vice versa; the word including is used by
way of illustration only and not by way of limitation.
(g) No amendment to the articles of incorporation of the Company (the
"Articles") or the Regulations shall deny, diminish, or encumber the
Indemnitee's rights to indemnity pursuant to the Regulations, the ORC, or any
other applicable law as applied to any act or failure to act occurring in whole
or in part prior to the date (the "Effective Date") upon which the amendment was
approved by the Shareholders. In the event that the Company shall purport to
adopt any amendment to its Articles or Regulations or take any other action the
effect of which is to deny, diminish, or encumber the Indemnitee's rights to
indemnity pursuant to the Articles, the Regulations, the ORC, or any such other
law, such amendment shall apply only to acts or failures to act occurring
entirely after the Effective Date thereof.
3. ADDITIONAL INDEMNIFICATION
--------------------------
(a) Pursuant to Section 1701.13(E)(6) of the ORC, without limiting any
right which the Indemnitee may have pursuant to Section 2 hereof or any other
provision of this Agreement or the Articles, the Regulations, the ORC, any
policy of insurance, or otherwise, but subject to any limitation on the maximum
permissible indemnity which may exist under applicable law at the time of any
request for indemnity hereunder and subject to the following provisions of this
Section 3, the Company shall indemnify the Indemnitee against any amount which
he is or becomes obligated to pay relating to or arising out of any claim made
against him because of any act, failure to act, or neglect or breach of duty,
including any actual or alleged error, misstatement, or misleading statement,
that he commits, suffers, permits, or acquiesces in while acting in his capacity
as a director of the Company. The payments which the Company is obligated to
make pursuant to this Section 3 shall include any and all Expenses, judgments,
fines, and amounts paid in settlement, actually and reasonably incurred by the
Indemnitee in connection therewith including any appeal of or from any judgment
or decision; PROVIDED, HOWEVER, that the Company shall not be obligated under
this Section 3 to make any payment in connection with any claim against the
Indemnitee:
-3-
<PAGE> 4
(i) to the extent of any fine or similar governmental
imposition which the Company is prohibited by
applicable law from paying which results from a
final, nonappealable order; or
(ii) to the extent based upon or attributable to the
Indemnitee having actually realized a personal gain
or profit to which he was not legally entitled,
including profit from the purchase and sale by the
Indemnitee of equity securities of the Company which
are recoverable by the Company pursuant to Section
16(b) of the Securities Exchange Act of 1934, or
profit arising from transactions in publicly traded
securities of the Company which were effected by the
Indemnitee in violation of Section 10(b) of the
Securities Exchange Act of 1934, or Rule 10b-5
promulgated thereunder.
(b) A determination as to whether the Indemnitee shall be entitled to
indemnification under this Section 3 shall be made in accordance with Section
4(a) hereof. Expenses incurred by the Indemnitee in defending any claim to which
this Section 3 applies shall be paid by the Company as they are actually and
reasonably incurred in advance of the final disposition of such claim under the
procedure set forth in Section 4(b) hereof.
4. CERTAIN PROCEDURES RELATING TO INDEMNIFICATION
----------------------------------------------
(a) For purposes of pursuing his rights to indemnification under
Section 3 hereof, the Indemnitee shall (i) submit to the Board a sworn statement
of request for indemnification substantially in the form of Exhibit l attached
hereto and made a part hereof (the "Indemnification Statement") averring that he
is entitled to indemnification hereunder; and (ii) present to the Company
reasonable evidence of all amounts for which indemnification is requested.
Submission of an Indemnification Statement to the Board shall create a
presumption that the Indemnitee is entitled to indemnification hereunder, and
the Company shall, within 60 calendar days after submission of the
Indemnification Statement, make the payments requested in the Indemnification
Statement to or for the benefit of the Indemnitee, unless (A) within such
60-calendar-day period the Board shall resolve by vote of a majority of the
directors at a meeting at which a quorum is present that the Indemnitee is not
entitled to indemnification under Section 3 hereof, (B) such vote shall be based
upon clear and convincing evidence (sufficient to rebut the foregoing
presumption), and (C) the Board shall notify Indemnitee within such period of
such vote, which notice shall disclose with particularity the evidence upon
which the vote is based. The foregoing notice shall be sworn to by all persons
who participated in the vote and voted to deny indemnification. The provisions
of this Section 4(a) are intended to be procedural only and shall not affect the
right of Indemnitee to indemnification under Section 3 of this Agreement so long
as Indemnitee follows the prescribed procedure, and any determination by the
Board that Indemnitee is not entitled to indemnification and any failure to make
the payments requested in the Indemnification Statement shall be subject to
judicial review by any court of competent jurisdiction.
-4-
<PAGE> 5
(b) For purposes of obtaining payments of Expenses in advance of final
disposition pursuant to the last sentence of Section 2(d) or the last sentence
of Section 3(b) hereof, the Indemnitee shall submit to the Company a sworn
request for advancement of Expenses substantially in the form of Exhibit 2
attached hereto and made a part hereof (the "Undertaking"), averring that he has
reasonably incurred or will reasonably incur actual Expenses in defending an
action, suit or proceeding referred to in Section 2(a) or 2(b) or any claim
referred to in Section 3, or pursuant to Section 8 hereof. Unless at the time of
the Indemnitee's act or omission at issue, the Articles or the Regulations
prohibit such advances by specific reference to ORC Section l701.13(E)(5)(a) or
unless the only liability asserted against the Indemnitee in the subject action,
suit or proceeding is pursuant to ORC Section 1701.95, the Indemnitee shall be
eligible to execute Part A of the Undertaking by which he undertakes to: (i)
repay such amount if it is proved by clear and convincing evidence in a court of
competent jurisdiction that the Indemnitee's action or failure to act involved
an act or omission undertaken with deliberate intent to cause injury to the
Company or undertaken with reckless disregard for the best interests of the
Company; and (ii) reasonably cooperate with the Company concerning the action,
suit, proceeding or claim. In all cases, the Indemnitee shall be eligible to
execute Part B of the Undertaking by which he undertakes to repay such amount if
it ultimately is determined that he is not entitled to be indemnified by the
Company under this Agreement or otherwise. In the event that the Indemnitee is
eligible to and does execute both Part A and Part B of the Undertaking, the
Expenses which are paid by the Company pursuant thereto shall be required to be
repaid by the Indemnitee only if he is required to do so under the terms of both
Part A and Part B of the Undertaking. Upon receipt of the Undertaking, the
Company shall thereafter promptly pay such Expenses of the Indemnitee as are
noticed to the Company in reasonable detail arising out of the matter described
in the Undertaking. No security shall be required in connection with any
Undertaking.
5. LIMITATION ON INDEMNITY
-----------------------
Notwithstanding anything contained herein to the contrary, the Company
shall not be required hereby to indemnify the Indemnitee with respect to any
action, suit, or proceeding that was initiated by the Indemnitee unless (a) such
action, suit, or proceeding was initiated by the Indemnitee to enforce any
rights to indemnification arising hereunder and such person shall have been
formally adjudged to be entitled to indemnity by reason hereof, (b) authorized
by another agreement to which the Company is a party whether heretofore or
hereafter entered, or (c) otherwise ordered by the court in which the suit was
brought.
6. SUBROGATION; DUPLICATION OF PAYMENTS
------------------------------------
(a) In the event of payment under this Agreement, the Company shall be
subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee, who shall execute all papers required and shall do everything that
may be necessary to secure such rights, including the execution of such
documents necessary to enable the Company effectively to bring suit to enforce
such rights.
-5-
<PAGE> 6
(b) The Company shall not be liable under this Agreement to make any
payment in connection with any claim made against Indemnitee to the extent
Indemnitee has actually received payment (under any insurance policy, the
Regulations or otherwise) of the amounts otherwise payable hereunder.
7. SHAREHOLDER RATIFICATION
------------------------
The Company may, at its option, propose at any future meeting of
Shareholders that this Agreement be ratified by the Shareholders; PROVIDED,
HOWEVER, that the Indemnitee's rights hereunder shall be fully enforceable in
accordance with the terms hereof whether or not such ratification is sought or
obtained.
8. FEES AND EXPENSES OF ENFORCEMENT
--------------------------------
It is the intent of the Company that the Indemnitee not be required to
incur the expenses associated with the enforcement of his rights under this
Agreement by litigation or other legal action because the cost and expense
thereof would substantially detract from the benefits intended to be extended to
the Indemnitee hereunder. Accordingly, if it should appear to the Indemnitee
that the Company has failed to comply with any of its obligations under this
Agreement or in the event that the Company or any other person takes any action
to declare this Agreement void or unenforceable, or institutes any action, suit
or proceeding to deny, or to recover from, the Indemnitee the benefits intended
to be provided to the Indemnitee hereunder, the Company irrevocably authorizes
the Indemnitee from time to time to retain counsel of his choice, at the expense
of the Company as hereafter provided, to represent the Indemnitee in connection
with the initiation or defense of any litigation or other legal action, whether
by or against the Company or any director, officer, shareholder, or other person
affiliated with the Company, in any jurisdiction. Regardless of the outcome
thereof, the Company shall pay and be solely responsible for any and all costs,
charges, and expenses, including fees and expenses of attorneys and others,
reasonably incurred by the Indemnitee pursuant to this Section 8.
9. MERGER OR CONSOLIDATION
-----------------------
In the event that the Company shall be a constituent corporation in a
consolidation, merger, or other reorganization, the Company, if it shall not be
the surviving, resulting, or acquiring corporation therein, shall require as a
condition thereto that the surviving, resulting, or acquiring corporation agree
to assume all of the obligations of the Company hereunder and to indemnify the
Indemnitee to the full extent provided herein. Whether or not the Company is the
resulting, surviving, or acquiring corporation in any such transaction, the
Indemnitee shall stand in the same position under this Agreement with respect to
the resulting, surviving, or acquiring corporation as he would have with respect
to the Company if its separate existence had continued.
-6-
<PAGE> 7
10. NONEXCLUSIVITY; NO THIRD PARTY BENEFICIARIES; SEVERABILITY
----------------------------------------------------------
(a) The rights to indemnification provided by this Agreement shall not
be exclusive of any other rights of indemnification to which the Indemnitee may
be entitled under the Articles, the Regulations, the ORC or any other statute,
any insurance policy, agreement, or vote of shareholders or directors or
otherwise, as to any actions or failures to act by the Indemnitee, and shall
continue after he has ceased to be a director, officer, employee, or agent of
the Company or other entity for which his service gives rise to a right
hereunder, and shall inure to the benefit of his heirs, executors and
administrators.
(b) Except as provided in Section 10(a), the rights to indemnification
provided by this Agreement are personal to Indemnitee and are non-transferable
by Indemnitee, and no party other than the Indemnitee is entitled to
indemnification under this Agreement.
(c) If any provision of this Agreement or the application of any
provision hereof to any person or circumstances is held invalid, unenforceable
or otherwise illegal, the remainder of this Agreement and the application of
such provision to other persons or circumstances shall not be affected, and the
provision so held to be invalid, unenforceable or otherwise illegal shall be
reformed to the extent (and only to the extent) necessary to make it
enforceable, valid and legal.
11. SECURITY
--------
To ensure that the Company's obligations pursuant to this Agreement can
be enforced by Indemnitee, the Company may, at its option, establish a trust
pursuant to which the Company's obligations pursuant to this Agreement and other
similar agreements can be funded.
12. NOTICES
-------
All notices and other communications hereunder shall be in writing and
shall be personally delivered or sent by recognized overnight courier service
(a) if to the Company, to the then-current principal executive offices of the
Company (Attention: General Counsel) or (b) if to the Indemnitee, to the last
known address of Indemnitee as reflected in the Company's records. Either party
may change its address for the delivery of notices or other communications
hereunder by providing notice to the other party as provided in this Section 12.
All notices shall be effective upon actual delivery by the methods specified in
this Section 12.
13. GOVERNING LAW
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of Ohio, without giving effect to the principles of
conflict of laws thereof.
-7-
<PAGE> 8
14. MODIFICATION
------------
This Agreement and the rights and duties of the Indemnitee and the
Company hereunder may be modified only by an instrument in writing signed by
both parties hereto.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
OMNOVA SOLUTIONS INC.
By: ___________________________________
Name:
Title:
-----------------------------------------
[Signature of Indemnitee]
-8-
<PAGE> 9
EXHIBIT 1
INDEMNIFICATION STATEMENT
-------------------------
STATE OF ________________)
) SS
COUNTY OF _______________)
I, _______________ , being first duly sworn, do depose and say as
follows:
1. This Indemnification Statement is submitted pursuant to the
Indemnification Agreement, dated _________ __, 1999, between Omnova Solutions
Inc., an Ohio corporation (the "Company"), and the undersigned.
2. I am requesting indemnification against costs, charges,
expenses (which may include fees and expenses of attorneys and/or others),
judgments, fines, and amounts paid in settlement (collectively, "Liabilities"),
which have been actually and reasonably incurred by me in connection with a
claim referred to in Section 3 of the aforesaid Indemnification Agreement.
3. With respect to all matters related to any such claim, I am
entitled to be indemnified as herein contemplated pursuant to the aforesaid
Indemnification Agreement.
4. Without limiting any other rights which I have or may have, I
am requesting indemnification against Liabilities which have or may arise out of
- ------------------------------------------------------------------------------
- -----------------------------------------------------------------------------.
------------------------------------------
[Signature of Indemnitee]
Subscribed and sworn to before me, a Notary Public in and for
said County and State, this _____ day of _________, 199__.
------------------------------------------
[Seal]
My commission expires the _____ day of __________, 19__ .
<PAGE> 10
EXHIBIT 2
UNDERTAKING
STATE OF ________________)
) SS
COUNTY OF _______________)
I, _________________________________, being first duly sworn, do
depose and say as follows:
1. This Undertaking is submitted pursuant to the Indemnification
Agreement, dated ____________ , 1999, between Omnova Solutions Inc., an Ohio
corporation (the "Company") and the undersigned.
2. I am requesting payment of costs, charges, and expenses which
I have reasonably incurred or will reasonably incur in defending an action, suit
or proceeding, referred to in Section 2(a) or 2(b) or any claim referred to in
Section 3, or pursuant to Section 8, of the aforesaid Indemnification Agreement.
3. The costs, charges, and expenses for which payment is
requested are, in general, all expenses related to
-----------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. PART A(1)
--------
I hereby undertake to (a) repay all amounts paid pursuant hereto
if it is proved by
clear and convincing evidence in a court of competent jurisdiction that my
action or failure to act which is the subject of the matter described herein
involved an act or omission undertaken with deliberate intent to cause injury to
the Company or undertaken with reckless disregard for the best
- --------
(1) The Indemnitee shall not be eligible to execute Part A of this Undertaking
if, at the time of the Indemnitee's act or omission at issue, the articles
of incorporation or the code of regulations of the Company prohibit such
advances by specific reference to the Ohio Revised Code (the "ORC") Section
1701.13(E)(5)(a), or if the only liability asserted against the Indemnitee
is in an action, suit or proceeding on the Company's behalf pursuant to ORC
Section 1701.95. In the event that the Indemnitee is eligible to and does
execute both Part A and Part B hereof, the costs, charges and expenses which
are paid by the Company pursuant hereto shall be required to be repaid by
the Indemnitee only if he is required to do so under the terms of both Part
A and Part B hereof.
<PAGE> 11
interests of the Company and (b) reasonably cooperate with the Company
concerning the action, suit, proceeding or claim.
-----------------------------------
[Signature of Indemnitee]
4. PART B
------
I hereby undertake to repay all amounts paid pursuant hereto if
it ultimately is determined that I am not entitled to be indemnified by the
Company under the aforesaid Indemnification Agreement or otherwise.
-----------------------------------
[Signature of Indemnitee]
Subscribed and sworn to before me, a Notary Public in and for
said County and State, this _____ day of _________ , 199__.
-----------------------------------
[Seal]
My commission expires the ____ day of ___________ , 19__.
-2-
<PAGE> 1
Exhibit 10.21
OFFICER INDEMNIFICATION AGREEMENT
---------------------------------
This Officer Indemnification Agreement, dated as of ______________,
1999 (this "Agreement"), is made by and between Omnova Solutions Inc., an Ohio
corporation (the "Company"), and ___________________ (the "Indemnitee"), an
officer of the Company.
RECITALS
--------
A. The Indemnitee is presently serving as an officer of the Company,
and the Company desires that the Indemnitee continue serving in such capacity.
The Indemnitee is willing, subject to certain conditions including the execution
and performance of this Agreement by the Company, to continue serving in such
capacity.
B. In addition to the indemnification to which the Indemnitee is
entitled under the code of regulations of the Company (the "Regulations"), the
Company has obtained, at its sole expense, insurance protecting the Company and
its officers and directors, including the Indemnitee, against certain losses
arising out of any threatened, pending or completed action, suit, or proceeding
to which such persons may be made or are threatened to be made parties.
NOW, THEREFORE, in order to induce the Indemnitee to continue to serve
in his present capacity, and for other good and valuable consideration the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Indemnitee agree as follows:
1. CONTINUED SERVICE
-----------------
The Indemnitee shall continue to serve, at the will of the Company or
in accordance with a separate contract, to the extent that such a contract is in
effect at the time in question, as an officer of the Company so long as he is
duly elected and qualified in accordance with the Regulations or until he
resigns in writing in accordance with applicable law.
2. INITIAL INDEMNITY
-----------------
(a) The Company shall indemnify the Indemnitee if or when he is a party
or is threatened to be made a party to any threatened, pending, or completed
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative (other than an action by or in the right of the Company), by
reason of the fact that he is or was an officer of the Company or is or was
serving at the request of the Company as a director, trustee, officer, employee,
member, manager or agent of another corporation, domestic or foreign, nonprofit
or for profit, a limited
<PAGE> 2
liability company, or a partnership, joint venture, trust, or other enterprise,
or by reason of any action alleged to have been taken or omitted in any such
capacity, against any and all costs, charges, expenses (including fees and
expenses of attorneys or others; all such costs, charges and expenses being
herein jointly referred to as "Expenses"), judgments, fines, and amounts paid in
settlement, actually and reasonably incurred by the Indemnitee in connection
therewith, including any appeal of or from any judgment or decision, if the
Indemnitee acted in good faith and in a manner which he reasonably believed to
be in or not opposed to the best interests of the Company, and, with respect to
any criminal action or proceeding, he had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, or conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the Indemnitee
did not satisfy the foregoing standard of conduct to the extent applicable
thereto.
(b) The Company shall indemnify the Indemnitee if or when he is a
party, or is threatened to be made a party, to any threatened, pending, or
completed action, suit, or proceeding by or in the right of the Company to
procure a judgment in its favor, by reason of the fact that the Indemnitee is or
was an officer of the Company or is or was serving at the request of the Company
as a director, trustee, officer, employee, member, manager or agent of another
corporation, domestic or foreign, nonprofit or for profit, a limited liability
company, or a partnership, joint venture, trust, or other enterprise, against
any and all Expenses actually and reasonably incurred by the Indemnitee in
connection with the defense or settlement thereof or any appeal of or from any
judgment or decision, if the Indemnitee acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company, except that no indemnification pursuant to this Section 2(b) shall be
made in respect of any claim, issue, or matter as to which the Indemnitee is
adjudged to be liable for negligence or misconduct in the performance of his
duty to the Company unless, and only to the extent that, the court of common
pleas or other court in which such action, suit, or proceeding was brought
determines, notwithstanding any adjudication of liability, that in view of all
the circumstances of the case the Indemnitee is fairly and reasonably entitled
to indemnity for such expenses as such court of common pleas or other court
shall deem proper.
(c) Any indemnification under Section 2(a) or 2(b) (unless ordered by a
court) shall be made by the Company only as authorized in the specific case upon
a determination that indemnification of the Indemnitee is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Section 2(a) or 2(b). Such authorization shall be made (i) by the Board of
Directors of the Company (the "Board") by a majority vote of a quorum consisting
of directors who were not and are not parties to or threatened with such action,
suit, or proceeding, or (ii) if such a quorum of disinterested directors is not
available or if a majority of such quorum so directs, in a written opinion by
independent legal counsel (designated for such purpose by the Board) which shall
not be an attorney, or a firm having associated with it an attorney, who has
been retained by or who has performed services for the Company, or any person to
be indemnified, within the five years preceding such determination, or (iii) by
the shareholders of the Company (the "Shareholders"), or (iv) by the court of
common pleas or other court in which such action, suit, or proceeding was
brought.
-2-
<PAGE> 3
(d) To the extent that the Indemnitee has been successful on the merits
or otherwise, including the dismissal of an action without prejudice, in defense
of any action, suit, or proceeding referred to in Section 2(a) or 2(b), or in
defense of any claim, issue, or matter therein, he shall be indemnified against
Expenses actually and reasonably incurred by him in connection therewith.
(e) Expenses actually and reasonably incurred by the Indemnitee in
defending any such action, suit, or proceeding referred to in Section 2(a) or
2(b), or in defense of any claim, issue, or matter therein, shall be paid by the
Company as they are incurred in advance of the final disposition of such action,
suit, or proceeding under the procedure set forth in Section 4(b) hereof.
(f) For purposes of this Agreement, references to "other enterprises
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on the Indemnitee with respect to any employee benefit
plan; references to "serving at the request of the Company" shall include any
service as a director, officer, employee or agent of the Company which imposes
duties on, or involves services by, the Indemnitee with respect to an employee
benefit plan, its participants or beneficiaries; references to the masculine
shall include the feminine; references to the singular shall include the plural
and vice versa; the word including is used by way of illustration only and not
by way of limitation; and with respect to conduct by Indemnitee in his capacity
as a trustee, administrator or other fiduciary of any employee benefit plan of
the Company, if the Indemnitee acted in good faith and in a manner he reasonably
believed to be in the interest of the participants or beneficiaries of such
employee benefit plan, he shall be deemed to have acted in a manner "not opposed
to the best interests of the Company" as referred to herein.
(g) No amendment to the articles of incorporation of the Company (the
"Articles") or the Regulations shall deny, diminish, or encumber the
Indemnitee's rights to indemnity pursuant to the Regulations, the Ohio Revised
Code (the "ORC"), or any other applicable law as applied to any act or failure
to act occurring in whole or in part prior to the date (the "Effective Date")
upon which the amendment was approved by the Shareholders. In the event that the
Company shall purport to adopt any amendment to its Articles or Regulations or
take any other action the effect of which is to deny, diminish, or encumber the
Indemnitee's rights to indemnity pursuant to the Articles, the Regulations, the
ORC, or any such other law, such amendment shall apply only to acts or failures
to act occurring entirely after the Effective Date thereof.
3. ADDITIONAL INDEMNIFICATION
--------------------------
(a) Pursuant to Section 1701.13(E)(6) of the ORC, without limiting any
right which the Indemnitee may have pursuant to Section 2 hereof or any other
provision of this Agreement or the Articles, the Regulations, the ORC, any
policy of insurance, or otherwise, but subject to any limitation on the maximum
permissible indemnity which may exist under applicable law at the time of any
request for indemnity hereunder and subject to the following provisions of this
Section 3, the Company shall indemnify the Indemnitee against any amount which
he is or
-3-
<PAGE> 4
becomes obligated to pay relating to or arising out of any claim made
against him because of any act, failure to act, or neglect or breach of duty,
including any actual or alleged error, misstatement, or misleading statement,
that he commits, suffers, permits, or acquiesces in while acting in his capacity
as an officer of the Company. The payments which the Company is obligated to
make pursuant to this Section 3 shall include any and all Expenses, judgments,
fines, and amounts paid in settlement, actually and reasonably incurred by the
Indemnitee in connection therewith including any appeal of or from any judgment
or decision; PROVIDED, HOWEVER, that the Company shall not be obligated under
this Section 3 to make any payment in connection with any claim against the
Indemnitee:
(i) to the extent of any fine or similar governmental
imposition which the Company is prohibited by
applicable law from paying which results from a
final, nonappealable order; or
(ii) to the extent based upon or attributable to the
Indemnitee having actually realized a personal gain
or profit to which he was not legally entitled,
including profit from the purchase and sale by the
Indemnitee of equity securities of the Company which
are recoverable by the Company pursuant to Section
16(b) of the Securities Exchange Act of 1934, or
profit arising from transactions in publicly traded
securities of the Company which were effected by the
Indemnitee in violation of Section 10(b) of the
Securities Exchange Act of 1934, or Rule 10b-5
promulgated thereunder.
(b) A determination as to whether the Indemnitee shall be entitled to
indemnification under this Section 3 shall be made in accordance with Section
4(a) hereof. Expenses incurred by the Indemnitee in defending any claim to which
this Section 3 applies shall be paid by the Company as they are actually and
reasonably incurred in advance of the final disposition of such claim under the
procedure set forth in Section 4(b) hereof.
4. CERTAIN PROCEDURES RELATING TO INDEMNIFICATION
----------------------------------------------
(a) For purposes of pursuing his rights to indemnification under
Section 3 hereof, the Indemnitee shall (i) submit to the Board a sworn statement
of request for indemnification substantially in the form of Exhibit 1 attached
hereto and made a part hereof (the "Indemnification Statement") averring that he
is entitled to indemnification hereunder; and (ii) present to the Company
reasonable evidence of all amounts for which indemnification is requested.
Submission of an Indemnification Statement to the Board shall create a
presumption that the Indemnitee is entitled to indemnification hereunder, and
the Company shall, within 60 calendar days after submission of the
Indemnification Statement, make the payments requested in the Indemnification
Statement to or for the benefit of the Indemnitee, unless (A) within such
60-calendar-day period the Board shall resolve by vote of a majority of the
directors at a meeting at which a quorum is present that the Indemnitee is not
entitled to indemnification under Section 3 hereof, (B) such vote shall be based
upon clear and convincing evidence (sufficient to rebut the
-4-
<PAGE> 5
foregoing presumption), and (C) the Board shall notify Indemnitee within such
period of such vote, which notice shall disclose with particularity the evidence
upon which the vote is based. The foregoing notice shall be sworn to by all
persons who participated in the vote and voted to deny indemnification. The
provisions of this Section 4(a) are intended to be procedural only and shall not
affect the right of Indemnitee to indemnification under Section 3 of this
Agreement so long as Indemnitee follows the prescribed procedure, and any
determination by the Board that Indemnitee is not entitled to indemnification
and any failure to make the payments requested in the Indemnification Statement
shall be subject to judicial review by any court of competent jurisdiction.
(b) For purposes of obtaining payments of Expenses in advance of final
disposition pursuant to the last sentence of Section 2(d) or the last sentence
of Section 3(b) hereof, the Indemnitee shall submit to the Company a sworn
request for advancement of Expenses substantially in the form of Exhibit 2
attached hereto and made a part hereof (the "Undertaking"), averring that he has
reasonably incurred or will reasonably incur actual Expenses in defending an
action, suit or proceeding referred to in Section 2(a) or 2(b) or any claim
referred to in Section 3, or pursuant to Section 8 hereof. Indemnitee shall be
eligible to execute Part A of the Undertaking by which he undertakes to: (A)
repay such amount if (1) with respect to any action, suit, proceeding or claim
(other than an action by or in the right of the Company) brought against the
Indemnitee by reason of the fact that the Indemnitee is or was an officer of the
Company for which the Indemnitee has received advancement of Expenses, it is
determined that the Indemnitee did not act in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of the
Company or (2) with respect to any action, suit, proceeding or claim brought
against the Indemnitee by or in the right of the Company for which the
Indemnitee has received advancement of Expenses, the Indemnitee is adjudged to
be liable for negligence or for misconduct in the performance of his duty to the
Company and the court has not determined that Indemnitee is entitled to
indemnification; and (B) reasonably cooperate with the Company concerning the
action, suit, proceeding or claim. In all cases, the Indemnitee shall be
eligible to execute Part B of the Undertaking by which he undertakes to repay
such amount if it ultimately is determined that he is not entitled to be
indemnified by the Company under this Agreement or otherwise. In the event that
the Indemnitee is eligible to and does execute both Part A and Part B of the
Undertaking, the Expenses which are paid by the Company pursuant thereto shall
be required to be repaid by the Indemnitee only if he is required to do so under
the terms of both Part A and Part B of the Undertaking. Upon receipt of the
Undertaking, the Company shall thereafter promptly pay such Expenses of the
Indemnitee as are noticed to the Company in reasonable detail arising out of the
matter described in the Undertaking. No security shall be required in connection
with any Undertaking.
5. LIMITATION ON INDEMNITY
-----------------------
Notwithstanding anything contained herein to the contrary, the Company
shall not be required hereby to indemnify the Indemnitee with respect to any
action, suit, or proceeding that was initiated by the Indemnitee unless (a) such
action, suit, or proceeding was initiated by the Indemnitee to enforce any
rights to indemnification arising hereunder and such person shall have been
formally adjudged to be entitled to indemnity by reason hereof, (b) authorized
by another
-5-
<PAGE> 6
agreement to which the Company is a party whether heretofore or hereafter
entered, or (c) otherwise ordered by the court in which the suit was brought.
6. SUBROGATION; DUPLICATION OF PAYMENTS
------------------------------------
(a) In the event of payment under this Agreement, the Company shall be
subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee, who shall execute all papers required and shall do everything that
may be necessary to secure such rights, including the execution of such
documents necessary to enable the Company effectively to bring suit to enforce
such rights.
(b) The Company shall not be liable under this Agreement to make any
payment in connection with any claim made against Indemnitee to the extent
Indemnitee has actually received payment (under any insurance policy, the
Regulations or otherwise) of the amounts otherwise payable hereunder.
7. SHAREHOLDER RATIFICATION
------------------------
The Company may, at its option, propose at any future meeting of
Shareholders that this Agreement be ratified by the Shareholders; PROVIDED,
HOWEVER, that the Indemnitee's rights hereunder shall be fully enforceable in
accordance with the terms hereof whether or not such ratification is sought or
obtained.
8. FEES AND EXPENSES OF ENFORCEMENT
--------------------------------
It is the intent of the Company that the Indemnitee not be required to
incur the expenses associated with the enforcement of his rights under this
Agreement by litigation or other legal action because the cost and expense
thereof would substantially detract from the benefits intended to be extended to
the Indemnitee hereunder. Accordingly, if it should appear to the Indemnitee
that the Company has failed to comply with any of its obligations under this
Agreement or in the event that the Company or any other person takes any action
to declare this Agreement void or unenforceable, or institutes any action, suit
or proceeding to deny or to recover from, the Indemnitee the benefits intended
to be provided to the Indemnitee hereunder, the Company irrevocably authorizes
the Indemnitee from time to time to retain counsel of his choice, at the expense
of the Company as hereafter provided, to represent the Indemnitee in connection
with the initiation or defense of any litigation or other legal action, whether
by or against the Company or any director, officer, shareholder, or other person
affiliated with the Company, in any jurisdiction. Regardless of the outcome
thereof, the Company shall pay and be solely responsible for any and all costs,
charges, and expenses, including fees and expenses of attorneys and others,
reasonably incurred by the Indemnitee pursuant to this Section 8.
-6-
<PAGE> 7
9. MERGER OR CONSOLIDATION
-----------------------
In the event that the Company shall be a constituent corporation in a
consolidation, merger, or other reorganization, the Company, if it shall not be
the surviving, resulting, or acquiring corporation therein, shall require as a
condition thereto that the surviving, resulting, or acquiring corporation agree
to assume all of the obligations of the Company hereunder and to indemnify the
Indemnitee to the full extent provided herein. Whether or not the Company is the
resulting, surviving, or acquiring corporation in any such transaction, the
Indemnitee shall stand in the same position under this Agreement with respect to
the resulting, surviving, or acquiring corporation as he would have with respect
to the Company if its separate existence had continued.
10. NONEXCLUSIVITY; NO THIRD PARTY BENEFICIARIES; SEVERABILITY
----------------------------------------------------------
(a) The rights to indemnification provided by this Agreement shall not
be exclusive of any other rights of indemnification to which the Indemnitee may
be entitled under the Articles, the Regulations, the ORC or any other statute,
any insurance policy, agreement, or vote of shareholders or directors or
otherwise, as to any actions or failures to act by the Indemnitee, and shall
continue after he has ceased to be a director, officer, employee, or agent of
the Company or other entity for which his service gives rise to a right
hereunder, and shall inure to the benefit of his heirs, executors and
administrators.
(b) Except as provided in Section 10 (a), the rights to indemnification
provided by this Agreement are personal to Indemnitee and are non-transferable
by Indemnitee, and no party other than the Indemnitee is entitled to
indemnification under this Agreement.
(c) If any provision of this Agreement or the application of any
provision hereof to any person or circumstances is held invalid, unenforceable
or otherwise illegal, the remainder of this Agreement and the application of
such provision to other persons or circumstances shall not be affected, and the
provision so held to be invalid, unenforceable or otherwise illegal shall be
reformed to the extent (and only to the extent) necessary to make it
enforceable, valid and legal.
11. SECURITY
--------
To ensure that the Company's obligations pursuant to this Agreement can
be enforced by Indemnitee, the Company may, at its option, establish a trust
pursuant to which the Company's obligations pursuant to this Agreement and other
similar agreements can be funded.
12. NOTICES
-------
All notices and other communications hereunder shall be in writing and
shall be personally delivered or sent by recognized overnight courier service
(a) if to the Company, to the then-current principal executive offices of the
Company (Attention: General Counsel) or (b) if to
-7-
<PAGE> 8
the Indemnitee, to the last known address of Indemnitee as reflected in the
Company's records. Either party may change its address for the delivery of
notices or other communications hereunder by providing notice to the other party
as provided in this Section 12. All notices shall be effective upon actual
delivery by the methods specified in this Section 12.
13. GOVERNING LAW
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of Ohio, without giving effect to the principles of
conflict of laws thereof.
14. MODIFICATION
------------
This Agreement and the rights and duties of the Indemnitee and the
Company hereunder may be modified only by an instrument in writing signed by
both parties hereto.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
OMNOVA SOLUTIONS INC.
By:
-----------------------------
Name:
Title:
----------------------------------
[Signature of Indemnitee]
-8-
<PAGE> 9
EXHIBIT 1
INDEMNIFICATION STATEMENT
-------------------------
STATE OF ____________________)
) SS
COUNTY OF ___________________)
I, ________________, being first duly sworn, do depose and say as
follows:
1. This Indemnification Statement is submitted pursuant to the
Indemnification Agreement, dated __________ 1999, between Omnova Solutions Inc.,
an Ohio corporation (the "Company"), and the undersigned.
2. I am requesting indemnification against costs, charges, expenses
(which may include fees and expenses of attorneys and/or others), judgments,
fines, and amounts paid in settlement (collectively, "Liabilities"), which have
been actually and reasonably incurred by me in connection with a claim referred
to in Section 3 of the aforesaid Indemnification Agreement.
3. With respect to all matters related to any such claim, I am entitled
to be indemnified as herein contemplated pursuant to the aforesaid
Indemnification Agreement.
4. Without limiting any other rights which I have or may have, I am
requesting indemnification against Liabilities which have or may arise out of
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------.
----------------------------------
[Signature of Indemnitee]
Subscribed and sworn to before me, a Notary Public in and for said
County and State, this _____ day of ________, 19__.
----------------------------------
[Seal]
My commission expires the _____ day of __________, 19__.
<PAGE> 10
EXHIBIT 2
UNDERTAKING
-----------
STATE OF ____________________)
) SS
COUNTY OF ___________________)
I, ___________________, being first duly sworn do depose and say as
follows:
1. This Undertaking is submitted pursuant to the Indemnification
Agreement, dated _________________, 1999 between Omnova Solutions Inc., an Ohio
corporation (the "Company") and the undersigned.
2. I am requesting payment of costs, charges, and expenses which I have
reasonably incurred or will reasonably incur in defending an action, suit or
proceeding, referred to in Section 2(a) or 2(b) or any claim referred to in
Section 3, or pursuant to Section 8, of the aforesaid Indemnification Agreement.
3. The costs, charges, and expenses for which payment is requested are,
in general, all expenses related to
--------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. PART A
------
I hereby undertake to: (a) repay all amounts paid pursuant hereto if
(i) with respect to any action, suit, proceeding or claim (other than an action
by or in the right of the Company) brought against me by reason of the fact that
I am or was an officer of the Company for which I have received advancement of
Expenses, it is determined that I did not act in good faith or in a manner which
I reasonably believed to be in or not opposed to the best interests of the
Company or (ii) with respect to any action, suit, proceeding or claim brought
against me by or in the right of the Company for which I have received
advancement of Expenses, I am adjudged to be liable for negligence or misconduct
in the performance of my duty to the Company and the court has not determined
that I am entitled to indemnification; and (b) reasonably cooperate with the
Company concerning the action, suit, proceeding or claim.
----------------------------------
[Signature of Indemnitee]
<PAGE> 11
4. PART B
------
I hereby undertake to repay all amounts paid pursuant hereto if it
ultimately is determined that I am not entitled to be indemnified by the Company
under the aforesaid Indemnification Agreement or otherwise.
----------------------------------
[Signature of Indemnitee]
Subscribed and sworn to before me, a Notary Public in and for said
County and State, this _____ day of __________, 19__.
----------------------------------
[Seal]
My commission expires the ____ day of __________, 19__.
-2-
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<TABLE> <S> <C>
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<INCOME-TAX> 28,000 23,000 24,000
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