<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 (No Fee Required)
For the fiscal year ended May 31, 1998
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No Fee Required)
For the transition period from __________ to ___________
Commission File No. 0-5132
RPM, INC.
(Exact Name of Registrant as Specified in its Charter)
Ohio 34-6550857
- ------------------------------- ----------------------------
(State or Other Jurisdiction of (IRS Employer Identification
Incorporation or Organization) No.)
P.O. Box 777, 2628 Pearl Road, Medina, Ohio 44258
- -----------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (330) 273-5090
Securities registered pursuant to Section 12(b) of the Act:
Common Shares, Without Par Value
--------------------------------
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports) and (2) has been subject
to the filing requirements for the past 90 days. Yes x No
--- ---
<PAGE> 2
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
As of August 18, 1998, 110,511,003 Common Shares were
outstanding, and the aggregate market value of the Common Shares of the
Registrant held by non-affiliates (based upon the closing price of the Common
Shares as reported on the New York Stock Exchange on August 18, 1998) was
approximately $1,663,115,714. For purposes of this information, the 3,213,215
outstanding Common Shares which were owned beneficially as of August 18, 1998 by
executive officers and Directors of the Registrant were deemed to be the Common
Shares held by affiliates.
Documents Incorporated by Reference
Portions of the following documents are incorporated by
reference to Parts II, III and IV of this Annual Report on Form 10-K: (i)
definitive Proxy Statement to be used in connection with the Registrant's Annual
Meeting of Shareholders to be held on October 9, 1998 (the "1998 Proxy
Statement") and (ii) the Registrant's 1998 Annual Report to Shareholders for the
fiscal year ended May 31, 1998 (the "1998 Annual Report to Shareholders").
Except as otherwise stated, the information contained in this
Annual Report on Form 10-K is as of May 31, 1998.
2
<PAGE> 3
PART I
ITEM 1. BUSINESS.
THE COMPANY
RPM, Inc. ("RPM" or the "Company") was organized in 1947 as an
Ohio corporation under the name Republic Powdered Metals, Inc. On November 9,
1971, the Company's name was changed to RPM, Inc. As used herein, the terms
"RPM" and the "Company" refer to RPM, Inc. and its subsidiaries, unless the
context indicates otherwise. The Company has its principal executive offices at
2628 Pearl Road, P.O. Box 777, Medina, Ohio 44258, and its telephone number is
(330) 273-5090.
RECENT DEVELOPMENTS
In May 1998, the Company filed an application to list its
Common Shares for trading on the New York Stock Exchange ("NYSE"). On June 9,
1998, the Company's Common Shares began trading on the NYSE under the symbol
"RPM."
On July 8, 1998, the Company announced that all of the
outstanding $191.7 million principal amount of its Liquid Yield Option Notes Due
2012 ("LYONs(TM)") were called for redemption on August 10, 1998 pursuant to the
provisions of the Trust Indenture dated September 15, 1992 between the Company
and the First National Bank of Chicago, as Trustee and Paying Agent. As a result
of the redemption of these convertible securities, approximately 10.1 million
Common Shares were issued and LYONs(TM) holders who chose not to convert their
Notes to Common Shares received aggregate cash payments of $32.1 million.
ACQUISITIONS
Since RPM's offering of Common Shares to the public in
September 1969, the Company has made a number of significant acquisitions that
have been described in previous reports on file with the Securities and Exchange
Commission. RPM's acquisition strategy focuses on companies with high
performance and quality products which are leaders in their respective markets.
RPM expects to continue its acquisition program, although there is no assurance
that any acquisitions will be made.
As part of this acquisition program, in March 1998, the
Company acquired all of the issued and outstanding shares of The Flecto Company,
Inc. and its affiliated companies headquartered in Oakland, California. Flecto
is a leading manufacturer of wood finishes and wood finishing equipment for the
retail do-it-yourself wood and floor finishing markets in the United States and
Canada. Flecto sells clear and stain finishes under the Varathane(R) and
Watco(R) name brands.
- -------------
(TM) Merrill Lynch & Co., Inc.
3
<PAGE> 4
Subsequent to the May 31 fiscal year-end, on July 8, 1998, the
Company acquired Nullifire Ltd., based in Coventry, England. Nullifire is a
leading manufacturer and marketer of intumescent fireproofing coatings for
industrial and commercial applications. Nullifire will operate as part of the
Company's Carboline Company subsidiary, supplementing the product lines and
geographic coverage of Carboline's existing fireproofing business.
BUSINESS
RPM operates principally in one business segment, the
manufacture and marketing of protective coatings. These protective coatings
products are used for both industrial and consumer applications. For industrial
applications, RPM manufactures and markets coatings for waterproofing and
general maintenance, corrosion control, and other specialty chemical
applications. For consumer applications, RPM manufactures do-it-yourself
products for the home maintenance, automotive repair, hobby and leisure and
marine markets. RPM, through its operating companies, serves niche markets
within these broader categories, thus providing a foundation for its strategy of
growth through product line extensions.
The protective coating products manufactured by RPM are used
primarily on property which already exists. RPM is not involved to any great
degree in new construction and, therefore, is generally less affected by
cyclical movements in the economy. RPM markets its products in approximately 130
countries and operates manufacturing facilities in 61 locations in the United
States, Argentina, Belgium, Brazil, Canada, China, Germany, Malaysia, The
Netherlands, Poland, Singapore, South Africa, the United Arab Emirates and the
United Kingdom.
INDUSTRIAL PRODUCTS
RPM's industrial products represent approximately 63% of the
Company's sales. The numerous protective coatings manufactured by the Company
are used in a variety of industrial applications including waterproofing,
general maintenance, corrosion control and other specialty chemical
applications.
The Company manufactures a number of products designed for
waterproofing applications. These waterproofing products include sealants, deck
coatings, membranes and water-based coatings for commercial and industrial
maintenance produced by the Company's Martin Mathys, ESPAN, and Tremco
businesses.
The Company also manufactures a variety of products used for
general commercial and industrial maintenance. These products include roofing
products, such as asphaltic aluminum roof deck coating produced by RPM's
original business unit, Republic Powdered Metals, Geoflex and Hy-Shield premium
single-ply roofing materials and Tremco roofing systems. Other products include
high-performance polymer floors, linings and wall systems produced by Stonhard,
molded and pultruded fiberglass reinforced plastic grating products manufactured
by Fibergrate Composite Structures, Inc. (formerly Composite Structures
International), under the brand names of Chemgrate and Fibergrate, as well as
Dryvit coatings and adhesives for exterior wall insulating finishing systems and
TCI powdered coatings.
4
<PAGE> 5
The Company's industrial product line also includes a
broad-line of high-performance corrosion control coatings. The Company's
Carboline subsidiary manufactures high-performance corrosion-resistant
protective coatings, fireproofing, tank linings and floor coatings, and markets
these products to industrial, architectural and applicator companies throughout
the world. The Company's various other corrosion-resistant coatings include the
Plasite and Alox brands.
The Company also produces a variety of specialty chemical
products within selected niche markets. Products manufactured for specialty
chemical applications include: Day-Glo Color and Radiant Color fluorescent
colorants and pigments; Kop-Coat manufactured compounds and wood treatment
products including Wolman industrial lumber treatments and ValvTect diesel fuel
additives; American Emulsions dye additives for textile dyeing and finishing;
Chemspec commercial carpet cleaning solutions; and concrete admixtures sold by
The Euclid Chemical Company, RPM's 50-50 joint venture with the
Switzerland-based Holderbank Group.
CONSUMER PRODUCTS
RPM's consumer products represent approximately 37% of the
Company's sales. The Company's consumer products include products designed for
the household do-it-yourself, automotive repair, hobby and leisure and marine
markets.
RPM's primary consumer do-it-yourself businesses are
Rust-Oleum, William Zinsser, Bondex International and Bondo/Mar-Hyde. Rust-Oleum
manufactures high quality corrosion-resistant, general purpose and decorative
coatings for the household maintenance and light industrial markets. William
Zinsser manufactures a broad line of specialty primers and sealants and is the
nation's leading producer of shellac items used as pharmaceutical glazes,
confectioner's glazes, citrus fruit coatings and wood coatings. Bondex
International produces a nationwide line of household patch and repair products,
in addition to basement waterproofing products. Bondo/Mar-Hyde manufactures auto
body paints and repair products for the automotive aftermarket. Products
marketed by these units include spray paints, body fillers, vinyl colors and
bumper repair products.
The Company also manufactures products for the hobby and
leisure markets including Testor's model kits and accessory products and
Floquil/Polly S Color hobby, art and craft coatings. RPM's consumer hobby and
leisure products are marketed through thousands of mass merchandise, toy and
hobby stores throughout North America.
Other consumer do-it-yourself products include: fabrics,
window treatments and wall coverings sold by Design/Craft Fabric and Richard E.
Thibaut; Mohawk, Star Finishing and Chemical Coatings, and newly acquired Flecto
furniture finishes and repair and restoration coatings; pleasure marine coatings
marketed under the Pettit, Woolsey and Z-Spar brand names; and Wolman deck
coatings, sealants and brighteners. RPM's consumer do-it-yourself products are
marketed through thousands of mass merchandise, home center and hardware stores
throughout North America.
5
<PAGE> 6
FOREIGN OPERATIONS
The Company's foreign manufacturing operations for the fiscal
year ended May 31, 1998 accounted for approximately 19% of its total sales
(which does not include exports directly from the United States), although it
also receives license fees and royalty income from numerous license agreements
and also has joint ventures accounted for under the equity method in various
foreign countries. The Company has manufacturing facilities in Argentina,
Belgium, Brazil, Canada, China, Germany, Malaysia, The Netherlands, Poland,
Singapore, South Africa, the United Arab Emirates and the United Kingdom, and
sales offices or public warehouse facilities in Australia, Canada, Finland,
France, Germany, Hong Kong, Iberia, Mexico, the Philippines, Russia, Singapore,
Sweden, the United Kingdom and several other countries. Information concerning
the Company's foreign operations is set forth in Note I (Industry Segment and
Geographic Area Information) of Notes to Consolidated Financial Statements,
which appear elsewhere in this Annual Report on Form 10-K.
COMPETITION
The Company is engaged in a highly competitive industry and,
with respect to all of its major products, faces competition from local and
national firms. Several of the companies with which RPM competes have greater
financial resources and sales organizations than the Company. While no accurate
figures are available with respect to the size of or the Company's position in
the market for any particular product, management believes that the Company is a
major producer of aluminum coatings, cement-based paint, hobby paints, pleasure
marine coatings, furniture finishing repair products, automotive repair
products, industrial corrosion control products, consumer rust-preventative
coatings, polymer flooring, fluorescent coatings and pigments, exterior
insulation finish systems, molded and pultruded fiberglass reinforced plastic
grating and shellac-based coatings. However, the Company does not believe that
it has a significant share of the total protective coatings market.
INTELLECTUAL PROPERTY
The intellectual property portfolios of the subsidiaries of
the Company include numerous valuable patents, trade secrets and know-how,
trademarks and trade names. Significant research and technology development
continues to be conducted by the subsidiaries. However, no single patent,
trademark, name or license, or group of these rights, other than the marks
Day-Glo(R), Rust-Oleum(R), Carboline(R) and Tremco(R), are material to the
Company's business.
Day-Glo Color Corp., a subsidiary of the Company, is the owner
of over 50 trademark registrations of the mark and name "DAY-GLO(R)" in numerous
countries and the United States for a variety of fluorescent products. There are
also many other foreign and domestic registrations for other trademarks of the
Day-Glo Color Corp., for a total of over 100 registrations. These registrations
are valid for a variety of terms ranging from one year to 20 years, which terms
are renewable as long as the marks continue to be used. Renewal of these
registrations is done on a regular basis.
Rust-Oleum Corporation, a subsidiary of the Company, is the
owner of over 50 United States trademark registrations for the mark and name
"RUST-OLEUM(R)" and other
6
<PAGE> 7
trademarks covering a variety of rust-preventative coatings sold by Rust-Oleum
Corporation. There are also many foreign registrations for "RUST-OLEUM(R)" and
the other trademarks of Rust-Oleum Corporation, for a total of nearly 400
registrations. These registrations are valid for a variety of terms ranging from
one year to 20 years, which terms are renewable for as long as the marks
continue to be used. Renewal of these registrations is done on a regular basis.
Carboline Company, a subsidiary of the Company, is the owner
of a United States trademark registration for the mark and name "CARBOLINE(R)."
Carboline Company is also the owner of several other United States registrations
for other trademarks. Renewal of these registrations is done on a regular basis.
Tremco Incorporated, a subsidiary of the Company, which was
acquired in February 1997, is the owner of over 100 registrations for the mark
and name "TREMCO(R)" in numerous countries and the United States for a variety
of sealants and coating products. There are also many other foreign and domestic
registrations for other trademarks of Tremco Incorporated, for a total of over
600 registrations and applications. The registrations are valid for a variety of
terms ranging from one year to 20 years, which terms are renewable as long as
the marks continue to be used. Renewal of the registration is done on a regular
basis.
The Company's other valuable product trademarks also include:
ALOX(R), ALUMANATION(R), AVALON(R), B-I-N(R), BITUMASTIC(R), BONDO(R),
BONDEX(R), BULLS EYE(R), CHEMGRATE(R), DRYVIT(R), DYMERIC(R), DYNALITE(R),
DYNATRON(R), EASY FINISH(R), FLECTO(R) EPOXSTEEL(R), FIBERGRATE(R), FLOQUIL(R),
GEOFLEX(R), LUBRASPIN(TM), MAR-HYDE(R), MOHAWK and DESIGN(R), OUTSULATION(R),
PARASEAL(R), PERMAROOF(R), PETTIT(TM), PLASITE(R), SANITILE(R), STONCLAD(R),
STONHARD(R), STONLUX(R), TALSOL(R), TCI(TM), TESTORS(R), ULTRALITE(TM),
VARATHANE(R), VULKEM(R), WOOLSEY(R), ZINSSER(R) and Z-SPAR(R); and, in Europe,
NULLIFIRE(R), RADGLO(R) and MARTIN MATHYS(R).
RAW MATERIALS
The Company believes that alternate sources of supply of raw
materials are available to the Company for most of its raw materials. Where
shortages of raw materials have occurred, the Company has been able to
reformulate products to use more readily available raw materials. Although the
Company has been able to reformulate products to use more readily available raw
materials in the past, there can be no assurance as to the Company's ability to
do so in the future.
SEASONAL FACTORS
The Company's business is seasonal due to outside weather
factors. The Company historically experiences strong sales and income in its
first, second and fourth fiscal quarters comprised of the three month periods
ending August 31, November 30 and May 31, respectively, with weaker performance
in its third fiscal quarter (December through February).
7
<PAGE> 8
CUSTOMERS
No one customer accounted for 10% or more of the Company's
total sales. The Company's business is not dependent upon any one customer or
small group of customers and is dispersed over thousands of customers.
BACKLOG
The Company historically has not had a significant backlog of
orders, nor was there a significant backlog during the last fiscal year.
RESEARCH
The Company's research and development work is performed in
various laboratory locations throughout the United States. During fiscal years
1998, 1997 and 1996, the Company invested approximately $15.8 million, $14.6
million and $13.7 million, respectively, on research and development activities.
The customer sponsored portion of such expenditures was not significant.
ENVIRONMENTAL MATTERS
Several of the Company's subsidiaries are involved in various
environmental claims or proceedings relating to facilities currently or
previously owned, operated or used by such subsidiaries, or their predecessors.
In addition, the Company or its subsidiaries, together with other parties, have
been designated as potentially responsible parties ("PRPs") under federal and
state environmental laws for the remediation of hazardous waste at certain
disposal sites (see ITEM 3. LEGAL PROCEEDINGS). In connection with its
evaluation of these PRP sites, the Company's management takes into consideration
the input of outside legal counsel, the number of parties involved at the site,
joint and several liability of other PRPs, and the level of volumetric
contribution which may be attributed to the Company relative to that
attributable to other parties at such sites. Based on the above analysis,
management then assesses, to the extent possible, the estimated restoration or
other clean-up costs and related claims for each site.
The Company's environmental-related accruals are established
and/or adjusted as information becomes available upon which more accurate costs
can be reasonably estimated. Actual costs may vary from these estimates due to
the inherent uncertainties involved. In management's opinion, based upon
information presently available, the outcome of these environmental matters
will not have a material adverse effect on the Company's financial position,
results of operations or liquidity. However, such costs could be material to
results of operations in a future period.
EMPLOYEES
As of June 30, 1998, the Company employed 6,926 persons, of
whom 788 were represented by unions under contracts which expire at varying
times in the future. The Company believes that its relations with its employees
are good.
8
<PAGE> 9
ITEM 2. PROPERTIES.
The Company's corporate headquarters and a plant and offices
for one subsidiary are located on an 80-acre site in Medina, Ohio, which is
owned by the Company. The Company has agreed to purchase an additional 39 acres
adjacent to the 80-acre site from the Estate of Margaret M. Sullivan, the mother
of Thomas C. Sullivan, Chairman and Chief Executive Officer of the Company. The
Company's operations occupy a total of approximately 6.1 million square feet,
with the majority, approximately 5.1 million square feet, devoted to
manufacturing, assembly and storage. Of the approximately 6.1 million square
feet occupied, 5.0 million square feet are owned and 1.1 million square feet are
occupied under operating leases.
For information concerning the Company's rental obligations,
see Note E (Leases) of Notes to Consolidated Financial Statements, which appear
elsewhere in this Annual Report on Form 10-K. Under all of its leases, the
Company is obligated to pay certain varying insurance costs, utilities, real
property taxes and other costs and expenses.
The Company believes that its manufacturing plants and office
facilities are well maintained and suitable for the operations of the Company.
ITEM 3. LEGAL PROCEEDINGS.
Bondex.
-------
As previously reported in the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1997, and as updated in the Company's
Quarterly Reports on Form 10-Q for the quarters ended August 31, 1997, November
30, 1997 and February 28, 1998, Bondex International, Inc., a wholly-owned
subsidiary of the Company ("Bondex"), was one of numerous corporate defendants
in 387 then pending asbestos-related bodily injury lawsuits filed on behalf of
various individuals in various jurisdictions of the United States. Subsequently,
an additional 5 such cases have been filed and 2 such cases which had been filed
were dismissed with prejudice without payment pursuant to summary judgment or
stipulation of the parties, leaving a total of 390 such cases pending. Bondex
continues to deny liability in all asbestos-related lawsuits and continues to
vigorously defend them. Under a cost-sharing agreement among Bondex and its
insurers effected in 1994, the insurers are responsible for payment of a
substantial portion of defense costs and indemnity payments, if any, with Bondex
responsible for a minor portion of each.
Carboline.
----------
As previously reported in the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1997, Carboline Company, a wholly-owned
subsidiary of the Company ("Carboline") has been named as one of 30 corporate
defendants in Rufino O. Cavazos, et al., vs. Ceilcote Company, et al., Cause No.
89-CI-12651, in the 73rd Judicial District Court of Bexar County, Texas, filed
in March 1990, and in similar suits subsequently filed on behalf of individuals
(and, where applicable, their spouses and children) employed at the Comanche
Peak Nuclear Plant and the South Texas Nuclear Plant. The total number of Bexar
County plaintiffs is approximately 10,000. The trial court has entered a
scheduling order which calls for summary judgment hearings in November 1998.
Carboline, and all other defendants, have sought summary judgment on the
9
<PAGE> 10
grounds that Plaintiffs cannot prove a causal connection between their alleged
exposures at the power plants and their alleged physical ailments. Depending on
the results of the summary judgment hearings, summary jury trials, involving
approximately 20 plaintiffs, are anticipated in 1999. Another suit with
virtually identical allegations was filed on December 29, 1993 in Rusk County,
Texas, which involves 155 worker plaintiffs and 82 spouses. All of the suits
allege bodily injury as a result of exposure to defendants' products. The
litigation is continuing in the discovery stage. With respect to the Bexar
County cases, the court has indicated that summary jury trials involving 10
plaintiffs each will be scheduled, although specific trial dates have not been
set. Carboline has denied all liability in these cases and is conducting a
vigorous defense. Several of Carboline's insurance carriers, and Carboline, are
defending the lawsuits under a cost-sharing agreement.
As previously reported in the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1997, in September 1991, Our Lady of the
Lake Hospital, Inc. ("OLOL") filed suit captioned Our Lady of the Lake Hospital,
Inc. vs. Carboline Company, et al, Number 373,498, Division "J", Nineteenth
Judicial District Court, Parish of East Baton Rouge, State of Louisiana,
alleging that a fireproofing product manufactured by Carboline, known as
Pyrocrete 102, caused damage to the structural steel of the hospital which OLOL
owns and operates in Baton Rouge, Louisiana.
Carboline denied the allegations of both OLOL's claims and
vigorously contested them. Carboline's defense was assumed by First Colonial
Insurance Company ("First Colonial"), a wholly-owned insurance subsidiary of the
Company. As previously reported, on July 10, 1996, OLOL, Carboline and Sun
entered into a confidential Settlement Agreement with respect to all claims and
disputes presented in, arising out of, or relating in any way to the claims
filed by OLOL in Case Numbers 373,498; 384,867; and 395,932. OLOL's petitions,
as supplemented and amended, were dismissed with prejudice. Carboline has
entered into confidential settlements with a number of its insurers which funded
the settlement and who have been or will be dismissed from the litigation.
Carboline's third party claims against certain non-settling insurers and other
parties remain pending in Case Number 373,498. Carboline is currently engaged in
settlement negotiations with the remaining third party defendants.
As previously reported, Carboline is a defendant in La Gloria
Oil & Gas Company vs. Carboline Company, et al., Cause No. 95-959-C, in the
241st Judicial District Court of Smith County, Texas. The plaintiff, an owner
and operator of a petroleum refinery in Tyler, Texas, contends that a
fireproofing product previously designed and manufactured by Carboline is
defective and that the product resulted in deterioration and corrosion of
various steel components at the refinery. Additionally, the plaintiff alleges
fraud and civil conspiracy and seeks $25 million in actual damages and up to
four times the amount of actual damages in exemplary damages against Carboline
and Sun, as well as co-defendant Brown & Root, Inc. The case is in the discovery
phase, and is set for trial in early 1999. Pursuant to an agreement between
Carboline and Sun, Carboline is providing a defense for Sun in this litigation.
Carboline has denied all of plaintiff's allegations and is
vigorously defending the lawsuit. Carboline contends that based upon applicable
statutes of limitations, plaintiff's claims are time-barred. Although there has
been diminishment of insurance policy limits available to Carboline as a result
of the previously referenced settlement, the Company believes that the
10
<PAGE> 11
ultimate resolution of this matter will not have a material adverse effect on
the Company's financial position or results of operations.
Mac-O-Lac.
----------
As previously reported in the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1997, the Company has been identified as
a PRP under CERCLA in connection with the Rose Township Dump Site, Rose
Township, Michigan (the "Rose Township Site") and the Springfield Township Dump
Site, Springfield Township, Michigan (the "Springfield Site") as a consequence
of the disposal of waste originating at Mac-O-Lac Paints, Inc., a former
subsidiary of the Company whose assets were sold in February 1982.
With respect to the Rose Township Site, the Company and eleven
other PRPs signed a Consent Decree which, on July 18, 1989, was entered by the
Court in United States of America vs. AKZO Coatings of America, Inc. et al.,
U.S. District Court, Eastern District of Michigan, Southern Division; Civil
Action No. 88-CV-73784-DT. Pursuant to the agreement, the PRPs established a $9
million fund to cover costs of remediation, of which the Company's share,
$300,000, has been paid.
With respect to the Springfield Site, the Company and other
PRPs engaged in negotiations with the EPA and the Michigan Department of Natural
Resources in an effort to reach agreement on mutually acceptable remediation
parameters and have negotiated Administrative Orders on Consent Regarding
Selected Response Activities and for Cost Recovery Settlement.
Dryvit.
-------
As previously reported in the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1997, as updated in the Company's
Quarterly Reports on Form 10-Q for the quarters ended August 31, 1997, November
30, 1997 and February 28, 1998, Dryvit Systems, Inc., a wholly-owned subsidiary
of the Company ("Dryvit"), is a defendant or co-defendant in numerous separate
but related law suits, some of which have sought to certify classes comprised of
owners of structures clad with exterior insulated finish systems ("EIFS")
products manufactured by Dryvit and other EIFS manufacturers. Also as previously
reported, on September 18, 1996, the North Carolina Court presiding over one of
the state court cases, Ruff et al. v. Parex, Inc., et al., entered an order
certifying a class of North Carolina owners of single family or multi-family
residential dwellings which had an EIFS installed during the period of 1969 to
the present. Subsequent to that ruling, Dryvit and other manufacturers filed a
motion to bring a third-party complaint against the builders of those dwellings
to establish that any alleged damage was the result of poor construction. The
trial court denied that motion but acknowledged that the manufacturers were
being denied significant rights since claims against builders for indemnity
and/or contribution were possibly being extinguished by the running of the
statutes of repose and/or statute of limitations. Dryvit and several other
manufacturers' appealed the trial court's decision. The Appellate Court has
agreed to review the manufacturers' appeal and issued a Writ of Prohibition
effectively staying the trial court action. The Appellate decision is expected
by the end of the 1998 calendar year.
11
<PAGE> 12
Also as previously reported, on August 11, 1997, Judge Britt
of the U.S. District Court for the Eastern District of North Carolina, issued an
order in the multi-district litigation proceeding styled In Re Stucco Litigation
denying plaintiffs' attempts to certify a national class comprised of owners of
single family and multi-family residences clad with EIFS. Judge Britt's opinion
cited, inter alia, the role of various third parties, including builders,
contractors, architects, subcontractors and window manufacturers, as it relates
to liability, causation and comparative fault determinations as well as
contribution and indemnity considerations.
One of Dryvit's co-defendants in Ruff, Senergy, Inc. and its
affiliate Thoro ("Senergy"), has entered into a tentative settlement agreement
with plaintiffs. The agreement, which has not been approved by the court,
contemplates the certification, for settlement purposes only, of a nationwide
class comprised of owners of single and multi-family residences clad with a
Senergy EIFS and the establishment of a settlement fund to cover eligible repair
claims. The settlement has received preliminary approval by the court and a
formal fairness hearing is scheduled for September 11, 1998. The Senergy
settlement is not expected to prejudice Dryvit's defense of the Ruff case or its
arguments on appeal.
There have been two attempted state class actions filed in
Georgia. The first filed, Hardy, et al v. Dryvit Systems, Inc. et al, seeks to
certify a class comprised of owners of single family and multi-family residences
clad with EIFS constructed since 1969. Oral argument for class certification is
scheduled for September 22, 1998. Dryvit and the other EIFS manufacturers have
filed third party complaints against various third parties which underscores the
inappropriateness of this case for class certification. If the court does
certify a class action against the EIFS manufacturers, the manufacturers will
ask the court to certify a class of defendants comprised of builders,
sub-contractors and window manufacturers. Based on the presence of third parties
and Judge Britt's decision in In Re Stucco, the EIFS manufacturers are confident
class certification will be defeated.
The other attempted class action in Georgia, Stein v. Dryvit
Systems, Inc. seeks to certify a class comprised of owners of all structures
(both residential and commercial) clad with a Dryvit EIFS constructed since
1969. Dryvit has attempted to remove the case to federal court under Judge Britt
as part of the MDL proceeding. Since Judge Britt has already denied an attempted
national class in In Re Stucco Litigation, and those same issues are present in
Stein, Dryvit is confident that if the case remains in federal court, Judge
Britt would deny class certification.
Dryvit was recently named as a defendant in three additional
attempted state class actions relating to EIFS including two virtually identical
class action cases filed in Alabama. The Alabama cases seek to certify a class
comprised of all owners of single family and multi-family residences completed
since 1969 and a class comprised of builders and other third-parties. The other
attempted class action filed in Texas seeks to establish a class comprised of
owners of all types of structures clad with EIFS since 1969. Dryvit intends to
vigorously contest class certification and liability in all three cases.
Dryvit and other parties (contractors, architects,
distributors, EIFS applicators, roofers, sealant suppliers, sealant contractors
and window manufacturers) have been named in approximately 200 additional
homeowner lawsuits. The overwhelming majority of these suits
12
<PAGE> 13
have been filed in North Carolina by individual homeowners who either have opted
out of the Ruff class action or have filed complaints against their builder,
which then brings a third-party action against Dryvit. The two other states with
the largest number of homeowner lawsuits are Alabama and South Carolina.
Dryvit's insurers, excluding First Colonial Insurance Company,
the Company's wholly-owned subsidiary ("First Colonial"), are currently paying
Dryvit's defense costs in the class actions and the individual lawsuits
involving structures that were built during or prior to their insurance coverage
periods. In addition, these insurance carriers have been regularly funding
settlement of these individual homeowner cases when appropriate. In the fiscal
year ending May 31, 1998, Dryvit's insurance carriers funded the settlement of
over 40 cases. Dryvit and its insurance carriers, including First Colonial, are
parties to three declaratory judgment actions pending in Rhode Island, New York
and California. The Rhode Island and New York actions have been stayed in favor
of the more complete and earlier filed California action. Dryvit was recently
awarded summary judgment on the issue of defense costs against one of its
insurers. The trial court ruled that there was a duty to defend Dryvit in the
class action litigation and related matters. Dryvit firmly believes that the
damages being sought by the plaintiffs' in the EIFS litigation are covered under
existing insurance policies and that it has adequate insurance coverage. The
Company believes that the ultimate resolution of these cases will not have a
material adverse effect on the Company's financial position or results of
operations.
Mohawk and Westfield.
---------------------
As previously reported in the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1997, Mohawk Finishing Products, Inc.
("Mohawk") and Westfield Coatings Corporation ("Westfield"), both wholly-owned
subsidiaries of the Company, were notified by the EPA of their status as PRPs
under CERCLA with respect to environmental contamination at the Solvents
Recovery of New England Site (the "SRS Site") located in Southington,
Connecticut. Since June 1992, the EPA has notified approximately 1,300 entities
as PRPs in connection with the SRS Site. The EPA alleges Mohawk and Westfield
have contributed 459,570 gallons of hazardous substances out of the
approximately 51,383,013 gallons identified as having been shipped by non-
deminimus PRPs. The PRPs have not as yet agreed to any final allocation formula,
whether based on volume or otherwise. The EPA has completed an early de minimis
settlement with almost 1,000 PRPs who had sent less than 10,000 gallons to the
SRS Site. Neither Mohawk nor Westfield qualified for that settlement. To date,
the EPA and the State of Connecticut have expended in excess of $5 million in
connection with the SRS Site but the EPA has not yet selected the final remedial
action. Several hundred PRPs, including Mohawk and Westfield, have consented to
administrative orders to perform non-time critical removal actions to contain
contaminated water in the aquifer at the SRS Site and to perform both the
Remedial Investigation and Feasibility Study. It is not possible at this time to
determine whether Mohawk and Westfield will be eligible to participate in any
subsequent de-minimus settlement nor is it possible to quantify what, if any,
liability share these companies may have for further remediation.
In January 1994, the EPA notified Westfield of its status as
one of approximately 300 PRPs at the Old Southington Landfill Superfund Site
(the "Landfill") on the basis that process wastes from the SRS Site were sent to
the Landfill prior to October 1967. In September 1994, the EPA issued a Record
of Decision which selected a source control remedy that consisted of
13
<PAGE> 14
installation of a cap on the Landfill together with a gas collection system at
an estimated cost of $16.1 million. The EPA has deferred to a second operable
unit the issue of whether to actively remediate groundwater at the Landfill, but
is insisting that certain groundwater studies be performed which will likely
cost several million dollars. Westfield recently entered into a consent decree
with the United States and the State of Connecticut which resolves the Company's
liability for the First Operable Unit. Upon entry of the consent decree by the
federal district court in Connecticut, Westfield will be obligated to contribute
$26,476.21 to settle its liability for the First Operable Unit. It is expected
that additional settlement discussions between the PRPs and the United States
and the State of Connecticut will commence later in the summer in an effort to
try to settle the remaining issues at OSL. It is not possible at present to
determine what, if any, liability share of the remaining response costs at OSL
might be assigned to Westfield.
The Company believes that the ultimate resolution of the SRS
Site and the Landfill matters will not have a material adverse effect on the
Company's financial position or results of operations.
Rust-Oleum.
-----------
As previously reported in the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1997, in November 1979, the EPA commenced
an action captioned United States of America vs. Midwest Solvent Recovery, Inc.,
et al.; United States District Court for the Northern District of Indiana,
Eastern Division; Civil No. H-79-556, pertaining to pollution allegedly
occurring at and around real property located at 7400 West Fifteenth Street,
Gary, Indiana ("MIDCO I") and 5900 Industrial Highway, Gary, Indiana ("MIDCO
II") (collectively, the "MIDCO Sites"). The Complaint was subsequently amended
in January 1984 to join Rust-Oleum Corporation, a wholly-owned subsidiary of the
Company ("Rust-Oleum"), and other entities as additional defendants. Rust-Oleum,
one of approximately 130 identified PRPs, is alleged to be associated with the
MIDCO Sites as a consequence of disposal of waste originating at its former
Evanston, Illinois plant in the mid-1970's. The Court approved a Consent Decree
in June 1992 under which Rust-Oleum entered into a Settlement Agreement with the
other settling PRPs for the voluntary cleanup of the MIDCO Sites consistent with
the EPA Record of Decision. All surface hazardous wastes have been removed from
the MIDCO Sites and cleanup is now in the groundwater remediation stage.
Remediation should be complete by the year 2002, with monitoring continuing for
an undetermined period. Total remediation and monitoring costs are currently
estimated to be $35 million. Included in the Consent Decree is an Agreement
between the Settling PRPs, including Rust-Oleum, and third parties who had been
sued for contribution by the generator PRPs, providing for payment by the third
parties of their fair share of the MIDCO Sites remedial and response costs.
Third party funds have been placed into the MIDCO Trust Fund, which has been
created to fund the MIDCO Site remedial actions. Rust-Oleum, as a settling PRP,
has provided financial assurance for its share of the cleanup costs in the form
of a Letter of Credit.
In March 1988, the EPA named Rust-Oleum and 240 other entities
as PRPs under CERCLA in connection with the Ninth Avenue Site at 7537 Ninth
Avenue, Gary, Indiana (the "Ninth Avenue Site"). Rust-Oleum is alleged to be
associated with the Ninth Avenue Site as a consequence of disposal of waste
originating at its former Evanston, Illinois plant in the 1970's. Rust-Oleum has
cooperated with over twenty other PRPs in a voluntary cleanup under Phase I and
Phase II Participation Agreements and Implementation Trust Agreements. Total
Ninth Avenue Site
14
<PAGE> 15
remediation and monitoring costs are estimated to be approximately $36 million,
including past costs and the Final Site Remedy, which includes groundwater
remediation planned for completion by 1997 and ongoing monitoring for an
undetermined period. The EPA issued an Amended Record of Decision on September
13, 1994 regarding the Final Site Remedy and an Amended Unilateral
Administrative Order to Rust-Oleum and the other participating PRPs on December
27, 1994 to undertake the Final Site Remedy. Rust-Oleum and eighteen other PRPs
have entered into a Final Participation Agreement for Final Remedial Action at
the Ninth Avenue Site. Rust-Oleum's allocation of cost is currently 6.048%, with
approximately $170,000 remaining to be paid subject, however, to reduction to
the extent settlements are made with non-participating PRPs and funds are made
available from a Trust Fund established by the EPA for de minimis settlors.
Rust-Oleum has provided financial assurance for its share of the Final Site
Remedy in the form of a Letter of Credit.
Based upon prior settlement agreements with insurance carriers
for potential costs and remediation liabilities in connection with the MIDCO
Sites and the Ninth Avenue Site, Rust-Oleum has established appropriate reserves
to cover such costs and liabilities. Accordingly, the Company believes that
ultimate resolution of these matters will not have a material adverse effect on
the Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
15
<PAGE> 16
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT*.
The name, age and positions of each executive officer of the
Company as of August 18, 1998 are as follows:
<TABLE>
<CAPTION>
Name Age Position and Offices with the Company
- ---- --- -------------------------------------
<S> <C> <C>
Thomas C. Sullivan 61 Chairman of the Board and Chief Executive Officer
James A. Karman 61 President
John H. Morris, Jr. 56 Executive Vice President
Frank C. Sullivan 37 Executive Vice President and Chief Financial Officer
Kenneth M. Evans 56 Executive Vice President
Richard E. Klar 65 Vice President
P. Kelly Tompkins 41 Vice President, General Counsel and Secretary
David P. Reif III 45 Vice President - Corporate Finance
Glenn R. Hasman 44 Vice President - Financial Operations
Charles G. Pauli 55 Vice President - Technology
Charles R. Brush 62 Vice President - Environmental Affairs
Keith R. Smiley 36 Treasurer
- -----------------------
<FN>
* Included pursuant to Instruction 3 to Item 401(b) of Regulation S-K.
</FN>
</TABLE>
Thomas C. Sullivan has been Chairman of the Board and Chief
Executive Officer of the Company since October 1971. From June 1971 through
September 1978, Mr. Sullivan served as President and, prior thereto, as
Executive Vice President of the Company. Mr. Sullivan's employment with the
Company commenced in 1961, and he has been a Director since 1963. Mr. Sullivan
is employed as Chairman and Chief Executive Officer under an employment
agreement for a four-year period ending May 31, 2002. Mr. Sullivan is the father
of Frank C. Sullivan, Executive Vice President and Chief Financial Officer of
the Company.
James A. Karman has been President and Chief Operating Officer
since September 1978. From October 1982 to October 1993, Mr. Karman also was the
Chief Financial Officer of the Company. From October 1973 through September
1978, Mr. Karman served as Executive Vice President, Secretary and Treasurer,
and, prior thereto, as Vice President-Finance and Treasurer of the Company. Mr.
Karman's employment with the Company commenced in 1963, and he has been a
Director since 1963. Mr. Karman is employed as President and Chief Operating
Officer under an employment agreement for a four-year period ending May 31,
2002.
John H. Morris has been Executive Vice President since January
1981. Prior to that time, he was Corporate Vice President of the Company, having
been elected to that position in September 1977. Mr. Morris was elected a
Director of the Company in 1981. Mr. Morris is employed as Executive Vice
President under an employment agreement for a period ending July 31, 1999.
16
<PAGE> 17
Frank C. Sullivan was elected Executive Vice President in
October 1995 and has been the Chief Financial Officer of the Company since
October 1993. Mr. Sullivan served as a Vice President from October 1991 to
October 1995. Prior thereto, he served as Director of Corporate Development of
the Company from February 1989 to October 1991. Mr. Sullivan served as Regional
Sales Manager, from February 1988 to February 1989, and as a Technical Service
Representative, from February 1987 to February 1988, of AGR Company, an Ohio
General Partnership formerly owned by the Company which was merged into Tremco.
Prior thereto, Mr. Sullivan was employed by First Union National Bank from 1985
to 1986 and Harris Bank from 1983 to 1985. Mr. Sullivan is employed as Executive
Vice President and Chief Financial Officer under an employment agreement for a
period ending July 31, 1999. Mr. Sullivan is the son of Thomas C. Sullivan,
Chairman of the Board and Chief Executive Officer of the Company.
Kenneth M. Evans was elected Executive Vice President in April
1998. From 1991 to 1996, Mr. Evans served as President, Chief Executive Officer
and Director of Armorall Products Corp. Prior to 1991, Mr. Evans was employed in
a variety of positions at The Sherwin-Williams Company, Thompson & Formby, Inc.
and Kodak, Home Care Products Group. Mr. Evans is employed as Executive Vice
President under an employment agreement for a period ending July 31, 1999.
Richard E. Klar was elected Vice President in October 1981 and
was Treasurer from July 1980 to February 1997. In February 1997, Mr. Klar was
also named Chief Financial Officer of Tremco Incorporated, a wholly-owned
subsidiary which was acquired by the Company in February 1997. He served as
Chief Accounting Officer from July 1980 to October 1990. From 1979 to 1980 Mr.
Klar was Treasurer of Mameco International, Inc., a wholly-owned subsidiary
which was acquired by the Company in February 1979 and later merged into Tremco.
Prior to 1979, Mr. Klar served as Mameco's Controller. Mr. Klar is employed as
Vice President under an employment agreement for a period ending October 31,
1998.
P. Kelly Tompkins was elected Vice President, General Counsel
and Secretary effective June 1, 1998. From June 1996 to June 1998, Mr. Tompkins
served as Assistant General Counsel. From 1987 to 1995, Mr. Tompkins was
employed by Reliance Electric Company in various positions including Director of
Corporate Development, Director of Investor Relations and Senior Corporate
Counsel. From 1985 to 1987, Mr. Tompkins was employed by Exxon Corporation. Mr.
Tompkins is employed as Vice President, General Counsel and Secretary under an
employment agreement for a period ending July 31, 1999.
David P. Reif III has served as Vice President-Corporate
Finance since February 5, 1998. From 1986 to February 1998, Mr. Reif served as
Chief Financial Officer of Stonhard, Inc., a wholly owned subsidiary of the
Company. From 1991 to February 1998, Mr. Reif also served as an Executive Vice
President of Stonhard. From 1978 to 1985, Mr. Reif was controller of Penn
Virginia Inc., and from 1975 to 1978, Mr. Reif was employed by KPMG Peat
Marwick. Mr. Reif is employed as Vice President-Corporate Finance under an
employment agreement for a period ending July 31, 1999.
Glenn R. Hasman has served as Vice President-Financial
Operations since October 1993. From July 1990 to October 1993, Mr. Hasman served
as Controller. From September 1982
17
<PAGE> 18
through July 1990, Mr. Hasman served in a variety of management capacities, most
recently Vice President-Operations and Finance, Chief Financial Officer and
Treasurer, of Proko Industries, Inc., a former wholly-owned subsidiary of the
Company. From 1979 to 1982, Mr. Hasman served as RPM's Director of Internal
Audit and from 1976 to 1979 he was associated with Ciulla, Smith & Dale, LLP,
independent accountants. Mr. Hasman is employed as Vice President-Financial
Operations under an employment agreement for a period ending July 31, 1999.
Charles G. Pauli has served as Vice President-Technology since
February 5, 1998. Mr. Pauli also has served as President of Kop-Coat, Inc., a
wholly owned subsidiary of the Company since 1988.
Charles R. Brush has served as Vice President-Environmental
Affairs of the Company since October 1993. From June 1991 to October 1993, he
served as the Company's Director of Environmental & Regulatory Affairs. Prior
thereto, from 1988 to June 1991, he served as Vice President-Environmental &
Risk Management of Kop-Coat, Inc., a wholly-owned subsidiary of the Company.
Prior thereto, he served as Vice President and Manager of Koppers Company,
Inc.'s international environmental consulting business.
Keith R. Smiley has served as Treasurer of the Company since
February 1997. From October 1993 to February 1997, he served as Controller of
the Company. From January 1992 until February 1997, Mr. Smiley also served as
the Company's Internal Auditor. Prior thereto, he was associated with Ciulla,
Smith & Dale, LLP.
18
<PAGE> 19
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
RPM Common Shares, without par value, began trading on the New
York Stock Exchange under the symbol RPM on June 9, 1998. Prior to June 9, 1998,
RPM Common Shares were traded on the Nasdaq National Market. The high and low
sales prices for the Common Shares, and the cash and stock dividends paid on the
Common Shares, for each quarter of the two most recent fiscal years is set forth
in the table below.
<TABLE>
<CAPTION>
RANGE OF SALES PRICES AND DIVIDENDS PAID*
-----------------------------------------
Dividends Paid
Fiscal 1998 High Low Per Share
----------- ---- --- ---------
<S> <C> <C> <C> <C>
1st Quarter $ 16-13/16 $ 14-1/8 $ 0.104
2nd Quarter 16-13/16 14-15/16 0.112
3rd Quarter 17-1/4 15 0.112
4th Quarter 18 15-11/16 0.112
<CAPTION>
Dividends Paid
Fiscal 1997 High Low Per Share
----------- ---- --- ---------
<S> <C> <C> <C> <C>
1st Quarter $ 13-5/16 $ 11-1/2 $0.096
2nd Quarter 14-5/8 12-5/8 0.104
3rd Quarter 15-1/16 13-3/8 0.104
4th Quarter 15-3/8 12-1/2 0.104
- --------------------
<FN>
* High and low sale prices and dividends paid per share have been adjusted to account for the
5-for-4 stock dividend issued on December 8, 1997, to holders of record on November 17, 1997.
</FN>
Source: The Wall Street Journal
</TABLE>
Cash dividends are payable quarterly, upon authorization of
the Board of Directors. Regular payment dates are approximately the 30th day of
July, October, January and April. RPM maintains a Dividend Reinvestment Plan
whereby cash dividends, and a maximum of an additional $5,000 per month, may be
invested in RPM Common Shares purchased in the open market at no commission cost
to the participant.
The number of holders of record of RPM Common Shares as of
August 18, 1998 was approximately 46,510.
RECENT SALES OF UNREGISTERED SECURITIES
On March 31, 1998, in connection with the purchase by RPM and its
wholly owned subsidiary, RPM of Nevada, Inc., of all of the stock of Flecto
International Supply, Inc., a Nevada corporation ("Flecto Supply"), as part of
the larger acquisition of The Flecto Company, Inc., and its affiliates, the
Company issued 1,812,500 Common Shares, valued at $16.00 per share, to John E.
Vetterli, the sole shareholder of Flecto Supply, as consideration for the
purchase price. Registration
19
<PAGE> 20
under the Securities Act of 1933 was not effected with respect to the
transaction described above in reliance upon the exemption from registration
contained in Section 4(2) of the Securities Act of 1933.
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected consolidated financial
data of the Company for each of the five years during the period ended May 31,
1998. The data was derived from the annual Consolidated Financial Statements of
the Company which have been audited by Ciulla, Smith & Dale, LLP, independent
accountants.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MAY 31,
--------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Amounts in thousands, except per share
and percentage data)
<S> <C> <C> <C> <C> <C>
Net sales $1,615,274 $1,350,537 $1,136,396 $1,030,736 $825,292
Income before income taxes 149,556 135,728 119,886 108,492 89,207
Net income 87,837 78,315 68,929 62,616 53,753
Return on sales % 5.4 5.8 6.1 6.1 6.5
Basic earnings per share 0.89 0.81 0.72 0.68 0.59
Diluted earnings per share 0.84 0.76 0.69 0.65 0.57
Shareholders' equity 587,058 493,296 445,833 350,469 316,444
Shareholders' equity per share 5.76 5.07 4.68 3.83 3.49
Return on shareholders' equity % 16.6 16.7 17.3 18.8 19.2
Average shares outstanding 98,527 97,285 95,208 91,571 90,726
Cash dividends paid 43,474 39,746 35,597 31,259 27,949
Cash dividends per share 0.440 0.408 0.378 0.352 0.326
Retained earnings 314,911 270,465 231,896 199,527 169,687
Working capital 386,705 478,535 275,722 271,635 231,684
Total assets 1,683,279 1,633,228 1,155,076 965,523 665,966
Long-term debt 715,689 784,439 447,654 407,041 233,969
Depreciation and amortization 57,009 51,145 42,562 37,123 26,050
<FN>
- ---------------
All per share data has been restated to reflect the 5-for-4 stock dividend on December 8, 1998.
</FN>
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The information required by this item is set forth at pages 22
through 24 of the 1998 Annual Report to Shareholders, which information is
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable
20
<PAGE> 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is set forth at pages 25
through 35 of the 1998 Annual Report to Shareholders, which information is
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information required by this item as to the Directors of the
Company appearing under the caption "Election of Directors" in the Company's
1998 Proxy Statement is incorporated herein by reference. Information required
by this item as to the Executive Officers of the Company is included as Item 4A
of Part I of this Annual Report on Form 10-K as permitted by Instruction 3 to
Item 401(b) of Regulation S-K. Information required by Item 405 of Regulation
S-K is set forth in the 1998 Proxy Statement under the heading "Section 16(a)
Beneficial Ownership Reporting Compliance," which information is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is set forth in the 1998
Proxy Statement under the heading "Executive Compensation," which information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information required by this item is set forth in the 1998
Proxy Statement under the heading "Share Ownership of Principal Holders and
Management," which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is set forth in the 1998
Proxy Statement under the heading "Election of Directors," which information is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) The following documents are filed as part of this 1998 Annual Report on Form
10-K:
21
<PAGE> 22
1. FINANCIAL STATEMENTS. The following consolidated financial
statements of the Company and its subsidiaries and the report of independent
auditors thereon, included in the 1998 Annual Report to Shareholders on pages 25
through 35, are incorporated by reference in Item 8:
Independent Auditors' Report
Consolidated Balance Sheets -
May 31, 1998 and 1997
Consolidated Statements of Income -
years ended May 31, 1998, 1997 and 1996
Consolidated Statements of Shareholders'
Equity - years ended May 31, 1998, 1997
and 1996
Consolidated Statements of Cash Flows -
years ended May 31, 1998, 1997 and 1996
Notes to Consolidated Financial
Statements (including Unaudited Quarterly
Financial Information)
2. FINANCIAL STATEMENT SCHEDULES. The following consolidated financial
statement schedule of the Company and its subsidiaries and the report of
independent auditors thereon are filed as part of this Annual Report on Form
10-K and should be read in conjunction with the consolidated financial
statements of the Company and its subsidiaries included in the 1998 Annual
Report to Shareholders:
<TABLE>
<CAPTION>
Schedule Page No.
-------- --------
<S> <C>
Independent Auditors' Report S-1
Schedule II - Valuation and Qualifying S-2
Accounts and Reserves
</TABLE>
All other schedules have been omitted because they are not applicable
or not required, or because the required information is included in the
consolidated financial statements or notes thereto.
22
<PAGE> 23
3. Exhibits.
--------
See the Index to Exhibits at page E-1 of this Annual Report on
Form 10-K.
(b) Reports on Form 8-K.
-------------------
The Company filed a Current Report on Form 8-K, dated March
31, 1998, during the fourth fiscal quarter, to report the Company's
acquisition of The Flecto Company, Inc. and affiliates.
23
<PAGE> 24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
RPM, INC.
Date: August 27, 1998 By: /s/ Thomas C. Sullivan
----------------------
Thomas C. Sullivan
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature and Title
- -------------------
<S> <C>
Chairman of the Board of
/s/ Thomas C. Sullivan Directors and Chief Executive
- ----------------------------- Officer (Principal Executive Officer)
Thomas C. Sullivan
/s/ James A. Karman President and Chief Operating
- ----------------------------- Officer and a Director
James A. Karman
/s/ Frank C. Sullivan Executive Vice President and Chief
- ----------------------------- Financial Officer (Principal
Frank C. Sullivan Financial Officer) and a Director
/s/ Glenn R. Hasman Vice President-Financial Operations
- ----------------------------- (Principal Accounting Officer)
Glenn R. Hasman
/s/ Max D. Amstutz Director
- -----------------------------
Max D. Amstutz
/s/ Edward B. Brandon Director
- -----------------------------
Edward B. Brandon
</TABLE>
24
<PAGE> 25
<TABLE>
<S> <C>
/s/ Lorrie Gustin Director
- -----------------------------
Lorrie Gustin
/s/ E. Bradley Jones Director
- -----------------------------
E. Bradley Jones
/s/ Donald K. Miller Director
- -----------------------------
Donald K. Miller
/s/ John H. Morris, Jr. Executive Vice President
- ----------------------------- and a Director
John H. Morris, Jr.
/s/ Kevin O'Donnell Director
- -----------------------------
Kevin O'Donnell
/s/ William A. Papenbrock Director
- -----------------------------
William A. Papenbrock
/s/ Albert B. Ratner Director
- -----------------------------
Albert B. Ratner
</TABLE>
Date: August 27, 1998
25
<PAGE> 26
RPM, INC.
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
3.1 Amended Articles of Incorporation, as amended, which is
incorporated herein by reference to Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1996.
3.2 Amended Code of Regulations, which is incorporated
herein by reference to Exhibit 3.2 to the Company's
Annual Report on Form 10-K for the fiscal year ended May
31, 1996.
4.1 Specimen Certificate of Common Shares, without par
value, of RPM, Inc.
4.2 Specimen Note Certificate for 7.0% Senior Notes Due
2005, which is incorporated herein by reference to
Exhibit 4.3 to the Company's Registration Statement on
Form S-4 as filed with the Commission on August 3, 1995.
4.3 Specimen Note Certificate of Liquid Asset Notes With
Coupon Exchange ("LANCEs(SM)") Due 2008.
4.5 Indenture, dated as of June 1, 1995, between RPM, Inc.
and The First National Bank of Chicago, as trustee, with
respect to the 7.0% Senior Notes Due 2005, which is
incorporated herein by reference to Exhibit 4.5 to the
Company's Registration Statement on Form S-4 as filed
with the Commission on August 3, 1995.
4.6 First Supplemental Indenture, dated as of March 5, 1998
to the Indenture dated as of June 1, 1995, between RPM,
Inc. and The First National Bank of Chicago, as trustee,
with respect to the Liquid Asset Notes with Coupon
Exchange ("LANCEs(SM)") due 2008.
*10.1 Amended Employment Agreement, dated as of July 22, 1981,
by and between RPM, Inc. and Thomas C. Sullivan,
Chairman of the Board and Chief Executive Officer, which
is incorporated herein by reference to Exhibit 10.1 to
the Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 1996.
*10.1.1 Amendment to Amended Employment Agreement, dated as of
July 15, 1998, by and between RPM, Inc. and Thomas C.
Sullivan, Chairman of the Board and Chief Executive
Officer.
*10.2 Amended Employment Agreement, dated as of July 22, 1981,
by and between RPM, Inc. and James A. Karman, President
and Chief Operating Officer, which is incorporated
herein by reference to Exhibit 10.2 to the Company's
Annual Report on Form 10-K for the fiscal year ended May
31, 1996.
E-1
<PAGE> 27
EXHIBIT NO. DESCRIPTION
----------- -----------
*10.2.1 Amendment to Amended Employment Agreement, dated as of
July 15, 1998, by and between RPM, Inc. and James A.
Karman, President and Chief Operating Officer.
*10.3 Employment Agreement, dated as of July 15, 1992, by and
between RPM, Inc. and Frank C. Sullivan, Executive Vice
President and Chief Financial Officer, which is
incorporated herein by reference to Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1997.
*10.4 Form of Employment Agreement entered into by and between
RPM, Inc. and each of John H. Morris, Jr., Executive
Vice President, Kenneth M. Evans, Executive Vice
President, Richard E. Klar, Vice President, P. Kelly
Tompkins, Vice President, General Counsel and Secretary,
David P. Reif III, Vice President-Corporate Finance, and
Glenn R. Hasman, Vice President - Financial Operations,
which is incorporated herein by reference to Exhibit
10.4 to the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1996.
*10.4.1 Form of Amendments to Employment Agreements, dated as of
July 15, 1998, by and between RPM, Inc. and each of John
H. Morris, Jr., Executive Vice President, David P. Reif
III, Vice President-Corporate Finance, Glenn R. Hasman,
Vice President - Financial Operations, and Frank C.
Sullivan, Executive Vice President and Chief Financial
Officer.
*10.4.2 Amendment to Amended Employment Agreement, dated as of
July 15, 1998, by and between RPM, Inc. and Richard E.
Klar, Vice President.
*10.5 RPM, Inc. 1979 Stock Option Plan, as amended, and form
of Stock Option Agreements used in connection therewith,
which is incorporated herein by reference to Exhibit
10.5 to the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1996.
*10.6 RPM, Inc. 1989 Stock Option Plan, as amended, and form
of Stock Option Agreements to be used in connection
therewith, which is incorporated herein by reference to
Exhibit 10.6 to the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 1996.
*10.7 RPM, Inc. 1996 Stock Option Plan, and form of Stock
Option Agreement to be used in connection therewith,
which is incorporated herein by reference to Exhibit
10.7 to the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1997.
*10.7.1 Amendment No. 1 to RPM, Inc. 1996 Stock Option Plan.
*10.8 RPM, Inc. Retirement Savings Trust and Plan, as amended,
which is incorporated herein by reference to Exhibit
10.7 to the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1996.
*10.9 RPM, Inc. Benefit Restoration Plan, which is
incorporated herein by reference to Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1996.
E-2
<PAGE> 28
EXHIBIT NO. DESCRIPTION
----------- -----------
*10.10 RPM, Inc. Board of Directors' Deferred Compensation
Agreement, as amended and restated, which is
incorporated herein by reference to Exhibit 10.9 to the
Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1994.
*10.11 RPM, Inc. Deferred Compensation Plan for Key Employees,
which is incorporated herein by reference to Exhibit
10.10 to the Company's Annual Report on Form 10-K for
the fiscal year ended May 31, 1994.
*10.12 RPM, Inc. Incentive Compensation Plan, which is
incorporated herein by reference to Exhibit 10.11 to the
Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1996.
*10.13 RPM, Inc. 1997 Restricted Stock Plan, and Form of
Acceptance and Escrow Agreement to be used in connection
therewith, which is incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for
the quarterly period ended November 30, 1997.
*10.14 Form of Indemnification Agreement entered into by and
between the Company and each of its Directors and
Executive Officers, which is incorporated herein by
reference to Exhibit 10.12 to the Company's Annual
Report on Form 10-K for the fiscal year ended May 31,
1996.
10.15 Credit Agreement, dated as of February 3, 1997, between
the Company, the Banks identified on the Signature Pages
thereto, National City Bank as Documentation Agent, and
the Chase Manhattan Bank as Administrative Agent, which
is incorporated herein by reference to Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the
quarterly period ended February 28, 1997.
11.1 Computation of Net Income per Common Share.
13.1 Financial Statements contained in 1998 Annual Report to
Shareholders.
21.1 Subsidiaries of the Company.
23.1 Consent of Independent Certified Public Accountants.
27.1 Financial Data Schedule.
- ------------------------------
*Management contract or compensatory plan or arrangement identified
pursuant to Item 14(c) of this Form 10-K.
E-3
<PAGE> 29
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To The Board of Directors and
Shareholders
RPM, Inc. and Subsidiaries
Medina, Ohio
The audits referred to in our report to the Board of Directors and Shareholders
of RPM, Inc. and Subsidiaries dated July 3, 1998, relating to the consolidated
financial statements of RPM, Inc. and Subsidiaries included the audit of the
schedule listed under Item 14 of Form 10-K for each of the three years in the
period ended May 31, 1998. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based upon our audits.
In our opinion such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
/s/ Ciulla Smith & Dale LLP
Ciulla, Smith & Dale, LLP
S-1
<PAGE> 30
<TABLE>
<CAPTION>
RPM, INC. AND SUBSIDIARIES
--------------------------
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES Schedule II
----------------------------------------------
(In thousands)
Additions
Charged To
Balance at Selling and Balance at
Beginning General and End
Of Period Administrative Acquisitions Deductions Of Period
--------- -------------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Year Ended May 31, 1998
Allowance for doubtful accounts $ 12,006 $ 5,930 $ 642 $ 5,860 (1) $ 12,718
=========== =========== ========== ======== ============
Accrued loss reserves - Current 37,699 14,545 8,912 (2) 43,332
====== ====== ======== ===== ======
Accrued warranty reserves - Long-term 17,762 17,266 4,422 (2) 30,606
====== ====== ======== ===== ======
Year Ended May 31, 1997
Allowance for doubtful accounts $ 9,993 $ 4,701 $ 1,620 $ 4,308 (1) $ 12,006
============ =========== ========== ======== ===========
Accrued loss reserves - Current 33,731 14,353 4,908 15,293 (2) 37,699
====== ====== ===== ====== ======
Accrued warranty reserves - Long-term 768 1,755 16,040 801 (2) 17,762
=== ===== ====== === ======
Year Ended May 31, 1996
Allowance for doubtful accounts $ 9,813 $ 3,448 $ 721 $ 3,989 (1) $ 9,993
============ =========== ========== ======== ============
Accrued loss reserves - Current 23,897 12,771 9,096 12,033 (2) 33,731
====== ====== ===== ====== ======
Accrued warranty reserves - Long-Term 755 915 902 (2) 768
=== === ====== === ===
<FN>
(1) Uncollectible accounts written off, net of recoveries
(2) Primarily claims paid during the year
</FN>
</TABLE>
<PAGE> 1
Exhibit 4.1
<TABLE>
<S> <C> <C>
NUMBER [GRAPHIC] SHARES
C
INCORPORATED UNDER THE LAWS [RPM LOGO] THIS CERTIFICATE IS TRANSFERABLE
OF THE STATE OF OHIO IN THE CITY OF CHICAGO OR IN
THE CITY OF NEW YORK
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 749685 10 3
This Certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE COMMON SHARES, WITHOUT PAR VALUE OF
RRM, Inc. transferable on the books of the Corporation in person or by duly authorized attorney upon
surrender of this certificate properly endorsed. This certificate and the shares represented hereby
are issued and shall be held subject to the express terms and provisions of the Amended Articles of
Incorporation of the Corporation filed in the office of the Secretary of State of Ohio. This
certificate is not valid unless countersigned by a Transfer Agent and registered by a Registrar.
Witness the facsimile seal of the RPM, INC. Corporation and the facsimile signatures
of its duly authorized offices. CORPORATE
SEAL
Dated: OHIO RPM, Inc. COUNTERSIGNED AND REGISTERED:
HARRIS TRUST AND SAVINGS BANK
TRANSFER AGENT AND REGISTRAR
BY AUTHORIZED SIGNATURE
/s/ P. Kelly Tompkins /s/ Thomas C. Sullivan
SECRETARY CHAIRMAN
AMERICAN BANK NOTE COMPANY
</TABLE>
<PAGE> 2
RPM, INC.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT- ________Custodian________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act_______________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
---------------------
The Corporation will mail to the holder of record of
the shares represented by this certificate (without
charge to the holder) within five days after receipt of
written request therefor a copy of the express terms,
if any, of the shares represented by this certificate
and a copy of the express terms, if any, of the other
class or classes and series of shares, if any, which the
Corporation is authorized to issue. Any such request
should be addressed to the Secretary of the Corporation
at 2628 Pearl Road, P.O. Box 777, Medina, Ohio 44258.
For Value Received, ____________________hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
--------------------------------------
--------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
of the Shares
- ------------------------------------------------------------------
represented by the within Certificate and do hereby irrevocably constitute
and appoint
Attorney
- ---------------------------------------------------------------------
to transfer the said shares on the books of the within-named Corporation with
full power of substitution in the premises.
Dated
--------------------------
-----------------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR
ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
- --------------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED MEDALLION
SIGNATURE GUARANTEE PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE> 1
Exhibit 4.3
RPM, INC.
LIQUID ASSET NOTES WITH COUPON
EXCHANGE ("LANCEsSM") DUE 2008
No. R-1 $100,000,000
CUSIP No. 749685AG8
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE TRUSTEE OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT AND ANY CERTIFICATE
ISSUED IN EXCHANGE FOR THIS CERTIFICATE OR ANY PORTION THEREOF IS REGISTERED IN
THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON OTHER
THAN DTC OR A NOMINEE THEREOF IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERRED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER,
SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUANCE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY
AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF
SUCH SECURITY), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO
LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON
IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE
144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND
SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S
UNDER THE SECURITIES ACT UPON THE DELIVERY OF AN OPINION OF COUNSEL,
<PAGE> 2
CERTIFICATION AND/OTHER INFORMATION SATISFACTORY TO THE TRUSTEE AND THE COMPANY,
OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT UPON THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO THE TRUSTEE AND THE
COMPANY, SUBJECT IN EACH OF THE FOREGOING CASES, TO A CERTIFICATE OF TRANSFER IN
THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY BEING COMPLETED AND
DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE
REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.
This Security is one of a duly authorized issue of securities of the
Company (herein called the "Debentures"), issued and to be issued in a single
series under an Indenture, dated as of June 1, 1995 as supplemented by the First
Supplemental Indenture dated as of March 5, 1998 (herein called the "Indenture",
which term shall have the meaning assigned to it in such instrument), between
the Company and The First National Bank of Chicago, as Trustee (herein called
the "Trustee", which term includes any successor trustee under the Indenture),
and reference is hereby made to the Indenture for a statement of the respective
rights, limitations of rights, duties and immunities thereunder of the Company,
the Trustee and the Holders of the Debentures and of the terms upon which the
Debentures are, and are to be, authenticated and delivered. This Debenture is
one of the series designated on the face hereof, limited in aggregate principal
amount to $100,000,000.
RPM, INC., a corporation duly organized and existing under the laws of
the State of Ohio (herein called the "Company", which term includes any
successor Person under the Indenture hereafter referred to), for value received,
hereby promises to pay to CEDE & CO., or registered assigns, the principal sum
of One Hundred Million and No/100 Dollars ($100,000,000) on March 1, 2008, and
to pay interest thereon from the Original Issuance Date or from the most recent
Interest Payment Date to which interest has been paid or duly provided for,
semi-annually in arrears on each March 1 and September 1 (each an "Interest
Payment Date"), determined as set forth herein, commencing September 1, 1998, at
the rate of interest determined as set forth herein, until the principal hereof
is paid or made available for payment. The interest so payable, and punctually
paid or duly provided for, on any Interest Payment Date will, as provided in the
Indenture, be paid to the Person in whose name this Debenture (or one or more
Predecessor Securities) is registered at the close of business on the Regular
Record Date for such interest, which shall be one Business Day prior to the
relevant Interest Payment Date (except that if the Debentures are no longer
represented by a global Security as a result of the occurrence of an event
specified in Section 305(a) of the Indenture, the Regular Record Date for such
interest payment shall be the close of business on the fifteenth day (whether or
not a Business Day), as the case may be, next preceding such Interest Payment
Date). In the event that any date on which interest is payable on the Debentures
is not a Business Day, then payment of the interest payable on such date will be
made on the next succeeding day which is a Business Day (without any interest or
other payment in respect of any such delay). Any such interest not so punctually
paid or duly provided for will forthwith cease to be payable to the Holder on
such Regular Record Date and may either be paid to the Person in whose name this
Debenture (or one or more
<PAGE> 3
Predecessor Securities) is registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to Holders of Debentures not less than 10
days prior to such Special Record Date, or be paid at any time in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Debentures may be listed, and upon such notice as may be required
by such exchange, all as more fully provided in the Indenture.
Payment of the principal of (and premium, if any) and interest on this
Debenture will be made at the office or agency of the Company maintained for
that purpose in the Borough of Manhattan, in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts; provided, however, that at the option of the Company
payment of interest may be made by check mailed to the address of the Person
entitled thereto as such address shall appear in the Security Register.
Except as provided above with respect to the payment of interest, any
payment on this Debenture due on any day which is not a Business Day in the City
of New York need not be made on such day, but may be made on the next succeeding
Business Day with the same force and effect as if made on the due date and no
interest shall accrue for the period from and after such date.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to herein by manual signature, this Debenture shall not be
entitled to any benefit under the Indenture or be valid or obligatory for any
purpose.
During any Floating Rate Period (as defined below), interest on this
Debenture shall be payable semi-annually in arrears on each Interest Payment
Date, commencing on September 1, 1998, at the applicable Floating Rate (as
defined below), determined and compounded on a quarterly basis or determined but
not compounded from time to time on a semiannual basis, as applicable. During
any Fixed Rate Period (as defined below), interest on this Debenture shall be
payable semi-annually in arrears on each Interest Payment Date at the Fixed Rate
(as defined below). Interest, whether accruing at a Floating Rate or the Fixed
Rate, will accrue from and including the Original Issuance Date or, if later,
from and including the most recent Interest Payment Date on which interest has
been paid or duly provided for. Interest on this Debenture calculated at a
Floating Rate for any period shall be computed on the basis of the actual number
of days elapsed in such period and a 360-day year. Interest on this Debenture
calculated at the Fixed Rate for any period shall be computed on the basis of a
360-day year of twelve 30-day months and, for any period shorter than a full
semi-annual Interest Accrual Period for which interest is computed, on the basis
of the actual number of days elapsed in such period.
As used herein:
"Business Day" means any day, other than a Saturday or Sunday, or a day on which
banking institutions in New York, New York are authorized or obligated by law or
executive order to be closed.
<PAGE> 4
"Calculation Agent" means the Swap Counterparty as calculation agent, and its
successors in such capacity under the Swap Agreement.
"Final Maturity Date" means March 1, 2008.
"Fixed Rate" means 6.50% per annum.
"Fixed Rate Period" exists at any time until the Final Maturity Date at which a
Floating Rate Period is not in effect.
"Floating Rate" means, (i) for any Interest Accrual Period during the Initial
Floating Rate Period, a rate per annum equal to the London interbank offered
rate for United States dollar deposits ("LIBOR") for a period of six months
minus .05% (the "Initial Floating Rate") and (ii) for any Interest Accrual
Period during the Subsequent Floating Rate Period, a rate per annum equal to
LIBOR for a period of three months (the "Subsequent Floating Rate"). Each such
Floating Rate shall be determined from time to time on the Interest
Determination Date during such Interest Accrual Period by the Calculation Agent
in accordance with the following provisions (in each case, with all percentages
resulting from any calculation rounded to the nearest one hundred-thousandth of
a percent, with five one-millionths of a percent rounded upward; and all dollar
amounts used in or resulting from any such calculation will be rounded to the
nearest cent, with one-half cent rounded upward):
(i) For each applicable semiannual or quarterly period, LIBOR
will be determined on the basis of the offered rates for deposits in U.S.
dollars having a six-month or three-month maturity, as applicable, commencing on
the first day of such period immediately following the related Interest
Determination Date, which appear on Telerate Page 3750 on the Dow Jones Telerate
Service (or such other page as may replace that page on that service for the
purpose of displaying London interbank offered rates of major banks) as of 11:00
a.m. (London time) on that Interest Determination Date. If such rate does not so
appear on Telerate Page 3750, LIBOR in respect of such Interest Determination
Date will be determined as described in (ii) below.
(ii) If on any applicable Interest Determination Date the rate
for deposits of U.S. dollars having a six-month or three-month maturity, as
applicable, does not appear on Telerate Page 3750 as specified in (i) above,
LIBOR will be determined on the basis of the rates at which deposits in U.S.
dollars having a six-month or three-month maturity, as applicable, are offered
by major banks selected by the Calculation Agent in the London interbank market
at approximately 11:00 a.m. (London time) on the related Interest Determination
Date to prime banks in the London interbank market for a period commencing on
the first day of such period immediately following that Interest Determination
Date and in a principal amount of not less than $1 million that in the
Calculation Agent's judgment is representative for a single transaction in such
market at such time. The Calculation Agent will request the principal London
office of each such bank to provide a quotation of its rate. If at least two
such quotations are provided, LIBOR in respect of that Interest Determination
Date will be the arithmetic mean of such quotations. If fewer than two
quotations are provided, LIBOR in respect of that Interest
<PAGE> 5
Determination Date will be the arithmetic mean of the rates quoted by major
banks in New York City selected by the Calculation Agent at approximately 11:00
a.m. (New York City time) on that Interest Determination Date for loans in U.S.
dollars to leading European banks, having a six-month or three-month maturity,
as applicable, commencing on the first day of such Interest Accrual Period
immediately following that Interest Determination Date and in a principal amount
of not less than $1 million that, in the Calculation Agent's judgment, is
representative for a single transaction in such market at such time.
The Calculation Agent's determination of any interest rate will be
final and binding in the absence of manifest error.
"Floating Rate Period" means (i) the period from the Original Issuance
Date until the Interest Rate Reset Date (the "Initial Floating Rate Period") and
(ii) after the Initial Floating Rate Period, the period from the Interest Rate
Conversion Date until the Final Maturity Date (the "Subsequent Floating Rate
Period"). Notwithstanding the foregoing, upon the occurrence of a Swap
Termination Date (if any) and the election by Holders of not less than 66(% in
aggregate principal amount of the Debentures, (A) any Floating Rate Period then
in effect shall automatically terminate and a Fixed Rate Period shall
automatically be in effect, (B) a Fixed Rate Period shall automatically be in
effect and be deemed to have been in effect at all times from the then most
recent Interest Payment Date on which interest has been paid or duly provided
for (or, if no such interest has been paid or duly provided for on any Interest
Payment Date from the Original Issuance Date) and (C) no Floating Rate Period
shall thereafter be in effect at any time.
"Interest Accrual Period" means, for each Interest Payment Date, the
period from and including the prior Interest Payment Date (or, in the case of
the first Interest Accrual Period, from and including the Original Issuance
Date) to but excluding such Interest Payment Date.
"Interest Determination Date" means (i) in the case of each Interest
Accrual Period occurring during the Initial Floating Rate Period, two Market
Days prior to the first or last day of such Interest Accrual Period (whichever
results in the higher rate) and (ii) in the case of each Interest Accrual Period
thereafter during a Floating Rate Period, the second Market Day next preceding
each LIBOR Reset Date within such Interest Accrual Period.
"Interest Rate Reset Date" means March 1, 2000.
"LIBOR Reset Date" means each March 1, June 1, September 1 and December
1.
"Market Day" means any day on which dealings in deposits in U.S.
dollars are transacted in the London interbank market.
"Original Issuance Date" means March 5, 1998.
"Swap Agreement" means the ISDA Master Agreement, the Schedule thereto
and the Confirmation thereto, each dated as of March 2, 1998 between RPM, Inc.
TIERSSM Certificates Trust RPM 1998-1 and the Swap Counterparty.
<PAGE> 6
"Swap Counterparty" means Salomon Swapco(R) Inc.
"Swap Rate" for any Reference Date means the bid side of the observable
rates published on Telerate page 19901 two Market Days prior to such Reference
Date, calculated on a semi-annual 30/360 basis, provided that, in the event such
rate is not available on such page, the Swap Rate shall be based on the bid side
of the observable rates published on Reuters page
"TETC"/Telerate page 2103/4 on such date, provided further that, in the
event such rate is not available on such page, the Swap Rate for such Reference
Date shall be calculated by the Calculation Agent based on the linear
interpolation of the Swap Rate for which a bid is observable for the Remaining
Maturity next longer and the Remaining Maturity next shorter than such Remaining
Maturity.
"Swap Termination Date" means the Early Termination Date as defined in
the Swap Agreement.
Effective on the Interest Rate Reset Date or on any anniversary thereof
to and including March 1, 2007 or if such date is not a Business Day, then on
the following Business Day (each, a "Reference Date"), if a Swap Termination
Date shall not have occurred by such date and the Swap Rate for an interest rate
swap with a remaining maturity (as set forth below, the "Remaining Maturity")
corresponding to the applicable Reference Date is greater than or equal to the
applicable reference rate (as set forth below, the "Reference Rate"), then the
interest rate on all, but not less than all, of the Debentures shall be
converted from the Fixed Rate to the Subsequent Floating Rate for each
subsequent Interest Accrual Period (in accordance with the definition of
Floating Rate Period) (the "Interest Rate Conversion"). From and after the date
of the Interest Rate Conversion (the "Interest Rate Conversion Date") and for
each Interest Accrual Period ending prior to the end of the Floating Rate Period
which begins on such Interest Rate Conversion Date, interest on all of the
Debentures shall accrue at the Subsequent Floating Rate. The Trustee shall send
notice in writing of such Interest Rate Conversion to the Company one Business
Day following the notification of the Trustee by the trustee of the RPM, Inc.
TiersSM Certificates Trust RPM 1998-1 of such Interest Rate Conversion.
Reference Date Remaining Maturity Reference Rate*
March 1, 2000 8 years 7.285 percent
March 1, 2001 7 years 7.023 percent
March 1, 2002 6 years 7.011 percent
March 1, 2003 5 years 6.852 percent
March 1, 2004 4 years 6.859 percent
March 1, 2005 3 years 6.809 percent
March 1, 2006 2 years 6.694 percent
March 1, 2007 1 year 6.500 percent
* Represents semi-annual 30/360 rates.
<PAGE> 7
Notwithstanding the foregoing, upon the occurrence of a Swap
Termination Date, if the Debentures shall then bear interest at a Floating Rate,
the Holders of not less than 66-2/3% in aggregate principal amount of the
Debentures will have the right to elect to convert the interest rate on all, but
not less than all, of the Debentures from such Floating Rate to the Fixed Rate
by delivering to the Company and the Trustee irrevocable written notice of such
Holders' election to so convert the interest rate. Such notice to the Company
and the Trustee shall set forth the name of the Holders exercising such right
and a statement that a Swap Termination Date has occurred and that the Holders
wish to exercise their right to convert the interest rate to the Fixed Rate
pursuant to this Section. Any exercise of such conversion right shall be
irrevocable. Upon receipt of such notice by the Company, (i) any Floating Rate
Period then in effect shall terminate, (ii) a Fixed Rate Period will then be in
effect and be deemed to have been in effect at all times from the then most
recent Interest Payment Date on which interest has been paid or duly provided
for (or, if no interest has been paid or duly provided for on any Interest
Payment Date, the Original Issuance Date) and (iii) no Floating Rate Period
shall thereafter be in effect at any time.
The Indenture contains provisions for defeasance at any time of the
entire indebtedness of this Debenture or certain restrictive covenants and
Events of Default with respect to this Debenture upon compliance with certain
conditions set forth in the Indenture.
The Debentures are not subject to redemption at the option of the
Company or any Holder prior to maturity and will not be subject to any sinking
fund.
If an Event of Default with respect to the Debentures shall occur and
be continuing, the principal of the Debentures may be declared due and payable
in the manner and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Debentures of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of a majority in principal amount of the Debentures at
the time Outstanding of each series to be affected. The Indenture also contains
provisions permitting the Holders of a majority in the principal amount of the
Debentures of each series at the time Outstanding, on behalf of the Holders of
all the Debentures of such series, to waive compliance by the Company with
certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Debenture shall be conclusive and binding upon such Holder and upon all
future Holders of this Debenture and of any Debenture issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof,
whether or not notation of such consent or waiver is made upon this Debenture.
As provided in and subject to the provisions of the Indenture, the
Holder of this Debenture shall not have the right to institute any proceeding
with respect to the Indenture or for the appointment of a receiver or trustee or
for any other remedy thereunder, unless such Holder shall have previously given
the Trustee written notice of a continuing Event of Default with
<PAGE> 8
respect to the Debentures, the Holders of not less than 25% in principal amount
of the Debentures at the time Outstanding shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default as Trustee
and offered the Trustee reasonably satisfactory indemnity, and the Trustee shall
not have received from the Holders of a majority in principal amount of the
Debentures at the time Outstanding a direction inconsistent with such request,
and shall have failed to institute any such proceeding, for 60 days after
receipt of such notice, request and offer of indemnity. The foregoing shall not
apply to any suit instituted by the Holder of this Debenture for the enforcement
of any payment of principal hereof or any premium or interest hereon on or after
the respective due dates expressed herein.
No reference herein to the Indenture and no provision of this Debenture
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of and any premium and
interest on this Debenture at the times, place and rate, and in the coin and
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Debenture is registrable in the Security
Register, upon surrender of this Debenture for registration of transfer at the
office or agency of the Company in any place where the principal of and any
premium and interest on this Debenture are payable, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by, the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Debentures
and of like tenor, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
The Debentures are issuable only in registered form without coupons in
denominations of $100,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, the Debentures
are exchangeable for a like aggregate principal amount of Debentures and of like
tenor of a different authorized denomination, as requested by the Holder
surrendering the same.
No service charge shall be made for any such registration of transfer
or exchange, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Debenture for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Debenture is registered as the owner
hereof for all purposes, whether or not this Debenture be overdue, and neither
the Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
All terms used in this Debenture which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
<PAGE> 9
In Witness Whereof, the Company has caused this instrument to be duly executed.
RPM, INC.
/s/ Frank C. Sullivan
By:
Authorized Signature
Attest: /s/ Paul Granzier
[Assistant] Secretary
CERTIFICATE OF AUTHENTICATION
Dated:
This is one of the Debentures of the series designated therein referred
to in the within-mentioned Indenture.
THE FIRST NATIONAL BANK OF CHICAGO, as Trustee
By: /s/ Francis Ballentine
Authorized Signature
<PAGE> 1
Exhibit 4.6
- --------------------------------------------------------------------------------
RPM, INC.
AND
THE FIRST NATIONAL BANK OF CHICAGO,
Trustee
-------------------
First Supplemental Indenture
Dated as of March 5, 1998
To
Indenture
Dated as of June 1, 1995
-------------------
Liquid Asset Notes with Coupon Exchange ("LANCEs(SM)") Due 2008
<PAGE> 2
- --------------------------------------------------------------------------------
FIRST SUPPLEMENTAL INDENTURE, dated as of March 5, 1998, between RPM,
Inc., a corporation duly organized and existing under the laws of the State of
Ohio (herein called the "Company"), having its principal office at 2628 Pearl
Road, Medina, Ohio 44258, and The First National Bank of Chicago, a national
banking association duly organized and existing under the laws of the United
States, as Trustee (herein called the "Trustee") under the Indenture dated as of
June 1, 1995 between the Company and the Trustee (the "Indenture").
Recitals of the Company
The Company has executed and delivered the Indenture to the Trustee to
provide for the issuance from time to time of its unsecured debentures, notes or
other evidences of indebtedness (the "Securities"), to be issued in one or more
series as provided in the Indenture.
Pursuant to the terms of the Indenture, the Company desires to provide
for the establishment of a new series of its Securities to be known as its
"Liquid Asset Notes with Coupon Exchange ("LANCEs(SM)") Due 2008" (herein called
the "Debentures"), in this First Supplemental Indenture.
All things necessary to make this First Supplemental Indenture a valid
agreement of the Company have been done.
Now, Therefore, This First Supplemental Indenture Witnesseth:
For and in consideration of the premises and the purchase of the
Debentures by the Holders thereof, it is mutually agreed, for the equal and
proportionate benefit of all Holders of the Debentures, as follows:
ARTICLE ONE
Terms of the Debentures
Section 101. There is hereby authorized a series of Securities
designated the "Liquid Asset Notes with Coupon Exchange ("LANCEs(SM)") Due
2008", limited in aggregate principal amount to $100,000,000 (except as
provided in Section 301(2) of the Indenture). The Debentures shall mature and
the principal shall be due and payable together with all accrued and unpaid
interest thereon on March 1, 2008 and shall be issued in the form of a
registered global Security without coupons, registered in the name of Cede
& Co.
Section 102. The Debentures shall be issued in global form and the
provisions of Sections 201, 203 and 305 of the Indenture applicable to global
Securities shall apply to the Debentures.
Section 103. (a) Interest Rates. During any Floating Rate Period (as
defined below), interest on each of the Debentures shall be payable
semi-annually in arrears on each March 1 and September 1 (each an "Interest
Payment Date"), commencing on September 1, 1998, at the applicable Floating Rate
(as defined below), determined and compounded on a quarterly basis or determined
but not compounded on a semiannual basis, as applicable. During any Fixed Rate
Period (as defined below), interest on each of the Debentures shall be payable
semi-annually in arrears on each Interest Payment Date at the Fixed Rate (as
defined below). Interest, whether accruing at a Floating Rate or the Fixed Rate,
will accrue from and including the Original Issuance Date or, if later, from and
including the most recent Interest Payment Date on which interest has been paid
or duly provided for. Interest on the Debentures calculated at a Floating
<PAGE> 3
Rate for any period shall be computed on the basis of the actual number of days
elapsed in such period and a 360-day year. Interest on the Debentures calculated
at the Fixed Rate for any period shall be computed on the basis of a 360-day
year of twelve 30-day months and, for any period shorter than a full semi-annual
Interest Accrual Period for which interest is computed, on the basis of the
actual number of days elapsed in such period.
(b) Interest Rate Conversion. Effective on the Interest Rate Reset Date
or on any anniversary thereof to and including March 1, 2007 or if such date is
not a Business Day, then on the following Business Day (each, a "Reference
Date"), if a Swap Termination Date shall not have occurred by such date and the
Swap Rate (as defined below) for an interest rate swap with a remaining maturity
(as set forth below, the "Remaining Maturity") corresponding to the applicable
Reference Date is greater than or equal to the applicable reference rate (as set
forth below, the "Reference Rate"), then the interest rate on all, but not less
than all, of the Debentures shall be converted from the Fixed Rate to the
Subsequent Floating Rate for each subsequent Interest Accrual Period (in
accordance with the definition of Floating Rate Period) (the "Interest Rate
Conversion"). From and after the date of the Interest Rate Conversion (the
"Interest Rate Conversion Date") and for each Interest Accrual Period ending
prior to the end of the Floating Rate Period which begins on such Interest Rate
Conversion Date, interest on all of the Debentures shall accrue at the
Subsequent Floating Rate. The Trustee shall send notice in writing of such
Interest Rate Conversion to the Company one Business Day following the
notification of the Trustee by the trustee of the RPM, Inc. Tiers(SM)
Certificates Trust RPM 1998-1 of such Interest Rate Conversion.
<TABLE>
<CAPTION>
Reference Date Remaining Maturity Reference Rate*
-------------- ------------------ ---------------
<S> <C> <C>
March 1, 2000 8 years 7.285 percent
March 1, 2001 7 years 7.023 percent
March 1, 2002 6 years 7.011 percent
March 1, 2003 5 years 6.852 percent
March 1, 2004 4 years 6.859 percent
March 1, 2005 3 years 6.809 percent
March 1, 2006 2 years 6.694 percent
March 1, 2007 1 year 6.500 percent
</TABLE>
* Represents semi-annual 30/360 rates.
(c) Notwithstanding the foregoing, upon the occurrence of a Swap
Termination Date, if the Debentures shall then bear interest at a Floating Rate,
the Holders of not less than 66_% in aggregate principal amount of the
Debentures will have the right to elect to convert the interest rate on all, but
not less than all, of the Debentures from such Floating Rate to the Fixed Rate
by delivering to the Company and the Trustee irrevocable written notice of such
Holders' election to so convert the interest rate. Such notice to the Company
and the Trustee shall set forth the name of the Holders exercising such right
and a statement that a Swap Termination Date has occurred and that the Holders
wish to exercise their right to convert the interest rate to the Fixed Rate
pursuant to this Section. Any exercise of such conversion right shall be
irrevocable. Upon receipt of such notice by the Company, (i) any Floating Rate
Period then in effect shall terminate, (ii) a Fixed Rate Period will then be in
effect and be deemed to have been in effect at all times from the then most
recent Interest Payment Date on which interest has been paid or duly provided
for (or, if no interest has been paid or duly provided for on any Interest
Payment Date, from the Original Issuance Date) and (iii) no Floating Rate Period
shall thereafter be in effect at any time.
<PAGE> 4
(d) Certain Definitions. As used in this First Supplemental Indenture
with respect to the Debentures, the following terms have the following meanings:
"Business Day" means any day, other than a Saturday or Sunday, or a day
on which banking institutions in New York, New York are authorized or obligated
by law or executive order to be closed.
"Calculation Agent" means the Swap Counterparty, as calculation agent,
and its successors in such capacity under the Swap Agreement.
"Final Maturity Date" means March 1, 2008.
"Fixed Rate" means 6.50% per annum.
"Fixed Rate Period" exists at any time until the Final Maturity Date at
which a Floating Rate Period is not in effect.
"Floating Rate" means, (i) for any Interest Accrual Period during the
Initial Floating Rate Period, a rate per annum equal to the London interbank
offered rate for United States dollar deposits ("LIBOR") for a period of six
months minus .05% (the "Initial Floating Rate") and (ii) for any Interest
Accrual Period during the Subsequent Floating Rate Period, a rate per annum
equal to LIBOR for a period of three months (the "Subsequent Floating Rate").
Each such Floating Rate shall be determined from time to time on the Interest
Determination Date during such Interest Accrual Period by the Calculation Agent
in accordance with the following provisions (in each case, with all percentages
resulting from any calculation rounded to the nearest one hundred-thousandth of
a percent, with five one-millionths of a percent rounded upward; and all dollar
amounts used in or resulting from any such calculation will be rounded to the
nearest cent, with one-half cent rounded upward):
(i) For each applicable semiannual or quarterly period, LIBOR
will be determined on the basis of the offered rates for deposits in U.S.
dollars having a six-month or three-month maturity, as applicable, commencing on
the first day of such period immediately following the related Interest
Determination Date, which appear on Telerate Page 3750 on the Dow Jones Telerate
Service (or such other page as may replace that page on that service for the
purpose of displaying London interbank offered rates of major banks) as of 11:00
a.m. (London time) on that Interest Determination Date. If such rate does not so
appear on Telerate Page 3750, LIBOR in respect of such Interest Determination
Date will be determined as described in (ii) below.
(ii) If on any applicable Interest Determination Date the rate
for deposits of U.S. dollars having a six-month or three-month maturity, as
applicable, does not appear on Telerate Page 3750 as specified in (i) above,
LIBOR will be determined on the basis of the rates at which deposits in U.S.
dollars having a six-month or three-month maturity, as applicable, are offered
by major banks selected by the Calculation Agent in the London interbank market
at approximately 11:00 a.m. (London time) on the related Interest Determination
Date to prime banks in the London interbank market for a period commencing on
the first day of such period immediately following that Interest Determination
Date and in a principal amount of not less than $1 million that in the
Calculation Agent's judgment is representative for a single transaction in such
market at such time. The Calculation Agent will request the principal London
office of each such bank to provide a quotation of its rate. If at least two
such quotations are provided, LIBOR in respect of that Interest Determination
Date will be the arithmetic mean of such quotations. If fewer than two
quotations are provided, LIBOR in respect of that Interest
<PAGE> 5
Determination Date will be the arithmetic mean of the rates quoted by major
banks in New York City selected by the Calculation Agent at approximately 11:00
a.m. (New York City time) on that Interest Determination Date for loans in U.S.
dollars to leading European banks, having a six-month or three-month maturity,
as applicable, commencing on the first day of such Interest Accrual Period
immediately following that Interest Determination Date and in a principal amount
of not less than $1 million that, in the Calculation Agent's judgment, is
representative for a single transaction in such market at such time.
The Calculation Agent's determination of any interest rate will be
final and binding in the absence of manifest error.
"Floating Rate Period" means (i) the period from the Original Issuance
Date until the Interest Rate Reset Date (the "Initial Floating Rate Period") and
(ii) after the Initial Floating Rate Period, the period from the Interest Rate
Conversion Date until the Final Maturity Date (the "Subsequent Floating Rate
Period"). Notwithstanding the foregoing, upon the occurrence of a Swap
Termination Date (if any) and the election by Holders of not less than 66_% in
aggregate principal amount of the Debentures, (A) any Floating Rate Period then
in effect shall automatically terminate, (B) a Fixed Rate Period shall
automatically be in effect and be deemed to have been in effect at all times
from the then most recent Interest Payment Date on which interest has been paid
or duly provided for (or, if no such interest has been paid or duly provided for
on any Interest Payment Date from the Original Issuance Date) and (C) no
Floating Rate Period shall thereafter be in effect at any time.
"Interest Accrual Period" means, for each Interest Payment Date, the
period from and including the prior Interest Payment Date (or, in the case of
the first Interest Accrual Period, from and including the Original Issuance
Date) to but excluding such Interest Payment Date.
"Interest Determination Date" means (i) in the case of each Interest
Accrual Period occurring during the Initial Floating Rate Period, two Market
Days prior to the first or last day of such Interest Accrual Period (whichever
results in the higher rate) and (ii) in the case of each Interest Accrual Period
thereafter during a Floating Rate Period, the second Market Day next preceding
each LIBOR Reset Date within such Interest Accrual Period.
"Interest Rate Reset Date" means March 1, 2000.
"LIBOR Reset Date" means each March 1, June 1, September 1 and December
1.
"Market Day" means any day on which dealings in deposits in U.S.
dollars are transacted in the London interbank market.
"Original Issuance Date" means March 5, 1998.
"Swap Agreement" means the ISDA Master Agreement, the Schedule thereto
and the Confirmation thereto, each dated as of March 2, 1998 between RPM, Inc.
TIERS_ Certificates Trust RPM 1998-1 and the Swap Counterparty.
"Swap Counterparty" means Salomon Swapco(R) Inc.
"Swap Rate" for any Reference Date means the bid side of the observable
rates published on Telerate page 19901 two Market Days prior to such Reference
Date, calculated on a semi-annual 30/360 basis, provided that, in the event such
rate is not available on such page, the Swap Rate shall be based on the bid side
of the observable rates published on Reuters page
<PAGE> 6
"TETC"/Telerate page 2103/4 on such date, provided further that, in the event
such rate is not available on such page, the Swap Rate for such Reference Date
shall be calculated by the Calculation Agent based on the linear interpolation
of the Swap Rate for which a bid is observable for the Remaining Maturity next
longer and the Remaining Maturity next shorter than such Remaining Maturity.
"Swap Termination Date" means the Early Termination Date as defined in
the Swap Agreement.
Section 104. The interest payable on the Debentures, and punctually
paid or duly provided for, on any Interest Payment Date will be paid by 10:00
A.M. (New York City time) on such Interest Payment Date to the Person in whose
name such Debenture (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest, which shall be
one Business Day prior to the relevant Interest Payment Date (except that if the
Debentures are no longer represented by a global Security as a result of the
occurrence of an event specified in Section 305(a) of the Indenture, the Regular
Record Date for such interest payment shall be the close of business on the
fifteenth day (whether or not a Business Day), as the case may be, next
preceding such Interest Payment Date). In the event that any date on which
interest is payable on the Debentures is not a Business Day, then payment of the
interest payable on such date will be made on the next succeeding day which is a
Business Day (without any interest or other payment in respect of any such
delay).
Section 105. Subject to agreements with or the rules of The Depository
Trust Company or any successor book-entry security system or similar system with
respect to global Securities, payments of interest will be made by check mailed
to the Holder of each Debenture at the address shown in the Security Register,
and payments of the principal amount of each Debenture will be made at maturity
by check against presentation of the Debenture at the office or agency of the
Trustee.
Section 106. The Debentures shall be issued in denominations of
$100,000 or any integral multiple of $100,000.
Section 107. Principal of and interest on the Debentures shall be
payable in the coin or currency of the United States of America, which, at the
time of payment, is legal tender for public and private debts.
Section 108. The Debentures shall be subject to defeasance, at the
Company's option, as provided for in Section 402 of the Indenture.
Section 109. The Debentures will not be redeemable at the option of the
Company or any Holder prior to maturity and will not be subject to any sinking
fund.
Section 110. Upon the occurrence of (a) a default by the Company in the
payment of any amount due (and the continuation thereof for any applicable grace
period) on the Debentures, (b) the acceleration of the maturity of the
Debentures or (c) a Swap Termination Date, the Trustee shall promptly deliver
notice of such occurrence to each Holder.
Section 111. The Company will report interest deductions on the
Debentures for federal income tax purposes under an assumption that none of the
interest on the Debentures is contingent interest.
<PAGE> 7
Section 112. The definition of "Material Subsidiary," as it appears in
Section 101 of the Indenture, is hereby amended in its entirety, with respect to
the Debentures, as follows:
"Material Subsidiary" means any Corporation of which
at the time of determination the Company or one or more Subsidiaries owns or
controls directly or indirectly more than 50% of the shares of Voting Stock and
whose net sales exceed 10% of the Company's consolidated net sales determined in
accordance with GAAP consistently applied.
Section 113. The definition of "Events of Default," as it appears at
Section 501 of the Indenture, is hereby amended, with respect to the Debentures,
as follows:
(a) Subsection (5) of Section 501 of the Indenture is hereby amended in
its entirety, with respect to the Debentures, as follows:
(5) if any event of default as defined in any
mortgage, indenture or instrument under which there may be issued, or by which
there may be secured or evidenced, any Indebtedness of the Company or any
Subsidiary, whether such Indebtedness now exists or shall hereafter be created,
shall happen and shall result in such Indebtedness in principal amount in excess
of the greater of $100,000,000 or 10% of Consolidated Shareholders' Equity of
the Company becoming or being declared due and payable prior to the date on
which it would otherwise become due and payable, and such acceleration shall not
be rescinded or annulled, or such Indebtedness shall not have been discharged,
within a period of 60 days after there shall have been given, by registered or
certified mail, to the Company by the Trustee or to the Company and the Trustee
by the Holders of at least 25% in principal amount of the Outstanding Securities
of such series, a written notice specifying such event of default and requiring
the Company to cause such acceleration to be rescinded or annulled or to cause
such Indebtedness to be discharged and stating that such notice is a "Notice of
Default" hereunder; or
(b) Subsection (6) of Section 501 of the Indenture is hereby amended in
its entirety, with respect to the Debentures, as follows:
(6) the entry of one or more judgments, orders or
decrees for the payment of money in excess of $100,000,000, either individually
or in the aggregate (net of amounts covered by insurance, bond, surety or
similar instrument), against the Company or any Subsidiary, or any of their
respective properties, which judgment, order or decree shall not be discharged
and either (a) any creditor shall have commenced an enforcement proceeding upon
such judgment, order or decree or (b) such judgment, order or decree shall
remain unstayed and in effect for a period of 60 consecutive days; or
ARTICLE TWO
Form of the Debentures
Section 201. The Debentures are to be substantially in the following
form and shall include substantially the legend shown so long as the Debentures
are global Securities:
(FORM OF FACE OF DEBENTURE)
<PAGE> 8
RPM, INC.
LIQUID ASSET NOTES WITH COUPON
EXCHANGE ("LANCEs(SM)") DUE 2008
No. R-1 $100,000,000
CUSIP No. 749685AG8
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE TRUSTEE OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT AND ANY CERTIFICATE
ISSUED IN EXCHANGE FOR THIS CERTIFICATE OR ANY PORTION THEREOF IS REGISTERED IN
THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON OTHER
THAN DTC OR A NOMINEE THEREOF IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERRED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER,
SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUANCE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY
AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF
SUCH SECURITY), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO
LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON
IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE
144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND
SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S
UNDER THE SECURITIES ACT UPON THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OTHER INFORMATION SATISFACTORY TO THE TRUSTEE AND THE COMPANY,
OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT UPON THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER
<PAGE> 9
INFORMATION SATISFACTORY TO THE TRUSTEE AND THE COMPANY, SUBJECT IN EACH OF THE
FOREGOING CASES, TO A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER
SIDE OF THIS SECURITY BEING COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE
TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE
RESALE RESTRICTION TERMINATION DATE.
This Security is one of a duly authorized issue of securities of the
Company (herein called the "Debentures"), issued and to be issued in a single
series under an Indenture, dated as of June 1, 1995 as supplemented by the First
Supplemental Indenture dated as of March 5, 1998 (herein called the "Indenture",
which term shall have the meaning assigned to it in such instrument), between
the Company and The First National Bank of Chicago, as Trustee (herein called
the "Trustee", which term includes any successor trustee under the Indenture),
and reference is hereby made to the Indenture for a statement of the respective
rights, limitations of rights, duties and immunities thereunder of the Company,
the Trustee and the Holders of the Debentures and of the terms upon which the
Debentures are, and are to be, authenticated and delivered. This Debenture is
one of the series designated on the face hereof, limited in aggregate principal
amount to $100,000,000.
RPM, INC., a corporation duly organized and existing under the laws of
the State of Ohio (herein called the "Company", which term includes any
successor Person under the Indenture hereafter referred to), for value received,
hereby promises to pay to CEDE & CO., or registered assigns, the principal sum
of One Hundred Million and No/100 Dollars ($100,000,000) on March 1, 2008, and
to pay interest thereon from the Original Issuance Date or from the most recent
Interest Payment Date to which interest has been paid or duly provided for,
semi-annually in arrears on each March 1 and September 1 (each an "Interest
Payment Date"), determined as set forth herein, commencing September 1, 1998, at
the rate of interest determined as set forth herein, until the principal hereof
is paid or made available for payment. The interest so payable, and punctually
paid or duly provided for, on any Interest Payment Date will, as provided in the
Indenture, be paid to the Person in whose name this Debenture (or one or more
Predecessor Securities) is registered at the close of business on the Regular
Record Date for such interest, which shall be one Business Day prior to the
relevant Interest Payment Date (except that if the Debentures are no longer
represented by a global Security as a result of the occurrence of an event
specified in Section 305(a) of the Indenture, the Regular Record Date for such
interest payment shall be the close of business on the fifteenth day (whether or
not a Business Day), as the case may be, next preceding such Interest Payment
Date). In the event that any date on which interest is payable on the Debentures
is not a Business Day, then payment of the interest payable on such date will be
made on the next succeeding day which is a Business Day (without any interest or
other payment in respect of any such delay). Any such interest not so punctually
paid or duly provided for will forthwith cease to be payable to the Holder on
such Regular Record Date and may either be paid to the Person in whose name this
Debenture (or one or more Predecessor Securities) is registered at the close of
business on a Special Record Date for the payment of such Defaulted Interest to
be fixed by the Trustee, notice whereof shall be given to Holders of Debentures
not less than 10 days prior to such Special Record Date, or be paid at any time
in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Debentures may be listed, and upon such notice
as may be required by such exchange, all as more fully provided in the
Indenture.
Payment of the principal of (and premium, if any) and interest on this
Debenture will be made at the office or agency of the Company maintained for
that purpose in the Borough of Manhattan, in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts; provided, however, that at the option of the
<PAGE> 10
Company payment of interest may be made by check mailed to the address of the
Person entitled thereto as such address shall appear in the Security Register.
Except as provided above with respect to the payment of interest, any
payment on this Debenture due on any day which is not a Business Day in the City
of New York need not be made on such day, but may be made on the next succeeding
Business Day with the same force and effect as if made on the due date and no
interest shall accrue for the period from and after such date.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to herein by manual signature, this Debenture shall not be
entitled to any benefit under the Indenture or be valid or obligatory for any
purpose.
During any Floating Rate Period (as defined below), interest on this
Debenture shall be payable semi-annually in arrears on each Interest Payment
Date, commencing on September 1, 1998, at the applicable Floating Rate (as
defined below), determined and compounded on a quarterly basis or determined but
not compounded on a semiannual basis, as applicable. During any Fixed Rate
Period (as defined below), interest on this Debenture shall be payable
semi-annually in arrears on each Interest Payment Date at the Fixed Rate (as
defined below). Interest, whether accruing at a Floating Rate or the Fixed Rate,
will accrue from and including the Original Issuance Date or, if later, from and
including the most recent Interest Payment Date on which interest has been paid
or duly provided for. Interest on this Debenture calculated at a Floating Rate
for any period shall be computed on the basis of the actual number of days
elapsed in such period and a 360-day year. Interest on this Debenture calculated
at the Fixed Rate for any period shall be computed on the basis of a 360-day
year of twelve 30-day months and, for any period shorter than a full semi-annual
Interest Accrual Period for which interest is computed, on the basis of the
actual number of days elapsed in such period.
As used herein:
"Business Day" means any day, other than a Saturday or Sunday, or a day on which
banking institutions in New York, New York are authorized or obligated by law or
executive order to be closed.
"Calculation Agent" means the Swap Counterparty as calculation agent, and its
successors in such capacity under the Swap Agreement.
"Final Maturity Date" means March 1, 2008.
"Fixed Rate" means 6.50% per annum.
"Fixed Rate Period" exists at any time until the Final Maturity Date at which a
Floating Rate Period is not in effect.
"Floating Rate" means, (i) for any Interest Accrual Period during the Initial
Floating Rate Period, a rate per annum equal to the London interbank offered
rate for United States dollar deposits ("LIBOR") for a period of six months
minus .05% (the "Initial Floating Rate") and (ii) for any Interest Accrual
Period during the Subsequent Floating Rate Period, a rate per annum equal to
LIBOR for a period of three months (the "Subsequent Floating Rate"). Each such
Floating Rate shall be determined from time to time on the Interest
Determination Date during such Interest Accrual Period by the Calculation Agent
in accordance with the following provisions (in each case, with all percentages
resulting from any calculation rounded to the nearest one hundred-
<PAGE> 11
thousandth of a percent, with five one-millionths of a percent rounded upward;
and all dollar amounts used in or resulting from any such calculation will be
rounded to the nearest cent, with one-half cent rounded upward):
(i) For each applicable semiannual or quarterly period, LIBOR
will be determined on the basis of the offered rates for deposits in U.S.
dollars having a six-month or three-month maturity, as applicable, commencing on
the first day of such period immediately following the related Interest
Determination Date, which appear on Telerate Page 3750 on the Dow Jones Telerate
Service (or such other page as may replace that page on that service for the
purpose of displaying London interbank offered rates of major banks) as of 11:00
a.m. (London time) on that Interest Determination Date. If such rate does not so
appear on Telerate Page 3750, LIBOR in respect of such Interest Determination
Date will be determined as described in (ii) below.
(ii) If on any applicable Interest Determination Date the rate
for deposits of U.S. dollars having a six-month or three-month maturity, as
applicable, does not appear on Telerate Page 3750 as specified in (i) above,
LIBOR will be determined on the basis of the rates at which deposits in U.S.
dollars having a six-month or three-month maturity, as applicable, are offered
by major banks selected by the Calculation Agent in the London interbank market
at approximately 11:00 a.m. (London time) on the related Interest Determination
Date to prime banks in the London interbank market for a period commencing on
the first day of such period immediately following that Interest Determination
Date and in a principal amount of not less than $1 million that in the
Calculation Agent's judgment is representative for a single transaction in such
market at such time. The Calculation Agent will request the principal London
office of each such bank to provide a quotation of its rate. If at least two
such quotations are provided, LIBOR in respect of that Interest Determination
Date will be the arithmetic mean of such quotations. If fewer than two
quotations are provided, LIBOR in respect of that Interest Determination Date
will be the arithmetic mean of the rates quoted by major banks in New York City
selected by the Calculation Agent at approximately 11:00 a.m. (New York City
time) on that Interest Determination Date for loans in U.S. dollars to leading
European banks, having a six-month or three-month maturity, as applicable,
commencing on the first day of such Interest Accrual Period immediately
following that Interest Determination Date and in a principal amount of not less
than $1 million that, in the Calculation Agent's judgment, is representative for
a single transaction in such market at such time.
The Calculation Agent's determination of any interest rate will be
final and binding in the absence of manifest error.
"Floating Rate Period" means (i) the period from the Original Issuance Date
until the Interest Rate Reset Date (the "Initial Floating Rate Period") and (ii)
after the Initial Floating Rate Period, the period from the Interest Rate
Conversion Date until the Final Maturity Date (the "Subsequent Floating Rate
Period"). Notwithstanding the foregoing, upon the occurrence of a Swap
Termination Date (if any) and the election by Holders of not less than 66_% in
aggregate principal amount of the Debentures, (A) any Floating Rate Period then
in effect shall automatically terminate and a Fixed Rate Period shall
automatically be in effect, (B) a Fixed Rate Period shall automatically be in
effect and be deemed to have been in effect at all times from the then most
recent Interest Payment Date on which interest has been paid or duly provided
for (or, if no such interest has been paid or duly provided for on any Interest
Payment Date from the Original Issuance Date) and (C) no Floating Rate Period
shall thereafter be in effect at any time.
<PAGE> 12
"Interest Accrual Period" means, for each Interest Payment Date, the period from
and including the prior Interest Payment Date (or, in the case of the first
Interest Accrual Period, from and including the Original Issuance Date) to but
excluding such Interest Payment Date.
"Interest Determination Date" means (i) in the case of each Interest Accrual
Period occurring during the Initial Floating Rate Period, two Market Days prior
to the first or last day of such Interest Accrual Period (whichever results in
the higher rate) and (ii) in the case of each Interest Accrual Period thereafter
during a Floating Rate Period, the second Market Day next preceding each LIBOR
Reset Date within such Interest Accrual Period.
"Interest Rate Reset Date" means March 1, 2000.
"LIBOR Reset Date" means each March 1, June 1, September 1 and December 1.
"Market Day" means any day on which dealings in deposits in U.S. dollars are
transacted in the London interbank market.
"Original Issuance Date" means March 5, 1998.
"Swap Agreement" means the ISDA Master Agreement, the Schedule thereto and the
Confirmation thereto, each dated as of March 2, 1998 between RPM, Inc. TIERS_
Certificates Trust RPM 1998-1 and the Swap Counterparty.
"Swap Counterparty" means Salomon Swapco(R) Inc.
"Swap Rate" for any Reference Date means the bid side of the observable rates
published on Telerate page 19901 two Market Days prior to such Reference Date,
calculated on a semi-annual 30/360 basis, provided that, in the event such rate
is not available on such page, the Swap Rate shall be based on the bid side of
the observable rates published on Reuters page "TETC"/Telerate page 2103/4 on
such date, provided further that, in the event such rate is not available on
such page, the Swap Rate for such Reference Date shall be calculated by the
Calculation Agent based on the linear interpolation of the Swap Rate for which a
bid is observable for the Remaining Maturity next longer and the Remaining
Maturity next shorter than such Remaining Maturity.
"Swap Termination Date" means the Early Termination Date as defined in the Swap
Agreement.
Effective on the Interest Rate Reset Date or on any anniversary thereof
to and including March 1, 2007 or if such date is not a Business Day, then on
the following Business Day (each, a "Reference Date"), if a Swap Termination
Date shall not have occurred by such date and the Swap Rate for an interest rate
swap with a remaining maturity (as set forth below, the "Remaining Maturity")
corresponding to the applicable Reference Date is greater than or equal to the
applicable reference rate (as set forth below, the "Reference Rate"), then the
interest rate on all, but not less than all, of the Debentures shall be
converted from the Fixed Rate to the Subsequent Floating Rate for each
subsequent Interest Accrual Period (in accordance with the definition of
Floating Rate Period) (the "Interest Rate Conversion"). From and after the date
of the Interest Rate Conversion (the "Interest Rate Conversion Date") and for
each Interest Accrual Period ending prior to the end of the Floating Rate Period
which begins on such Interest Rate Conversion Date, interest on all of the
Debentures shall accrue at the Subsequent Floating Rate. The Trustee shall send
notice in writing of such Interest Rate Conversion to the Company one Business
Day following the notification of the Trustee by the trustee of the RPM, Inc.
Tiers(SM) Certificates Trust RPM 1998-1 of such Interest Rate Conversion.
<PAGE> 13
<TABLE>
<CAPTION>
Reference Date Remaining Maturity Reference Rate*
-------------- ------------------ ---------------
<S> <C> <C>
March 1, 2000 8 years 7.285 percent
March 1, 2001 7 years 7.023 percent
March 1, 2002 6 years 7.011 percent
March 1, 2003 5 years 6.852 percent
March 1, 2004 4 years 6.859 percent
March 1, 2005 3 years 6.809 percent
March 1, 2006 2 years 6.694 percent
March 1, 2007 1 year 6.500 percent
</TABLE>
* Represents semi-annual 30/360 rates.
Notwithstanding the foregoing, upon the occurrence of a Swap
Termination Date, if the Debentures shall then bear interest at a Floating Rate,
the Holders of not less than 66-2/3% in aggregate principal amount of the
Debentures will have the right to elect to convert the interest rate on all, but
not less than all, of the Debentures from such Floating Rate to the Fixed Rate
by delivering to the Company and the Trustee irrevocable written notice of such
Holders' election to so convert the interest rate. Such notice to the Company
and the Trustee shall set forth the name of the Holders exercising such right
and a statement that a Swap Termination Date has occurred and that the Holders
wish to exercise their right to convert the interest rate to the Fixed Rate
pursuant to this Section. Any exercise of such conversion right shall be
irrevocable. Upon receipt of such notice by the Company, (i) any Floating Rate
Period then in effect shall terminate, (ii) a Fixed Rate Period will then be in
effect and be deemed to have been in effect at all times from the then most
recent Interest Payment Date on which interest has been paid or duly provided
for (or, if no interest has been paid or duly provided for on any Interest
Payment Date, the Original Issuance Date) and (iii) no Floating Rate Period
shall thereafter be in effect at any time.
The Indenture contains provisions for defeasance at any time of the
entire indebtedness of this Debenture or certain restrictive covenants and
Events of Default with respect to this Debenture upon compliance with certain
conditions set forth in the Indenture.
The Debentures are not subject to redemption at the option of the
Company or any Holder prior to maturity and will not be subject to any sinking
fund.
If an Event of Default with respect to the Debentures shall occur and
be continuing, the principal of the Debentures may be declared due and payable
in the manner and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Debentures of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of a majority in principal amount of the Debentures at
the time Outstanding of each series to be affected. The Indenture also contains
provisions permitting the Holders of a majority in the principal amount of the
Debentures of each series at the time Outstanding, on behalf of the Holders of
all the Debentures of such series, to waive compliance by the Company with
certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Debenture shall be conclusive and binding upon such Holder and upon all
future Holders of this Debenture and of any Debenture issued upon the
registration of transfer hereof or in
<PAGE> 14
exchange herefor or in lieu hereof, whether or not notation of such consent or
waiver is made upon this Debenture.
As provided in and subject to the provisions of the Indenture, the
Holder of this Debenture shall not have the right to institute any proceeding
with respect to the Indenture or for the appointment of a receiver or trustee or
for any other remedy thereunder, unless such Holder shall have previously given
the Trustee written notice of a continuing Event of Default with respect to the
Debentures, the Holders of not less than 25% in principal amount of the
Debentures at the time Outstanding shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default as Trustee
and offered the Trustee reasonably satisfactory indemnity, and the Trustee shall
not have received from the Holders of a majority in principal amount of the
Debentures at the time Outstanding a direction inconsistent with such request,
and shall have failed to institute any such proceeding, for 60 days after
receipt of such notice, request and offer of indemnity. The foregoing shall not
apply to any suit instituted by the Holder of this Debenture for the enforcement
of any payment of principal hereof or any premium or interest hereon on or after
the respective due dates expressed herein.
No reference herein to the Indenture and no provision of this Debenture
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of and any premium and
interest on this Debenture at the times, place and rate, and in the coin and
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Debenture is registrable in the Security
Register, upon surrender of this Debenture for registration of transfer at the
office or agency of the Company in any place where the principal of and any
premium and interest on this Debenture are payable, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by, the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Debentures
and of like tenor, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
The Debentures are issuable only in registered form without coupons in
denominations of $100,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, the Debentures
are exchangeable for a like aggregate principal amount of Debentures and of like
tenor of a different authorized denomination, as requested by the Holder
surrendering the same.
No service charge shall be made for any such registration of transfer
or exchange, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Debenture for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Debenture is registered as the owner
hereof for all purposes, whether or not this Debenture be overdue, and neither
the Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
All terms used in this Debenture which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
In Witness Whereof, the Company has caused this instrument to be duly
executed.
<PAGE> 15
RPM, INC.
By:
-----------------------
Authorized Signature
Attest:
- ------------------
[Assistant] Secretary
CERTIFICATE OF AUTHENTICATION
Dated:
This is one of the Debentures of the series designated therein referred
to in the within-mentioned Indenture.
THE FIRST NATIONAL BANK OF CHICAGO, as Trustee
By:
-----------------------------
Authorized Signature
<PAGE> 16
ARTICLE THREE
Original Issue of Debentures
Section 301. Debentures in the aggregate principal amount of
$100,000,000, may, upon execution of this First Supplemental Indenture, or from
time to time thereafter, be executed by the Company and delivered to the Trustee
for authentication, and the Trustee shall thereupon authenticate and deliver
said Debentures upon a Company Order without any further action by the Company.
ARTICLE FOUR
Paying Agent and Security Registrar
Section 401. The First National Bank of Chicago will be the Paying
Agent and Security Registrar for the Debentures.
ARTICLE FIVE
Miscellaneous
Section 501. Except as otherwise expressly provided in this First
Supplemental Indenture or in the form of Debenture or otherwise clearly required
by the context hereof or thereof, all terms used herein or in said form of
Debenture that are defined in the Indenture shall have the several meanings
respectively assigned to them thereby.
Section 502. The Indenture, as supplemented by this First Supplemental
Indenture, is in all respects ratified and confirmed, and this First
Supplemental Indenture shall be deemed part of the Indenture in the manner and
to the extent herein and therein provided.
-----------------------
<PAGE> 17
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be duly executed, and their respective corporate seals
to be hereunto affixed, all as of the day and year first above written.
[SEAL] RPM, INC.
Attest: /s/ Paul A. Granzier
Secretary By /s/ Frank C. Sullivan
----------------------------
Name:
Title:
[SEAL] THE FIRST NATIONAL BANK OF CHICAGO,
as Trustee
Attest:
By /s/ Steven M. Wagner
----------------------------
Name: Steven M. Wagner
Title: Vice President
<PAGE> 18
STATE OF OHIO)
: SS.:
COUNTY OF CUYAHOGA)
On the 3rd day of March, 1998, before me personally came
Frank C. Sullivan, to me known, who, being by me duly sworn, did depose and say
that he is Executive Vice President of RPM, Inc. an Ohio corporation, one of the
persons described in and who executed the foregoing instrument; that he knows
the seal of said Corporation; that the seal affixed to said instrument is such
Corporation's seal; that it was so affixed by authority of the Board of
Directors of said Corporation; and that he signed his name thereto by like
authority.
/s/ Andrea J. Veneskey
----------------------
[NOTARIAL SEAL]
<PAGE> 19
STATE OF ILLINOIS)
: SS.:
COUNTY OF COOK)
On the 4th day of March, 1998, before me personally came
Steven M. Wagner, to me known, who, being by me duly sworn, did depose and say
that he is a Vice President of The First National Bank of Chicago, a national
banking association organized and existing under the laws of the United States
of America, one of the persons described in and who executed the foregoing
instrument; that he knows the seal of said Corporation; that the seal affixed
to said instrument is such Corporation's seal; that it was so affixed by
authority of the Board of Directors of said Corporation; and that he signed his
name thereto by like authority.
/s/ Maria C. Birrueta
---------------------
Notary Public
[NOTARIAL SEAL]
<PAGE> 1
Exhibit 10.1.1
AMENDMENT TO AMENDED EMPLOYMENT AGREEMENT
-----------------------------------------
THIS AMENDMENT is made and entered into on this 15th day of
July, 1998 at Medina, Ohio, by and between RPM, INC. (hereinafter referred to as
the "Company") and THOMAS C. SULLIVAN (hereinafter referred to as "Sullivan"):
W I T N E S S E T H:
--------------------
WHEREAS, Sullivan is considered a key employee of the Company;
and
WHEREAS, Sullivan and the Company entered into a certain
Amended Employment Agreement, dated as of July 22, 1981 and last amended as of
July 16, 1997 (the "Employment Agreement"), to insure Sullivan's continued
employment with the Company; and
WHEREAS, it is the desire of the Company and Sullivan to
further amend the Employment Agreement in accordance with the terms hereof; and
WHEREAS, Paragraph 12 of the Employment Agreement requires
that any such Amendment be in writing and properly executed;
NOW, THEREFORE, in consideration of the premises and the
mutual understandings of the parties, IT IS AGREED, as follows:
<PAGE> 2
1. COMPENSATION. Paragraph 4(a) of the Employment Agreement
shall be deleted in its entirety and amended and restated to provide in its
entirety as follows:
BASE SALARY. Sullivan shall receive a base salary at
the rate of not less than Eight Hundred Twenty-Five Thousand
Dollars ($825,000) per annum ("Base Salary"), payable in
substantially equal monthly installments at the end of each
month during the period of Sullivan's employment hereunder. It
is contemplated that annually in July of each year the
Compensation Committee of the Board of Directors will review
Sullivan's Base Salary and other compensation during the
period of his employment hereunder and, at the discretion of
the Compensation Committee, it may increase his Base Salary
and other compensation based upon his performance, then
generally prevailing industry salary scales, the Company's
results of operation, and other relevant factors. Any increase
in Base Salary or other compensation shall in no way limit or
reduce any other obligation of the Company hereunder and, once
established at an increased specified rate, Sullivan's Base
Salary hereunder shall not be reduced without his written
consent.
2. COMPENSATION UPON TERMINATION. Paragraph 6(c) of the
Employment Agreement shall be deleted in its entirety and amended and restated
to provide in its entirety as follows:
GOOD REASON. If the Company shall terminate
Sullivan's employment other than pursuant to Sections 5(a) or
5(b) hereof or if Sullivan shall terminate his employment for
Good Reason, then in lieu of any further salary payments to
Sullivan for periods subsequent to the date on which
Sullivan's employment is terminated, the Company shall pay as
liquidated damages and/or severance pay to Sullivan (i) no
later than the tenth day following such date, a lump sum
amount equal to the product of Sullivan's annual Base Salary
in effect as of such date multiplied by five (5) or (ii) if
Sullivan shall so elect, the Company shall continue to pay him
his annual Base Salary in effect on such date in the manner
specified in Section 4(a) hereof until the fifth anniversary
of the date on which his employment is terminated.
-2-
<PAGE> 3
3. EFFECTIVE DATE. The effective date of this Amendment shall
be June 1, 1998, and as such, the increase in compensation set forth in
Paragraph 1 shall be retroactively applied.
IN WITNESS WHEREOF, the parties have executed this Amendment
to the Employment Agreement on the date and at the place first above written.
IN THE PRESENCE OF: RPM, INC.
/s/ James A. Karman
- ---------------------------------- ---------------------------------------
James A. Karman, President
And: /s/ P. Kelly Tompkins
----------------------------------
P. Kelly Tompkins, Secretary
/s/ Thomas C. Sullivan
- ---------------------------------- ---------------------------------------
Thomas C. Sullivan
-3-
<PAGE> 1
Exhibit 10.2.1
AMENDMENT TO AMENDED EMPLOYMENT AGREEMENT
-----------------------------------------
THIS AMENDMENT is made and entered into on this 15th day of
July, 1998 at Medina, Ohio, by and between RPM, INC. (hereinafter referred to as
the "Company") and JAMES A. KARMAN (hereinafter referred to as "Karman"):
W I T N E S S E T H:
--------------------
WHEREAS, Karman is considered a key employee of the Company;
and
WHEREAS, Karman and the Company entered into a certain Amended
Employment Agreement, dated as of July 22, 1981 and last amended as of July 16,
1997 (the "Employment Agreement"), to insure Karman's continued employment with
the Company; and
WHEREAS, it is the desire of the Company and Karman to amend
the Employment Agreement in accordance with the terms hereof; and
WHEREAS, Paragraph 12 of the Employment Agreement requires
that any such Amendment be in writing and properly executed;
NOW, THEREFORE, in consideration of the premises and the
mutual understandings of the parties, IT IS AGREED, as follows:
<PAGE> 2
1. COMPENSATION. Paragraph 4(a) of the Employment Agreement
shall be deleted in its entirety and amended and restated to provide in its
entirety as follows:
BASE SALARY. Karman shall receive a base salary at
the rate of not less than Six Hundred and Fifty Thousand
Dollars ($650,000) per annum ("Base Salary"), payable in
substantially equal monthly installments at the end of each
month during the period of Karman's employment hereunder. It
is contemplated that annually in July of each year the
Compensation Committee of the Board of Directors will review
Karman's Base Salary and other compensation during the period
of his employment hereunder and, at the discretion of the
Compensation Committee, it may increase his Base Salary and
other compensation based upon his performance, then generally
prevailing industry salary scales, the Company's results of
operations, and other relevant factors. Any increase in Base
Salary or other compensation shall in no way limit or reduce
any other obligation of the Company hereunder and, once
established at an increased specified rate, Karman's Base
Salary hereunder shall not be reduced without his written
consent.
2. COMPENSATION UPON TERMINATION. Paragraph 6(c) of the
Employment Agreement shall be deleted in its entirety and amended and restated
to provide in its entirety as follows:
GOOD REASON. If the Company shall terminate Karman's
employment other than pursuant to Sections 5(a) or 5(b) hereof
or if Karman shall terminate his employment for Good Reason,
then in lieu of any further salary payments to Karman for
periods subsequent to the date on which Karman's employment is
terminated, the Company shall pay as liquidated damages and/or
severance pay to Karman (i) no later than the tenth day
following such date, a lump sum amount equal to the product of
Karman's annual Base Salary in effect as of such date
multiplied by five (5) or (ii) if Karman shall so elect, the
Company shall continue to pay him his annual Base Salary in
effect on such date in the manner specified in Section 4(a)
hereof until the fifth anniversary of the date on which his
employment is terminated.
-2-
<PAGE> 3
3. EFFECTIVE DATE. The effective date of this Amendment shall be June
1, 1998, and as such, the increase in compensation set forth in Paragraph 1
shall be retroactively applied.
IN WITNESS WHEREOF, the parties have executed this Amendment
to the Employment Agreement on the date and at the place first above written.
IN THE PRESENCE OF: RPM, INC.
/s/ Thomas C. Sullivan
- -------------------------------- -------------------------------------
Thomas C. Sullivan, Chairman
and Chief Executive Officer
And: /s/ P. Kelly Tompkins
---------------------------------
P. Kelly Tompkins, Secretary
/s/ James A. Karman
- -------------------------------- -------------------------------------
James A. Karman
-3-
<PAGE> 1
Exhibit 10.4.1
AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------
THIS AMENDMENT is made and entered into on this 15th day of
July, 1998 at Medina, Ohio, by and between RPM, INC. (hereinafter referred to as
the "Company") and ______________ (hereinafter referred to as "______"):
W I T N E S S E T H:
--------------------
WHEREAS, _____ is considered a key employee of the Company;
and
WHEREAS, ______ and the Company entered into a certain
Employment Agreement, originally dated as of ___________ (the "Employment
Agreement"), to insure ________'s continued employment with the Company; and
WHEREAS, it is the desire of the Company and ________ to amend
the Employment Agreement in accordance with the terms hereof; and
WHEREAS, Paragraph 11 of the Employment Agreement requires
that any such Amendment be in writing and properly executed;
NOW, THEREFORE, in consideration of the premises and the
mutual understandings of the parties, IT IS AGREED, as follows:
1. EMPLOYMENT TERM. Paragraph 1 of the Employment Agreement
shall be deleted in its entirety and amended and restated to provide in its
entirety as follows:
<PAGE> 2
TERM OF EMPLOYMENT. The Company hereby agrees to
continue to employ ________, and ______ hereby agrees to
continue to serve the Company, on the terms and conditions set
forth herein for the period commencing retroactive to June 1,
1998 (the "Effective Date"), and expiring on July 31, 1999
(unless sooner terminated as hereinafter set forth).
2. COMPENSATION. Paragraph 4(a) of the Employment Agreement
shall be deleted in its entirety and amended and restated to provide in its
entirety as follows:
BASE SALARY. ______ shall receive a base salary at
the rate of not less than _________________ Dollars
($_________) per annum ("Base Salary"), payable in
substantially equal monthly installments at the end of each
month during the period of _______'s employment hereunder. It
is contemplated that annually in July of each year the
Compensation Committee of the Board of Directors will review
_______'s Base Salary and other compensation during the period
of his employment hereunder and, at the discretion of the
Compensation Committee, it may increase his Base Salary and
other compensation based upon his performance, then generally
prevailing industry salary scales, the Company's results of
operations, and other relevant factors. Any increase in Base
Salary or other compensation shall in no way limit or reduce
any other obligation of the Company hereunder and, once
established at an increased specified rate, _________'s Base
Salary hereunder shall not be reduced without his written
consent.
3. EFFECTIVE DATE. The effective date of this Amendment shall
be June 1, 1998, and as such, the increase in compensation set forth in
Paragraph 2 shall be retroactively applied.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this Amendment
to the Employment Agreement on the date and at the place first above written.
IN THE PRESENCE OF: RPM, INC.
By:
- ---------------------------- ------------------------------
Thomas C. Sullivan, Chairman
and Chief Executive Officer
And:
-----------------------------
P. Kelly Tompkins, Secretary
The "Company"
- ---------------------------- ---------------------------------
-3-
<PAGE> 1
Exhibit 10.4.2
AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------
THIS AMENDMENT is made and entered into on this 15th day of
July, 1998 at Medina, Ohio, by and between RPM, INC. (hereinafter referred to as
the "Company") and RICHARD E. KLAR (hereinafter referred to as "Klar"):
W I T N E S S E T H:
WHEREAS, Klar is considered a key employee of the Company; and
WHEREAS, Klar and the Company entered into a certain
Employment Agreement, originally dated as of July 19, 1988 and last amended as
of July 16, 1997 (the "Employment Agreement"), to insure Klar's continued
employment with the Company; and
WHEREAS, it is the desire of the Company and Klar to amend the
Employment Agreement in accordance with the terms hereof; and
WHEREAS, Paragraph 11 of the Employment Agreement requires
that any such Amendment be in writing and properly executed;
NOW, THEREFORE, in consideration of the premises and the
mutual understandings of the parties, IT IS AGREED, as follows:
1. EMPLOYMENT TERM. Paragraph 1 of the Employment Agreement
shall be deleted in its entirety and amended and restated to provide in its
entirety as follows:
<PAGE> 2
TERM OF EMPLOYMENT. The Company hereby agrees to
continue to employ Klar, and Klar hereby agrees to continue to
serve the Company, on the terms and conditions set forth
herein for the period commencing retroactive to June 1, 1998
(the "Effective Date"), and expiring on October 31, 1998
(unless sooner terminated as hereinafter set forth).
IN WITNESS WHEREOF, the parties have executed this Amendment
to the Employment Agreement on the date and at the place first above written.
IN THE PRESENCE OF: RPM, INC.
By: /s/ Thomas C. Sullivan
- ---------------------------- ---------------------------------
Thomas C. Sullivan, Chairman
and Chief Executive Officer
And: /s/ P. Kelly Tompkins
--------------------------------
P. Kelly Tompkins, Secretary
/s/ Richard E. Klar
- ---------------------------- ------------------------------------
Richard E. Klar
-2-
<PAGE> 1
Exhibit 10.7.1
AMENDMENT NO. 1
TO THE
RPM, INC.
1996 KEY EMPLOYEES STOCK OPTION PLAN
This Amendment No. 1 is made this 24th day of April, 1998 by the
Compensation Committee of the Board of Directors of RPM, Inc. ("Company");
W I T N E S S E T H:
--------------------
WHEREAS, the Company has previously adopted the RPM, Inc. 1996 Key
Employees Stock Option Plan ("Plan"); and
WHEREAS, the Company desires to amend the Plan to permit certain
Optionees thereunder to be able to transfer options that are not Incentive Stock
Options to immediate family members of such Optionees; and
WHEREAS, pursuant to Section 8 of the Plan, the Committee may amend the
Plan subject to the approval of the Board of Directors of the Company;
NOW, THEREFORE, pursuant to Section 8 of the Plan, the Committee does
hereby amend the Plan subject to approval by the Board of Directors of the
Company as follows:
(1) Section 1 of the Plan is hereby amended to add the following
paragraphs (m) and (n):
"(m) The words "Immediate Family" shall mean a Qualified
Optionee's children, stepchildren, grandchildren,
parents, stepparents, grandparents, spouse, siblings
(including half brothers and sisters), in-laws and
other individuals who have a relationship to the
Qualified Optionee arising because of a legal
adoption.
(n) The words "Qualified Optionee" shall mean an Optionee
who is either (i) the Chief Executive Officer or
individuals acting in a similar capacity during the
last completed fiscal year of the Company; or (ii)
one of the four (4) most highly compensated executive
officers, other than the Chief Executive Officer, at
the end of the last completed fiscal year of the
Company."
(2) The second sentence of Section 5 of the Plan is hereby deleted
in its entirety and replaced with the following sentence:
<PAGE> 2
"Notwithstanding the preceding sentence, a Key Employee who
renounces in writing any right he or she may have to receive
stock options under the Plan shall not be eligible to receive
any stock options under the Plan; provided, however, that a
Qualified Optionee who transfers any or all of his or her
options pursuant to Section 7 (c) below shall continue to be
eligible to receive stock options hereunder."
(3) Paragraph (c) of Section 7 of the Plan is hereby deleted in
its entirety and replaced with a new paragraph (c) to read as
follows:
"(c) Limitation on Exercise and Transfer of Option. Except
as otherwise provided in the event of an Optionee's
death, only the Optionee may exercise an option,
provided that (i) a guardian or other legal
representative who has been duly appointed for such
Optionee may exercise an option on behalf of the
Optionee and (ii) a transferee of an option that has
been transferred as permitted pursuant to
subparagraph (C) below may exercise such transferred
option subject to the terms and conditions of the
Plan. No option granted hereunder shall be
transferable other than (A) by the Last Will and
Testament of the Optionee or, if the Optionee dies
intestate, by the applicable laws of descent and
distribution, (B) to the extent approved by the
Committee, pursuant to a domestic relations order, or
(C) to the extent approved by the Committee with
respect to any option that is not an Incentive Stock
Option, by a Qualified Optionee who transfers such
option to a member of his or her Immediate Family or
to a trust or partnership established for the
exclusive benefit of the members of his or her
Immediate Family.
Notwithstanding subparagraph (C) above to the
contrary, no transfer shall be made pursuant to said
subparagraph (C):
(I) to the extent the transfer is made for
consideration; or
(II) to the extent that such transferability
would cause Form S-8 not to be available to
register the Common Stock that is issuable
upon exercise of the options so transferred.
Any purported assignment, transfer, pledge,
hypothecation or other disposition of any of the
options attempted contrary to the provisions of this
Plan, or any levy of execution, attachment or other
process attempted upon any of the options, shall be
null and void and without effect. Any person to whom
an option is transferred by the Optionee as permitted
by subparagraph (C) above shall thereafter succeed to
all of the rights of the Optionee with respect to
exercising the option, provided that the transferee
shall have the right to exercise such option only if
and to the extent the
-2-
<PAGE> 3
Optionee would have had the right to exercise such
option had the transfer not been made."
(4) The initial provision of Section 10 is hereby deleted in its
entirety and replaced with the following provision:
"The Committee may condition its grant of any option hereunder
upon receipt of an investment representation from the
Optionee, or any other person or entity which is entitled to
exercise an option hereunder, which shall be substantially
similar to the following:"
IN WITNESS WHEREOF, the Committee has caused this Amendment No. 1 to be
executed as of the date set forth above.
RPM, Inc. Compensation Committee
By /s/ Edward B. Brandon
----------------------------------
Edward B. Brandon, Chairman
/s/ Kevin O'Donnell
------------------------------------
Kevin O'Donnell
/s/ Albert B. Ratner
------------------------------------
Albert B. Ratner
3
<PAGE> 1
RPM, INC. AND SUBSIDIARIES
--------------------------
CONSOLIDATED STATEMENTS OF COMPUTATIONS OF EARNINGS
---------------------------------------------------
PER COMMON SHARE AND COMMON SHARE EQUIVALENTS
---------------------------------------------
Exhibit 11.1
------------
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Year Ended May 31
-------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net Income
Net income applicable to common shares for basic earnings per share $ 87,837 $ 78,315 $ 68,929
Add back interest net of tax on convertible securities assumed to be
converted 5,638 5,266 4,982
----- ----- -----
Net income applicable to common shares for diluted earnings $ 93,475 $ 83,581 $ 73,911
========= ========= =========
Shares Outstanding (Restated)
Weighted average shares for basic earnings per share 98,527 97,285 95,208
Net issuable common share equivalents 944 609 478
Additional shares issuable assuming conversion of convertible securities 12,192 12,208 12,208
------ ------ ------
Total shares for diluted earnings per share 111,663 110,102 107,894
======= ======= =======
Basic Earnings Per Common Share $.89 $.81 $.72
==== ==== ====
Diluted Earnings Per Common Share $.84 $.76 $.69
==== ==== ====
</TABLE>
<PAGE> 1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RPM, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Results of Operations
Fiscal 1998 Compared To Fiscal 1997
The Company achieved its 51st consecutive record year of sales and
earnings in the 1998 fiscal year. Sales reached $1.62 billion, a 20% increase
over 1997, while earnings grew 12%, to $87.8 million.
On March 31, 1998, the Company acquired The Flecto Company, Inc.
("Flecto"), a leading manufacturer of wood finishes and equipment for the retail
do-it-yourself wood and floor finishing markets [refer to Note A (2)]. With
annual sales of approximately $50 million, Flecto has the leading market share
position in Canada and substantial market share in the United States and will
complement the Company's other leading consumer name brand companies targeting
the retail do-it-yourself market, such as Rust-Oleum, Zinsser, Bondex and Bondo.
The Flecto acquisition and that of Tremco, Inc. on February 1, 1997,
along with several smaller acquisitions and joint ventures, net of several small
divestitures, accounted for approximately 65% of the 1998 sales increase. The
Company's existing operations generated the balance of the sales increase,
growing at the rate of 7% for the year, almost entirely from higher unit volume
as pricing adjustments have been negligible. The consumer businesses grew
slightly faster than the industrial in 1998. Exchange rate differences had a
slight negative effect of less than 1% of sales versus last year and, should the
dollar continue to strengthen, this trend will continue.
The UPS strike affected shipments and caused some loss of business early
in the year, and generally slower retail markets affected consumer operations
during the first half of the year. Substantially all operating units experienced
generally stronger growth in the second half.
The Company's gross profit margin has continued to strengthen, improving
to 44.8% from 44.3% a year ago. This is the result of the stronger average
margins of the recently acquired companies, Tremco and Flecto, coupled with
margin improvements at Tremco throughout the year, mainly from purchasing
savings by being part of a larger group, and the successful restructuring of its
operations which is on schedule. Raw material price changes were not a
significant issue this year and the Company is confident that such changes in
the foreseeable future will continue to be effectively managed.
Selling, general and administrative expenses increased to 33.3% of sales
from 31.8% in 1997. Tremco and Flecto, with their proportionately higher costs
in this category, plus acquisition related expenses, account for the majority of
this increase. Existing operations increased certain promotional and related
spending to further the Company's growth, as planned. The consumer businesses,
in particular, also incurred higher freight costs in 1998 to meet the increasing
demands for smaller, more frequent shipments to their customers, while the Far
East economic situation precipitated certain bad debts and exchange losses among
the industrial businesses.
Interest expense increased $6.2 million in 1998 [refer to Note A(11)],
reflecting the additional indebtedness to acquire Tremco, Flecto, and other
smaller acquisitions, plus non-cash interest accretion. Debt reductions and
fractionally lower interest rates between years reduced net interest expense,
comparatively.
The tax rate improved in 1998 [refer to Note C], with the most
significant improvements coming from the foreign sales corporation (FSC)
resulting in more favorable tax treatment of the Company's exports from the
U.S., proportionately lower state and local taxes, and fewer tax disadvantaged
losses among foreign countries.
Approximately half the growth in earnings and earnings per share was
generated by existing operations, and the balance from the net effect of
acquisitions and divestitures.
The decline in the Company's net income margin to 5.4% from 5.8% a year
ago is the result of the Tremco acquisition and its comparatively lower return
on sales, primarily as a result of related acquisition costs. Tremco's return
improved significantly this year and should continue to improve with growth
combined with the savings that have been generated through continuing
restructuring programs.
The Company's earnings per share this year were affected by the averaging
of Company shares issued in connection with Flecto and a smaller acquisition,
causing a 12% increase in earnings to relate to an 11% increase in diluted
earnings per share. All previously reported per share data have been restated to
reflect a 25% stock dividend issued December 8, 1997.
Subsequent to year-end, on July 8, 1998, the Company called for the
redemption of all of its $400 million face value at maturity Liquid Yield Option
Notes (LYONs) due 2012 [refer to Note B]. The accreted value of the LYONs
securities on the August 10, 1998 redemption date was approximately $192
million. Bondholders converted approximately $160 million of this amount into
10.1 million Company shares, which will correspondingly increase the Company's
basic shares outstanding. The remaining 2.1 million shares that had been
reserved for this conversion will now be removed from the calculation of diluted
earnings per share. The first-year interest savings resulting from the LYONs
converted into Company shares will amount to approximately $8 million on an
annualized basis.
Environmental obligations continue to be appropriately addressed and,
based upon the latest available information, it is not anticipated that the
outcome of such matters will materially affect the Company's results of
operations or financial position. However, such costs could be material to
results of operations in a future period [refer to Note H].
The Company's foreign sales and results of operations are subject to the
impact of foreign currency fluctuations. As most of the Company's foreign
operations are in countries with fairly stable currencies, such as Belgium and
Canada, this effect has not been significant. In addition, foreign debt is
denominated in the
22
<PAGE> 2
respective foreign currency, thereby eliminating any related translation impact
on earnings. Should the dollar continue to strengthen, the Company's foreign
results of operations will be negatively impacted; to date, the effect has not
been significant. The Company does not currently hedge against the risk of
exchange rate fluctuations [refer to Note I].
The Company has evaluated its existing information systems to identify
the changes needed for Year 2000 compliance. Because the Company is highly
decentralized, comprised of multiple operating companies, the need to upgrade or
replace a large system does not exist, thereby minimizing the complexity of the
required modifications. The Year 2000 evaluation effort has included the use of
outside consultants to independently test the effectiveness of planned
modifications. Although conclusive cost estimates have not been determined, it
is anticipated that Year 2000 costs will result in increased expenses and
capital expenditures during fiscal years 1999 and 2000. The Company does not
anticipate, however, that Year 2000 compliance costs will have a material effect
on its financial position or results of operations in those fiscal years.
Results of Operations
FISCAL 1997 COMPARED TO FISCAL 1996
Fibergrate Composite Structures Incorporated (Fibergrate), formerly known
as Okura Holdings, Inc., was acquired on June 13, 1996. With annual sales of
approximately $40 million, Fibergrate is a leading global manufacturer of molded
and pultruded fiberglass reinforced plastic grating products used for pedestrian
walkways, platforms, staircases and similar types of industrial structures.
Fibergrate offers the Company an attractive opportunity to capitalize on market,
product and customer synergies with its sister companies, particularly Stonhard
in flooring systems.
On February 1, 1997, the Company completed the acquisition of Tremco,
Inc., Cleveland, Ohio. Tremco manufactures roofing systems, sealants and
coatings under the Tremco brand name selling primarily to the building
maintenance market. Tremco's product lines and distribution network complement
many of the Company's operations. Upon its acquisition, Tremco began major
restructuring and, in June 1997, the Company completed the sale of Tremco's $70
million insulating glass unit (Swiggle) and $10 million Autoglass division, both
of which served OEM markets unrelated to RPM's core business. In accordance with
accounting standards, the Company's results of operations did not include the
results of Swiggle or Autoglass or the associated interest expense related to
the respective borrowings being repaid with the sale proceeds [refer to Note A
(2)]. As a result of these transactions, Tremco had a restructured annual
revenue base of approximately $230 million.
The Fibergrate and Tremco acquisitions and that of Dryvit Systems, Inc.
(Dryvit) on September 21, 1995, along with several smaller acquisitions and
joint ventures, net of several small divestitures, accounted for approximately
60% of the 1997 sales increase. The Company's existing operations generated the
balance of the sales increase, approximately 8%, net of divestitures, slightly
favoring the industrial lines, and almost entirely from higher unit volume as
pricing adjustments were negligible year-to-year. Exchange rate differences had
a slight negative effect on sales in 1997 versus 1996.
The Company's gross profit margin strengthened to 44.3% in 1997 from
42.8% in 1996. Nearly half of the 1997 improvement came from the efforts of
existing operations, where leveraged purchasing of significant materials
resulted in a number of lower raw material costs, primarily among consumer
lines, and where conversion costs continue to be appropriately controlled. The
balance of the gross profit margin improvement was the result of stronger
average margins among the acquired companies, particularly Fibergrate and
Tremco, coupled with weaker margins among the companies recently divested.
Selling, general and administrative expenses increased in 1997 to 31.8%
of sales compared with 30.0% in 1996. A $2 million insurance recovery plus
several other non-recurring expense reductions during 1996, coupled with planned
increases in promotional spending to further the Company's growth, and the
timing of certain expenses in 1997, caused the majority of the percentage change
in this expense category. The recent acquisitions, especially Tremco, and
divestitures accounted for the remainder of this percentage difference.
During 1997, certain businesses and assets were divested in pursuit of
management's commitment to its core markets and the reduction of debt created by
the Tremco acquisition. The net gains that resulted from these divestitures were
not material to the Company's results.
Interest expense increased $6.8 million in 1997, driven primarily by
additional indebtedness associated with Tremco, Fibergrate, Dryvit and other
acquisitions. The reduction of debt from year-to-year, and fractionally lower
interest rates between years, reduced net interest expense comparatively.
The tax rate improved in 1997, primarily through the establishment of a
foreign sales corporation. This benefit was somewhat reduced, however, by tax
disadvantaged losses of Tremco in several foreign countries.
The 1997 decline in the Company's net income margin to 5.8% from 6.1% in
1996 was the result of the Tremco acquisition, which added approximately $74
million to fiscal 1997 sales and, as expected, did not contribute to earnings
due to the seasonality of their product lines and related acquisition costs. The
Company's 1997 net income margin would have been 6.1% were it not for this
effect.
The Company's earnings per share in 1997 were affected by the averaging
of Company shares issued in connection with the September 1995 Dryvit
acquisition, causing the 14% increase in earnings to compare with a 10% increase
in diluted earnings per share.
23
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RPM, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Capital Resources and Liquidity
CASH PROVIDED FROM OPERATIONS
The Company generated cash from operations of $111 million in 1998, $42
million more than during 1997, on an earnings increase of $9.5 million. This is
primarily attributable to the seasonality of Tremco's business between its date
of acquisition, February 1, 1997, and May 31, 1997. There were also temporary
accumulations of certain inventories a year ago to take advantage of pricing
opportunities and to accommodate several new product introductions.
Cash flow from operations continues to be the primary source of financing
the Company's internal growth, with limited use of short-term credit.
INVESTING ACTIVITIES
The Company is not capital intensive, but continually invests in capital
expenditures primarily to accommodate the Company's continued growth through
improved production and distribution efficiency and capacity, and enhanced
administration. Such expenditures generally do not exceed depreciation and
amortization in a given year. Capital expenditures in 1998 amounted to $60
million compared with depreciation and amortization of $57 million.
The investment of $48 million in new businesses this year reflects the
acquisition of Flecto and several other smaller businesses and assets this year,
net of cash acquired. The Company historically has acquired complementary
businesses and this trend is expected to continue.
The Company's captive insurance company invests in and trades marketable
securities in the ordinary course of conducting its operations, and this
activity will continue. The differences between years are primarily attributable
to the timing of investments.
Earlier this year the Company collected a $23.3 million May 31, 1997
receivable associated with the sale of a business and completed the sales of
Tremco's insulating glass unit and Autoglass division for a net amount of $107.5
million, as previously discussed under Results of Operations.
FINANCING ACTIVITIES
The $130.8 million net proceeds mentioned above were used to reduce the
Company's revolving credit facility, $51 million of additional debt was incurred
to finance acquisitions during the year and $9.6 million of non-cash accretion
was added to long-term debt. The difference is mainly related to currency
translation changes.
As a result of these transactions, the Company has a debt-to-capital
ratio of 56% compared to 62% at May 31, 1997, while interest coverage is five
times on a reported basis and nearly seven times on a cash basis. The LYONs
redemption subsequent to year-end, referred to above, has resulted in a decrease
in long-term debt of approximately $160 million and an equivalent increase in
shareholders' equity. The Company's revolving credit facility was used to fund
the LYONs securities redeemed for cash in the amount of approximately $32
million. The Company's debt-to-capital ratio has been reduced to 44% and
interest coverage has improved to six times as a result of this redemption.
On March 5, 1998, the Company completed a public offering of $100 million
of Notes due 2008 (the "Notes"). The Notes are unsecured obligations of the
Company and rank pari passu with all other unsecured obligations of the Company.
During the first two years, the Notes will bear interest, payable semi-annually
in arrears, at a rate per annum equal to the London Interbank Offered Rate
("LIBOR") for U.S. dollar deposits for a period of six months, minus 5 basis
points. During any subsequent period, the Notes will bear interest, payable
semi-annually in arrears, at a rate of 6.50% per annum, or the three month LIBOR
rate.
The total net proceeds of this offering of approximately $99 million were
used to reduce the outstanding balance of the Company's $500 million revolving
line of credit. The Company subsequently reduced the limit of this credit
facility to $300 million.
The Company acquired Flecto for a combination of cash and the issuance of
Company shares, with the Company's revolving credit facility being utilized for
the cash portion of this transaction.
The stronger dollar effect on the Company's foreign net assets has tended
to reduce shareholders' equity and this trend could continue if the dollar
continues to strengthen, and the growth of these net assets continues.
The Company maintains excellent relations with its banks and other
financial institutions to further enable the financing of future growth
opportunities.
Forward Looking Statements
The foregoing discussion includes forward-looking statements relating to
the business of the Company. These forward-looking statements, or other
statements made by the Company, are made based on management's expectations and
beliefs concerning future events impacting the Company and are subject to
uncertainties and factors (including those specified below) which are difficult
to predict and, in many instances, are beyond the control of the Company. As a
result, actual results of the Company could differ materially from those
expressed in or implied by any such forward-looking statements. These
uncertainties and factors include (a) the price and supply of raw materials,
particularly titanium dioxide, certain resins, aerosols and solvents; (b)
continued growth in demand for the Company's products; (c) risks associated with
environmental liability inherent in the nature of a chemical coatings business;
(d) the effect of changes in interest rates; (e) the effect of fluctuations in
currency exchange rates upon the Company's foreign operations; (f) the effect of
non-currency risks of investing in and conducting operations in foreign
countries, including those relating to political, social, economic and
regulatory factors; (g) the impact of future acquisitions; and (h) the potential
future impact of Year 2000-related software conversion issues which may result
from the actions or inactions of third parties with whom the Company and its
operating companies do business.
24
<PAGE> 4
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
RPM, INC. AND SUBSIDIARIES
(In thousands, except per share amounts)
May 31 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments (Note A) $ 40,783 $ 37,442
Trade accounts receivable (less allowances of $12,718 in 1998 and $12,006 in 1997) 332,944 291,923
Inventories (Note A) 243,249 215,306
Prepaid expenses and other current assets 55,498 68,156
Businesses held for sale (Note A) 107,494
=========================================================================================================================
TOTAL CURRENT ASSETS 672,474 720,321
- -------------------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, AT COST (NOTE A)
Land 27,510 23,903
Buildings and leasehold improvements 187,405 168,132
Machinery and equipment 300,995 268,061
- -------------------------------------------------------------------------------------------------------------------------
515,910 460,096
Less allowance for depreciation and amortization 210,013 189,812
- -------------------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 305,897 270,284
- -------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS
Cost of businesses over net assets acquired, net of amortization (Note A) 423,304 375,606
Other intangible assets, net of amortization (Note A) 232,614 219,098
Equity in unconsolidated affiliates 20,536 18,758
Other 28,454 29,161
=========================================================================================================================
TOTAL OTHER ASSETS 704,908 642,623
- -------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,683,279 $ 1,633,228
- -------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 119,882 $ 109,400
Current portion of long-term debt (Note B) 6,316 3,967
Accrued compensation and benefits 52,941 40,641
Accrued loss reserves (Note H) 43,332 37,699
Other accrued liabilities 51,383 40,141
Income taxes payable (Notes A and C) 11,915 9,938
=========================================================================================================================
TOTAL CURRENT LIABILITIES 285,769 241,786
- -------------------------------------------------------------------------------------------------------------------------
LONG-TERM LIABILITIES
Long-term debt, less current maturities (Note B) 715,689 784,439
Other long-term liabilities 56,704 43,497
Deferred income taxes (Notes A and C) 58,059 70,210
=========================================================================================================================
TOTAL LIABILITIES 1,116,221 1,139,932
- -------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common shares, stated value $.015 per share; authorized 200,000,000 shares,
issued and outstanding 100,254,000; 98,029,000 in 1997 (Note D) 1,460 1,428
Paid-in capital 264,508 229,619
Cumulative translation adjustment (Note A) (13,821) (8,216)
Retained earnings 314,911 270,465
=========================================================================================================================
TOTAL SHAREHOLDERS' EQUITY 567,058 493,296
- -------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,683,279 $ 1,633,228
- -------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
</TABLE>
25
<PAGE> 5
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
RPM, INC. AND SUBSIDIARIES
(In thousands, except per share amounts)
- ---------------------------------------------------------------------------------------------------------------------------
Year Ended May 31 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $1,615,274 $1,350,537 $1,136,396
Cost of sales 891,862 752,391 649,819
- ---------------------------------------------------------------------------------------------------------------------------
Gross profit 723,412 598,146 486,577
Selling, general and administrative expenses 537,156 429,838 340,851
Interest expense, net 36,700 32,580 25,840
- ---------------------------------------------------------------------------------------------------------------------------
Income before income taxes 149,556 135,728 119,886
Provision for income taxes (Note C) 61,719 57,413 50,957
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 87,837 $ 78,315 $ 68,929
- ---------------------------------------------------------------------------------------------------------------------------
Average shares outstanding (Note D) 98,527 97,285 95,208
- ---------------------------------------------------------------------------------------------------------------------------
Basic earnings per common share (Note D) $ .89 $ .81 $ .72
- ---------------------------------------------------------------------------------------------------------------------------
Diluted earnings per common share (Note D) $ .84 $ .76 $ .69
- ---------------------------------------------------------------------------------------------------------------------------
Cash dividends per common share $ .44 $ .41 $ .38
- ---------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
</TABLE>
26
<PAGE> 6
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
RPM, INC. AND SUBSIDIARIES
(In thousands, except per share amounts)
COMMON SHARES
----------------------
NUMBER CUMULATIVE
OF SHARES* STATED PAID-IN TRANSLATION RETAINED
(NOTE D) VALUE CAPITAL ADJUSTMENT EARNINGS TOTAL
-------- ----- ------- ---------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT MAY 31, 1995 91,628 $ 1,334 $ 149,028 $ 580 $ 199,527 $ 350,469
Net income 68,929 68,929
Dividends paid (5) (1,145) (35,598) (36,743)
Business combinations 5,000 73 66,089 (962) 65,200
Stock option exercises, net 188 3 1,047 1,050
Translation adjustments (3,072) (3,072)
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE AT MAY 31, 1996 96,811 1,410 215,019 (2,492) 231,896 445,833
Net income 78,315 78,315
Dividends paid (39,746) (39,746)
Amendment of articles (250) (250)
Business combinations 965 14 13,586 13,600
Stock option exercises, net 253 4 1,264 1,268
Translation adjustments (5,724) (5,724)
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE AT MAY 31, 1997 98,029 1,428 229,619 (8,216) 270,465 493,296
Net income 87,837 87,837
Dividends paid (6) (83) (43,391) (43,474)
Debt conversion 32 499 499
Business combinations 1,813 26 32,259 32,285
Stock option exercises, net 276 4 2,216 2,220
Restricted stock grants 110 2 (2)
Translation adjustments (5,605) (5,605)
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE AT MAY 31, 1998 100,254 $ 1,460 $ 264,508 $ (13,821) $ 314,911 $ 567,058
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
* Restated
27
<PAGE> 7
CONSOLIDATED STATEMENTS OF CASH FLOWS
RPM, INC. AND SUBSIDIARIES
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED MAY 31 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $87,837 $78,315 $68,929
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 57,009 51,145 42,562
(Decrease) in deferred liabilities (10,459) (7,400) (5,696)
(Earnings) of unconsolidated affiliates (2,217) (2,275) (2,120)
Non-cash interest expense 9,599 9,127 8,666
Changes in assets and liabilities, net of effect
from purchases and sales of businesses:
(Increase) in accounts receivable (26,944) (34,934) (17,249)
(Increase) in inventory (19,727) (11,722) (4,441)
(Increase) in prepaid and other assets (4,163) (9,520) (3,319)
Increase in accounts payable 6,138 3,489 9,808
Increase (decrease) in accrued liabilities 18,413 (4,568) (728)
Other (4,453) (2,706) (723)
- ---------------------------------------------------------------------------------------------------------------------------
Cash From Operating Activities 111,033 68,951 95,689
- ---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (60,343) (35,825) (33,196)
Acquisition of businesses, net of cash acquired (47,709) (315,960) (45,375)
Purchase of marketable securities (27,224) (13,428) (17,453)
Proceeds from marketable securities 17,355 14,992 10,951
Distributions from joint ventures 592 261 1,571
Investments in joint ventures (2,702) (200) (1,663)
Proceeds from sale of assets and businesses 131,222 8,930 11,666
- ---------------------------------------------------------------------------------------------------------------------------
Cash From (Used For) Investing Activities 11,191 (341,230) (73,499)
- ---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to long-term and short-term debt 292,117 508,528 219,119
Reductions of long-term and short-term debt (369,746) (179,934) (205,595)
Cash dividends/distributions paid (43,474) (39,746) (36,743)
Exercise of stock options 2,220 1,268 1,050
Other (250)
- ---------------------------------------------------------------------------------------------------------------------------
Cash From (Used For) Financing Activities (118,883) 289,866 (22,169)
- ---------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH 3,341 17,587 21
CASH AT BEGINNING OF YEAR 37,442 19,855 19,834
- ---------------------------------------------------------------------------------------------------------------------------
CASH AT END OF YEAR $40,783 $37,442 $19,855
- ---------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $32,375 $23,454 $14,369
Income taxes $70,189 $67,842 $59,277
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Interest accreted on LYONs $ 9,599 $ 9,127 $ 8,666
Common shares issued for acquisitions $32,285 $13,600 $65,200
Receivables from disposition of businesses $ $26,728 $
Conversion of debt to equity $ 499 $ $
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
28
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- MAY 31, 1998, 1997 AND 1996
RPM, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Note A -- Summary of Significant Accounting Policies
1. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of RPM, Inc.
and its majority owned domestic and foreign subsidiaries. The Company accounts
for its investment in less than majority owned joint ventures under the equity
method. Intercompany accounts, transactions and unrealized profits and losses
are eliminated in consolidation.
Certain reclassifications have been made to prior year amounts to conform
with the current year presentation.
2. BUSINESS COMBINATIONS
During the two year period ended May 31, 1998, the Company completed several
acquisitions. As reported last year, the Company acquired all the outstanding
shares of Tremco, Incorporated and Fibergrate Composite Structures, Inc. On
March 31, 1998, the Company acquired all the outstanding shares of The Flecto
Company, Inc. and affiliates.
These acquisitions as well as several small product line acquisitions
have been accounted for by the purchase method of accounting and the difference
of approximately $187,000,000 between the fair value of net assets acquired and
the purchase consideration of $427,000,000 ($381,000,000 in cash and 2,777,000
of the Company's shares) has been allocated to goodwill. The purchase price
allocations have been based on preliminary estimates, which may be revised at a
later date. The assets, liabilities and operating results of these companies are
reflected in the Company's financial statements from their respective dates of
acquisition forward.
As reported last year, the Company completed the sale of Tremco's Windows
and Autoglass businesses for $107,000,000. In addition, the Company also
completed several other divestitures and product line restructurings during the
past two years resulting in an immaterial gain with additional proceeds
to the Company of approximately $36,000,000.
The following data summarizes, on an unaudited pro forma basis, the
combined results of operations of the Company and the significant businesses
acquired for the two years ended May 31, 1998. The pro forma amounts give effect
to appropriate adjustments resulting from the combination, but are not
necessarily indicative of future results of operations or of what results would
have been for the combined companies.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31 1998 1997
- --------------------------------------------------------------------------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<S> <C> <C>
Net Sales $ 1,648,453 $1,586,482
- --------------------------------------------------------------------------------
Net Income $ 88,133 $ 82,962
- --------------------------------------------------------------------------------
Basic Earnings Per Common Share $ .88 $ .84
- --------------------------------------------------------------------------------
Diluted Earnings Per Common Share $ .83 $ .79
- --------------------------------------------------------------------------------
</TABLE>
3. FOREIGN CURRENCY
The functional currency of foreign subsidiaries is their local currency.
Accordingly, for the periods presented, assets and liabilities have been
translated using exchange rates prevailing at year-end while income and expense
for the periods have been translated using an average exchange rate. The
resulting translation adjustments have been recorded in shareholders' equity and
will be included in net earnings only upon the sale or liquidation of the
underlying foreign investment, which is not contemplated at this time.
Transaction gains and losses have been immaterial during the past three fiscal
years.
4. CASH AND SHORT-TERM INVESTMENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents. The Company does not believe it is exposed to any
significant credit risk on cash and short-term investments.
5. MARKETABLE SECURITIES
Marketable securities of $21,319,000 and $11,338,000 at May 31, 1998 and
1997, respectively, are included in other current assets and are stated at cost
which approximates their fair market value.
6. FINANCIAL INSTRUMENTS
The Company's financial instruments recorded on the balance sheet include
cash and short-term investments, accounts receivable, accounts payable and debt.
The carrying amount of cash and short-term investments, accounts receivable and
accounts payable approximates fair value because of their short term maturity.
The carrying amount of the Company's debt instruments approximates fair
value based on quoted market prices, variable interest rates, or borrowing rates
for similar types of debt arrangements.
7. INVENTORIES
Inventories are stated at the lower of cost or market, cost being
determined substantially on a first-in, first-out (FIFO) basis and market being
determined on the basis of replacement cost or net realizable value. Inventory
costs include raw material, labor and manufacturing overhead. Inventories were
composed of the following major classes:
<TABLE>
<CAPTION>
MAY 31 1998 1997
- --------------------------------------------------------------------------------
(In thousands)
- --------------------------------------------------------------------------------
<S> <C> <C>
Raw material and supplies $ 77,173 $ 75,333
Finished goods 166,076 139,973
- --------------------------------------------------------------------------------
Total Inventory $ 243,249 $ 215,306
</TABLE>
29
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- MAY 31, 1998, 1997 AND 1996
(CONT.)
RPM, INC. AND SUBSIDIARIES
8. DEPRECIATION
Depreciation is computed over the estimated useful lives of the assets
primarily using the straight-line method. The annual depreciation rates are
based on the following ranges of useful lives:
- --------------------------------------------------------------------
<TABLE>
<S> <C>
Land improvements 5 to 35 years
Buildings and improvements 5 to 50 years
Machinery and equipment 3 to 20 years
</TABLE>
9. INTANGIBLES
The excess of cost over the underlying value of the net assets of
companies acquired is being amortized on the straight-line basis, primarily over
forty years. Amortization expense charged to operations for the three years
ended May 31, 1998 was $12,435,000, $9,916,000 and $7,562,000, respectively.
Cost of businesses over net assets acquired is shown net of accumulated
amortization of $56,611,000 at May 31, 1998 ($44,351,000 at May 31, 1997).
Intangible assets also represent costs allocated to formulae, trademarks,
trade names and other specifically identifiable assets arising from business
acquisitions. These assets are being amortized using the straight-line method
over periods of 5 to 40 years. The Company assesses the recoverability of the
excess of cost over the assigned value of net assets acquired by determining
whether the amortization of the balance over its remaining life can be recovered
through undiscounted future operating cash flows of the acquired operations.
Amortization expense charged to operations for the three years ended May 31,
1998, was $11,473,000, $10,936,000 and $7,553,000 respectively.
Other intangible assets consist of the following major classes:
<TABLE>
<CAPTION>
MAY 31 1998 1997
- --------------------------------------------------------------------------------
(In thousands)
- --------------------------------------------------------------------------------
<S> <C> <C>
Trademarks $ 83,621 $ 85,472
Formulae 89,648 83,693
Distributor network 37,500 37,500
Workforce 36,783 33,300
Patents 10,518 4,778
Other 16,162 5,421
- --------------------------------------------------------------------------------
274,232 250,164
Accumulated amortization 41,618 31,066
- --------------------------------------------------------------------------------
Other Intangible Assets, Net $ 232,614 $219,098
- --------------------------------------------------------------------------------
</TABLE>
10. RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations when incurred
and are included in operating expenses. The amounts charged for the three years
ended May 31, 1998, were $15,815,000, $14,610,000 and $13,712,000, respectively.
The customer sponsored portion of such expenditures was not significant.
11. INTEREST EXPENSE, NET
Interest expense is shown net of investment income which consists of
interest, dividends and capital gains. Investment income for the three years
ended May 31, 1998, was $4,154,000, $2,059,000 and $2,005,000, respectively.
12. INCOME TAXES
The Company and its wholly owned domestic subsidiaries file a
consolidated federal income tax return. The tax effects of transactions are
recognized in the year in which they enter into the determination of net income,
regardless of when they are recognized for tax purposes. As a result, income tax
expense differs from actual taxes payable. The accumulation of these differences
at May 31, 1998, is shown as a noncurrent liability of $58,059,000 (net of a
noncurrent asset of $40,984,000). At May 31, 1997, the noncurrent liability was
$70,210,000 (net of a noncurrent asset of $31,773,000). The Company does not
intend to distribute the accumulated earnings of consolidated foreign
subsidiaries amounting to $69,691,000 at May 31, 1998, and $48,453,000 at May
31, 1997, and therefore no provision has been made for the taxes which would
result if such earnings were remitted to the Company.
13. ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
30
<PAGE> 10
<TABLE>
<CAPTION>
Note B -- Borrowings
A description of long-term debt follows:
MAY 31 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$400 million face value at maturity Liquid Yield Option Notes (LYONs) due 2012.
The 5.25% LYONs are zero coupon subordinated notes convertible at $15.59 at May
31, 1998 ($14.80 at May 31, 1997). Subsequent to May 31, 1998, the Company gave
notice to redeem the entire issue on August 10, 1998 for $191,722,000. Holders
may convert until that date at the rate of 30.52 shares per $1,000 face value at
maturity note. There are 12,175,000 shares reserved for the conversion. $189,809 $180,716
Revolving credit agreement for $300,000,000 ($500 million at May 31, 1997) with
nine banks through February 2, 2002. Interest, which is tied to one of various
rates, was 5.88% at May 31, 1998. The Chairman of the Board and Chief Executive
Officer of the Company is a director of one of the banks providing this
facility. 243,000 417,000
7% unsecured senior notes due June 15, 2005. 150,000 150,000
Unsecured notes due 2008 bearing interest for two years at the six month LIBOR
rate minus five basis points (5.75% at May 31, 1998). 100,000
Multi-currency revolving credit agreement for $45,000,000 with a bank through
December 14, 2001. Interest, which is tied to one of various rates, averaged
4.00% on the $10,551,000 Dutch Guilder component, 4.37% on the $5,335,000
Belgian Franc component and 4.01% on the $4,990,000 French Franc component
at May 31, 1998. 20,876 23,799
6.75% unsecured senior notes due to an insurance company in annual installments
from 1998 through 2003. 10,286 12,000
Other notes and mortgages payable at various rates of interest due in installments
through 2006, substantially secured by property. 8,034 4,891
- ----------------------------------------------------------------------------------------------------------------------------
722,005 788,406
Less current portion 6,316 3,967
- ---------------------------------------------------------------------------------------------------------------------------
Total long-term debt, less current maturities $715,689 $784,439
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Additionally, at May 31, 1998, the Company had unused short-term lines of credit
with several banks totalling $108,883,000.
The aggregate maturities of long-term debt for the five years subsequent to May
31, 1998, are as follows: 1999 - $6,316,000; 2000 - $3,019,000; 2001 -
$2,706,000; 2002 - $266,232,000; 2003 - $1,951,000.
<TABLE>
<CAPTION>
Note C -- Taxes
The provision for taxes on income includes the following:
YEAR ENDED MAY 31 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
(In thousands)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax rate of 35% applied to income before income taxes $ 52,345 $ 47,505 $ 41,960
Increase (decrease) in taxes resulting from:
Tax credits (1,132) (291) (585)
State and local taxes - Net of federal income tax benefit 6,033 5,994 5,323
Foreign taxes in excess of U.S. federal tax rate 433 1,161 500
Amortization of goodwill 3,346 2,144 3,411
All other items, none of which exceed 5% of computed tax 694 900 348
- ---------------------------------------------------------------------------------------------------------------------------
Actual tax expense $ 61,719 $ 57,413 $ 50,957
- ---------------------------------------------------------------------------------------------------------------------------
Actual tax rate 41.27% 42.30% 42.50%
- ---------------------------------------------------------------------------------------------------------------------------
The provision for income taxes consists of the following:
Current
Federal $ 49,802 $ 48,363 $ 43,992
State 9,281 9,222 8,189
Foreign 13,096 7,228 4,473
- ---------------------------------------------------------------------------------------------------------------------------
72,179 64,813 56,654
Deferred
Federal (9,970) (7,681) (5,814)
Foreign (490) 281 117
- ---------------------------------------------------------------------------------------------------------------------------
Actual tax expense $ 61,719 $ 57,413 $ 50,957
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Deferred income taxes result from timing differences in recognition of
revenue and expense for book and tax purposes, primarily from the tax timing
differences relating to business combinations.
31
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- MAY 31, 1998, 1997 AND 1996
(CONT.)
RPM, INC. AND SUBSIDIARIES
Note D -- Common Shares
There are 200,000,000 common shares authorized with a stated value of
$.015 per share. At May 31, 1998 and 1997, there were 100,254,000 and 98,029,000
shares outstanding respectively, each of which is entitled to one vote.
Share data for May 31, 1997 and May 31, 1996, have been restated to
reflect a 25% stock dividend in December 1997.
Basic earnings per share are based on the weighted average number of
common shares outstanding during each year (98,527,000 in 1998, 97,285,000 in
1997 and 95,208,000 in 1996). In computing diluted earnings per share, the
number of common shares was increased by common stock options with exercisable
prices lower than the average market prices of common shares during each year
and reduced by the number of shares assumed to have been purchased with proceeds
from the exercised options.
The Company has options outstanding under three stock option plans, the
1979 Nonqualified Stock Option Plan, the 1989 Stock Option Plan and the 1996 Key
Employees Stock Option Plan which provide for the granting of options for up to
4,500,000 shares. These options are generally exercisable cumulatively in equal
annual installments commencing one year from the grant date and have expiration
dates ranging from September 1998 to May 2008. At May 31, 1998, 2,856,000 shares
(4,500,000 May 31, 1997) were available for future grant.
Transactions during the last two years are summarized as follows:
<TABLE>
<CAPTION>
SHARES UNDER OPTION 1998 1997
- --------------------------------------------------------------------------------
(In thousands)
- --------------------------------------------------------------------------------
<S> <C> <C>
Outstanding, beginning of year (weighted
average price of $11.29 ranging from $4.89
to $13.80 per share) 3,204 2,806
Granted (weighted average price of $15.56
ranging from $15.15 to $17.25 per share) 1,644 754
Canceled (weighted average price of $12.97
ranging from $5.03 to $16.35 per share) (94) (30)
Exercised (weighted average price of $9.20
ranging from $4.89 to $13.80 per share) (322) (326)
- --------------------------------------------------------------------------------
Outstanding, end of year (weighted average
price of $12.99 ranging from $5.03 to $17.25
per share) 4,432 3,204
- --------------------------------------------------------------------------------
Exercisable, end of year (weighted average
price of $11.01 ranging from $5.03 to $16.35
per share) 1,889 1,533
- --------------------------------------------------------------------------------
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
AT MAY 31, 1998 AT MAY 31, 1998
RANGE OF SHARES AVERAGE AVERAGE SHARES AVERAGE
EXERCISE PRICES (000'S) YEARS PRICE (000'S) PRICE
<C> <C> <C> <C> <C> <C>
$ 5.00 - $ 9.99 434 2.8 $ 7.99 434 $ 7.99
$10.00 - $14.99 2,380 6.8 $ 12.17 1,454 $ 11.91
$15.00 - $17.25 1,618 9.2 $ 15.56 1 $ 16.35
----- -----
4,432 7.3 $ 12.99 1,889 $ 11.01
===== =====
</TABLE>
The Company is accounting for its stock option plans under the provisions
of APB Opinion No. 25 and, accordingly, no compensation cost has been
recognized. If compensation cost had been determined based on the fair value at
the grant date for awards under this plan consistent with the method prescribed
by SFAS No. 123, the Company's net income and earnings per share for the years
ended May 31, 1998 and 1997, would have been reduced to the pro forma amounts
indicated in the following table:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31 1998 1997
- --------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<S> <C> <C>
Pro Forma Net Income $ 85,920 $ 77,315
- --------------------------------------------------------------------------------
Pro Forma Earnings Per Share:
Basic $ .87 $ .79
- --------------------------------------------------------------------------------
Diluted $ .82 $ .75
- --------------------------------------------------------------------------------
</TABLE>
The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions: the expected volatility rate is 27.1% for shares granted in 1998
and 27.5% for 1997; the expected life is 7.0 and 6.9 years, with dividend yields
of 2.9% and 2.8% and risk-free interest rates of 6.2%
and 6.3%, for 1998 and 1997, respectively.
Note E -- Leases
At May 31, 1998, certain property, plant and equipment were leased by the
Company under long-term leases. Certain of these leases provide for increased
rental based upon an increase in the cost-of-living index. Future minimum lease
commitments as of May 31, 1998, for all noncancellable leases are as follows:
<TABLE>
<CAPTION>
MAY 31 (IN THOUSANDS)
- --------------------------------------------------------------------------------
<S> <C>
1999 $ 7,830
2000 4,943
2001 3,135
2002 2,087
2003 2,610
Thereafter 1,031
- --------------------------------------------------------------------------------
Total minimum lease commitments $ 21,636
</TABLE>
Rental expenses for all operating leases totalled $9,654,000 in 1998,
$8,804,000 in 1997 and $6,614,000 in 1996. Capitalized leases were insignificant
for the three years ended May 31, 1998.
Note F -- Retirement Plans
To provide uniform retirement income for its non-union employees, the
Company has a defined benefit retirement plan in which substantially all
non-union employees participate. The Retirement Plan is a non-contributory plan
fully paid for by the Company, with accrued benefits vesting after five years of
service. This plan provides benefits that are based on years of service and
average compensation. Benefits for union employees are provided by separate
plans and are generally based on years of service. The Company's funding policy
is to contribute annually an amount
32
<PAGE> 12
that can be deducted for federal income tax purposes using a different actuarial
cost method and different assumptions from those used for financial reporting.
The net periodic pension cost for the three years ended May 31, 1998,
included the following components:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - Benefits earned
during the period $ 6,712 $ 4,417 $ 3,086
Interest cost on projected
benefit obligations 7,475 5,038 4,428
Actual return on plan assets (16,325) (7,388) (7,367)
Net amortization and deferral 8,440 3,336 3,946
- --------------------------------------------------------------------------------
Net pension cost $ 6,302 $ 5,403 $ 4,093
- --------------------------------------------------------------------------------
</TABLE>
The general discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the projected benefit
obligations were 7% (8% for May 31, 1997) and 4.5% (5% for May 31, 1997),
respectively. The expected long-term rate of return on assets was 8.5%. The
plans' assets consist primarily of stocks, bonds and fixed income securities.
In addition, the Company recognized $1,065,000 in pension income during
the year ended May 31, 1998, due to various one-time curtailment and/or
settlement events.
Pursuant to the provisions of SFAS No. 87, "Employers' Accounting for
Pensions," intangible assets of $143,000 and $148,000 were recorded as of May
31, 1998 and 1997, respectively, in order to recognize the required minimum
liability.
The following table sets forth the funded status of the Company's pension
plans and the amounts reflected in the accompanying balance sheets:
<TABLE>
<CAPTION>
MAY 31 1998 1997
- --------------------------------------------------------------------------------
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of projected
benefit obligation:
Vested employees $ (81,612) $ (71,681)
Nonvested employees (3,154) (2,358)
- --------------------------------------------------------------------------------
Accumulated benefit obligation (84,766) (74,039)
Additional amount related to
projected salary increases (21,418) (18,537)
- --------------------------------------------------------------------------------
Total projected benefit obligation (106,184) (92,576)
Funded assets at fair value 103,519 92,027
- --------------------------------------------------------------------------------
Projected benefit obligation in
excess of assets (2,665) (549)
Unamortized net asset existing at date
of adoption (507) (450)
Unrecognized prior service cost 1,003 1,458
Unrecognized net loss 5,412 2,304
Adjustment required to recognize
minimum liability (929) (148)
- --------------------------------------------------------------------------------
Prepaid pension cost $ 2,314 $ 2,615
- --------------------------------------------------------------------------------
</TABLE>
Some subsidiaries contribute to multi-employer defined benefit plans for
their collective bargaining groups. Contributions to these plans were immaterial
for the three-year period ended May 31, 1998. In addition to the defined benefit
plans described above, the Company sponsors an employee savings plan under
Section 401(k) of the Internal Revenue Code. The Plan covers substantially all
non-union employees in the United States. The Plan provides for matching
contributions in Company shares based upon qualified employee contributions.
Matching contributions charged to income were $4,001,000 and $2,229,000 for
years ended May 31, 1998 and 1997, respectively.
Note G -- Post-Retirement Health Care Benefits
In addition to the defined benefit pension plan, the Company also
provides health care benefits to certain of its retired employees through
unfunded plans. Employees become eligible for these benefits if they meet
minimum age and service requirements. The components of this expense for the
three years ended May 31, 1998 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - Benefits earned
during this period $ 90 $ 36 $ 4
Interest cost on the
accumulated obligation 915 714 673
Net amortization (52) (113)
- --------------------------------------------------------------------------------
Net periodic post-retirement
expense $ 953 $ 750 $ 564
- --------------------------------------------------------------------------------
</TABLE>
In addition, the Company recognized $181,000 in income due to the
curtailment of these benefits at a union location.
The accumulated post-retirement obligation recognized on the May 31,
1998 and May 31, 1997 balance sheets are comprised of the following components:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<S> <C> <C>
Current retirees $ 10,848 $ 8,705
Future retirees 3,814 3,344
Unrecognized net gain (loss) (1,407) 1,313
- --------------------------------------------------------------------------------
Accumulated post-retirement
benefit obligation $ 13,255 $ 13,362
- --------------------------------------------------------------------------------
</TABLE>
The general discount rate used in determining the accumulated
post-retirement benefit obligation as of May 31, 1998 was 7% (8% at May 31,
1997). A 10% increase in the cost of covered health care benefits was generally
assumed for fiscal 1998 (12% for fiscal 1997). This trend rate in all cases is
assumed to decrease to 5% after several years and remain at that level
thereafter except for various union plans which will cap at alternate benefit
levels. A 1% increase in the health care costs trend rate would have increased
the accumulated post-retirement benefit obligation as of May 31, 1998 by
$1,296,000 and the net post-retirement expense by $115,000.
33
<PAGE> 13
Note H -- Contingencies and Loss Reserves
Accrued loss reserves consisted of the following classes:
<TABLE>
<CAPTION>
MAY 31 1998 1997
- --------------------------------------------------------------------------------
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<S> <C> <C>
Accrued product liability reserves $ 23,446 $ 17,145
Accrued warranty reserves - Current 13,983 11,848
Accrued environmental reserves 4,891 6,332
Other 1,012 2,374
- --------------------------------------------------------------------------------
Accrued loss reserves - Current 43,332 37,699
Accrued warranty reserves - Long-term 30,606 17,762
- --------------------------------------------------------------------------------
Total Accrued Loss Reserves $ 73,938 $ 55,461
- --------------------------------------------------------------------------------
</TABLE>
The Company, through its wholly owned insurance subsidiary, provides
certain insurance coverage, primarily product liability, to the Company's other
domestic subsidiaries. Excess coverage is provided by outside carriers. The
Company has provided the reserves reflected above to provide for these losses as
well as other uninsured claims. Provision for estimated warranty costs is
recorded at the time of sale and periodically adjusted to reflect actual
experience.
In addition, the Company, like others in similar businesses, is involved
in several proceedings relating to environmental matters. It is the Company's
policy to accrue remediation costs when it is probable that such efforts will be
required and the related costs can be reasonably estimated. These liabilities
are undiscounted and do not take into consideration any possible recoveries of
future insurance proceeds or claims against third parties. Due to the
uncertainty inherent in the estimation process, it is at least reasonably
possible that actual costs will differ from estimates, but, based upon
information presently available, such future costs are not expected to have a
material adverse effect on the Company's competitive or financial position or
its ongoing results of operations. However, such costs could be material to
results of operations in a future period.
Note I -- Industry Segment and Geographic Area Information
The Company operates principally in one business
segment-the manufacture and sale of protective coatings. In computing net income
for foreign subsidiaries, no allocations of general corporate expenses have been
made.
Information concerning the Company's operations in different geographical
areas of the Company's business at May 31, 1998, 1997 and 1996 and for the years
then ended is summarized as follows:
<TABLE>
<CAPTION>
UNITED EUROPEAN OTHER FOREIGN
STATES OPERATIONS OPERATIONS TOTAL
(IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES
May 31, 1998 $1,303,032 $151,376 $ 160,866 $1,615,274
May 31, 1997 1,149,348 115,299 85,890 1,350,537
May 31, 1996 1,001,706 90,880 43,810 1,136,396
- ---------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT
May 31, 1998 587,419 67,459 68,534 723,412
May 31, 1997 520,461 46,660 31,025 598,146
May 31, 1996 431,493 41,366 13,718 486,577
- ---------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE, NET
May 31, 1998 35,792 462 446 36,700
May 31, 1997 31,473 605 502 32,580
May 31, 1996 22,785 2,738 317 25,840
- ---------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE TAX
May 31, 1998 119,504 12,805 17,247 149,556
May 31, 1997 118,108 10,337 7,283 135,728
May 31, 1996 108,589 8,773 2,524 119,886
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME
May 31, 1998 69,762 8,519 9,556 87,837
May 31, 1997 68,843 5,444 4,028 78,315
May 31, 1996 62,080 5,130 1,719 68,929
- ---------------------------------------------------------------------------------------------------------------------------
ASSETS EMPLOYED
May 31, 1998 1,433,919 127,552 121,808 1,683,279
May 31, 1997 1,412,157 114,350 106,721 1,633,228
May 31, 1996 1,041,726 86,275 27,075 1,155,076
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The above sales for the year ended May 31, 1998, do not include sales of Company
products by joint ventures and licensees of approximately $90,000,000. The
Company reflects income from joint ventures on the equity method and receives
royalties from its licensees. Export sales were less than 10% of total
consolidated revenue for each of the three years.
34
<PAGE> 14
Note J -- Interim Financial Information (Unaudited)
The following is a summary of the unaudited quarterly results of
operations for the years ended May 31, 1998 and 1997:
<TABLE>
<CAPTION>
THREE MONTHS ENDED AUGUST 31 NOVEMBER 30 FEBRUARY 28 MAY 31
- ---------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1998
<S> <C> <C> <C> <C>
Net Sales $415,053 $397,757 $350,456 $452,008
- ---------------------------------------------------------------------------------------------------------------------------
Gross Profit 184,081 174,353 146,313 218,665
- ---------------------------------------------------------------------------------------------------------------------------
Net Income 28,186 21,445 5,526 32,680
Basic Earnings Per Share $ .29 $ .22 $ .06 $ .33
- ---------------------------------------------------------------------------------------------------------------------------
Diluted Earnings Per Share $ .27 $ .21 $ .06 $ .30
- ---------------------------------------------------------------------------------------------------------------------------
Dividends Per Share $ .104 $ .112 $ .112 $ .112
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
THREE MONTHS ENDED AUGUST 31 NOVEMBER 30 FEBRUARY 28 MAY 31
- ---------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1997
<S> <C> <C> <C> <C>
Net Sales $329,231 $316,076 $297,177 $408,053
- ---------------------------------------------------------------------------------------------------------------------------
Gross Profit 142,696 134,046 125,793 195,611
- ---------------------------------------------------------------------------------------------------------------------------
Net Income 23,956 18,533 7,508 28,318
- ---------------------------------------------------------------------------------------------------------------------------
Basic Earnings Per Share $ .25 $ .19 $ .08 $ .29
- ---------------------------------------------------------------------------------------------------------------------------
Diluted Earnings Per Share $ .23 $ .18 $ .08 $ .27
Dividends Per Share $ .096 $ .104 $ .104 $ .104
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The computation of diluted earnings per share reflects additional shares
issuable assuming conversion of convertible securities. Quarterly earnings per
share do not total to the yearly earnings per share due to the weighted average
number of shares outstanding in each quarter.
Note K -- Recently Issued Accounting Standards
The FASB recently issued SFAS No. 130, Reporting Comprehensive Income,
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information and SFAS No. 132, Employers' Disclosure about Pensions and Other
Post-retirement Benefits. SFAS No. 130 provides for the reporting and
presentation of comprehensive income and its components. SFAS No. 131
establishes standards for defining operating segments and reporting certain
information about such segments. SFAS No. 132 revised disclosure requirements
relative to pension and other post-retirement benefits. Since these statements
only impact how financial information is disclosed in interim and annual
periods, the adoption of these standards in 1999 will not impact the Company's
financial condition or results of operations.
Independent Auditors Report
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
RPM, INC. AND SUBSIDIARIES
MEDINA, OHIO
We have audited the accompanying consolidated balance sheets of RPM, Inc.
and Subsidiaries as of May 31, 1998 and 1997, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the years
in the three-year period ended May 31, 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion. In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of RPM, Inc. and Subsidiaries
at May 31, 1998 and 1997, and the results of their operations and their cash
flows for each of the years in the three-year period ended May 31, 1998, in
conformity with generally accepted accounting principles.
/s/ Ciulla, Smith & Dale, LLP
Cleveland, Ohio
July 3, 1998
<PAGE> 1
EXHIBIT 21.1
------------
The following is a list of subsidiaries of RPM, Inc. as of August 3,
1998.
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation
- ---- -------------
<S> <C> <C>
Bondex International, Inc. Ohio
Consolidated Coatings Corporation Ohio
Consolidated Inter-Continental Corporation Ohio
Consolidated Protective Coatings, Ltd. Canada
Day-Glo Color Corp. Ohio
Kop-Coat, Inc. Ohio
Alox Corporation New York
Alox International Sales Corporation New York
Republic Powdered Metals, Inc. Ohio
Tremco Incorporated (1) Ohio
Weatherproofing Technologies, Inc. Delaware
Paramount Technical Products, Inc. South Dakota
Tremco A.B. Sweden
Tremco GmbH Germany
Tremco Ltee./Ltd. Canada
Tremco Limited U.K.
OY Tremco Ltd. Finland
Tretol Group Ltd. U.K.
Tretol Ltd. U.K.
Tretobond Ltd. U.K.
Tremco Asia Pte. Ltd. Singapore
Tremco Asia Pacific Pty. Limited Australia
Tremco Pty. Limited Australia
PABCO Products Pty. Limited Australia
Tremco (NZ) Limited New Zealand
Tremco Japan Pty. Ltd. Australia
Tremco Far East Limited Hong Kong
Tremco Malaysia Sdn. Bhd. Malaysia
Tremco Far East Ltd. Korea
Tremco Far East Ltd. Singapore
Bondo/Mar-Hyde Corporation Ohio
Euchem, Inc. (2) Ohio
Westgate Advertising, Inc. Ohio
Carboline Company Delaware
Carboline International Corporation (3) Delaware
Carboline Dubai Corporation Missouri
Map II, Inc. Delaware
RPM World Trade, Ltd. Virgin Islands
RPM World Trade, Inc. Delaware
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
Stonhard, Inc. (4) Delaware
Parklin Management Group, Inc. Ohio
Stonhard Ltd. Canada
Stonhard (Luxembourg), S.A. Luxembourg
Stonhard S.A. de C.V. Mexico Mexico
Stonhard de Mexico S.A. de C.V. Mexico
Juarez Immobiliaria S.A. de C.V. Mexico
Plasite Protective Coatings, Inc. Delaware
Briner Paint Mfg. Co. Texas
American Emulsions Co., Inc. Georgia
Lubraspin Corporation Georgia
Select Dye & Chemical, Inc. Georgia
Design/Craft Fabric Corporation Illinois
Chemical Specialties Manufacturing Corp. Maryland
RPM of Mass, Inc. Massachusetts
Haartz-Mason, Inc. Massachusetts
Westfield Coatings Corporation Massachusetts
William Zinsser & Co. Incorporated. New Jersey
Richard E. Thibaut, Inc. New York
Mantrose-Haeuser Co., Inc. Massachusetts
Floquil-Polly S Color Corp. New York
Mohawk Finishing Products, Inc. New York
H. Behlen & Bro., Inc. New York
Bondex International (Canada) Ltee./Ltd. Canada
Chemical Coatings, Inc. North Carolina
Sentry Polymers, Inc. Texas
First Colonial Insurance Company, Inc. Vermont
Fibergrate Composite Structures Incorporated Delaware
Fibergrate Corporation Texas
Chemgrate Corporation Washington
Chem-Grate Corporation Tennessee
Chemgrate (Asia), Inc. Washington
Chemgrate Shanghai FRP Co., Ltd. China
Chemgrate (PRC), Inc. Washington
Dryvit Systems, Inc. (5) Rhode Island
Dryvit Systems, Canada, Ltd. Canada
Tech 21 Panel Systems, Inc. Rhode Island
Ultra-Tex Surfaces, Inc. California
Dryvit/MetroClean, Inc. Delaware
Rust-Oleum Corporation (6) Illinois
Rust-Oleum Sales Company, Inc. Ohio
ROC Sales, Inc. Illinois
Rust-Oleum International Corporation Delaware
Rust-Oleum (Canada) Ltd. Canada
Star Finishing Products, Inc. Illinois
TCI, Inc. Georgia
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
The Testor Corporation Ohio
The Flecto Company, Inc. (7) California
Flecto International Supply, Inc. Nevada
Flecto International, Inc. Barbados
Flecto Coatings Ltd. Canada
RPM/Europe B.V. Netherlands
Carboline Europe B.V. Netherlands
Rust-Oleum/Netherlands, B.V. Netherlands
ROC Sales Pty. South Africa
Radiant Color N.V. Belgium
Martin Mathys, N.V. Belgium
RPOW U.K. Limited U.K.
Chemspec Europe Limited U.K.
Rust-Oleum U.K. Limited U.K.
Stonhard U.K. Limited U.K.
Carboline U.K. Limited U.K.
Mantrose U.K. Limited U.K.
Agricoat Industries, Limited U.K.
Wm. Zinsser Limited U.K.
RPOW (France) S.A. France
Rust-Oleum (France) S.A. France
Stonhard France S.A.R.L. France
Carroline France S.A. France
Deltapaints S.A.R.L. France
Bati-Traital S.A.R.L. France
Tremco B.V. Netherlands
RPM/Belgium N.V. Belgium
Monile France S.A. France
RPM/Lux Consult S.A. Luxembourg
RPM Asia Pte. Ltd. Singapore
RPM China Pte. Ltd.(8) Singapore
Espan Corporation Pte. Ltd. Singapore
Espan Building Industries Pte. Ltd. Singapore
Alumanation (M) Sdn. Bhd. Malaysia
</TABLE>
(1) Tremco Incorporated also owns 50% of the outstanding stock of Sime
Tremco Sdn. Bhd., a Malaysian company, which owns 100% of MBP Sdn.
Bhd., a Malaysian company.
(2) Euchem, Inc. owns 50% of The Euclid Chemical Company, an Ohio general
partnership, which, in turn, owns 100% of the outstanding shares of
Euclid Chemical Canada, Ltd. and two Ohio corporations, Redwood
Transport, Inc. and Euclid Chemical International Sales Corporation.
(3) Carboline International Corporation also owns 80% of Chemrite Coatings,
Limited, a South African corporation.
<PAGE> 4
(4) Stonhard, Inc. owns 79% of Stonhard (Deutschland) GmbH, a German
corporation, which in turn owns 100% of Alteco GmbH, a German
corporation. Parklin Management Group, Inc. owns the remaining 21% of
Stonhard (Deutschland) GmbH.
(5) Dryvit Systems, Inc. is a 51% joint venture partner in Beijing Dryvit
Chemical Building Materials Co., Ltd., a Chinese company and a 55.41%
joint venture partner in Dryvit Systems USA (Europe) sp z.oo., a Polish
company.
(6) Rust-Oleum owns 70% of the outstanding shares of Multicor S.A. Agentina
I. y C., an Argentine corporation.
(7) The Flecto Company, Inc. owns 79% of the outstanding shares of Harry A.
Crossland Investments, Ltd., a Nevada company, which, in turn, owns
100% of Crossland Distributors, Ltd., a Canadian company. The remaining
21% of the outstanding shares of Harry A. Crossland Investments, Ltd.
are owned by Flecto Coatings Ltd.
(8) RPM China Pte. Ltd., is a 70% joint venture partner in Magnagro
Industries Pte. Ltd., a Singapore company.
<PAGE> 1
Exhibit 23.1
Consent of Independent Accountants
As independent public accountants, we hereby consent to the
incorporation by reference of our report dated July 3, 1998 in the Annual Report
on Form 10-K for the year ending May 31, 1998, in RPM, Inc.'s Registration
Statements on Form S-3 (Reg. Nos. 333-19305, acquisition of Marson Automotive
Division and 333-51371, acquisition of The Flecto Company, Inc.) and
Registration Statements on Form S-8 (Reg. Nos. 2-65508, 1979 Stock Option Plan,
33-32794, 1989 Stock Option Plan and 333-35967, 1996 Stock Option Plan).
/s/ Ciulla, Smith & Dale
-----------------------------------
Ciulla, Smith & Dale, LLP
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
<CASH> 40,783
<SECURITIES> 0
<RECEIVABLES> 345,662
<ALLOWANCES> 12,718
<INVENTORY> 243,249
<CURRENT-ASSETS> 672,474
<PP&E> 515,910
<DEPRECIATION> 210,013
<TOTAL-ASSETS> 1,683,279
<CURRENT-LIABILITIES> 285,769
<BONDS> 715,689
0
0
<COMMON> 1,460
<OTHER-SE> 565,598
<TOTAL-LIABILITY-AND-EQUITY> 1,683,279
<SALES> 1,615,274
<TOTAL-REVENUES> 1,615,274
<CGS> 891,862
<TOTAL-COSTS> 1,429,018
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,700
<INCOME-PRETAX> 149,556
<INCOME-TAX> 61,719
<INCOME-CONTINUING> 87,837
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 87,837
<EPS-PRIMARY> .89
<EPS-DILUTED> .84
</TABLE>
