<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 2, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
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[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12.
</TABLE>
GENCORP INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: Common
Stock, $0.10 par value per share.
(2) Aggregate number of securities to which transaction
applies: 41,817,650.
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): The
estimated value of the business to be spun-off to the registrant's
shareholders is $284,000,000.
(4) Proposed maximum aggregate value of transaction: $284,000,000.
(5) Total fee paid: $58,600.
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
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- --------------------------------------------------------------------------------
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY
<PAGE> 2
GENCORP LETTERHEAD
JULY 2, 1999
Dear Shareholder,
On December 17, 1998, we announced a plan to spin-off GenCorp's Performance
Chemicals and Decorative & Building Products business units as a separate
publicly traded company. Under the plan, GenCorp would continue to operate its
aerospace and defense and fine chemicals businesses, which together comprise
Aerojet, and its automotive Vehicle Sealing segment. The following proxy
materials contain a great deal of important information describing these two
independent companies, of which you may become a shareholder, and the other
proposals to be addressed at the special meeting.
Your Board of Directors has determined that a spin-off is the best strategy
for GenCorp and its shareholders, and unanimously approves of the plan. I want
to take this opportunity to tell you why, and to affirm our confidence in the
prospects for the future success of both companies.
The creation of two less complex, and more cost efficient corporate
structures will provide management of each company with enhanced ability to
focus more effectively on core businesses that are more appropriately aligned
within its industries and peer groups. This is difficult to do today under
GenCorp's current structure as a diversified corporation. Independently, each
company can develop its own distinctive business and growth strategies, optimize
equity-based compensation plans for its employees, and importantly, dedicate
investment and other growth resources to fit its own unique needs and
requirements. We believe this will result in further growth opportunities
through internal expansion and acquisition and joint venture opportunities, and
ultimately generate greater value for shareholders of both companies.
At the special meeting you will be asked to approve the proposed
distribution by GenCorp to holders of GenCorp's common stock of 100% of the
outstanding shares of common stock of Omnova Solutions Inc., a newly formed and
wholly owned GenCorp subsidiary to which GenCorp will transfer the assets of its
Performance Chemicals and Decorative & Building Products businesses. We
anticipate that each holder of GenCorp common stock on the record date for the
distribution will receive one share of Omnova Solutions Inc. common stock for
each share of GenCorp common stock then held. You will also be asked to approve
amendments to GenCorp's articles of incorporation and code of regulations, and
the adoption of equity performance plans for both companies, to be effective
immediately after the distribution.
The distribution is subject to a number of conditions, including (1)
approval of the distribution by shareholders holding at least a majority of the
outstanding shares of GenCorp common stock and (2) receipt of a ruling from the
Internal Revenue Service that the distribution should constitute a tax-free
distribution for U.S. Federal income tax purposes for both holders of GenCorp
common stock and GenCorp.
Your vote on these proposals is very important. Whether or not you plan to
attend the special meeting, and regardless of the number of shares of GenCorp
common stock that you own, I urge you to complete, date and sign the enclosed
proxy card and return it promptly in the accompanying postage-paid envelope.
Please do not send in your stock certificates with your proxy card.
GenCorp's Board of Directors unanimously recommends that you vote "FOR"
adoption of the distribution, and as a shareholder in both companies, share in
the exciting growth opportunities it presents for the future. GenCorp's Board of
Directors also unanimously recommends that you vote "FOR" each of the other
proposals.
Sincerely,
/s/ John B. Yasinsky
John B. Yasinsky
Chairman, Chief Executive
Officer and President
This proxy statement will first be mailed to shareholders of GenCorp on or
about July 7, 1999.
<PAGE> 3
GENCORP INC.
175 GHENT ROAD
FAIRLAWN, OHIO 44333-3300
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 18, 1999
TO GENCORP SHAREHOLDERS:
You are hereby notified that a special meeting of the shareholders of
GenCorp Inc., an Ohio corporation, will be held on August 18, 1999 at the
offices of Jones, Day, Reavis & Pogue, North Point, 901 Lakeside Avenue,
Cleveland, Ohio, at 9:00 a.m., local time.
The special meeting will be conducted for the following purposes, as
further described in the attached proxy statement:
1. To consider and vote upon a proposal providing for the following
actions (the "Distribution"):
- a transfer to GenCorp by Aerojet-General Corporation, a wholly
owned subsidiary of GenCorp, of 100% of the equity interests of
Aerojet Fine Chemicals, LLC, either as a dividend or in exchange
for other property;
- the contribution by GenCorp to Omnova Solutions Inc., a wholly
owned subsidiary of GenCorp, of the Performance Chemicals and
Decorative & Building Products businesses of GenCorp and some
other corporate assets, in exchange for shares of Omnova
Solutions common stock and Omnova Solutions' assumption of
liabilities related to those businesses and assets; and
- a special dividend to the holders of the outstanding shares of
GenCorp common stock of all outstanding shares of capital stock
of Omnova Solutions on a pro rata basis and on the basis of one
share of common stock of Omnova Solutions for each share of
common stock of GenCorp.
2. To consider and vote upon a proposal to amend GenCorp's articles of
incorporation and code of regulations to designate Cleveland, Ohio as the
location of GenCorp's principal Ohio office for purposes of the Ohio
General Corporation Law; to increase the number of authorized common shares
from 90 million to 150 million; to provide that GenCorp's corporate purpose
is to engage in any lawful act or activity for which corporations may be
formed under Ohio law; to establish two additional series of currently
authorized preferred stock; to eliminate the requirement that the annual
meeting of shareholders be held in March; to increase the shareholder vote
required to call a special meeting of shareholders from 25% to 50%; to
permit additional forms of proxy authorizations; to establish procedures
relating to the proposal of business at shareholders' meetings; to
establish procedures relating to the nomination by shareholders of
candidates for election as directors; to require that the company indemnify
its directors, officers, employees and others to the fullest extent
permitted by applicable law; to provide that directors may not be removed
by shareholders and may be removed by other directors only in certain
limited circumstances; and to provide that GenCorp's corporate seal contain
only the name of the corporation and the words "corporate seal."
3. To consider and vote upon a proposal to adopt the GenCorp 1999
Equity and Performance Incentive Plan, to be effective immediately after
the Distribution.
4. To consider and vote upon a proposal to adopt the Omnova Solutions
1999 Equity and Performance Incentive Plan, to be effective immediately
after the Distribution.
5. To consider such other business as may properly come before the
special meeting.
The record date for shareholders entitled to notice of, and to vote at, the
special meeting is the close of business on June 30, 1999.
The Board of Directors of GenCorp has retained discretion, even if
shareholder approval of all proposals is obtained and the other conditions to
the Distribution are satisfied, to abandon, defer or modify the Distribution and
the amendments to GenCorp's articles of incorporation and code of regulations.
If the GenCorp Board takes any of those actions, it will be because the GenCorp
Board believes that it will be in the best interests of GenCorp and its
shareholders.
<PAGE> 4
THE GENCORP BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" EACH
OF THE PROPOSALS.
You are invited to attend the meeting. Whether or not you expect to attend
the meeting in person, please mark, sign, date and return the enclosed proxy in
the accompanying postage-paid envelope so that your shares will be represented
at the meeting and any adjournment thereof. PLEASE DO NOT SEND IN YOUR STOCK
CERTIFICATES WITH YOUR PROXY CARD.
Edward R. Dye
Secretary
July 2, 1999
<PAGE> 5
TABLE OF CONTENTS
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QUESTIONS AND ANSWERS ABOUT THE DISTRIBUTION AND OTHER
PROPOSALS................................................. 1
WHO CAN HELP ANSWER YOUR QUESTIONS.......................... 2
PROXY STATEMENT SUMMARY..................................... 3
The Special Meeting....................................... 3
The Distribution.......................................... 5
New GenCorp............................................... 7
Omnova Solutions.......................................... 7
Recent Developments....................................... 8
GenCorp Summary Historical and Pro Forma Financial Data... 10
Omnova Solutions Summary Historical and Pro Forma
Financial Data......................................... 12
RISK FACTORS................................................ 13
THE SPECIAL MEETING......................................... 20
THE DISTRIBUTION............................................ 25
RELATIONSHIP BETWEEN NEW GENCORP AND OMNOVA SOLUTIONS AFTER
THE DISTRIBUTION.......................................... 31
DIVIDEND POLICIES........................................... 36
DIVIDENDS AND PRICE RANGE OF GENCORP COMMON STOCK........... 37
GENCORP SELECTED HISTORICAL FINANCIAL DATA.................. 38
GENCORP CAPITALIZATION...................................... 40
GENCORP UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS................................................ 41
OMNOVA SOLUTIONS SELECTED HISTORICAL FINANCIAL DATA......... 51
OMNOVA SOLUTIONS CAPITALIZATION............................. 52
OMNOVA SOLUTIONS MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............. 53
OMNOVA SOLUTIONS UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS...................................... 60
BUSINESS OF NEW GENCORP..................................... 66
BUSINESS OF OMNOVA SOLUTIONS................................ 73
HOLDERS OF GENCORP COMMON STOCK............................. 79
HOLDERS OF NEW GENCORP COMMON STOCK......................... 81
HOLDERS OF OMNOVA SOLUTIONS COMMON STOCK.................... 83
NEW GENCORP MANAGEMENT AND EXECUTIVE COMPENSATION........... 85
OMNOVA SOLUTIONS MANAGEMENT AND EXECUTIVE COMPENSATION...... 101
DESCRIPTION OF NEW GENCORP CAPITAL STOCK.................... 118
DESCRIPTION OF OMNOVA SOLUTIONS CAPITAL STOCK............... 119
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS..... 125
CERTAIN DIFFERENCES BETWEEN THE CHARTER DOCUMENTS GOVERNING
OMNOVA SOLUTIONS AND THE CHARTER DOCUMENTS GOVERNING NEW
GENCORP................................................... 126
PROPOSED AMENDMENTS TO THE AMENDED ARTICLES OF INCORPORATION
AND AMENDED CODE OF REGULATIONS OF GENCORP................ 127
ADOPTION OF THE NEW GENCORP 1999 EQUITY AND PERFORMANCE
INCENTIVE PLAN............................................ 135
</TABLE>
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<TABLE>
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ADOPTION OF THE OMNOVA SOLUTIONS 1999 EQUITY AND PERFORMANCE
INCENTIVE PLAN............................................ 136
EXPERTS..................................................... 136
SHAREHOLDER PROPOSALS....................................... 137
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 138
WHERE YOU CAN FIND MORE INFORMATION......................... 138
INDEX TO FINANCIAL STATEMENTS............................... F-1
ANNEX A -- DISSENTERS' RIGHTS............................... A-1
ANNEX B -- FINANCIAL VIABILITY OPINION OF CREDIT SUISSE
FIRST BOSTON.............................................. B-1
ANNEX C -- GENCORP INC. 1999 EQUITY AND PERFORMANCE
INCENTIVE PLAN............................................ C-1
ANNEX D -- OMNOVA SOLUTIONS INC. 1999 EQUITY AND PERFORMANCE
INCENTIVE PLAN............................................ D-1
ANNEX E -- COMPOSITE VERSION OF ARTICLES OF INCORPORATION OF
GENCORP INC. (AS AMENDED AND PROPOSED TO BE AMENDED)...... E-1
ANNEX F -- COMPOSITE VERSION CODE OF REGULATIONS OF GENCORP
INC. (AS AMENDED AND PROPOSED TO BE AMENDED).............. F-1
</TABLE>
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<PAGE> 7
QUESTIONS AND ANSWERS ABOUT THE DISTRIBUTION AND OTHER PROPOSALS
<TABLE>
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Q1: WHAT DO I NEED TO DO NOW?
A1: You should vote your shares by mailing
your signed proxy card in the enclosed
return envelope as soon as possible so
that your shares will be represented
at the special meeting. If you do not
vote your shares, it will be the same
as a vote against adoption of the
proposals related to the Distribution
and the amendments to GenCorp's
articles of incorporation and code of
regulations.
Q2: WHAT IF MY SHARES OF GENCORP COMMON
STOCK ARE HELD IN GENCORP'S EMPLOYEE
BENEFIT PLANS?
A2: If all or any of your shares of
GenCorp common stock are held in the
GenCorp employee benefit plans, you
have also received a confidential
voting instruction form which you may
use to instruct the trustee regarding
how to vote shares allocated to your
account. If GenCorp's proxy solicitor,
Georgeson & Company, the trustee's
agent for this purpose, does not
receive voting instructions from you
by the close of business on August 12,
1999, GenCorp's Benefits Management
Committee will instruct the trustee to
vote the shares in favor of each of
the proposals to be considered at the
special meeting.
If only some of your shares of GenCorp
common stock are held in the employee
benefit plans, to ensure that all of
your shares are voted, you should:
- sign, date and return your proxy
card; and
- follow the procedures to instruct
the trustee to vote your shares held
in the plan.
Q3: IF MY SHARES ARE HELD IN "STREET NAME"
BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A3: Your broker will vote your shares only
if you instruct your broker how to
vote. Your broker should mail
information to you that will explain
how to give voting instructions to
your broker. Please provide
instructions to your broker on how to
vote your shares. If you do not
instruct your broker how to vote, your
shares will not be voted. This will be
the same as a vote against adoption of
the proposals related to the
Distribution and the amendments to
GenCorp's articles of incorporation
and code of regulations.
Q4: HOW WILL MY SHARES CREDITED TO MY
ACCOUNT IN THE GENCORP DIVIDEND
REINVESTMENT PLAN BE VOTED?
A4: Your proxy card covers all shares you
hold of record and all shares credited
to your account under the dividend
reinvestment plan. Therefore, shares
credited to your account in the
dividend reinvestment plan will be
voted in the same manner as you
indicate in your proxy card. If you do
not return your proxy card, your
shares in the plan will not be voted.
</TABLE>
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Q5: WHAT IF I WANT TO CHANGE MY VOTE?
A5: You can change your vote at any time
before your proxy is voted at the
special meeting. If you hold your
shares directly, you can do this in
one of three ways:
- You can send a written notice to the
Secretary of GenCorp stating that
you would like to revoke your proxy.
- You can complete and submit a new
proxy card.
- You can attend the special meeting
and request to vote in person. Your
attendance at the special meeting
alone will not, however, revoke your
proxy.
If your shares are held in the
employee benefit plans, you must
follow the instructions in the
trustee's letter of transmittal to
change your vote. If you have
instructed a broker to vote your
shares, you must follow directions
received from your broker to change
those instructions.
Q6: WHEN DOES GENCORP EXPECT THE
DISTRIBUTION TO BE COMPLETED?
A6: GenCorp hopes to complete the
Distribution by September 30, 1999.
Q7: SHOULD I SEND IN MY STOCK
CERTIFICATES?
A7: No. After the Distribution is
completed, if you are a holder of
record of GenCorp common stock as of
the record date for the special
dividend contemplated by the
Distribution, you will receive a
separate stock certificate for your
Omnova Solutions common stock.
Q8: HOW WILL I RECEIVE SHARES OF OMNOVA
SOLUTIONS SHARES DISTRIBUTED WITH
RESPECT TO SHARES OF GENCORP COMMON
STOCK HELD IN THE DIVIDEND
REINVESTMENT PLAN?
A8: Omnova Solutions will have a dividend
reinvestment plan very similar to
GenCorp's plan. Shares of Omnova
Solutions distributed in the
Distribution with respect to shares
held in the GenCorp dividend
reinvestment plan will be credited to
your account in the Omnova Solutions
dividend reinvestment plan unless you
instruct otherwise.
</TABLE>
WHO CAN HELP ANSWER YOUR QUESTIONS?
If you have additional questions about the proposals to be acted on at the
special meeting you should contact:
GenCorp Inc.
175 Ghent Road
Fairlawn, Ohio 44333-3300
Attention: Investor Relations
Telephone: 1-330-869-4411
If you would like additional copies of this proxy statement or if you have
questions about the proposals to be acted on at the special meeting, you should
contact:
Georgeson & Company Inc.
Wall Street Plaza
New York, New York 10005
Banks and brokers call collect: 1-212-440-9800
All others call toll free: 1-800-223-2064
2
<PAGE> 9
PROXY STATEMENT SUMMARY
This proxy statement summary highlights selected information from this
document, but does not contain all the details about New GenCorp, Omnova
Solutions and the proposals to be acted on at the special meeting, including
information that may be important to you. To better understand New GenCorp,
Omnova Solutions and the proposals to be acted on at the special meeting, you
should carefully review this entire document, including annexes and documents
incorporated by reference. References in this document to "GenCorp" refer to
GenCorp prior to the Distribution. References in this document to "New GenCorp"
refer to GenCorp after the Distribution. References in this document to "Omnova
Solutions" refer to the businesses to be transferred to Omnova Solutions by
GenCorp as part of the Distribution. References in this document to "GenCorp,"
"New GenCorp" and "Omnova Solutions" include their respective subsidiaries at
the relevant time unless the context otherwise requires.
THE SPECIAL MEETING
DATE, TIME AND PLACE
GenCorp is providing this proxy statement in connection with its
solicitation of proxies from you for use at a special meeting of shareholders of
GenCorp to be held at the offices of Jones, Day, Reavis & Pogue, North Point,
901 Lakeside Ave., Cleveland, Ohio, at 9:00 a.m., local time, on August 18, 1999
and at any adjournments of that meeting.
MATTERS FOR CONSIDERATION
At the special meeting, you will be asked to consider and vote upon a
proposal providing for the following actions (the "Distribution"):
- a transfer to GenCorp by Aerojet, a wholly owned subsidiary of GenCorp,
of 100% of the equity interests of Aerojet Fine Chemicals, either as a
dividend or in exchange for other property;
- the contribution by GenCorp to its wholly owned subsidiary, Omnova
Solutions, of the Performance Chemicals and Decorative & Building
Products businesses of GenCorp and some other corporate assets, in
exchange for shares of Omnova Solutions common stock and Omnova
Solutions' assumption of liabilities related to those businesses and
assets;
- a special dividend to the holders of the outstanding shares of GenCorp
common stock of all outstanding shares of capital stock of Omnova
Solutions on a pro rata basis and on the basis of one share of common
stock of Omnova Solutions for each share of common stock of GenCorp.
At the special meeting, you will also be asked to consider and vote upon
proposals providing for:
- amendments to GenCorp's articles of incorporation and code of regulations
to designate Cleveland, Ohio as the location of GenCorp's principal Ohio
office for purposes of the Ohio General Corporation Law; to increase the
number of authorized common shares from 90 million to 150 million; to
provide that GenCorp's corporate purpose is to engage in any lawful act
or activity for which corporations may be formed under Ohio law; to
establish two additional series of currently authorized preferred stock;
to eliminate the requirement that the annual meeting of shareholders be
held in March; to increase the shareholder vote required to call a
special meeting of shareholders from 25% to 50%; to permit additional
forms of proxy authorizations; to establish procedures relating to the
proposal of business at shareholders' meetings; to establish procedures
relating to the nomination by shareholders of candidates for election as
directors; to require that GenCorp indemnify its directors, officers,
employees and others to the fullest extent permitted by applicable law;
to provide that directors may not be removed by shareholders and may be
removed by other directors only in certain limited circumstances; and to
provide that GenCorp's corporate seal contain only the name of the
corporation and the words "corporate seal";
- adoption of the New GenCorp 1999 Equity and Performance Incentive Plan,
to be effective after the Distribution; and
- adoption of the Omnova Solutions 1999 Equity and Performance Incentive
Plan, to be effective after the Distribution.
You may also be asked to act on other business that properly comes before
the special meeting.
3
<PAGE> 10
SPECIAL MEETING RECORD DATE
GenCorp's Board of Directors has fixed the close of business on June 30,
1999 as the record date for the special meeting.
VOTING AND QUORUM
Holders of record of GenCorp common stock at the record date are entitled
to notice of, and to vote at, the special meeting. Each share of GenCorp common
stock outstanding at the close of business on the record date is entitled to one
vote on each matter presented at the special meeting. The presence in person or
by proxy of shareholders holding a majority of the outstanding shares of GenCorp
common stock on the record date will constitute a quorum for the transaction of
business at the special meeting.
VOTE REQUIRED
- Approval of the Distribution will require the affirmative vote of holders
of a majority of the outstanding shares of GenCorp common stock on the
record date for the special meeting.
- Approval of the adoption of the New GenCorp 1999 Equity and Performance
Incentive Plan and the Omnova Solutions 1999 Equity and Performance
Incentive Plan will each require the affirmative vote of holders of a
majority of the outstanding shares of GenCorp common stock present in
person or by proxy at the special meeting.
- Approval of the adoption to the amendment to GenCorp's code of
regulations relating to removal of directors will require the affirmative
vote of holders of 80% of the outstanding shares of GenCorp common stock
on the record date for the special meeting.
- Approval of the adoption of the amendments to GenCorp's articles of
incorporation will each require the affirmative vote of holders of
66 2/3% of the outstanding shares of GenCorp common stock on the record
date for the special meeting.
- Approval of the adoption of the amendments to GenCorp's code of
regulations, other than the amendment relating to removal of directors,
will each require the affirmative vote of the holders of a majority of
the outstanding shares of GenCorp common stock on the record date for the
special meeting.
DISSENTERS' RIGHTS
If, under Ohio law, the Distribution is a disposition of substantially all
of GenCorp's assets, shareholders who comply with the requirements of Ohio
Revised Code Section 1701.85 will be entitled to dissent from the Distribution
proposal. GenCorp, however, does not believe that, under Ohio law, the
Distribution would be a disposition of substantially all of its assets. GenCorp
therefore does not believe that dissenters' rights would arise by reason of the
Distribution. If, contrary to GenCorp's belief, rights of dissent are available,
shareholders who perfect dissenters' rights in accordance with Section 1701.85
will be entitled to the "fair cash value" of their GenCorp common stock,
determined in accordance with the statutory procedure. If, contrary to GenCorp's
belief, dissenters' rights are available under Ohio law, the Distribution will
not occur if holders of more than 1% of GenCorp's outstanding common stock
exercise dissenters' rights.
BOARD RECOMMENDATIONS
The GenCorp Board unanimously recommends that shareholders vote "FOR" each
of the proposals.
4
<PAGE> 11
THE DISTRIBUTION
GenCorp proposes to separate the Performance Chemicals and Decorative &
Building Products businesses from GenCorp's other operations.
RISK FACTORS
You should be aware that the Distribution and ownership of New GenCorp and
Omnova Solutions common stock involve certain risks, including those described
under "Risk Factors," that could adversely affect the value of your holdings.
BACKGROUND AND REASONS FOR THE DISTRIBUTION
GenCorp's Board believes that the Distribution will serve a number of
purposes, including:
- increasing the ability of both companies to improve the corporate fit and
focus of their respective businesses;
- facilitating acquisitions by both companies by improving the
attractiveness of their respective capital stock as acquisition currency;
- allowing both companies to effectively motivate and enhance management
performance by providing equity compensation and incentives more closely
tied to the businesses in which the employees work; and
- generating aggregate cost savings for the two companies when compared to
GenCorp's costs.
THE DISTRIBUTION AND WHAT GENCORP SHAREHOLDERS WILL RECEIVE IN THE DISTRIBUTION
If the GenCorp shareholders approve the Distribution, and the other
conditions to the Distribution are satisfied or waived, GenCorp anticipates that
the GenCorp Board will authorize the various components of the Distribution and
declare a special dividend payable in Omnova Solutions common stock and set a
record date for that dividend. The Distribution would involve the actions
described below.
Aerojet will transfer to GenCorp, in the form of a dividend or an exchange
for other property, 100% of the equity interests of Aerojet Fine Chemicals.
GenCorp will contribute the assets of the Performance Chemicals and
Decorative & Building Products businesses and some other corporate assets to
Omnova Solutions in exchange for Omnova Solutions common stock and Omnova
Solutions' assumption of liabilities related to those businesses and assets.
GenCorp then will distribute, in the form of a special dividend, all of the
outstanding shares of common stock of Omnova Solutions, on a pro rata basis, to
the holders of GenCorp's common stock as of a record date for the special
dividend. In the special dividend contemplated by the Distribution, each
shareholder of GenCorp will retain its shares of GenCorp common stock, and for
each share of GenCorp common stock held by it on the record date for the special
dividend contemplated by the Distribution, will be entitled to receive one share
of Omnova Solutions common stock. See "Conditions to the Distribution."
Prior to the special dividend, Omnova Solutions will borrow approximately
$188 million under a new credit facility and will pay to GenCorp a dividend
equal to the borrowings. GenCorp will use the dividend payment to repay debt.
Following the Distribution, it is expected that the shares of Omnova
Solutions common stock distributed in the Distribution will be listed on the New
York Stock Exchange.
The GenCorp Board has retained discretion, even if all conditions to the
Distribution are satisfied, to abandon, defer or modify the Distribution.
5
<PAGE> 12
FEDERAL INCOME TAX CONSEQUENCES RELATED TO THE DISTRIBUTION
GenCorp has filed with the Internal Revenue Service a request for a ruling
that the Distribution will not result in the recognition of income, gain or loss
for federal income tax purposes to GenCorp and its shareholders. The
Distribution will not occur unless GenCorp receives the ruling. Any ruling
issued by the IRS will be based upon factual representations. Any change in the
facts as represented could cause the IRS to modify or revoke any prior ruling
that the Distribution was tax-free to all parties. Therefore, the Distribution
could be treated as:
- a taxable dividend to GenCorp shareholders, in an amount equal to the
fair market value of the Omnova Solutions common stock as of the date of
the special dividend contemplated by the Distribution, and
- a gain-recognition event to GenCorp in the amount by which the fair
market value of the Omnova Solutions common stock as of the date of the
special dividend contemplated by the Distribution exceeds GenCorp's basis
in the Omnova Solutions common stock.
Both New GenCorp and Omnova Solutions will agree not to take any action
that would cause the Distribution to be taxable to GenCorp or its shareholders.
Each of New GenCorp and Omnova Solutions will also agree to indemnify the other
for any adverse consequences incurred as a result of its breach of that
obligation.
ACCOUNTING TREATMENT OF THE DISTRIBUTION
Upon declaration by the GenCorp Board of the special dividend contemplated
by the Distribution, GenCorp will present the business of Omnova Solutions as a
discontinued operation to the extent financial information for periods prior to
the Distribution is required to be included in GenCorp's historical financial
statements. After the Distribution, the business of Omnova Solutions will be
reflected in separate consolidated financial statements and its assets and
liabilities will be reflected at historical amounts.
DIVIDEND POLICIES OF NEW GENCORP AND OMNOVA SOLUTIONS
Each of New GenCorp and Omnova Solutions presently intends to pay regular
dividends on its common stock. However, the amount and actual payment of
dividends by New GenCorp and Omnova Solutions after the Distribution will be
subject to the discretion of the respective companies' Boards of Directors and
any dividends paid by New GenCorp and Omnova Solutions may be lower, when
combined, than dividends currently paid by GenCorp. Dividend decisions will be
based on a number of factors, including the respective future operating results
and financial requirements of New GenCorp and Omnova Solutions on their new
stand-alone basis and on other factors. See "Risk Factors" and "Dividend
Policies."
CONDITIONS TO THE DISTRIBUTION
The Distribution is conditioned upon, among other things:
- receipt of a ruling from the IRS to the effect that the Distribution will
constitute a tax-free distribution for U.S. Federal income tax purposes
for both holders of GenCorp common stock and GenCorp;
- approval of the Distribution by holders of at least a majority of the
outstanding GenCorp common stock as of the record date for the special
meeting;
- the effectiveness of the Registration Statement on Form 10 under the
Securities Exchange Act of 1934 to be filed by Omnova Solutions with the
Securities and Exchange Commission;
- if, contrary to GenCorp's belief, dissenters' rights are available under
Ohio law, holders of no more than 1% of GenCorp's outstanding common
stock exercise dissenters' rights; and
- there not being in effect any statute, rule, regulation or order of any
court, governmental or regulatory body that prohibits or makes illegal
the transactions contemplated by the Distribution.
The conditions listed above cannot be waived. The GenCorp Board has
reserved the right to abandon the Distribution even if all conditions are
satisfied.
6
<PAGE> 13
NEW GENCORP
BUSINESSES AFTER THE DISTRIBUTION
After the Distribution, New GenCorp will own and operate GenCorp's Aerojet
business, which is comprised of the aerospace and defense businesses and Fine
Chemicals, and GenCorp's automotive Vehicle Sealing segment. Aerojet specializes
in the design, development and manufacture of defense electronics, primarily
space satellite surveillance and sensing systems and related ground stations,
liquid and solid propulsion systems for space launch vehicles, and tactical
defense weapon systems and smart munitions. Fine Chemicals is a custom
manufacturer of intermediates, and bulk active materials for the pharmaceutical
industry, specializing in difficult chemistries using energetic and potentially
hazardous materials. Vehicle Sealing produces highly engineered extruded and
molded rubber sealing systems for passenger cars, light trucks and sports
utility vehicles made by automotive original equipment manufacturers.
PRINCIPAL OFFICE AFTER THE DISTRIBUTION
GenCorp Inc.
Highway 50 and Aerojet Road
Rancho Cordova, California 95670
(916) 355-4000
OMNOVA SOLUTIONS
BUSINESSES AFTER THE DISTRIBUTION
After the Distribution, Omnova Solutions will own and operate GenCorp's
current Performance Chemicals and Decorative & Building Products businesses.
Performance Chemicals manufactures high quality emulsion polymers and specialty
chemicals used as coatings, binders, adhesives and additives for paper, carpet,
textile, and various specialty markets. Decorative & Building Products designs
and manufactures a comprehensive line of decorative and performance-enhancing
surfacing products including commercial wallcovering, coated fabrics, laminates,
graphics arts and industrial films and roofing membrane systems. These products
are made from a variety of substrates, including polyvinyl chloride, polyolefins
and textiles. These products serve a wide array of markets, including furniture,
transportation, construction, remodeling, interior decorating and graphic arts.
PRINCIPAL OFFICE AFTER THE DISTRIBUTION
Omnova Solutions Inc.
175 Ghent Road
Fairlawn, Ohio 44333
(330) 869-4200
7
<PAGE> 14
RECENT DEVELOPMENTS
GenCorp's sales totaled $514.9 million for the second quarter of 1999, an
increase of 19% compared to $431.9 million during the second quarter of 1998,
with all three business segments posting significant revenue increases. For the
six months ended May 31, 1999, sales increased 20% to $954.5 million as compared
to $797.4 million during the first six months of 1998. Operating profit totaled
$66.6 million for the second quarter of 1999. Excluding unusual items of $15.2
million primarily related to the divestiture of Penn Racquet Sports, operating
profit for the current quarter improved 19% to $51.4 million versus $43.1
million for the second quarter of 1998. For the six months ended May 31, 1999,
segment operating profit, excluding unusual items, increased to $89.4 million as
compared to $72.7 million for the same period of 1998, a 23% improvement.
In early May, GenCorp sold Penn and recognized a pre-tax gain of $15.7
million on the sale. Sales and operating profit of Penn for the second quarter
of 1999 were $14.1 million and $1.4 million, respectively.
As part of a focused cost reduction program to prepare for the
Distribution, GenCorp continued to decrease corporate overhead, reducing
corporate expenses by $1.8 million for the second quarter of 1999 as compared to
the second quarter of 1998. Also during the second quarter of 1999, GenCorp
incurred costs of $3.2 million for Distribution-related activities and reflected
a tax provision that was $0.6 million higher than normal because of certain
Distribution costs that will not be deductible for income tax purposes.
Net income in the second quarter of 1999 totaled $32.5 million compared to
second quarter 1998 net income of $21.4 million. For the six months ended May
31, 1999 net income improved 45% to $49.7 million as compared to net income of
$34.2 million during the first six months of 1998. Earnings per share for the
second quarter of 1999 improved to $0.77 per diluted share compared to $0.51 per
diluted share during the second quarter of 1998. Earnings per share before
unusual items, which primarily include the gain on the sale of Penn and
Distribution-related costs, totaled $0.61 per diluted share during the quarter,
an improvement of 20% over the second quarter of 1998.
NEW GENCORP
Net sales for the New GenCorp businesses in the second quarter of 1999
increased 18.6% to $304.9 million compared to $257.0 million in the second
quarter of 1998. Sales increased for both Aerojet and Vehicle Sealing. Total
segment operating profit increased to $26.5 million for the second quarter of
1999 versus $19.6 million in the second quarter of 1998. Operating profit
margins improved to 8.7% in the second quarter of 1999 compared to 7.6% in the
second quarter of 1998 due primarily to higher volumes and better operating
performance.
At Aerojet, net sales increased 16% to $181.6 million in the second quarter
of 1999 as compared to $156.4 million in the second quarter of 1998. Higher
volumes in Fine Chemicals, the Space-Based Infrared System (SBIRS), Special
Sensor Microwave Imager/Sounder (SSMIS) and Sense and Destroy Armor (SADARM)
were partially offset by lower volumes on the Defense Support Program (DSP) and
Titan. Aerojet's operating profit for the second quarter of 1999 was $17.2
million, compared to $13.7 million in the second quarter of 1998. Operating
margins improved during the quarter to 9.5% from 8.8% in the second quarter of
1998, due to higher Fine Chemicals volumes and contract performance in strategic
and space propulsion.
Sales at Vehicle Sealing improved 23% to $123.3 million in the second
quarter of 1999, versus $100.6 million in the second quarter of 1998. The sales
gain was due to higher volumes in North America on the General Motors C/K pickup
and Grand AM and the Ford Explorer platforms. Vehicle Sealing's operating profit
rose 58%, to $9.3 million in the second quarter of 1999 as compared to $5.9
million for the second quarter of 1998. Operating profit margins improved to
7.5% in the second quarter of 1999 compared to 5.9% in the second quarter of
1998 as a result of higher volumes, lower launch costs, improved operating
efficiencies, and the absence of losses from the plastic extrusions division
which was sold in 1998.
OMNOVA SOLUTIONS
Net sales for the Omnova Solutions businesses in the second quarter of 1999
increased 27% to $195.9 million compared to $153.7 million in the second quarter
of 1998. Sales increased in both Decorative & Building Products and Performance
Chemicals, primarily from sales attributable to acquisitions. Total segment
operating
8
<PAGE> 15
profit increased to $23.5 million for the second quarter of 1999 versus $21.7
million in the second quarter of 1998. Operating margins decreased to 12.0% in
the second quarter of 1999 compared to 14.1% in the second quarter of 1998, due
primarily to lower average unit selling prices across certain Performance
Chemicals product lines, and increased new product development spending.
Net sales for Performance Chemicals increased for the second quarter of
1999 by 49% to $82.0 million compared to $55.0 million in the second quarter of
1998. The increase reflects sales attributable to the 1998 acquisitions.
Excluding the effect of acquired businesses, volume was flat compared to 1998
while pricing was down slightly. Segment operating profit during the second
quarter of 1999 improved 8% to $9.4 million versus $8.7 million in the second
quarter of 1998. Segment operating margins declined to 11.5% in the second
quarter of 1999 versus 15.8% in the 1998 second quarter. The decline is
primarily due to lower pricing and integration costs related to acquisition
activity in the latter half of 1998.
During the second quarter of 1999, Performance Chemicals completed the $8
million acquisition of Morton International's global latex floor care business,
adding a complementary product line and customer base, and expanding its
presence in Europe and the Far East.
Net sales for Decorative & Building Products increased for the second
quarter of 1999 by 15.4% to $113.9 million compared to $98.7 million in the
second quarter of 1998. The increase was mainly related to the European
wallcovering acquisition, paper laminates and building systems businesses.
Segment operating profit during the second quarter of 1999 improved 12.3% to
$14.6 million versus $13.0 million in the second quarter of 1998. Segment
operating margins declined to 12.8% in the second quarter of 1999 from 13.2% for
the second quarter of 1998, due primarily to increased spending on new product
development.
Within the Decorative & Building Products business unit during the second
quarter of 1999, the trend of performance improvement for the building systems
(roofing) sector continued with a 20% increase in sales. Sales were also up by
30% in the first half of 1999 within the coated fabrics' residential upholstery
business.
9
<PAGE> 16
GENCORP SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth summary consolidated historical and pro
forma financial data of GenCorp. The summary historical data has been derived
from and should be read in conjunction with the audited consolidated financial
statements included in GenCorp's Annual Report on Form 10-K for the year ended
November 30, 1998 and unaudited financial data included in GenCorp's Quarterly
Report on Form 10-Q for the quarterly period ended February 28, 1999, both of
which are incorporated herein by reference. The summary pro forma financial data
has been derived from GenCorp's unaudited pro forma condensed financial
statements for the three month period ended February 28, 1999, and for the year
ended November 30, 1998 included in this proxy statement. You should read the
following table in conjunction with the other financial information included and
incorporated into this proxy statement.
You should keep the following in mind when reviewing this data.
- Segment operating profit represents net sales less applicable costs,
expenses and provisions for restructuring and unusual items relating to
operations. Segment operating profit excludes corporate income and
expenses, provisions for nonoperating unusual items, interest expense and
income taxes.
- Pro forma balance sheet data assumes the Distribution and the sale of
GenCorp's Penn division were completed on February 28, 1999. Therefore,
this data does not include the assets and liabilities of Omnova Solutions
and Penn. In addition, the pro forma income statement data assumes that
the Distribution and sale of Penn occurred at the beginning of the
periods presented. The pro forma information may not be indicative of the
results that would have occurred if the Distribution and sale had
actually occurred on those dates.
- The unaudited pro forma income statement does not include nonrecurring
items that are directly attributable to the Distribution, the sale of
Penn and estimated future cost savings as follows:
- The one-time costs estimated at $16 million after tax associated with
the Distribution, including investment banking, legal and professional
fees, severance costs, retention bonuses for key employees, financing
fees, relocation costs and expenses associated with a voluntary early
retirement program;
- The after-tax gain of $9 million on the sale of Penn that occurred on
April 30, 1999; and
- Annual cost savings to New GenCorp estimated to be between $4 and $5
million pretax as a result of the Distribution.
- During fiscal 1996, GenCorp recorded unusual charges of $42 million
pretax, or $0.75 basic and $0.62 diluted earnings per share after tax.
These charges included primarily (1) a $15 million provision for a
voluntary early retirement incentive program, (2) a $14 million loss on
the sale of its automotive segment's vibration control and reinforced
plastics businesses offset by a gain of $4 million from the sale of the
structural urethane adhesives business, (3) an $8 million provision for
environmental remediation costs, (4) a $6 million charge related to fixed
assets, pension and other matters, and (5) a $3 million restructuring
charge for the Vehicle Sealing business.
- Net income amounts for fiscal 1996, 1997 and 1998 reflect reduced income
tax expense of $16 million, $67 million and $2 million, respectively, due
to the receipt of federal income tax settlements for tax credits and
related interest.
- During fiscal 1997, GenCorp's $115,000,000 8% Convertible Subordinated
Debentures Due August 1, 2002 were converted into GenCorp common stock.
This conversion affected long-term debt and shareholders' equity at the
end of fiscal 1997.
- Total assets and long-term debt at the end of fiscal 1997 reflect the
acquisition of Printworld made in fiscal 1997. Total assets and long-term
debt at the end of fiscal 1998 reflect the acquisitions during fiscal
1998, including (1) the U.S. specialty chemicals business of Sequa
Chemicals, (2) the commercial wallcovering business of Walker Greenbank
PLC and (3) the Calhoun, Georgia latex facility of The Goodyear Tire &
10
<PAGE> 17
Rubber Company. The income statements reflect operations from these
acquisitions from the date of purchase.
- Income statement data for fiscal 1998 includes unusual income of $5
million pretax, or $0.07 basic and diluted earnings per share after tax.
These unusual items included (1) charges of $8 million primarily related
to exiting the plastic extrusions division and residential wallcovering
business, offset by (2) a $13 million gain from Aerojet's sale of surplus
land in Nevada.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
-------------------------- ---------- ---------------- --------------
YEAR ENDED YEAR ENDED THREE MONTHS THREE MONTHS
NOVEMBER 30, NOV. 30, ENDED FEB. 28, ENDED FEB. 28,
-------------------------- ---------- ---------------- --------------
1996 1997 1998 1998 1998 1999 1999
------ ------ ------ ---------- ------ ------ --------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales..................... $1,515 $1,568 $1,737 $1,048 $ 366 $ 440 $ 255
Segment operating profit...... 120 152 165 83 30 38 19
Pro forma income from
continuing operations....... 41 7
Pro forma income per share
from continuing
operations -- basic and
diluted..................... .98 .17
Net income.................... 42 137 84 13 17
Net income per share:
Basic....................... 1.25 3.71 2.02 .31 .41
Diluted..................... 1.16 3.40 1.99 .31 .41
BALANCE SHEET DATA
(AT PERIOD END):
Total assets.................. $1,330 $1,419 $1,743 $1,404 $1,729 $1,050
Long-term debt................ 263 84 356 93 356 135
Total debt.................... 306 109 370 137 409 182
Shareholders' equity.......... 56 281 344 287 354 63
OTHER DATA:
Cash dividends paid per common
share....................... $ .60 $ .60 $ .60 $ .15 $ .15
</TABLE>
11
<PAGE> 18
OMNOVA SOLUTIONS SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth summary combined historical and pro forma
data for Omnova Solutions. The summary historical data as of February 28, 1999
and 1998 and November 30, 1997 and 1998 and for the three-month periods ended
February 28, 1999 and 1998 and each of the three years in the period ended
November 30, 1998 has been derived from the audited and unaudited combined
financial statements of Omnova Solutions included in this proxy statement. The
data set forth below and the historical data contained in this proxy statement
are presented as if Omnova Solutions was a separate entity for all periods
represented. The summary pro forma financial data has been derived from the
Omnova Solutions unaudited pro forma combined financial statements for the three
months ended February 28, 1999 and the year ended November 30, 1998 included in
this proxy statement. You should read the following table in conjunction with
the other Omnova Solutions financial information included in this proxy
statement.
You should keep the following in mind when reviewing this data.
- Segment operating profit represents net sales less applicable costs,
expenses and provisions for restructuring and unusual items relating to
operations. Segment operating profit excludes corporate income and
expenses, provisions for nonoperating unusual items, interest expense and
income taxes.
- The pro forma balance sheet data assumes the Distribution was completed
on February 28, 1999. The pro forma income statement data assumes the
Distribution and fiscal 1998 acquisitions occurred at December 1, 1997.
The pro forma information may not be indicative of the results that would
have occurred had the Distribution actually occurred on those dates.
- Income statement data for fiscal 1996 includes unusual income of $4
million from the sale of the structural urethane adhesives business.
- During fiscal 1997, Omnova Solutions acquired Printworld. During fiscal
1998, Omnova Solutions acquired (1) the U.S. specialty chemicals business
of Sequa Chemicals, (2) the commercial wallcovering business of Walker
Greenbank PLC, and (3) the Calhoun, Georgia latex facility of The
Goodyear Tire & Rubber Company. The historical income statement data
reflects operations from these acquisitions from the date of purchase.
- Income statement data for fiscal 1998 includes an unusual expense of $3
million related to exiting the residential wallcovering business.
- The pro forma earnings per share were calculated based on a one for one
share distribution and equivalent stock options being granted to holders
of GenCorp stock options.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
-------------------- ---------- --------------- --------------
YEAR ENDED YEAR ENDED THREE MONTHS THREE MONTHS
NOVEMBER 30, NOV. 30, ENDED FEB. 28, ENDED FEB. 28,
-------------------- ---------- --------------- --------------
1996 1997 1998 1998 1998 1999 1999
---- ---- ---- ---------- ----- ------ --------------
(DOLLARS IN MILLIONS, EXPECT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................ $506 $548 $624 $766 $134 $171 $171
Segment operating profit............. 74 66 83 96 15 17 19
Net income........................... 37 34 42 46 8 7 9
PRO FORMA NET INCOME PER SHARE:
Basic.............................. 1.11 .22
Diluted............................ 1.09 .21
BALANCE SHEET DATA
(AT PERIOD END):
Total assets......................... $233 $277 $603 $266 $603 $651
Long-term debt....................... -- -- -- -- -- 188
Total debt........................... -- -- -- -- -- 194
Divisional equity.................... 147 182 489 193 499 284
</TABLE>
12
<PAGE> 19
RISK FACTORS
You should be aware that the Distribution and ownership of New GenCorp and
Omnova Solutions common stock involve risks, including those described below and
elsewhere in this proxy statement, that could adversely affect the value of your
holdings. You are also urged to review the risk factors included in GenCorp's
Form 10-K for the fiscal year ended November 30, 1998 under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Forward-Looking Statements." GenCorp and Omnova Solutions are not
making, and no other person is authorized to make, any representation as to the
future market value of New GenCorp or Omnova Solutions common stock.
Some of the following risks will arise solely as a result of the
Distribution. However, many of the following risks currently apply to GenCorp
even if the Distribution does not occur. These existing risks may become more
heightened after the Distribution because of the less diversified nature of New
GenCorp and Omnova Solutions compared to GenCorp.
RISKS ARISING FROM THE DISTRIBUTION
SHARES RECEIVED IN THE DISTRIBUTION COULD BE TAXABLE TO GENCORP SHAREHOLDERS AND
THE DISTRIBUTION COULD BE TAXABLE TO GENCORP.
It is intended that the Distribution will be a tax-free spin-off under
Section 355 of the Internal Revenue Code. If the Distribution qualifies as a
tax-free spin-off, in general, no income, gain or loss will be recognized by
holders of GenCorp common stock or by GenCorp or Omnova Solutions on the
Distribution. It is a condition to the Distribution that GenCorp receive a
ruling from the IRS that Section 355 will apply to the Distribution.
On February 24, 1999, GenCorp filed a request with the IRS for a ruling
that Section 355 will apply to the Distribution. The IRS has not yet issued a
ruling letter. While generally binding upon the IRS, a ruling would be subject
to factual representations and assumptions. Thus, even if GenCorp receives a
ruling, the Distribution could nonetheless become taxable to New GenCorp as a
result of events occurring after the Distribution. For example, if 50% or more
of New GenCorp's common stock or of Omnova Solutions' common stock is acquired
during a period that ends two years after the Distribution, the Distribution
would become taxable to GenCorp (but not to the shareholders), unless New
GenCorp and Omnova Solutions demonstrate to the IRS that the Distribution and
the acquisition were not parts of a plan or series of related transactions. New
GenCorp and Omnova Solutions may have little control over acquisitions of their
respective common stock. These rules may limit the ability of New GenCorp and
Omnova Solutions to engage in strategic transactions, such as acquisitions,
joint ventures and business combinations, for a period of time after the
Distribution.
If the Distribution were not to qualify under Section 355, then, in
general, a very substantial corporate tax would be payable by New GenCorp. The
resulting tax liability would have a material adverse effect on the financial
position, results of operations and cash flows of New GenCorp. The combined
federal and state income tax liability arising from the Distribution if it were
found to be taxable would be equal to the fair market value of the Omnova
Solutions common stock at the time of the special dividend contemplated by the
Distribution, less GenCorp's tax basis of approximately $300 million in the
Omnova Solutions common stock, multiplied by the applicable combined tax rate,
which could be as high as 40%.
In addition, the tax liability could adversely affect Omnova Solutions.
Under the consolidated return regulations, each member of the GenCorp
consolidated group, including Omnova Solutions, would be severally liable for
the tax liability. Also, under the tax matters agreement between New GenCorp and
Omnova Solutions, Omnova Solutions will be liable to New GenCorp for any tax
liability arising out of the Distribution to the extent Omnova Solutions'
actions result in the tax liability.
Furthermore, if the Distribution were to fail to qualify as a tax-free
spin-off, each GenCorp shareholder receiving shares of Omnova Solutions common
stock in the Distribution would be treated as if he or she had
13
<PAGE> 20
received a taxable distribution in an amount equal to the fair market value of
Omnova Solutions common stock received, which would result in:
- taxable dividend income to the extent of his or her pro rata share of
GenCorp's current and accumulated earnings and profits;
- reduction in his or her basis in GenCorp common stock to the extent that
the amount received exceeds his or her share of GenCorp's current and
accumulated earnings and profits;
- taxable gain to the extent the amount received exceeds both his or her
share of both GenCorp's current and accumulated earnings and profits and
his or her basis in GenCorp common stock; and
- basis in the Omnova Solutions stock received in the Distribution equal to
the fair market value of the stock on the date of the special dividend
contemplated by the Distribution.
THE MARKET VALUE OF NEW GENCORP'S COMMON STOCK IS EXPECTED TO BE LOWER THAN THE
MARKET VALUE OF GENCORP COMMON STOCK AND THE COMBINED MARKET VALUE OF NEW
GENCORP AND OMNOVA SOLUTIONS COMMON STOCK MAY BE LESS THAN THE MARKET VALUE OF
GENCORP COMMON STOCK.
After the Distribution, New GenCorp common stock will continue to be listed for
trading on the NYSE and Chicago Stock Exchange under the symbol "GY." As a
result of the Distribution, the trading prices of New GenCorp common stock are
expected to be lower after the Distribution compared to the trading prices of
GenCorp common stock immediately prior to the Distribution. The aggregate market
values of New GenCorp common stock and Omnova Solutions common stock after the
Distribution may be less than the market value of the GenCorp common stock prior
to the Distribution.
AN ACTIVE TRADING MARKET MIGHT NOT DEVELOP FOR THE OMNOVA SOLUTIONS COMMON STOCK
AND TRADING PRICES ARE UNCERTAIN.
Omnova Solutions intends to apply to list the shares of its common stock to
be distributed in the Distribution on the NYSE. However, there is presently no
public market for the Omnova Solutions common stock and an active market may not
develop following the Distribution. There can be no assurance regarding the
prices at which the Omnova Solutions common stock will trade on or after the
date of the special dividend contemplated by the Distribution. Until the Omnova
Solutions common stock is fully distributed and an orderly market develops, the
prices at which the stock trades may fluctuate significantly. Prices for the
Omnova Solutions common stock will be determined in the marketplace and may be
influenced by many factors, including, without limitation, (1) the depth and
liquidity of the market for the Omnova Solutions common stock; (2) investors'
perceptions of Omnova Solutions and the industries in which it participates; (3)
Omnova Solutions' dividend policy; and (4) changes in government regulation and
general economic and market conditions.
It is anticipated that virtually all of the shares of Omnova Solutions
common stock will be eligible for immediate resale in the public market after
the Distribution. Any sales of substantial amounts of Omnova Solutions common
stock in the public market, or the perception that sales of substantial amounts
might occur, whether as a result of the Distribution or otherwise, could
materially adversely affect the market price of Omnova Solutions common stock.
COMBINED DIVIDENDS BY NEW GENCORP AND OMNOVA SOLUTIONS AFTER THE DISTRIBUTION
MAY BE LESS THAN DIVIDENDS HISTORICALLY PAID BY GENCORP.
The dividend policy of each of New GenCorp and Omnova Solutions after the
Distribution will be determined by its Board of Directors. The future payment of
dividends by each company will be based on the results of operations and
financial condition of that company and other business considerations that
company's Board of Directors considers relevant. Although both New GenCorp and
Omnova Solutions currently intend to pay dividends after the Distribution,
GenCorp cannot assure you that either New GenCorp or Omnova Solutions will pay
any dividends after the Distribution. If either or both of New GenCorp and
Omnova Solutions pay dividends after the Distribution, the aggregate dividends
may be less than the dividends historically paid by GenCorp.
14
<PAGE> 21
OMNOVA SOLUTIONS' ABSENCE OF HISTORY AS AN INDEPENDENT COMPANY MAKES IT
DIFFICULT TO PREDICT FUTURE PERFORMANCE.
Omnova Solutions' business has historically been conducted by GenCorp as
part of its overall operations. Therefore, Omnova Solutions does not have an
operating history as an independent company. Omnova Solutions was recently
formed solely for the purpose of effecting the Distribution. Therefore, the
financial information included in this proxy statement does not necessarily
reflect the financial position, results of operations and cash flows of Omnova
Solutions had Omnova Solutions been operated independently during the periods
presented. As a stand-alone company, Omnova Solutions' results of operations may
or may not continue at a level similar to its results of operations while a part
of GenCorp. Omnova Solutions also believes that its general and administrative
expenses will be higher than the expenses reflected in the historical financial
statements of its businesses.
NEW GENCORP OR OMNOVA SOLUTIONS MAY NOT BE ABLE TO CONSUMMATE OR INTEGRATE
EFFECTIVELY ACQUISITIONS AND THEIR RESPECTIVE RESULTS MAY BE ADVERSELY AFFECTED.
Performance Chemicals and Decorative & Building Products have completed
five acquisitions since the beginning of fiscal 1997. In addition, the business
strategy of New GenCorp and Omnova Solutions each contemplates continued
expansion, including growth through future acquisitions. However, the ability of
each of New GenCorp and Omnova Solutions to consummate and integrate effectively
any future acquisitions on terms that are favorable to them may be limited. New
GenCorp and Omnova Solutions may not have adequate financial resources to
consummate any acquisitions. In addition, the ability of New GenCorp and Omnova
Solutions to issue additional equity securities to raise capital or consummate
acquisitions may be impaired, for a period of time after the Distribution, as a
result of the tax indemnities to be granted by them with respect to the tax-free
nature of the Distribution.
ANTI-TAKEOVER PROVISIONS MAY AFFECT THE MARKETABILITY AND MARKET PRICE OF NEW
GENCORP OR OMNOVA SOLUTIONS COMMON STOCK.
The articles of incorporation and code of regulations of each of GenCorp
and Omnova Solutions, as well as Ohio statutory law, contain provisions that may
have the effect of discouraging an acquisition of control of the company not
approved by its Board. These provisions may also have the effect of discouraging
third parties from making proposals involving an acquisition or change of
control of either company, although any proposals, if made, might be considered
desirable by a majority of that company's shareholders. These provisions could
also have the effect of making it more difficult for third parties to replace
current management of either company without the concurrence of that company's
Board. The proposed amendments to GenCorp's articles of incorporation and code
of regulations would supplement these provisions of New GenCorp's articles of
incorporation and code of regulations. The existence of these provisions may
adversely affect the marketability and market price of New GenCorp or Omnova
Solutions common stock.
AFTER THE DISTRIBUTION, EMPLOYEES OF NEW GENCORP MAY HAVE THE POWER TO INFLUENCE
MATTERS BROUGHT BEFORE THE SHAREHOLDERS OF OMNOVA SOLUTIONS FOR APPROVAL AND
SUBSTANTIAL SALES BY THOSE EMPLOYEES MAY ADVERSELY AFFECT THE MARKET PRICE OF
THE OMNOVA SOLUTIONS COMMON STOCK.
Immediately after the Distribution, New GenCorp employees participating in
the GenCorp retirement savings plans will beneficially own approximately 11% of
the outstanding shares of Omnova Solutions common stock, based on the share
ownership of GenCorp common stock on May 31, 1999. Voting of shares by
participants in the plans or by the plans' Benefits Management Committee could
significantly influence the outcome of matters submitted to the shareholders of
Omnova Solutions for approval. The Benefits Management Committee is currently
comprised entirely of GenCorp officers and after the Distribution will be
comprised of officers of New GenCorp and Omnova Solutions. Sales of any
significant amount of Omnova Solutions common stock by the trustee in response
to withdrawals or fund transfers by New GenCorp employees could adversely affect
the market price of the Omnova Solutions common stock.
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RISKS CURRENTLY APPLICABLE TO GENCORP
ENVIRONMENTAL LAWS, REGULATIONS AND LIABILITIES OR A LOSS OF GOVERNMENTAL COST
RECOVERY COULD ADVERSELY AFFECT NEW GENCORP'S RESULTS OF OPERATIONS.
Aerojet is currently a party to several environmental proceedings related
primarily to prior operations. These proceedings are described in GenCorp's
filings under the Securities Exchange Act of 1934 (the "Exchange Act") that are
incorporated herein by reference. The effect of resolution of these matters on
New GenCorp's results of operation cannot be predicted due to the uncertainty
concerning both the amount and timing of future expenditures and future results
of operations. In addition, GenCorp cannot assure you that resolution of these
matters will not materially adversely affect New GenCorp's liquidity, capital
resources or financial condition.
The business operations of New GenCorp, like other companies in the
industries in which New GenCorp operates, are subject to numerous foreign,
federal, state and local environmental laws and regulations. These laws and
regulations not only affect New GenCorp's current operations, but also could
impose liability on New GenCorp for past operations that were conducted in
compliance with then applicable laws and regulations. New GenCorp anticipates
that these laws and regulations will become increasingly stringent.
Aerojet currently has an agreement with the U.S. government under which the
government recognizes as allowable for government contract cost purposes 88% of
Aerojet's environmental costs. The remaining 12% of these costs must be borne by
Aerojet. As the agreement relates to operations in Azusa, California, either
party can opt out of the arrangement after at least $40 million in allowable
environmental costs at Azusa have been recognized. However, Aerojet's ability to
continue to take advantage of this cost-recognition agreement is dependent on
its ability to continue to participate in government contracts. See "-A
substantial decrease in or loss of government contracts would materially
adversely affect New GenCorp's business and results of operations."
A SUBSTANTIAL DECREASE IN OR LOSS OF GOVERNMENT CONTRACTS WOULD MATERIALLY
ADVERSELY AFFECT NEW GENCORP'S BUSINESS AND RESULTS OF OPERATIONS.
GenCorp's aerospace and defense business, operated through Aerojet, is
dependent on U.S. government contracts. Those government contracts would have
provided, directly and indirectly, approximately 57% of New GenCorp's revenues,
on a pro forma basis, for fiscal 1998. Government contracts and subcontracts are
by their terms subject to termination by the government or the prime contractor
either for convenience or default. The loss of a substantial portion of that
business would have a material adverse effect on New GenCorp's business and
results of operations.
Consolidation among aerospace and defense companies has resulted in three
principal prime contractors for the Department of Defense and NASA. As a result
of this consolidation, Aerojet and its major competitors are partners with and
major suppliers to each other on various programs. If any of these companies
discontinues or temporarily terminates its services and Aerojet is unable to
find adequate alternatives, Aerojet may experience increased costs,
interruptions and delays in services.
The U.S. government and the principal prime contractors periodically
investigate the financial viability of their contractors and subcontractors as
part of their risk assessment process associated with the award of new
contracts. If the U.S. government or one or more prime contractors were to
determine that Aerojet were not financially viable, Aerojet's ability to
continue to act as a government contractor or subcontractor would be impaired.
The U.S. government also frequently conducts investigations into allegedly
illegal or unethical activity in the performance of defense contracts.
Investigations of this nature are common in the aerospace and defense industry
and lawsuits may result. Possible consequences include civil and criminal fines
and penalties, in some cases, double or treble damages, and suspension or
debarment from future government contracting. Aerojet is currently subject to
several U.S. government investigations regarding business practices and cost
classification. An adverse result in any legal or administrative proceeding
arising from one or more of these investigations could have a material adverse
effect on Aerojet's business and New GenCorp's financial condition or results of
operations.
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VEHICLE SEALING'S LOSS OF SIGNIFICANT CUSTOMERS COULD MATERIALLY ADVERSELY
AFFECT THE OPERATIONS OF VEHICLE SEALING AND NEW GENCORP.
General Motors and Ford accounted for approximately 73% of Vehicle
Sealing's fiscal 1998 revenues. A significant decrease or interruption in
business from General Motors or Ford could have a material adverse effect on New
GenCorp's financial condition, liquidity and results of operations.
INCREASING COSTS FOR RAW MATERIALS MAY ADVERSELY AFFECT OMNOVA SOLUTIONS'
PROFITABILITY.
Performance Chemicals uses monomers extensively in its products. In
addition, Decorative & Building Products uses polyvinyl chloride resins
extensively in its products. The cost of these raw materials has a significant
impact on Omnova Solutions' profitability. A significant increase in the price
of either or both of these raw materials could materially increase Omnova
Solutions' operating costs and materially adversely affect its profit margins.
While Omnova Solutions generally attempts to pass increased raw materials prices
onto its customers in the form of price increases, there has historically been a
time delay between increased raw materials prices and the ability to increase
product prices. In addition, Omnova Solutions may not be able to increase its
prices sufficiently to cover any significant raw materials cost increases.
POTENTIAL LIABILITIES ARISING FROM ANY RELEASE OR EXPLOSION OF DANGEROUS
MATERIALS COULD MATERIALLY ADVERSELY AFFECT NEW GENCORP'S FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The businesses of Aerojet and Fine Chemicals involve the handling and
production of potentially explosive materials and other dangerous chemicals,
including materials used in rocket propulsion and other products. It is possible
that a release of these chemicals or an explosion could result in death and
injuries to employees and others and material property damage to New GenCorp and
third parties. Any release or explosion could expose New GenCorp to adverse
publicity or liability for damages and materially adversely affect New GenCorp's
operations. These effects could also materially adversely affect New GenCorp's
financial condition, cash flows and results of operations.
PROTRACTED WORK STOPPAGES COULD ADVERSELY AFFECT THE RESULTS OF OPERATIONS OF
NEW GENCORP OR OMNOVA SOLUTIONS.
Approximately 43% of New GenCorp's employees are covered by collective
bargaining agreements. Approximately 28% of Omnova Solutions' employees are
covered by collective bargaining agreements. Of these employees, approximately
22% are covered by collective bargaining agreements that expire within the next
12 months. GenCorp cannot assure you that these expiring agreements will be
renewed on similar terms or renegotiated on acceptable terms. During fiscal
1998, Vehicle Sealing experienced a work stoppage at its Batesville, Arkansas
facility that adversely affected its results of operations for fiscal 1998. In
addition, Vehicle Sealing's results of operations for fiscal 1998 were adversely
affected by a work stoppage at General Motors. Any protracted work stoppages in
one or more of its facilities could materially adversely affect the results of
operations of New GenCorp or Omnova Solutions. In addition, any protracted work
stoppage in a facility of one of New GenCorp's customers could have a material
adverse effect on New GenCorp's results of operations.
ENVIRONMENTAL LAWS, REGULATIONS AND LIABILITIES COULD ADVERSELY AFFECT OMNOVA
SOLUTIONS' RESULTS OF OPERATIONS.
The business operations of Omnova Solutions, like those of other companies
in the industries in which Omnova Solutions operates, are subject to numerous
foreign, federal, state and local environmental laws and regulations. These laws
and regulations not only affect Omnova Solutions' current operations, but also
could impose liability on Omnova Solutions for past operations that were
conducted in compliance with then applicable laws and regulations. Omnova
Solutions anticipates that these laws and regulations will become increasingly
stringent. Environmental liabilities related to discontinued operations will not
be assumed by Omnova Solutions and will remain obligations of New GenCorp after
the Distribution. However, it is possible that Omnova Solutions could be held
liable for actions conducted by these discontinued operations. New GenCorp will
indemnify Omnova Solutions for any liabilities arising from these discontinued
operations. Any failure by New GenCorp to satisfy its indemnity obligations
could have a material adverse effect on Omnova Solutions.
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INTENSE COMPETITION COULD ADVERSELY AFFECT THE COMPETITIVE POSITION OR RESULTS
OF OPERATIONS OF NEW GENCORP OR OMNOVA SOLUTIONS.
The markets for New GenCorp's and Omnova Solutions' businesses are highly
competitive and actions by their respective competitors could adversely affect
their respective competitive positions. In particular, Aerojet and Performance
Chemicals compete against a few large competitors that have financial,
personnel, marketing and other resources that are greater than Aerojet's and
Performance Chemicals' respective resources.
RISKS ASSOCIATED WITH FOREIGN OPERATIONS COULD ADVERSELY AFFECT THE RESULTS OF
OPERATIONS OF NEW GENCORP OR OMNOVA SOLUTIONS.
Both New GenCorp and Omnova Solutions have foreign operations. Foreign
operations subject New GenCorp and Omnova Solutions to the risks of doing
business abroad, including:
- currency fluctuations;
- difficulties in staffing and managing foreign operations; and
- adverse tax consequence from operating in multiple jurisdictions.
Any of these factors could have a material adverse effect on the financial
position and results of operations of New GenCorp or Omnova Solutions.
THE YEAR 2000 PROBLEM MAY DISRUPT THE OPERATIONS OF NEW GENCORP AND OMNOVA
SOLUTIONS.
GenCorp is currently engaged in a comprehensive project to upgrade its
information, technology, manufacturing and facilities computer hardware and
software programs to address the Year 2000 issue at its domestic and
international businesses. GenCorp believes that approximately 70% of its systems
are Year 2000 ready as of February 28, 1999, and the remainder will be Year 2000
ready by mid-year 1999 and before the Distribution.
Based upon currently available information and considering GenCorp's
decentralized systems and Year 2000 efforts, management believes that the most
reasonably likely worst case scenario could result in minor short-term business
interruptions. GenCorp is preparing contingency plans which include alternative
sourcing to minimize any disruptions to its businesses resulting from a vendor
or supplier not being Year 2000 ready. However, failure by New GenCorp, Omnova
Solutions and/or their respective vendors and customers to complete Year 2000
readiness work in a timely manner could have a material adverse effect on some
of their respective operations. Each company's exposure could increase or its
timetable for Year 2000 readiness could be delayed as a result of any new
acquisitions.
CLAIMS OF PATENT INFRINGEMENT AGAINST FINE CHEMICALS COULD ADVERSELY AFFECT ITS
COMPETITIVE POSITION.
Fine Chemicals intends to use a new technology to produce products for its
customers. Fine Chemicals is aware of the existence of a third party's patent
which could impact Fine Chemicals' right to utilize the technology. Fine
Chemicals has received an opinion from legal counsel that the third party's
patent is invalid. However, there can be no assurance that the third party will
not bring an action for patent infringement against Fine Chemicals. Any adverse
decision in a patent infringement suit, or a settlement of a suit, could have an
adverse effect on Fine Chemicals' competitive position.
FORWARD-LOOKING STATEMENTS
GENCORP HAS MADE STATEMENTS CONCERNING FUTURE FINANCIAL RESULTS WHICH ARE
SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE EXPRESSED IN THESE STATEMENTS.
This proxy statement contains and incorporates by reference statements that
are forward-looking in nature. These statements include comments regarding the
intent, belief or current expectations of GenCorp, its directors or officers.
All statements other than statements of historical facts are forward-looking
statements. Forward-looking statements are typically identified by the words
"believe," "expect," "anticipate," "intend," "estimate" and similar expressions.
Although these forward-looking statements, and the assumptions upon which they
are
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based, reflect current reasonable judgments regarding the direction of the
businesses of GenCorp, New GenCorp and Omnova Solutions, actual results will
almost always vary, sometimes materially. GenCorp and Omnova Solutions make no
commitment to revise or update any forward-looking statements in order to
reflect events or circumstances after the date the statement is made. In
addition to the information contained in this proxy statement, including,
without limitation, the information under "Risk Factors" and "Omnova Solutions'
Management's Discussion and Analysis of Financial Condition and Results of
Operations," which identifies important factors that could affect actual
results, other factors could affect actual results, including, without
limitation:
- Governmental and regulatory policies including environmental regulations.
- Acquisition or divestiture activities by New GenCorp and Omnova
Solutions.
- Vehicle sales and production rates of major automotive programs including
Ford and General Motors light trucks and SUVs.
- Department of Defense, NASA and other funding for critical aerospace
programs including SBIRS, SADARM and Kistler.
- The ability of GenCorp and New GenCorp to satisfy contract performance
criteria, including due dates.
- The market for the real estate owned by GenCorp in Sacramento,
California.
- Raw material prices for chemical feed stocks including polyvinyl
chloride, styrene and butadiene.
- The ability of GenCorp, New GenCorp and Omnova Solutions and their
customers and vendors to successfully modify and convert their systems to
be Year 2000 ready.
- Fluctuations in exchange rates of foreign currencies and other risks
associated with foreign operations.
- General economic trends affecting markets in which GenCorp, New GenCorp
or Omnova Solutions operate.
Any forward-looking statements are expressly qualified in their entirety by
these factors.
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THE SPECIAL MEETING
PURPOSE OF THE SPECIAL MEETING
THE DISTRIBUTION
At the special meeting, shareholders will be asked to approve the
Distribution, which involves the following actions:
- a transfer to GenCorp by Aerojet, a wholly owned subsidiary of GenCorp,
of 100% of the equity interests of Aerojet Fine Chemicals, either as a
dividend or in exchange for other property;
- the contribution by GenCorp to its wholly owned subsidiary, Omnova
Solutions, of the Performance Chemicals and Decorative & Building
Products businesses of GenCorp and some other corporate assets, in
exchange for shares of Omnova Solutions common stock and Omnova
Solutions' assumption of liabilities related to those businesses and
assets; and
- a special dividend to the holders of the outstanding shares of GenCorp
common stock of all outstanding shares of capital stock of Omnova
Solutions on a pro rata basis and on the basis of one share of common
stock of Omnova Solutions for each share of common stock of GenCorp.
Prior to the special dividend, Omnova Solutions will borrow approximately
$188 million under its new credit facility and will distribute that amount to
GenCorp in the form of a dividend. GenCorp will use the dividend amount to repay
debt. The actual amount to be borrowed by Omnova Solutions and distributed to
GenCorp will be determined at the time of the Distribution.
If GenCorp shareholders approve the Distribution, and the other conditions
to the Distribution are satisfied or waived, GenCorp anticipates that the
GenCorp Board will authorize the various components of the Distribution and
declare a special dividend payable in Omnova Solutions common stock and set a
record date for that dividend. Each holder of record of GenCorp common stock on
the record date for the special dividend contemplated by the Distribution, other
than shareholders who properly exercise their dissenters' rights under Ohio law,
if, contrary to GenCorp's belief, dissenters' rights are available under Ohio
law, will receive one share of Omnova Solutions common stock for each share of
GenCorp common stock held on the record date for the Distribution. No
consideration will be paid by the holders of GenCorp common stock for the Omnova
Solutions common stock.
The GenCorp Board has conditioned the Distribution upon, among other
things:
- receipt of a ruling from the IRS to the effect that the Distribution will
constitute a tax-free distribution for U.S. Federal income tax purposes
for both holders of GenCorp common stock and GenCorp;
- approval of the Distribution by holders of at least a majority of the
outstanding GenCorp common stock as of the record date for the special
meeting;
- the effectiveness of the Registration Statement on Form 10 under the
Securities Exchange Act of 1934 to be filed by Omnova Solutions with the
Securities and Exchange Commission;
- if, contrary to GenCorp's belief, dissenters' rights are available under
Ohio law, holders of no more than 1% of GenCorp's outstanding common
stock exercise dissenters' rights; and
- there not being in effect any statute, rule, regulation or order of any
court, governmental or regulatory body that prohibits or makes illegal
the transactions contemplated by the Distribution.
The Distribution will not occur if the conditions described above are not
satisfied.
The GenCorp Board has retained discretion, even if all conditions to the
Distribution are satisfied, to abandon, defer or modify the Distribution.
The Distribution will separate GenCorp into two publicly owned companies.
After the Distribution, New GenCorp will continue to operate GenCorp's Aerojet,
Fine Chemicals and Vehicle Sealing businesses and
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Omnova Solutions will operate GenCorp's Performance Chemicals and Decorative &
Building Products businesses.
OTHER MATTERS
At the special meeting shareholders will also be asked to approve the
following proposals:
- Amendment of GenCorp's articles of incorporation and code of regulations
to designate Cleveland, Ohio as the location of its principal Ohio office
for purposes of the Ohio General Corporation Law; to increase the number
of authorized common shares from 90 million to 150 million; to provide
that GenCorp's corporate purpose is to engage in any lawful act or
activity for which corporations may be formed under Ohio law; to
establish two additional series of currently authorized preferred stock;
to eliminate the requirement that the annual meeting of shareholders be
held in March; to increase the shareholder vote required to call a
special meeting of shareholders from 25% to 50%; to permit additional
forms of proxy authorizations; to establish procedures relating to the
proposal of business at shareholders' meetings; to establish procedures
relating to the nomination by shareholders of candidates for election as
directors; to require that the company indemnify its directors, officers,
employees and others to the fullest extent permitted by applicable law;
and to provide that directors may not be removed by shareholders and may
be removed by other directors only in certain limited circumstances; and
to provide that New GenCorp's corporate seal shall contain only the name
of the corporation and the words "corporate seal;"
- Approval of the adoption of the New GenCorp 1999 Equity and Performance
Incentive Plan, to be effective after the Distribution; and
- Approval of the adoption of the Omnova Solutions 1999 Equity and
Performance Incentive Plan, to be effective after the Distribution.
THE GENCORP BOARD HAS UNANIMOUSLY APPROVED THE DISTRIBUTION, THE AMENDMENTS
TO THE ARTICLES OF INCORPORATION AND CODE OF REGULATIONS AND THE ADOPTION OF THE
NEW GENCORP AND OMNOVA SOLUTIONS 1999 EQUITY AND PERFORMANCE INCENTIVE PLANS AND
UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" EACH OF THE PROPOSALS.
VOTE REQUIRED
GenCorp believes that under Ohio law, which governs the Distribution, a
vote of shareholders is not required in connection with the Distribution. Ohio
law and GenCorp's articles of incorporation require the approval by the holders
of at least a majority of GenCorp's outstanding shares entitled to vote thereon
for a lease, sale, exchange, transfer, or other disposition of all, or
substantially all, of the assets of GenCorp. GenCorp believes that the
Distribution is not a disposition of substantially all of the assets of GenCorp.
Although GenCorp believes that the Distribution does not require shareholder
approval, GenCorp is seeking to obtain the views of its shareholders because of
the importance of the Distribution to shareholders. The affirmative vote of at
least a majority of the GenCorp common stock outstanding on the record date for
the special meeting is required for approval of the Distribution.
The other proposals to be acted on at the meeting require the following
votes:
- Approval of the adoption of the Omnova Solutions 1999 Equity and
Performance Incentive Plan and New GenCorp 1999 Equity and Performance
Incentive Plan will each require the affirmative vote of holders of a
majority of the outstanding shares of GenCorp common stock present in
person or by proxy at the special meeting.
- Approval of the adoption of the amendment to GenCorp's code of
regulations relating to removal of directors will require the affirmative
vote of holders of 80% of the outstanding shares of GenCorp common stock
on the record date.
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- Approval of the adoption of the amendments to GenCorp's articles of
incorporation will each require the affirmative vote of holders of
66 2/3% of the outstanding shares of GenCorp common stock on the record
date.
- Approval of the adoption of amendments to GenCorp's code of regulations,
other than the amendment relating to removal of directors, will each
require the affirmative vote of the holders of a majority of the
outstanding shares of GenCorp common stock on the record date.
Each share of GenCorp common stock outstanding at the close of business on
the record date is entitled to one vote on each matter presented at the special
meeting. As of the record date there were 41,817,650 shares of GenCorp common
stock outstanding and entitled to vote at the special meeting. The
representation in person or by proxy of at least a majority of the outstanding
shares entitled to vote is necessary to provide a quorum at the meeting.
Abstentions and "non-votes," if voted on at least one but not all proposals, are
counted as present in determining whether the quorum requirement is satisfied.
However, broker non-votes will not be deemed to be present and entitled to vote
for purposes of the votes on the equity and performance incentive plans. A "non-
vote" occurs when a broker or other nominee holding shares for a beneficial
owner votes on one proposal, but does not vote on another proposal. Abstentions
will be treated as though they were votes against each of the proposals.
"Non-votes" will be treated as though they were votes against the Distribution
and the amendments to GenCorp's articles of incorporation and code of
regulations but will have no effect on the votes on the Omnova Solutions 1999
Equity and Performance Incentive Plan or on the New GenCorp 1999 Equity and
Performance Incentive Plan.
GenCorp's Board has designated E.R. Dye, Secretary, M.E. Hicks, Senior Vice
President and Chief Financial Officer, and W.R. Phillips, Senior Vice President,
Law; General Counsel, as proxies for appointment by shareholders to represent
and vote their shares. See "-- Proxies."
EMPLOYEE BENEFIT HOLDINGS
Each participant in the employee benefit plans of GenCorp who has GenCorp
common stock allocated to his or her accounts in any of the GenCorp Retirement
Savings Plan, Profit Sharing Retirement and Savings Plan for Salaried Employees
of GenCorp Inc. and Certain Subsidiary Companies or GenCorp Canada Savings Plan
and each participant in the GenCorp Stock Incentive Compensation Plan is
entitled to instruct the trustee of the respective plan as to the voting of any
full or partial shares of GenCorp common stock allocated to his or her accounts
as of the special meeting record date. Each plan participant will receive a copy
of this proxy statement and a confidential voting instructions form to instruct
the trustee how to vote the shares of GenCorp common stock allocated to his or
her account as of the special meeting record date. If GenCorp's proxy solicitor,
Georgeson & Company, the trustee's agent for this purpose, receives those
instructions by the close of business on August 12, 1999, the trustee will vote
the shares as instructed by the participant. Dissenters' rights, if applicable,
may be exercised only by the trustee of the plan. Shares held in the trust funds
for which confidential voting instructions are not received will be voted by the
trustees in accordance with the instructions of the Benefits Management
Committee for the plans. The Benefits Management Committee has determined that
it will vote those shares in favor of each of the proposals to be considered at
the special meeting. The Benefits Management Committee is comprised of four
executive officers of GenCorp.
DIVIDEND REINVESTMENT PLAN
Proxy cards cover both shares held of record by a shareholder and shares
credited to that shareholder's account under the GenCorp dividend reinvestment
plan. Therefore, shares credited to a shareholder's account under the dividend
reinvestment plan will be voted in the manner indicated in the shareholder's
proxy card. See "-- Proxies."
PROXIES
All shares of GenCorp common stock represented by properly executed proxies
will, unless the proxies have previously been revoked, be voted at the special
meeting in accordance with the directions on the proxies. If no direction is
indicated on a properly executed proxy, the shares will be voted in favor of
each of the proposals. If any other matters are properly presented at the
special meeting for action, which is not anticipated, the proxy
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holders will vote the proxies which confer authority to such holders to vote on
such matters in accordance with their best judgment. A GenCorp shareholder
returning a proxy may revoke it at any time before it is voted by communicating
the revocation in writing to the Secretary of GenCorp or by executing and
delivering a later-dated proxy. In addition, any person who has executed a proxy
and is present at the special meeting may vote in person instead of by proxy,
thereby canceling any proxy previously given, whether or not written revocation
of the proxy has been given. Any written notice revoking a proxy should be sent
to GenCorp Inc., 175 Ghent Road, Fairlawn, Ohio 44333-3300, Attention:
Secretary.
If a quorum is not present at the time the special meeting is convened, or
if GenCorp believes that additional time should be allowed for the solicitation
of proxies or for any other reason, GenCorp may adjourn the special meeting from
time to time upon a vote of the shareholders present in person or by proxy at
the special meeting. If GenCorp proposes any adjournment of the special meeting
by a vote of the shareholders, the persons named in the enclosed form of proxy
will vote all shares of GenCorp common stock for which they have voting
authority in favor of the adjournment.
COSTS OF SOLICITATION
GenCorp will bear the costs of this solicitation. In addition to
solicitation by mail, GenCorp will request banks, brokers and other custodians,
nominees and fiduciaries to supply proxy material to the beneficial owners of
GenCorp common stock of whom they have knowledge, and will reimburse them for
their expenses in so doing. In addition, some directors, officers and other
employees of GenCorp, not specially employed for the purpose, may solicit
proxies, without additional remuneration therefor, by personal interview, mail,
telephone or telefax. In addition, GenCorp has retained Georgeson & Company Inc.
to assist in the solicitation and tabulation for a fee of $18,000, plus
reimbursement for its reasonable out-of-pocket expenses and for payments made to
brokers and other nominees for their expenses in forwarding soliciting material.
Georgeson & Company Inc. will distribute proxy materials to beneficial owners
and solicit proxies by personal interview, mail, telephone and telefax, and will
request banks, brokers and other custodians, nominees and fiduciaries to forward
soliciting material to the beneficial owners of GenCorp common stock held by
those persons on the special meeting record date.
DISSENTERS' RIGHTS
If, under Ohio law, the Distribution constitutes a disposition of
substantially all of GenCorp's assets, holders of GenCorp common stock on the
special meeting record date who fulfill the requirements of Ohio Revised Code
("O.R.C.") Section 1701.85 will be entitled to dissent from the Distribution
proposal and receive, instead of Omnova Solutions common stock in the
Distribution, payment for the "fair cash value" of their GenCorp common stock on
the terms and conditions described below.
As discussed above, GenCorp does not believe that the Distribution would be
a disposition of substantially all of GenCorp's assets under Ohio law and does
not believe that dissenters' rights will arise by reason of the Distribution.
Therefore, GenCorp reserves the right at any time to litigate in any appropriate
forum the questions whether a shareholder vote is in fact required with respect
to the Distribution and whether dissenters' rights must in fact be granted if
the Distribution receives shareholder approval and the Distribution occurs. As
to dissenters' rights, GenCorp also reserves the right to contest their
applicability to the Distribution in any proceeding brought by shareholders of
GenCorp under Section 1701.85 of the O.R.C. If the holders of more than 1% of
GenCorp common stock outstanding on the record date for the special meeting
purport to exercise dissenters' rights the Distribution will not occur.
If, contrary to GenCorp's belief, dissenters' rights arise with respect to
the Distribution, holders of GenCorp common stock who so desire will be entitled
to relief as dissenting shareholders under O.R.C. Section 1701.76. HOWEVER,
SHAREHOLDERS WILL BE ENTITLED TO RELIEF AS DISSENTING SHAREHOLDERS ONLY UPON
STRICT COMPLIANCE WITH O.R.C. SECTION 1701.85. The following summary does not
purport to be a complete statement of the method of compliance with O.R.C.
Section 1701.85 and is qualified in its entirety by reference to that section.
The full text of Section 1701.85 is attached to this proxy statement as Annex A.
A holder of GenCorp common stock who is considering the possibility of
dissenting is urged to read O.R.C. Section 1701.85 in full and to consult
counsel.
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A shareholder who wishes to perfect his rights as a dissenting shareholder
(if, in fact, those rights are available) MUST, if the Distribution is approved:
(a) have been a record holder of GenCorp common stock as to which he
seeks relief on the record date for the special meeting;
(b) NOT have voted such GenCorp common stock IN FAVOR OF approval of
the Distribution Proposal; and
(c) DELIVER to GenCorp, not later than 10 days after the special
meeting, a written demand for payment of the fair cash value of the shares
as to which he seeks relief. This written demand must state the name of the
shareholder, his address, the number of shares as to which he seeks relief,
and the amount claimed as the "fair cash value" thereof.
A vote against the Distribution will not satisfy the requirements of a
written demand for payment as described in clause (c) of the immediately
preceding paragraph. Any written demand for payment must be DELIVERED to GenCorp
Inc., 175 Ghent Road, Fairlawn, Ohio 44333-3300, Attention: Secretary. Because
the written demand must be delivered within the 10-day period immediately
following the special meeting, a shareholder should use a means of delivery,
including hand delivery, that will assure timely delivery, and should consider
use of a means of delivery that would provide a receipt establishing the
timeliness of that delivery.
If GenCorp sends to the dissenting shareholder, at the address specified in
his demand, a request for the certificate(s) representing the shares as to which
he seeks relief, the dissenting shareholder must DELIVER the certificate(s) to
GenCorp for endorsement as to the fact of his demand. Failure to meet this
requirement may, at the option of the GenCorp Board, terminate any dissenters'
rights unless a court for good cause shown otherwise directs.
Unless the dissenting shareholder and GenCorp agree on the fair cash value
per share of GenCorp common stock as to which relief is sought, either may,
within three months after the delivery of the written demand by the shareholder,
file a petition in the Court of Common Pleas of Summit County, Ohio. If the
court finds that the shareholder is entitled to be paid the fair cash value of
any shares, the court may appoint one or more appraisers to receive evidence and
to recommend a decision on the amount of the fair cash value.
Fair cash value will be determined as of the day prior to the special
meeting, will be the amount a willing seller and willing buyer would accept or
pay with neither being under compulsion to sell or buy, will not exceed the
amount specified in the shareholder's written demand, and will exclude any
appreciation or depreciation in market value resulting from the Distribution.
Unless GenCorp and the dissenting shareholder shall otherwise agree in writing,
or except in the case of any of the eventualities summarized in bullet points
below, a court will determine the fair cash value of a share of GenCorp common
stock and render judgment against GenCorp for its payment with interest at the
rate and from the date as the court considers equitable. The court will assess
or apportion the costs of the proceedings as it considers equitable.
The rights, if any, of a dissenting shareholder will terminate if:
- he or she has not strictly complied with O.R.C. Section 1701.85 unless
the GenCorp Board waives the failure;
- GenCorp abandons or is enjoined or prevented from carrying out, or the
holders of GenCorp common stock rescind their adoption of, the
Distribution;
- the dissenting shareholder withdraws his or her written demand, with the
consent of the GenCorp Board;
- GenCorp and the dissenting shareholder do not agree upon the fair cash
value per share of GenCorp common stock but neither timely files or joins
in a petition in an appropriate court for a determination of the fair
cash value of the shares; or
- a court finally determines that no dissenters' rights arise by reason of
the Distribution and all rights of appeal expire or are irrevocably
waived.
If the rights, if any, of a dissenting shareholder terminate, the shareholder
shall receive his or her shares of GenCorp common stock (if previously delivered
to GenCorp), the shares of Omnova Solutions common stock to
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which he or she is entitled in the Distribution and any other distributions on
the GenCorp common stock and Omnova Solutions common stock payable in respect of
the period in which the shareholder was asserting his or her dissenter's rights.
BECAUSE A PROXY WHICH DOES NOT CONTAIN VOTING INSTRUCTIONS WILL, UNLESS
REVOKED, BE VOTED FOR APPROVAL OF THE DISTRIBUTION, A GENCORP SHAREHOLDER WHO
WISHES TO EXERCISE HIS OR HER DISSENTERS' RIGHTS (IF, CONTRARY TO GENCORP'S
BELIEF, DISSENTERS' RIGHTS ARE AVAILABLE UNDER OHIO LAW) MUST EITHER NOT SIGN
AND RETURN HIS OR HER PROXY OR, IF HE OR SHE SIGNS AND RETURNS HIS OR HER PROXY,
VOTE AGAINST OR ABSTAIN FROM VOTING ON THE APPROVAL OF THE DISTRIBUTION.
THE ABOVE SUMMARY DOES NOT REPRESENT AN ACKNOWLEDGMENT BY GENCORP (AND
GENCORP EXPLICITLY DENIES) THAT THE RIGHTS OF DISSENT AND PAYMENT ARE AVAILABLE
TO HOLDERS OF GENCORP COMMON STOCK.
THE DISTRIBUTION
BACKGROUND AND REASONS FOR THE DISTRIBUTION
If the GenCorp shareholders approve the Distribution, and the other
conditions to the Distribution are satisfied or waived, GenCorp anticipates that
the GenCorp Board will authorize the various components of the Distribution and
declare a special dividend payable in Omnova Solutions common stock and set a
record date for that dividend. The Distribution would involve:
- a transfer to GenCorp by Aerojet, a wholly owned subsidiary of GenCorp,
of 100% of the equity interests of Fine Chemicals, either as a dividend
or in exchange for other property;
- the contribution by GenCorp to its wholly owned subsidiary, Omnova
Solutions, of the Performance Chemicals and Decorative & Building
Products businesses of GenCorp and some other corporate assets, in
exchange for shares of Omnova Solutions common stock and Omnova
Solutions' assumption of liabilities related to those businesses and
assets; and
- a special dividend to the holders of the outstanding shares of GenCorp
common stock of all outstanding shares of capital stock of Omnova
Solutions on a pro rata basis and on the basis of one share of common
stock of Omnova Solutions for each share of common stock of GenCorp.
Prior to the special dividend, Omnova Solutions will borrow approximately
$188 million under its new credit facility and will distribute that amount to
GenCorp in the form of a dividend. GenCorp will use the dividend amount to repay
debt. The actual amount to be borrowed by Omnova Solutions and distributed to
GenCorp will be determined at the time of the Distribution.
After the Distribution:
- New GenCorp will continue to own and operate GenCorp's Aerojet, Fine
Chemicals and Vehicle Sealing businesses; and
- Omnova Solutions will own and operate GenCorp's Performance Chemicals and
Decorative & Building Products businesses.
GenCorp's Board of Directors believes that the Distribution will serve a
number of purposes, including:
- increasing the ability of both companies to improve the corporate fit and
focus of their respective businesses;
- facilitating acquisitions by both companies by improving the
attractiveness of their respective capital stock as acquisition currency;
- allowing both companies to effectively motivate and enhance management
performance by providing equity compensation and incentives more closely
tied to the businesses in which the employees work; and
- generating aggregate cost savings for the two companies when compared to
GenCorp's costs.
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CORPORATE FIT AND FOCUS
GenCorp believes that the Distribution will allow the management of both
companies to devote more attention and focus on the respective businesses.
Aerojet, Fine Chemicals and Vehicle Sealing have relatively few very large
customers and require highly sophisticated technology. The aerospace and defense
and fine chemicals businesses are also highly regulated and tend to have long
research and development cycles prior to product commercialization. In contrast,
Performance Chemicals and Decorative & Building Products have a large number of
customers and shorter product development cycles. In addition, these businesses
are not subject to extensive regulation. The differences between the businesses
require different management techniques and investment strategies. The
Distribution will permit management of each company to specialize in their
respective businesses, including employee incentives, capital expenditures and
applicable regulation.
STOCK AS ACQUISITION CURRENCY
The Distribution will permit each of New GenCorp and Omnova Solutions to
use its stock as a more attractive currency in acquisitions. Management of
GenCorp believes that shareholders in target companies often wish to own stock
in a corporation focused on the industry in which the target company is engaged.
In its current conglomerate form, GenCorp shares may not be as attractive to
shareholders in target companies as would be the shares of either New GenCorp or
Omnova Solutions. Therefore, GenCorp management believes that, after the
Distribution, New GenCorp and Omnova Solutions should have more flexibility to
pursue acquisitions using stock as currency than GenCorp would have in the
absence of the Distribution. See "Risk Factors."
EQUITY COMPENSATION TO EMPLOYEES
GenCorp believes that the Distribution will enhance the ability of each
company to attract, retain and incentivize employees by utilizing stock-based
incentive compensation programs relating more directly to the business in which
they are employed.
COST SAVINGS
GenCorp believes that the Distribution will generate overall cost savings.
Savings will occur primarily through the elimination or reduction of corporate
functions and the resulting reduction in administrative staff and related costs.
GenCorp's diversified conglomerate nature requires corporate staff to coordinate
and integrate the diverse businesses and to provide strategic planning and
direction. Some of these functions are duplicative of functions performed at the
various operating businesses. GenCorp believes that much of the duplicative
activities could be eliminated after the Distribution. Cost decreases are
expected to result from elimination or downsizing of a number of corporate
functions, including (1) flight operations, (2) programs focused on operations
and quality, (3) the GenCorp Institute, a company-wide training and development
function, and (4) some finance and human resource functions. These decreases are
expected to be offset somewhat by an increase in some costs, such as insurance,
audit and financing costs resulting from the independent nature of New GenCorp
and Omnova Solutions.
The GenCorp Board has retained discretion, even if all conditions to the
Distribution are satisfied, to abandon, defer or modify the Distribution.
MANNER OF EFFECTING THE DISTRIBUTION
If the holders of GenCorp common stock approve the Distribution and all
other conditions to the Distribution are satisfied or waived by the GenCorp
Board, GenCorp anticipates that, following the special meeting, the GenCorp
Board will authorize the transfer of assets to Omnova Solutions described below,
declare the special dividend contemplated by the Distribution and establish the
record date and dividend date for the special dividend. The record date for the
special dividend is presently expected to be on or about September 20, 1999. The
special dividend date is presently expected to be on or about September 30,
1999. Prior to the special dividend date, GenCorp will transfer to Omnova
Solutions the assets associated with the Performance Chemicals and Decorative &
Building Products businesses, and some other corporate assets. These assets will
include (1) the GenCorp Technology Center, (2) the corporate flight operations,
(3) the corporate headquarters building in
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Fairlawn, Ohio and (4) the tangible and intangible assets owned and leased for
the Performance Chemicals and Decorative & Building Products businesses. Omnova
Solutions intends to dispose of the corporate flight operations within a
reasonable period after the Distribution. In exchange for the assets
transferred, Omnova Solutions will issue to GenCorp a number of shares of Omnova
Solutions common stock equal to the number of shares of GenCorp common stock
outstanding on the record date for the special dividend and assume liabilities
of GenCorp relating to the businesses and assets transferred.
Prior to the special dividend, Omnova Solutions will borrow approximately
$188 million under its new credit facility and will distribute that amount to
GenCorp in the form of a dividend. GenCorp will use the dividend amount to repay
debt. The actual amount to be borrowed by Omnova Solutions and distributed to
GenCorp will be determined at the time of the Distribution.
On the special dividend date, all of the outstanding shares of Omnova
Solutions common stock will be delivered by the Company to The Bank of New York,
as the Distribution agent. As soon as practicable thereafter, certificates
representing shares of Omnova Solutions common stock will be mailed by the
Distribution agent to holders of record of GenCorp common stock as of the record
date for the special dividend on the basis of one share of Omnova Solutions
common stock for each share of GenCorp common stock held on that date. All
shares of Omnova Solutions common stock distributed in the special dividend will
be fully paid and nonassessable.
No holder of GenCorp common stock will be required to pay any cash or other
consideration for the shares of Omnova Solutions common stock received in the
Distribution or to surrender or exchange shares of GenCorp common stock in order
to receive Omnova Solutions common stock. SHAREHOLDERS SHOULD NOT SEND IN THEIR
STOCK CERTIFICATES WITH THEIR PROXY CARDS.
Omnova Solutions will have a dividend reinvestment plan very similar to
GenCorp's plan. Shares of Omnova Solutions distributed in the Distribution with
respect to shares held in the GenCorp dividend reinvestment plan will be
credited to shareholders' accounts in the Omnova Solutions dividend reinvestment
plan unless those shareholders instruct otherwise.
FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
The Distribution will not occur unless, on or before the Distribution date,
GenCorp has received a letter ruling from the IRS to the effect that, for
Federal income tax purposes, the Distribution will qualify as a spin-off under
Section 355 of the Internal Revenue Code tax-free to the holders of GenCorp
common stock and to GenCorp. If the Distribution so qualifies, the principal
Federal income tax consequences will be as follows:
1. No income, gain or loss will be recognized by the holders of
GenCorp common stock as a result of their receipt of Omnova Solutions
common stock in the Distribution.
2. The basis of a holder of GenCorp common stock in the Omnova
Solutions common stock received on the date of the special dividend
contemplated by the Distribution in respect of GenCorp common stock and in
the New GenCorp common stock will be determined by allocating the holder's
basis in GenCorp common stock immediately before the special dividend
between the New GenCorp common stock and the Omnova Solutions common stock
received.
3. The holding period of the Omnova Solutions common stock received in
the Distribution will include the holding period of GenCorp common stock
with respect to which the Omnova Solutions common stock will be
distributed, provided GenCorp common stock is held as a capital asset on
the date of the special dividend contemplated by the Distribution.
4. No income, gain or loss will be recognized by GenCorp solely on
account of the Distribution.
A letter ruling by the IRS will be based upon and subject to assumptions,
facts, representations and advice provided and to be provided by GenCorp, Omnova
Solutions, and GenCorp's financial advisors. GenCorp is not aware of any facts
or circumstances which should make any necessary assumptions, facts,
representations and advice unobtainable or untrue. However, certain future
events not within the control of New GenCorp and Omnova Solutions, including,
for example, certain dispositions of New GenCorp common stock or Omnova
Solutions common stock after the Distribution, could cause the Distribution not
to qualify as tax-free.
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If the Distribution were not to qualify for tax-free treatment under
Section 355 of the Internal Revenue Code, each holder of GenCorp common stock
who receives Omnova Solutions common stock would be treated as receiving a
distribution, generally taxable as a dividend, in an amount equal to the fair
market value of their Omnova Solutions common stock received on the date of the
special dividend contemplated by the Distribution. Furthermore, the tax basis of
Omnova Solutions common stock received in the Distribution would equal its fair
market value on the date of the special dividend contemplated by the
Distribution, the holding period of the stock would begin with and include the
day after the date of the special dividend and GenCorp would recognize taxable
gain on the Distribution.
Both New GenCorp and Omnova Solutions will agree not to take any action
that would cause the Distribution to be taxable to GenCorp or its shareholders.
New GenCorp and Omnova Solutions will agree to indemnify each other for any
adverse consequences incurred as a result of their breach of that obligation to
the other.
THE FOREGOING SUMMARY OF THE ANTICIPATED PRINCIPAL FEDERAL INCOME TAX
CONSEQUENCES OF THE DISTRIBUTION UNDER CURRENT LAW IS FOR GENERAL INFORMATION
ONLY AND DOES NOT PURPORT TO COVER ALL FEDERAL INCOME TAX CONSEQUENCES,
INCLUDING THOSE THAT MAY APPLY TO PARTICULAR CATEGORIES OF SHAREHOLDERS, OR ANY
TAX CONSEQUENCES THAT MAY ARISE UNDER THE TAX LAWS OF OTHER JURISDICTIONS. THE
SUMMARY DOES NOT COVER ANY STATE, LOCAL OR FOREIGN INCOME TAX OR OTHER TAX
CONSEQUENCES. GENCORP HAS NOT REQUESTED ANY RULINGS OR OPINIONS WITH RESPECT TO
THE TAX CONSEQUENCES OF THE DISTRIBUTION UNDER THE LAWS OF ANY STATE, LOCAL OR
FOREIGN GOVERNMENT. EACH HOLDER (INCLUDING EACH CORPORATE HOLDER) OF GENCORP
COMMON STOCK SHOULD CONSULT HIS, HER OR ITS TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES OF THE DISTRIBUTION, INCLUDING APPLICATION OF FEDERAL, STATE, LOCAL
AND FOREIGN TAX LAWS, AND THE EFFECT OF POSSIBLE CHANGES IN TAX LAWS THAT MAY
AFFECT THE TAX CONSEQUENCES DESCRIBED ABOVE.
FINANCIAL VIABILITY OPINION
GenCorp has engaged Credit Suisse First Boston Corporation ("Credit Suisse
First Boston") as financial advisor in connection with the Distribution.
Credit Suisse First Boston has delivered to the GenCorp Board its written
opinion, dated July 2, 1999, to the effect that the Distribution will not have a
material adverse effect on the financial viability of New GenCorp (which term
shall be deemed to refer to GenCorp as constituted immediately following the
Distribution) or Omnova Solutions, as the case may be, during the period
immediately following the Distribution through the end of fiscal year 2000.
The term "financial viability" for purposes of this opinion, means and
refers exclusively to the ability of New GenCorp or Omnova Solutions to finance
their respective currently anticipated operating and capital requirements as
separate, stand alone entities (as projected in the financial forecasts provided
to Credit Suisse First Boston by the management of GenCorp and Omnova Solutions)
following the Distribution.
Credit Suisse First Boston's opinion is based upon, among other things,
Credit Suisse First Boston's review of (1) certain publicly available business
and financial information relating to GenCorp, New GenCorp and Omnova Solutions
and financial information contained in the proxy statement in the form provided
to it which it deemed relevant to its review, (2) financial forecasts provided
to Credit Suisse First Boston, and other information provided by GenCorp, New
GenCorp and Omnova Solutions prior to the date of the opinion, (3) discussions
with GenCorp, New GenCorp and Omnova Solutions management regarding the business
and prospects of New GenCorp and Omnova Solutions, (4) comparisons of financial
and stock market data of GenCorp, and financial data of New GenCorp and Omnova
Solutions with similar data for other publicly held companies in similar
businesses, (5) the financial terms of other transactions similar to the
Distribution that have recently been effected, (6) prevailing market conditions,
and (7) other information, financial studies, analyses and investigations and
financial, economic and market criteria that Credit Suisse First Boston has
deemed relevant.
In its opinion, Credit Suisse First Boston states that it has not assumed
any responsibility for independent verification of any of the foregoing
information (including the information contained in the proxy statement in the
form provided to it) and has relied on its being complete and accurate in all
material respects. The opinion further
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states that, with respect to the financial forecasts reviewed by Credit Suisse
First Boston, Credit Suisse First Boston assumed that such financial forecasts
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of managements of GenCorp, New GenCorp and Omnova
Solutions as to the future financial performance of New GenCorp and Omnova
Solutions. Credit Suisse First Boston has assumed no responsibility for, and has
expressed no view as to, such financial forecasts or the assumptions on which
they were based. Credit Suisse First Boston's opinion further states that Credit
Suisse First Boston made no independent evaluation of and assumes no
responsibility for estimates and judgments of management of GenCorp and its
counsel with respect to the size and scope of certain environmental liabilities.
Credit Suisse First Boston has assumed that any increases in the reserve in the
period covered by their opinion will be offset by recoveries from other sources,
such that such increases will not have a material adverse effect on the
forecasts.
The Credit Suisse First Boston opinion states that Credit Suisse First
Boston has assumed that (1) no income, gain or loss will be recognized to
GenCorp, New GenCorp or Omnova Solutions for U.S. federal or state income tax
purposes as a result of the Distribution and (2) the receipt of Omnova Solutions
stock in the Distribution will be tax-free for U.S. federal and state income tax
purposes to the stockholders of GenCorp.
In arriving at its financial opinion, Credit Suisse First Boston did not
attribute any particular weight to any analysis or factor considered in reaching
its conclusions, but rather made qualitative judgments as to the significance
and relevance of each analysis and factor.
The Credit Suisse First Boston opinion is subject to the limitations that
Credit Suisse First Boston neither made any independent evaluation or appraisal
of the assets or liabilities (contingent or otherwise) of GenCorp or Omnova
Solutions nor has Credit Suisse First Boston been furnished with any such
appraisal and that each such opinion is based on financial, economic, monetary
and market conditions as they exist and can be evaluated on the date of such
opinion. Credit Suisse First Boston's opinion does not represent an opinion as
to what the market value of the securities of Omnova Solutions or New GenCorp
actually will be following the consummation of the Distribution.
The full text of Credit Suisse First Boston's opinion, which sets forth the
assumptions made, matters considered and limits on the review undertaken, is
attached to this proxy statement as Annex B. The summary of the opinion of
Credit Suisse First Boston set forth in this proxy statement is qualified in its
entirety by reference to the full text of such opinion.
Credit Suisse First Boston will receive customary fees, including
reimbursement of expenses, for its services as financial advisor related to the
Distribution, a portion of which is contingent upon the consummation of the
Distribution. GenCorp also has agreed to indemnify Credit Suisse First Boston
against certain liabilities and expenses in connection with its services as
financial advisor.
Credit Suisse First Boston and its affiliates have acted, and may in the
future act, as an underwriter for, and have participated as members of
underwriting syndicates with respect to, offerings of GenCorp securities, and
Credit Suisse First Boston has effected securities transactions for GenCorp and
performed financial advisory services in connection with certain acquisitions
and dispositions by GenCorp. Credit Suisse First Boston has received fees from
GenCorp in the past for these services. Credit Suisse First Boston may in the
future serve as an underwriter of securities for or financial advisor to
GenCorp, New GenCorp and Omnova Solutions.
LISTING AND TRADING OF OMNOVA SOLUTIONS COMMON STOCK
Omnova Solutions intends to apply to the NYSE for the listing of the Omnova
Solutions common stock. Omnova Solutions initially will have approximately
12,163 stockholders of record based upon the number of shareholders of record of
GenCorp as of May 31, 1999. It is presently anticipated that Omnova Solutions
common stock will be approved for listing on the NYSE prior to the Distribution
date, and trading may commence on a "when-issued" basis prior to the
Distribution. It is also possible that New GenCorp common stock would be traded
on a "when-distributed" basis prior to the Distribution. On the trading day
following the date that certificates for Omnova Solutions common stock are
mailed by the Distribution agent, "when-issued" or "when-distributed" trading,
as applicable, in respect of each of the Omnova Solutions common stock and New
GenCorp common stock would end and "regular-way" trading would begin. The NYSE
will not approve any trading of the Omnova Solutions common stock until the
Securities and Exchange Commission (the "Commission") has declared effective the
Registration Statement of Omnova Solutions on Form 10. Omnova Solutions
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will file with the Commission a Registration Statement on Form 10 prior to the
special meeting and request effectiveness of that Registration Statement prior
to the Distribution date.
There is now no public market for Omnova Solutions common stock. Prices at
which Omnova Solutions common stock may trade prior to the Distribution on a
"when-issued" basis or after the Distribution cannot be predicted. Until the
Omnova Solutions common stock is fully distributed and an orderly market
develops, the prices at which trading in Omnova Solutions common stock occurs
may fluctuate significantly. The price at which Omnova Solutions common stock
trades after the Distribution will be determined by the marketplace and may be
influenced by many factors, including, among others, the depth and liquidity of
the market for Omnova Solutions common stock, investor perception of Omnova
Solutions and the industries in which it participates, Omnova Solutions'
operating results, Omnova Solutions' dividend policy and general economic and
market conditions. Market prices may also be affected by provisions of Omnova
Solutions' articles of incorporation and code of regulations as each will be in
effect following the Distribution, which may have an antitakeover effect. See
"Description of Omnova Solutions Capital Stock -- Certain Change in Control
Effects of Certain Provisions of the Articles of Incorporation and Code of
Regulations of Omnova Solutions".
The Omnova Solutions common stock distributed to holders of GenCorp common
stock in the Distribution will be freely transferable, except for shares
received by persons who may be deemed to be "affiliates" of Omnova Solutions
under the Securities Act of 1933. Persons who may be deemed to be affiliates of
Omnova Solutions after the Distribution generally include individuals or
entities that control, are controlled by, or are under common control with
Omnova Solutions and include directors and executive officers of Omnova
Solutions. Persons who are affiliates of Omnova Solutions will be permitted to
sell their shares of Omnova Solutions common stock only pursuant to an effective
registration statement under the Securities Act or an exemption from the
registration requirements of the Securities Act, such as the exemption afforded
by Section 4(2) of the Securities Act or by Rule 144.
The Bank of New York will act as the transfer agent and registrar for the
Omnova Solutions common stock after the Distribution is completed.
LISTING AND TRADING OF NEW GENCORP COMMON STOCK
GenCorp common stock is currently traded on the NYSE and Chicago Stock
Exchange. Following the Distribution, Omnova Solutions' financial results will
no longer be consolidated with those of New GenCorp. New GenCorp's revenues,
earnings and dividends after the Distribution will be below those of GenCorp
prior to the Distribution. Accordingly, as a result of the Distribution, the
trading price range of the New GenCorp common stock after the Distribution is
expected to be lower than the trading price range of GenCorp common stock prior
to the Distribution. The combined trading prices of the New GenCorp common stock
and the Omnova Solutions common stock held by shareholders after the
Distribution may be less than, equal to or greater than the trading price of
GenCorp common stock prior to the Distribution. The prices at which New GenCorp
common stock trades after the Distribution will be determined by the marketplace
and may be influenced by the depth and liquidity of the market for New GenCorp
common stock, investor perception of New GenCorp and the industries in which it
participates, New GenCorp's operating results, New GenCorp's dividend policy and
general economic and market conditions.
CONDITIONS; TERMINATION
The Distribution is conditioned on:
- receipt of a ruling from the IRS to the effect that the Distribution will
constitute a tax-free distribution for U.S. Federal income tax purposes
for both holders of GenCorp common stock and GenCorp;
- approval of the Distribution by holders of at least a majority of the
outstanding GenCorp common stock as of the record date;
- the effectiveness of the Registration Statement on Form 10 under the
Securities Exchange Act of 1934 to be filed by Omnova Solutions with the
Securities and Exchange Commission;
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- if, contrary to GenCorp's belief, dissenters' rights are available under
Ohio law, holders of no more than 1% of GenCorp's outstanding common
stock exercise dissenters' rights; and
- there not being in effect any statute, rule, regulation or order of any
court, governmental or regulatory body that prohibits or makes illegal
the transactions contemplated by the Distribution.
These conditions are not waivable by the GenCorp Board.
Unless waived by the GenCorp Board, the Distribution is also conditioned
upon, among other things:
- the receipt of all necessary regulatory approvals;
- all necessary consents of any third parties having been obtained;
- the shares of Omnova Solutions common stock to be delivered in the
Distribution having been approved for listing on the NYSE, subject to
official notice of issuance; and
- Credit Suisse First Boston having delivered an updated financial
viability opinion to the GenCorp Board, dated as of the date on which the
GenCorp Board of Directors declares the special dividend contemplated by
the Distribution in substantially the same form as the opinion set forth
in Annex B.
The GenCorp Board has retained discretion, even if shareholder approval of
the Distribution is obtained and the other conditions to the Distribution are
satisfied, to abandon, delay or modify the Distribution or any matter
contemplated by the Distribution. The terms of the Distribution thus may be
modified or, except as described above, conditions thereto may be waived by the
GenCorp Board. However, if the GenCorp Board takes any of these actions, it will
be because the action will be in the best interests of GenCorp and its
shareholders.
REGULATORY APPROVALS
GenCorp does not believe that any material federal or state regulatory
approvals will be necessary in connection with the Distribution.
ACCOUNTING TREATMENT
Upon declaration by the GenCorp Board of the special dividend contemplated
by the Distribution, GenCorp will present the business of Omnova Solutions as a
discontinued operation to the extent financial information for periods prior to
the Distribution is required to be included in GenCorp's historical financial
statements. After the Distribution, the business of Omnova Solutions will be
reflected in Omnova Solutions' own separate consolidated financial statements
and its assets and liabilities will be reflected at historical amounts.
PRE-CLOSING FINANCING TRANSACTIONS
In connection with the Distribution, it is anticipated that Omnova
Solutions will enter into a credit agreement with Bank of America, the terms of
which are currently being negotiated. The credit agreement is expected to
provide $250 million of available credit on a five-year revolving basis.
Immediately prior to the Distribution, Omnova Solutions will borrow
approximately $188 million under the credit agreement. At the same time, Omnova
Solutions will declare and distribute to GenCorp a special dividend in the
amount of approximately $188 million. Omnova Solutions expects to use funds
borrowed under the credit agreement to pay the special dividend to GenCorp.
It is also anticipated that New GenCorp will enter into a credit agreement
with Bank of America. The credit agreement is expected to provide $250 million
of available credit on a five-year revolving basis.
RELATIONSHIP BETWEEN NEW GENCORP AND OMNOVA SOLUTIONS AFTER THE DISTRIBUTION
Omnova Solutions is wholly owned by GenCorp, and its results have been
included in GenCorp's consolidated financial results. After the Distribution,
the results of operations of Omnova Solutions will no longer be consolidated
with New GenCorp and Omnova Solutions will be an independent public company.
Furthermore,
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except as described below, all contractual relationships existing prior to the
Distribution between New GenCorp and Omnova Solutions will be terminated except
for commercial relationships in the ordinary course of business.
Prior to the Distribution, GenCorp and Omnova Solutions will enter into
certain agreements, described below, governing their relationship subsequent to
the Distribution and providing for the allocation of tax and other liabilities
and obligations arising from periods prior to the Distribution. Each of GenCorp
and Omnova Solutions believes that the agreements are fair.
Copies of the forms of the material agreements will be included as exhibits
to the Registration Statement on Form 10 to be filed by Omnova Solutions for the
purpose of registering the Omnova Solutions common stock under the Exchange Act.
The following description summarizes the material terms of these agreements.
DISTRIBUTION AGREEMENT
GenCorp and Omnova Solutions will enter into a distribution agreement
providing for, among other things, corporate transactions required to effect the
Distribution and other arrangements between GenCorp and Omnova Solutions with
respect to or in consequence of the Distribution.
The distribution agreement will provide for, with certain exceptions, (1)
the contribution of assets to Omnova Solutions by GenCorp, and (2) assumptions
of liabilities and cross-indemnities designed principally to place financial
responsibility for the liabilities of GenCorp and its subsidiaries other than
Omnova Solutions with New GenCorp and financial responsibilities for the
liabilities to be assumed by Omnova Solutions with Omnova Solutions. Each of New
GenCorp and Omnova Solutions will have sole responsibility for claims arising
out of its respective activities after the Distribution. Further, the
distribution agreement will provide that New GenCorp and Omnova Solutions will
not take any action to cause the Distribution to be taxable to GenCorp or its
shareholders, and that New GenCorp and Omnova Solutions will indemnify each
other for any adverse consequences incurred as a result of their breach of that
obligation to the other.
The distribution agreement will also provide that each of New GenCorp and
Omnova Solutions will be granted mutual access to certain historical records and
information in the possession of the other, and requires the retention by each
of New GenCorp and Omnova Solutions for a period of six years following the
Distribution of all information in its possession, and thereafter requires that
each party give the other prior notice of its intention to dispose of the
information.
The distribution agreement will also provide that, except as otherwise set
forth therein or in any other agreement, all costs or expenses incurred on or
prior to the Distribution date in connection with the Distribution will be
charged to and paid by the party incurring the costs or expenses. Except as set
forth in the Distribution Agreement or any related agreement, each party will
bear its own costs and expenses incurred after the Distribution.
TAX MATTERS AGREEMENT
As part of the Distribution, GenCorp and Omnova Solutions will enter into a
tax matters agreement that will provide, among other things, for the allocation
of Federal, state, local and foreign tax liabilities for periods prior to and
including the Distribution date. Through the Distribution date, Omnova Solutions
has been and will be included in GenCorp's consolidated Federal income tax
returns and, in certain states, GenCorp's state tax returns. In general, the tax
matters agreement will provide that New GenCorp will be liable for taxes related
to GenCorp, New GenCorp and Omnova Solutions for all periods prior to the
Distribution. In addition, New GenCorp will be entitled to all refunds related
to GenCorp, New GenCorp and Omnova Solutions for all periods prior to the
Distribution. Though valid as between New GenCorp and Omnova Solutions, the tax
matters agreement is not binding on the IRS and does not affect the several
liability of GenCorp and Omnova Solutions for all federal income taxes of the
consolidated group required to be shown on the consolidated Federal income tax
returns.
ALTERNATIVE DISPUTE RESOLUTION AGREEMENT
GenCorp and Omnova Solutions will enter into an alternative dispute
resolution agreement establishing procedures for resolving disputes that may
arise between them after the Distribution. The alternative dispute
32
<PAGE> 39
resolution agreement will provide for both mediation and arbitration, which
would be the exclusive methods for resolution of most disputes between the
parties that arise prior to the Distribution or in connection with the
Distribution and would reduce the possibility of litigation between them.
AGREEMENT ON EMPLOYEE MATTERS
GenCorp and Omnova Solutions will enter into an agreement on employee
matters providing for the treatment of employee benefit matters and other
compensation arrangements for former and current employees of Omnova Solutions
and its subsidiaries.
OMNOVA SOLUTIONS SALARIED PENSION PLAN. Prior to the Distribution, Omnova
Solutions will establish its own pension plan for the benefit of its active
salaried employees and those former salaried employees who terminated employment
from active business locations of Omnova Solutions. The terms of the Omnova
Solutions salaried pension plan will be substantially identical to the GenCorp
salaried pension plan. Omnova Solutions employees who participate in the GenCorp
salaried pension plan will be eligible for immediate participation in the Omnova
Solutions salaried pension plan. Omnova Solutions salaried employees also will
be credited under the Omnova Solutions salaried pension plan, for eligibility
and vesting purposes, with service credited to them under the GenCorp salaried
pension plan. Those assets and liabilities of the GenCorp salaried pension plan
which are attributable to Omnova Solutions plan participants (including a pro
rata share of surplus plan assets) will be transferred from the GenCorp salaried
pension plan to the Omnova Solutions salaried pension plan in connection with
the Distribution, following which the Omnova Solutions salaried employees will
receive benefit service with respect to service credited to them under the
GenCorp salaried pension plan. These transfers will result in Omnova Solutions
having estimated prepaid pension cost, based on actuarial estimates, of
approximately $26 million.
OMNOVA SOLUTIONS HOURLY PENSION PLAN. Prior to the Distribution, Omnova
Solutions will establish its own pension plan for the benefit of its active
hourly employees and those former hourly employees who terminated employment
from active business locations of Omnova Solutions. The terms of the Omnova
Solutions hourly pension plan will be substantially identical to the GenCorp
hourly pension plan. Omnova Solutions employees who participate in the GenCorp
hourly pension plan will be eligible for immediate participation in the Omnova
Solutions hourly pension plan. Omnova Solutions employees also will be credited
under the Omnova Solutions hourly pension plan, for eligibility and vesting
purposes, with service credited to them under the GenCorp hourly pension plan.
Those assets and liabilities of the GenCorp hourly pension plan which are
attributable to the Omnova Solutions hourly plan participants (including a pro
rata share of surplus plan assets) will be transferred from the GenCorp hourly
pension plan to the Omnova Solutions hourly pension plan in connection with the
Distribution, following which the Omnova Solutions hourly employees will receive
benefit service with respect to service credited to them under the GenCorp
hourly pension plan. These transfers will result in Omnova Solutions having
estimated prepaid pension cost, based on actuarial estimates, of approximately
$9 million.
POSTRETIREMENT BENEFITS. GenCorp currently provides certain health care and
life insurance benefits to most retired employees in the United States with
varied coverage by employee groups. The health care plans generally provide for
cost sharing in the form of retiree contributions, deductibles and coinsurance
between GenCorp and its retirees. The unfunded benefit obligation reported in
GenCorp's financial statements for such postretirement benefits will be
allocated between New GenCorp and Omnova Solutions as follows: (1) approximately
$303 million for active employees remaining New GenCorp employees and former
employees who do not become employees of Omnova Solutions will be retained by
New GenCorp; and (2) approximately $46 million for active employees transferred
to Omnova Solutions and former employees who terminated employment from active
business locations of Omnova Solutions will be assumed by Omnova Solutions.
JOINT SAVINGS PLAN. As of the Distribution, the GenCorp retirement savings
plan will become a multiple employer plan in which both New GenCorp and Omnova
Solutions will be unrelated participating employers. On and after the date of
the special dividend contemplated by the Distribution, employer matching
contributions on behalf of New GenCorp employees will be made solely by New
GenCorp and solely to the New GenCorp stock
33
<PAGE> 40
fund, and employer matching contributions on behalf of Omnova Solutions
employees will be made solely by Omnova Solutions and solely to the Omnova
Solutions stock fund. Not later than the later of October 31, 2001 or two years
after the Distribution, the accounts of Omnova Solutions employees and former
Omnova Solutions employees will be transferred to a new separate savings plan to
be established by Omnova Solutions. Thereafter, neither Omnova Solutions nor its
employees will participate in the New GenCorp retirement savings plan.
Omnova Solutions common stock held in the accounts of New GenCorp employees
that is attributable to contributions made before the Distribution may be
retained in the Omnova Solutions stock fund, transferred to the New GenCorp
stock fund or transferred to any other investment funds in the retirement
savings plan at the participant's election in accordance with the terms of the
retirement savings plan. Except as provided in the preceding sentence,
contributions made to or held under the retirement savings plan on behalf of New
GenCorp employees may not be invested in the Omnova Solutions stock fund. Any
dividends on Omnova Solutions common stock in accounts of New GenCorp employees
will be reinvested in the Omnova Solutions stock fund.
New GenCorp common stock held in the accounts of Omnova Solutions employees
that is attributable to contributions made before the Distribution may be
retained in the New GenCorp stock fund, transferred to the Omnova Solutions
stock fund or transferred to any other investment fund in the retirement savings
plan at the participant's election in accordance with the term of the retirement
savings plan. Except as provided in the preceding sentence, contributions made
to or held under the retirement savings plan on behalf of Omnova Solutions
employees may not be invested in the New GenCorp stock fund. Any dividends after
the Distribution date on New GenCorp common stock in accounts of Omnova
Solutions employees will be reinvested in the New GenCorp stock fund.
STOCK INCENTIVE COMPENSATION PLAN. Prior to the Distribution date, the
GenCorp Inc. Stock Incentive Compensation Plan will be terminated, and all
accounts of participants, whether represented by GenCorp shares held in a trust
or cash payment obligations will be distributed to participants, subject to the
normal tax withholding provisions in the plan.
GENCORP 1993 AND 1997 STOCK OPTION PLANS. Prior to the date of the special
dividend contemplated by the Distribution, exercisable options under the GenCorp
1993 and 1997 Stock Option Plans for (1) active employees, (2) retirees, and (3)
other former employees whose options remain exercisable, will be split into
options to acquire New GenCorp common stock and Omnova Solutions common stock.
Except with respect to options held by the chief executive officers of New
GenCorp and Omnova Solutions, the number of exercisable options in each company
will each equal the number of exercisable options under the GenCorp Stock Option
Plans. With respect to exercisable options held by the chief executive officers,
(1) Mr. Wolfe's options will be converted into 66 2/3% New GenCorp options and
33 1/3% Omnova Solutions options, and (2) Mr. Yasinsky's options will be
converted into 66 2/3% Omnova Solutions options and 33 1/3% New GenCorp options.
The exercise price of each resulting option will bear the same ratio to the
market price, as of the date of the special dividend contemplated by the
Distribution, of the respective company's stock, as the exercise price of the
original GenCorp option bore to the market price of GenCorp shares immediately
before the Distribution date.
Unexercisable options under the GenCorp 1997 Stock Option Plan for New
GenCorp employees will be replaced with a number of unexercisable New GenCorp
options under that plan which will, based upon (1) the market price of GenCorp
shares immediately after the date of the special dividend contemplated by the
Distribution and (2) the exercise prices for those options, have an aggregate
intrinsic value equal to that of the unexercisable GenCorp options immediately
before the date of the special dividend contemplated by the Distribution.
Unexercisable options under the GenCorp 1997 Stock Option Plan for Omnova
Solutions employees will be replaced with a number of unexercisable Omnova
Solutions options which will, based upon (1) the market price of Omnova
Solutions shares immediately after the date of the special dividend contemplated
by the Distribution and (2) the exercise price for such options, have an
aggregate intrinsic value equal to that of the unexercisable GenCorp options
immediately before the date of the special dividend contemplated by the
Distribution.
In converting the stock option plans for the Distribution, the exercisable
and unexercisable aggregate intrinsic value of the options immediately after the
conversion will be equal to the aggregate intrinsic value
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<PAGE> 41
immediately before the conversion. The ratio of the exercise price per option to
the market value per share will not be reduced and the vesting provisions and
option period of the Omnova Solutions and New GenCorp options will be the same
as for the original GenCorp options. Accordingly, no compensation expense will
be recognized by Omnova Solutions or New GenCorp.
UNFUNDED DEFERRED COMPENSATION. GenCorp has unfunded obligations to pay
deferred compensation and retirement income under its Benefits Restoration Plan,
Deferred Bonus Plan, Non-Employee Directors Retirement and Deferred Compensation
Plans, 1996 Supplemental Retirement Plan for Management Employees, individual
employment agreements, and other miscellaneous plans related to discontinued
operations. Subject to legal requirements for employee acquiescence, benefit
obligations for (1) active employees transferred to Omnova Solutions, (2)
retired employees who terminated employment from active business locations of
Omnova Solutions, and (3) GenCorp directors resigning to become members of the
Omnova Solutions Board, will be assumed by Omnova Solutions. Benefit obligations
for (4) active employees remaining New GenCorp employees, (5) GenCorp directors
remaining on the New GenCorp Board, (6) other retired employees, and (7) retired
directors, will be retained by New GenCorp.
Former employees and directors will be able to elect a lump-sum payment of
their deferred compensation, subject to (1) a 10% reduction in order to avoid
adverse tax consequences, and (2) all applicable tax withholding. Active
employees and directors may receive lump-sum payments upon termination of
employment or board service with GenCorp, New GenCorp or Omnova Solutions based
upon appropriate advance elections or discretionary approval by the appropriate
company's benefit management committee. Under the agreement on employee matters,
New GenCorp will indemnify the payment of unfunded obligations assumed by Omnova
Solutions as of the date of the special dividend contemplated by the
Distribution, and Omnova Solutions will indemnify the payment of unfunded
obligations retained by New GenCorp as of the date of the special dividend
contemplated by the Distribution.
ANNUAL BONUSES. Bonus amounts under GenCorp's Executive Incentive
Compensation Plan for the period ending November 30, 1999 will be determined
based upon (1) actual performance up to the date of the special dividend
contemplated by the Distribution, and (2) budgeted performance, for the
remainder of the period, according to GenCorp's annual operating plan. Subject
to legal requirements for employee acquiescence, bonus obligations will be
assumed by Omnova Solutions for all Omnova Solutions employees, and paid in
cash. Bonus obligations will be paid in cash by New GenCorp for all New GenCorp
employees and for terminated GenCorp employees who are not employed by Omnova
Solutions.
LONG-TERM INCENTIVE COMPENSATION. Performance awards under GenCorp's
Long-Term Incentive Program for the three-year performance period ending
November 30, 1999 will be determined based upon (1) actual performance up to the
date of the special dividend contemplated by the Distribution, and (2) budgeted
performance, for the remainder of the period, according to GenCorp's annual
operating plan. Pro rata performance awards will be paid under the GenCorp plan
for the performance periods ending November 30, 2000 and November 30, 2001. Pro
rata performance awards for each partial performance period will be determined
based upon (1) actual performance up to the date of the special dividend
contemplated by the Distribution, and (2) budgeted performance, for the
remainder of the fiscal year ending November 30, 1999, according to GenCorp's
annual operating plan. Subject to legal requirements for employee acquiescence,
performance award obligations will be assumed by Omnova Solutions for all Omnova
Solutions employees and paid in cash. Performance award obligations will be paid
in cash by New GenCorp for all New GenCorp employees and for terminated GenCorp
employees who are not employed by Omnova Solutions.
DIRECTOR COMPENSATION. Subject to legal requirements for director
acquiescence, benefit obligations for GenCorp directors resigning to become
members of the Omnova Solutions Board will be assumed by Omnova Solutions.
Benefit obligations for GenCorp directors remaining on the New GenCorp Board and
retired directors will be retained by New GenCorp.
ENHANCED RETIREMENT AND SEPARATION PAY PLANS. GenCorp adopted a Voluntary
Enhanced Retirement Program (VERP) and Enhanced Involuntary Separation Pay Plan
(EISP) which are associated with and contingent upon the Distribution. The VERP
offers enhanced retirement benefits to eligible salaried employees
35
<PAGE> 42
within a number of corporate facilities and divisional headquarters. The
majority of the related benefits will be paid from the defined benefit pension
and retiree health care plans of New GenCorp and Omnova Solutions. The maximum
estimated cost of the VERP could range up to $7.6 million. The maximum estimated
cost of the EISP could range up to $2.1 million. The actual cost of both the
VERP and the EISP will be reflected in the financial statements of GenCorp prior
to the Distribution. The total number of participants and the timing of their
departure are not yet known.
ADMINISTRATIVE SERVICES. For a transition period not to exceed two years
after the Distribution, the Joint Savings Plan and other benefit programs
currently applicable to GenCorp active employees and retirees will be
administered under a transition services arrangement between New GenCorp and
Omnova Solutions. The purpose of the transition services arrangement will be to
allow for an orderly transition of administrative responsibility for ongoing
GenCorp benefit programs to administrative staffs of New GenCorp and Omnova
Solutions. In accordance with the transition services agreement, Omnova
Solutions will reimburse New GenCorp, and New GenCorp will reimburse Omnova
Solutions, for all direct and indirect costs incurred by each to provide these
services on terms believed by New GenCorp and Omnova Solutions to be
commercially reasonable.
With respect to other employee welfare benefit plans, policies, contracts
and arrangements of GenCorp, such as GenCorp's medical reimbursement and
vacation, sick leave and jury duty policies, the agreement on employee matters
will generally provide that Omnova Solutions will adopt, and be solely
responsible for substantially identical, plans, policies, contracts and
arrangements, to be effective from and after the date of the special dividend
contemplated by the Distribution, with respect to individuals who will be
employees of Omnova Solutions and their beneficiaries after the date of the
special dividend contemplated by the Distribution. The agreement on employee
matters also will provide that service with GenCorp prior to the date of the
special dividend contemplated by the Distribution will be counted for purposes
of participation, vesting and, following appropriate asset transfers, benefit
accruals under the plans, policies, contracts and arrangements of Omnova
Solutions following the date of the special dividend contemplated by the
Distribution.
INTELLECTUAL PROPERTY
In connection with the Distribution, intellectual property, including
patents, trademarks, copyrights, trade secrets and inventions used primarily by,
or being developed primarily for, Performance Chemicals and Decorative &
Building Products will be transferred to Omnova Solutions. In addition, a
license agreement will be established, subject to the rights of the U.S.
government, allowing Omnova Solutions to pursue commercialization of fluorinated
oxetane technology and associated oxetane technology originally conceived by
Aerojet, in Omnova Solutions' areas of interest and allowing New GenCorp to
pursue the technology in its areas of interest.
TRANSITION SERVICES AGREEMENT
GenCorp and Omnova Solutions will enter into a transition services
agreement which will provide for Omnova Solutions to continue to supply to New
GenCorp, for periods generally not to exceed two years and subject to
conditions, transitional administrative services for Vehicle Sealing operations,
including accounts receivable collections, payroll, real estate, data
communications and word processing, and to assist in effecting an orderly
transition following the Distribution. Omnova Solutions will be entitled to
reimbursement for all direct and indirect costs of providing these transitional
services on terms believed by Omnova Solutions and New GenCorp to be
commercially reasonable. These costs are not expected to be material.
DIVIDEND POLICIES
NEW GENCORP
GenCorp's quarterly dividend is now $0.15 per share of GenCorp common
stock. The payment and level of cash dividends by New GenCorp after the
Distribution will be subject to the discretion of the New GenCorp Board of
Directors. Future dividend decisions will be based on a number of factors,
including the future operating results and financial requirements of New GenCorp
on a stand-alone basis, state law requirements and other factors. No dividends
have been declared. Although there can be no assurance that New GenCorp will pay
any dividends, management of New GenCorp intends to pay cash dividends and
believes that its cash flows after the Distribution should be sufficiently
strong, after giving effect to the Distribution, that, barring unforeseen
circumstances, a cash dividend can be paid for the foreseeable future. GenCorp's
existing credit arrangements
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<PAGE> 43
limit, and New GenCorp's credit arrangements after the Distribution are expected
to limit, the amount it can pay in dividends.
OMNOVA SOLUTIONS
The dividend policy of Omnova Solutions will be determined by the Omnova
Solutions Board. The payment and level of any cash dividends by Omnova Solutions
after the Distribution will be subject to the discretion of the Omnova Solutions
Board of Directors. Future dividend decisions will depend on a number of
factors, including the future results of operations and financial condition of
Omnova Solutions, state law requirements and other factors. Although there can
be no assurance that Omnova Solutions will pay any dividends, management of
Omnova Solutions intends to pay cash dividends and believes that its cash flows
after the Distribution should be sufficiently strong that, barring unforeseen
circumstances, a cash dividend can be paid for the foreseeable future. It is
anticipated that Omnova Solutions' credit arrangements after the Distribution
will limit its ability to pay dividends.
DIVIDENDS AND PRICE RANGE OF GENCORP COMMON STOCK
GenCorp common stock is listed and traded on the NYSE and Chicago Stock
Exchange under the symbol "GY." The following table reflects the high and low
sales prices per share for GenCorp common stock, as reported on the NYSE for the
fiscal periods indicated. The table also sets forth the cash dividends paid per
share of GenCorp common stock during those periods.
<TABLE>
<CAPTION>
PRICE RANGE
----------- CASH
HIGH LOW DIVIDENDS PAID
---- --- ---------------
<S> <C> <C> <C>
1997:
First Quarter........................................... $19 3/4 $17 1/2 $0.15
Second Quarter.......................................... 21 1/4 18 1/8 0.15
Third Quarter........................................... 31 20 7/8 0.15
Fourth Quarter.......................................... 29 5/8 21 3/4 0.15
1998:
First Quarter........................................... $27 7/16 $22 3/8 $0.15
Second Quarter.......................................... 31 3/16 27 0.15
Third Quarter........................................... 30 3/16 19 1/2 0.15
Fourth Quarter.......................................... 25 1/8 16 7/16 0.15
1999:
First Quarter........................................... $27 7/8 $19 3/16 $0.15
Second Quarter.......................................... 25 15/16 17 3/16 0.15
Third Quarter (through June 30, 1999)................... 25 3/4 21 15/16 --
</TABLE>
On December 16, 1998, the last trading day before the GenCorp Board
announced its plan for the Distribution, the high and low sales prices for
GenCorp common stock on the NYSE were $25 1/4 and $24 1/8, respectively. On July
1, 1999, the last trading day for which quotations were available at the time of
the printing of this proxy statement, the closing price for GenCorp common stock
on the NYSE was $23 15/16. SHAREHOLDERS ARE URGED TO OBTAIN CURRENT TRADING
PRICE INFORMATION BEFORE VOTING ON THE DISTRIBUTION.
For a discussion of the possible impact of the Distribution on the trading
price of GenCorp common stock, see "The Distribution -- Listing and Trading of
New GenCorp Common Stock." For a discussion of the dividend policies of New
GenCorp and Omnova Solutions after the Distribution, see "Dividend Policies".
There has not been any established public trading market for Omnova
Solutions common stock. For a discussion of matters related thereto, see "The
Distribution -- Listing and Trading of Omnova Solutions Common Stock".
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<PAGE> 44
GENCORP SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected consolidated historical data of
GenCorp. The selected historical information has been derived from the audited
and unaudited consolidated financial statements of GenCorp. You should read this
information in conjunction with GenCorp's Annual Report on Form 10-K for the
fiscal year ended November 30, 1998 and GenCorp's Quarterly Report on Form 10-Q
for the quarterly period ended February 28, 1999.
You should keep the following in mind when reading this data:
- Segment operating profit represents net sales less applicable costs,
expenses and provisions for restructuring and unusual items relating to
operations. Segment operating profit excludes corporate income and
expenses, provisions for nonoperating unusual items, interest expense and
income taxes.
- During fiscal 1994, GenCorp incurred unusual charges of $83 million
pretax, or $1.56 basic and diluted earnings per share after tax,
primarily for (1) $83 million of provisions related to environmental
remediation offset by (2) recoveries of $31 million from insurers related
to environmental costs, (3) an $8 million write down of fixed assets and
investments to realizable value, (4) restructuring charges of $12
million, and (5) $11 million related to warranty costs and litigation.
- During fiscal 1994, GenCorp incurred a net charge of $213 million, or
$6.69 basic and diluted earnings per share, for the cumulative effect of
accounting changes for the after tax effect of postretirement benefits
other than pensions and income taxes.
- During fiscal 1995, GenCorp recorded net unusual charges of $5 million
pretax, or $0.09 basic and $0.08 diluted earnings per share after tax.
These unusual items included (1) $10 million for the settlement of a
lawsuit and other matters related to discontinued businesses, partially
offset by (2) gains of $5 million from the divestitures of GenCorp's
rigid plastics business and a resort property.
- During fiscal 1996, GenCorp recorded unusual charges of $42 million
pretax, or $0.75 basic and $0.62 diluted earnings per share after tax.
These charges included primarily (1) a $15 million provision for a
voluntary early retirement incentive program, (2) a $14 million loss on
the sale of its automotive segment's vibration control and reinforced
plastics businesses offset by a gain of $4 million from the sale of the
structural urethane adhesives business, (3) an $8 million provision for
environmental remediation costs, (4) a $6 million charge related to fixed
assets, pension and other matters, and (5) a $3 million restructuring
charge for the Vehicle Sealing business.
- During fiscal 1997, GenCorp's $115,000,000 8% Convertible Subordinated
Debentures Due August 1, 2002 were converted into GenCorp common stock.
This conversion affected long-term debt and shareholders' equity at the
end of fiscal 1997.
- Total assets and long-term debt at the end of fiscal 1997 reflect the
acquisition of Printworld made in fiscal 1997. Total assets and long-term
debt at the end of fiscal 1998 reflect the acquisitions made in fiscal
1998, including (1) the U.S. specialty chemicals business of Sequa
Chemicals, (2) the commercial wallcovering business of Walker Greenbank
PLC and (3) the Calhoun, Georgia latex facility of The Goodyear Tire &
Rubber Company. The income statements reflect operations from these
acquisitions from the date of purchase.
- Income before cumulative effect of accounting changes reflects reduced
income tax expense of $16 million, $67 million and $2 million in 1996,
1997 and 1998, respectively, due to the receipt of federal income tax
settlements for tax credits and related interest.
- Segment operating profit and income for fiscal 1998 include net unusual
income of $5 million pretax, or $0.07 basic and diluted earnings per
share after tax. These unusual items include (1) charges of $8 million
primarily related to exiting the plastic extrusions and residential
wallcovering businesses, offset by (2) a $13 million gain from Aerojet's
sale of surplus land in Nevada.
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<PAGE> 45
<TABLE>
<CAPTION>
THREE
MONTHS
YEAR ENDED NOVEMBER 30, ENDED FEB. 28,
---------------------------------------------- ----------------
1994 1995 1996 1997 1998 1998 1999
------ ------ ------ ------ ------ ------ ------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales......................................... $1,740 $1,772 $1,515 $1,568 $1,737 $ 366 $ 440
Segment operating profit.......................... 32 117 120 152 165 30 38
Income (loss) before cumulative effect of
accounting changes.............................. (13) 38 42 137 84 13 17
Cumulative effect of accounting changes........... (213) -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
Net income (loss)................................. $ (226) $ 38 $ 42 $ 137 $ 84 $ 13 $ 17
====== ====== ====== ====== ====== ====== ======
EARNINGS (LOSS) PER SHARE OF COMMON STOCK:
Income (loss) before cumulative effect of
accounting changes.............................. $ (.41) $ 1.17 $ 1.25 $ 3.71 $ 2.02 $ .31 $ .41
Cumulative effect of accounting changes........... (6.69) -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
Net income (loss) basic........................... $(7.10) $ 1.17 $ 1.25 $ 3.71 $ 2.02 $ .31 $ .41
Net income (loss) diluted......................... $(7.10) $ 1.10 $ 1.16 $ 3.40 $ 1.99 $ .31 $ .41
BALANCE SHEET DATA
(AT PERIOD END):
Total assets...................................... $1,455 $1,458 $1,330 $1,419 $1,743 $1,404 $1,729
Long-term debt.................................... 378 383 263 84 356 93 356
Total debt........................................ 385 404 306 109 370 137 409
Shareholders' equity (deficit).................... (7) 35 56 281 344 287 354
OTHER DATA:
Cash dividends paid per common share.............. $ .60 $ .60 $ .60 $ .60 $ .60 $ .15 $ .15
</TABLE>
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GENCORP CAPITALIZATION
The following table sets forth the capitalization of GenCorp at February
28, 1999 (the end of GenCorp's first fiscal quarter), the principal financial
adjustments that will result from the Distribution and the sale of Penn, and the
pro forma capitalization of New GenCorp after giving effect to these events. You
should read this data together with the historical financial statements of
GenCorp incorporated herein by reference and the unaudited pro forma financial
statements and the notes thereto included in this proxy statement.
The pro forma adjustments included in the table reflect:
- the elimination of a $6 million note payable by Omnova Solutions;
- the receipt of a dividend from Omnova Solutions of approximately $188
million which will be used by GenCorp to repay debt (the actual amount of
the dividend will be determined immediately prior to the Distribution);
- the elimination of $499 of historical divisional equity of Omnova
Solutions;
- the elimination of $18 million of historical divisional equity of Penn
and the application of $42 million of proceeds less the change in net
assets of $9 million from February 28, 1999 to May 31, 1999 from the sale
of Penn on April 30, 1999 to repay long-term debt;
- the other $226 million of pro forma adjustments, including the $9 million
pretax gain from the sale of Penn, referred to in the GenCorp Unaudited
Pro Forma Condensed Consolidated Balance Sheet as of February 28, 1999
included in this proxy statement.
<TABLE>
<CAPTION>
FEBRUARY 28, 1999
--------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Notes payable and current portion of long-term debt........ $ 53 $ (6) $ 47
Long-term debt............................................. 356 (188) 135
(33)
---- ----- ----
Total debt................................................. $409 $(227) $182
Preference stock:
$1.00 par value, 15 million shares authorized, none
outstanding.............................................. -- -- --
Common stock:
$.10 par value 90 million shares authorized,
41.7 million shares outstanding.......................... 4 -- 4
Retained earnings and other capital items.................. 350 (499) 59
(18)
226
---- ----- ----
Total shareholders' equity................................. 354 (291) 63
---- ----- ----
Total capitalization....................................... $763 $(518) $245
==== ===== ====
</TABLE>
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<PAGE> 47
GENCORP UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS FOR THE THREE MONTHS ENDED FEBRUARY 28, 1999
AND THE YEAR ENDED NOVEMBER 30, 1998
The following unaudited pro forma condensed consolidated balance sheet as
of February 28, 1999 and the unaudited pro forma condensed consolidated
statements of income for the three months ended February 28, 1999 and for the
year ended November 30, 1998 give effect to the Distribution and the sale of
Penn. The pro forma condensed consolidated balance sheet is presented as if the
Distribution and the sale of Penn had occurred on February 28, 1999, and the pro
forma condensed consolidated statements of income are presented as if the
Distribution and the sale of Penn had occurred as of the beginning of the
periods presented. The "GenCorp Restated" amounts show the effects on reported
results of operations and the balance sheet of GenCorp assuming the proposed
Distribution was consummated and Penn was sold and, as a result, Omnova
Solutions and Penn are reported as discontinued operations. Omnova Solutions and
Penn represent the historical Polymer Products business segment of GenCorp.
These financial statements are presented on a pro forma basis pending the
occurrence of the events that would establish the measurement dates for
treatment of Omnova Solutions and Penn as discontinued operations, namely the
approval of the Distribution by GenCorp's shareholders and declaration by
GenCorp's Board of Directors of the special dividend contemplated by the
Distribution. The "New GenCorp" amounts represent the estimated effect of the
Distribution on reported results of operations and the balance sheet of GenCorp
including the transfer to Omnova Solutions of (1) prepaid pension assets and
retiree benefit obligations; and (2) certain GenCorp corporate assets and
liabilities; and reflects the receipt by GenCorp of a dividend from Omnova
Solutions for approximately $188 million and the application of the amount
received by GenCorp to repay indebtedness. The actual amount to be borrowed by
Omnova Solutions, paid as a dividend to GenCorp and used to repay GenCorp
indebtedness, will be determined at the time of the Distribution. The actual
amount will depend, in part, on the amount of borrowings by GenCorp at that
time. GenCorp's borrowings fluctuate throughout its fiscal year.
The pro forma information is presented for illustrative purposes only and
may not be indicative of the results that would have been obtained had the
Distribution or sale of Penn actually occurred on the dates assumed nor is it
necessarily indicative of the future consolidated results of operations of New
GenCorp. After the one-time costs associated with the Distribution, GenCorp also
anticipates projected annual pretax cost savings by New GenCorp of $4 million to
$5 million as a result of the Distribution that have not been reflected in the
pro forma condensed consolidated financial statements.
You should read the pro forma condensed consolidated financial statements
in conjunction with the historical financial statements and the related notes
thereto of GenCorp included in its filings under the Exchange Act that are
incorporated by reference into this proxy statement.
41
<PAGE> 48
GENCORP UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
FEBRUARY 28, 1999
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------- PRO FORMA
LESS ----------------------
OMNOVA LESS GENCORP ADDITIONS NEW
GENCORP SOLUTIONS(1) PENN(2) RESTATED (DEDUCTIONS) GENCORP
------- ------------ ------- -------- ------------ -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
CURRENT ASSETS
Cash and equivalents................ $ 22 $ 3 $-- $ 19 $ -- $ 19
Accounts receivable................. 272 102 11 159 -- 159
Inventories......................... 160 58 7 95 -- 95
Prepaid expenses and other.......... 56 12 -- 44 -- 44
------ ---- --- ------ ------ ------
TOTAL CURRENT ASSETS................ 510 175 18 317 -- 317
Recoverable from U.S. Government and
third parties for environmental
remediation....................... 148 -- -- 148 -- 148
Deferred income taxes............... 137 -- -- 137 (5)(4) 138
2(5)
4(6)
Prepaid pension..................... 137 -- -- 137 (35)(4) 102
Investments and other assets........ 299 234 -- 65 -- 65
Property, plant and equipment,
net............................... 498 194 11 293 (13)(5) 280
------ ---- --- ------ ------ ------
TOTAL ASSETS........................ $1,729 $603 $29 $1,097 $ (47) $1,050
====== ==== === ====== ====== ======
LIABILITIES AND SHAREHOLDERS'
EQUITY:
CURRENT LIABILITIES
Notes payable....................... $ 53 $ 6 $-- $ 47 $ -- $ 47
Accounts payable.................... 188 57 4 127 -- 127
Income taxes........................ 34 -- 1 33 (3)(6) 36
6(3)
Other current liabilities........... 127 15 3 109 (3)(4) 113
(16)(5)
23(6)
------ ---- --- ------ ------ ------
TOTAL CURRENT LIABILITIES........... 402 78 8 316 7 323
Long-term debt...................... 356 -- -- 356 (188)(7) 135
(33)(3)
Postretirement benefits other than
pensions.......................... 316 -- -- 316 (43)(4) 273
Environmental reserves.............. 249 -- -- 249 -- 249
Other liabilities................... 52 26 3 23 (16)(5) 7
Total shareholders' equity.......... 354 499 18 (163) 226(8) 63
------ ---- --- ------ ------ ------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY............................ $1,729 $603 $29 $1,097 $ (47) $1,050
====== ==== === ====== ====== ======
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
February 28, 1999.
42
<PAGE> 49
GENCORP NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED BALANCE SHEET
FEBRUARY 28, 1999
(1) To eliminate the historical assets, liabilities and divisional equity of
Omnova Solutions.
(2) To eliminate the historical assets, liabilities and divisional equity of
Penn, which was sold on April 30, 1999.
(3) To record the cash proceeds, income taxes payable and change in net assets
from February 28,1999 to April 30, 1999 from the sale of Penn, which was
used to repay debt.
(4) To record the transfer of net pension assets and retiree medical obligations
and related deferred income taxes from GenCorp to Omnova Solutions. The
estimated prepaid pension asset is attributable to the excess of pension
assets over liabilities related to Omnova Solutions employees and retirees.
The projected prepaid pension asset of $35 million and retiree medical
benefit obligations of $46 million were actuarially determined based on
Omnova Solutions active and retired participants in the plans and the
actuarial assumptions used were consistent with assumptions previously used
by GenCorp. The pension assets were split based on the requirements of
Section 414(i) of the Internal Revenue Code as prescribed by the Pension
Benefit Guaranty Corporation and other management considerations.
(5) To record the transfer of certain property, plant and equipment, primarily
GenCorp's corporate headquarters, related liabilities and deferred income
taxes to Omnova Solutions.
(6) To reflect the impact of one-time costs associated with the Distribution.
These costs include investment banking, legal and professional fees,
severance costs, retention bonuses for key employees, financing fees,
relocation costs and expenses associated with a voluntary early retirement
program.
(7) Reflects the receipt by GenCorp of a dividend from Omnova Solutions for
approximately $188 million. The amount received by GenCorp will be used to
repay indebtedness.
(8) To record the effect on GenCorp equity related to the pro forma adjustments
referred to in notes (3), (4), (5), (6) and (7) above.
<TABLE>
<CAPTION>
(Dollars in millions)
<S> <C>
Cash proceeds ($42) net of related income taxes ($6) and
change in net assets ($9) for the sale of Penn(3)......... $ 27
Transfer of prepaid pension(4).............................. (35)
Transfer of postretirement benefits other than
pensions(4)............................................... 46
Transfer of certain property, plant and equipment and
related liabilities(5).................................... 19
Deferred income taxes related to (4) and (5)................ (3)
One-time costs associated with Distribution (6)............. (23)
Current ($3) and deferred ($4) income taxes related to(6)... 7
Receipt of dividend from Omnova Solutions(7)................ 188
----
$226
====
</TABLE>
43
<PAGE> 50
GENCORP UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED FEBRUARY 28, 1999
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------------------------------------------------------- ----------------------
DISCONTINUED OPERATIONS (1)
------------------------------------------------
OMNOVA ADDITIONS GENCORP ADDITIONS NEW
GENCORP SOLUTIONS(2) PENN(3) (DEDUCTIONS) SUBTOTAL RESTATED (DEDUCTIONS) GENCORP
------- ------------ ------- ------------ -------- -------- ------------ -------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET SALES................... $ 440 $ 171 $ 14 $ - $ 185 $ 255 $ - $ 255
COSTS AND EXPENSES
Cost of products sold....... 341 111 9 - 120 221 2(5) 223
Selling, general and
administrative............ 46 37 4 (1)(4) 40 6 1(5) 5
(2)(6)
Depreciation................ 18 5 1 - 6 12 - 12
Interest expense............ 5 5 - - 5 - 2(7) 2
Other (income) expense,
net....................... - 2 - - 2 (2) - (2)
Unusual items............... 1 - - - - 1 - 1
------ ------- ------- ------- ------- ------ -------- ------
411 160 14 (1) 173 238 3 241
------ ------- ------- ------- ------- ------ -------- ------
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME
TAXES..................... 29 11 - 1 12 17 (3) 14
Income taxes (benefit)...... 12 4 - - 4 8 (1)(8) 7
------ ------- ------- ------- ------- ------ -------- ------
INCOME FROM CONTINUING
OPERATIONS................ 17 $ 7 $ - $ 1 $ 8 9 (2) 7
======= ======= ======= =======
INCOME FROM DISCONTINUED
OPERATIONS................ - 8 - 8
------ ------ -------- ------
NET INCOME.................. $ 17 $ 17 $ (2) $ 15
====== ====== ======== ======
EARNINGS PER SHARE OF COMMON
STOCK
Basic:
Continuing
operations.......... $ .41 $ .22 $ .17
Discontinued
operations.......... - .19 .19
------ ------ ------
Total............... $ .41 $ .41 $ .36
====== ====== ======
Diluted:
Continuing
operations.......... $ .41 $ .22 $ .17
Discontinued
operations.......... - .19 .19
------ ------ ------
Total............... $ .41 $ .41 $ .36
====== ====== ======
WEIGHTED AVERAGE NUMBER OF
SHARES (IN THOUSANDS):
Basic................... 41,582 41,582 41,582
Diluted................. 42,036 42,036 42,036
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Statement of Income
for the Three Months Ended February 28, 1999 and for the Year Ended November 30,
1998.
44
<PAGE> 51
GENCORP UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED NOVEMBER 30, 1998
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------------------------------------------------------- ----------------------
DISCONTINUED OPERATIONS (1)
------------------------------------------------
OMNOVA ADDITIONS GENCORP ADDITIONS NEW
GENCORP SOLUTIONS(2) PENN(3) (DEDUCTIONS) SUBTOTAL RESTATED (DEDUCTIONS) GENCORP
------- ------------ ------- ------------ -------- -------- ------------ -------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET SALES..................... $1,737 $ 624 $ 65 $ - $ 689 $1,048 $ - $1,048
COSTS AND EXPENSES
Cost of products sold......... 1,379 407 42 - 449 930 4(5) 934
Selling, general and
administrative.............. 149 117 19 (5)(4) 131 18 4(5) 13
(9)(6)
Depreciation.................. 62 18 2 - 20 42 (1)(6) 41
Interest expense.............. 14 8 - - 8 6 (3)(7) 3
Other (income) expense, net... 2 1 - - 1 1 - 1
Unusual items................. (5) 3 1 - 4 (9) - (9)
------- ------- ------- ------- ------- ------ -------- ------
1,601 554 64 (5) 613 988 (5) 983
------- ------- ------- ------- ------- ------ -------- ------
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME
TAXES....................... 136 70 1 5 76 60 5 65
Income taxes.................. 52 28 - 2(8) 30 22 2(8) 24
------- ------- ------- ------- ------- ------ -------- ------
INCOME FROM CONTINUING
OPERATIONS.................. 84 $ 42 $ 1 $ 3 $ 46 38 3 41
======= ======= ======= =======
INCOME FROM DISCONTINUED
OPERATIONS.................. -- 46 - 46
------- ------ -------- ------
NET INCOME.................... $ 84 $ 84 $ 3 $ 87
======= ====== ======== ======
EARNINGS PER SHARE OF COMMON
STOCK
Basic:
Continuing operations... $ 2.02 $ .91 $ .98
Discontinued
operations............ - 1.11 1.11
------- ------ ------
Total................. $ 2.02 $ 2.02 $ 2.09
======= ====== ======
Diluted:
Continuing operations... $ 1.99 $ .90 $ .98
Discontinued
operations............ - 1.09 1.09
------- ------ ------
Total................. $ 1.99 $ 1.99 $ 2.07
======= ====== ======
WEIGHTED AVERAGE NUMBER OF
SHARES (IN THOUSANDS):
Basic..................... 41,468 41,468 41,468
Diluted................... 42,033 42,033 42,033
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Statement of Income
for the Three Months Ended February 28, 1999 and for the Year Ended November 30,
1998.
45
<PAGE> 52
GENCORP NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED FEBRUARY 28, 1999 AND FOR THE YEAR ENDED NOVEMBER 30,
1998
(1) The "Discontinued Operations" columns in the unaudited pro forma condensed
consolidated statement of income represent the historical results of
operations of the Omnova Solutions businesses, the Penn business plus the
effects of certain adjustments, which are reasonable in the opinion of
GenCorp's management, to properly present those results as discontinued
operations. The Omnova Solutions and Penn businesses represent the
historical Polymer Products business segment of GenCorp.
(2) To reclassify the historical results of operations of Omnova Solutions to
discontinued operations.
(3) To reclassify the historical results of operations of Penn, which was sold
on April 30, 1999, to discontinued operations.
(4) To adjust the historical results of Omnova Solutions for the allocated
general corporate expenses that will be retained by GenCorp when Omnova
Solutions is reported as a discontinued operation.
(5) To record the increase in pension expense attributable to the transfer to
Omnova Solutions of a portion of the excess of the defined benefit pension
plans' assets over the related obligations for Omnova Solutions' employees
and retirees.
(6) To transfer corporate costs that will be assumed by Omnova Solutions as a
result of the Distribution. After the Distribution, these costs will no
longer be incurred by New GenCorp. This adjustment also includes the costs
associated with the corporate assets transferred to Omnova Solutions from
GenCorp.
(7) To adjust interest expense to the amount computed based on the debt to be
retained by GenCorp after the receipt of a dividend from Omnova Solutions
for approximately $188 million and the application of the amount received to
repay indebtedness. The interest rate was 5.6% and 5.8% for the three months
ended February 28, 1999 and for the year ended November 30, 1998,
respectively. The rate was primarily based on LIBOR plus a margin as
specified in GenCorp's credit agreement. A quarter point change in the
interest rate would result in a $.1 million and $.5 million change in
interest expense for the three months ended February 28, 1999 and for the
year ended November 30, 1998, respectively.
(8) To record the estimated income taxes related to the pro forma adjustments
referred to in notes (4), (5), (6) and (7) above at an estimated combined
U.S. federal and state income tax rate of 40%.
(9) The unaudited pro forma condensed consolidated statement of income does not
include nonrecurring items that are directly attributable to the
Distribution, sale of Penn and estimated future cost savings as follows:
(a) The one-time costs estimated at $16 million after tax associated
with the Distribution such as investment banking, legal and
professional fees, severance costs, retention bonuses for key
employees, financing fees, relocation costs and expenses associated
with a voluntary early retirement program.
(b) The after-tax gain of $9 million on the sale of Penn that occurred
on April 30, 1999.
(c) Annual pre-tax cost savings in costs of products sold and selling,
general and administrative expenses that are estimated between $4 to
$5 million as a result of the Distribution.
46
<PAGE> 53
GENCORP UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED NOVEMBER 30, 1997 AND 1996
The following unaudited pro forma condensed consolidated statements of
income for the years ended November 30, 1997 and 1996 show the effects on
reported results of operations of GenCorp assuming the proposed Distribution of
Omnova Solutions and the sale of Penn were consummated and, as a result, the
results of operations of Omnova Solutions and Penn are presented as discontinued
operations. These income statements are presented on a pro forma basis pending
the occurrence of the event that would establish the measurement date for
treatment of Omnova Solutions as a discontinued operation, mainly the approval
by GenCorp's shareholders and the declaration by GenCorp's Board of Directors of
the special dividend contemplated by the Distribution.
The unaudited pro forma condensed consolidated statements of income should
be read in conjunction with the historical financial statements and the related
notes thereto of GenCorp incorporated by reference into this proxy statement
from GenCorp's Annual Report on Form 10-K for the year ended November 30, 1998.
The unaudited pro forma condensed consolidated statements of income are not
necessarily indicative of the results that actually would have occurred if the
Distribution and sale of Penn had been consummated during those periods or of
the results which may be attained in the future.
47
<PAGE> 54
GENCORP UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED NOVEMBER 30, 1997
<TABLE>
<CAPTION>
DISCONTINUED OPERATIONS (1)
------------------------------------------------
OMNOVA ADDITIONS GENCORP
GENCORP SOLUTIONS(2) PENN(3) (DEDUCTIONS) SUBTOTAL RESTATED
------- ------------ ------- ------------ -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
NET SALES.............................. $ 1,568 $548 $67 $-- $615 $ 953
COSTS AND EXPENSES
Cost of products sold.................. 1,243 369 45 -- 414 829
Selling, general and administrative.... 147 106 19 (5)(4) 120 27
Depreciation........................... 56 15 2 -- 17 39
Interest expense....................... 16 4 -- -- 4 12
Other (income) expense, net............ (12) (3) (1) -- (4) (8)
------- ---- --- --- ---- -------
1,450 491 65 (5) 551 899
------- ---- --- --- ---- -------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES.................. 118 57 2 5 64 54
Income taxes (benefit)................. (19) 23 1 2(5) 26 (45)
------- ---- --- --- ---- -------
INCOME FROM CONTINUING OPERATIONS...... 137 $ 34 $ 1 $ 3 $ 38 99
==== === === ====
INCOME FROM DISCONTINUED OPERATIONS.... -- 38
------- -------
NET INCOME............................. $ 137 $ 137
======= =======
EARNINGS PER SHARE OF COMMON STOCK
Basic:
Continuing operations........... $ 3.71 $ 2.68
Discontinued operations......... -- 1.03
------- -------
Total........................ $ 3.71 $ 3.71
======= =======
Diluted:*
Continuing operations........... $ 3.40 $ 2.48
Discontinued operations......... -- .92
------- -------
Total........................ $ 3.40 $ 3.40
======= =======
WEIGHTED AVERAGE NUMBER OF SHARES (IN
THOUSANDS):
Basic............................. 37,023 37,023
Diluted........................... 41,362 41,362
</TABLE>
- ---------------
* Diluted earnings per share assumes the conversion of GenCorp's $115,000,000 8%
Convertible Subordinated Debentures Due August 1, 2002 (Debentures) as of the
beginning of the year. As a result, net income used in the calculation was
increased by $3 million which represents the after tax interest on the
Debentures prior to conversion in the second quarter of 1997.
See Notes to Unaudited Pro Forma Condensed Consolidated Statement of Income
for the Years Ended November 30, 1997 and 1996.
48
<PAGE> 55
GENCORP UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED NOVEMBER 30, 1996
<TABLE>
<CAPTION>
DISCONTINUED OPERATIONS (1)
------------------------------------------------
OMNOVA ADDITIONS GENCORP
GENCORP SOLUTIONS(2) PENN(3) (DEDUCTIONS) SUBTOTAL RESTATED
------- ------------ ------- ------------ -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
NET SALES............................. $ 1,515 $506 $68 $-- $574 $ 941
COSTS AND EXPENSES
Cost of products sold................. 1,200 329 46 -- 375 825
Selling, general and administrative... 143 97 19 (5)(4) 111 32
Depreciation.......................... 58 14 1 -- 15 43
Interest expense...................... 27 8 1 -- 9 18
Other (income) expense, net........... 3 1 -- -- 1 2
Unusual items......................... 42 (4) -- -- (4) 46
------- ---- --- --- ---- -------
1,473 445 67 (5) 507 966
------- ---- --- --- ---- -------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES................. 42 61 1 5 67 (25)
Income taxes (benefit)................ -- 24 -- 2(5) 26 (26)
------- ---- --- --- ---- -------
INCOME FROM CONTINUING OPERATIONS..... 42 $ 37 $ 1 $ 3 $ 41 1
==== === === ====
INCOME FROM DISCONTINUED OPERATIONS... -- 41
------- -------
NET INCOME............................ $ 42 $ 42
======= =======
EARNINGS PER SHARE OF COMMON STOCK
Basic:
Continuing operations.......... $ 1.25 $ .02
Discontinued operations........ -- 1.23
------- -------
Total....................... $ 1.25 $ 1.25
======= =======
Diluted:*
Continuing operations.......... $ 1.16 $ .15
Discontinued operations........ -- 1.01
------- -------
Total....................... $ 1.16 $ 1.16
======= =======
WEIGHTED AVERAGE NUMBER OF SHARES (IN
THOUSANDS):
Basic............................ 33,430 33,430
Diluted.......................... 40,729 40,729
</TABLE>
- ---------------
* Diluted earnings per share assumes the conversion of GenCorp's $115,000,000 8%
Convertible Subordinated Debentures Due August 1, 2002 (Debentures). As a
result, net income used in the calculation was increased by $5 million which
represents the after tax interest on the Debentures for the entire year.
See Notes to Unaudited Pro Forma Condensed Consolidated Statement of Income for
the Years Ended November 30, 1997 and 1996.
49
<PAGE> 56
GENCORP NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
FOR THE YEARS ENDED NOVEMBER 30, 1997 AND 1996
(1) The "Discontinued Operations" columns in the unaudited pro forma condensed
consolidated statement of income represent the historical results of
operations of the Omnova Solutions businesses, the Penn business plus the
effects of certain adjustments, which are reasonable in the opinion of
GenCorp's management, to properly present those results as discontinued
operations. The Omnova Solutions and Penn businesses represent the
historical Polymer Products business segment of GenCorp.
(2) To reclassify the historical results of operations of Omnova Solutions to
discontinued operations.
(3) To reclassify the historical results of operations of Penn, which was sold
on April 30, 1999, to discontinued operations.
(4) To adjust the historical results of Omnova Solutions for the allocated
general corporate expenses that will be retained by GenCorp when Omnova
Solutions is reported as a discontinued operation.
(5) To record the estimated income taxes related to the pro forma adjustment
referred to in note (4) above at an estimated combined U.S. federal and
state income tax rate of 40%.
50
<PAGE> 57
OMNOVA SOLUTIONS SELECTED HISTORICAL FINANCIAL DATA
The financial data as of November 30, 1998 and 1997 and for each of the
three years in the period ended November 1998, and as of and for the three
months ended February 28, 1998 and 1999 has been derived from the audited and
unaudited financial statements of Omnova Solutions contained in this proxy
statement. The other historical financial data is unaudited. The historical
financial statements of Omnova Solutions contained in this proxy statement are
presented as if Omnova Solutions was a separate entity for all periods
presented.
You should keep the following in mind when reviewing this data:
- Segment operating profit represents net sales less applicable costs,
expenses and provisions for restructuring and unusual items relating to
operations. Segment operating profit excludes corporate income and
expenses, provisions for nonoperating unusual items, interest expense and
income taxes.
- During fiscal 1994, Omnova Solutions recorded a charge of $23 million for
the cumulative effect of accounting changes for postretirement benefits
other than pensions and income taxes.
- During fiscal 1996, Omnova Solutions recorded unusual income of $4
million from the sale of the structural urethane adhesives business.
- During fiscal 1997, Omnova Solutions acquired Printworld. During fiscal
1998, Omnova Solutions acquired (1) the U.S. specialty chemicals business
of Sequa Chemicals, (2) the commercial wallcovering business of Walker
Greenbank PLC and (3) the Calhoun, Georgia latex facility of The Goodyear
Tire & Rubber Company. These acquisitions are reflected in the income
statement and balance sheet data beginning on the acquisition dates.
- During fiscal 1998, Omnova Solutions recorded unusual expense of $3
million pre-tax related to exiting the residential wallcovering business.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED NOVEMBER 30, ENDED FEB. 28,
-------------------------------- ---------------
1994 1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ---- ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.................................. $479 $525 $506 $548 $624 $134 $171
Segment operating profit................... 40 57 74 66 83 15 17
Income before cumulative effect of
accounting changes....................... 16 27 37 34 42 8 7
Cumulative effect of accounting changes.... (23) -- -- -- -- -- --
---- ---- ---- ---- ---- ---- ----
Net income (loss).......................... $ (7) $ 27 $ 37 $ 34 $ 42 $ 8 $ 7
==== ==== ==== ==== ==== ==== ====
BALANCE SHEET DATA (AT PERIOD END):
Total assets............................... $240 $226 $233 $277 $603 $266 $603
Long-term debt............................. -- -- -- -- -- -- --
Divisional equity.......................... 159 146 147 182 489 193 499
</TABLE>
51
<PAGE> 58
OMNOVA SOLUTIONS CAPITALIZATION
The following table sets forth the capitalization of Omnova Solutions at
February 28, 1999, the Omnova Solutions principal financial adjustments that
will result from the Distribution and the pro forma capitalization of Omnova
Solutions after giving effect to the Distribution. You should read this data in
conjunction with the historical financial statements and the unaudited pro forma
condensed financial statements of Omnova Solutions included elsewhere in this
proxy statement.
The pro forma adjustments reflect:
- The anticipated borrowing of approximately $188 million and the resulting
payment of a dividend to GenCorp in that amount. The actual amount to be
borrowed and paid to GenCorp will be determined immediately prior to the
Distribution.
- The $215 million effect of the Distribution on divisional equity
described in the Omnova Solutions Unaudited Pro Forma Condensed Combined
Balance Sheet as of February 28, 1999 included in this proxy statement.
<TABLE>
<CAPTION>
FEBRUARY 28, 1999
-------------------------------------
OMNOVA
OMNOVA PRO FORMA SOLUTIONS
SOLUTIONS ADJUSTMENTS PRO FORMA
--------- ----------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Notes payable............................................... $ 6 $ -- $ 6
Long-term debt.............................................. -- 188 188
---- ----- ----
Total debt.................................................. 6 188 194
Total divisional equity..................................... 499 (215) 284
---- ----- ----
TOTAL CAPITALIZATION........................................ $505 $ (27) $478
==== ===== ====
</TABLE>
52
<PAGE> 59
OMNOVA SOLUTIONS MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Since 1994, GenCorp's key strategy has been to become a more focused
company in fewer businesses. The businesses targeted were those with the
greatest potential to generate value from continuing improved performance and
expansion in existing markets, and through enhanced growth by entering
attractive new and related markets. On December 17, 1998, GenCorp announced its
plans to spin off its Performance Chemicals and Decorative & Building Products
businesses to GenCorp shareholders as a separate publicly traded polymer
products company (Omnova Solutions).
Omnova Solutions will operate two business segments, Performance Chemicals
and Decorative & Building Products. The Performance Chemicals unit manufactures
a broad range of emulsion polymers and specialty chemicals used as coatings,
binders, adhesives, and additives for paper, carpet, textile and various other
specialty chemical industries. Decorative & Building Products designs,
manufactures and markets a comprehensive line of polyvinyl chloride and
paper-based decorative and functional surface products including wallcovering,
coated fabrics and vinyl woodgrain and paper laminates for furniture,
construction, remodeling and other commercial applications, as well as membrane
systems for roofing.
Omnova Solutions' sales are affected by numerous factors. In the
Performance Chemicals business, the key sales drivers are the ability to create
custom polymer and specialty chemical solutions to enhance customer product
performance; domestic demand for coated paper; and trends in the carpet,
textile, and specialty markets. In the Decorative & Building Products business,
commercial wallcovering and building systems sales are driven by trends in
refurbishment of commercial office buildings, hotels, hospitals and schools and,
to a lesser degree, new construction cycles. Product design and styling are
important product differentiators in the commercial wallcovering business. Sales
trends in decorative laminates and coated fabrics typically move with general
economic trends, with slightly greater growth due to the business units' ability
to produce enhanced designs and styles to meet the needs of commercial and
residential furniture customers. Omnova Solutions is subject to volatility in
its operating costs arising from changes in the price of several key raw
materials including polyvinyl chloride, styrene and butadiene.
Omnova Solutions' annual sales have grown from $479 million in 1994 to $624
million in 1998. During the same period, Omnova Solutions' segment operating
profit doubled from $40 million to $83 million. Omnova Solutions' revenue growth
is due to both strategic acquisitions and growth in existing product lines. The
significant growth in segment operating profit was due to acquisitions,
operational improvement initiatives, aggressive cost containment and a general
shift toward higher margin products.
Recent strategic acquisitions of Performance Chemicals include the purchase
of the Lytron(R) polystyrene latex plastic pigment business in 1996, which
broadened offerings to the paper industry; the acquisition of The Goodyear Tire
& Rubber Company's Calhoun, Georgia latex facility in 1998, which provided new
manufacturing capacity, increased presence in the Southeastern U.S. and an
expanded customer base; and the acquisition of Sequa Chemical's U.S. specialty
chemicals business in 1998, which expanded existing emulsion polymer market
positions and provided entry into new related specialty chemical markets. In
fiscal 1999, Performance Chemicals acquired PolymerLatex's U.S. acrylics
business in Fitchburg, Massachusetts which strengthened and diversified markets
in acrylic emulsions and other specialty chemicals; and Morton International's
global latex floor care business, which provided a complementary product line
and customer base. In 1996, Performance Chemicals sold its structural urethane
adhesives business.
Recent strategic acquisitions of Decorative & Building Products include the
purchase of Printworld in 1997, which added paper laminates to its vinyl
laminate portfolio and provided entry into the transfer printing market for
furnishings and apparel; and the 1998 acquisition of Walker Greenbank's
U.K.-based commercial wall-covering business which provided two European
facilities and a platform from which to market other decorative and building
products. Also during 1998, Decorative & Building Products sold its residential
wallcovering business.
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<PAGE> 60
The combined financial statements of Omnova Solutions generally reflect the
financial position, results of operations and cash flows of the operations
expected to be transferred to Omnova Solutions in connection with the
Distribution. Accordingly, Omnova Solutions' combined financial statements have
been carved out from the consolidated financial statements of GenCorp using the
historical results of operations and historical basis of the assets and
liabilities of Omnova Solutions' businesses and the allocation methodology
described in Note A to Omnova Solutions' Combined Financial Statements. Omnova
Solutions will operate as two business segments, Performance Chemicals and
Decorative & Building Products. The combined financial statements of Omnova
Solutions do not include certain assets and liabilities which will be
transferred to Omnova Solutions in connection with the Distribution. See "Omnova
Solutions Unaudited Pro Forma Condensed Combined Financial Statements" and Note
A to Omnova Solutions' Combined Financial Statements. Management believes the
assumptions underlying Omnova Solutions' financial statements are reasonable.
RESULTS OF OPERATIONS FIRST THREE MONTHS FISCAL 1999 COMPARED TO 1998
Total sales increased for the first quarter of 1999 by 28% to $171 million
compared to $134 million in the first quarter of 1998. This increase mainly
relates to sales attributable to the 1998 acquisitions. Total segment operating
profit during the first quarter of 1999 improved 13% to $17 million versus $15
million in the first quarter of 1998. Net income was $7 million in the first
three months of fiscal 1999 compared to $8 million in the same period of 1998.
Net sales for Performance Chemicals increased for the first quarter of 1999
by 57% to $74 million compared to $47 million in the first quarter of 1998. The
increase reflects sales attributable to the 1998 acquisitions. Excluding the
effect of acquired businesses, volume was flat compared to 1998 while pricing
was down slightly. Segment operating profit during the first quarter of 1999
improved 20% to $6 million versus $5 million in the first quarter of 1998.
Segment operating profit margins declined to 8.1% in the first quarter of 1999
versus 10.6% in the 1998 first quarter. The decline is primarily due to lower
pricing and integration costs related to acquisition activity in the latter half
of 1998.
Sales for Decorative & Building Products increased for the first quarter of
1999 by 12% to $97 million compared to $87 million in the first quarter of 1998.
These increases were mainly related to the European wallcovering acquisition and
higher volumes in the building systems and decorative laminates businesses,
which more than offset the decline in sales resulting from the divestiture of
the residential wallcovering business. Segment operating profit during the first
quarter of 1999 improved 10% to $11 million versus $10 million in the first
quarter of 1998. Segment operating profit margins were comparable at 11.3% in
the first quarter of 1999 versus 11.5% for the first quarter of 1998.
During the quarter, Decorative & Building Products continued its
integration of the European wallcovering business. Synergies realized from the
1997 Printworld acquisition have led to significant sales growth in the
decorative laminates business from new coordinated paper and vinyl product
lines. Decorative & Building Products has also increased market share across all
of its building systems product lines.
Interest expense allocated from GenCorp increased to $5 million in the
first quarter of 1999 compared to $1 million in the first quarter of 1998. The
increase in interest expense relates to the increase in GenCorp's debt from
February 28, 1998 to February 28, 1999 due primarily to the fiscal 1998
acquisitions.
RESULTS OF OPERATIONS FISCAL 1998 COMPARED TO 1997
Total sales for Omnova Solutions increased $76 million, or 14%, to $624
million in 1998 from $548 million in 1997. Total segment operating profit,
excluding unusual items, in 1998 increased $20 million, or 30% to $86 million in
1998 from $66 million in 1997. Net income was $42 million in 1998 compared to
$34 million in 1997, a 24% increase.
Sales for Performance Chemicals increased $46 million, or 26%, to $226
million in 1998 from $180 million in 1997. The increase was attributable to the
recent acquisitions and volume growth in the existing product lines, partially
offset by a modest decline in pricing. Segment operating profit for Performance
Chemicals increased by $13 million, or 59%, to $35 million in 1998 from $22
million in 1997. The increase was also attributable to the
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<PAGE> 61
recent acquisitions and volume growth in the existing product lines. Operating
profit margins for Performance Chemicals increased to 15.5% in 1998 from 12.2%
in 1997, resulting primarily from lower raw material pricing in 1998.
Decorative & Building Products sales increased $30 million, or 8%, to $398
million in 1998 from $368 million in 1997. The increase was primarily
attributable to sales related to the commercial wallcovering business acquired
in 1998 and higher sales in the building systems, decorative laminates and
coated fabrics businesses. Segment operating profit, excluding unusual items,
increased by $7 million, or 16%, to $51 million in 1998 from $44 million in
1997. Segment operating profit margins for this segment increased to 12.8% in
1998 from 12.0% in 1997. These increases were related to the 1998 acquisition
and the strong performance of building systems, decorative laminates, heat
transfer and coated fabrics product lines.
Interest expense allocated from GenCorp increased to $8 million in 1998
compared to $4 million in 1997. The increase in interest expense relates to the
increase in GenCorp's debt during fiscal 1998 due primarily to the fiscal 1998
acquisitions.
As compared to 1998, other (income) expense was favorably impacted in
fiscal 1997 by the reimbursement of expenses related to an environmental
settlement. Omnova Solutions recognized unusual expense of $3 million in 1998
related to exiting the residential wallcovering business.
RESULTS OF OPERATIONS FISCAL 1997 COMPARED TO FISCAL 1996
Total sales for Omnova Solutions increased $42 million, or 8% in 1997 to
$548 million from $506 million in 1996. Total segment operating profit,
excluding unusual items, in 1997 decreased $4 million or 6% to $66 million in
1997 from $70 million in 1996. Net income was $34 million in 1997 compared to
$37 million in 1996, an 8% decrease.
Sales for Performance Chemicals increased 8% to $180 million in 1997 from
$166 million in 1996. The improvement was primarily due to volume increases
across paper coating and Lytron(R) product lines. Segment operating profit,
excluding unusual items, in 1997 was $22 million compared to $25 million in
1996. Segment operating profit margins declined to 12.2% from 15.1%. The
decrease was attributable to lower average selling prices and increased raw
material costs, which were consistent with the industry.
Decorative & Building Products sales increased 8% to $368 million in 1997
from $340 million in 1996. The improvement was primarily due to volume growth in
the commercial wallcovering and roofing product lines, and the acquisition of
Technographics Inc.'s Printworld business. This increase was partially offset by
sales declines in the residential wallcovering and plastic films businesses.
Segment operating profit in 1997 was $44 million compared to $45 million in
1996. Segment operating profit margins were 12.0% in 1997 compared to 13.2% in
1996. The decrease was attributable to increased raw material costs and start-up
costs related to new product offerings during fiscal 1997.
Interest expense allocated from GenCorp decreased to $4 million in 1997
compared to $8 million in 1996. The decrease in interest expense relates
primarily to the conversion of GenCorp's $115,000,000 8% Convertible
Subordinated Debentures Due August 1, 2002 into GenCorp common stock.
Other (income) expense was favorably impacted in fiscal 1997 by the
reimbursement of expenses related to an environmental settlement. There were no
unusual items in 1997 as compared to 1996 when Omnova Solutions recognized
unusual income of $4 million from the sale of the structural urethane adhesives
business.
FINANCIAL RESOURCES AND CAPITAL SPENDING
FIRST QUARTER 1999 AND 1998
Cash flow used in operating activities for the first three months of fiscal
1999 was $3 million as compared to zero in the first three months of 1998. The
cash flow used by operating activities primarily reflects a higher working
capital requirement.
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<PAGE> 62
For the first three months of 1999, $1 million was used for investing
activities, including the acquisition of the U.S. acrylics emulsion business of
PolymerLatex for $9 million, consisting of cash of $3 million and a note for $6
million, and capital expenditures of $7 million, offset by proceeds of $9
million from the sale of the residential wallcovering business. This is compared
to $3 million used for investing activities in the first three months of 1998,
which was for capital expenditures.
FISCAL 1998, 1997, AND 1996
Cash flow provided by operating activities for fiscal 1998 was $52 million
compared to $57 million in 1997 and $51 million in 1996. Working capital
requirements for Omnova Solutions have remained relatively constant from
year-to-year.
In fiscal 1998, $312 million was used for investing activities including
$294 million for acquisitions and capital expenditures of $18 million. The
acquisitions included Sequa Corporation's specialty chemicals unit for $108
million, Walker Greenbank's commercial wallcovering business for $112 million
and The Goodyear Tire & Rubber Company's Calhoun, Georgia latex facility for $74
million. This is compared to $58 million used for investing activities in fiscal
1997, which included the acquisition of Technographics, Inc.'s Printworld
business for $47 million and capital expenditures of $11 million. Cash flow used
in investing activities during fiscal 1996 was $15 million, which included the
acquisition of Morton International's Lytron(R) business for $4 million and
capital expenditures of $15 million, offset by $4 million of proceeds received
from the sale of the structural urethane adhesives business.
Cash flow provided by financing activities in fiscal 1998 was $264 million
compared to $1 million in 1997 and cash flow used of $36 million in 1996. The
increase in net transactions with GenCorp during fiscal 1998 was primarily due
to cash required by Omnova Solutions for its fiscal 1998 acquisitions.
CAPITAL SPENDING
Capital expenditures were made and are planned principally for capacity
expansion and asset replacement, cost reduction, safety and productivity
improvements and environmental protection. Capital expenditures totaled $7
million for the first three months of fiscal 1999, and $18 million in 1998, $11
million in 1997 and $15 million in 1996. Omnova Solutions' total capital
expenditures in 1999 are currently projected to be approximately $53 million.
Planned expenditures for 1999 increased significantly due to $10 million of
planned equipment upgrades and additions in Decorative & Building Products; $8
million planned for Performance Chemicals' capacity expansion and renovation of
its pilot plant; and $12 million for planned improvements to recently acquired
businesses including Sequa Chemicals and Walker Greenbank's commercial
wallcovering business. Management of Omnova Solutions plans to fund these
capital expenditures from cash flow from operations and, if necessary, from
borrowings under its new credit facility.
Based upon current and anticipated levels of operations and plans for
integrating recent acquisitions, Omnova Solutions believes that its cash flow
from operations, combined with borrowings that will be available under its new
credit facility will be sufficient to enable Omnova Solutions to meet its
current and anticipated cash operating requirements, including scheduled
interest and principal payments, capital expenditures and working capital needs
for the next 12 months. However, actual capital requirements may change,
particularly as a result of any acquisitions which Omnova Solutions may make.
The ability of Omnova Solutions to meet its current and anticipated operating
requirements will be dependent upon the future performance of Omnova Solutions
which, in turn, will be subject to general economic conditions and to financial,
business and other factors, including factors beyond Omnova Solutions' control.
Depending on the nature, size and timing of future acquisitions, the Company may
be required to raise additional financing. There can be no assurances that
additional financing will be available to Omnova Solutions on acceptable terms.
In addition, the tax rules related to the Distribution may limit Omnova
Solutions' ability for a period of time to fund acquisitions through the
issuance of equity securities. Substantially all of the debt of Omnova Solutions
will bear interest at variable rates; therefore, its liquidity and financial
condition is and will continue to be affected by changes in prevailing interest
rates.
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<PAGE> 63
ENVIRONMENTAL MATTERS
Omnova Solutions' policy is to conduct its businesses with due regard for
the preservation and protection of the environment. Omnova Solutions devotes
resources and management attention to environmental matters and actively manages
its ongoing processes to comply with extensive environmental laws and
regulations.
Capital expenditures for projects related to the environment were
approximately $1 million in each of 1998, 1997 and 1996. Omnova Solutions
currently forecasts that capital expenditures for environmental projects will
approximate $2 million in each of 1999 and 2000. During 1998, noncapital
expenditures for environmental compliance and protection totaled $4 million all
of which were for recurring costs associated with managing hazardous substances
and pollution abatement in ongoing operations. Similar noncapital expenditures
were $3 million in each of 1997 and 1996. It is presently expected that
noncapital environmental expenditures for the next several years will be
consistent with historical expenditure levels.
Management believes, on the basis of presently available information, that
resolution of environmental matters will not materially affect future results of
operation, liquidity, capital resources or the consolidated financial condition
of Omnova Solutions. See "Risk Factors."
INFORMATION SYSTEMS AND THE YEAR 2000
Omnova Solutions is currently engaged in a comprehensive project to upgrade
its information, technology, manufacturing and facilities computer hardware and
software programs to address the Year 2000 issue at its domestic and
international businesses. Many of Omnova Solutions' systems include new hardware
and updated software packages purchased from established vendors who have
represented that these systems are Year 2000 ready. Omnova Solutions does not
have large centralized systems, a factor which Omnova Solutions believes reduces
the risk of a single point of failure having wide-spread impact on Omnova
Solutions.
As part of this project, Omnova Solutions has formally communicated with
all of its significant suppliers, vendors and large customers to determine the
extent to which Omnova Solutions is vulnerable to those parties' failures to
correct their own Year 2000 issues. As of February 28, 1999, Omnova Solutions
has received approximately 75% of the responses, and those responses generally
indicate that these parties will be Year 2000 ready.
Omnova Solutions has completed an inventory and assessment of its
information technology systems. Both internal and external resources are being
utilized to test Omnova Solutions' software for Year 2000 readiness and, where
necessary, the systems are being remediated through upgrading, replacement or
reprogramming. Also, Omnova Solutions has completed an inventory and assessment
of its non-information technology (embedded) systems, prioritizing the impact of
each of these systems on Omnova Solutions' ability to conduct its operations
and, as necessary, obtaining vendor verification and/or remediation of those
systems. The process of analyzing, prioritizing, remediating and testing will be
an iterative process until all critical systems are Year 2000 ready.
The estimated cost for this project is projected to range between $3
million and $5 million, which is being funded through operating cash flows.
Omnova Solutions has spent approximately $1 million as of February 28, 1999 on
this project, most of which has been for internal remediation efforts and
expects to spend a significant amount of the remaining budget in the second and
third quarter of 1999. Excluding recent acquisitions, Omnova Solutions believes
that approximately 70% of its systems are Year 2000 ready as of February 28,
1999 and the remaining systems will be Year 2000 ready by mid-year 1999. Recent
acquisitions are targeted for completion by the end of the third quarter of
1999.
Based upon currently available information and considering Omnova
Solutions' decentralized systems and Year 2000 efforts, management believes that
the most reasonably likely worst case scenario could result in minor short-term
business interruptions. Omnova Solutions is preparing contingency plans which
include alternative sourcing to minimize any disruptions to its businesses
resulting from a vendor or supplier not being Year 2000 ready. However, failure
by Omnova Solutions and/or vendors and customers to complete Year 2000 readiness
work in a timely manner could have a material adverse effect on certain of
Omnova Solutions' operations.
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Omnova Solutions' exposure could increase or its timetable for Year 2000
readiness could be delayed as a result of any new acquisitions.
ADOPTION OF THE EURO
Based upon a preliminary evaluation, management believes that the adoption
of the Euro by the European Economic Community will not have a material impact
on Omnova Solutions' international businesses. Omnova Solutions' foreign
operations currently are small and each operation conducts the majority of its
business in a single currency with minimal price variations between countries.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Although Omnova Solutions conducts business in foreign countries,
international operations were not material to Omnova Solutions' consolidated
financial position, results of operations or cash flows as of February 28, 1999.
Additionally, foreign currency transaction gains and losses were not material to
Omnova Solutions' results of operations for the three months ended February 28,
1999. While international operations have not been significant in the past,
Omnova Solutions could be subject to material foreign currency exchange rate
risk with respect to future operations and cash flows due to Omnova Solutions'
acquisition of the European wallcovering business in late 1998. To date, Omnova
Solutions has not entered into any significant foreign currency forward exchange
contracts or other derivative financial instruments to hedge the effects of
adverse fluctuations in foreign currency exchange rates. Omnova Solutions is
evaluating the future use of these financial instruments.
NEW ACCOUNTING PRONOUNCEMENTS
Omnova Solutions adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (SFAS 130), as of December 1, 1998, which
established standards for reporting and displaying comprehensive income and its
components in the financial statements. The adoption of SFAS 130, which had no
impact on Omnova Solutions' net income or divisional equity, requires
translation adjustments to be included in other comprehensive income.
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (SFAS 131). This statement is required to be adopted in fiscal year
1999. SFAS 131 requires that annual and interim financial and descriptive
information about reportable operating segments be reported on the same basis
used internally for evaluating segment performance and the allocation of
resources. While Omnova Solutions has not yet determined the impact of adopting
SFAS 131 on its financial statement disclosures, Omnova Solutions does not
expect any change to its primary financial statements.
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which is required to be adopted in fiscal
year 2001. Because of Omnova Solutions' minimal use of derivatives, management
does not anticipate that the adoption of this Statement will have a significant
effect on earnings or the financial position of Omnova Solutions.
In April 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-5, "Reporting the Costs of
Start-up Activities" (SOP 98-5). SOP 98-5 is effective for Omnova Solutions
beginning on December 1, 1999, and requires that start-up costs capitalized
prior to December 1, 1999 be written off and any future start-up costs be
expensed as incurred. Omnova Solutions has no capitalized start-up costs;
therefore the adoption of SOP 98-5 will not have an effect on the combined
financial statements.
In March 1998, the AICPA issued SOP 98-1, "Accounting For the Costs of
Computer Software Developed For or Obtained For Internal Use" (SOP 98-1). SOP
98-1 is effective for Omnova Solutions beginning on December 1, 1999. SOP 98-1
will require the capitalization of certain costs incurred after the date of
adoption in connection with developing or obtaining software for internal use.
Omnova Solutions believes it is in compliance with the standards established by
SOP 98-1 and that its implementation will not impact Omnova Solutions' future
earnings or financial position.
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FORWARD-LOOKING STATEMENTS
This proxy statement contains forward-looking statements as defined by the
Private Securities Litigation Reform Act of 1995. These statements present
(without limitation) the expectations, beliefs, plans and objectives of
management and future financial performance and/or assumptions underlying or
judgments concerning matters discussed in this document. These discussions and
any other discussions contained in this proxy statement, except to the extent
that they contain historical facts, are forward-looking and accordingly involve
estimates, assumptions, judgments and uncertainties; in particular, this
pertains to management's comments on financial resources, capital spending and
the outlook for each of Omnova Solutions' business segments. The outcomes of
forward-looking statements and material contingencies could differ materially
from those discussed due to inherent economic risks and changes in prevailing
governmental policies and regulatory actions. In addition to certain contingency
matters and their respective cautionary statements discussed elsewhere in this
proxy statement, the Forward-Looking Statements section of this Management's
Discussion and Analysis indicates some important factors that could cause actual
results or outcomes to differ materially from those addressed in the
forward-looking statements.
Some important factors that could cause Omnova Solutions' actual results or
outcomes to differ from those expressed in its forward-looking statements
include, but are not limited to, the following:
- General economic trends affecting Omnova Solutions' markets
- Governmental and regulatory policies including environmental regulations
- Omnova Solutions' acquisition activities
- Raw material prices for chemical feed stocks including polyvinyl
chloride, styrene and butadiene
- The ability of Omnova Solutions and its customers and vendors to
successfully modify and convert their systems to be Year 2000 ready
- Fluctuations in exchange rates of foreign currencies and other risks
associated with foreign operations
Additional risk factors may be described from time to time in Omnova
Solutions' filings with the Securities and Exchange Commission. All of these
risk factors are difficult to predict, contain material uncertainties that may
affect actual results and may be beyond Omnova Solutions' control.
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OMNOVA SOLUTIONS UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined balance sheet as of
February 28, 1999 and the unaudited pro forma condensed statements of combined
income for the three months ended February 28, 1999 and for the year ended
November 30, 1998 give effect to Omnova Solutions as a stand-alone entity. The
pro forma condensed combined balance sheet is presented as if the Distribution
had occurred on February 28, 1999, and the pro forma condensed statements of
combined income are presented as if the Distribution and the 1998 acquisitions
had occurred as of the beginning of the periods presented. These pro forma
combined financial statements reflect the anticipated borrowing by Omnova
Solutions of approximately $188 million and the payment of the borrowings by
Omnova Solutions to GenCorp in the form of a dividend. The actual amount to be
borrowed by Omnova Solutions and paid as a dividend to GenCorp will be
determined at the time of the Distribution. The actual amount will depend, in
part, on the amount of borrowings by GenCorp at that time. GenCorp's borrowings
fluctuate throughout its fiscal year. The pro forma information is presented for
illustrative purposes only and is not necessarily indicative of the results that
would have been obtained had the transactions actually occurred on the dates
assumed, nor is it necessarily indicative of the future combined results of
operations.
The pro forma condensed combined financial statements should be read in
conjunction with the historical combined financial statements and the related
notes thereto of Omnova Solutions included in this proxy statement.
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OMNOVA SOLUTIONS UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
FEBRUARY 28, 1999
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ------------------------
OMNOVA OMNOVA
SOLUTIONS ADJUSTMENTS SOLUTIONS
---------- ----------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
ASSETS:
CURRENT ASSETS
Cash and cash equivalents................................... $ 3 $ 3
Accounts receivable, net.................................... 102 102
Inventories................................................. 58 58
Deferred income taxes....................................... 9 9
Prepaid expenses and other.................................. 3 3
---- ----
TOTAL CURRENT ASSETS........................................ 175 175
Prepaid pension............................................. $ 35(1) 35
Property, plant and equipment, net.......................... 194 13(2) 207
Goodwill, net............................................... 155 155
Patents and other intangible assets, net.................... 76 76
Other assets................................................ 3 3
---- ----- ----
TOTAL ASSETS................................................ $603 $ 48 $651
==== ===== ====
LIABILITIES AND DIVISIONAL EQUITY:
CURRENT LIABILITIES
Notes payable............................................... $ 6 $ 6
Accounts payable............................................ 57 57
Accrued payroll and personal property taxes................. 9 9
Other current liabilities................................... 6 $ 3(1) 25
16(2)
---- ----- ----
TOTAL CURRENT LIABILITIES................................... 78 19 97
Long-term debt.............................................. 188(3) 188
Postretirement benefits other than pensions................. 43(1) 43
Deferred income taxes....................................... 17 (5)(1) 14
2(2)
Other liabilities........................................... 9 16(2) 25
---- ----- ----
TOTAL LIABILITIES........................................... 104 263 367
DIVISIONAL EQUITY........................................... 499 (215)(4) 284
---- ----- ----
TOTAL LIABILITIES AND DIVISIONAL EQUITY..................... $603 $ 48 $651
==== ===== ====
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Balance Sheet as of February
28, 1999.
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<PAGE> 68
OMNOVA SOLUTIONS NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
FEBRUARY 28, 1999
(1) To record the transfer of net pension assets and retiree medical obligations
and related deferred income taxes from GenCorp to Omnova Solutions. The
estimated prepaid pension asset is attributable to the excess of pension
assets over liabilities related to Omnova Solutions employees and retirees.
The projected prepaid pension asset of $35 million and retiree medical
benefit obligations of $46 million were actuarially determined based on
Omnova Solutions' active and retired participants in the plans and the
actuarial assumptions used were consistent with assumptions previously used
by GenCorp. The pension assets were split based on the requirements of
Section 414(i) of the Internal Revenue Code as prescribed by the Pension
Benefit Guaranty Corporation and other management considerations.
(2) To record the transfer of certain property, plant and equipment, primarily
GenCorp's corporate headquarters, related liabilities and deferred taxes
from GenCorp.
(3) Reflects the anticipated borrowing by Omnova Solutions of approximately $188
million. The proceeds from the borrowing will be used to pay a dividend to
GenCorp.
(4) To record the effect on divisional equity of the pro forma adjustments
referred to in notes (1), (2) and (3) above.
<TABLE>
<CAPTION>
(Dollars in millions)
<S> <C>
Transfer of prepaid pension(1)...................... $ 35
Transfer of postretirement benefits other than
pensions(1)....................................... (46)
Transfer of certain property, plant and equipment
and related liabilities(2)........................ (19)
Deferred income taxes related to (1) and (2)........ 3
Payment of dividend to GenCorp(3)................... (188)
-----
$(215)
=====
</TABLE>
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OMNOVA SOLUTIONS
UNAUDITED PRO FORMA CONDENSED STATEMENT OF COMBINED INCOME
THREE MONTHS ENDED FEBRUARY 28, 1999
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ----------------------------
OMNOVA OMNOVA
SOLUTIONS ADJUSTMENTS SOLUTIONS
------------ ------------- -----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
NET SALES................................................ $171 $ -- $ 171
COSTS AND EXPENSES
Cost of products sold.................................... 111 (2)(1) 109
Selling, general and administrative...................... 37 (1)(1) 38
2(2)
Depreciation............................................. 5 -- 5
Interest expense......................................... 5 (2)(3) 3
Other (income) expense, net.............................. 2 -- 2
---- ------ -------
160 (3) 157
---- ------ -------
INCOME BEFORE INCOME TAXES............................... 11 3 14
Income taxes............................................. 4 1(4) 5
---- ------ -------
NET INCOME............................................... $ 7 $ 2 $ 9
==== ====== =======
PRO FORMA NET INCOME PER SHARE:
Basic.................................................. $ .22(6)
Diluted................................................ $ .21(6)
WEIGHTED AVERAGE NUMBER OF SHARES (IN THOUSANDS):
Basic.................................................. 41,582
Diluted................................................ 42,034
</TABLE>
See Notes to Unaudited Pro Forma Condensed Statement of Combined Income
for the Three Months Ended February 28, 1999 and for the Year Ended November 30,
1998.
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<PAGE> 70
OMNOVA SOLUTIONS
UNAUDITED PRO FORMA CONDENSED STATEMENT OF COMBINED INCOME
YEAR ENDED NOVEMBER 30, 1998
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL -------------------------------------------
OMNOVA OMNOVA
SOLUTIONS ADJUSTMENTS ACQUISITIONS(5) SOLUTIONS
---------- ----------- --------------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
NET SALES.................................. $624 $ -- $142 $ 766
COSTS AND EXPENSES
Cost of products sold...................... 407 (4)(1) 87 490
Selling, general and administrative........ 117 (4)(1) 36 158
9(2)
Depreciation............................... 18 1(2) 7 26
Interest expense........................... 8 3(3) -- 11
Other (income) expense, net................ 1 -- -- 1
Unusual items.............................. 3 -- -- 3
---- ------ ---- -------
554 5 130 689
---- ------ ---- -------
INCOME BEFORE INCOME TAXES................. 70 (5) 12 77
Income taxes (benefit)..................... 28 (2)(4) 5 31
---- ------ ---- -------
NET INCOME................................. $ 42 $ (3) $ 7 $ 46
==== ====== ==== =======
PRO FORMA NET INCOME PER SHARE:
Basic.................................... $ 1.11(6)
Diluted.................................. $ 1.09(6)
WEIGHTED AVERAGE NUMBER OF SHARES
(IN THOUSANDS):
Basic.................................... 41,468
Diluted.................................. 42,039
</TABLE>
See Notes to Unaudited Pro Forma Condensed Statement of Combined Income
for the Three Months Ended February 28, 1999 and for the Year Ended November 30,
1998.
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OMNOVA SOLUTIONS NOTES TO UNAUDITED PRO FORMA
CONDENSED STATEMENTS OF COMBINED INCOME
FOR THE THREE MONTHS ENDED FEBRUARY 28, 1999 AND FOR THE YEAR ENDED NOVEMBER 30,
1998
(1) To record the decrease in pension expense attributable to the transfer of a
portion of the excess of the defined benefit pension plans' assets over the
related obligations for Omnova Solutions employees and retirees.
(2) To transfer corporate costs that will be assumed by Omnova Solutions as a
result of the Distribution. This adjustment also includes the cost
associated with the corporate assets and liabilities transferred from
GenCorp. After the Distribution, these costs will no longer be incurred by
New GenCorp. These costs, along with the general and administrative costs
already allocated to Omnova Solutions in its historical combined financial
statements total approximately $22 million in 1998, which management
believes are representative of the annual general and administrative costs
on a stand alone basis.
(3) To adjust interest expense to the amount computed based on the anticipated
borrowing of $188 million as a result of the Distribution. The interest rate
was 5.6% and 5.8% for the three months ended February 28, 1999 and for the
year ended November 30, 1998, respectively. The interest rate was primarily
based on LIBOR plus a margin as specified in GenCorp's credit agreement. A
quarter point change in the interest rate would result in a $.2 million and
a $.5 million change in interest expense for the three months ended February
28, 1999 and for the year ended November 30, 1998, respectively.
(4) To record the estimated income taxes related to the pro forma adjustments
referred to in notes (1), (2) and (3) above at an estimated combined U.S.
federal and state income tax rate of 40%.
(5) Represents the results of operations of the 1998 acquisitions from the
beginning of fiscal year 1998 through the dates of acquisition with
adjustments to reflect the amortization of goodwill and other intangible
amounts together with the related income tax effects at a 40% rate.
(6) The pro forma earnings per share were calculated based on a one for one
share distribution and equivalent stock options being granted to holders of
GenCorp stock options.
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BUSINESS OF NEW GENCORP
Following the Distribution, New GenCorp will consist of Aerojet's aerospace
and defense business, GenCorp's fine chemicals business, and GenCorp's
automotive Vehicle Sealing business. New GenCorp had pro forma revenues of
approximately $1 billion for the fiscal year ended November 30, 1998.
Information regarding revenues, segment operating profit and total assets of the
aerospace and defense segment and the automotive segment is contained in
GenCorp's Annual Report on Form 10-K for the fiscal year ended November 30,
1998.
New GenCorp's largest business, Aerojet, was founded in 1942 by Dr.
Theodore Von Karman and initially produced Jet Assisted Take Off (JATO) rockets
for military aircraft. General Tire & Rubber, GenCorp's predecessor, became
Aerojet's major investor. In the 1950's and 1960's, Aerojet expanded its product
line to include ballistic missile launch vehicles and spacecraft propulsion.
Since the 1960's, Aerojet has broadened its product line significantly to
include satellite payloads, ground systems and weapon systems. GenCorp has also
expanded its product line to include fine chemicals. The Vehicle Sealing group
traces its origins to the manufacture of automotive window channels by General
Tire & Rubber in the 1940's. In 1993, Vehicle Sealing acquired a minority
interest in Henniges, a German vehicle sealing manufacturer, and in 1994,
increased its ownership interest to 100%. This acquisition bolstered Vehicle
Sealing's product line and technological capabilities, and provided a geographic
diversification into the European markets.
New GenCorp had approximately 7,300 employees at May 31, 1999 at offices,
plants and other facilities located principally in North America and Europe.
New GenCorp's principal executive offices will be located at Highway 50 and
Aerojet Road, Rancho Cordova, California 95670. Its telephone number at that
address will be (916) 355-4000.
GENERAL
Aerojet plays a leading role in the development and production of space
electronics and smart munitions, as well as solid and liquid rocket propulsion
systems and related defense products and services. Fine Chemicals supplies
special intermediates and bulk pharmaceutical chemicals primarily to commercial
customers. The Vehicle Sealing group is a leading automotive supplier, engaged
in the development, manufacture, and sale of highly engineered extruded and
molded rubber sealing systems for vehicle bodies and windows for the automotive
original equipment manufacturers.
GenCorp's 1998 revenues included $635 million attributable to Aerojet, $38
million attributable to Fine Chemicals, and $366 million attributable to Vehicle
Sealing, excluding the plastic extrusions division, which was sold on June 30,
1998.
PRODUCTS AND SERVICES
AEROSPACE AND DEFENSE/FINE CHEMICALS
Satellite Payloads and Electronics
Aerojet is a leading provider of advanced satellite payloads used in remote
sensing applications. In addition, Aerojet provides ground system hardware as
well as sophisticated data fusion/processing algorithms, which support the
overall satellite system. Specific technical expertise involves systems
integration, infrared and millimeter wave sensors, space flight qualified
hardware, sensor signal processing, ground processing, data fusion, algorithm
development, and background signature analysis. Management believes that
Aerojet's detailed understanding of and responsiveness to customer requirements
and its ability to support both the ground and space sides of a complex "system
of systems" provides important competitive advantages in the remote sensing
marketplace.
Aerojet's major products/contracts include the Space-Based Infrared Systems
(SBIRS) High program, Defense Support Program (DSP), Joint Tactical Ground
Station (JTAGS), Special Sensor Microwave Imager/ Sounder (SSMIS), and Advanced
Microwave Sounding Units (AMSU) as well as various classified programs. Although
the business has traditionally focused on customers in the government sector,
future growth in space-based remote sensing is expected in the commercial
segment.
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Space and Strategic Rocket Propulsion
Aerojet is a leading producer of both liquid and solid rockets, serving
launch vehicle manufacturing customers across a wide range of applications.
Aerojet's product portfolio includes large liquid rocket booster engines for
both expendable and reusable launch vehicles, upper-stage engines as well as
complete upper-stages, thrusters for satellite applications, large solid rocket
motors, and integrated propulsion subsystems.
Major programs include the newly awarded Atlas V Solid Rocket Motor (SRM),
Titan first and second stage liquid engines, Delta II upper stage,
X-33/VentureStar orbital maneuvering system, all propulsion systems on the
Kistler Reusable Launch Vehicle (RLV) and the Mark VI Attitude Control system.
The new Atlas V contract is expected to exceed $500 million in revenues over the
next ten years.
Future growth is forecasted primarily in the commercial launch segment. New
launch vehicle programs utilize various technologies including solid rocket
motors and liquid rocket engines. Aerojet has capabilities spanning the breadth
of these technologies and has current programs for both reusable and expendable
launch vehicles.
Tactical Weapons
Aerojet's tactical weapons business focuses on offering advanced, high
value-added, sub-system solutions, rather than more commodity-like missile
components. This leverages Aerojet's strength in technology and engineering
excellence, and also is consistent with the major trends in weapon system
requirements toward precision, reduced collateral damage, and "smart"
technologies. Sensor technologies including advanced software technologies
derived from remote sensing has enabled Aerojet to compete in the "smart
weapons" market through its Sense and Destroy Armor (SADARM) product offering.
In addition, significant experience in solid rocket motors and related energetic
materials chemistry supports Aerojet's position in missile propulsion and
advanced missile warheads.
Aerojet's largest tactical weapons programs include the SADARM product
offering, the Homing All the Way to Kill (HAWK) solid rocket motor, Tube
Launched Optically Tracked Wire Guided (TOW) missile warheads, Conventional Air
Launched Cruise Missile (CALCM) warheads, Joint Stand Off Weapon (JSOW) sub-
munitions, Multi-Purpose Infantry Munitions/Short Range Assault Weapon
(MPIM/SRAW) and Predator warheads, and the Standard Missile II Block IV dome
cooling.
In 1999, Aerojet was also awarded the Divert and Control System for the
Raytheon Exo-atmospheric Kill Vehicle (EKV DACS) and also the Attitude Control
System for the National Missile Defense missile. These contract awards are
reflective of Aerojet's investment in building technologically differentiated
positions in high value-added missile sub-systems related to propulsion and
control.
Fine Chemicals
Fine Chemicals produces difficult to manufacture regulated chemicals for
major pharmaceutical manufacturers with a special emphasis on chemicals directed
to therapeutic areas such as oncological, anti-viral and anti-inflammatory
(COX-2) applications. This commercially and operationally separate business
sector leverages key technologies developed and refined by Aerojet through years
of defense contracting. Management believes that Fine Chemicals' success in this
high growth market is derived from its distinctive competencies in handling high
energy and toxic chemicals, implementing commercial standards and practices and
operating under common Good Manufacturing Practices (cGMP).
Fine Chemicals' markets are experiencing high growth due in part to the
trend in the pharmaceuticals industry toward greater outsourcing of the
development and manufacture of pharmaceutical chemicals. Further, major
pharmaceutical companies are increasingly relying upon suppliers, like Fine
Chemicals, that possess more integrated capabilities and are able to scale-up
and rapidly respond to delivery requirements.
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VEHICLE SEALING
The Vehicle Sealing business designs, manufactures and markets highly
engineered extruded and molded rubber and plastic products for automotive
original equipment manufacturers. These products are designed to prevent
moisture, air and noise from penetrating windows, doors and other vehicle
openings. North American operations primarily produce extruded rubber profiles
consisting of a roll-formed steel wire or steel frame surrounded by extruded
rubber which is cured, cut and molded to meet customer specifications. This
business supplies products to the North American automotive assemblers for use
in a wide variety of vehicles including the Ford F-150, Explorer and Ranger; the
General Motors C/K truck, Grand Am, Saturn Z and LS, the Honda Accord and the
DaimlerChrysler All-Activity Vehicle. The European-based Henniges operations
design and produce vehicle sealing systems, encapsulated glass, and molded
rubber parts, specializing in products which dampen and isolate vibrations,
reduce noise and generally seal automotive components. This business unit
supplies components to major European automotive original equipment
manufacturers, including Volkswagen/Audi, Opel, BMW and DaimlerChrysler.
BUSINESS STRATEGY
AEROSPACE AND DEFENSE/FINE CHEMICALS
DRIVE INTERNAL GROWTH. Aerojet will leverage its core competencies to
compete for and secure new program awards in its existing markets. These core
competencies lie in the design, development and manufacturing of satellite
sensor payloads, ground systems, software engineering, liquid and solid rocket
propulsion, advanced missile propulsive control and missile warheads, and high
energy chemicals. Recent examples of new programs awarded to Aerojet include the
Atlas V Solid Rocket Motor, in the propulsion business, and the Space-Based
Infrared Systems (SBIRS) High program, in the satellite payloads and electronics
business. Aerojet management believes that there are substantial market
opportunities to receive new program awards and that Aerojet is well positioned
to exploit these opportunities.
EXPAND LEADERSHIP IN SPACE ELECTRONICS. Aerojet will place special focus on
growing its position in the space electronics market. Aerojet is among a select
group of companies capable of providing advanced satellite payloads as well as a
broad understanding of total system requirements and architecture. Aerojet plans
to fully exploit its breadth of capabilities, customer relationships, and
competitive advantages in space electronics to drive growth.
PURSUE OPPORTUNITIES IN COMMERCIAL SPACE. Both long-term and short-term,
Aerojet believes that the commercial space market is poised for significant
growth. While Aerojet participates in this market primarily through its launch
vehicle propulsion programs such as the Atlas V SRM and the Kistler RLV,
Aerojet's strategy is to expand its commercial space position to addressable
segments of the satellite market, including remote sensing.
GROW AND ENHANCE VALUE OF FINE CHEMICALS. New GenCorp plans to build the
total quality infrastructure, capabilities and capacity necessary to become an
agile, fully integrated and value-added supplier to leading pharmaceutical
companies. The fine chemicals industry is expected to grow rapidly as leading
pharmaceutical companies increasingly outsource the manufacture of high energy
and toxic chemicals. New GenCorp plans to leverage its expertise in high energy
and toxic chemicals, as well as its rapid scale-up and manufacturing
capabilities to continue to aggressively grow the fine chemicals business.
IMPROVE PROFITABILITY THROUGH OPERATIONAL EXCELLENCE. Aerojet has
implemented a comprehensive set of productivity improvement programs in close
coordination with its key customers and suppliers. In order to increase profit
margins and cost competitiveness, Aerojet will continue to pursue operational
improvement activities such as Six Sigma, Cycle Time Improvement, Lean and Agile
Manufacturing, Strategic Sourcing and Supply Chain Management. Improving
Aerojet's efficiency and cost structure will remain a major strategic priority.
PURSUE GROWTH THROUGH STRATEGIC MERGERS & ACQUISITIONS. Aerojet plans to
pursue mergers, acquisitions and partnerships that enhance its business position
and market share. Management believes the continued
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consolidation of the aerospace/defense industry will create opportunities for
Aerojet to increase its engineering capabilities, technological base and
manufacturing scale which will in turn better position Aerojet to receive future
contract awards. Aerojet is currently evaluating a range of transactions and
partnership opportunities in all of its businesses.
VEHICLE SEALING
LEVERAGE DESIGN CAPABILITIES. Vehicle Sealing is one of the few suppliers
who can design and produce a "full system" of vehicle sealing products. The
business works closely with customers to produce highly customized products to
better suit customers' needs. With three engineering design centers and 100
professionals in the design group, Vehicle Sealing has substantial design
capability, which increases customer loyalty.
AGGRESSIVELY PURSUE INTERNATIONAL OPPORTUNITIES. Recently, many foreign
automotive original equipment manufacturers have begun to open manufacturing
operations in North and South America. The Vehicle Sealing group is actively
pursuing new business with these customers. Due to the presence of the Henniges
operations in Europe, many of these suppliers are also familiar with the North
American operations. This provides a growth opportunity as production shifts
from Europe to the Americas. In addition, Vehicle Sealing is pursuing
international strategic alliances in an effort to support the global expansion
of its major domestic customers.
CONTINUOUSLY IMPROVE COST STRUCTURE AND MANUFACTURING EFFICIENCY. Vehicle
Sealing has undertaken a significant program to reduce costs and improve
manufacturing processes in all of its facilities. New mixing and extrusion
equipment will increase capacity and reduce scrap losses. Coupled with an
aggressive focus on high quality engineering, Vehicle Sealing aims to reduce
costs while improving quality and manufacturing efficiencies.
MARKETS AND CUSTOMERS
Aerojet's largest customer, Lockheed Martin Corporation, accounts for
approximately 25-30% of Aerojet's total sales, spread across several of Lockheed
Martin's businesses. This situation is reflective of consolidation in the
aerospace/defense industry and the emergence of a small number of very large
prime contractors. Lockheed Martin is one of the world's largest
aerospace/defense companies. Aerojet has cultivated a mutually beneficial
relationship with Lockheed Martin that has resulted in recent major new contract
awards including the Atlas V Solid Rocket Motor.
No other single customer accounts for more than 10% of Aerojet's total
sales, with the remaining base distributed among a variety of corporate and
government customers. Aerojet's list of customers includes:
<TABLE>
<S> <C>
Lockheed Martin Kistler Aerospace
Boeing U.S. Army
Raytheon U.S. Air Force
TRW NASA
</TABLE>
Vehicle Sealing relies heavily on its core customers, which in North
America include General Motors, Ford, Mercedes-Benz and Honda. Key customers in
Europe include Opel, Volkswagen/Audi, Mercedes-Benz and BMW. General Motors and
Ford combined accounted for approximately 73% of Vehicle Sealing's fiscal 1998
revenues. A prolonged work stoppage at either General Motors or Ford could
materially adversely affect New GenCorp's results of operations.
COMPETITION
Aerojet participates in highly competitive markets, both internationally
and domestically. The basis on which Aerojet competes varies by program. Aerojet
pursues some contracts on its own. Aerojet often teams with others, usually
prime contractors, on relatively large programs. Aerojet believes that it
possesses adequate resources to, in general, compete effectively. Aerojet's
primary competitors include Boeing, Raytheon, TRW, Northrup Grumman, Alliant
Techsystems, Cordant Technologies and the Pratt & Whitney division of United
Technologies.
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Vehicle Sealing is the second largest manufacturer of vehicle sealing
systems in North America and a major manufacturer of vehicle sealing systems
worldwide. Vehicle Sealing focuses on low cost production, leading design and
engineering, quality and continuous improvement. Vehicle Sealing's emphasis on
the light truck/SUV segment represents an important opportunity based on this
segment's strong growth and longer platform lives. Vehicle Sealing primarily
competes against Standard Products and BTR.
RAW MATERIALS
No single raw material is critical and material to the business position of
Aerojet as a whole. Aerojet uses a number of raw materials that are available
from a number of sources.
Vehicle Sealing uses primarily rubber and related products in its
production process. These materials are generally available from multiple
sources.
RESEARCH AND DEVELOPMENT; PATENTS
Internal research and development is conducted in a variety of advanced
technology areas all focused toward future direct applications of products
within areas of Aerojet's core competencies. Expenditures for internal research
and development typically fall in a range of 2-3% of sales.
Aerojet and Vehicle Sealing own patents, which expire at various times,
relating to their businesses. The loss or expiration of any one or more of them
would not materially affect the businesses of Aerojet or Vehicle Sealing.
SEASONALITY
Aerospace/defense revenues and earnings have tended to concentrate to some
degree in the fourth quarter of each year reflecting delivery schedules
associated with the segment's mix of contracts.
Vehicle Sealing's revenues and earnings have tended to concentrate to some
degree in the second and fourth quarters of the fiscal year. Vehicle Sealing's
business is dependent on the state of the North American and Western European
economies and more specifically, customer vehicle manufacturing and sales. Both
North America and Western Europe have experienced exceptionally strong vehicle
build performance throughout the 1990's and are forecasted to remain at
similarly strong volumes for at least the next 2-4 years.
BACKLOG
Aerojet's contract backlog was approximately $1.71 billion as of May 31,
1999, down from $1.77 billion as of May 31, 1998. Funded backlog was $0.61
billion as of May 31, 1999, down from $0.67 billion as of May 31, 1998.
EMPLOYEES
New GenCorp will employ approximately 7,300 employees after the
Distribution. Approximately 40% of these employees will be covered by collective
bargaining agreements. Vehicle Sealing experienced a work stoppage at one of its
facilities during fiscal 1998. A prolonged work stoppage at any of New GenCorp's
facilities could materially adversely affect New GenCorp's business and results
of operations.
U.S. GOVERNMENT CONTRACTING AND REGULATIONS
Aerojet derives a substantial portion of its sales through government
contracting, and consequently, Aerojet is subject to complex and extensive U.S.
Government procurement laws and regulations. These laws and regulations provide
for ongoing audits and reviews of contract procurement, performance, and
administration. Aerojet's failure to comply, even inadvertently, with these laws
and regulations and the laws governing the export of controlled products and
commodities could subject Aerojet or one or more of its businesses to civil and
criminal penalties and, under certain circumstances, suspension and debarment
from future government contracts and exporting of products for a specified
period of time.
Aerojet's U.S. Government sales accounted for $596 million in 1998.
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ENVIRONMENTAL AND SAFETY MATTERS
New GenCorp's policy is to conduct its businesses with due regard for the
preservation and protection of the environment. Aerojet devotes a significant
amount of resources and management attention to environmental matters and
actively manages its ongoing processes to comply with extensive environmental
laws and regulations. Aerojet is involved in the remediation of environmental
conditions, which resulted from generally accepted manufacturing and disposal
practices in the 1950s and 1960s. In addition, Aerojet has been designated a
potentially responsible party, with other companies, at sites undergoing
investigation and remediation.
The nature of environmental investigation and cleanup activities often
makes it difficult to determine the timing and amount of any estimated future
costs that may be required for remedial measures. However, New GenCorp reviews
these matters and accrues for costs associated with the remediation of
environmental pollution when it becomes probable that a liability has been
incurred and the amount of the liability (usually based upon proportionate
sharing) can be reasonably estimated.
Pursuant to U.S. Government agreements or regulations, Aerojet will recover
a substantial portion of its environmental remediation costs through the
establishment of prices of products and services sold to the U.S. Government.
With the exception of applicable amounts representing current assets and
liabilities, recoverable amounts and accrued costs are included in other assets
and other long-term liabilities.
The effect of resolution of environmental matters on results of operations
cannot be predicted due to the uncertainty concerning both the amount and timing
of future expenditures and future results of operations. However, management
believes, on the basis of presently available information, that resolution of
these matters will not materially affect liquidity, capital resources or the
consolidated financial condition of New GenCorp. New GenCorp will continue its
efforts to mitigate past and future costs through pursuit of claims for
insurance coverage and continued investigation of new and more cost effective
remediation alternatives and associated technologies. For additional discussion
of environmental matters, you should read GenCorp's filings under the Exchange
Act that are incorporated herein by reference.
In the course of normal operations and the manufacture of certain products,
both Aerojet and Fine Chemicals utilize chemicals with properties that require
special handling to mitigate the risk of a mishap, such as inadvertent release
or explosion. These chemicals therefore have potential to cause injury or loss
of life. However, as one of the leading producers of solid rockets, warheads,
and military grade high explosives, New GenCorp has more than 50 years
experience in the safe and proper handling of such materials. This expertise is,
in fact, one of New GenCorp's distinctive core competencies, and one that has
enabled growth in rocket propulsion as well as regulated pharmaceutical fine
chemicals. Safety precautions and procedures are well developed, meet or exceed
industry standards, and comply with strict government regulations. In the case
of Fine Chemicals, growth is managed with recognition of these risks.
LEGAL PROCEEDINGS
For information regarding legal proceedings, you should read GenCorp's
filings under the Exchange Act that are incorporated herein by reference.
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PROPERTIES
Significant operating, manufacturing, research, design and/or marketing
facilities of New GenCorp are set forth below.
CORPORATE HEADQUARTERS AFTER THE DISTRIBUTION:
GenCorp Inc.
Highway 50 and Aerojet Road
Rancho Cordova, CA 95670
916/355-4000
AEROSPACE AND DEFENSE/FINE CHEMICALS:
<TABLE>
<CAPTION>
Design/Manufacturing Facilities: Marketing/Sales Offices:
<S> <C>
Azusa, CA *Colorado Springs, CO
*Boulder, CO *Geneva, Switzerland
Jonesborough, TN *Huntsville, AL
Sacramento, CA *Mt. Arlington, NJ
*Socorro, NM *Tokyo, Japan
*Tucson, AZ
*Washington, DC
</TABLE>
AUTOMOTIVE:
<TABLE>
<S> <C> <C>
Vehicle Sealing Manufacturing Facilities: Sales/Marketing/Design
P. O. Box 9067 and Engineering Facilities:
Farmington Hills, MI Batesville, AR
48333-9067 *Berger, MO *Campinas, Sao Paulo, Brazil
248/553-5300 HENNIGES, Rehburg, Farmington Hills, MI
Germany and Ballina, Fort Wayne, IN
Ireland HENNIGES, Rehburg, Germany
Marion, IN Wabash, IN
Wabash, IN
Welland, Ontario, Canada
</TABLE>
- ---------------
* An asterisk next to a facility listed above indicates that it is a leased
property.
In addition, New GenCorp owns and leases properties (primarily machinery,
warehouse and office facilities) in various regions of the country for use in
the ordinary course of business.
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BUSINESS OF OMNOVA SOLUTIONS
Following the Distribution, Omnova Solutions will operate two business
segments, Performance Chemicals and Decorative & Building Products. Omnova
Solutions had pro forma revenues of approximately $766 million for the fiscal
year ended November 30, 1998. Information regarding revenues, operating profits
and assets attributable to the two segments are contained in Omnova Solutions'
audited and unaudited combined financial statements included in this proxy
statement.
The Performance Chemicals business was founded in 1952 as a segment of The
General Tire & Rubber Company, focusing primarily on the manufacture of latex,
an emulsion polymer, for the paper industry and tire cord adhesives in its
Mogadore, Ohio facility. During the 1960's, the segment began expanding its
product lines for the paper and carpet industries, and in 1993 opened a latex
plant in Green Bay, Wisconsin to better serve the needs of its paper customers
in the Upper Midwest. The Decorative & Building Products segment began in 1945
when The General Tire & Rubber Company, GenCorp's predecessor, purchased the
Jeannette, Pennsylvania coated fabric facility from the Pennsylvania Rubber
Company. In 1963 the Company built a production facility in Columbus,
Mississippi to increase its capacity and product offering in coated fabrics.
Since the early 1990's, GenCorp has aggressively grown both businesses. For
Performance Chemicals, the 1996 acquisition of Morton International's Lytron(R)
plastic pigment latex product line broadened offerings to the paper industry.
The 1998 acquisition of Goodyear's Calhoun, Georgia latex facility provided
additional manufacturing capacity, a strong presence in the southeast and an
expanded customer base. Performance Chemicals also acquired Sequa Chemical's
U.S. specialty chemicals business in 1998, gaining manufacturing facilities in
Chester, South Carolina and Greensboro, North Carolina. This acquisition
expanded existing emulsion polymer market positions and provided entry into new
related specialty chemical markets. The 1999 acquisition of PolymerLatex's U.S.
acrylics business in Fitchburg, Massachusetts provided a key northeast location
while strengthening and diversifying served markets in acrylic emulsions and
other specialty chemicals. The most recent 1999 acquisition of Morton
International's global latex floor care business has provided Performance
Chemicals with a new and highly complementary product line and new customers,
based on existing technology. Performance Chemicals holds a strong number two
market position in the styrene butadiene latex industry. The number of
Performance Chemicals facilities has grown from two to six in the past few
years, with estimated available served markets growing from $1 billion to $3.5
billion.
Decorative & Building Products expanded its commercial wallcovering
capabilities in 1991 through the acquisition of Canadian General Towers'
commercial wallcovering business. Today, with the recent acquisition of Walker
Greenbank's U.K.-based Muraspec and Brymor commercial wallcovering businesses,
Decorative & Building Products has grown to be the worldwide leader in this
market. Brymor provides a European manufacturing base. Muraspec, a distribution
business with sales offices throughout the U.K. and Europe, serves as a key
European distribution platform from which to market commercial wallcoverings and
other decorative and building products. GenCorp acquired Goodyear's Reneer Films
Division in 1993, increasing vinyl film and decorative laminate capability for
the Decorative & Building Products business and elevating its market position in
vinyl woodgrain laminates to number one in North America. In 1997, Decorative &
Building Products acquired the Printworld business of Technographics, Inc.,
adding paper laminates to its vinyl laminate portfolio and gaining entry into
the transfer printing market for furnishings and apparel.
Omnova Solutions had approximately 2,600 employees at May 31, 1999 located
at offices, plants and other facilities located principally throughout the
United States and the United Kingdom.
Omnova Solutions has been, and will be until the date of the special
dividend contemplated by the Distribution, a wholly owned subsidiary of GenCorp.
Omnova Solutions' principal executive offices are located at 175 Ghent Road,
Fairlawn, Ohio 44333. Its telephone number at that address is (330) 869-4200.
GENERAL
Omnova Solutions develops, manufactures and markets emulsion polymers,
specialty chemicals and decorative and building products for a variety of
industrial, commercial and consumer markets. The Performance Chemicals unit's
broad range of emulsion polymers and specialty chemicals are used as coatings,
binders,
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adhesives, and additives for paper, carpet, textile and various other
industries. Decorative & Building Products designs, manufactures and markets a
comprehensive line of polyvinyl chloride and paper-based decorative and
performance-enhancing surface products including wallcovering, coated fabrics,
vinyl woodgrain and paper laminates and graphic arts and industrial films, as
well as membrane systems for roofing. Markets served include furniture,
transportation, construction, remodeling, interior decorating and graphic arts.
Of Omnova Solutions' 1998 historical revenues, approximately 36% were
derived from the Performance Chemicals business and 64% from the Decorative &
Building Products business.
PRODUCTS AND SERVICES
PERFORMANCE CHEMICALS
Performance Chemicals manufactures a broad line of emulsion polymers and
specialty chemicals for use in the paper, carpet, textile, nonwoven,
construction, coatings, adhesive and tire cord industries. Performance
Chemicals' products for the paper industry improve the strength, gloss and
printability of its customers' products. These products are primarily used in
the manufacture of coated papers for applications such as magazines, photo
papers and office forms. Latex formulations are also used to provide these same
characteristics to paperboard packaging for food and household products. The
business is also a leading producer of styrene butadiene latex for use as carpet
backing adhesive, which secures carpet fibers to backing materials. Through the
1998 acquisition of Sequa Chemicals, Performance Chemicals significantly
expanded its product line breadth to include specialty wet end formulations such
as opacifiers, lubricants and insolubilizers used in paper manufacturing. The
acquisition significantly expanded total product offerings to paper customers
and enabled Performance Chemicals to generate significant synergies through
consolidated purchasing of acrylic monomers, cross selling of textile and carpet
chemicals and enhanced applications development. Additionally, the acquisition
added a diverse line of textile processing, coating and finishing chemicals that
provide water, stain and oil repellency and permanent press properties to
natural and synthetic textile fibers for apparel, home furnishings and
upholstery.
Performance Chemicals' product portfolio includes a growing specialty
segment that provides resins, binders, coatings, adhesives and saturants to a
broad variety of markets that include nonwoven, graphic arts, industrial
coatings and construction. These products provide greater strength, improved
processing ability and enhanced appearance for customer products.
With a strong number two position in the latex industry, Performance
Chemicals is recognized in all of its markets for its core capabilities in
polymer technology, its ability to rapidly develop highly customized products
and its ability to provide innovative, cost effective customer solutions.
DECORATIVE & BUILDING PRODUCTS
Decorative & Building Products is a leading supplier of decorative
surfacing laminates for wood and metal applications and holds the number one
North American position in woodgrain laminates. Decorative laminate products are
manufactured utilizing vinyls, lightweight papers and foils. Unique ultraviolet
(UV) and electronic beam (EB) coatings provide scratch, stain and UV resistance.
In addition, Decorative & Building Products has further differentiated itself in
the decorative laminate market as a single source supplier of integrated vinyl
and paper laminate designs for the furniture and cabinet industries, building an
extensive library of patterns, designs and textures and developing rapid
make-to-order production capabilities. Important markets for these products
include furniture, kitchen cabinets, manufactured housing, flooring laminates,
consumer electronics and wrapped wood components. In particular, the growing
ready-to-assemble furniture market provides an attractive market for Omnova
Solutions' unique decorative laminates product offerings. Double polished clear
vinyl films for the graphic arts, office products and stationery markets are
also produced.
Decorative & Building Products is the leading global manufacturer of
wallcoverings for the commercial market. Its product line includes a broad range
of fabric-backed vinyl and paper-backed vinyl wallcovering designs. Its industry
leading styling and design library covers a broad range of styles, patterns,
textures, and colors, ranging from traditional to contemporary designs.
Additionally, Decorative & Building Products has built its leading position in
the commercial wallcoverings market by leveraging its reputation for product
durability and quality, global distribution network, extensive emboss and print
roll library, long-term customer relation-
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<PAGE> 81
ships, and integrated manufacturing/distribution/sourcing value proposition.
Well-known brands include Bolta(R), Essex(R), Genon(R), Lanark(R), Tower(TM) and
X-Quest(R) in North America and Muralon and Muraspec in Europe. Key end user
markets include the hospitality, healthcare, commercial office and retail
industries.
Decorative & Building Products is the leading North American supplier of
vinyl coated fabrics and urethane fabrics for contract and residential home
furnishings, transportation seating and marine applications as well as a variety
of other industrial and commercial end use markets. Its coated fabrics are
durable, stain resistant and cost effective alternatives and complements to
leather and textile coverings. Competitive advantages in the coated fabric
industry are leveraged through creative design and styling capabilities,
performance enhancing coatings, innovative technical support programs, leading
brand names and established distribution channels.
Decorative & Building Products is also a leading North American
manufacturer and marketer of single-ply roofing membrane systems for the
commercial and industrial roofing market. Selling under the Genflex(TM) brand
name, it is the only North American single-ply roofing supplier that offers all
three single-ply roofing systems, EPDM, TPO and PVC. This allows for a tailored
solution for each type of roofing application requirement. Through the
introduction of innovative products, Decorative & Building Products has
developed programs that reduce the time and cost of installation.
Through its Printworld operations, Decorative & Building Products
manufactures heat transfer prints on paper used to decorate apparel and home
furnishings. Heat transfer printing is an innovative, unique process for
printing intricate patterns on natural and synthetic fabrics that can be used
widely in the home furnishing, commercial furnishing and apparel industries.
Decorative & Building Products has established leading market positions in
all of its product categories by utilizing the Company's core competencies in
design, compounding, calendering, printing, embossing and coating. Given similar
core competencies and base technology requirements, the business is able to
leverage its investments in manufacturing, process and design improvement across
this broad set of product lines and benefit from economies of scale. In
addition, its broad offering of decorative and building products uniquely
positions it to provide integrated decorative solutions for its customers.
BUSINESS STRATEGY
ORGANIC GROWTH BY PROVIDING TOTAL SOLUTIONS. Omnova Solutions intends to
grow organically by developing long-term customer relationships and positioning
itself as the preferred total solutions partner. Omnova Solutions' strategy is
to avoid commodity market segments and focus on products that are highly
customized to meet specific customer requirements. These relationships have
enabled Omnova Solutions to develop innovative products that provide superior
functional performance, higher decorative content, and more efficient, lower
cost production processes to meet customers' specific application needs and
enhance the value of their products. For example, new roofing system
developments have provided significant benefits to contractors and building
owners by substantially reducing installation time and labor costs.
PURSUE GROWTH THROUGH STRATEGIC ACQUISITIONS. Omnova Solutions' businesses
have achieved significant growth through acquisitions of companies that build on
existing markets and core product and process technologies. Omnova Solutions
plans to continue to pursue acquisitions, strategic partnerships and joint
ventures in the future, targeting technologies and products in high growth
markets that are strategically related to its existing product portfolio,
customer base and markets.
LEVERAGE CORE COMPETENCIES ACROSS BUSINESSES. Omnova Solutions' expertise
in high performance polymer-based chemistries, the design and development of
customized product applications and polymer processing capabilities are shared
across its business units and provide a unique and differentiating competitive
advantage. Performance Chemicals and Decorative & Building Products have
identified common growth platforms to capitalize on these technology linkages.
For example, Performance Chemicals has pursued the development and
commercialization of new polymer and specialty chemical additives to meet the
needs of its broadening market portfolio. These new formulations in advanced
coatings, inks and adhesives are beginning to be leveraged in the Decorative &
Building Products segment to enhance the performance of a number of its
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<PAGE> 82
products. Omnova Solutions' aligned growth strategy targets opportunities for
both businesses to team as customers or suppliers in the paper, textile, carpet,
furniture and construction industries.
EXPAND STRONG RESEARCH AND DESIGN CAPABILITIES. Omnova Solutions is an
industry leader in research and development, as well as styling and design
capabilities. The Performance Chemicals segment has recently made a major
investment in a new high speed pilot paper coater, which will be used to
accelerate Omnova Solutions' development and commercialization of new coating
technologies in its core markets. Omnova Solutions started construction of a new
pilot plant in 1998, which will support Omnova Solutions' new product
development and customer qualifications efforts. The Decorative & Building
Products segment maintains design centers in Salem, New Hampshire, New York and
Hertfordshire, England where designers combine traditional design techniques
with state-of-the-art computer aided design equipment to create unique designs
for incorporation across Omnova Solutions' decorative product spectrum. Omnova
Solutions continues to strengthen its design capability through investments in
digital archiving of designs and digital sampling. In addition, the business has
increased its focus on technology and new product development to provide
differentiated value-added products to customers.
INCREASE TECHNOLOGY LINKAGES. Through increasing technology linkages and
materials utilization between the two segments, Omnova Solutions can
aggressively pursue the development and commercialization of new polymers as
well as the function and performance of its decorative coatings. These technical
and materials synergies allow Performance Chemicals and Decorative & Building
Products to target and expand key markets. Technological linkages, purchasing,
marketing and sales economies, and manufacturing economies will enable more cost
effective development of new products and will increase the effectiveness of
cost reduction initiatives at Omnova Solutions. For example, the Omnova
Solutions business units have a powerful collective knowledge base in paper,
nonwovens, textiles, printing technology, ink systems and performance coatings,
and the chemicals application skills to supply advantaged products for these
applications.
BROADEN INTERNATIONAL OPERATIONS. Omnova Solutions plans to continue to
increase its global supply capabilities and the markets it serves. For example,
the recent acquisition of the Brymor and Muraspec U.K.-based commercial
wallcovering business provided a European manufacturing, design and distribution
platform for the Decorative & Building Products segment. The Company is
committed to continuing to expand its international presence through a continued
aggressive acquisition, joint venture and alliance strategy.
IMPROVE PROFITABILITY THROUGH OPERATIONAL EXCELLENCE
INITIATIVES. Operational excellence processes including Six Sigma quality,
supply chain management and high performance workplace initiatives are utilized
throughout Omnova Solutions' businesses. Omnova Solutions plans to continue to
focus on operational excellence initiatives across the supply chain to drive
improvements in productivity, quality cost and safety.
MARKETS AND CUSTOMERS
Management believes that Performance Chemicals is a market leader in its
targeted product categories. The polymer and chemical coating and binding
markets are highly competitive based on price, quality, customer service,
product performance and innovations. Performance Chemicals is the leading
quality producer for latex in the paper industry. Several customers generate
more than 10% of Performance Chemicals total revenues. These customers include
industry leaders such as Champion, Shaw and Consolidated.
Management believes that Decorative & Building Products is a market leader
in its targeted product categories. Decorative & Building Products markets are
competitive based on decorative content, enhanced performance characteristics,
price, quality, customer service, brand name recognition and reputation.
Decorative & Building Products markets its products under numerous brand names
to different industries. Major customers of this unit are Steelcase, Bradco and
Ashley Furniture.
DISTRIBUTION METHODS
Methods of distribution used by Omnova Solutions vary widely depending on
the nature of the products and the industry or market served. Products are sold
either directly or through distributors.
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<PAGE> 83
COMPETITION
Performance Chemicals competes with several large global chemical companies
including Dow, BASF and Rohm & Haas, some of which produce rather than buy major
raw materials. Performance Chemicals also competes with small to mid-sized U.S.
focused suppliers of specialty chemicals including B.F. Goodrich, National
Starch, S. C. Johnson Polymers and Morton International. Depending on the
products involved and markets served, the basis of competition varies from
price, quality, customer and technical service, product performance and
innovation, and industry recognition. Overall, Performance Chemicals regards its
products to be competitive in its major markets and believes that it holds
leading or strong number two positions in several North American markets
including paper coatings, styrene butadiene latex carpet backing binders,
textile permanent press resins, nonwoven binders, paper tape release coatings
and saturants, and tire cord adhesives.
Decorative & Building Products competes in its served markets with numerous
competitors, many of which are smaller and privately-owned. Key competitors in
each product group include:
- Commercial Wallcovering -- RJF International, Fidelity, Paint Systems;
- Coated Fabrics -- Haartz and Uniroyal;
- Decorative Laminates -- Chiyoda, Dai Nippon and Toppan;
- Building Systems -- Carlisle, Firestone, and Manville; and
- Heat Transfer Printing -- Miroglio, Sublistatic, and Transfertex.
INTELLECTUAL PROPERTY
Omnova Solutions regards its patents, copyrights, trademarks, and similar
intellectual property as important to its success and relies upon patent,
copyright and trademark laws, as well as confidentiality agreements with its
employees and others, to protect its rights. Omnova Solutions pursues patents
for important developments and the registration of its important copyrights and
trademarks in the United States and, depending upon use, in other countries.
Omnova Solutions may be subject to claims of alleged infringement of the
patents, trademarks and other intellectual property rights of third parties from
time to time in the ordinary course of business. Omnova Solutions does not
believe that these legal proceedings or claims are likely to have, individually
or in the aggregate, a material adverse effect on Omnova Solutions' business,
financial condition or results of operations.
RAW MATERIALS
Performance Chemicals utilizes a variety of raw materials, primarily
monomers, in the manufacture of its products, all of which are generally
available from several qualified suppliers. Monomer costs are a major component
of the emulsion polymers produced by the business. Although Performance
Chemicals has enjoyed low and stable monomer pricing over the past several
years, any significant cost increases in the future would adversely impact
Omnova Solutions' profitability. The monomers used include styrene, butadiene,
acrylonitrile, hydroxyethyl acrylate, vinylpyridine, vinylidiene chloride,
acrylic acid, methacrylic acid, itaconic acid, vinyl acetate, butyl acrylate,
ethyl acrylate, methyl methacrylate, acrylamide, n-methyol methacrylamide,
acrylamide, and hydroxyethyl methacrylate.
Decorative & Building Products also utilizes a variety of raw materials
which are generally available from multiple suppliers. Key raw materials include
polyvinyl chloride resins, textiles, plasticizers, paper, and titanium dioxide.
Textiles and polyvinyl chloride resins represent approximately 47% of total raw
materials purchased on a dollar basis.
EMPLOYEES
Omnova Solutions will employ approximately 2,600 employees after the
Distribution. Approximately 28% of these employees will be covered by collective
bargaining agreements. One of these agreements, covering approximately 22% of
Omnova Solutions' covered employees, will expire within the next 12 months. A
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<PAGE> 84
prolonged work stoppage at any of Omnova Solutions' facilities could materially
adversely affect Omnova Solutions' business and results of operations.
LEGAL PROCEEDINGS
Omnova Solutions is subject to various legal actions, governmental
investigations, and proceedings relating to a wide range of matters. In the
opinion of management, after reviewing the information which is currently
available with respect to these matters and consulting with counsel, any
liability which may ultimately be incurred with respect to these matters will
not materially affect the consolidated financial condition of Omnova Solutions.
The effect of resolution of these matters on results of operations cannot be
predicted because any effect depends on both future results of operations and
the amount and timing of the resolution of these matters.
PROPERTIES OF OMNOVA SOLUTIONS
Significant operating, manufacturing, research, design and/or sales and
marketing facilities of Omnova Solutions are set forth below.
CORPORATE HEADQUARTERS AFTER THE DISTRIBUTION:
<TABLE>
<S> <C>
Omnova Solutions *Omnova Solutions Overseas
175 Ghent Road 545 Orchard Road
Fairlawn, OH 44333-3300 #09-05 Far East Shopping Centre
330/869-4200 Singapore 238882
(65) 733-7080
Technology Center
2990 Gilchrist Road
Akron, OH 44305-4489
330/794-6300
</TABLE>
PERFORMANCE CHEMICALS:
<TABLE>
<S> <C>
Headquarters: Sales/Manufacturing/Technical/Distribution:
165 S. Cleveland Avenue Akron, OH
Mogadore, OH 44260-1593 Calhoun, GA
330/628-6550 Chester, SC
*Dalton, GA
Fitchburg, MA
Green Bay, WI
Greensboro, NC
Mogadore, OH
</TABLE>
DECORATIVE & BUILDING PRODUCTS:
<TABLE>
<S> <C> <C>
Sales/Marketing/Design/
Headquarters Manufacturing Facilities: Distribution:
175 Ghent Road Auburn, PA *Asnieres, France
Fairlawn, OH 44333-3300 Columbus, MS *Brussels, Belgium
330/869-4200 Jeannette, PA *Charlotte, NC
Kent, England Herfordshire, England
Monroe, NC *Jebei Ali, Dubai, UAE
*Maumee, OH
*New York, NY
*Paris, France
*Pine Brook, NJ
Salem, NH
</TABLE>
- ---------------
* An asterisk next to a facility listed above indicates that it is a leased
property.
In addition, Omnova Solutions owns and leases properties (primarily
machinery, warehouse and office facilities) in various regions of the country
for use in the ordinary course of business.
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<PAGE> 85
HOLDERS OF GENCORP COMMON STOCK
The following table sets forth information regarding the beneficial
ownership of GenCorp common stock as of May 31, 1999 by (1) each person known to
GenCorp who beneficially owns more than 5% of the outstanding GenCorp common
stock; (2) each of the persons who currently serves as a director of GenCorp;
(3) each of the executive officers listed on the Summary Compensation Table
incorporated by reference into GenCorp's Form 10-K for the fiscal year ended
November 30, 1998; and (4) all GenCorp directors and executive officers as a
group.
<TABLE>
<CAPTION>
BENEFICIAL OWNER SHARES BENEFICIALLY OWNED PERCENT OF CLASS
---------------- ------------------------- ----------------
<S> <C> <C>
GenCorp employee savings plans........................ 5,789,750 13.86%(1)
175 Ghent Road
Fairlawn, OH 44333
FMR Corp.............................................. 4,406,173 10.55%(2)
82 Devonshire Street
Boston, MA 02109
Mario J. Gabelli/Gabelli Funds Inc.................... 3,217,875 7.70%(3)
One Corporate Center
Rye, NY 10580
Franklin Resources, Inc............................... 2,739,300 6.56%(4)
777 Mariners Island Boulevard
San Mateo, CA 94404
The Prudential Insurance Company of America........... 2,176,745 5.21%(5)
Prudential Plaza
Newark, NJ 07102
Merrill Lynch & Co. Inc............................... 2,877,566 6.89%(6)
World Financial Center, North Tower
250 Vesey Street
New York, NY 10381
Edward P. Campbell.................................... 1,250 *
J. Gary Cooper........................................ 873 *
Charles A. Corry...................................... 3,150 *
William K. Hall....................................... 3,797 *
Robert K. Jaedicke.................................... 2,020 *
Diane E. McGarry...................................... 1,827 *
James M. Osterhoff.................................... 4,579(7) *
Steven W. Percy....................................... 1,084 *
R. Byron Pipes........................................ 2,034 *
D. Michael Steuert.................................... 157,805(8)(9) *
John B. Yasinsky...................................... 590,473(8)(9) 1.40%
Robert A. Wolfe....................................... 67,160(8)(9) *
Nathaniel J. Mass..................................... 116,868(8)(9) *
Kevin M. McMullen..................................... 91,557(8)(9) *
All directors and executive officers as a group....... 1,330,323(8)(9) 3.11%
</TABLE>
- ---------------
* Less than one percent.
(1) Shares held at May 31, 1999 by the trustee for the plans, Mellon Bank,
included 471,156 shares held for the GenCorp Profit Sharing Retirement and
Savings Plan, and 5,318,594 shares held for the GenCorp Retirement
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<PAGE> 86
Savings Plan. Shares are voted by the Trustee in accordance with the
instructions of the participating employees to whose accounts such shares are
allocated, except that shares for which no employee instructions are received
and shares held for the plans which have not been allocated to participants'
accounts may be voted by the Trustee in accordance with instructions given
by the Benefits Management Committee for the plans. The Benefits Management
Committee presently consists of four persons, all of whom are officers of
GenCorp.
(2) FMR reported that it had sole power to vote 380,600 shares, sole dispositive
power with respect to 4,173,900 shares and no shared voting or dispositive
power in Amendment No. 4 to Schedule 13G dated February 1, 1999 and filed
with the Securities and Exchange Commission.
(3) Mario J. Gabelli, directly as to 2,625 shares and through and shared with
various entities within Gabelli Funds Inc. as to the balance of the shares,
has investment discretion with respect to all shares, sole voting authority
with respect to 3,202,875 shares and no voting authority with respect to
15,000 shares, according to Amendment No. 26 to Schedule 13D dated January
8, 1998 and filed with the Securities and Exchange Commission.
(4) Franklin Resources, Inc. reports sole voting and dispositive authority for
2,020,600 shares held by Franklin Mutual Advisers, Inc., sole voting and
dispositive authority for 641,000 shares held by Templeton Investment
Counsel, Inc., and sole voting and dispositive power for 77,700 shares held
by Templeton Management Limited in amendment No. 1 to Schedule 13G dated
January 22, 1999 and filed with the Securities and Exchange Commission.
(5) Prudential reported that it had sole voting and dispositive authority with
respect to 1,490,700 shares and shared voting and dispositive authority with
respect to 686,045 shares in Amendment No. 4 to Schedule 13G dated January
26, 1999 and filed with the Securities and Exchange Commission.
(6) Merrill Lynch & Co., Inc., reported on behalf of Merrill Lynch Asset
Management Group having shared voting power and shared dispositive power
with respect to 2,877,566 shares and no sole voting or dispositive power in
Schedule 13G dated February 4, 1999 and filed with the Securities and
Exchange Commission.
(7) Includes 4,351 shares held indirectly through the James M. Osterhoff trust.
(8) Includes shares subject to stock options which may be exercised within 60
days of May 31, 1999 as follows: Mr. Steuert, 28,500 shares; Mr. Yasinsky,
490,300 shares; Mr. Wolfe, 48,750 shares; Mr. Mass, 107,500 shares; Mr.
McMullen, 85,000 shares; and all directors and executive officers as a
group, 997,400 shares. Nonemployee directors do not participate in GenCorp's
existing stock option plan. Mr. Steuert, however, continues to hold
exercisable options to purchase 28,500 shares as a result of option grants
made in 1993, 1997 and 1998 while he was an employee of GenCorp. The
exercise period for these options, which generally would lapse if
unexercised prior to termination of employment, was extended by the
Organization & Compensation Committee of the GenCorp Board in February 1999
for a one-year period.
(9) Includes the approximate number of shares credited to the individual's
account as of May 31, 1999 under the GenCorp Retirement Savings Plan, and
where applicable, under the GenCorp Stock Incentive Compensation Plan and
under the GenCorp Profit Sharing Retirement and Savings Plan, a savings plan
for salaried employees sponsored by GenCorp prior to September 1989.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
GenCorp's 10% holders, executive officers and directors to file reports of
ownership and changes in ownership of GenCorp equity securities and certain
benefit plan interests with the Securities and Exchange Commission and the NYSE
and Chicago Stock Exchange and to furnish to GenCorp copies of all Section 16(a)
forms which they file. Based upon its review of copies of Section 16(a) forms
received by it, or written representations received from some reporting persons,
GenCorp believes that its executive officers and directors have complied with
all applicable Section 16(a) filing requirements for fiscal 1998.
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<PAGE> 87
HOLDERS OF NEW GENCORP COMMON STOCK
The following table sets forth information regarding the beneficial
ownership of New GenCorp common stock immediately following the Distribution, as
if the Distribution took place on May 31, 1999, by (1) each person known to
GenCorp who would beneficially own more than 5% of the outstanding New GenCorp
common stock; (2) each of the persons who are expected to serve as a director of
New GenCorp immediately after the Distribution; (3) each of the executive
officers listed on the Summary Compensation Table under "New GenCorp Management
and Executive Compensation;" and (4) all persons expected to be New GenCorp
directors and executive officers after the Distribution, as a group. Except as
indicated in footnotes below, information related to shares beneficially owned
by holders of New GenCorp Common Stock can be found in the footnotes to the
section entitled "Holders of GenCorp Common Stock."
<TABLE>
<CAPTION>
BENEFICIAL OWNER SHARES BENEFICIALLY OWNED PERCENT OF CLASS
---------------- ------------------------- ----------------
<S> <C> <C>
New GenCorp and Omnova Solutions employee savings 5,789,750 13.86%
plans.................................................
175 Ghent Road
Fairlawn, OH 44333
FMR Corp................................................ 4,406,173 10.55%
82 Devonshire Street
Boston, MA 02109
Mario J. Gabelli/Gabelli Funds Inc...................... 3,217,875 7.70%
One Corporate Center
Rye, NY 10580
Franklin Resources, Inc................................. 2,739,300 6.56%
777 Mariners Island Boulevard
San Mateo, CA 94404
The Prudential Insurance Company of America............. 2,176,745 5.21%
Prudential Plaza
Newark, NJ 07102
Merrill Lynch & Co. Inc................................. 2,877,566 6.89%
World Financial Center, North Tower
250 Vesey Street
New York, NY 10381
J. Gary Cooper.......................................... 873 *
William K. Hall......................................... 3,797 *
Robert K. Jaedicke...................................... 2,020 *
James M. Osterhoff...................................... 4,579 *
D. Michael Steuert...................................... 157,805(1)(2) *
Robert A. Wolfe......................................... 83,410(1)(2) *
Carl W. Fischer......................................... 94,668(1)(2) *
Samuel W. Harmon........................................ 60,995(1)(2) *
Robert G. Miotke........................................ 13,930(1)(2) *
William R. Phillips..................................... 64,652(1)(2) *
All directors and executive officers as a group (13 527,184(1)(2) 1.25%
persons)..............................................
</TABLE>
- ---------------
* Less than one percent.
(1) Includes shares subject to stock options which may be exercised within 60
days of May 31, 1999 as follows: Mr. Steuert, 28,500 shares; Mr. Wolfe,
65,000 shares (reflecting the option allocations described under
"Relationship Between New GenCorp and Omnova Solutions After the
Distribution -- Agreement on Employee Matters"); Mr. Fischer, 75,250 shares;
Mr. Phillips, 38,700 shares; Mr. Harmon, 51,250 shares;
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<PAGE> 88
Mr. Miotke, 12,875 shares; and all directors and executive officers as a
group, 245,325 shares. Nonemployee directors do not participate in GenCorp's
existing stock option plan. Mr. Steuert, however, continues to hold
exercisable options to purchase 28,500 shares as a result of option grants
made in 1993, 1997 and 1998 while he was an employee of GenCorp. The
exercise period for these options, which generally would lapse if
unexercised prior to termination of employment, was extended by the
Organization & Compensation Committee of the GenCorp Board in February 1999
for a one-year period.
(2) Includes the approximate number of shares credited to the individual's
account as of May 31, 1999 under the GenCorp Retirement Savings Plan, and
where applicable, under the GenCorp Stock Incentive Compensation Plan and
under the GenCorp Profit Sharing Retirement and Savings Plan, a savings plan
for salaried employees sponsored by GenCorp prior to September 1989.
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<PAGE> 89
HOLDERS OF OMNOVA SOLUTIONS COMMON STOCK
Omnova Solutions is presently a wholly owned subsidiary of GenCorp. The
following table sets forth information regarding the beneficial ownership of
Omnova Solutions common stock immediately after the Distribution, as if the
Distribution took place on May 31, 1999, by (1) each person known by GenCorp who
would beneficially own more than 5% of the outstanding Omnova Solutions common
stock; (2) each of the persons who are expected to serve as a director of Omnova
Solutions; (3) each of the executive officers listed on the Summary Compensation
Table under "Omnova Solutions Management and Executive Compensation"; and (4)
all persons expected to be Omnova Solutions directors and executive officers
after the Distribution, as a group. Except as indicated in footnotes below,
information related to shares beneficially owned by holders of Omnova Solutions
common stock can be found in the footnotes to the section entitled "Holders of
GenCorp Common Stock."
<TABLE>
SHARES PERCENT
BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
- ------------------------------------------------------------ --------- -----
<S> <C> <C>
New GenCorp and Omnova Solutions employee savings plans..... 5,789,750 13.86%
175 Ghent Road
Fairlawn, OH 44333
FMR Corp.................................................... 4,406,173 10.55%
82 Devonshire Street
Boston, MA 02109
Mario J. Gabelli/Gabelli Funds Inc.......................... 3,217,875 7.70%
One Corporate Center
Rye, NY 10580
Franklin Resources, Inc..................................... 2,739,300 6.56%
777 Mariners Island Boulevard
San Mateo, CA 94404
The Prudential Insurance Company of America................. 2,176,745 5.21%
Prudential Plaza
Newark, NJ 07102
Merrill Lynch & Co. Inc..................................... 2,877,566 6.89%
World Financial Center, North Tower
250 Vesey Street
New York, NY 10381
Edward P. Campbell.......................................... 1,250 *
Charles A. Corry............................................ 3,150 *
Diane E. McGarry............................................ 1,827 *
Steven W. Percy............................................. 1,084 *
R. Byron Pipes.............................................. 2,034 *
John B. Yasinsky............................................ 753,906(1)(2) 1.78%
Nathaniel J. Mass........................................... 116,868(1)(2) *
Kevin M. McMullen........................................... 91,557(1)(2) *
Marvin W. Zima.............................................. 58,411(1)(2) *
Michael E. Hicks............................................ 43,048(1)(2) *
All directors and executive officers........................ 1,124,012(1)(2) 2.64%
as a group (13 persons)
</TABLE>
- ---------------
* Less than one percent.
(1) Includes shares subject to stock options which may be exercised within 60
days of May 31, 1999 as follows: Mr. Yasinsky, 653,733 shares (reflecting
the option allocations described under "Relationship Between New
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<PAGE> 90
GenCorp and Omnova Solutions after the Distribution -- Agreement on Employee
Matters"); Mr. Mass, 107,500 shares; Mr. McMullen, 85,000 shares; Mr. Zima,
23,500 shares; and Mr. Hicks, 24,550 shares and all directors and executive
officers as a group, 759,576 shares. Nonemployee directors do not
participate in GenCorp's existing stock option plan.
(2) Includes the approximate number of shares credited to the individual's
account as of May 31, 1999 under the GenCorp Retirement Savings Plan, and
where applicable, under the GenCorp Stock Incentive Compensation Plan and
under the GenCorp Profit Sharing Retirement and Savings Plan, a savings plan
for salaried employees sponsored by GenCorp prior to September 1989.
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<PAGE> 91
NEW GENCORP MANAGEMENT AND EXECUTIVE COMPENSATION
NEW GENCORP MANAGEMENT
The following table sets forth the names and information as to the persons
who are currently expected to serve as directors and executive officers of New
GenCorp immediately after the Distribution. We anticipate that immediately after
the Distribution, the number of New GenCorp directors will be set at nine, and
that there will be three vacancies on the New GenCorp Board after the
Distribution. the resignation of the five current GenCorp Directors who will
serve as Directors of Omnova Solutions after the Distribution and the
appointment of Mr. Wolfe to fill one of the vacancies. The New GenCorp Board may
fill one or more of those vacancies and those persons will serve until the
annual meeting of New GenCorp shareholders to be held in 2000 or 2001. GenCorp
is still in the process of determining others who may serve as executive
officers of New GenCorp immediately after the Distribution and evaluating
candidates to serve as Directors of New GenCorp following the Distribution.
<TABLE>
<CAPTION>
DIRECTOR OF EXPECTED POSITION
NAME AGE GENCORP SINCE WITH NEW GENCORP
---- --- ------------- -----------------
<S> <C> <C> <C>
J. Gary Cooper....................... 62 1998 Director
William K. Hall...................... 55 1995 Director
Dr. Robert K. Jaedicke............... 70 1990 Director
James M. Osterhoff................... 63 1990 Director
D. Michael Steuert................... 51 1999 Director
Robert A. Wolfe...................... 61 N/A Chairman and Chief Executive Officer;
Director
Robert Calder........................ 64 N/A Vice President
Carl W. Fischer...................... 57 N/A Vice President
Robert G. Miotke..................... 46 N/A Vice President
Terry L. Hall........................ 45 N/A Senior Vice President and Chief
Financial Officer
Samuel W. Harmon..................... 48 N/A Senior Vice President, Administration
William R. Phillips.................. 56 N/A Senior Vice President, Law; General
Counsel and Secretary
Rosemary B. Younts................... 43 N/A Senior Vice President, Communications
</TABLE>
J. GARY COOPER
Mr. Cooper has served as Chairman and Chief Executive Officer of the
Commonwealth National Bank, Mobile, AL, a commercial bank, since January 1998.
He was United States Ambassador to Jamaica from November 1994 until November
1997. Previously he served as Senior Vice President of David Volkert and
Associates, an engineering and architectural firm, from 1992 until 1994, and as
Assistant Secretary of the Air Force for Manpower, Reserve Affairs,
Installations and the Environment from 1989 to 1992. He was on active and
reserve duty in the United States Marine Corps until 1996 and has served as
Major General in the United States Marine Corps Reserve. He is a member of the
Government Affairs & Environmental Issues and Nominating & Corporate Governance
Committees of the GenCorp Board.
WILLIAM K. HALL
Mr. Hall has served as Chairman and Chief Executive Officer of Falcon
Building Products, Inc., Chicago, IL, a manufacturer of building products, since
1997 and has been President and Chief Executive Officer of Falcon Building
Products, Inc. since 1994. Previously he was President and Chief Executive
Officer of Eagle Industries, Inc., Chicago, IL, a diversified manufacturing
company, from 1988 until 1997. He is also a director of A. M.
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<PAGE> 92
Castle & Co., Franklin Park, IL. Mr. Hall is a member of the Audit and
Organization & Compensation Committees of the GenCorp Board.
DR. ROBERT K. JAEDICKE
Dr. Jaedicke has served as a Professor of Accounting at the Graduate School
of Business at Stanford University, Stanford, CA since 1961. He formerly served
as Dean of the Graduate School of Business at Stanford from 1983 until 1990. He
is also a director of Boise Cascade Corporation, Boise, ID; Enron Corporation,
Houston, TX; California Water Services Company, San Jose, CA, and State Farm
Insurance Companies, Bloomington, IL. Dr. Jaedicke is Chairman of the Audit
Committee and a member of the Finance and Government Affairs & Environmental
Issues Committees of the GenCorp Board.
JAMES M. OSTERHOFF
Mr. Osterhoff served as Executive Vice President and Chief Financial
Officer of US WEST Inc., Englewood, CO, a communications company, from 1991
until his retirement in 1995. Prior to that time he was Vice President and Chief
Financial Officer of Digital Equipment Corporation, Maynard, MA, a computer
systems, software and services company. He currently serves as a director of
Financial Security Assurance Holdings Ltd., New York, NY. Mr. Osterhoff is
Chairman of the Finance Committee and a member of the Audit and Government
Affairs & Environmental Issues Committees of the GenCorp Board.
D. MICHAEL STEUERT
Mr. Steuert has served as Senior Vice President and Chief Financial Officer
of Litton Industries, Inc., Woodland Hills, CA, an aerospace, defense and
consumer electronics company, since February 1999. Previously, he was Senior
Vice President and Chief Financial Officer of GenCorp from August 1994 until
February 1999; Vice President and Chief Financial Officer of GenCorp from June
1990 to 1994 and Treasurer of GenCorp from May 1986 to June 1990. Mr. Steuert is
a member of the Executive, Finance and Government Affairs & Environmental Issues
Committees of the GenCorp Board.
ROBERT A. WOLFE
Mr. Wolfe has served as Vice President of GenCorp and President of Aerojet
since September 1997. Previously he was Executive Vice President of the Pratt &
Whitney Group of United Technologies during 1997; President of Pratt & Whitney's
Aircraft's Large Commercial Engines Business from 1994 until 1997 and Senior
Vice President of Pratt & Whitney's Commercial Engine Management for Latin and
North America from 1992 to 1994.
ROBERT L. CALDER
Mr. Calder has served as President of Vehicle Sealing since September 1998.
Previously he was Executive Vice President of TG North America, North American
operations for Toyoda Gosei of Japan, a subsidiary of Toyota Motor Company, a
manufacturer of body seals, steering wheels, air bags and plastic interiors,
from 1996 to 1998. Prior to that time, he served as Chairman of Butler Metals, a
manufacturer of stamped and assembled metal body components, from 1991 to 1996.
CARL W. FISCHER
Mr. Fischer has served as Senior Vice President of Aerojet's Electronics
and Weapons Systems Sector since November 1997. Previously he was Senior Vice
President, Space Surveillance from 1994 to November 1997; President of the
Aerojet Electronic Systems Division from 1993 to 1994; and Vice President and
General Manager of Tactical Programs for the Electronic Systems Division from
1982 to 1993. Mr. Fischer has served in various other capacities since joining
Aerojet in 1966.
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<PAGE> 93
ROBERT G. MIOTKE
Mr. Miotke has served as President of Fine Chemicals since October 1996.
Previously, he was Vice President, Speciality Fine Chemicals of Hickson
International from 1992 to 1996. Prior to that time he served as Vice President,
Fine Chemicals of ANGUS Chemical Company from 1985 to 1992.
TERRY L. HALL
Mr. Hall has served as Senior Vice President and Chief Financial Officer of
Aerojet since May 1999. Previously he was Senior Vice President, Finance and
Chief Financial Officer of U.S. Airways from 1997 to 1999. Prior to that time,
he served as Vice President, Finance and Chief Financial Officer of Apogee
Enterprises, Inc. from 1995 to 1997; Vice President and Chief Financial Officer
of Tyco International from 1993 to 1995; and Vice President and Treasurer of
United Airlines from 1990 to 1993.
SAMUEL W. HARMON
Mr. Harmon has served as Senior Vice President, Human Resources of GenCorp
since February 1996. Previously he was Vice President, Human Resources of
GenCorp from October 1995 until February 1996. He served as Vice President,
Human Resources at AlliedSignal, Inc. for its european operations from July 1995
to October 1995 and for its automotive sector from 1993 to 1995. Prior to that
time, he served as Group Director for AlliedSignal's heavy duty brake division
from 1990 to 1993.
WILLIAM R. PHILLIPS
Mr. Phillips has served as Senior Vice President, Law and General Counsel
of GenCorp since September 1996. Previously he was Vice President, Law of
Aerojet from 1990 to 1996. Prior to that time, he served as General Counsel,
Group Counsel and Manager Legal Operations at General Electric Aircraft Engines
from 1986 to 1989.
ROSEMARY B. YOUNTS
Ms. Younts has served as Senior Vice President, Communications of GenCorp
since February 1996. Previously she was Vice President, Communications of
GenCorp from January 1995 to February 1996; and Director of Communications of
GenCorp from 1993 to 1995. Ms. Younts also held various communications positions
with Aerojet from 1984 to 1993.
CLASSIFICATION OF NEW GENCORP BOARD
New GenCorp's certificate of incorporation provides that the New GenCorp
Board will be divided into three classes of directors to be as nearly equal in
number of directors as possible. Class I will consist of J. Gary Cooper and
James M. Osterhoff and their current term of office will expire at New GenCorp's
2000 annual meeting of shareholders. Class II will consist of Robert A. Wolfe
and his current term of office will expire at New GenCorp's 2001 annual meeting
of shareholders. Class III will consist of William K. Hall, Dr. Robert K.
Jaedicke and D. Michael Steuert and their current term of office will expire at
New GenCorp's 2002 annual meeting of shareholders. At each annual shareholders'
meeting, directors are elected for a term of three years and hold office until
their successors are elected and qualified or until their earlier removal or
resignation. Newly created directorships resulting from an increase in the
number of directors or any vacancies on New GenCorp's Board resulting from
death, resignation, disqualification, removal or other cause may be filled by a
majority of the remaining directors then in office.
COMMITTEES OF THE NEW GENCORP BOARD
The New GenCorp Board will have six standing committees: (1) Organization &
Compensation; (2) Audit; (3) Executive; (4) Finance; (5) Nominating & Corporate
Governance; and (6) Government Affairs & Environmental Issues.
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<PAGE> 94
ORGANIZATION & COMPENSATION COMMITTEE. The Organization & Compensation
Committee will review periodically the organization of New GenCorp and its
management, including major changes in the organization of New GenCorp and the
responsibility of management as proposed by the Chief Executive Officer. It will
monitor executive development and succession planning, review the effectiveness
and performance of senior management and make recommendations to the New GenCorp
Board concerning the appointment and removal of officers. It will also
periodically review the compensation philosophy, policies and practices of New
GenCorp and make recommendations to the Board concerning major changes, as
appropriate. The committee will annually review changes in New GenCorp's
employee benefit, savings and retirement plans and report on those matters to
the New GenCorp Board. It will administer New GenCorp's incentive and deferred
compensation plans and approve, and in some cases recommend to the New GenCorp
Board for approval, the compensation of employee-directors, officers, and
principal executives of New GenCorp. Members of the Organization & Compensation
Committee after the Distribution are expected to be: William K. Hall, Chairman,
James M. Osterhoff and J. Gary Cooper.
AUDIT COMMITTEE. The Audit Committee will review and evaluate the scope of
the audits to be performed, the adequacy of services performed by, and the fees
and compensation of the independent auditors and receive and review a report
from the independent auditors prior to the publication of New GenCorp's audited
financial statements. It will also consider and recommend to the New GenCorp
Board the selection of the independent auditors to examine the consolidated
financial statements of New GenCorp for the next year. It will review and
evaluate the scope and appropriateness of New GenCorp's internal audit programs
and plans and its system of internal control. The committee will review and
evaluate the appropriateness of New GenCorp's accounting principles and
practices and financial reporting and review periodic reports from the internal
audit and law departments on a number of matters, including compliance with New
GenCorp's policy on legal and ethical conduct. Members of the Audit Committee
after the Distribution are expected to be: James M. Osterhoff, Chairman, Robert
K. Jaedicke and William K. Hall.
EXECUTIVE COMMITTEE. During the intervals between meetings of the New
GenCorp Board, the Executive Committee, unless restricted by resolution of the
New GenCorp Board, may exercise, under the control and direction of the New
GenCorp Board, all of the powers of the New GenCorp Board in the management and
control of the business of New GenCorp. Members of the Executive Committee after
the Distribution are expected to be: Robert A. Wolfe, Chairman, D. Michael
Steuert and William K. Hall.
FINANCE COMMITTEE. The Finance Committee will make recommendations to the
New GenCorp Board in regard to New GenCorp's planning with respect to its
capital structure and raising of its long-term capital and with regard to
dividend actions. It will also review the performance and management of New
GenCorp's employee benefit funds; and make recommendations to the New GenCorp
Board in regard to contributions to any pension plan, profit sharing, retirement
or savings plan of New GenCorp, or any proposed changes in the funding method or
interest assumption or in amortization of liabilities in connection with funding
any of those plans. Members of the Finance Committee after the Distribution are
expected to be: D. Michael Steuert, Chairman, James M. Osterhoff and Robert K.
Jaedicke.
NOMINATING & CORPORATE GOVERNANCE COMMITTEE. The Nominating & Corporate
Governance Committee will periodically review and make recommendations to the
New GenCorp Board concerning the criteria for selection and retention of
directors, the composition of the New GenCorp Board, structure and function of
the New GenCorp Board committees, retirement policies and compensation and
benefits of directors. It will also recommend to the New GenCorp Board qualified
candidates to serve as directors of New GenCorp and aid in attracting qualified
candidates to the New GenCorp Board. The committee will also consider and make
recommendations to the New GenCorp Board concerning director nominations
submitted by shareholders. Members of the Nominating & Corporate Governance
Committee after the Distribution are expected to be: Robert K. Jaedicke,
Chairman, J. Gary Cooper and William K. Hall.
GOVERNMENT AFFAIRS & ENVIRONMENTAL ISSUES COMMITTEE. The Government Affairs
& Environmental Issues Committee will periodically review and advise the New
GenCorp Board regarding significant matters of public policy, including proposed
actions by foreign and domestic governments which may significantly affect New
GenCorp. The committee will review and advise the New GenCorp Board regarding
adoption or amendment
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of major company policies and programs relating to matters of public policy,
monitor the proposed adoption or amendment of significant environmental
legislation and regulations and advise the New GenCorp Board regarding the
impact those proposals may have upon New GenCorp and, where appropriate, the
nature of New GenCorp's response to those items. It will also periodically
review and advise the New GenCorp Board regarding the status of New GenCorp's
environmental policies and performance under its environmental compliance
programs and periodically review and report to the New GenCorp Board regarding
the status of, and estimated liabilities for, environmental remediation. Members
of the Government Affairs & Environmental Issues Committee after the
Distribution are expected to be: J. Gary Cooper, Chairman, D. Michael Steuert
and Robert A. Wolfe.
COMPENSATION OF DIRECTORS
Each nonemployee director of New GenCorp will receive a retainer of $24,000
per year and an attendance fee of $1,000 for each New GenCorp Board and
Committee meeting attended. Nonemployee directors of New GenCorp who serve as
Chairman of a committee of the New GenCorp Board will receive an annual fee of
$2,000 in consideration for that service.
Nonemployee directors annually may elect to defer all or a percentage of
their retainer, any committee Chairman's fee and meeting attendance fees
pursuant to a deferred compensation plan for nonemployee directors. The plan is
unfunded, and deferred amounts are credited, at the election of the director,
with phantom shares in a GenCorp stock fund, an S&P 500 index fund, or a cash
deposit program. Deferred amounts and earnings are payable after termination of
GenCorp Board service in either a lump sum or installments as elected by the
director.
In March 1998, each GenCorp nonemployee director received 200 restricted
shares of GenCorp common stock. These restricted shares will vest March 25,
2000. In March 1999 each nonemployee director received 250 restricted shares of
GenCorp common stock. These restricted shares will vest March 31, 2001.
Dividends on restricted shares are automatically reinvested through GenCorp's
dividend reinvestment program unless a director chooses otherwise. All shares
may be voted, but ownership may not be transferred until service on the Board
terminates. Unvested shares will be forfeited in the event of a voluntary
resignation or refusal to stand for reelection, but vesting will be accelerated
in the event of death, disability or retirement pursuant to the GenCorp's
Retirement Plan for Nonemployee Directors described below or upon the occurrence
of a change in control or announcement of a tender or exchange offer which would
result in a person holding beneficial ownership of 30% or more of the
outstanding GenCorp common stock.
Nonemployee directors of New GenCorp will be eligible for stock option
grants and restricted stock awards under the New GenCorp 1999 Equity and
Performance Incentive Plan.
Each nonemployee director who terminates his or her service on the GenCorp
or New GenCorp Board after at least sixty months of service will receive an
annual retirement benefit equal to the retainer in effect on the date that
director's service terminates, payable in monthly installments, until the number
of monthly payments made equals the lesser of (1) the individual's months of
service as a director, or (2) 120 monthly payments. In the event of death prior
to payment of the applicable number of installments, the aggregate amount of
unpaid monthly installments will be paid, in a lump sum, to the retired
director's surviving spouse or other designated beneficiary, if any, or to the
retired director's estate.
Under the New GenCorp Board's retirement policy, a director's term of
office normally expires at the annual meeting following his or her seventieth
birthday regardless of the term of the class for which the director was last
elected. Under special circumstances, however, the New GenCorp Board may waive
immediate compliance and request that a director postpone his or her retirement
until a later date.
Directors who are also employees of New GenCorp will not be compensated
separately for serving on the New GenCorp Board and will not be paid a retainer
or additional compensation for attendance at Board or committee meetings.
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<PAGE> 96
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The following tables set forth information concerning annual and long-term
compensation for services rendered to GenCorp for fiscal 1998, 1997 and 1996 by
those persons who are expected to be the Chief Executive Officer and the other
four most highly compensated executive officers of New GenCorp (determined by
reference to fiscal 1998 compensation) immediately following the Distribution
(the "Named New GenCorp Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------------- ----------------------------------
AWARDS PAYOUTS
----------------------- --------
SECURITIES
RESTRICTED UNDERLYING
NAME AND CURRENT OTHER ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
PRINCIPAL SALARY BONUS COMPENSATION AWARDS (SARS)(8) PAYOUTS COMPENSATION
POSITION YEAR ($) ($) ($)(5)(6) ($) (#) $(9)(10) ($)(11)(12)
---------------- ---- ------- ------- ------------ ---------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert A. Wolfe(1)................. 1998 331,000 317,000(2) 18,127(6) -- 22,500 -- 21,636
Vice President of 1997 81,250 150,000(3) 7,051(6) $336,712(7) 75,000 -- 3,498
GenCorp; President, Aerojet
William R. Phillips................ 1998 257,000 220,000(2) 14,244(5)(6) 17,500 91,226 27,864
Senior Vice President, Law; 1997 245,000 250,000(3) 18,263(5) -- 20,000 20,512
General Counsel of GenCorp 1996 203,206 115,000 10,000(5) -- 40,000 -- 17,429
Samuel W. Harmon................... 1998 219,167 188,000(12) -- -- 10,000 75,206 18,952
Senior Vice President, 1997 208,333 202,000(3) -- -- 15,000 108,803 14,313
Human Resources of GenCorp 1996 200,000 75,000(4) -- -- -- -- 12,386
Carl W. Fischer.................... 1998 208,817 196,500(2) 10,000(5) -- 10,000 101,811 17,110
Senior Vice President, 1997 194,500 174,900 10,000(5) -- 15,000 103,322 15,768
Aerojet 1996 168,803 152,000 10,000(5) -- 40,000 -- 13,299
Robert G. Miotke................... 1998 189,087 154,690 10,000(5) -- 10,000 -- 10,795
Vice President, Aerojet; 1997 180,000 80,800 12,500(5) -- 12,500 -- 7,199
President, Fine Chemicals 1996 24,923 -- -- -- -- -- 276
</TABLE>
- ---------------
(1) Mr. Wolfe became an employee of GenCorp in 1997. Accordingly, compensation
amounts are not given for 1996.
(2) Elected officers of GenCorp received 20% of their net 1998 incentive
bonuses in shares of GenCorp common stock (based upon the closing price on
January 29, 1999 as reported on the NYSE) as follows: Mr. Wolfe, 2,712
shares; Mr. Phillips, 1,119 shares; and Mr. Harmon, 940 shares.
(3) Elected officers of GenCorp received 20% of their net 1997 incentive
bonuses in shares of GenCorp common stock (based upon the closing price on
January 30, 1998 as reported on the NYSE) as follows: Mr. Wolfe, 683
shares; Mr. Phillips, 1,206 shares; and Mr. Harmon, 957 shares.
(4) Elected officers of GenCorp received 20% of their net 1996 incentive
bonuses in shares of GenCorp common stock (based upon the closing price or
January 20, 1997 as reported on the NYSE) as follows: Mr. Harmon 300
shares.
(5) Cash allowances in lieu of a company provided automobile. Perquisites and
other personal benefits provided to the Named New GenCorp Officers during
1998, 1997 and 1996 did not exceed disclosure thresholds established by the
Securities and Exchange Commission.
(6) Reimbursement for taxes payable in connection with relocation.
(7) Represents 12,300 shares granted September 2, 1997 at a market price of
$27.375 subject to restrictions in Mr. Wolfe's employment agreement
described under " -- Employment Contracts and Termination of Employment and
Change in Control Arrangements." The market value of these shares at
November 30, 1998 was $302,887. Dividends on these shares are paid during
the restricted period.
(8) Shares of GenCorp common stock underlying options granted pursuant to the
GenCorp Inc. 1997 and 1993 Stock Option Plans.
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<PAGE> 97
(9) Amounts paid for the 1996-1998 performance period under GenCorp's Long-Term
Incentive Program. The net amount, after tax withholding, was paid in
shares of GenCorp common stock based upon the January 29, 1999 closing
price on the NYSE. Mr. Wolfe did not participate during the 1996-1998
performance period.
(10) Amounts paid for the 1995-1997 performance period under GenCorp's Long-Term
Incentive Program. The net amount, after tax withholding, was paid in
shares of GenCorp common stock based upon the January 30, 1998 closing
price on the NYSE. Messrs. Wolfe and Miotke did not participate during the
1995-1997 performance period.
(11) Amounts accrued as dividend and interest earnings on prior years' awards
under GenCorp's Stock Incentive Compensation Plan. Dividends declared on
common stock credited to the executive's account in the trust fund are
credited to the executive's account as an additional number of shares
determined by dividing the aggregate amount of the dividend by the market
value of common stock on the dividend date. The actual value of the shares
distributed on a future payment date will be based upon the market value of
GenCorp common stock at the future payment date. Amounts accrued during
1998, and the number of shares attributable thereto for Mr. Phillips was
$5,049, or 202 shares. Messrs. Wolfe, Fischer, Harmon and Miotke did not
participate in this plan.
(12) Company contributions to the executive's account in the Savings Plan and,
where applicable, the amount credited to the executive's account in
GenCorp's Benefits Restoration Plan, a nonfunded plan which restores to the
individual's account amounts otherwise excluded due to limitations imposed
by the Internal Revenue Code on contributions and includable compensation
under qualified plans. Amounts credited during 1998 were: Mr. Wolfe
$21,636; Mr. Phillips $22,815; Mr. Harmon $18,952; Mr. Fischer $17,110 and
Mr. Miotke $10,795.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL RATES OF
SECURITIES PERCENT OF EXERCISE STOCK PRICE APPRECIATION
UNDERLYING TOTAL OPTIONS/ OR BASE FOR OPTION TERM
OPTIONS/SAR SARS GRANTED PRICE (TEN YEARS)(3)(4)
GRANTED TO EMPLOYEES ($/SHARE) EXPIRATION -----------------------------
NAME (#)(1) IN FISCAL YEAR (2) DATE 0% ($) 5% ($) 10% ($)
---- ----------- -------------- --------- ---------- ------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert A. Wolfe....... 22,500 2.99% 30.1875 3-25-08 -0- 427,157 1,082,500
William R. Phillips... 17,500 2.33 30.1875 3-25-08 -0- 332,233 841,944
Samuel W. Harmon...... 10,000 1.33 30.1875 3-25-08 -0- 189,848 481,111
Carl W. Fischer....... 10,000 1.33 30.1875 3-25-08 -0- 189,848 481,111
Robert G. Miotke...... 10,000 1.33 30.1875 3-25-08 -0- 189,848 481,111
All Shareholders(5)... N/A N/A N/A N/A -0- 2,041,909,423 3,251,399,497
</TABLE>
- ---------------
(1) Non-qualified stock options granted pursuant to the GenCorp Inc. 1997 Stock
Option Plan for the number of shares of GenCorp common stock indicated. No
stock appreciation rights were granted in 1998. Options become exercisable
in 25% increments on September 22, 1998, March 25, 1999, 2000 and 2001,
respectively.
(2) Exercise price equals the closing market price of GenCorp common stock on
the date of grant on the NYSE.
(3) The 0%, 5% and 10% appreciation over 10 years' option valuation method
assumes a stock price of $30.1875, $49.17 and $78.30, respectively, at March
25, 2008.
(4) The potential realizable values are shown in the table in conformity with
Securities and Exchange Commission regulations, and are not intended to
forecast possible future appreciation. GenCorp is not aware of any formula
which will predict with reasonable accuracy the future appreciation of
equity securities. No benefit can be realized by optionees without an
appreciation in stock price, which will benefit all shareholders
commensurately.
(5) Based upon 41,525,640 shares of GenCorp common stock outstanding on December
31, 1998.
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<PAGE> 98
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
ACQUIRED OPTIONS/SARS AT FISCAL THE-MONEY OPTIONS/SARS
ON VALUE YEAR END (#)(1) AT FISCAL YEAR END ($)
EXERCISE REALIZED ---------------------------- ----------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert A. Wolfe............ 0 0 43,125 54,375 -0- -0-
William R. Phillips........ 0 0 29,325 33,125 211,506 162,500
Samuel W. Harmon........... 0 0 45,000 15,000 527,813 42,188
Carl W. Fischer............ 0 0 69,000 35,000 665,063 204,688
Robert G. Miotke........... 1,500 16,500 7,250 13,750 26,719 35,156
</TABLE>
- ---------------
(1) No SARs have been issued under the Plan.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER NON-
NUMBER OF PERFORMANCE OR STOCK PRICE-BASED PLANS(2)(3)
SHARES, UNITS OTHER PERIOD UNTIL -------------------------------------
OR MATURATION OR THRESHOLD TARGET MAXIMUM
NAME OTHER RIGHTS PAYOUT ($) ($) ($)
---- --------------- ------------------ ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Robert A. Wolfe................... (1) 3 Years 64,779 129,558 259,117
William R. Phillips............... (1) 3 Years 50,700 101,400 202,800
Samuel W. Harmon.................. (1) 3 Years 42,117 84,233 168,466
Carl W. Fischer................... (1) 3 Years 38,366 76,731 153,462
Robert G. Miotke.................. (1) 3 Years 26,989 53,977 107,955
</TABLE>
- ---------------
(1) Indicates awards under the GenCorp Inc. Long-Term Incentive Program pursuant
to which key employees designated by the Organization & Compensation
Committee of the GenCorp Board may receive incentive payments equal to
specified percentages of average annual compensation (salary and bonus paid
under GenCorp's Executive Incentive Compensation Program) upon attainment of
specified threshold, target or maximum levels of financial performance over
a three-year performance period. For the 1998-2000 performance period,
threshold, target and maximum performance goals for corporate officers are
designated percentages of corporate return on assets employed and earnings
per share growth, and for business unit presidents, designated percentages
of corporate and business unit return on assets employed and operating
profit growth for their respective business units. No payments are made
under the program if financial performance for the performance period falls
below threshold levels.
(2) Percentages of average annual compensation (determined for the three-year
performance period) payable to participants upon attainment of performance
goals for the 1998-2000 performance period are as follows:
<TABLE>
<CAPTION>
THRESHOLD TARGET MAXIMUM
--------- ------ -------
<S> <C> <C> <C>
GenCorp Senior Vice Presidents/Other
Corporate Officers.................... 10% 20% 40%
GenCorp Business Unit Presidents........ 10% 20% 40%
</TABLE>
(3) For purposes of the table above, estimated future payouts have been
calculated on the basis of the participant's 1998 fiscal year salary and
bonus shown in the Summary Compensation Table above. Performance awards
under GenCorp's Long-Term Incentive Program for the three-year performance
period ending November 30, 1999 will be determined based upon (1) actual
performance up to the date of the special dividend contemplated by the
Distribution, and (2) budgeted performance, for the remainder of the period,
according to GenCorp's annual operating plan. Pro rata performance awards
will be paid under the GenCorp plan for the performance periods ending
November 30, 2000 and November 30, 2001. Pro rata performance awards for
each partial performance period will be determined based upon (1) actual
performance up to the date of the special dividend contemplated by the
Distribution, and (2) budgeted
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<PAGE> 99
performance, for the remainder of the fiscal year ending November 30, 1999,
according to GenCorp's annual operating plan.
PENSION BENEFITS
GenCorp's salaried pension plans include several formulas for the
determination of benefits, and require that the formula providing the highest
benefit be utilized to determine an individual employee's actual benefit.
Benefits for Messrs. Phillips, Harmon, Fischer and Miotke have been determined
pursuant to the formula which utilizes five-year average compensation for years
of service prior to December 1999 and a career average formula for service from
December 1, 1999 to normal retirement. Mr. Wolfe's benefit has been determined
pursuant to the plan's career average formula. Estimated benefits are shown
below because the required calculations do not lend themselves to a typical
pension plan table where benefits can be determined by the reader solely upon
the basis of years of service and final compensation.
<TABLE>
<CAPTION>
APPROXIMATE
YEARS OF CREDITED ESTIMATED
SERVICE AT ANNUAL BENEFITS
NORMAL PAYABLE AT
NAME RETIREMENT NORMAL RETIREMENT(1)
---- ----------------- --------------------
<S> <C> <C>
Robert A. Wolfe............................... 6 $61,298
William R. Phillips........................... 18 135,363
Samuel W. Harmon.............................. 20 152,878
Carl W. Fischer............................... 40 155,818
Robert G. Miotke.............................. 21 114,922
</TABLE>
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(1) Retirement benefits shown in the table for Messrs. Phillips and Harmon were
calculated pursuant to the terms of the Pension Plan for Salaried Employees
of GenCorp Inc. Retirement benefits for Messrs. Wolfe, Fischer and Miotke
were calculated pursuant to the Aerojet-General Corporation Consolidated
Pension Plan. There is no offset for Social Security payments.
The benefits shown are estimated and have not been adjusted for any survivor
option. Each estimated benefit is based upon the assumption that the
executive will remain an employee until age 65 at a rate of compensation
equivalent to that in effect on December 1, 1998 and that the pension plan
under which the estimated benefit is calculated will remain unchanged.
Benefits for Messrs. Phillips, Harmon, Fisher and Miotke have been
determined by a formula which provides for a benefit (A) for years of
service prior to December 1, 1999 of (1) 1.125% of five-year average
compensation up to the average Social Security wage base ("ASSWB") plus 1.5%
of average compensation in excess of the ASSWB multiplied by the total of
such years of service up to 35 years and (2) 1.5% of average compensation
multiplied by the total years of service in excess of 35 years, and (B) for
each year of service after December 1, 1999 (1) prior to attainment of 35
years of service, 1.625% of annual compensation up to the ASSWB plus 2.0% of
annual compensation in excess of the ASSWB, and (2) after attainment of 35
years of service, 2.0% of annual compensation. The benefit for Mr. Wolfe has
been determined pursuant to the same formula described in part (B) above.
The benefits shown in the table have not been reduced to reflect either (1)
the limitation on includable compensation or the overall benefit limitation
imposed on pension plans qualified under Section 401(a) of the Code, or (2)
a plan's own exclusions from includable compensation, since the amount of
any of these reductions will be restored to the individual pursuant to the
terms of the GenCorp Benefits Restoration Plan, a nonfunded plan with
benefits payable out of the general assets of GenCorp.
NEW GENCORP 1999 EQUITY AND PERFORMANCE INCENTIVE PLAN
New GenCorp desires to establish an equity performance and incentive plan
in order to integrate GenCorp's existing stock option and long-term incentive
plans and to more closely align the interests of its executives with those of
New GenCorp shareholders. For this purpose, subject to the approval of the
shareholders, GenCorp has
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adopted the New GenCorp 1999 Equity and Performance Incentive Plan. A copy of
the plan is attached to this proxy statement as Annex C. A summary of the plan
is set forth below.
Approximately, 10 officers, 60 key employees and 8 nonemployee directors of
New GenCorp are expected to be eligible to receive awards under the plan.
PLAN SUMMARY
General. Under the plan, New GenCorp's Board is authorized to make awards
of (1) options to purchase shares of New GenCorp's common stock, (2) performance
stock and performance units, (3) restricted stock, (4) deferred stock or (5)
appreciation rights. New GenCorp's Organization and Compensation Committee will
be authorized to oversee the plan and to make awards and grants under the plan.
Shares Available Under the Plan. The number of shares of New GenCorp's
common stock that may be issued or transferred (1) upon the exercise of options
("Option Rights"), (2) as restricted stock ("Restricted Stock") and released
from all substantial risks of forfeiture, (3) as deferred stock ("Deferred
Stock"), (4) in payment of performance stock ("Performance Stock") or
performance units ("Performance Units") that have been earned, (5) in payment of
dividend equivalents paid with respect to awards made under the plan, or (6) in
payment of appreciation rights may not exceed a total of 2,700,000, subject to
adjustments pursuant to the terms of the plan. These shares of common stock may
be original issue or treasury shares or a combination of both.
Eligibility. Officers, key employees and nonemployee directors of New
GenCorp, as well as any person who has agreed to begin serving in such capacity
within 30 days of the date of the grant are eligible to be selected by New
GenCorp's Board to receive benefits under the plan. New GenCorp's Organization
and Compensation Committee will select those who will receive grants on the
basis of management objectives.
Option Rights. Option Rights entitle the optionee to purchase shares of New
GenCorp's common stock at a predetermined price per share (which may not be less
than the market value at the date of grant, except for non-qualified stock
options granted in lieu of salary or bonus, which may be not less than 85% of
the market value at the date of grant). Each grant will specify whether the
option price will be payable (1) in cash at the time of exercise, (2) by the
transfer to New GenCorp of shares of common stock owned by the optionee for at
least six months, having a value at the time of exercise equal to the option
price, (3) if authorized by New GenCorp's Board or its Organization and
Compensation Committee, the delivery of shares of Restricted Stock or other
forfeitable shares, Deferred Stock, Performance Stock, other vested Option
Rights, or (4) a combination of those payment methods. Grants may provide for
deferred payment of the option price from the proceeds of sale through a broker
on the date of exercise of some or all of the shares of New GenCorp's common
stock to which the exercise relates.
No Option Rights may be exercisable more than ten years from the date of
grant. Each grant must specify the period of continuous employment with New
GenCorp that is required before the Option Rights become exercisable. Grants may
provide for earlier exercise of an Option Right in the event of a "change in
control" of New GenCorp or other similar transactions or events. Grants may also
specify management objectives that must be achieved as a condition to the
exercise of the option. Successive grants may be made to the same optionee
whether or not previously granted Option Rights remain unexercised.
Restricted Stock. An award of Restricted Stock involves the immediate
transfer of ownership of a specific number of shares of New GenCorp common stock
by New GenCorp to a participant in consideration of the performance of services.
The participant is immediately entitled to voting, dividend and other ownership
rights in such shares. The transfer may be made without additional consideration
or in consideration of a payment by the participant that is less than current
market value, as the New GenCorp Board may determine. The New GenCorp Board may
condition the award on the achievement of specified management objectives.
Restricted Stock must be subject to a "substantial risk of forfeiture"
within the meaning of Section 83 of the Internal Revenue Code for a period to be
determined by the New GenCorp Board. An example would be a provision that the
Restricted Stock would be forfeited if the participant ceased to serve as an
officer or key employee of New GenCorp during a specified period of years. If
service alone is the criterion for non-forfeiture, the period of service must be
at least three years; if other management objectives are included,
non-forfeiture may
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occur one year from the date of grant. In order to enforce these forfeiture
provisions, the transferability of Restricted Stock will be prohibited or
restricted in a manner and to the extent prescribed by New GenCorp's Board for
the period during which the forfeiture provisions are to continue. New GenCorp's
Board may provide for a shorter period during which the forfeiture provisions
are to apply in the event of a change in control of New GenCorp or other similar
transaction or event.
Deferred Stock. An award of Deferred Stock constitutes an agreement by New
GenCorp to deliver shares of its common stock to the participant in the future
in consideration of the performance of services. However, the Deferred Stock
award may be subject to the fulfillment of certain conditions, such as
management objectives, during the deferral period specified by New GenCorp's
Board. During the deferral period, the participant cannot transfer any rights in
the award and has no right to vote the shares of Deferred Stock, but New
GenCorp's Board may, on or after the date of the award, authorize the payment of
dividend equivalents on such shares on a current, deferred or contingent basis,
either in cash or in additional shares of New GenCorp common stock. Awards of
Deferred Stock can be made without additional consideration or in consideration
of a payment by the participant that is less than the market value per share on
the date of award. Deferred Stock must be subject to performance of services for
at least three years; provided that if management objectives are included, the
performance of services must be for at least one year. New GenCorp's Board
determines the deferral period at the date of the award, and may provide for a
deferral period of less than three years in the event of a change in control of
New GenCorp or other similar transaction or event.
Performance Stock and Performance Units. Performance Stock and Performance
Units involve awards that become payable upon the achievement of specified
management objectives during a designated performance period. This performance
period may be subject to earlier termination in the event of death, retirement
or a change in control of New GenCorp or other similar transaction or event. A
minimum level of acceptable achievement may also be established by New GenCorp's
Board. If, by the end of the performance period, the participant has achieved
the specified management objectives, the participant will be deemed to have
fully earned the Performance Stock or Performance Units. If the participant has
not achieved the management objectives, but has attained or exceeded the
predetermined minimum, the participant will be deemed to have partly earned the
Performance Stock and/or Performance Units (such part to be determined in
accordance with a formula). To the extent earned, the Performance Stock and/or
Performance Units will be paid to the participant at the time and in the manner
determined by New GenCorp's Board in cash, shares of New GenCorp's common stock
or in any combination of those methods. Each award of Performance Stock or
Performance Units may be subject to adjustment to reflect changes in
compensation or other factors, so long as no adjustment would result in the loss
of an available exemption for the award under Section 162(m) of the Internal
Revenue Code. New GenCorp's Board or its Organization and Compensation Committee
may provide for the payment of dividend equivalents to the holder on a current,
deferred or contingent basis, either in cash or in additional New GenCorp common
stock.
Appreciation Rights. An Appreciation Right ("Appreciation Right") entitles
the holder by surrender of the related Option Right (if granted in connection
with Option Rights) or by itself (if granted as a free-standing Appreciation
Right), to receive from New GenCorp an amount equal to 100%, or a lesser
percentage as New GenCorp's Board may determine, of the spread between the
strike price (or the option price if granted in tandem with Option Rights) and
the then-current market value of New GenCorp's common stock. Any grant may
specify that the amount payable on exercise of an Appreciation Right may be paid
by New GenCorp in cash, in New GenCorp common stock, or in any combination of
the two, and may either grant to the optionee or retain in New GenCorp's Board
the right to elect among those alternatives. Any grant may specify that the
Appreciation Right may be exercised only in the event of a "change in control"
or other similar transaction or event. Any grant of Appreciation Rights may
specify management objectives that must be achieved as a condition to the
exercise of those rights.
Management Objectives. The plan requires that New GenCorp's Board establish
performance goals for purposes of Performance Stock and Performance Units. In
addition, if New GenCorp's Board so chooses, Option Rights, Restricted Stock and
Deferred Stock may also specify management objectives. Management objectives may
be described either in terms of firm-wide objectives, individual participant
objectives, or objectives related to performance of the division, subsidiary,
department or function within New GenCorp in which the participant is employed.
Management objectives applicable to any award may include specified levels of
and/or growth in
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(1) cash flow, (2) earnings per share, (3) earnings before interest and taxes,
(4) earnings per share growth, (5) net income, (6) return on assets, (7) return
on assets employed, (8) return on equity, (9) return on invested capital, (10)
return on total capital, (11) revenue growth, (12) stock price, (13) total
return to stockholders, (14) economic value added, (15) operating profit growth,
or any combination of those methods. If New GenCorp's Board determines that a
change in the business, operations, corporate structure or capital structure of
New GenCorp, or the manner in which it conducts its business, or other events or
circumstances render the management objectives unsuitable, New GenCorp's Board
may modify the management objectives or the related minimum acceptable level of
achievement, in whole or in part, as New GenCorp's Board deems appropriate and
equitable, unless the result would be to make an award otherwise eligible for an
exemption under Section 162(m) of the Internal Revenue Code ineligible for such
an exemption.
Transferability. Except as otherwise determined by New GenCorp's Board, no
Option Right or other award under the plan is transferable by a participant
other than by will or the laws of descent and distribution, or (except for
incentive stock options) to the participant's immediate family or trusts
established solely for the benefit of one or more members of the immediate
family. Except as otherwise determined by New GenCorp's Board, Option Rights are
exercisable during the optionee's lifetime only by him or her.
The Board of Directors may specify at the date of grant that part or all of
the shares of New GenCorp common stock that are (1) to be issued or transferred
by New GenCorp upon exercise of Option Rights, upon termination of the deferral
period applicable to Deferred Stock or upon payment under any grant of
Performance Stock or Performance Units or (2) no longer subject to the
substantial risk of forfeiture and restrictions on transfer referred to in the
plan, shall be subject to further restrictions on transfer.
Adjustments. The Plan provides that the number of shares available for
awards will be adjusted to account for (a) shares relating to awards that expire
or are forfeited under the Plan, or (b) shares that are transferred, surrendered
or relinquished in payment of the option exercise price for satisfaction of
withholding rules for the exercise or receipt of awards under the Plan. This
permits the grant of additional awards equal to the number of shares turned in
by award recipients. The maximum number of shares of New GenCorp common stock
covered by outstanding Option Rights, Deferred Stock, Performance Stock and
Restricted Stock granted under the plan, and the prices per share applicable to
those shares, are subject to adjustment in the event of stock dividends, stock
splits, combinations of shares, recapitalizations, mergers, consolidations,
spin-offs, reorganizations, liquidations, issuances of rights or warrants, and
similar events. In the event of any such transaction, New GenCorp's Board is
given discretion to provide a substitution of alternative consideration for any
or all outstanding awards under the plan, as it in good faith determines to be
equitable under the circumstances, and may require the surrender of all awards
so replaced. New GenCorp's Board may also make or provide for adjustments in the
numerical limitations under the plan as New GenCorp's Board may determine
appropriate to reflect any of the foregoing transactions or events.
New GenCorp's Board is authorized to interpret the plan and related
agreements and other documents. New GenCorp's Board may make awards to employees
under any or a combination of all of the various categories of awards that are
authorized under the plan, or in its discretion, make no awards. The plan may be
amended from time to time by New GenCorp's Board. However, any amendment that
must be approved by the shareholders of New GenCorp in order to comply with
applicable law or the rules of the principal national securities exchange or
quotation system upon which New GenCorp common stock is traded or quoted will
not be effective unless and until such approval has been obtained in compliance
with those applicable laws or rules. These amendments would include any increase
in the number of shares issued or certain other increases in awards available
under the plan (except for increases caused by adjustments made pursuant to the
plan). Presentation of the plan or any amendment of the plan for shareholder
approval is not to be construed to limit New GenCorp's authority to offer
similar or dissimilar benefits through plans that are not subject to shareholder
approval.
New GenCorp's Board may provide for special terms for awards to
participants who are foreign nationals or who are employed by New GenCorp
outside the United States of America as New GenCorp's Board may consider
necessary or appropriate to accommodate differences in local law, tax policy or
custom.
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The plan provides that awards representing no more than 3% of the shares
available under the plan may not be required to meet certain restrictions
otherwise applicable to restricted stock, deferred stock and performance stock
awards under the plan.
New GenCorp's Board may not, without further approval of its shareholders,
authorize the amendment of any outstanding Option Right to reduce the option
price. Furthermore, no Option Right may be canceled and replaced with awards
having a lower option price without further approval of the shareholders of New
GenCorp. The plan does not confer on any participant a right to continued
employment with New GenCorp.
Plan Benefits. Given the discretion of New GenCorp's Organization &
Compensation Committee in administering the plan, it is not possible to
determine in advance whether awards will be granted or how any types of awards
authorized under New GenCorp's 1999 Equity and Performance Incentive Plan will
be allocated among eligible participants. For information regarding options
granted to the New GenCorp Named Officers during fiscal 1998, see "New GenCorp
Management and Executive Compensation -- Summary Compensation Table."
FEDERAL INCOME TAX CONSEQUENCES
Following is a brief summary of some of the federal income tax consequences
of various transactions under the plan based on federal income tax laws in
effect on January 1, 1999. This summary is not intended to be exhaustive and
does not describe state or local tax consequences.
Option Rights. In general, (1) no income will be recognized by an optionee
at the time an Option Right which is not an Incentive Stock Option is granted;
(2) at exercise, ordinary income will be recognized by the optionee in an amount
equal to the difference between the option price paid for the shares and the
fair market value of the shares, if unrestricted, on the date of exercise; and
(3) at sale, appreciation (or depreciation) after the date of exercise will be
treated as either short-term or long-term capital gain (or loss) depending on
how long the shares have been held.
Incentive Stock Options. No income generally will be recognized by an
optionee upon the grant or exercise of an Incentive Stock Option. If shares of
New GenCorp common stock are issued to the optionee pursuant to the exercise of
an Incentive Stock Option, and if no disqualifying disposition of those shares
is made by that optionee within two years after the date of grant or within one
year after the transfer of those shares to the optionee, then upon sale of the
shares, any amount realized in excess of the option price will be taxed to the
optionee as a long-term capital gain and any loss sustained will be a long-term
capital loss.
If shares of New GenCorp common stock acquired upon the exercise of an
Incentive Stock Option are disposed of prior to the expiration of either holding
period described above, the optionee generally will recognize ordinary income in
the year of disposition in an amount equal to the excess (if any) of the fair
market value of such shares at the time of exercise (or, if less, the amount
realized on the disposition of such shares if a sale or exchange) over the
option price paid for those shares. Any further gain (or loss) realized by the
participant generally will be taxed as short-term or long-term capital gain (or
loss) depending on the holding period.
Restricted Stock. The recipient of Restricted Stock generally will be
subject to tax at ordinary income rates on the fair market value of the
Restricted Stock reduced by any amount paid by the participant at such time as
the shares are no longer subject to forfeiture or restrictions on transfer for
purposes of Section 83 of the Internal Revenue Code. However, a recipient who
elects under Section 83(b) of the Internal Revenue Code within 30 days of the
date of transfer of the shares will have taxable ordinary income on the date of
transfer of the shares equal to the excess of the fair market value of such
shares (determined without regard to the restrictions) over the purchase price
if any, of the Restricted Stock. If a Section 83(b) election has not been made,
any dividends received that relate to Restricted Stock subject to restrictions
generally will be treated as compensation that is taxable as ordinary income to
the participant.
Deferred Stock. No income generally will be recognized upon the award of
Deferred Stock. The recipient of a Deferred Stock award generally will be
subject to tax at ordinary income rates on the fair market value of unrestricted
shares of New GenCorp common stock on the date that the shares are transferred
to the participant under the award, reduced by any amount paid by the
participant, and the capital gains/loss holding period for such shares will also
commence on that date.
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Performance Stock and Performance Units. No income generally will be
recognized upon the grant of Performance Stock or Performance Units. Upon
payment with respect to Performance Stock or Performance Units earned, the
recipient generally will be required to include as taxable ordinary income in
the year of receipt an amount equal to the amount of cash received and the fair
market value of any unrestricted shares of New GenCorp common stock received.
Appreciation Rights. No income will be recognized by a participant in
connection with the grant of an Appreciation Right, whether or not it is granted
in connection with Option Rights. When the Appreciation Right is exercised, the
participant will be required to include as taxable ordinary income in the year
of exercise an amount equal to the amount of cash received and the fair market
value of any unrestricted New GenCorp common stock received on the exercise.
Special Rules Applicable to Officers and Directors. In limited
circumstances where the sale of stock received as a result of a grant or award
could subject an officer or director to suit under Section 16(b) of the
Securities Exchange Act of 1934, the tax consequences to the officer or director
may differ from the tax consequences described above. In these circumstances,
unless a special election has been made, the principal difference usually will
be to postpone valuation and taxation of the stock received so long as the sale
of the stock received could subject the officer or director to suit under
Section 16(b) of the Securities Exchange Act of 1934, but no longer than six
months.
Tax Consequences To Participant's Employer. To the extent that a
participant recognizes ordinary income in the circumstances described above, the
participant's employer will generally be entitled to a corresponding deduction,
provided, among other things, that the income meets the test of reasonableness,
does not, along with other income of the participant, exceed the limitation on
deductible compensation under Section 162(m) of the Internal Revenue Code, is an
ordinary and necessary business expense, and is not an "excess parachute
payment," and that any applicable withholding obligations are satisfied.
Compliance with Section 162(m) of the Internal Revenue Code. The plan is
intended to comply with rules for deductibility under Section 162(m) of the
Internal Revenue Code and will be administered in accordance with Section
162(m). Performance Units awarded to executives who are or may become subject to
Section 162(m) will provide for objective performance goals and are intended to
qualify for deductibility without regard to the limits of Section 162(m). The
maximum number of Option Rights of New GenCorp common stock that can be granted
to any participant during any period of three consecutive fiscal years is
1,000,000. The maximum number of shares of New GenCorp common stock covered by
awards of Restricted Stock, Deferred Stock or Performance Stock under the plan
cannot exceed 900,000 in the aggregate and, during any period of three
consecutive fiscal years, the maximum number of shares of New GenCorp common
stock covered by awards of Restricted Stock, Deferred Stock or Performance Stock
under the plan granted to any one participant cannot exceed 900,000 shares of
New GenCorp common stock. In addition, no participant, in any period of one
calendar year, may be granted Performance Units having an aggregate maximum
value greater than $2,000,000 on the date of the grant.
Withholding Taxes. To the extent that New GenCorp is required to withhold
federal, state, local or foreign taxes in connection with any payment made or
benefit realized by a participant under the plan, and the amounts available to
New GenCorp for that withholding are insufficient, it is a condition to the
receipt of payment or the realization of the benefit that the participant make
arrangements satisfactory to New GenCorp for payment of the balance of those
taxes required to be withheld, which arrangements (in the discretion of New
GenCorp's Board) may include relinquishment of a portion of that benefit. New
GenCorp and a participant or such other person may also make arrangements with
respect to payment in cash of any taxes with respect to which withholding is not
required. No common share or benefit witholding shall exceed the minimum
required witholding.
ACCOUNTING TREATMENT.
Performance Shares and Performance Units will require a charge against
income of New GenCorp periodically representing increases in the value of the
anticipated benefits. The charge is based on the dollar amount expected to be
paid at the end of the performance period. Restricted Stock and Deferred Stock
will require a charge against income equal to the fair market value of the
awarded shares at the time of award less the amount, if any, paid or payable by
the awardee. The charge is spread over the earn-out period for the Restricted or
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Deferred Stock. Given the variety of awards that may be made separately or in
combination under the plan, actual awards may result in periodic charges against
income in some other circumstances.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS.
Mr. Robert A. Wolfe's July 28, 1997 employment agreement provides an
initial base salary of $325,000 per annum and a guaranteed 1997 incentive bonus
equal to 50% of the bonus amount to which he would have been entitled if he had
been employed by Aerojet during the entire 1997 fiscal year. Upon his employment
date, Mr. Wolfe received an option to purchase 75,000 shares of GenCorp common
stock at an exercise price equal to the closing market price on his employment
date, and 12,300 restricted shares of GenCorp common stock. During a three-year
restriction period, Mr. Wolfe has full dividend and voting rights, but he will
forfeit 100% of the restricted shares if his employment at New GenCorp or
Aerojet terminates within three years of his employment date other than due to
death, disability or change-in-control of Aerojet. If Mr. Wolfe's employment
with Aerojet and New GenCorp terminates due to a change-in-control of Aerojet or
New GenCorp within five years of his employment date, New GenCorp will pay to
him the accrued pension benefits in which he failed to vest pursuant to the
terms of the Aerojet Consolidated Pension Plan and New GenCorp Benefits
Restoration Plan; if his employment with Aerojet and New GenCorp terminates for
any reason after three years from his employment date, New GenCorp will
guarantee a minimum annual retirement income of $57,239.
Mr. Terry Hall's May 6, 1999 employment agreement provides an initial base
salary of $310,000 per annum and a guaranteed 1999 incentive bonus equal to 75%
of his starting base salary. Upon his employment date, Mr. Hall received an
option to purchase 35,000 shares of GenCorp common stock at an exercise price
equal to the closing market price on his employment date, and 15,000 restricted
shares of GenCorp common stock. During a three-year restriction period, Mr. Hall
has full dividend and voting rights, but he will forfeit 100%, 66 2/3% and
33 1/3% respectively, of the restricted shares if his employment at New GenCorp
or Aerojet terminates within one year, two years or three years, respectively,
of his employment date, other than due to death, disability or change-
in-control of Aerojet. If the proposed Distribution is abandoned for any reason,
the total amount of restricted shares will be forfeited, Mr. Hall's annual
salary of $310,000 will be continued for one year from the date of abandonment
of the Distribution and he will be eligible for a payment equal to an additional
50% of his annual salary in consideration for lost incentive opportunity.
During 1997 the Board of Directors authorized GenCorp to enter into amended
and restated severance agreements with ten existing elected officers. The
severance agreements provide for a severance payment in an amount equal to the
officer's base salary plus bonus (as defined in the agreement) multiplied by a
factor of 3 in the case of the GenCorp Chief Executive Officer or a GenCorp
Senior Vice President, or by a factor of 2 for other covered officers, if within
three years after a change-in-control (as such term is defined in the
agreements), the officer's employment is terminated (1) by GenCorp for any
reason other than death, disability or cause, or (2) by the officer following
the occurrence of one or more adverse events enumerated in the agreement. The
agreements provide for payment of performance awards under the Long-Term
Incentive Program, continuation of health and life benefits for 24 or 36 months,
as appropriate, vesting of accrued retirement benefits, payment of the amount
required to cover excise taxes, if any, financial counseling, outplacement, and
accounting fees and costs of legal representation if required to enforce the
agreement. Mr. Wolfe's agreement includes a provision for payment of the same
severance compensation if his employment is terminated within three years after
a change-in-control of Aerojet. The severance agreements renew annually unless
terminated pursuant to their provisions.
GenCorp adopted the 1999 Key Employee Retention Plan which provides for
payment of up to two annual cash retention payments to eligible employees who
satisfactorily continue their employment with GenCorp, New GenCorp or Omnova
Solutions, attain specific performance objectives (including completion of the
Distribution) and meet all plan requirements. In the event that the Distribution
does not occur before February 1, 2000, for whatever reason, a pro rata share of
the retention payment will be made and there will be no obligation to pay any
future payments. To date, 14 key employees have received Key Employee Retention
Letter Agreements pursuant to the plan, providing for individual total retention
payments ranging from $75,000 to $800,000. Pursuant to the plan, the following
payments may be made to the Named New GenCorp Officers at the end of the first
and second years, respectively: Mr. Wolfe, $200,000 and $200,000; Mr. Phillips,
$175,000 and $175,000; Mr. Harmon, $100,000 and $50,000; Mr. Miotke, $75,000 and
$75,000; and Mr. Fischer, $75,000 and $75,000.
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GenCorp has adopted a transfer policy for some key employees of GenCorp who
will remain employees of New GenCorp after the Distribution. Transfer agreements
will provide (1) that the employee's salary and bonus opportunity will not be
reduced, (2) for continued eligibility to participate in any long-term incentive
plan which New GenCorp may adopt, (3) for a home equity buyout of the employee's
current residence, (4) for a relocation payment, equal to two times the
employee's monthly salary (grossed-up for tax liability) related to the
relocation of New GenCorp's executive offices from Ohio to California, and (5)
for Enhanced Involuntary Separation Pay if the employee is terminated without
cause within two years of the Distribution. To date, the following Named New
GenCorp Officers received transfer agreements: Mr. Phillips and Mr. Harmon.
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OMNOVA SOLUTIONS MANAGEMENT AND EXECUTIVE COMPENSATION
OMNOVA SOLUTIONS MANAGEMENT
The following table sets forth the names and information as to the persons
who are expected to serve as Directors and executive officers of Omnova
Solutions immediately after the Distribution. We anticipate that following the
Distribution, the number of directors on the Omnova Solutions Board will be set
at nine, and there will be three vacancies on the Omnova Solutions Board
following the Distribution. The Omnova Solutions Board may fill one or more of
those vacancies and those persons will serve until the annual meeting of Omnova
Solutions shareholders to be held in 2000, 2001 or 2002. GenCorp is currently
evaluating additional candidates to serve as additional directors of Omnova
Solutions following the Distribution.
<TABLE>
<CAPTION>
DIRECTOR OF EXPECTED POSITION
NAME AGE GENCORP SINCE WITH OMNOVA SOLUTIONS
---- --- ------------- ---------------------
<S> <C> <C> <C>
Edward P. Campbell................ 49 1999 Director
Charles A. Corry.................. 67 1995 Director
Diane E. McGarry.................. 49 1995 Director
Steven W. Percy................... 52 1997 Director
Dr. R. Byron Pipes................ 57 1993 Director
John B. Yasinsky.................. 60 1993 Chairman and Chief Executive
Officer; Director
Marvin W. Zima.................... 61 N/A Vice President; President,
Performance Chemicals Division
Kevin M. McMullen................. 38 N/A Vice President; President,
Decorative & Building Products
Division
Michael E. Hicks.................. 41 N/A Senior Vice President and Chief
Financial Officer
James C. LeMay.................... 42 N/A Senior Vice President, Law and
General Counsel
Nathaniel J. Mass................. 48 N/A Senior Vice President, Strategic
Growth
Gregory T. Troy................... 44 N/A Senior Vice President, Human
Resources
Cynthia A. Slack.................. 50 N/A Secretary
</TABLE>
EDWARD P. CAMPBELL
Mr. Campbell has served as President and Chief Executive Officer of Nordson
Corporation, Westlake, OH, an international manufacturer of industrial
application equipment, since 1997. Prior to that time, he was Chief Operating
Officer of Nordson from 1994 to 1997 and Vice President of Nordson from 1988 to
1994. He is also a director of KeyCorp, Cleveland, OH. Mr. Campbell is a member
of the Audit and Finance Committees of GenCorp's Board.
CHARLES A. CORRY
Mr. Corry currently serves as a director of USX Corporation, Pittsburgh,
PA, a producer of energy and metal products and until recently, Mr. Corry also
served as Chairman of the Executive Committee of USX. He was Chairman and Chief
Executive Officer of USX from 1989 until his retirement in 1995 and President
and a director since February 1988. He is also a director of Mellon Bank
Corporation and Mellon Bank, N.A., Pittsburgh, PA. Mr. Corry is Chairman of the
Organization & Compensation Committee and a member of the Finance, Nominating &
Corporate Governance and Executive Committees of the GenCorp Board.
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<PAGE> 108
DIANE E. MCGARRY
Ms. McGarry has served as Senior Vice President, Eastern Operations, North
American Solutions Group, of Xerox Corporation, Rochester, NY, a manufacturer of
copiers and electronic office equipment, since January 1999. She was previously
Vice President/General Manager of the Color Solutions Business Unit of Xerox
from March 1998 until January 1999; Chairman, President and Chief Executive
Officer of Xerox Canada Inc., North York, Ontario, Canada, from 1993 until March
1998; Director, Sales Operations for the United Kingdom for Rank Xerox, a joint
venture between Xerox and the Rank Organization from 1991 to 1993; and Executive
Assistant to the Chairman and Chief Executive Officer of Xerox from February
1990 to 1991. Ms. McGarry is a member of the Audit and Organization &
Compensation Committees and Chairperson of the Government Affairs &
Environmental Issues Committee of the GenCorp Board.
STEVEN W. PERCY
Mr. Percy has served as Chairman and Chief Executive Officer of BP America
Inc., Cleveland, OH, a petroleum extraction, refining and distribution company,
from 1996 until March 31, 1999 and the BP/Amoco merger. He was Executive Vice
President of BP America and President of BP Oil in the United States from 1992
to 1996; and Group Treasurer of the British Petroleum Company, plc and Chief
Executive of BP Finance International from 1989 until 1992. Mr. Percy is a
member of the Organization & Compensation and Nominating & Corporate Governance
Committees of the GenCorp Board.
DR. R. BYRON PIPES
Dr. Pipes has served as Distinguished Visiting Scientist, College of
William and Mary, Williamsburg, VA since 1998. He was the Seventeenth President
of Rensselaer Polytechnic Institute, Troy, NY from 1993 until 1998. He was
Provost of the University of Delaware from 1991 until 1993 and Dean of the
College of Engineering from 1985 until 1993. Dr. Pipes is Chairman of the
Nominating & Corporate Governance Committee and a member of the Executive and
Finance Committees of the GenCorp Board.
JOHN B. YASINSKY
Mr. Yasinsky has served as Chairman of the GenCorp Board since March 1995
and Chief Executive Officer and President of GenCorp since July 1994. He was
President and Chief Operating Officer of GenCorp from November 1993 until July
1994. Previously, he was Group President, Westinghouse Electric Corporation,
Pittsburgh, PA, a power generation and electrical equipment manufacturing
company, from February 1993 until November 1993 and President, Westinghouse
Power Systems from 1990 to 1993. He is also a director of CMS Energy
Corporation, Dearborn, MI and Consumers Power Company, Jackson, MI. Mr. Yasinsky
is Chairman of the Executive Committee of the GenCorp Board.
MARVIN W. ZIMA
Mr. Zima has served as Vice President of GenCorp since August 1994 and
President of GenCorp's Performance Chemicals business unit since 1991. He was
previously President and Chief Executive Officer of Uniroyal Engineered Products
from 1987 to 1991 and held various other management positions with Uniroyal from
1982 to 1987.
KEVIN M. MCMULLEN
Mr. McMullen has served as Vice President of GenCorp and President of
GenCorp's Decorative & Building Products business unit since September 1996. He
was previously General Manager of General Electric Corporation's Lighting
Division from 1991 to 1996 and Senior Engagement Manager at McKinsey and
Company, a business consulting firm, from 1985 to 1991.
MICHAEL E. HICKS
Mr. Hicks has served as Senior Vice President, Chief Financial Officer and
Treasurer of GenCorp since February 1999. He was previously Treasurer of GenCorp
since September 1994 and Director of Treasury of GenCorp from 1989 to 1994.
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<PAGE> 109
JAMES C. LEMAY
Mr. LeMay has served as Assistant General Counsel of GenCorp since May
1997. He was previously Senior Counsel of GenCorp from May 1990 to May 1997.
NATHANIEL J. MASS
Mr. Mass has served as Senior Vice President of Strategic Growth of GenCorp
since June 1996. He was previously Partner and Director of the Business Dynamics
Center, McKinsey and Company from 1994 to June 1996; Chief Executive Officer,
Light Sciences Inc. from 1991 to 1993 and Director of Worldwide Strategic
Planning, Exxon Chemical Company from 1988 to 1991.
GREGORY T. TROY
Mr. Troy has served as Director, Human Resources of Performance Chemicals
since December 1996. He was previously Director, Human Resources of Bosch
Braking Systems (formerly AlliedSignal) from 1995 to December 1996; Employee
Relations Area Manager Manufacturing of Mobil Corporation's Plastics Division
from 1994 to 1995; Senior Human Resources Advisor of Mobil's Petrochemicals
Division from 1993 to 1994 and Employee Relations Manager of Mobil's Houston
Olefina Plant from 1991 to 1993.
CYNTHIA A. SLACK
Ms. Slack has served as Assistant Secretary and Senior Counsel, Finance and
Securities of GenCorp since September 1997. Previously, Ms. Slack was Assistant
Secretary and Counsel, Finance and Securities of GenCorp from March 1997 to
September 1997 and Counsel, Finance and Securities of GenCorp since February
1990.
CLASSIFICATION OF OMNOVA SOLUTIONS BOARD
Omnova Solutions' certificate of incorporation will provide that the Omnova
Solutions Board will be divided into three classes of directors to be as nearly
equal in number of directors as possible. Class I will consist of John B.
Yasinsky and Dr. R. Byron Pipes and their current term of office will expire at
Omnova Solutions' 2000 annual meeting of shareholders. Class II will consist of
Diane E. McGarry and Steven W. Percy and their current term of office will
expire at Omnova Solutions' 2001 annual meeting of shareholders. Class III will
consist of Edward P. Campbell and Charles A. Corry and their current term of
office will expire at Omnova Solutions' 2002 annual meeting of shareholders. At
each annual shareholders' meeting, directors will be elected for a term of three
years and hold office until their successors are elected and qualified or until
their earlier removal or resignation. Newly created directorships resulting from
an increase in the number of directors or any vacancies on Omnova Solutions'
Board resulting from death, resignation, disqualification, removal or other
cause may be filled by a majority of the remaining directors then in office.
COMMITTEES
The Omnova Solutions Board is expected to have five standing committees:
(1) Organization & Compensation; (2) Audit; (3) Executive; (4) Finance; and (5)
Nominating & Corporate Governance.
ORGANIZATION & COMPENSATION COMMITTEE. The Organization & Compensation
Committee will review periodically the organization of Omnova Solutions and its
management, including major changes in the organization of Omnova Solutions and
the responsibility of management as proposed by the Chief Executive Officer. It
will monitor executive development and succession planning, review the
effectiveness and performance of senior management and make recommendations to
the Omnova Solutions Board concerning the appointment and removal of officers.
It will also periodically review the compensation philosophy, policies and
practices of Omnova Solutions and make recommendations to the Omnova Solutions
Board concerning major changes, as appropriate. It will annually review changes
in Omnova Solutions' employee benefit, savings and retirement plans and report
on those changes to the Omnova Solutions Board. The committee will also
administer Omnova Solutions' incentive and deferred compensation plans and
approve, and in some cases recommend to the Omnova Solutions Board for approval,
the compensation of employee-directors, officers, and principal executives of
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<PAGE> 110
Omnova Solutions. The members of the Organization & Compensation Committee are
expected to be Charles A. Corry, Chairman, Edward P. Campbell, Diane E. McGarry
and Steven W. Percy.
AUDIT COMMITTEE. The Audit Committee will review and evaluate the scope of
the audits to be performed, the adequacy of services performed by, and the fees
and compensation of the independent auditors and receive and review a report
from the independent auditors prior to the publication of Omnova Solutions'
audited financial statements. It will also consider and recommend to the Omnova
Solutions Board the selection of the independent auditors to examine the
consolidated financial statements of Omnova Solutions for the next year. It will
review and evaluate the scope and appropriateness of Omnova Solutions' internal
audit programs and plans and its system of internal control. The committee will
review and evaluate the appropriateness of Omnova Solutions' accounting
principles and practices and financial reporting and receive periodic reports
from the internal audit and law departments on a number of matters, including
compliance with Omnova Solutions' policy on legal and ethical conduct. Members
of the Audit Committee are expected to be: Steven W. Percy, Chairman, Edward P.
Campbell and Diane E. McGarry.
EXECUTIVE COMMITTEE. During the intervals between meetings of the Board of
Directors, the Executive Committee, unless restricted by resolution of the
Omnova Solutions Board, will be able to exercise, under the control and
direction of the Omnova Solutions Board, all of the powers of the Omnova
Solutions Board in the management and control of the business of Omnova
Solutions. Members of the Executive Committee are expected to be: John B.
Yasinsky, Chairman, Charles A. Corry and R. Byron Pipes.
FINANCE COMMITTEE. The Finance Committee will make recommendations to the
Omnova Solutions Board in regard to Omnova Solutions' planning with respect to
its capital structure and raising of its long-term capital and with regard to
dividend actions. It will review the performance and management of Omnova
Solutions' employee benefit funds and make recommendations to the Omnova
Solutions Board in regard to contributions to any pension plan, profit sharing,
retirement or savings plan of Omnova Solutions, or any proposed changes in the
funding method or interest assumption or in amortization of liabilities in
connection with funding any plan. Members of the Finance Committee are expected
to be: Edward P. Campbell, Chairman, Charles A. Corry, Steven W. Percy and R.
Byron Pipes.
NOMINATING & CORPORATE GOVERNANCE COMMITTEE. The Nominating & Corporate
Governance Committee will periodically review and make recommendations to the
Omnova Solutions Board concerning the criteria for selection and retention of
directors, the composition of the Omnova Solutions Board, structure and function
of Omnova Solutions Board committees, retirement policies and compensation and
benefits of directors. It will recommend to the Omnova Solutions Board qualified
candidates to serve as directors of Omnova Solutions and aid in attracting
qualified candidates to the Omnova Solutions Board. It will also consider and
make recommendations to the Omnova Solutions Board concerning direct nominations
submitted by shareholders. Members of the Nominating & Corporate Governance
Committee are expected to be: R. Byron Pipes, Chairman, Charles A. Corry and
Diane E. McGarry.
COMPENSATION OF DIRECTORS
Each nonemployee director of Omnova Solutions will receive a retainer of
$24,000 per year and an attendance fee of $1,000 for each Board and Committee
meeting attended. Nonemployee directors who served as Chairman of a committee of
the Omnova Solutions Board will receive an annual fee of $2,000 in consideration
of that service.
Nonemployee directors will be able to elect annually to defer all or a
percentage of their retainer, any committee Chairman's fee and meeting
attendance fees pursuant to a deferred compensation plan for nonemployee
directors. The plan will be unfunded, and deferred amounts will be credited, at
the election of the director, with phantom shares in an Omnova Solutions stock
fund, an S&P 500 index fund, or a cash deposit program. Deferred amounts and
earnings will be payable after termination of Omnova Solutions Board service in
either a lump sum or installments as elected by the director.
In March 1998 each GenCorp nonemployee director received 200 restricted
shares of GenCorp common stock. These restricted shares will vest March 25,
2000. In March 1999, each GenCorp nonemployee director
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<PAGE> 111
received 250 restricted shares of GenCorp common stock. These restricted shares
will vest on March 30, 2001. Vesting will be accelerated in full upon
resignation from the GenCorp Board to serve on the Omnova Solutions Board.
Dividends on restricted shares are automatically reinvested through GenCorp's
dividend reinvestment program unless a director chooses otherwise. All shares
may be voted, but ownership may not be transferred until service on the GenCorp
Board terminates. Unvested shares will be forfeited in the event of a voluntary
resignation (other than resignation to serve on the Omnova Solutions Board) or
refusal to stand for reelection, but vesting will be accelerated in the event of
death, disability or retirement pursuant to GenCorp's Retirement Plan for
Nonemployee Directors described below or upon the occurrence of a change in
control or announcement of a tender or exchange offer which would result in a
person holding beneficial ownership of 30% of more of the outstanding GenCorp
common stock.
Nonemployee directors of Omnova Solutions will be eligible for stock option
grants and restricted stock awards under the Omnova Solutions 1999 Equity and
Performance Incentive Plan.
Each nonemployee director who terminates his or her service on the Omnova
Solutions Board after at least 60 months of service (including service on the
GenCorp Board) will receive an annual retirement benefit equal to the retainer
in effect on the date the director's service terminates, payable in monthly
installments, until the number of monthly payments made equals the lesser of (1)
the individual's months of service as a director, or (2) 120 monthly payments.
In the event of death prior to payment of the applicable number of installments,
the aggregate amount of unpaid monthly installments will be paid, in a lump sum,
to the retired director's surviving spouse or other designated beneficiary, if
any, or to the retired director's estate.
Under the Omnova Solutions Board's retirement policy, a director's term of
office normally will expire at the annual meeting following his or her
seventieth birthday regardless of the term of the class for which the director
was last elected. Under special circumstances, however, the Omnova Solutions
Board may waive immediate compliance and request that a director postpone his or
her retirement until a later date.
Directors who are also employees of Omnova Solutions will not be
compensated separately for serving on the Omnova Solutions Board and will not be
paid a retainer or additional compensation for attendance at Board or committee
meetings.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The following tables set forth information concerning annual and long-term
compensation for services rendered to GenCorp for fiscal 1998, 1997 and 1996 by
those persons who are expected to be the Chief Executive Officer and the other
four most highly compensated executive officers of Omnova Solutions (determined
by reference to fiscal 1998 compensation) immediately following the Distribution
(the "Named Omnova Solutions Executive Officers").
105
<PAGE> 112
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
--------------------------------------- ----------------------------
AWARDS PAYOUTS
---------------------------- ------------
RESTRICTED LTIP
OTHER ANNUAL STOCK SECURITIES PAYOUTS ALL OTHER
NAME AND CURRENT SALARY BONUS COMPENSATION AWARDS UNDERLYING COMPENSATION COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) ($) OPTIONS/SARS(8) ($) ($)(12)(13)
------------------ ---- ------- ------- ------------ ---------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John B. Yasinsky............ 1998 695,833 800,000(1) 16,000(6) -- 85,000 420,000(9) 69,563
Chairman, Chief 1997 666,667 850,000(2) 16,000(6) -- 100,000 698,200(10) 54,466
Executive Officer 1996 620,833 600,000(3) 16,000(6) -- 100,000 281,266(11) 47,065
and President of GenCorp
Nathaniel J. Mass........... 1998 338,333 295,000(1) 6,643(7) -- 24,000 98,539(9) 28,050
Senior Vice President, 1997 320,833 285,000(2) 156,696(7) -- 30,000 -- 18,324
Strategic Growth of 1996 144,423 250,000(4) 2,621(7) -- 75,000 -- 6,066
GenCorp
Kevin M. McMullen........... 1998 275,000 225,000(1) -- -- 20,000 125,441(9) 20,063
Vice President; 1997 270,833 175,000(2) -- -- 25,000 -- 16,405
President, Decorative 1996 56,890 220,000(5) -- -- 75,000 -- 1,876
& Building Products
business unit of GenCorp
Marvin W. Zima.............. 1998 211,667 208,000(1) 10,000(6) -- 15,000 24,143(9) 15,266
Vice President; 1997 202,500 87,000(2) 10,000(6) -- 15,000 74,456(10) 16,782
President of 1996 187,500 140,000(3) 10,000(6) -- 15,000 88,545(11) 16,478
Performance Chemicals
business unit of GenCorp
Michael E. Hicks............ 1998 160,000 66,900(1) -- -- 5,000 42,175(9) 14,002
Senior Vice President 1997 150,883 75,200(2) -- -- 13,000 70,271(10) 11,930
and Chief Financial 1996 129,667 50,000(3) -- -- 7,000 -- 9,912
Officer of GenCorp
</TABLE>
- ---------------
(1) Elected officers received 20% of their net 1998 incentive bonuses in shares
of GenCorp common stock (based upon the closing price on January 29, 1999
as reported on the NYSE) as follows: Mr. Yasinsky, 4,163 shares; Mr. Mass,
1,416 shares; Mr. McMullen, 1,146 shares; Mr. Zima, 1,639 shares; and Mr.
Hicks, 1,480 shares.
(2) Elected officers received 20% of their net 1997 incentive bonuses in shares
of GenCorp common stock (based upon the closing price on January 30, 1998
as reported on the NYSE) as follows: Mr. Yasinsky, 4,179 shares; Mr. Mass
1,349 shares; Mr. McMullen, 837 shares; Mr. Zima, 2,344 shares; and Mr.
Hicks, 2,178 shares.
(3) Messrs. Yasinsky, Zima and Hicks received part payment of their 1996
incentive bonuses in shares of GenCorp common stock (based upon the closing
price on January 20, 1997 as reported on the NYSE) as follows: Mr.
Yasinsky, 9,140 shares; Mr. Zima, 1,278 shares; and Mr. Hicks, 122 shares.
(4) Includes a 1996 year-end payment of $100,000 and a one-time payment of
$150,000 pursuant to Mr. Mass' employment agreement to compensate him for
loss of a 1996 bonus from his former employer.
(5) Includes a 1996 year-end incentive bonus of $125,000 and a hiring bonus of
$95,000 pursuant to Mr. McMullen's employment agreement.
(6) Cash allowance in lieu of a company provided automobile. Perquisites and
other personal benefits provided to the Named Omnova Solutions Officers
during 1998, 1997 and 1996 did not exceed disclosure thresholds established
by the Securities and Exchange Commission.
(7) Reimbursement for taxes payable in connection with relocation.
(8) Shares of GenCorp common stock underlying options granted pursuant to the
GenCorp Inc. 1997 and 1993 Stock Option Plans.
(9) Amounts paid for the 1996-1998 performance period under GenCorp's Long-Term
Incentive Program. The net amount, after tax withholding, was paid in
shares of GenCorp common stock based upon the January 29, 1999 closing
price on the NYSE.
(10) Amounts paid for the 1995-1997 performance period under GenCorp's Long-Term
Incentive Program. The net amount, after tax withholding, was paid in
shares of GenCorp common stock based upon the January 30, 1998 closing
price on the NYSE. Messrs. Mass and McMullen did not participate during the
1995-1997 performance period.
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<PAGE> 113
(11) Awards paid for the 1994-1996 performance period under GenCorp's Long-Term
Incentive Program. Messrs. Mass, McMullen and Hicks did not participate
during the 1994-1996 performance period.
(12) Amounts accrued as dividend and interest earnings on prior years' awards
under GenCorp's Stock Incentive Compensation Plan. Dividends declared on
common stock credited to the executive's account in the trust fund are
credited to the executive's account as an additional number of shares
determined by dividing the aggregate amount of the dividend by the market
value of common stock on the dividend date. The actual value of the shares
distributed on a future payment date will be based upon the market value of
GenCorp common stock at the future payment date. Amounts accrued during
1998, and the number of shares attributable thereto were: Mr. Zima, $1,826
or 73 shares and Mr. Hicks, $3,418 or 137 shares. Messrs. Yasinsky, Mass
and McMullen did not participate in the Plan.
(13) Company contributions to the executive's account in the GenCorp Retirement
Savings Plan and, where applicable, the amount credited to the executive's
account in GenCorp's Benefits Restoration Plan, a nonfunded plan which
restores to the individual's account amounts otherwise excluded due to
limitations imposed by the Internal Revenue Code on contributions and
includable compensation under qualified plans. Amounts credited during 1998
were: Mr. Yasinsky $69,563, Mr. Mass $28,050, Mr. McMullen $20,063, Mr.
Zima $13,440 and Mr. Hicks $10,584.
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<PAGE> 114
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL
UNDERLYING OPTIONS/SARS
OPTIONS/SARS GRANTED TO EXERCISE OR
GRANTED EMPLOYEES BASE PRICE EXPIRATION
NAME (#) (1) IN FISCAL YEAR ($ /SHARE)(2) DATE
---- ------------ -------------- ---------------- ----------
<S> <C> <C> <C> <C>
John B. Yasinsky..... 85,000 11.30% $30.1875 3-25-08
Nathaniel J. Mass.... 24,000 3.19 $30.1875 3-25-08
Kevin M. McMullen.... 20,000 2.66 $30.1875 3-25-08
Marvin W. Zima....... 15,000 1.99 $30.1875 3-25-08
Michael E. Hicks..... 15,000 0.66 $30.1875 3-25-08
All Shareholders(5).. N/A N/A N/A N/A
<CAPTION>
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE APPRECIATION FOR OPTION TERM
(TEN YEARS)(3)(4)
-------------------------------------------------
NAME 0% ($) 5% ($) 10% ($)
---- ----------- ---------------- ----------------
<S> <C> <C> <C>
John B. Yasinsky..... $ 0 1,613,704 4,089,444
Nathaniel J. Mass.... 0 455,634 1,154,666
Kevin M. McMullen.... 0 379,695 962,222
Marvin W. Zima....... 0 284,771 721,667
Michael E. Hicks..... 0 94,924 240,556
All Shareholders(5).. 0 2,041,909,423 3,251,399,497
</TABLE>
- ---------------
(1) Non-qualified stock options granted pursuant to the GenCorp Inc. 1997 Stock
Option Plan ("Plan") for the number of shares of GenCorp common stock
indicated. No stock appreciation rights were granted in 1998. Options become
exercisable in 25% increments on September 22, 1998 and March 25, 1999, 2000
and 2001, respectively.
(2) Exercise price equals the closing market price of GenCorp common stock on
the date of grant on the NYSE.
(3) The 0%, 5% and 10% appreciation over 10 years' option valuation method
assumes a stock price of $30.1875, $49.17 and $78.30, respectively, at March
25, 2008.
(4) The potential realizable values are shown in the table in conformity with
Securities and Exchange Commission regulations, and are not intended to
forecast possible future appreciation. GenCorp is not aware of any formula
which will predict with reasonable accuracy the future appreciation of
equity securities. No benefit can be realized by optionees without an
appreciation in stock price, which will benefit all shareholders
commensurately.
(5) Based upon 41,525,640 shares of GenCorp common stock outstanding on December
31, 1998.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
SHARES OPTIONS/SARS AT FISCAL YEAR MONEY OPTIONS /SARS AT
ACQUIRED END (#)(1) FISCAL YEAR END ($)
ON VALUE ---------------------------- ----------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John B. Yasinsky....... 0 0 444,050 138,750 $4,304,787 $484,375
Nathaniel J. Mass...... 2,000 $12,625 75,250 51,750 606,531 264,844
Kevin M. McMullen...... 0 0 73,750 46,250 667,969 269,531
Marvin W. Zima......... 0 0 14,750 21,250 108,375 56,250
Michael E. Hicks....... 0 0 20,050 10,250 181,213 36,563
</TABLE>
- ---------------
(1) No SARs have been issued under the Plan.
108
<PAGE> 115
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE
PAYOUTS UNDER NON-
STOCK PRICE-BASED
PERFORMANCE OR PLANS(2)(3)
NUMBER OF OTHER PERIOD UNTIL --------------------
SHARES, UNITS OR MATURATION OR THRESHOLD TARGET MAXIMUM
NAME OTHER RIGHTS PAYOUT ($) ($) ($)
---- ---------------- ------------------ --------- ------- -------
<S> <C> <C> <C> <C> <C>
John B. Yasinsky............. (1) 3 Years 224,375 448,750 897,500
Nathaniel J. Mass............ (1) 3 Years 63,333 126,667 253,333
Kevin M. McMullen............ (1) 3 Years 49,583 99,167 198,333
Marvin W. Zima............... (1) 3 Years 30,617 61,233 122,467
Michael E. Hicks............. (1) 3 Years 23,520 47,040 94,080
</TABLE>
- ---------------
(1) Indicates awards under the GenCorp Inc. Long-Term Incentive Program
("Program") pursuant to which key employees designated by the Organization &
Compensation Committee of the GenCorp Board may receive incentive payments
equal to specified percentages of average annual compensation (salary and
bonus paid under GenCorp's Executive Incentive Compensation Program) upon
attainment of specified threshold, target or maximum levels of financial
performance ("performance goals") over a three-year performance period. For
the 1998-2000 performance period, threshold, target and maximum performance
goals for corporate officers are designated percentages of corporate return
on assets employed and earnings per share growth, and for business unit
presidents, designated percentages of corporate and business unit return on
assets employed and operating profit growth for their respective business
units. No payments are made under the Program if financial performance for
the performance period falls below threshold levels.
(2) Percentages of average annual compensation (determined for the three-year
performance period) payable to participants upon attainment of performance
goals for the 1998-2000 performance period are as follows:
<TABLE>
<CAPTION>
THRESHOLD TARGET MAXIMUM
--------- ------ -------
<S> <C> <C> <C>
GenCorp Chairman, CEO and President....................... 15% 30% 60%
GenCorp Senior Vice Presidents / Other Corporate
Officers................................................ 10% 20% 40%
GenCorp Business Unit Presidents.......................... 10% 20% 40%
</TABLE>
(3) For purposes of the table above, estimated future payouts have been
calculated on the basis of the participant's 1998 fiscal year salary and
bonus shown in the Summary Compensation Table above. Performance awards
under GenCorp's Long-Term Incentive Program for the three-year performance
period ending November 30, 1999 will be determined based upon (1) actual
performance up to the date of the special dividend contemplated by the
Distribution, and (2) budgeted performance, for the remainder of the period,
according to GenCorp's annual operating plan. Pro rata performance awards
will be paid under the GenCorp plan for the performance periods ending
November 30, 2000 and November 30, 2001. Pro rata performance awards for
each partial performance period will be determined based upon (1) actual
performance up to the date of the special dividend contemplated by the
Distribution, and (2) budgeted performance, for the remainder of the fiscal
year ending November 30, 1999, according to GenCorp's annual operating plan.
PENSION BENEFITS
GenCorp's salaried pension plans include several formulas for the
determination of benefits, and require that the formula providing the highest
benefit be utilized to determine an individual employee's actual benefit.
Benefits for Messrs. Mass, McMullen, Zima and Hicks have been determined
pursuant to a formula which utilizes five-year average compensation for years of
service prior to December 1, 1999 and a career average formula for service from
December 1, 1999 to normal retirement. The benefit for Mr. Yasinsky has been
determined pursuant to the terms of his employment agreement. Estimated benefits
are shown below because the required calculations do not lend themselves to a
typical pension plan table where benefits can be determined by the reader solely
upon the basis of years of service and final compensation.
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<TABLE>
<CAPTION>
APPROXIMATE ESTIMATED
YEARS OF CREDITED ANNUAL BENEFITS
SERVICE AT PAYABLE AT
NAME NORMAL RETIREMENT NORMAL RETIREMENT(1)
---- ----------------- --------------------
<S> <C> <C>
John B. Yasinsky(2)...................................... 41 $885,442
Nathaniel J. Mass........................................ 19 224,647
Kevin M. McMullen........................................ 29 245,717
Marvin W. Zima........................................... 11 58,915
Michael E. Hicks......................................... 45 163,780
</TABLE>
- ---------------
(1) Retirement benefits shown in the table for Messrs. Mass, McMullen, Zima and
Hicks were calculated pursuant to the terms of the Pension Plan for Salaried
Employees of GenCorp Inc. (the "GenCorp Pension Plan"). There is no offset
for Social Security payments. Mr. Yasinsky's retirement benefit has been
determined pursuant to the supplemental pension provisions of his employment
agreement described under " -- Employment Contracts and Termination of
Employment and Change in Control Arrangements."
The benefits shown are estimated and have not been adjusted for any survivor
option. Each estimated benefit is based upon the assumption that the
executive will remain an employee until age 65 at a rate of compensation
equivalent to that in effect on December 1, 1998 and that the pension plan
under which the estimated benefit is calculated will remain unchanged.
Benefits for Messrs. Mass, McMullen, Zima and Hicks have been determined by
a formula which provides for a benefit (A) for years of service prior to
December 1, 1999 of (1) 1.125% of five-year average compensation ("average
compensation") up to the average Social Security wage base ("ASSWB") plus
1.5% of average compensation in excess of the ASSWB multiplied by the total
of such years of service up to 35 years and (2) 1.5% of average compensation
multiplied by the total years of service in excess of 35 years, and (B) for
each year of service after December 1, 1999 (1) prior to attainment of 35
years of service, 1.625% of annual compensation up to the ASSWB plus 2.0% of
annual compensation in excess of the ASSWB, and (2) after attainment of 35
years of service, 2.0% of annual compensation.
The benefits shown in the table have not been reduced to reflect either (1)
the limitation on includable compensation or the overall benefit limitation
imposed on pension plans qualified under Section 401(a) of the Code, or (2)
a plan's own exclusions from includable compensation, since the amount of
any of those reductions will be restored to the individual pursuant to the
terms of GenCorp's Benefits Restoration Plan, a nonfunded plan with benefits
payable out of the general assets of GenCorp.
(2) Mr. Yasinsky's benefit is the product of (1) total years of service
(including 30 years credited upon Mr. Yasinsky's employment with GenCorp,
plus additional years accrued as an employee with Omnova Solutions until age
65), (2) 1.47%, and (3) the average of his five highest years of
compensation (salary and incentive bonus only) during the ten years
preceding retirement. Under the terms of Mr. Yasinsky's employment
agreement, amounts determined pursuant to the foregoing formula will be paid
out of GenCorp funds and will be offset by any payments made from the
GenCorp Pension Plan and the pension plan of his prior employer.
OMNOVA SOLUTIONS 1999 EQUITY AND PERFORMANCE INCENTIVE PLAN
Omnova Solutions desires to establish an equity performance and incentive
plan in order to integrate GenCorp's existing stock option and long-term
incentive plans and to more closely align the interests of its executives with
those of Omnova Solutions' shareholders. For this purpose, subject to the
approval of the shareholders, Omnova Solutions has adopted the Omnova Solutions
1999 Equity and Performance Incentive Plan. A copy of the plan is attached to
this proxy statement as Annex D. A summary of the plan is set forth below.
Approximately 8 officers, 50 key employees and 8 nonemployee directors of
Omnova Solutions are expected to be eligible to receive awards under the plan.
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PLAN SUMMARY
General. Under the plan, Omnova Solutions' Board is authorized to make
awards of (1) options to purchase shares of Omnova Solutions' common stock, (2)
performance stock and performance units, (3) restricted stock, (4) deferred
stock or (5) appreciation rights. Omnova Solutions' Organization and
Compensation Committee will be authorized to oversee the plan and to make awards
and grants under the plan.
Shares Available Under the Plan. The number of shares of Omnova Solutions'
common stock that may be issued or transferred (1) upon the exercise of options
("Option Rights"), (2) as restricted stock ("Restricted Stock") and released
from all substantial risks of forfeiture, (3) as deferred stock ("Deferred
Stock"), (4) in payment of performance stock ("Performance Stock") or
performance units ("Performance Units") that have been earned, (5) in payment of
dividend equivalents paid with respect to awards made under the plan, or (6) in
payment of appreciation rights may not exceed a total of 2,400,000, subject to
some adjustments pursuant to the terms of the plan. These shares of common stock
may be original issue or treasury shares or a combination of both.
Eligibility. Officers, key employees and nonemployee directors of Omnova
Solutions, as well as any person who has agreed to begin serving in such
capacity within 30 days of the date of the grant are eligible to be selected by
Omnova Solutions' Board to receive benefits under the plan. Omnova Solutions'
Organization and Compensation Committee will select those who will receive
grants on the basis of management objectives.
Option Rights. Option Rights entitle the optionee to purchase shares of
Omnova Solutions' common stock at a predetermined price per share (which may not
be less than the market value at the date of grant, except for non-qualified
stock options granted in lieu of salary or bonus, which may be not less than 85%
of the market value at the date of grant). Each grant will specify whether the
option price will be payable (1) in cash at the time of exercise, (2) by the
transfer to Omnova Solutions of shares of common stock owned by the optionee for
at least six months, having a value at the time of exercise equal to the option
price, (3) if authorized by Omnova Solutions' Board or its Organization and
Compensation Committee, the delivery of shares of Restricted Stock or other
forfeitable shares, Deferred Stock, Performance Stock, other vested Option
Rights, or Performance Units, or (4) a combination of those payment methods.
Grants may provide for deferred payment of the option price from the proceeds of
sale through a broker on the date of exercise of some or all of the shares of
Omnova Solutions' common stock to which the exercise relates.
No Option Rights may be exercisable more than ten years from the date of
grant. Each grant must specify the period of continuous employment with Omnova
Solutions that is required before the Option Rights become exercisable. Grants
may provide for earlier exercise of an Option Right in the event of a "change in
control" of Omnova Solutions or other similar transactions or events. Grants may
also specify management objectives that must be achieved as a condition to the
exercise of the option. Successive grants may be made to the same optionee
whether or not previously granted Option Rights remain unexercised.
Restricted Stock. An award of Restricted Stock involves the immediate
transfer of ownership of a specific number of shares of Omnova Solutions common
stock by Omnova Solutions to a participant in consideration of the performance
of services. The participant is immediately entitled to voting, dividend and
other ownership rights in such shares. The transfer may be made without
additional consideration or in consideration of a payment by the participant
that is less than current market value, as the Omnova Solutions Board may
determine. The Omnova Solutions Board may condition the award on the achievement
of specified management objectives.
Restricted Stock must be subject to a "substantial risk of forfeiture"
within the meaning of Section 83 of the Internal Revenue Code for a period to be
determined by the Omnova Solutions Board. An example would be a provision that
the Restricted Stock would be forfeited if the participant ceased to serve as an
officer or key employee of Omnova Solutions during a specified period of years.
If service alone is the criterion for non-forfeiture, the period of service must
be at least three years; if other management objectives are included, non-
forfeiture may occur one year from the date of grant. In order to enforce these
forfeiture provisions, the transferability of Restricted Stock will be
prohibited or restricted in a manner and to the extent prescribed by Omnova
Solutions' Board for the period during which the forfeiture provisions are to
continue. Omnova
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Solutions' Board may provide for a shorter period during which the forfeiture
provisions are to apply in the event of a change in control of Omnova Solutions
or other similar transaction or event.
Deferred Stock. An award of Deferred Stock constitutes an agreement by
Omnova Solutions to deliver shares of its common stock to the participant in the
future in consideration of the performance of services. However, the Deferred
Stock award may be subject to the fulfillment of certain conditions, such as
management objectives, during the deferral period specified by Omnova Solutions'
Board. During the deferral period, the participant cannot transfer any rights in
the award and has no right to vote the shares of Deferred Stock, but Omnova
Solutions' Board may, on or after the date of the award, authorize the payment
of dividend equivalents on such shares on a current, deferred or contingent
basis, either in cash or in additional shares of Omnova Solutions common stock.
Awards of Deferred Stock can be made without additional consideration or in
consideration of a payment by the participant that is less than the market value
per share on the date of award. Deferred Stock must be subject to performance of
services for at least three years; provided that if management objectives are
included, the performance of services must be for at least one year. Omnova
Solutions' Board determines the deferral period at the date of the award, and
may provide for a deferral period of less than three years in the event of a
change in control of Omnova Solutions or other similar transaction or event.
Performance Stock and Performance Units. Performance Stock and Performance
Units involve awards that become payable upon the achievement of specified
management objectives during a designated performance period. This performance
period may be subject to earlier termination in the event of death, retirement
or a change in control of Omnova Solutions or other similar transaction or
event. A minimum level of acceptable achievement may also be established by
Omnova Solutions' Board. If, by the end of the performance period, the
participant has achieved the specified management objectives, the participant
will be deemed to have fully earned the Performance Stock or Performance Units.
If the participant has not achieved the management objectives, but has attained
or exceeded the predetermined minimum, the participant will be deemed to have
partly earned the Performance Stock and/or Performance Units (such part to be
determined in accordance with a formula). To the extent earned, the Performance
Stock and/or Performance Units will be paid to the participant at the time and
in the manner determined by Omnova Solutions' Board in cash, shares of Omnova
Solutions common stock or in any combination of those methods. Each award of
Performance Stock or Performance Units may be subject to adjustment to reflect
changes in compensation or other factors, so long as no adjustment would result
in the loss of an available exemption for the award under Section 162(m) of the
Internal Revenue Code. Omnova Solutions' Board or its Organization and
Compensation Committee may provide for the payment of dividend equivalents to
the holder on a current, deferred or contingent basis, either in cash or in
additional Omnova Solutions common stock.
Appreciation Rights. An Appreciation Right ("Appreciation Right") entitles
the holder, by surrender of the related Option Right (if granted in connection
with Option Rights) or by itself (if granted as a free-standing Appreciation
Right), to receive from Omnova Solutions an amount equal to 100%, or a lesser
percentage as Omnova Solutions' Board may determine, of the spread between the
strike price (or the option price if granted in tandem with Option Rights) and
the then-current market value of Omnova Solutions' common stock. Any grant may
specify that the amount payable on exercise of an Appreciation Right may be paid
by Omnova Solutions in cash, in Omnova Solutions common stock, or in any
combination of the two, and may either grant to the optionee or retain in Omnova
Solutions' Board the right to elect among those alternatives. Any grant may
specify that the Appreciation Right may be exercised only in the event of a
"change in control" or other similar transaction or event. Any grant of
Appreciation Rights may specify management objectives that must be achieved as a
condition to the exercise of those rights.
Management Objectives. The plan requires that Omnova Solutions' Board
establish performance goals for purposes of Performance Stock and Performance
Units. In addition, if Omnova Solutions' Board so chooses, Option Rights,
Restricted Stock and Deferred Stock may also specify management objectives.
Management objectives may be described either in terms of firm-wide objectives,
individual participant objectives, or objectives related to performance of the
division, subsidiary, department or function within Omnova Solutions in which
the participant is employed. Management objectives applicable to any award may
include specified levels of and/or growth in (1) cash flow, (2) earnings per
share, (3) earnings before interest and taxes, (4) earnings per share growth,
(5) net income, (6) return on assets, (7) return on assets employed (8) return
on equity, (9) return on
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invested capital, (10) return on total capital, (11) revenue growth, (12) stock
price, (13) total return to stockholders, (14) economic value added, (15)
operating profit growth, or any combination of those methods. If Omnova
Solutions' Board determines that a change in the business, operations, corporate
structure or capital structure of Omnova Solutions, or the manner in which it
conducts its business, or other events or circumstances render the management
objectives unsuitable, Omnova Solutions' Board may modify the performance goals
or the related minimum acceptable level of achievement, in whole or in part, as
Omnova Solutions' Board deems appropriate and equitable, unless the result would
be to make an award otherwise eligible for an exemption under Section 162(m) of
the Internal Revenue Code ineligible for such an exemption.
Transferability. Except as otherwise determined by Omnova Solutions' Board,
no Option Right or other award under the plan is transferable by a participant
other than by will or the laws of descent and distribution, or (except for
incentive stock options) to the participant's immediate family or trusts
established solely for the benefit of one or more members of the immediate
family. Except as otherwise determined by Omnova Solutions' Board, Option Rights
are exercisable during the optionee's lifetime only by him or her.
The Board of Directors may specify at the date of grant that part or all of
the shares of Omnova Solutions common stock that are (1) to be issued or
transferred by Omnova Solutions upon exercise of Option Rights, upon termination
of the deferral period applicable to Deferred Stock or upon payment under any
grant of Performance Stock or Performance Units or (2) no longer subject to the
substantial risk of forfeiture and restrictions on transfer referred to in the
plan, shall be subject to further restrictions on transfer.
Adjustments. The Plan provides that the number of shares available for
awards will be adjusted to account for (a) shares relating to awards that expire
or are forfeited under the Plan, or (b) shares that are transferred, surrendered
or relinquished in payment of the option exercise price for satisfaction of
withholding rules for the exercise or receipt of awards under the Plan. This
permits the grant of additional awards equal to the number of shares turned in
by award recipients. The maximum number of shares of Omnova Solutions common
stock covered by outstanding Option Rights, Deferred Stock, Performance Stock
and Restricted Stock granted under the plan, and the prices per share applicable
to those shares, are subject to adjustment in the event of stock dividends,
stock splits, combinations of shares, recapitalizations, mergers,
consolidations, spin-offs, reorganizations, liquidations, issuances of rights or
warrants, and similar events. In the event of any such transaction, Omnova
Solutions' Board is given discretion to provide a substitution of alternative
consideration for any or all outstanding awards under the plan, as it in good
faith determines to be equitable under the circumstances, and may require the
surrender of all awards so replaced. Omnova Solutions' Board may also make or
provide for adjustments in the numerical limitations under the plan as Omnova
Solutions' Board may determine appropriate to reflect any of the foregoing
transactions or events.
Omnova Solutions' Board is authorized to interpret the plan and related
agreements and other documents. Omnova Solutions' Board may make awards to
employees under any or a combination of all of the various categories of awards
that are authorized under the plan, or in its discretion, make no awards. The
plan may be amended from time to time by Omnova Solutions' Board. However, any
amendment that must be approved by the shareholders of Omnova Solutions in order
to comply with applicable law or the rules of the principal national securities
exchange or quotation system upon which Omnova Solutions common stock is traded
or quoted will not be effective unless and until such approval has been obtained
in compliance with those applicable laws or rules. These amendments would
include any increase in the number of shares issued or certain other increases
in awards available under the plan (except for increases caused by adjustments
made pursuant to the plan). Presentation of the plan or any amendment of the
plan for shareholder approval is not to be construed to limit Omnova Solutions'
authority to offer similar or dissimilar benefits through plans that are not
subject to shareholder approval.
Omnova Solutions' Board may provide for special terms for awards to
participants who are foreign nationals or who are employed by Omnova Solutions
outside the United States of America as Omnova Solutions' Board may consider
necessary or appropriate to accommodate differences in local law, tax policy or
custom.
The plan provides that awards representing no more than 3% of the shares
available under the plan may not be required to meet certain restrictions
otherwise applicable to restricted stock, deferred stock and performance stock
awards under the plans.
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Omnova Solutions' Board may not, without further approval of its
shareholders, authorize the amendment of any outstanding Option Right to reduce
the option price. Furthermore, no Option Right may be canceled and replaced with
awards having a lower option price without further approval of the shareholders
of Omnova Solutions. The plan does not confer on any participant a right to
continued employment with Omnova Solutions.
Plan Benefits. Given the discretion of Omnova Solutions' Organization &
Compensation Committee in administering the plan, it is not possible to
determine in advance, whether awards will be granted or how any types of awards
authorized under Omnova Solutions 1999 Equity and Performance Incentive Plan
will be allocated among eligible participants. For information regarding options
granted to the Omnova Solutions Named Officers during fiscal 1998, see "Omnova
Solutions Management and Executive Compensation -- Summary Compensation Table."
FEDERAL INCOME TAX CONSEQUENCES
Following is a brief summary of some of the federal income tax consequences
of various transactions under the plan based on federal income tax laws in
effect on January 1, 1999. This summary is not intended to be exhaustive and
does not describe state or local tax consequences.
Option Rights. In general, (1) no income will be recognized by an optionee
at the time an Option Right which is not an Incentive Stock Option is granted;
(2) at exercise, ordinary income will be recognized by the optionee in an amount
equal to the difference between the option price paid for the shares and the
fair market value of the shares, if unrestricted, on the date of exercise; and
(3) at sale, appreciation (or depreciation) after the date of exercise will be
treated as either short-term or long-term capital gain (or loss) depending on
how long the shares have been held.
Incentive Stock Options. No income generally will be recognized by an
optionee upon the grant or exercise of an Incentive Stock Option. If shares of
Omnova Solutions common stock are issued to the optionee pursuant to the
exercise of an Incentive Stock Option, and if no disqualifying disposition of
those shares is made by that optionee within two years after the date of grant
or within one year after the transfer of those shares to the optionee, then upon
sale of the shares, any amount realized in excess of the option price will be
taxed to the optionee as a long-term capital gain and any loss sustained will be
a long-term capital loss.
If shares of Omnova Solutions common stock acquired upon the exercise of an
Incentive Stock Option are disposed of prior to the expiration of either holding
period described above, the optionee generally will recognize ordinary income in
the year of disposition in an amount equal to the excess (if any) of the fair
market value of such shares at the time of exercise (or, if less, the amount
realized on the disposition of such shares if a sale or exchange) over the
option price paid for those shares. Any further gain (or loss) realized by the
participant generally will be taxed as short-term or long-term capital gain (or
loss) depending on the holding period.
Restricted Stock. The recipient of Restricted Stock generally will be
subject to tax at ordinary income rates on the fair market value of the
Restricted Stock reduced by any amount paid by the participant at such time as
the shares are no longer subject to forfeiture or restrictions on transfer for
purposes of Section 83 of the Internal Revenue Code. However, a recipient who
elects under Section 83(b) of the Internal Revenue Code within 30 days of the
date of transfer of the shares will have taxable ordinary income on the date of
transfer of the shares equal to the excess of the fair market value of such
shares (determined without regard to the restrictions) over the purchase price
if any, of the Restricted Stock. If a Section 83(b) election has not been made,
any dividends received that relate to Restricted Stock subject to restrictions
generally will be treated as compensation that is taxable as ordinary income to
the participant.
Deferred Stock. No income generally will be recognized upon the award of
Deferred Stock. The recipient of a Deferred Stock award generally will be
subject to tax at ordinary income rates on the fair market value of unrestricted
shares of Omnova Solutions common stock on the date that the shares are
transferred to the participant under the award, reduced by any amount paid by
the participant, and the capital gains/loss holding period for such shares will
also commence on that date.
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Performance Stock and Performance Units. No income generally will be
recognized upon the grant of Performance Stock or Performance Units. Upon
payment with respect to Performance Stock or Performance Units earned, the
recipient generally will be required to include as taxable ordinary income in
the year of receipt an amount equal to the amount of cash received and the fair
market value of any unrestricted shares of Omnova Solutions common stock
received.
Appreciation Rights. No income will be recognized by a participant in
connection with the grant of an Appreciation Right, whether or not it is granted
in connection with Option Rights. When the Appreciation Right is exercised, the
participant will be required to include as taxable ordinary income in the year
of exercise an amount equal to the amount of cash received and the fair market
value of any unrestricted Omnova Solutions common stock received on the
exercise.
Special Rules Applicable to Officers and Directors. In limited
circumstances where the sale of stock received as a result of a grant or award
could subject an officer or director to suit under Section 16(b) of the
Securities Exchange Act of 1934, the tax consequences to the officer or director
may differ from the tax consequences described above. In these circumstances,
unless a special election has been made, the principal difference usually will
be to postpone valuation and taxation of the stock received so long as the sale
of the stock received could subject the officer or director to suit under
Section 16(b) of the Securities Exchange Act of 1934, but no longer than six
months.
Tax Consequences To Participant's Employer. To the extent that a
participant recognizes ordinary income in the circumstances described above, the
participant's employer will generally be entitled to a corresponding deduction,
provided, among other things, that the income meets the test of reasonableness,
does not, along with other income of the participant, exceed the limitation on
deductible compensation under Section 162(m) of the Internal Revenue Code, is an
ordinary and necessary business expense, and is not an "excess parachute
payment," and that any applicable withholding obligations are satisfied.
Compliance with Section 162(m) of the Internal Revenue Code. The plan is
intended to comply with rules for deductibility under Section 162(m) of the
Internal Revenue Code and will be administered in accordance with Section
162(m). Performance Units awarded to executives who are or may become subject to
Section 162(m) will provide for objective performance goals and are intended to
qualify for deductibility without regard to the limits of Section 162(m). The
maximum number of Option Rights of Omnova Solutions common stock that can be
granted to any participant during any period of three consecutive fiscal years
is 900,000. The maximum number of shares of Omnova Solutions common stock
covered by awards of Restricted Stock, Deferred Stock or Performance Stock under
the plan cannot exceed 800,000 in the aggregate and, during any period of three
consecutive fiscal years, the maximum number of shares of Omnova Solutions
common stock covered by awards of Restricted Stock, Deferred Stock or
Performance Stock under the plan granted to any one participant cannot exceed
800,000 shares of Omnova Solutions common stock. In addition, no participant, in
any period of one calendar year, may be granted Performance Units having an
aggregate maximum value greater than $2,000,000 on the date of the grant.
Withholding Taxes. To the extent that Omnova Solutions is required to
withhold federal, state, local or foreign taxes in connection with any payment
made or benefit realized by a participant under the plan, and the amounts
available to Omnova Solutions for that withholding are insufficient, it is a
condition to the receipt of payment or the realization of the benefit that the
participant make arrangements satisfactory to Omnova Solutions for payment of
the balance of those taxes required to be withheld, which arrangements (in the
discretion of Omnova Solutions' Board) may include relinquishment of a portion
of that benefit. Omnova Solutions and a participant or such other person may
also make arrangements with respect to payment in cash of any taxes with respect
to which withholding is not required. No common share or benefit withholding
shall exceed the minimum required withholding.
ACCOUNTING TREATMENT.
Performance Shares and Performance Units will require a charge against
income of Omnova Solutions periodically representing increases in the value of
the anticipated benefits. The charge is based on the dollar amount expected to
be paid at the end of the performance period. Restricted Stock and Deferred
Stock will require a charge against income equal to the fair market value of the
awarded shares at the time of award less the
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amount, if any, paid or payable by the awardee. The charge is spread over the
earn-out period for the Restricted or Deferred Stock. Given the variety of
awards that may be made separately or in combination under the plan, actual
awards may result in periodic charges against income in some other
circumstances.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
If the Directors remove Mr. Yasinsky from the position of Chairman and CEO
of GenCorp or Omnova Solutions prior to age 65 for any reason other than for
"cause" as defined in his October 18, 1993 employment agreement, Mr. Yasinsky
may elect to terminate his employment and receive (a) a termination payment
equal to two times the sum of (1) his annual base salary at the time of
termination and (2) his incentive bonus for the last completed fiscal year
preceding termination, and (b) a supplemental pension determined as described in
footnote (2) under "Pension Benefits". The agreement also provides that Mr.
Yasinsky will participate in the GenCorp Pension Plan and that his supplemental
pension will be offset by the amount of any pension payment made from the
GenCorp Pension Plan and pension payment received from his former employer. The
normal form of payment of the supplemental pension will be a 50% or 100% joint
and survivor annuity, unless Mr. Yasinsky elects a lump-sum payment. If elected,
the amount of any lump-sum payment will be calculated using the then-current
interest rate for 30-year Treasury securities, as approved by the GenCorp Board
for the calculation of lump-sum payments under all GenCorp benefit plans and
deferred compensation arrangements. In the event of death prior to electing a
payment option, the supplemental pension will be paid to Mr. Yasinsky's
surviving spouse for her life, calculated as if he had attained age 62, retired,
and elected a joint and 100% survivor annuity. In the event of disability prior
to age 62, GenCorp or Omnova Solutions will pay Mr. Yasinsky an amount equal to
60% of his base monthly salary (offset for payments received under Social
Security) until eligible for supplemental pension benefits at age 62.
Mr. Nathaniel J. Mass' May 13, 1996 employment agreement provided an
initial base salary of $300,000 per annum, increasing to $325,000 on February 1,
1997, a one time bonus of $150,000 to compensate him for loss of an expected
bonus payment from his prior employer, a prorated 1996 incentive bonus, with a
minimum of $75,000 and an option to purchase 75,000 shares of GenCorp common
stock at an exercise price equal to the closing market price on his employment
date. If Mr. Mass' employment is terminated by GenCorp, for reasons other than
for cause or due to disability or mandatory retirement, he will be eligible to
receive separation pay in the form of (a) continuing base salary at the rate in
effect on the date of termination and (b) continuing bonus payments, each in the
annualized amount of his last bonus payment preceding the date of termination,
for a period not to exceed the shortest of (1) two years from the date of
termination, or (2) until he obtains comparable employment.
Mr. Kevin McMullen's July 16, 1996 employment agreement provided an initial
base salary of $250,000 per annum, subject to pro-rata adjustment at the end of
the 1996 fiscal year, a one-time hiring bonus of $95,000, a 1996 incentive bonus
of $125,000, and an option to purchase 75,000 shares of GenCorp common stock at
an exercise price equal to the closing market price on his employment date. If
Mr. McMullen's employment is terminated by GenCorp other than for cause,
disability or retirement, he will be eligible for continuation of his base
salary in effect at termination for a period not to exceed the shorter of (1)
eighteen months or (2) until he obtains comparable employment.
GenCorp adopted the 1999 Key Employee Retention Plan which provides for
payment of up to two annual cash retention payments to eligible employees who
satisfactorily continue their employment with GenCorp, New GenCorp or Omnova
Solutions, attain specific performance objectives (including completion of the
Distribution) and meet all plan requirements. In the event that the Distribution
does not occur before February 1, 2000, for whatever reason, a pro rata share of
the retention payment will be made and there will be no obligation to pay any
future payments. To date, 14 key employees have received Key Employee Retention
Letter Agreements pursuant to the plan, providing for individual total retention
payments ranging from $75,000 to $800,000. Pursuant to the plan, the following
payments may be made to the following Named Omnova Solutions Officers at the end
of the first and second years, respectively: Mr. Yasinsky, $200,000 and
$600,000; Mr. McMullen, $150,000 and $150,000; Mr. Mass, $150,000 and $150,000;
Mr. Zima, $150,000 and $150,000; and Mr. Hicks, $75,000 and $75,000.
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At the time of the Distribution, it is intended that Omnova Solutions will
assume the foregoing employment contracts and termination of employment and
change-in-control arrangements with appropriate modifications. Omnova Solutions
will either assume current GenCorp severance agreements with appropriate
modifications or will enter into severance agreements with Omnova Solutions
officers who currently are not parties to such agreements. These severance
agreements will be substantially similar to the severance agreements of New
GenCorp. See "New GenCorp Management and Executive Compensation." Agreements for
Messrs. Yasinsky and Mass each will include a requirement that any amount which
may become payable under the severance agreement be offset by any amount which
may be paid under the individual executive's employment agreement as a result of
termination of employment due to a change-in-control. Mr. Yasinsky's agreement
will provide that he may terminate his employment for any reason, or without
reason, during the 30-day period immediately following the date six months after
the occurrence of a change-in-control, with the right to severance compensation
under this agreement.
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DESCRIPTION OF NEW GENCORP CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
GenCorp's authorized capital stock currently consists of 90,000,000 shares
of common stock, $0.10 par value per share, and 15,000,000 shares of Cumulative
Preference Stock, $1.00 par value per share. If the proposed amendment to
GenCorp's articles of incorporation to increase the authorized shares of capital
stock is approved, then, upon the effective date of that amendment, New
GenCorp's authorized capital stock will consist of 150,000,000 shares of common
stock, $0.10 par value per share, and 15,000,000 shares of Cumulative Preference
Stock, $1.00 par value per share. See "Proposed Amendments to the Amended
Articles of Incorporation and Amended Code of Regulations of GenCorp -- Increase
of Authorized Shares of GenCorp Common Stock." Based on the number of shares of
GenCorp common stock outstanding on the record date for the special meeting,
there will be approximately 41,817,650 shares of New GenCorp common stock
outstanding after the Distribution. Currently, there are no shares of GenCorp's
Cumulative Preference Stock outstanding.
COMMON STOCK
Subject to rights of any holders of Cumulative Preference Stock, each
outstanding share of New GenCorp common stock will be entitled to dividends as
may be declared from time to time by the Board of Directors of New GenCorp. See
"Dividend Policies -- New GenCorp's Dividend Policy." Each outstanding share of
New GenCorp common stock is entitled to one vote on all matters submitted to a
vote of shareholders. Pursuant to the New GenCorp articles of incorporation,
holders of New GenCorp common stock do not have the right to cumulative voting;
therefore, the holders of a majority of the shares voting for the election of
the Board of Directors of New GenCorp can elect all the directors standing for
election if they so choose. In the event of liquidation, dissolution or winding
up of New GenCorp, holders of New GenCorp common stock are entitled to receive
on a pro rata basis any assets remaining after provision for payment of
creditors and any holders of Cumulative Preference Stock.
NO PREEMPTIVE RIGHTS
Under the New GenCorp articles, no holder of New GenCorp common stock will
have any preemptive right to subscribe for any additional shares of New GenCorp.
BOARD OF DIRECTORS
The New GenCorp Board will be divided into three classes of directors, as
nearly equal in number as possible, serving staggered terms. Approximately 1/3
of the members of the GenCorp Board will be elected each year.
CERTAIN ANTI-TAKEOVER PROVISIONS RELATING TO NEW GENCORP
The GenCorp articles of incorporation and code of regulations currently
contain certain provisions that may make the acquisition of control of New
GenCorp more difficult. In addition, New GenCorp will have a shareholders rights
plan, and will be subject to the provisions of the Ohio General Corporation Law
relating to takeovers. See "Proposed Amendments to the Amended Articles of
Incorporation and Amended Code of Regulations of GenCorp -- Other Anti-Takeover
Provisions."
If the amendments relating to the GenCorp articles of incorporation and
code of regulations are approved, New GenCorp's articles of incorporation and
code of regulations will contain additional anti-takeover provisions. See
"Proposed Amendments to the Amended Articles of Incorporation and Amended Code
of Regulations of GenCorp."
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DESCRIPTION OF OMNOVA SOLUTIONS CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
After the Distribution, Omnova Solutions' authorized capital stock will
consist of 150,000,000 shares of common stock, $0.10 par value per share, and
15,000,000 shares of preferred stock, $1.00 par value per share. Based on the
number of shares of GenCorp common stock outstanding on the record date for the
special meeting, approximately 41,817,650 shares of Omnova Solutions common
stock will be transferred by GenCorp to its shareholders in the Distribution.
Currently, there are no shares of Omnova Solutions preferred stock outstanding.
OMNOVA SOLUTIONS COMMON STOCK
Subject to rights of any holders of preferred stock, each outstanding share
of Omnova Solutions common stock will be entitled to such dividends as may be
declared from time to time by the Board of Directors of Omnova Solutions. See
"Dividend Policies -- Omnova Solutions Dividend Policy." Each outstanding share
of Omnova Solutions common stock will be entitled to one vote on all matters
submitted to a vote of shareholders. After the Distribution, pursuant to the
Omnova Solutions Articles of Incorporation, holders of Omnova Solutions common
stock will not have the right to cumulative voting; therefore, the holders of a
majority of the shares voting for the election of the Board of Directors of
Omnova Solutions will be able to elect all the directors standing for election,
if they so choose. In the event of liquidation, dissolution or winding up of
Omnova Solutions, holders of Omnova Solutions common stock will be entitled to
receive on a pro rata basis any assets remaining after provision for payment of
creditors and any holders of Omnova Solutions Preferred Stock.
NO PREEMPTIVE RIGHTS
Except as may be provided in any Preferred Stock Designation, no holder of
any class of stock of Omnova Solutions authorized at the time of the
Distribution will have any preemptive right to subscribe to any securities of
Omnova Solutions of any kind.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
One of the effects of the existence of unissued and unreserved Omnova
Solutions common stock may be to enable the Omnova Solutions Board to render
more difficult or to discourage an attempt to obtain control of Omnova Solutions
by means of a merger, tender offer, proxy contest or otherwise, and thereby to
protect the continuity of Omnova Solutions' management. If, in the due exercise
of its fiduciary obligations, for example, the Omnova Solutions Board were to
determine that a takeover proposal was not in Omnova Solutions' best interests,
such shares could be issued by the Omnova Solutions Board without shareholder
approval in one or more private placements or other transactions that might
prevent or render more difficult or costly the completion of the takeover
transaction by diluting the voting or other rights of the proposed acquiror or
insurgent shareholder or shareholder group, by creating a substantial voting
block in institutional or other hands that might undertake to support the
position of the incumbent Omnova Solutions Board, or by effecting an acquisition
that might complicate or preclude the takeover.
Although Ohio law and the Omnova Solutions Articles would not require
shareholder approval to issue authorized shares, the NYSE, on which the Omnova
Solutions common stock is expected to be listed, requires shareholder approval
of certain issuances as a condition of listing the additional shares or, in some
instances, of continued listing of the outstanding shares.
In addition, certain other provisions of the Omnova Solutions articles of
incorporation and Omnova Solutions code of regulations, which are described
below, may have the effect, alone or in combination with each other or with the
existence of authorized but unissued shares of capital stock, of rendering more
difficult or discouraging an acquisition of Omnova Solutions deemed undesirable
by the Omnova Solutions Board. See "Certain Anti-Takeover Provisions Relating to
Omnova Solutions."
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CERTAIN ANTI-TAKEOVER PROVISIONS RELATING TO OMNOVA SOLUTIONS
Omnova Solutions' articles of incorporation contain several provisions that
may make the acquisition of control of Omnova Solutions by means of a tender
offer, open market purchase, proxy fight, or otherwise more difficult. Omnova
Solutions' code of regulations also contain provisions that could have an
anti-takeover effect.
These provisions of Omnova Solutions' articles of incorporation and code of
regulations are designed to encourage persons seeking to acquire control of
Omnova Solutions to negotiate the terms with the Omnova Solutions Board. Omnova
Solutions believes that, as a general rule, the interest of Omnova Solutions
shareholders would be served best if any change in control results from
negotiations with the Omnova Solutions Board based upon careful consideration of
the proposed terms, such as the price to be paid to shareholders, the form of
consideration to be paid and the anticipated tax effects of the transaction.
The provisions could, however, have the effect of discouraging a
prospective acquiror from making a tender offer or otherwise attempting to
obtain control of Omnova Solutions. To the extent that these provisions
discourage takeover attempts, they could deprive shareholders of opportunities
to realize takeover premiums for their shares. Moreover, these provisions could
discourage accumulations of large blocks of Omnova Solutions common stock, thus
depriving shareholders of any advantages which large accumulations of stock
might provide.
Set forth below is a summary of the relevant provisions of Omnova
Solutions' articles of incorporation and code of regulations and certain
applicable sections of the Ohio General Corporation Law. Such summary does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all of the provisions of Omnova Solutions' articles of
incorporation and code of regulations, which will be filed as exhibits to the
Registration Statement on Form 10 to be filed by Omnova Solutions with the
Securities and Exchange Commission.
CONTROL SHARE ACQUISITIONS
Section 1701.831 of the Ohio General Corporation Law provides that certain
notice and informational filings and special shareholder meeting and voting
procedures must be followed prior to consummation of a proposed "control share
acquisition." The Ohio General Corporation Law defines a "control share
acquisition" as any acquisition of an issuer's shares which would entitle the
acquiror, immediately after that acquisition, directly or indirectly, to
exercise or direct the exercise of voting power of the issuer in the election of
directors within any of the following ranges of that voting power:
- one-fifth or more but less than one-third of that voting power;
- one-third or more but less than a majority of that voting power; or
- a majority or more of that voting power.
Assuming compliance with the notice and information filings prescribed by
statute, the proposed control share acquisition may be made only if, at a
special meeting of shareholders, the acquisition is approved by both a majority
of the voting power of the issuer represented at the meeting and a majority of
the voting power remaining after excluding the combined voting power of the
"interested shares." "Interested shares" are the shares held by the intended
acquiror, the employee-directors and officers of the issuer as well as certain
shares that were acquired after the date of the first public disclosure of the
acquisition but before the record date for the shareholders meeting and shares
that were transferred, together with the voting power thereof, after the record
date for the shareholders meeting.
BUSINESS COMBINATIONS WITH CERTAIN PERSONS
Omnova Solutions is subject to Chapter 1704 of the Ohio General Corporation
Law, which prohibits certain business combinations and transactions between an
"issuing public corporation" and an "Ohio law interested shareholder" for at
least three years after the Ohio law interested shareholder attains 10%
ownership, unless the board of directors of the issuing public corporation
approves the transaction before the Ohio law interested shareholder attains 10%
ownership. An "issuing public corporation" is an Ohio corporation with 50 or
more shareholders that has its principal place of business, principal executive
offices, or substantial assets within the State of Ohio, and as to which no
close corporation agreement exists. An "Ohio law interested shareholder" is a
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beneficial owner of 10% or more of the shares of a corporation. Examples of
transactions regulated by Chapter 1704 include the disposition of assets,
mergers and consolidations, voluntary dissolutions and the transfer of shares.
Subsequent to the three-year period, a transaction subject to Chapter 1704
may take place provided that certain conditions are satisfied, including:
- prior to the interested shareholder's share acquisition date, the
board of directors approved the purchase of shares by the interested
shareholder;
- the transaction is approved by the holders of shares with at least
66 2/3% of the voting power of the corporation (or a different
proportion set forth in the articles of incorporation), including at
least a majority of the outstanding shares after excluding shares
controlled by the Ohio law interested shareholder; or
- the business combination results in shareholders, other than the
Ohio law interested shareholder, receiving a fair price plus
interest for their shares.
Chapter 1704 is applicable to all corporations formed under Ohio law.
CLASSIFIED BOARD OF DIRECTORS
The Omnova Solutions code of regulations provides for the Omnova Solutions
Board to be divided into three classes of directors, as nearly equal in number
as possible, serving staggered terms. Approximately 1/3 of the Board is to be
elected each year. See "Management -- Board of Directors."
The provision for a classified board could prevent a party who acquires
control of a majority of the outstanding voting stock from obtaining control of
the Omnova Solutions Board until the second annual shareholders meeting
following the date the acquiror obtains a controlling stock interest. The
classified board provision could have the effect of discouraging a potential
acquiror from making a tender offer or otherwise attempting to obtain control of
Omnova Solutions and could increase the likelihood that incumbent directors will
retain their positions.
Omnova Solutions believes that a classified board will help to assure the
continuity and stability of the Omnova Solutions Board and Omnova Solutions'
business strategies and policies as determined by the Omnova Solutions Board,
because a majority of the directors will eventually have prior experience as
directors of Omnova Solutions.
The classified board provisions should also help to ensure that the Omnova
Solutions Board, if confronted with an unsolicited proposal from a third party
that has acquired a block of the voting stock of Omnova Solutions, will have
sufficient time to review the proposal and appropriate alternatives and to seek
the best available result for all shareholders.
NUMBER OF DIRECTORS; REMOVAL; VACANCIES
The Omnova Solutions code of regulations provides that the number of
directors shall be set either by resolution of the Omnova Solutions Board
adopted by the affirmative vote of a majority of the Omnova Solutions Board or
by the affirmative vote of the holders of at least 80% of the voting power of
Omnova Solutions, voting together as a single class; provided that the number of
directors shall not be fewer than seven or greater than 17.
Pursuant to the Omnova Solutions code of regulations, each director will
serve until his or her successor is duly elected and qualified, unless he or she
resigns, dies, becomes disqualified, or is removed. Omnova Solutions' code of
regulations prohibits the removal of directors from the Omnova Solutions Board
by the shareholders. Further, the Omnova Solutions code of regulations prohibits
removal of directors by the directors, except when the director to be removed:
- has been found by a court of competent jurisdiction to be of unsound
mind, or if he or she is adjudicated bankrupt;
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- has failed to qualify as a director by accepting in writing his or
her election or by acting at a meeting of the Omnova Solutions
Board;
- is unable to engage in any substantial gainful activity by reason of
any medically determinable physical or mental impairment that is
expected to be permanent;
- has, since his or her election as a director, been convicted of a
crime constituting a felony or involving fraud, embezzlement or
theft; or
- has, since his or her election as a director, been found by a court
of competent jurisdiction in a civil action to have breached his or
her duty of loyalty to the company or any other company.
The Omnova Solutions code of regulations further provides that generally
vacancies or newly created directorships in the Omnova Solutions Board may only
be filled by a resolution approved by a majority of the Omnova Solutions Board
and any director so chosen will hold office until the next election of the class
for which such director was chosen.
SHAREHOLDER ACTION; SPECIAL MEETINGS
Under the Ohio General Corporation Law, unless prohibited by the articles
of incorporation or the code of regulations, any action by shareholders
generally must be taken at a meeting, unless a written consent stating the
action to be taken is signed by all the shareholders who would be entitled to
notice of the meeting held to consider the subject matter of the written
consent. Omnova Solutions' code of regulations does not prohibit shareholders
from acting by written consent.
Under the Ohio General Corporation Law, a special meeting of shareholders
may be called by the chairman, the president, the directors by action at a
meeting, a majority of the directors voting without a meeting, persons owning
25% of the outstanding shares entitled to vote at that meeting, or a less or
greater proportion as specified in the articles or regulations but not greater
than 50%, or the person(s) authorized to do so by the articles of incorporation
or the code of regulations. Omnova Solutions' code of regulations provides that
special meetings of shareholders may be called by the Chairman of the Omnova
Solutions Board, the President of Omnova Solutions, a majority of the directors
acting with or without a meeting or by any person or persons who hold not less
than 50% of all shares entitled to vote at that shareholders meeting.
SHAREHOLDER PROPOSALS AND NOMINATIONS
Omnova Solutions' code of regulations establishes an advance notice
procedure for shareholder proposals to be brought before an annual or special
meeting of shareholders of Omnova Solutions, including proposed nominations of
persons for election to the Omnova Solutions Board. Shareholders at an annual or
special meeting may only consider proposals or nominations brought before the
meeting by Omnova Solutions, by or at the direction of the Board or by a
shareholder that was a shareholder of record on the record date for the meeting,
that is entitled to vote at the meeting and that has given to Omnova Solutions'
Secretary timely written notice, in proper form, of the shareholder's intention
to bring that business before the meeting.
To be timely, notice by shareholders of nominations or proposals to be
brought before any annual meeting of shareholders, or before any special meeting
of shareholders, must be delivered to the Secretary of Omnova Solutions not less
than 60 nor more than 90 calendar days prior to the first anniversary of the
date on which Omnova Solutions first mailed its proxy materials for the
preceding year's annual meeting of shareholders, provided, however, that if the
date of the annual meeting is advanced more than 30 calendar days prior to or
delayed by more than 30 calendar days after the anniversary of the preceding
year's annual meeting, notice by the shareholder to be timely must be so
delivered not later than the close of business on the later of the 90th calendar
day prior to such annual meeting or the 10th calendar day following the day on
which public announcement of the date of such meeting is first made.
Each notice by shareholders must set forth (1) the name and address of the
shareholder who intends to make the nomination or proposal and of any beneficial
owner on whose behalf the nomination or proposal is made and (2) the class and
number of shares of Omnova Solutions common stock that are owned beneficially
and of record
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by such shareholder and beneficial owner, if any. In the case of a shareholder
proposal, the notice must also set forth a brief description of the business
desired to be brought before the meeting, the reasons for conducting such
business at the meeting and any material interest of such shareholder or
beneficial owner, if any, in that proposed business. In the case of nomination
of any person for election as a director, the notice must also set forth any
information regarding the nominee proposed by the shareholder that would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Commission and the consent, if so required, of the nominee to be named in
a proxy statement as a candidate for election and to serve as a director of
Omnova Solutions if elected.
Although Omnova Solutions' code of regulations does not give the Omnova
Solutions Board the power to approve or disapprove shareholder nominations of
candidates or proposals regarding other business to be conducted at a special or
annual meeting, Omnova Solutions' code of regulations may have the effect of
precluding the conduct of certain business at a meeting if the proper procedures
are not followed or may discourage or defer a potential acquiror from conducting
a solicitation of proxies to elect its own slate of directors or otherwise
attempting to obtain control of Omnova Solutions.
PREFERRED STOCK
The Omnova Solutions articles of incorporation establish three series of
Omnova Solutions preferred stock, and authorize the Omnova Solutions Board to
determine, with respect to any series, the terms and rights of such series
(other than voting), including dividend and liquidation rights.
The provisions authorizing the Omnova Solutions Board to issue Omnova
Solutions preferred stock in series with such terms as it may designate will
provide Omnova Solutions with flexibility in structuring possible future
financings and acquisitions, and in meeting other corporate needs which might
arise. The authorized shares of Omnova Solutions preferred stock, as well as
shares of Omnova Solutions common stock, will be available for issuance without
further action by shareholders, unless such action is required by applicable law
or the rules of the NYSE. Those rules require shareholder approval as a
prerequisite to listing shares in several instances, including where the present
or potential issuance of shares could result in an increase in the number of
shares of common stock, or in the amount of voting securities outstanding of at
least 20%.
Although the Omnova Solutions Board has no present intention of doing so,
it could issue a series of Omnova Solutions preferred stock that could,
depending on its terms, impede the completion of a takeover attempt, including
one in which shareholders might receive a premium for their stock over the then
current market price.
AMENDMENT OF CHARTER DOCUMENTS
Ohio law permits the adoption of amendments to the articles of
incorporation if those amendments are approved at a meeting held for that
purpose by the holders of shares entitling them to exercise two-thirds of the
voting power of the corporation, or a lesser, but not less than a majority, or
greater vote as specified in the articles of incorporation. Amendment of Omnova
Solutions' articles of incorporation requires the approval of the holders of at
least 66 2/3% of the voting power then outstanding, except that amendment of any
of the following provisions requires the affirmative vote of the holders of
shares of Omnova Solutions entitled to exercise 80% of the voting power of
Omnova Solutions:
- Article V, which relates to the board's ability to determine the
terms and rights of series of Omnova Solutions preferred stock;
- Article VI, which relates to the elimination of cumulative voting;
- Article VII, which relates to the elimination of pre-emptive rights;
and
- Article VIII, which relates to the directors' authority to purchase
any securities of Omnova Solutions.
Under the Ohio General Corporation Law, a code of regulations may be
adopted, amended or repealed only by approval of the shareholders either at a
meeting of shareholders by the affirmative vote of the holders of shares
entitling them to exercise a majority of the voting power on that proposal or by
written consent signed by holders
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of shares entitling them to exercise 66 2/3% of the voting power on that
proposal, or if the regulations so provide, by the affirmative vote or written
consent of the holders of shares entitling them to exercise a greater or lesser
proportion, but not less than a majority of the voting power. Omnova Solutions'
code of regulations provides that the code of regulations may be amended at any
meeting of shareholders, provided that any such amendment proposed for
consideration has been described in the notice of meeting. Omnova Solutions'
code of regulations further provides that amendment of any of the following
provisions requires the affirmative vote of the holders of shares of Omnova
Solutions entitled to exercise 80% of the voting power of Omnova Solutions:
- Regulation 1, which relates to the time and place of shareholder
meetings;
- Regulation 3(a), which relates to the calling of special shareholder
meetings;
- Regulation 8, which relates to the order of business at shareholder
meetings and advance notification requirements for proposals for
business to be conducted at shareholder meetings;
- Regulation 10, which relates to the number, term, classification and
election of directors;
- Regulation 11, which relates to newly created directorships and
vacant directorships;
- Regulation 12, which relates to removal of directors;
- Regulation 13, which relates to nomination and election of directors
and advance notification requirements relating thereto; and
- Regulation 30, which relates to indemnification for directors and
officers, among others.
SHARE PURCHASE RIGHTS PLAN
It is anticipated that the Omnova Solutions Board will consider and may
adopt a share purchase rights plan on or after the Distribution Date.
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LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Generally, a director of an Ohio corporation will not be found to have
violated his fiduciary duties unless there is proof by clear and convincing
evidence that the director has not acted in good faith, in a manner he
reasonably believes to be in or not opposed to the best interests of the
corporation, or with the care that an ordinarily prudent person in a like
position would use under similar circumstances. In general, a director is liable
for monetary damages for any action or omission as a director only if it is
proved by clear and convincing evidence that such act or omission was undertaken
either with deliberate intent to cause injury to the corporation or with
reckless disregard for the best interests of the corporation.
Under Ohio law, a corporation must indemnify its directors, as well as its
officers, employees and agents, against expenses where any such person is
successful on the merits or otherwise in defense of an action, suit or
proceeding. A corporation may indemnify such persons in actions, suits and
proceedings (including derivative suits) if the individual has acted in good
faith and in a manner that he believes to be in or not opposed to the best
interests of the corporation. In the case of a criminal proceeding, the
individual must also have no reasonable cause to believe that his conduct was
unlawful. Indemnification may be made only if ordered by a court or if
authorized in a specific case upon a determination that the applicable standard
of conduct has been met. Such a determination may be made by a majority of the
disinterested directors, by independent legal counsel or by the shareholders. In
order to obtain reimbursement for expenses in advance of the final disposition
of any action, the individual must provide an undertaking to repay the amount if
it is ultimately determined that he is not entitled to be indemnified.
In general, Ohio law requires that all expenses, including attorney's fees,
incurred by a director in defending any action, suit or proceeding be paid by
the corporation as they are incurred in advance of final disposition if the
director agrees to repay such amounts if it is proved by clear and convincing
evidence that his action or omission was undertaken with deliberate intent to
cause injury to the corporation or with reckless disregard for the best
interests of the corporation and if the director reasonably cooperates with the
corporation concerning the action, suit or proceeding.
The codes of regulations of each of New GenCorp and Omnova Solutions
provide for indemnification that is coextensive with that permitted under Ohio
law. In addition, New GenCorp and Omnova Solutions have each entered into
agreements that indemnify their respective directors and certain of their
respective officers to the maximum extent permitted by applicable law. The
indemnification so granted is not limited to the indemnification specifically
authorized by the Ohio General Corporation Law. Each agreement represents a
contractual obligation of New GenCorp or Omnova Solutions, as the case may be,
which cannot be altered unilaterally.
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CERTAIN DIFFERENCES BETWEEN
THE CHARTER DOCUMENTS GOVERNING OMNOVA SOLUTIONS AND THE
CHARTER DOCUMENTS GOVERNING NEW GENCORP
The Omnova Solutions articles of incorporation and code of regulations
differ from the articles of incorporation and code of regulations of New GenCorp
in several respects. The most significant of these differences are summarized
below.
AMENDMENT TO ARTICLES OF INCORPORATION
The New GenCorp articles of incorporation may generally be amended by the
affirmative vote of the holders of 66 2/3% of the voting power of the
corporation, except that provisions relating to the elimination of cumulative
voting or the classification of directors may be amended only by the affirmative
vote of the holders of 80% of the total voting power of the New GenCorp, voting
together as a single class.
The Omnova Solutions articles of incorporation may be amended by the
affirmative vote of the holders of 66 2/3% of the voting power of the
corporation, voting together as a single class, except that the provisions of
the articles relating to (1) the directors' ability to fix or change the express
terms of any issued or treasury shares, (2) the elimination of cumulative
voting, (3) the elimination of pre-emptive rights, or (4) stock repurchases by
the corporation each require the affirmative vote of the holders of at least 80%
of the voting power of Omnova Solutions, voting together as a single class.
AMENDMENT TO CODE OF REGULATIONS
The New GenCorp code of regulations may be amended (1) at a meeting by the
affirmative vote of the holders of a majority of the voting power of the
corporation or (2) without a meeting by the written consent of holder of shares
entitling them to exercise 66 2/3% of the voting power of the corporation,
except that provisions relating to (1) the powers, number and terms of
directors, (2) changes in the authorized number of directors, (3) qualification
of directors, (4) vacant directorships, and (5) removal of directors each
require the affirmative vote of the holders of a 80% of the voting power of New
GenCorp, voting together as a single class.
The Omnova Solutions code of regulations may be amended at any meeting of
shareholders, provided that any amendment proposed to be acted upon at such
meeting has been described or referred to in the notice of such meeting, by the
affirmative vote of a majority of the voting power of the corporation, except
that amendments relating to (1) the time and place of shareholders meetings, (2)
the calling of special shareholders' meetings, (3) order of business at
shareholders meetings, (4) the number, election, terms and classification of
directors, (5) newly created directorships and vacant directorships, (6) removal
of directors, (7) nominations and election of directors and advance notification
requirements relating thereto, and (8) indemnification each require the
affirmative vote of the holders of 80% of the voting power of Omnova Solutions,
voting together as a single class.
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PROPOSED AMENDMENTS TO THE AMENDED ARTICLES
OF INCORPORATION AND AMENDED CODE OF REGULATIONS OF GENCORP
Approval of Proposal 2 will constitute approval of the amendments to the
GenCorp articles and regulations discussed under this heading. Approval of
Proposal 2 is being sought because the Ohio General Corporation Law requires
such approval. Accordingly, if Proposal 2 is not approved by the shareholders,
the proposed amendments to the GenCorp articles and regulations could not occur.
If adopted, the amendments to the GenCorp articles will become effective as soon
as they are filed with the Secretary of State of the State of Ohio, which
GenCorp expects to occur as soon as practicable after the special meeting. If
adopted, the amendments to the GenCorp regulations will become effective
immediately upon approval by shareholders.
At a meeting held on May 11, 1999, the GenCorp Board approved, and
recommended that the shareholders of GenCorp adopt, amendments to GenCorp's
amended articles of incorporation and code of regulations. These amendments are
the following:
(1) an amendment designating Cleveland, Ohio, as the location of
GenCorp's principal Ohio office for purposes of the Ohio General
Corporation Law;
(2) an increase in the number of authorized GenCorp common shares from
90,000,000 to 150,000,000;
(3) an amendment of GenCorp's corporate purpose to provide that
GenCorp may engage in any lawful act or activity for which
corporations may be formed under Ohio law;
(4) establishment of two additional series of preferred stock;
(5) elimination of the requirement that the annual meeting of
shareholders be held in March;
(6) increase in the shareholder vote required to call a special
meeting of shareholders from 25% to 50%;
(7) an amendment that permits additional forms of proxy
authorizations;
(8) the establishment of procedures relating to the proposal of
business at shareholders meetings;
(9) the establishment of procedures relating to the nomination by
shareholders of candidates for election as directors;
(10) an amendment that requires GenCorp to indemnify its directors,
officers, employees and others to the fullest extent permitted by
applicable law;
(11) elimination of the right of shareholders to remove directors, and
elimination of the right of directors to remove other directors,
except in certain limited circumstances; and
(12) an amendment that provides that GenCorp's corporate seal contain
only the name of the corporation and the words "corporate seal."
A composite copy of the GenCorp articles and regulations, each as proposed
to be amended and for which approval is sought are attached hereto as Annexes E
and F, respectively. Accordingly, a vote to approve any of the amendments will
be deemed to be a vote to adopt the composite articles or composite regulations
that incorporate that amendment. Although the following description is a summary
of the material changes made by the proposed amendments, it should be read in
conjunction with, and is qualified by reference to, the full text of those
documents.
BACKGROUND; ANTITAKEOVER EFFECT
In 1999, GenCorp undertook an analysis of its articles of incorporation,
code of regulations, and shareholder rights plan to determine whether they
should be changed in order to enhance the ability of the GenCorp Board to
promote the interests of GenCorp and its shareholders, employees, and other
constituents in the context of an unsolicited tender offer for GenCorp. This
analysis was occasioned by the development of charter documents and a
shareholder rights plan for Omnova Solutions, and not by a perceived threat of
any specific takeover attempt.
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GenCorp is not aware of any such attempt. GenCorp does not presently intend to
propose other antitakeover measures in future proxy solicitations.
As a result of its analysis, the GenCorp Board concluded that changes
should be made to GenCorp's existing articles of incorporation and code of
regulations in order to (1) modernize GenCorp's charter documents; (2) maximize
the quality and quantity of information required to be provided to the GenCorp
Board by a shareholder that wishes to propose business or nominate directors at
a shareholders meeting; and (3) address the possibility that an unsolicited
tender offer for GenCorp might be coupled with a proxy contest designed to
undermine the effectiveness of the GenCorp Board. If confronted with an
unsolicited tender offer, it is likely that the GenCorp Board would seek to
evaluate the terms of the tender offer while exploring other strategic
alternatives, including the possibility of negotiating a higher price for
GenCorp. In order to prevent GenCorp from pursuing other alternatives and to
undermine the GenCorp Board's bargaining power, the person making the tender
offer or arbitrageurs might solicit consents to call a special meeting of
shareholders and then solicit proxies for the purpose of increasing the number
of directors and electing its own candidates as directors ("packing" the Board)
or taking other measures intended to force a sale of GenCorp. The proposed
amendments would make it more difficult for the person making the tender offer
to call a special meeting and, if a meeting were called, to increase the number
of directors in order to "pack" the GenCorp Board. They would also require
advance notice of, and the disclosure of material information relating to, any
shareholder proposals to be brought before the meeting.
OTHER ANTI-TAKEOVER PROVISIONS
GenCorp is currently subject to the provisions of the Ohio statutes
governing control share acquisitions and transactions with interested
stockholders. See "Description of Omnova Solutions Capital Stock -- Control
Share Acquisitions" and " -- Business Combinations with Certain Persons." In
addition, GenCorp's current charter documents contain several provisions that
may make the acquisition of control of GenCorp by means of a tender offer, open
market purchase, proxy fight, or otherwise more difficult. The following summary
of those provisions does not purport to be complete and is qualified in its
entirety by reference to all of the provisions of GenCorp's articles of
incorporation and code of regulations.
GenCorp's code of regulations provides that the GenCorp Board shall be
composed of no fewer than seven but no more than 17 directors. GenCorp's
articles of incorporation provide that the GenCorp Board be divided into three
classes of directors serving staggered terms so that approximately one-third of
the GenCorp Board is elected each year. The GenCorp code of regulations provides
that generally vacancies or newly created directorships in the GenCorp Board may
only be filled by a resolution approved by a majority of the GenCorp Board and
any director so chosen will hold office until the next election of the class for
which such director was chosen. The GenCorp code of regulations also provides
that directors may be removed from office by shareholders only by the
affirmative vote of the holders of not less than 80% of the total voting power
entitled to elect directors in place of those to be removed.
Under the Ohio General Corporation Law, unless prohibited by the articles
of incorporation or the code of regulations, any action by shareholders
generally must be taken at a meeting, unless a written consent stating the
action to be taken is signed by all the shareholders who would be entitled to
notice of the meeting held to consider the subject matter of the written
consent.
Amendment of GenCorp's articles of incorporation requires the approval of
the holders of at least 66 2/3% of the voting power then outstanding, except
that amendment of any of the provisions relating to the elimination of
cumulative voting or the classification of the GenCorp Board requires the
affirmative vote of the holders of shares of GenCorp entitled to exercise 80% of
the voting power of GenCorp. Certain provisions of GenCorp's code of regulations
may be amended only by the affirmative vote of the holders of not less than 80%
of the total voting power of GenCorp, including provisions relating to the
number, terms, qualifications, and removal of directors and the filling of
vacant directorships.
GenCorp also currently has a shareholder rights plan (the "GenCorp Rights
Plan"), which was originally adopted in December 1987 and extended for an
additional ten-year term in January 1997. Pursuant to the GenCorp Rights Plan,
the GenCorp Board has issued, as a dividend, one preferred share purchase right
(a
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"Right") for each outstanding share of GenCorp common stock. One Right has also
been issued with respect to each share of GenCorp common stock issued since the
record date of the rights dividend.
Each Right entitles the holder to buy one one-hundredth of a share of
GenCorp preferred stock at a price of $100, subject to adjustment. The Rights
will become exercisable only if a person or group acquires 20% or more of the
outstanding shares of GenCorp common stock or announces a tender or exchange
offer following which it would hold 30% or more of the outstanding shares of
GenCorp common stock. If a person or a group acquires 30% or more of the
outstanding shares of GenCorp common stock (other than (1) pursuant to a tender
offer for all outstanding shares of GenCorp common stock or (2) after obtaining
the requisite vote of GenCorp shareholders pursuant to the Ohio Control Share
Act), or a person or group that owns 20% or more of the outstanding shares of
GenCorp common stock enters into a merger or other combination or self-dealing
transaction with GenCorp, each holder of a Right will receive, upon exercise of
each purchase right, shares of GenCorp common stock with a market value of two
times the exercise price of the Right, except that Rights owned by that person
or group will be void. In the event GenCorp is acquired in a merger or other
business combination or 50% or more of its assets or earning power is sold, each
holder of a Right will receive, upon exercise, common stock of GenCorp or of the
acquiring company, in either case with a market value of two times the exercise
price of the Right. GenCorp may redeem the Rights at a price of $.02 per Right
prior to the time the Rights become exercisable. The Rights will expire on
February 18, 2007, unless earlier redeemed by the GenCorp Board.
The Rights have certain antitakeover effects. The Rights will cause
substantial dilution to a person or group of persons that attempts to acquire
GenCorp on terms not approved by the GenCorp Board. The Rights should not
interfere with any merger or other business combination approved by the GenCorp
Board prior to the time that a person or group has acquired beneficial ownership
of 20% or more of the GenCorp common stock since the Rights Plan may be freely
amended by GenCorp and Rights may be redeemed by GenCorp until such time. See
"Description of Omnova Solutions Capital Stock -- Shareholder Rights Plan."
DESIGNATION OF CLEVELAND, OHIO AS THE PRINCIPAL OHIO OFFICE FOR PURPOSES OF OHIO
LAW
The Ohio General Corporation Law requires that every corporation
incorporated in Ohio must designate a place in Ohio where the principal Ohio
office of the corporation is to be located. GenCorp's articles of incorporation
currently provide that the place in the State of Ohio where its principal office
is to be located is Fairlawn, Summit County.
If the Distribution occurs, New GenCorp will have no operations in the
State of Ohio. The GenCorp Board proposes that the City of Cleveland, Ohio be
designated as the location of the principal Ohio office of GenCorp. GenCorp
currently intends to name CT Corporation or another corporation services firm as
its statutory agent in Ohio, and if the proposed amendment is adopted, the
Cleveland office of that services firm will also act as the principal Ohio
office of GenCorp or New GenCorp for purposes of the Ohio General Corporation
Law.
INCREASE OF AUTHORIZED SHARES OF GENCORP COMMON STOCK
Article Fourth of GenCorp's articles of incorporation states that the
authorized capital stock of GenCorp consists of 15,000,000 shares of Cumulative
Preference Stock, par value $1.00 per share, and 90,000,000 shares of Common
Stock, par value $0.10 per share. As of June 30, 1999, no shares of Cumulative
Preference Stock were outstanding and 41,817,650 shares of GenCorp common stock
were outstanding.
The GenCorp Board has recommended the adoption of an amendment to Article
Fourth of GenCorp's articles of incorporation to increase the authorized shares
of GenCorp common stock from 90,000,000 shares to 150,000,000 shares.
The GenCorp Board considers it in the best interest of GenCorp and its
shareholders to adopt the proposal to increase the number of authorized shares
of GenCorp common stock. The additional authorized capital stock will be
available for stock dividends or splits, grants under GenCorp's employee stock
option plans, future transactions, such as acquisitions of other businesses or
properties, selling stock to raise additional capital and for other general
corporate purposes. Currently, GenCorp has no specific plan, commitment or
arrangement for the issuance of additional shares of common stock, other than
the issuance of shares from time to time under its
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benefit plans. If authorization of any increase in the authorized shares of
GenCorp common stock is postponed until a specific need arises, however, the
delay and expense incident to obtaining the approval of shareholders at that
time could impair GenCorp's ability to meet its objectives. Any issuance of
shares by GenCorp will be made in accordance with applicable law, including the
rules of the New York Stock Exchange and the provisions of GenCorp's articles of
incorporation.
The affirmative vote of the holders of 66 2/3% of the outstanding shares of
GenCorp common stock on the record date is required to adopt the proposal
relating to an increase in the authorized shares of GenCorp common stock.
EXPANSION OF CORPORATE PURPOSE CLAUSE
GenCorp's articles of incorporation currently provide that GenCorp's
corporate purpose is to engage in a list of specified activities, which include
a variety of manufacturing and related activities. The Ohio General Corporation
Law provides that a corporation may engage in any purpose or combination of
purposes for which individuals lawfully may associate themselves.
The GenCorp Board believes that it is in the interests of GenCorp and its
shareholders to replace the specific purpose clause currently contained in
GenCorp's articles of incorporation with a more modern general purpose clause. A
general purpose clause will provide GenCorp with additional flexibility to enter
into new lines of business and allow GenCorp to take advantage of the flexible
corporate purpose provisions of the Ohio General Corporation Law.
The affirmative vote of the holders of 66 2/3% of the outstanding shares of
GenCorp common stock on the record date is required to adopt the proposal
relating to GenCorp's corporate purpose.
ESTABLISHMENT OF ADDITIONAL SERIES OF CUMULATIVE PREFERENCE STOCK
GenCorp's articles of incorporation currently provide for a series of
Cumulative Preference Stock that may vote for the election of directors and on
all other matters submitted to a vote of holders of GenCorp common stock. The
GenCorp articles of incorporation also expressly authorize the GenCorp Board to
adopt from time to time amendments to the GenCorp articles of incorporation in
respect of any unissued or treasury shares of Cumulative Preference Stock to fix
or change the terms and provisions of such shares, including, without
limitation, (1) the division of such shares into series and the authorized
number of shares in each series; (2) dividend and distribution rates; (3)
redemption rights and prices; (4) liquidation payments; (5) conversion rights;
(6) sinking fund requirements; (7) restrictions on issuance; and (8) any other
express terms as may be permitted or required by law.
The Ohio General Corporation Law does not expressly permit directors to
adopt amendments to the articles of incorporation to fix or change the voting
rights of unissued or treasury shares. Therefore, if the voting rights of
different series of preferred stock are to differ, such voting rights must be
expressly set forth in the articles of incorporation.
The GenCorp Board has proposed that the articles be amended to provide for
three separate series of Cumulative Preference Stock: Series A Cumulative
Preference Stock will continue to have one vote per share, and Series B
Cumulative Preference Stock and Series C Cumulative Preference Stock will be
established pursuant to the proposed amendment. Shares issued pursuant to those
series will have 100 and zero votes per share, respectively.
The creation of additional series of Cumulative Preference Stock will
enhance the GenCorp Board's ability to design the terms and provisions of
GenCorp's preferred stock in a manner that benefits GenCorp and its shareholders
and maximizes the flexibility of the Board to secure additional financing
through the issuance of shares of preferred stock. GenCorp has no definite plan,
commitment or understanding at this time to issue or reserve for issuance any
shares of its Cumulative Preferred Stock, other than the shares of Series A
Cumulative Preferred Stock currently reserved for issuance pursuant to GenCorp's
shareholder rights plan. If authorization of any series of preferred stock with
voting rights that differ from the Series A Cumulative Preferred Stock were
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postponed until a specific need arises, the delay and expense incident to
obtaining the approval of shareholders at that time could impair GenCorp's
ability to meet its objectives.
The amendment to GenCorp's articles of incorporation creating additional
series of Cumulative Preference Stock would require the affirmative vote of the
holders of 66 2/3% of the outstanding shares of GenCorp common stock on the
record date.
ELIMINATION OF REQUIREMENT THAT ANNUAL MEETING OF SHAREHOLDERS BE HELD DURING
THE MONTH OF MARCH
GenCorp's code of regulations currently requires that the annual meeting of
GenCorp shareholders be held during the month of March. The Ohio General
Corporation Law provides that the annual meeting of shareholders be held on a
date designated by, or in the manner provided for in, the articles or
regulations.
The GenCorp Board has approved an amendment to the code of regulations that
would provide that the annual meeting of shareholders be held on such date and
at such time as may be designated from time to time by the GenCorp Board. This
amendment to GenCorp's code of regulations would allow GenCorp additional
flexibility to schedule and hold the annual shareholders meeting, and to adjust
the meeting schedule as needed to better suit GenCorp's schedule and agenda.
This amendment to the date of the annual general meeting would allow
GenCorp to delay its annual meeting in the event it were subject to a proxy
contest. GenCorp currently expects, however, that its annual meeting of
shareholders will continue to be held in the month of March.
The amendment to the provision relating to the date of the annual general
meeting of shareholders would require the affirmative vote of the holders of a
majority of the outstanding GenCorp common stock on the record date.
INCREASE THE SHAREHOLDER VOTE REQUIRED TO CALL A SPECIAL MEETING OF SHAREHOLDERS
FROM 25% TO 50%
GenCorp's existing code of regulations provides that the holders of 25% of
all the shares outstanding and entitled to vote may call a special meeting of
shareholders. This proposal would increase this percentage from 25% to 50%.
Under the Ohio General Corporation Law, the holders of 25% of the
outstanding shares may call a special meeting of shareholders unless the
articles of incorporation or regulations specify a smaller or larger percentage.
The percentage may not, however, exceed 50%. This proposed amendment would,
therefore, increase to the maximum the percentage of outstanding shares that
would be required to call a special meeting.
The purpose of this proposed amendment is to make it more difficult for a
person to call a special meeting of shareholders that, in the context of an
unsolicited tender offer, might prevent GenCorp from pursuing other alternatives
or undermine the GenCorp Board's bargaining power. It would not, however,
preclude the calling of a special meeting with the consent of the holders of 50%
or more of the outstanding shares. Further, the proposal would not preclude any
shareholder from proposing business, or nominating candidates for election as
directors, at an annual meeting of shareholders, provided applicable procedures
were followed. See "Amendments to Amended Articles of Incorporation and Code of
Regulations -- Establishment of Procedures and Advance Notice Requirements
Applicable to the Proposal of Business at Shareholders Meetings and the
Nomination of Candidates for Election as Directors." This proposed amendment
would apply to every special meeting of shareholders, whether or not in the
context of an unsolicited tender offer.
The amendment to increase the shareholder vote required to call a special
meeting of shareholders from 25% to 50% would require the affirmative vote of
the holders of a majority of the outstanding shares of GenCorp common stock on
the record date.
PERMIT ADDITIONAL FORMS OF PROXY AUTHORIZATIONS
Currently, under the Ohio General Corporation Law, a person that is
entitled to attend a shareholders' meeting, to vote at the meeting, or to
execute consents, waivers, or releases may be represented or may vote at the
meeting, execute consents, waivers and releases, and exercise any other rights,
by proxy or proxies appointed by a
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writing signed by that person. On June 10, 1999, Governor Taft signed Ohio House
Bill 6, which amends the Ohio General Corporation Law to authorize the use of
electronic, telephonic and other forms of modern proxy authorizations. On and
after September 13, 1999, which is the effective date of the legislation, Ohio
corporations will be authorized by the Ohio General Corporation Law to allow
proxy authorizations by "a verifiable communication authorized by the
shareholder," including e-mail and telephone, as well as regular written
proxies. "Any transmission that creates a record capable of authentication" will
then be permitted.
GenCorp's code of regulations follows the current version of the Ohio
General Corporation Law, and require that a proxy be a writing executed by the
shareholder. Therefore, GenCorp's code of regulations prohibits proxy voting by
e-mail, telephone and other electronic media, notwithstanding the amendment to
the Ohio General Corporation Law. In order for GenCorp and New GenCorp to
utilize the more modern forms of proxy voting soon to be permitted by the Ohio
General Corporation Law, GenCorp's regulations must be amended. The proposed
amendment to GenCorp's regulations would provide that proxies may be in any form
authorized by the Ohio statute.
The amendment to GenCorp's regulations to permit additional forms of proxy
authorizations would require the affirmative vote of the holders of a majority
of the outstanding shares of GenCorp common stock on the record date.
PLEASE NOTE THAT THE AMENDMENTS TO THE OHIO GENERAL CORPORATION LAW WILL
NOT BECOME EFFECTIVE UNTIL SEPTEMBER 13, 1999. E-MAIL, TELEPHONE AND OTHER
ELECTRONIC PROXY AUTHORIZATIONS MAY NOT BE USED FOR THE AUGUST 18, 1999 SPECIAL
MEETING OF GENCORP SHAREHOLDERS. IN ORDER FOR YOUR SHARES TO BE REPRESENTED AT
THE MEETING, PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE
ACCOMPANYING POSTAGE-PAID ENVELOPE.
ESTABLISHMENT OF PROCEDURES AND ADVANCE NOTICE REQUIREMENTS APPLICABLE TO THE
PROPOSAL OF BUSINESS AT SHAREHOLDERS MEETINGS AND THE NOMINATION OF CANDIDATES
FOR ELECTION AS DIRECTORS
GenCorp's existing code of regulations does not contain procedures for the
nomination of candidates for election as directors or the proposal of other
business at shareholders meetings. These two separate but similar proposals
would establish procedures applicable to the proposal of business at
shareholders meetings and the nomination of candidates for election as directors
including, in each case, advance notice requirements.
Under the proposed amendment relating to proposals of business, at an
annual meeting of shareholders, only business that is properly brought before
the meeting will be conducted or considered. To be properly brought before an
annual meeting of shareholders, business must be specified in the notice of the
meeting (or any supplement to that notice), brought before the meeting by the
presiding officer or by or at the direction of the GenCorp Board, or properly
requested by a shareholder to be brought before the meeting.
For business to be properly requested by a shareholder to be brought before
an annual meeting, the shareholder must (1) be a shareholder of GenCorp of
record at the time of the giving of the notice for the meeting and at the time
of the meeting, (2) be entitled to vote at the meeting, and (3) have given
timely written notice of the business to the Secretary of GenCorp. To be timely,
a shareholder's notice must be delivered to or mailed and received at the
principal executive offices of GenCorp not less than 60 nor more than 90
calendar days prior to the first anniversary date on which the GenCorp first
mailed its proxy materials for the preceding year's annual meeting of
shareholders; provided, however, that if the date of the annual meeting is
advanced more than 30 calendar days prior to or delayed by more than 30 calendar
days after the anniversary of the preceding year's annual meeting, notice by the
shareholder to be timely must be so delivered not later than the close of
business on the later of the 90th calendar day prior to such annual meeting or
the 10th calendar day following the day on which public announcement of the date
of such meeting is first made. A shareholder's notice must set forth, as to each
matter the shareholder proposes to bring before the meeting, (1) a description
in reasonable detail of the business proposed to be brought before the meeting,
(2) the name and address of the shareholder proposing such business and of the
beneficial owner, if any, on whose behalf the proposal is made, (3) the class
and number of shares that are owned of record and beneficially by the
shareholder proposing the business and by the beneficial owner, if any, on whose
behalf the proposal is made, (4) any material interest of such shareholder or
beneficial owner in such business, and (5) whether either such shareholder or
beneficial owner intends to deliver a proxy statement to holders of at least the
percentage of shares of GenCorp entitled to vote required to approve such
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proposal. This provision supplements Rule 14a-8 of the Exchange Act but will not
affect any rights that the shareholder may have under rules promulgated by the
Securities and Exchange Commission to request the inclusion of proposals in the
Company's proxy statement.
Similarly, at a special meeting of shareholders, only such business as is
properly brought before the meeting will be conducted. To be properly brought
before a special meeting, business must be (1) specified in the notice of the
meeting (or any supplement to that notice) given by or at the direction of the
President, a Vice President, the Secretary or an Assistant Secretary, or (2)
otherwise brought before the meeting by the presiding officer or by or at the
direction of the GenCorp Board. If shareholders comply with the procedures for
calling a special meeting, the purposes of the meeting will be specified in the
notice of the meeting.
Under the proposed amendment, at an annual meeting of shareholders, only
persons that are properly nominated will be eligible for election to be members
of the GenCorp Board. To be properly nominated, a director candidate must be
nominated by or at the direction of the GenCorp Board or properly nominated by a
shareholder. To be properly nominated by a shareholder, such shareholder must
have delivered a proxy statement and form of proxy to the holders of at least
the percentage of shares of GenCorp entitled to vote required to approve such
nomination and included in such materials a timely and proper notice in proper
written form to the Secretary of GenCorp.
To be timely, a shareholder's notice must be delivered to or mailed and
received at the principal executive offices of GenCorp not less than 60 nor more
than 90 calendar days prior to the first anniversary of the date on which the
Corporation first mailed its proxy materials for the preceding year's annual
meeting of shareholders. If, however, the date of the annual meeting is advanced
more than 30 calendar days prior to or delayed by more than 30 calendar days
after the anniversary of the preceding year's annual meeting, notice by the
shareholder to be timely must be so delivered not later than the close of
business on the later of the 90th calendar day prior to such annual meeting or
the tenth calendar day following the day on which public announcement of the
date of such meeting is first made.
To be in proper written form, such shareholder's notice must set forth or
include: (1) the name and address of the shareholder giving the notice and of
the beneficial owner, if any, on whose behalf the nomination is made; (2) a
representation that the shareholder giving the notice is a holder of record of
stock of GenCorp entitled to vote at such annual meeting and intends to appear
in person or by proxy at the annual meeting to nominate the person or persons
specified in the notice; (3) the class and number of shares of stock of GenCorp
owned beneficially and of record by the shareholder giving the notice and by the
beneficial owner, if any, on whose behalf the nomination is made; (4) a
description of all arrangements or understandings between or among any of (A)
the shareholder giving the notice, (B) the beneficial owner on whose behalf the
notice is given, (C) each nominee, and (D) any other person or persons (naming
such person or persons) pursuant to which the nomination or nominations are to
be made by the shareholder giving the notice; (5) such other information
regarding each nominee proposed by the shareholder giving the notice as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Commission had the nominee been nominated, or intended to be nominated,
by the GenCorp Board; (6) the signed consent of each nominee to serve as a
director of GenCorp if so elected; and (7) whether either such shareholder or
beneficial owner intends to deliver a proxy statement and form of proxy to
holders of at least the percentage of shares of GenCorp entitled to vote
required to elect such nominee or nominees. In addition, a shareholder must also
comply with all applicable requirements of the Exchange Act and the rules and
regulations thereunder with respect to matters relating to nomination of
candidates for directors.
The GenCorp Board believes that the procedures for the proposal of business
at shareholders meetings will enable the presiding officer to run an orderly
meeting, notwithstanding the presentation of contested business. In addition,
the requirement of advance notice and information, both for business to be
presented at the meeting and for the nomination of candidates for election as
directors, will give the GenCorp Board the time and information needed to
consider the proposed business or candidates, to inform GenCorp shareholders,
and, if appropriate, to give shareholders the benefits of the GenCorp Board's
recommendations. It is possible that this proposed amendment would discourage a
shareholder from presenting business at a shareholders meeting, or nominating
candidates for election as directors.
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The amendments establishing procedures and advance notice requirements
applicable to the proposal of business at a shareholders meeting and the
nomination of candidates for election of directors would each require the
affirmative vote of the holders of a majority of the outstanding GenCorp common
stock on the record date.
REQUIRE INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW
GenCorp's existing code of regulations requires GenCorp to indemnify each
current or former director and officer against all expenses actually and
necessarily incurred by him in connection with the defense of any action, or any
appeal therein, by or in the right of GenCorp to which he is made or threatened
to be made a party to by reason of being or having been a director or officer of
GenCorp or a related corporation, except in relation to matters as to which he
is adjudged to be liable for negligence or misconduct in the performance of his
duty to GenCorp. "Related corporation" means any corporation in which GenCorp
owns or owned shares or of which it is or was a creditor.
Further, GenCorp's existing code of regulations requires GenCorp to
indemnify each current or former director made or threatened to be made a party
to any action (other than one by or in the right of GenCorp) by reason of being
or having been a director or officer of GenCorp or any related corporation,
against all judgments, fines, amounts paid in settlement and expenses, actually
and necessarily incurred by him as a result of such action or any appeal therein
if he acted in good faith for a purpose that he reasonably believed to be in the
best interests of GenCorp. In criminal actions, indemnification is required only
if the indemnitee had no reasonable cause to believe that his conduct was
unlawful.
Indemnification is automatic under GenCorp's existing code of regulations
only if the director or officer has been wholly successful in defending an
action brought against him or if ordered by a court. Otherwise, indemnification
must be found, by the GenCorp Board or certain members thereof or by a committee
of shareholders appointed by the GenCorp Board, to be appropriate because the
standard of conduct described above with respect to such action has been met.
GenCorp's code of regulations provides that GenCorp may indemnify or agree
to indemnify any person not covered by the indemnification section of GenCorp's
code of regulations and may indemnify or agree to indemnify any person in any
case not provided for therein. Further, the GenCorp articles provide that the
rights to indemnification set forth therein are in addition to any rights to
which any person may otherwise be or become entitled by agreement, provision of
the articles of incorporation, vote of shareholders, court order or otherwise.
The proposals relating to amendment of the indemnification provisions
expand the required indemnification to cover current and former employees and
agents of the corporation, to cover those who acted as a director, officer,
employee or agent of any other corporation or entity at the request of GenCorp,
and to require that indemnification shall be provided to the fullest extent
permitted by law. Additionally, the proposed amendments would require GenCorp to
advance expenses in certain circumstances.
All of GenCorp's directors and certain of its officers are currently
parties to indemnification agreements that, among other things, require
indemnification to the fullest extent permitted by law and advancement of
expenses in certain circumstances. Due to the scope of the Ohio General
Corporation Law and the provisions of the existing indemnification agreements,
this amendment does not materially alter GenCorp's existing obligations with
respect to its current directors and certain of its current officers. The
proposed amendment does, however, make GenCorp's regulations consistent with the
indemnification agreements currently in place and expand the protections
provided in those agreements to other officers and to employees and agents of
GenCorp.
While to date GenCorp has not experienced material difficulty in attracting
qualified candidates for directorships or in retaining directors, the GenCorp
Board believes that enhancing the right of directors to receive indemnification
and advance payment of litigation expenses will, over the long term, facilitate
GenCorp's ability to recruit and retain qualified outside directors. In
addition, the enhancement of indemnification rights and rights to advancement of
expenses may also help GenCorp to attract and retain quality officers and
employees.
The amendment of the indemnification section of GenCorp's code of
regulations will require the affirmative vote of the holders of a majority of
the outstanding GenCorp common stock as of the record date.
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ELIMINATION OF RIGHT TO REMOVE DIRECTORS
The GenCorp Board recommends that the shareholders approve an amendment to
the GenCorp code of regulations that would eliminate the shareholders' ability
to remove directors of GenCorp and eliminate the ability of directors to remove
other directors, except when the director to be removed:
- has been found by a court of competent jurisdiction to be of unsound
mind, or if he or she is adjudicated a bankrupt;
- has failed to qualify as a director by accepting in writing his or her
election or by acting at a meeting of directors;
- is unable to engage in any substantial gainful activity by reason of
any medically determinable physical or mental impairment that is
expected to be permanent;
- has, since his or her election as a director, been convicted of a
crime constituting a felony or involving fraud, embezzlement or theft;
or
- has, since his or her election as a director, been found by a court of
competent jurisdiction in a civil action to have breached his or her
duty of loyalty to the company or any other company.
Currently, the GenCorp code of regulations provides that Directors may be
removed from office by shareholders, with or without cause, only by the
affirmative vote of the holders of not less than 80% of the total voting power
of GenCorp entitled to elect Directors in place of those to be removed. The
current GenCorp code of regulations does not restrict the removal of directors
by other directors, with or without cause.
The Ohio General Corporation Law provides that a company's articles or
regulations may provide that no director may be removed from office. In such a
case, directors may be removed by the other directors and thereby create a
vacancy on the board if (1) by order of a court the director has been found to
be of unsound mind, or he is adjudicated a bankrupt, or (2) within 60 days (or
such other period set forth in the articles or regulations) the director does
not qualify by accepting his election in writing or by acting at a meeting of
directors.
The GenCorp Board believes that the threat of its removal would
significantly weaken its bargaining strength in the face of an unwanted proxy
solicitation of GenCorp. The directors would be deprived of the time necessary
to effectively evaluate any given proposal, to study alternatives to that
proposal and to make adequately informed recommendations to the shareholders.
The proposal to eliminate the removal of directors would require the
affirmative vote of the holders of 80% of the GenCorp common stock outstanding
on the record date for the Distribution.
AMENDMENT TO FORM OF CORPORATE SEAL
GenCorp's current code of regulations provides that GenCorp's corporate
seal shall contain the words "GENCORP INC., FAIRLAWN, OHIO." The GenCorp Board
proposes that the code of regulations be amended to provide that the corporate
seal contain only the words "GENCORP INC."
RECOMMENDATION
The Board of Directors recommends that shareholders vote "FOR" approval of
the amendment to the Company's Amended Articles of Incorporation.
ADOPTION OF THE NEW GENCORP 1999
EQUITY AND PERFORMANCE INCENTIVE PLAN
Adoption of Proposal 3 will constitute approval by shareholders of the
adoption by GenCorp of the New GenCorp 1999 Equity and Performance Incentive
Plan discussed in the section entitled "New GenCorp Management and Executive
Compensation -- New GenCorp 1999 Equity and Performance Incentive Plan."
Approval of the plan is sought to comply with Section 162(m) of the Internal
Revenue Code, and to preserve the deductibility to New GenCorp under the Code of
compensation paid under the plan. No further approval by New
135
<PAGE> 142
GenCorp shareholders will be required. If approval is not obtained, the New
GenCorp 1999 Equity and Performance Incentive Plan will not become effective.
GenCorp's Board of Directors believes that the approval of the New GenCorp
1999 Equity and Performance Incentive Plan is in the best interests of New
GenCorp and the future shareholders of New GenCorp because the New GenCorp 1999
Equity and Performance Incentive Plan and the initial awards under the plan will
enable New GenCorp to provide competitive equity incentives to officers and
other key employees to enhance the profitability of New GenCorp and increase the
value of New GenCorp common stock and is consistent with the purposes of the
Distribution.
The Board of Directors recommends that shareholders vote "FOR" approval of
the New GenCorp 1999 Equity and Performance Incentive Plan.
ADOPTION OF THE OMNOVA SOLUTIONS 1999 EQUITY AND PERFORMANCE
INCENTIVE PLAN
Adoption of Proposal 4 will constitute approval by shareholders of the
adoption by Omnova Solutions of the Omnova Solutions 1999 Equity and Performance
Incentive Plan discussed in the section entitled "Omnova Solutions Management
and Executive Compensation -- Omnova Solutions 1999 Equity and Performance
Incentive Plan." Approval of the plan is sought to comply with Section 162(m) of
the Internal Revenue Code, and to preserve the deductibility to Omnova Solutions
under the code of compensation paid under the plan. No further approval by
Omnova Solutions shareholders will be required. If shareholder approval is not
obtained, the Omnova Solutions 1999 Equity and Performance Incentive Plan will
not become effective.
GenCorp's Board of Directors believes that the approval of the Omnova
Solutions 1999 Equity and Performance Incentive Plan is in the best interests of
Omnova Solutions and the future shareholders of Omnova Solutions because the
Omnova Solutions 1999 Equity and Performance Incentive Plan and the initial
awards under the plan will enable Omnova Solutions to provide competitive equity
incentives to officers and other key employees to enhance the profitability of
Omnova Solutions and increase the value of the Omnova Solutions common stock
received in the Distribution and is consistent with the purposes of the
Distribution.
The Board of Directors recommends that shareholders vote "FOR" approval of
the Omnova Solutions 1999 Equity and Performance Incentive Plan.
EXPERTS
The consolidated financial statements of GenCorp appearing in GenCorp's
Annual Report on Form 10-K for the fiscal year ended November 30, 1998, have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report included therein and incorporated by reference herein. Those consolidated
financial statements are incorporated into this proxy statement by reference in
reliance upon that report given upon the authority of Ernst & Young LLP as
experts in accounting and auditing.
The combined financial statements of Omnova Solutions at November 30, 1998
and 1997 and for each of the three years in the period ended November 30, 1998,
appearing in this proxy statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report appearing elsewhere in this
proxy statement, and are included in reliance upon that report given on the
authority of Ernst & Young LLP as experts in accounting and auditing.
The financial statements of Sequa Chemicals Corporation as of October 28,
1998 and for the period from January 1, 1998 to October 28, 1998, included in
this proxy statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto and are
included herein in reliance upon the authority of said firm as experts in
accounting and reporting in giving said report.
The financial statements of the European Commercial Wallcoverings Business
as of January 31, 1997 and 1998 and for the years then ended, included in this
proxy statement, have been audited by PricewaterhouseCoopers, independent
accountants, as stated in their report appearing herein.
It is anticipated that representatives of Ernst & Young LLP, will attend
the special meeting, will have the opportunity to make a statement and will be
available to respond to appropriate questions from shareholders.
136
<PAGE> 143
SHAREHOLDER PROPOSALS
Subject to the next paragraph, shareholders who intend to have their
proposals considered for inclusion in GenCorp's proxy materials related to the
Year 2000 annual shareholders meeting must submit their proposals to GenCorp no
later than October 15, 1999. GenCorp's Nominating & Corporate Governance
Committee will consider shareholder suggestions for nominees for election to
GenCorp's Board if such suggestions are in writing and are accompanied by the
written consent of each such nominee and must be mailed to the Nominating &
Corporate Governance Committee, GenCorp, Attention: Secretary, and received by
the Secretary no later than December 1, immediately preceding the date of the
annual meeting at which the nominee is to be considered for election.
Shareholders who intend to present a proposal at the Year 2000 annual meeting
without inclusion of that proposal in GenCorp's proxy materials are required to
provide notice of their proposal to GenCorp no later than December 29, 1999.
GenCorp's proxy for the next annual meeting will grant authority to the persons
named to exercise their voting discretion with respect to any such proposal of
which GenCorp does not receive notice by December 29, 1999. All proposals for
inclusion in GenCorp's proxy materials, notices of proposals and suggestions for
nominees for election to GenCorp's Board should be sent to GenCorp Inc.,
Attention: Secretary, 175 Ghent Road, Fairlawn, OH 44333 prior to the
Distribution and to New GenCorp Inc., Attention: Secretary, Highway 50 and
Aerojet Road, Rancho Cordova, CA 95670 after the Distribution.
If the proposal to amend GenCorp's articles of incorporation and code of
regulations is adopted, shareholders who intend to have their proposals
considered for inclusion in New GenCorp's proxy materials related to the Year
2000 annual shareholders meeting must submit their proposals to New GenCorp no
later than October 15, 1999. New GenCorp's Nominating & Corporate Governance
Committee will consider shareholder suggestions for nominees for election to New
GenCorp's Board if such suggestions are in writing and are accompanied by the
written consent of each such nominee and must be mailed to the Nominating &
Corporate Governance Committee, New GenCorp, Attention: Secretary, and received
by the Secretary no later than December 1, immediately preceding the date of the
annual meeting at which the nominee is to be considered for election.
Shareholders who intend to present a proposal at the Year 2000 annual meeting
without inclusion of that proposal in New GenCorp's proxy materials are required
to provide notice of their proposal to New GenCorp no later than December 14,
1999. New GenCorp's proxy for the next annual meeting will grant authority to
the persons named to exercise their voting discretion with respect to any such
proposal of which GenCorp does not receive notice by December 14, 1999. All
proposals for inclusion in New GenCorp's proxy materials, notices of proposals
and suggestions for nominees for election to New GenCorp's Board should be sent
to New GenCorp, Attention: Secretary, Highway 50 and Aerojet Road, Rancho
Cordova, CA 95670.
Shareholders who intend to have their proposals considered for inclusion in
Omnova Solutions' proxy materials for presentation at the Year 2000 annual
shareholders meeting must submit their proposals to Omnova Solutions no later
than October 15, 1999. Omnova Solutions' Nominating & Corporate Governance
Committee will consider shareholder suggestions for nominees for election to
Omnova Solutions' Board if such suggestions are in writing and are accompanied
by the written consent of each such nominee and must be mailed to the Nominating
& Corporate Governance Committee, Omnova Solutions, Attention: Secretary, and
received by the Secretary no later than December 1, immediately preceding the
date of the annual meeting at which the nominee is to be considered for
election. Shareholders who intend to present a proposal at the Year 2000 annual
meeting without inclusion of that proposal in Omnova Solutions' proxy materials
are required to provide notice of their proposal to Omnova Solutions no later
than December 14, 1999. Omnova Solutions' proxy for the next annual meeting will
grant authority to the persons named to exercise their voting discretion with
respect to any such proposal of which Omnova Solutions does not receive notice
by December 14, 1999. All proposals for inclusion in Omnova Solutions' proxy
materials, notices of proposals and suggestions for nominees for election to
Omnova Solutions' Board should be sent to Omnova Solutions, Attention:
Secretary, 175 Ghent Road, Fairlawn, OH 44333.
137
<PAGE> 144
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Commission allows GenCorp to "incorporate by reference" the documents
that it files with the Commission. This means that GenCorp can disclose
information to you by referring you to those documents. Any information GenCorp
incorporates in this manner is considered part of this proxy statement except to
the extent updated or superseded by disclosure in this proxy statement. Any
information GenCorp files with the Commission after the date of this proxy
statement and until the date of the special meeting of shareholders will
automatically update and supersede the information contained in this proxy
statement.
GenCorp incorporates by reference the following documents that it has filed
with the Commission and any filings that it makes with the Commission in the
future under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934 until the date of the special meeting of shareholders:
- Annual Report on Form 10-K for the fiscal year ended November 30,
1998;
- Quarterly Report on Form 10-Q for the quarter ended February 28,
1999;
- Current Report on Form 8-K dated December 22, 1998.
GenCorp will provide without charge, upon written or oral request, a copy
of any or all of the documents which are incorporated by reference into this
prospectus. Requests should be directed to: GenCorp Inc., 175 Ghent Road,
Fairlawn, Ohio 44333-3300, Attention: Secretary, telephone number: (330)
869-4200.
WHERE YOU CAN FIND MORE INFORMATION
GenCorp currently files, and as a result of the Distribution, Omnova
Solutions will be required to file, reports, proxy statements, and other
information with the Securities and Exchange Commission. These reports, proxy
statements, and other information can be read and copied at the Commission's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please
call the Commission at 1-800-SEC-0330 for further information on the Public
Reference Room. The Commission maintains an internet site at http://www.sec.gov
that contains reports, proxy and information statements and other information
regarding issuers that file electronically with the Commission, including
GenCorp and, after the Distribution, Omnova Solutions.
Omnova Solutions will file with the Commission a Registration Statement on
Form 10 with respect to the shares of Omnova Solutions common stock to be
received by GenCorp shareholders in the Distribution and will request
effectiveness of that Registration Statement prior to the date of the
Distribution. After its filing, the Registration Statement on Form 10 and the
exhibits to that document may be accessed as described above.
Additionally, Omnova Solutions intends to provide annual reports,
containing audited financial statements, to its shareholders in connection with
its annual meetings.
138
<PAGE> 145
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
OMNOVA SOLUTIONS INC.
Report of Independent Auditors............................ F-2
Combined Balance Sheets as of November 30, 1998 and 1997
and February 28, 1999 (unaudited)...................... F-3
Statements of Combined Income for the years ended November
30, 1998, 1997 and 1996 and for the three month periods
ended February 28, 1999 and 1998 (unaudited)........... F-4
Statements of Combined Divisional Equity for the years
ended November 30, 1998, 1997 and 1996 and for the
three month period ended February 28, 1999
(unaudited)............................................ F-5
Statements of Combined Cash Flows for the years ended
November 30, 1998, 1997 and 1996 and for the three
month periods ended February 28, 1999 and 1998
(unaudited)............................................ F-6
Notes to Combined Financial Statements.................... F-7
SIGNIFICANT ACQUISITIONS
SEQUA CHEMICALS CORPORATION
Report of Independent Public Accountants.................. F-17
Consolidated Statement of Income for the Period from
January 1, 1998 to October 28, 1998.................... F-18
Consolidated Statement of Cash Flows for the Period from
January 1, 1998 to October 28, 1998.................... F-19
Consolidated Statement of Changes in Shareholders' Equity
for the Period from January 1, 1998 to October 28,
1998................................................... F-20
Notes to Consolidated Financial Statements................ F-21
THE EUROPEAN COMMERCIAL WALLCOVERINGS BUSINESS
Report of Independent Auditors............................ F-25
Combined Profit and Loss Account for the Years Ended
January 31, 1998 and 1997 and for the Six Month Periods
Ended July 31, 1998 and 1997 (unaudited)............... F-26
Combined Statements of Total Recognized Gains and Losses
for the Years Ended January 31, 1998 and 1997 and for
the Six Month Periods Ended July 31, 1998 and 1997
(unaudited)............................................ F-27
Combined Note of Historical Cost Profits and Losses for
the Years Ended January 31, 1998 and 1997 and for the
Six Month Periods Ended July 31, 1998 and 1997
(unaudited)............................................ F-27
Combined Cash Flow Statements for the Years Ended January
31, 1998 and 1997 and for the Six Month Periods Ended
July 31, 1998 and 1997 (unaudited)..................... F-28
Notes to the Combined Financial Statements................ F-31
</TABLE>
F-1
<PAGE> 146
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF GENCORP INC.:
We have audited the accompanying combined balance sheets of Omnova
Solutions Inc. (the Performance Chemicals and Decorative & Building Products
businesses of GenCorp Inc.) as of November 30, 1998 and 1997, and the related
statements of combined income, divisional equity and cash flows for each of the
three years in the period ended November 30, 1998. These financial statements
are the responsibility of GenCorp Inc.'s management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Omnova Solutions
Inc. at November 30, 1998 and 1997, and the combined results of its operations
and its cash flows for each of the three years in the period ended November 30,
1998, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Akron, Ohio
April 14, 1999
F-2
<PAGE> 147
OMNOVA SOLUTIONS
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
NOVEMBER 30,
FEBRUARY 28, ------------
1999 1998 1997
------------ ---- ----
(UNAUDITED)
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
ASSETS:
CURRENT ASSETS
Cash and cash equivalents................................... $ 3 $ 4 $ --
Accounts receivable, net.................................... 102 102 71
Inventories................................................. 58 57 36
Deferred income taxes....................................... 9 9 8
Prepaid expenses and other.................................. 3 2 --
---- ---- ----
TOTAL CURRENT ASSETS........................................ 175 174 115
Property, plant and equipment, net.......................... 194 193 122
Goodwill, net............................................... 155 155 27
Patents and other intangible assets, net.................... 76 76 8
Other assets................................................ 3 5 5
---- ---- ----
TOTAL ASSETS................................................ $603 $603 $277
==== ==== ====
LIABILITIES AND DIVISIONAL EQUITY:
CURRENT LIABILITIES
Notes payable............................................... $ 6 $ -- $ --
Accounts payable............................................ 57 73 58
Accrued payroll and personal property taxes................. 9 12 10
Other current liabilities................................... 6 4 4
---- ---- ----
TOTAL CURRENT LIABILITIES................................... 78 89 72
Deferred income taxes....................................... 17 16 14
Other liabilities........................................... 9 9 9
---- ---- ----
TOTAL LIABILITIES........................................... 104 114 95
DIVISIONAL EQUITY........................................... 499 489 182
---- ---- ----
TOTAL LIABILITIES AND DIVISIONAL EQUITY..................... $603 $603 $277
==== ==== ====
</TABLE>
See notes to combined financial statements.
F-3
<PAGE> 148
OMNOVA SOLUTIONS
STATEMENTS OF COMBINED INCOME
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FEBRUARY 28, YEARS ENDED NOVEMBER 30,
------------ --------------------------
1999 1998 1998 1997 1996
---- ---- ------ ------ ------
(UNAUDITED)
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
NET SALES............................................. $171 $134 $624 $548 $506
COSTS AND EXPENSES
Cost of products sold................................. 111 90 407 369 329
Selling, general and administrative................... 37 27 117 106 97
Depreciation.......................................... 5 4 18 15 14
Interest expense allocated from GenCorp............... 5 1 8 4 8
Other (income) expense, net........................... 2 (1) 1 (3) 1
Unusual items......................................... -- -- 3 -- (4)
---- ---- ---- ---- ----
160 121 554 491 445
---- ---- ---- ---- ----
INCOME BEFORE INCOME TAXES............................ 11 13 70 57 61
Income taxes.......................................... 4 5 28 23 24
---- ---- ---- ---- ----
NET INCOME............................................ $ 7 $ 8 $ 42 $ 34 $ 37
==== ==== ==== ==== ====
</TABLE>
See notes to combined financial statements.
F-4
<PAGE> 149
OMNOVA SOLUTIONS
STATEMENTS OF COMBINED DIVISIONAL EQUITY
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED NOVEMBER 30,
FEBRUARY 28, --------------------------
1999 1998 1997 1996
------------------ ------ ------ ------
(UNAUDITED)
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Balance at beginning of period..................... $489 $182 $147 $146
Net income......................................... 7 42 34 37
Foreign currency translation adjustment............ -- 1 -- --
---- ---- ---- ----
Total comprehensive income......................... 7 43 34 37
Net transactions with GenCorp...................... 3 264 1 (36)
---- ---- ---- ----
Balance at end of period........................... $499 $489 $182 $147
==== ==== ==== ====
</TABLE>
See notes to combined financial statements.
F-5
<PAGE> 150
OMNOVA SOLUTIONS
STATEMENTS OF COMBINED CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FEBRUARY 28, YEARS ENDED NOVEMBER 30,
------------ ------------------------
1999 1998 1998 1997 1996
---- ---- ------ ----- -----
(UNAUDITED)
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................................ $ 7 $ 8 $ 42 $ 34 $ 37
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for unusual item.......................... -- -- 3 -- --
Gain on sale of businesses.......................... -- -- -- -- (4)
Depreciation, amortization and loss/gain on disposal
of fixed assets.................................. 6 4 21 16 14
Deferred income taxes............................... -- -- 1 -- (1)
Changes in operating assets and liabilities net of
effects of acquisitions and dispositions of
businesses:
Accounts receivable.............................. -- 1 (7) (2) (3)
Inventories...................................... -- 3 1 3 --
Other current assets............................. (1) (2) -- -- --
Current liabilities.............................. (26) (14) (7) 5 5
Other non-current assets......................... 11 -- (3) -- 1
Other long-term liabilities...................... -- -- 1 1 2
---- ---- ----- ---- ----
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES... (3) -- 52 57 51
INVESTING ACTIVITIES
Capital expenditures.................................. (7) (3) (18) (11) (15)
Proceeds from business and asset dispositions......... 9 -- -- -- 4
Business acquisitions................................. (3) -- (294) (47) (4)
---- ---- ----- ---- ----
NET CASH USED IN INVESTING ACTIVITIES................. (1) (3) (312) (58) (15)
FINANCING ACTIVITIES
Net transactions with GenCorp......................... 3 3 264 1 (36)
---- ---- ----- ---- ----
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES... 3 3 264 1 (36)
---- ---- ----- ---- ----
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS......................................... (1) -- 4 -- --
Cash and cash equivalents at beginning of period...... 4 -- -- -- --
---- ---- ----- ---- ----
CASH AND CASH EQUIVALENTS AT END OF
PERIOD.............................................. $ 3 $ -- $ 4 $ -- $ --
==== ==== ===== ==== ====
</TABLE>
See notes to combined financial statements.
F-6
<PAGE> 151
OMNOVA SOLUTIONS
NOTES TO COMBINED FINANCIAL STATEMENTS
NOVEMBER 30, 1998, 1997 AND 1996
INFORMATION AS OF AND FOR THE PERIODS ENDED
FEBRUARY 28, 1999 AND 1998 IS UNAUDITED
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION -- On December 17, 1998, GenCorp's (Company) Board of
Directors announced a plan to spin off its Performance Chemicals and Decorative
& Building Products businesses (Omnova Solutions Inc.) to its shareholders.
These businesses have been operated as divisions of GenCorp and include a
subsidiary operated in the United Kingdom. In the spin-off, each of the
Company's shareholders will receive a pro rata share of the voting common stock
of Omnova Solutions Inc. (Omnova Solutions) in a special dividend (Distribution)
and Omnova Solutions will become a separately traded, publicly held company. The
Company has filed a request for a ruling from the U.S. Internal Revenue Service
(the IRS) that this transaction generally would be free from U.S. federal income
taxes. The Distribution is subject to several conditions, including shareholder
approval and the IRS ruling.
The accompanying combined financial statements have been prepared on a
basis which reflects the historical financial statements of Omnova Solutions.
This assumes that the businesses of the Company expected to be contributed to
Omnova Solutions in connection with the Distribution were organized as a
separate legal entity. Generally, only assets and liabilities of the ongoing
Omnova Solutions businesses expected to be transferred to Omnova Solutions prior
to the Distribution were included in the Combined Balance Sheets.
The Company provides certain general and administrative services to Omnova
Solutions including administration, finance, legal, treasury, information
systems and human resources. The cost for these services was allocated to Omnova
Solutions by the Company based upon a formula that includes sales, gross payroll
and average invested capital. Management of the Company believes that the
allocation of cost for these services is reasonable. These allocations were $12
million, $13 million, and $12 million in 1998, 1997 and 1996, respectively, and
$4 million and $3 million for the three month periods ended February 28, 1999
and 1998, respectively. After the Distribution, Omnova Solutions will be
required to perform these general and administrative services using its own
resources or purchased services and will be responsible for the costs and
expenses associated with the management of a public company. Omnova Solutions'
management estimates that the costs of such general and administrative expenses
on a stand-alone basis would have been approximately $22 million in 1998.
As described in Note J, Omnova Solutions' employees and retirees
participate in various Company pension, health care, savings and other benefit
plans. The net expenses related to these plans are included in the Omnova
Solutions combined financial statements generally based on historical pension
asset allocations and actuarial analyses for pension and retiree health care
obligations and based on actual cost for active health care, savings and other
benefit plans.
The Company uses a centralized approach to cash management and financing
for its domestic operations. As a result, cash and cash equivalents and debt
were not allocated to Omnova Solutions' domestic operations in the historical
financial statements. The cash and cash equivalents included in the Combined
Balance Sheets relate to Omnova Solutions' foreign operations. Omnova Solutions
generally has not had borrowings except amounts due to the Company. Interest
expense has been allocated to Omnova Solutions in the combined financial
statements to reflect Omnova Solutions' pro rata share of the financing
structure of the Company. The allocation in the combined financial statements is
based upon the percentage relationship between the average net assets employed
in Omnova Solutions' operations and the Company's overall average net assets. As
a stand alone entity, Omnova Solutions will establish its own credit facilities.
It is anticipated that as of the date of the Distribution, Omnova Solutions will
borrow an amount and pay the Company a dividend. The actual amount to be
borrowed by Omnova Solutions and paid as a dividend to the Company will be
determined at the time of the Distribution. The actual amount will depend, in
part, on the amount of the borrowings by the Company at that time.
F-7
<PAGE> 152
OMNOVA SOLUTIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The allocation methodology followed in preparing the combined financial
statements may not necessarily reflect the results of operations, cash flows, or
financial position of Omnova Solutions in the future, or what the results would
have been had Omnova Solutions been a separate stand-alone public entity for all
periods presented.
The Distribution will be accomplished through a distribution agreement that
will provide for, among other things, the assets to be contributed to Omnova
Solutions and the liabilities to be assumed by Omnova Solutions, certain of
which assets and liabilities have not been included in the accompanying Combined
Balance Sheets. Those assets and liabilities include, among other things, a
defined amount of debt and related corporate assets and liabilities.
The Company and Omnova Solutions will also enter into an employee benefits
and compensation allocation agreement to set forth the manner in which assets
and liabilities under employee benefit plans and other employment related
liabilities will be allocated between them. Certain assets and liabilities
related to the plans have not been included in the accompanying Combined Balance
Sheets. These included, among other things, assets and liabilities for the U.S.
defined benefit pension plans and obligations for health care and other
postretirement benefits that Omnova Solutions is expected to retain for
substantially all of its active and retired U.S. employees.
The final determination of the assets to be contributed to Omnova Solutions
and the liabilities to be assumed by Omnova Solutions and the dividend to be
paid by Omnova Solutions to the Company will be made pursuant to the agreements
to be entered into between the Company and Omnova Solutions in connection with
the Distribution. As of the date of the Distribution, the net effect of the
final transfer and dividend will be treated as a reduction in "Divisional
Equity" in the Combined Balance Sheets.
PRINCIPLES OF COMBINATION -- The combined financial statements of Omnova
Solutions include the accounts of the related businesses. Significant
interdivisional accounts and transactions have been eliminated.
REVENUE RECOGNITION -- Sales are recorded when products are shipped.
USE OF ESTIMATES -- The preparation of the combined financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the combined
financial statements and accompanying notes. Actual results could differ from
those estimates.
ENVIRONMENTAL COSTS -- Omnova Solutions expenses, on a current basis,
recurring costs associated with managing hazardous substances and pollution in
ongoing operations. Omnova Solutions accrues for costs associated with the
remediation of environmental pollution when it becomes probable that a liability
has been incurred and its proportionate share of the amount can be reasonably
estimated. Omnova Solutions recognizes amounts recoverable from insurance
carriers or other third parties when the collection of such amounts is probable
and estimatable. Accruals are not material.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- Omnova Solutions' cash equivalents
bear interest at market rates and therefore their carrying values approximate
their fair values.
INVENTORIES -- Inventories are stated at the lower of cost or market,
primarily using the last-in, first-out method.
LONG-LIVED ASSETS -- Property, plant and equipment are recorded at cost.
Refurbishment costs are capitalized in the property accounts whereas ordinary
maintenance and repair costs are expensed as incurred. Depreciation is computed
principally using the straight-line method. Depreciable lives on buildings and
improvements, and machinery and equipment, range from 10 to 40 years and 3 to 20
years, respectively.
Goodwill represents the excess of the purchase price over the estimated
fair value of the net assets acquired and is amortized on a straight-line basis
over periods ranging from 15 to 40 years. Identifiable intangible assets,
F-8
<PAGE> 153
OMNOVA SOLUTIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
such as patents, trademarks and licenses, are recorded at cost or when acquired
as part of a business combination at their estimated fair value. Identifiable
intangible assets are amortized over their estimated useful lives using the
straight-line method over periods ranging from 3 to 15 years. Accumulated
amortization of goodwill and identifiable intangible assets at November 30, 1998
and 1997 was $4 million and $1 million, respectively.
Impairment of long-lived assets is recognized when events or changes in
circumstances indicate that the carrying amount of the asset or related group of
assets may not be recoverable. If the expected future undiscounted cash flows
are less than the carrying amount of the asset, an impairment loss is recognized
at that time. Measurement of impairment may be based upon appraisal, market
value of similar assets, or discounted cash flows.
INCOME TAXES -- Omnova Solutions is included in the consolidated returns
filed by GenCorp and its subsidiaries in various U.S. and foreign jurisdictions.
The tax provisions reflected in the Statements of Combined Income have been
computed as if Omnova Solutions was a separate company. The accompanying
Combined Balance Sheets include deferred tax amounts applicable to Omnova
Solutions which result from temporary differences between the carrying amount of
assets and liabilities for financial reporting and income tax purposes. Taxes
currently payable and income tax payments are recorded directly by GenCorp and,
as a result, amounts related to Omnova Solutions are included in "Net
transactions with GenCorp" in the Statements of Combined Cash Flows.
EARNINGS PER SHARE -- Historical earnings per share have not been presented
as Omnova Solutions was operated as a division of the Company and had no
outstanding stock.
INTERIM FINANCIAL INFORMATION -- The financial information at February 28,
1999, and for the three months ended February 28, 1999 and 1998 is unaudited but
includes all adjustments (consisting only of normal recurring adjustments) which
Omnova Solutions considers necessary for a fair presentation of its financial
position, operating results and cash flows. Results of these periods are not
necessarily indicative of results expected for the entire year.
NOTE B -- UNUSUAL ITEMS
In 1998, Omnova Solutions recognized unusual expense of $3 million related
to exiting the residential wallcovering business. In 1996, Omnova Solutions
recognized unusual income of $4 million from the sale of the structural urethane
adhesives business.
NOTE C -- NEW ACCOUNTING PRONOUNCEMENTS
Omnova Solutions adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (SFAS 130), as of December 1, 1998, which
established standards for reporting and displaying comprehensive income and its
components in the financial statements. The adoption of SFAS 130, which had no
impact on Omnova Solutions' net income or divisional equity, requires
translation adjustments to be included in other comprehensive income.
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (SFAS 131). This statement is required to be adopted in fiscal year
1999. SFAS 131 requires that annual and interim financial and descriptive
information about reportable operating segments be reported on the same basis
used internally for evaluating segment performance and the allocation of
resources. While Omnova Solutions has not yet determined the impact of adopting
SFAS 131 on its financial statement disclosures, Omnova Solutions does not
expect any change to its primary financial statements.
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which is required to be adopted in fiscal
year 2001. Because of Omnova Solutions' minimal use of
F-9
<PAGE> 154
OMNOVA SOLUTIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
derivatives, management does not anticipate that the adoption of this Statement
will have a significant effect on earnings or the financial position of Omnova
Solutions.
In April 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-5, "Reporting the Costs of
Start-Up Activities" (SOP 98-5). SOP 98-5 is effective beginning on December 1,
1999, and requires that start-up costs capitalized prior to December 1, 1999 be
written off and any future start-up costs be expensed as incurred. Omnova
Solutions has no capitalized start-up costs and therefore, the adoption of SOP
98-5 will not have an effect on the combined financial statements.
In March 1998, the AICPA issued SOP 98-1, "Accounting For the Costs of
Computer Software Developed For or Obtained For Internal Use" (SOP 98-1). SOP
98-1 is effective for Omnova Solutions beginning on December 1, 1999. SOP 98-1
will require the capitalization of certain costs incurred after the date of
adoption in connection with developing or obtaining software for internal use.
Omnova Solutions believes it is in compliance with the standards established by
SOP 98-1 and as such SOP 98-1 will not impact Omnova Solutions' future earnings
or financial position.
NOTE D -- ACQUISITIONS AND DIVESTITURES
ACQUISITIONS
On October 29, 1998, Omnova Solutions acquired certain net assets of Sequa
Chemicals, the specialty chemicals unit of Sequa Corporation, for $108 million
in cash. This acquisition provided technology, customers and increased capacity
for an array of emulsion polymers and polymer hybrids including acrylics and
vinyl acetate. The preliminary purchase price allocation resulted in goodwill
and other intangible assets of approximately $61 million which are being
amortized over periods ranging from 5 to 40 years.
On August 14, 1998, Omnova Solutions acquired the commercial wallcovering
business of Walker Greenbank PLC, which is based in the United Kingdom, for $112
million in cash. The preliminary purchase price allocation resulted in goodwill
and other intangible assets of approximately $80 million which are being
amortized over periods ranging from 5 to 40 years.
On March 1, 1998, Omnova Solutions acquired The Goodyear Tire & Rubber
Company's Calhoun, Georgia latex facility for an aggregate consideration of $78
million, of which $74 million was paid in cash and $4 million was paid through
the retention of receivables. The acquisition resulted in goodwill and other
intangible assets of $59 million which are being amortized over periods ranging
from 3 to 40 years.
On May 7, 1997, Omnova Solutions acquired certain net assets of Printworld
from Technographics, Inc. for $47 million in cash. The acquisition resulted in
goodwill and other intangible assets of $32 million which are being amortized
over periods ranging from 3 to 30 years.
On August 23, 1996, Omnova Solutions purchased the Lytron(R) polystyrene
latex plastic pigment business from Morton International Inc. for approximately
$4 million. The acquisition resulted in intangible assets of $3 million which
are being amortized over 15 years.
All of the above acquisitions were accounted for using the purchase method
and were included in the results of operations of Omnova Solutions from the
respective dates of acquisition.
The following unaudited pro forma information presents a summary of the
combined results of operations of Omnova Solutions as if the fiscal 1998
acquisitions had occurred at the beginning of fiscal 1997, with pro forma
adjustments to reflect the amortization of goodwill and other intangible assets
and interest expense on incurred debt together with the related income tax
effects. The pro forma financial information is not necessarily indicative of
the combined results of operations if the acquisitions had actually occurred at
the beginning of fiscal 1997.
F-10
<PAGE> 155
OMNOVA SOLUTIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C>
NET SALES.............................................. $766 $748
==== ====
NET INCOME............................................. $ 43 $ 35
==== ====
</TABLE>
On December 2, 1998, Omnova Solutions acquired the U.S. acrylic emulsion
polymers business of PolymerLatex, located in Fitchburg, Massachusetts, for $9
million, consisting of cash of $3 million and a note payable of $6 million due
December 1, 1999.
DIVESTITURES
On December 14, 1998, Omnova Solutions sold its residential wallcovering
business to Blue Mountain Wallcoverings, Inc. for an aggregate consideration of
approximately $9 million. The loss on the sale of this business was reflected in
the 1998 results of operations.
On November 19, 1996, Omnova Solutions completed the sale of substantially
all of the assets and certain liabilities of its structural urethane adhesives
business to Ashland Inc. for an aggregate consideration of approximately $4
million.
NOTE E -- RESEARCH AND DEVELOPMENT EXPENSE
Research and development (R&D) expenses were $9 million in 1998 and $8
million in each of 1997 and 1996. R&D expenses include the costs of technical
activities that are useful in developing new products, services, processes or
techniques, as well as those expenses for technical activities that may
significantly improve existing products or processes.
NOTE F -- INCOME TAXES
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
-------------------------
1998 1997 1996
----- ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
INCOME TAXES (BENEFIT)
CURRENT
U.S. federal.............................................. $ 22 $ 19 $ 20
State and local........................................... 5 4 5
----- ----- -----
27 23 25
DEFERRED -- U.S. FEDERAL.................................. 1 -- (1)
----- ----- -----
$ 28 $ 23 $ 24
===== ===== =====
EFFECTIVE INCOME TAX RATE
Statutory federal income tax rate......................... 35.0% 35.0% 35.0%
State and local income taxes, net of federal income tax
benefit................................................. 5.0 5.0 5.0
----- ----- -----
EFFECTIVE INCOME TAX RATE................................. 40.0% 40.0% 40.0%
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
NOVEMBER 30,
----------------------------------------------
1998 1997
--------------------- ---------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------ ----------- ------ -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
DEFERRED TAXES
Accrued estimated costs........................ $13 $-- $11 $--
Depreciation................................... -- 20 -- 17
--- --- --- ---
$13 $20 $11 $17
=== === === ===
</TABLE>
Omnova Solutions' foreign pretax earnings were not material.
F-11
<PAGE> 156
OMNOVA SOLUTIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G -- ACCOUNTS RECEIVABLE
Omnova Solutions' receivables are generally unsecured and are not backed by
collateral from its customers. No one customer represented more than 10 percent
of Omnova Solutions' net trade receivables. The allowance for doubtful accounts
was $4 million and $3 million at November 30, 1998 and 1997, respectively and $4
million at February 28, 1999.
NOTE H -- INVENTORIES
<TABLE>
<CAPTION>
NOVEMBER 30,
FEBRUARY 28, ------------
1999 1998 1997
------------ ---- ----
(UNAUDITED)
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Raw materials and supplies............................... $ 24 $ 25 $ 18
Work-in-process.......................................... 5 5 4
Finished products........................................ 62 60 45
---- ---- ----
Approximate replacement cost of inventories.............. 91 90 67
Reserves, primarily LIFO................................. (33) (33) (31)
---- ---- ----
$ 58 $ 57 $ 36
==== ==== ====
</TABLE>
Inventories using the LIFO method represented 82 percent and 92 percent of
inventories at replacement cost at November 30, 1998 and 1997, respectively and
79 percent at February 28, 1999. The LIFO reserve was $28 million, $27 million
and $28 million at February 28, 1999 and November 30, 1998 and 1997,
respectively.
NOTE I -- PROPERTY, PLANT AND EQUIPMENT, NET
<TABLE>
<CAPTION>
NOVEMBER 30,
FEBRUARY 28, --------------
1999 1998 1997
------------ ----- -----
(UNAUDITED)
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Land................................................... $ 7 $ 7 $ 1
Building and improvements.............................. 72 71 48
Machinery and equipment................................ 255 281 215
Construction in progress............................... 23 15 7
----- ----- -----
357 374 271
Accumulated depreciation............................... (163) (181) (149)
----- ----- -----
$ 194 $ 193 $ 122
===== ===== =====
</TABLE>
NOTE J -- EMPLOYEE BENEFIT PLANS
In February 1998, the FASB issued Statement No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" (SFAS 132). SFAS
132 supersedes the disclosure requirements in Statements No. 87, "Employers'
Accounting for Pensions", No. 88, "Accounting for Settlements and Curtailments
of Defined Benefit Pension Plans and for Termination Benefits", and No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions." SFAS
132 addresses disclosure issues only and did not change the measurement or
recognition provisions specified in those Statements.
PENSION PLANS -- Omnova Solutions participates in a number of GenCorp
sponsored defined benefit pension plans which cover substantially all salaried
and hourly employees. Normal retirement age is generally 65, but certain plan
provisions allow for earlier retirement. The funding policy for the pension
plans is consistent with the
F-12
<PAGE> 157
OMNOVA SOLUTIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
funding requirements of federal law. The pension plans provide for pension
benefits, the amounts of which are calculated under formulas principally based
on average earnings and length of service for salaried employees and under
negotiated nonwage based formulas for hourly employees. The majority of the
pension plans' assets are invested in listed stocks and bonds and short-term
investments.
Pension expense allocated to Omnova Solutions in fiscal 1998, 1997 and 1996
was $6 million, $5 million and $5 million, respectively.
HEALTH CARE PLANS -- Omnova Solutions also participates in a number of
GenCorp sponsored health care and life insurance programs which cover most
retired employees in the United States. The health care programs generally
provide for cost sharing in the form of contributions, deductibles and
coinsurance between GenCorp and the retirees. Retirees in certain other
countries are provided similar benefits by plans sponsored by their governments.
Retiree health care expense allocated to Omnova Solutions for 1998, 1997
and 1996 was $3 million, $3 million and $4 million, respectively.
The following table sets forth the GenCorp plans' funded status and related
accrued pension costs that include Omnova Solutions employees as participants.
<TABLE>
<CAPTION>
PENSION HEALTH CARE
------------ --------------
1998 1997 1998 1997
---- ---- ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year..................... $494 $454 $ 242 $ 232
Service cost.............................................. 8 7 1 1
Interest cost............................................. 33 34 16 17
Amendments................................................ 2 3 -- 3
Actuarial loss............................................ (5) 32 4 12
Benefits paid............................................. (37) (36) (25) (23)
---- ---- ----- -----
BENEFIT OBLIGATION AT END OF YEAR........................... 495 494 238 242
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year.............. 690 626 -- --
Actual return on assets................................... 101 100 -- --
Employer contributions.................................... -- -- 25 23
Benefits paid............................................. (37) (36) (25) (23)
---- ---- ----- -----
FAIR VALUE OF PLAN ASSETS AT END OF YEAR.................... 754 690 -- --
Funded status............................................... 259 196 (238) (242)
Unrecognized actuarial (gain)/loss........................ (142) (88) 25 21
Unrecognized prior service cost........................... 17 17 (7) (7)
Unrecognized transition amount............................ (20) (24) -- --
Minimum funding liability................................. (5) (5) -- --
---- ---- ----- -----
NET AMOUNT RECOGNIZED....................................... $109 $ 96 $(220) $(228)
==== ==== ===== =====
WEIGHTED-AVERAGE ASSUMPTIONS
Discount rate............................................. 7.00% 7.00% 7.00% 7.00%
Expected return on plan assets............................ 8.75% 8.75% N/A N/A
Rate of compensation increase............................. 4.50% 4.50% N/A N/A
</TABLE>
F-13
<PAGE> 158
OMNOVA SOLUTIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $14 million, $12 million, and $0, respectively, as
of November 30, 1998, and $12 million, $11 million, and $0, respectively, as of
November 30, 1997.
For measurement purposes, a 9 percent annual rate of increase in the per
capita cost of retiree health care benefits was assumed for 1999. The rate was
assumed to decrease gradually to 6 percent for 2002 and remain at that level
thereafter.
Because most employer benefits are capped, assumed health care cost trend
rates have a minimal effect on the amounts reported for the health care plans. A
one-percentage point increase/decrease in assumed health care cost trend rates
would increase/decrease the benefit obligation at November 30, 1998 by $4
million and increase/ decrease the aggregate of the service and interest
components of net periodic cost by $0.3 million.
Omnova Solutions participates in a number of GenCorp sponsored defined
contribution pension plans. Participation in these plans is available to
substantially all salaried employees and to certain groups of hourly employees.
Contributions to these plans are based on either a percentage of employee
contributions or on a specified amount per hour based on the provisions of each
plan. The cost of these plans for Omnova Solutions was $2 million in each of
1998 and 1997 and $1 million in 1996.
NOTE K -- LEASE COMMITMENTS
Omnova Solutions leases certain facilities, machinery and equipment and
office buildings under long-term, noncancelable operating leases. The leases
generally provide for renewal options ranging from five to ten years and require
Omnova Solutions to pay for utilities, insurance, taxes and maintenance. Rent
expense was $4 million in 1998 and $3 million in each of 1997 and 1996. Future
minimum commitments at November 30, 1998 for existing operating leases were $14
million with annual amounts declining from $4 million in 1999 to $1 million in
2003. Omnova Solutions' obligation for leases after 2003 is $1 million.
NOTE L -- CONTINGENCIES
Omnova Solutions is subject to various legal actions and proceedings
relating to a wide range of matters. In the opinion of management, after
reviewing the information which is currently available with respect to such
matters and consulting with legal counsel, any liability which may ultimately be
incurred with respect to these matters will not materially affect the financial
condition of Omnova Solutions. The effect of resolution of these matters on
results of operations cannot be predicted because any such effect depends on
both future results of operations and the amount and timing of the resolution of
such matters.
NOTE M -- BUSINESS SEGMENT INFORMATION
Omnova Solutions designs and manufactures performance chemicals and
decorative and building products for industry and consumers. Omnova Solutions is
a leading producer of polymer-based products. Its principal markets include the
paper industry and residential and commercial construction, as well as diverse
consumer and industrial markets that demand a broad range of products and
solutions. No one customer accounts for 10 percent of consolidated sales.
Segment operating profit represents net sales less applicable costs,
expenses and provisions for restructuring and unusual items relating to
operations. Segment operating profit excludes corporate income and expenses,
interest expense and income taxes.
In 1998, Decorative & Building Products recognized unusual expense of $3
million related to exiting the residential wallcovering business. In 1996,
Performance Chemicals recognized unusual income of $4 million from the sale of
the structural urethane adhesives business.
F-14
<PAGE> 159
OMNOVA SOLUTIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Approximately 28% of Omnova Solutions' employees are covered by collective
bargaining agreements. Of the covered employees, approximately 22 percent are
covered by collective bargaining agreements that are due to expire within one
year. Omnova Solutions has not experienced significant work stoppage at any of
its facilities in the past. However, any protracted work stoppage in the future
in Omnova Solutions' facilities could adversely affect Omnova Solutions' results
of operations.
Omnova Solutions' operations are located primarily in the United States and
Europe starting in 1998. Inter-area sales are not significant to the total sales
of any geographic area. Unusual items included in operating profit pertained to
United States operations.
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
BUSINESS SEGMENT INFORMATION
NET SALES
Performance Chemicals....................................... $226 $180 $166
Decorative & Building Products.............................. 398 368 340
---- ---- ----
$624 $548 $506
==== ==== ====
INCOME
Performance Chemicals....................................... $ 35 $ 22 $ 25
Decorative & Building Products.............................. 51 44 45
Unusual items............................................... (3) -- 4
---- ---- ----
SEGMENT OPERATING PROFIT.................................... 83 66 74
Interest expense............................................ (8) (4) (8)
Corporate expenses.......................................... (5) (5) (5)
---- ---- ----
INCOME BEFORE INCOME TAXES.................................. $ 70 $ 57 $ 61
==== ==== ====
IDENTIFIABLE ASSETS
Performance Chemicals....................................... $290 $ 91 $ 87
Decorative & Building Products.............................. 313 186 146
---- ---- ----
TOTAL ASSETS................................................ $603 $277 $233
==== ==== ====
CAPITAL EXPENDITURES
Performance Chemicals....................................... $ 5 $ 6 $ 9
Decorative & Building Products.............................. 13 5 6
---- ---- ----
$ 18 $ 11 $ 15
==== ==== ====
DEPRECIATION
Performance Chemicals....................................... $ 6 $ 5 $ 5
Decorative & Building Products.............................. 12 10 9
---- ---- ----
$ 18 $ 15 $ 14
==== ==== ====
GEOGRAPHIC INFORMATION
NET SALES
Europe...................................................... $ 15 $ -- $ --
United States............................................... 572 512 477
United States export sales.................................. 37 36 29
---- ---- ----
$624 $548 $506
==== ==== ====
</TABLE>
F-15
<PAGE> 160
OMNOVA SOLUTIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
SEGMENT OPERATING PROFIT
Europe...................................................... $ 2 $ -- $ --
United States............................................... 84 66 70
Unusual items............................................... (3) -- 4
---- ---- ----
$ 83 $ 66 $ 74
==== ==== ====
IDENTIFIABLE ASSETS
Europe...................................................... $129 $ -- $ --
United States............................................... 474 277 233
---- ---- ----
TOTAL ASSETS................................................ $603 $277 $233
==== ==== ====
</TABLE>
NOTE N -- SUBSEQUENT EVENT (UNAUDITED)
On April 27, 1999, Omnova Solutions acquired the global latex floor care
business of Morton International Inc. for $8 million.
F-16
<PAGE> 161
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
GenCorp Inc.:
We have audited the accompanying consolidated statements of income, cash
flows and changes in shareholder's equity of Sequa Chemicals Corporation for the
period from January 1, 1998 to October 28, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, Sequa Chemicals Corporation's results of operations
and cash flows for the period from January 1, 1998 to October 28, 1998, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
March 31, 1999
F-17
<PAGE> 162
SEQUA CHEMICALS CORPORATION
CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIOD FROM JANUARY 1, 1998 TO OCTOBER 28, 1998
<TABLE>
<S> <C>
SALES, net.................................................. $74,004,195
COSTS AND EXPENSES:
Cost of sales............................................. 56,777,038
Selling, general and administrative....................... 10,088,467
Depreciation and amortization............................. 3,662,093
Research and development.................................. 1,672,625
-----------
Total costs and expenses.......................... 72,200,223
-----------
OPERATING INCOME............................................ 1,803,972
INTEREST EXPENSE............................................ 1,474,264
-----------
Income before income taxes................................ 329,708
INCOME TAX PROVISION........................................ 206,249
-----------
Net income................................................ $ 123,459
===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-18
<PAGE> 163
SEQUA CHEMICALS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1998 TO OCTOBER 28, 1998
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 123,459
Adjustments to reconcile net cash provided by operating
activities --
Depreciation and amortization.......................... 3,662,093
Provision for losses on receivables.................... 228,511
Other cash flows from operating activities --
Changes in operating assets and liabilities --
Receivables.......................................... (1,397,118)
Inventories.......................................... (689,832)
Other current assets................................. 52,269
Other noncurrent assets.............................. (144,271)
Accounts payable and accrued expenses................ 302,421
Other noncurrent liabilities......................... 147,711
-----------
Net cash provided by operating activities......... 2,285,243
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment................. (4,230,835)
-----------
Net cash used in investing activities............. (4,230,835)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from Sequa Corporation......................... 1,540,559
-----------
Net cash provided by financing activities......... 1,540,559
-----------
Net decrease in cash and cash equivalents......... (405,033)
CASH AND CASH EQUIVALENTS, beginning of period.............. 643,114
-----------
CASH AND CASH EQUIVALENTS, end of period.................... $ 238,081
===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-19
<PAGE> 164
SEQUA CHEMICALS CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
FOR THE PERIOD FROM JANUARY 1, 1998 TO OCTOBER 28, 1998
<TABLE>
<CAPTION>
ACCUMULATED
CAPITAL IN OTHER TOTAL
EXCESS OF COMPREHENSIVE RETAINED SHAREHOLDER'S
COMMON STOCK PAR VALUE INCOME (LOSS) EARNINGS EQUITY
------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1998...... $80,782 $14,662,955 $(28,413) $27,714,544 $42,429,868
------- ----------- -------- ----------- -----------
Net income.................. 123,459 123,459
Foreign currency translation
adjustment............... (55,332) (55,332)
-----------
Comprehensive income........ 68,127
------- ----------- -------- ----------- -----------
BALANCE, October 28, 1998..... $80,782 $14,662,955 $(83,745) $27,838,003 $42,497,995
======= =========== ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-20
<PAGE> 165
SEQUA CHEMICALS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 1, 1998 TO OCTOBER 28, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
BASIS OF PRESENTATION
Through October 28, 1998, Sequa Chemicals, Inc. ("Sequa Chemicals" or the
"Company") was a wholly owned subsidiary of Sequa Corporation. The consolidated
financial statements of Sequa Chemicals have been prepared on a stand-alone
basis and include the accounts of its majority owned subsidiaries. All
intercompany accounts have been eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers time
deposits, certificates of deposit and marketable securities with original
maturities of three months or less when purchased to be cash equivalents.
PROPERTY, PLANT AND EQUIPMENT
For financial reporting purposes, depreciation and amortization of
property, plant and equipment costs are computed using the straight-line method
over their estimated useful lives which range between 10 and 30 years.
Accelerated depreciation methods are used for income tax purposes.
The Company reviews properties for impairment whenever events or changes in
circumstances indicate that the carrying value of an asset may not be fully
recoverable. If the estimated future cash flows expected to result from the use
of an asset and its eventual disposition are less than the carrying amount of
the asset, then the property is written down to its fair market value.
Upon sale or retirement of properties, the related costs and accumulated
depreciation are removed from the accounts, and any gain or loss is reflected
currently. For the period from January 1, 1998 to October 28, 1998, total
depreciation expense was $2,789,527.
GOODWILL AND OTHER INTANGIBLES
Excess of cost over net assets of companies acquired (goodwill) is being
amortized on a straight-line basis over periods not exceeding forty years. The
recoverability of goodwill is evaluated at the operating unit level by an
analysis of operating results and consideration of other significant events or
changes in the business environment. If an operating unit has current operating
losses, and based upon projections there is a likelihood that such operating
losses will continue, the Company evaluates whether impairment exists on the
basis of undiscounted expected future cash flows from operations before interest
during the remaining amortization period. If impairment exists, the carrying
amount of the goodwill is reduced to market value.
The Company has also acquired patents and trademarks related to certain
manufacturing related processes. Such patents and trademarks are being amortized
over a period of eleven years.
Amortization expense related to goodwill and other intangibles for the
period from January 1, 1998 to October 28, 1998 was $872,566.
F-21
<PAGE> 166
SEQUA CHEMICALS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOREIGN CURRENCY TRANSLATION
The financial position and results of operations of the Company's foreign
subsidiaries are measured using local currency as the functional currency.
Assets and liabilities of operations denominated in foreign currencies are
translated into U.S. dollars at exchange rates in effect at year-end, while
revenues and expenses are translated at weighted average exchange rates
prevailing during the year. The resulting translation gains and losses on assets
and liabilities are charged or credited directly to cumulative translation
adjustment, a component of shareholder's equity, and are not included in net
income until realized through sale or liquidation of the investment.
ENVIRONMENTAL REMEDIATION AND COMPLIANCE
It is the Company's policy to accrue environmental remediation costs for
identified sites when it is probable that a liability has been incurred and the
amount of loss can be reasonably estimated. Accrued environmental remediation
and compliance costs include remedial investigation and feasibility studies,
outside legal, consulting and remediation project management fees, projected
cost of remediation activities, site closure and post-remediation monitoring
costs. For the period from January 1, 1998 to October 28, 1998, the total amount
charged to selling, general and administrative expense for environmental and
remediation compliance efforts was approximately $3,000,000.
REVENUE RECOGNITION
Sales are recorded when title passes to the customer, which is when
products are shipped.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred.
COMPREHENSIVE INCOME
Effective January 1, 1998, Sequa Chemicals adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." This
statement establishes standards for the reporting of comprehensive income and
its components in financial statements. Comprehensive income consists of net
income and other gains and losses affecting shareholder's equity that, under
generally accepted accounting principles, are excluded from net income. For
Sequa Chemicals, these items consist of foreign currency translation
adjustments. The adoption of SFAS No. 130 did not have a material effect on
Sequa Chemical's primary financial statements, but did affect the presentation
of the accompanying consolidated statement of changes in shareholder's equity.
SEGMENT INFORMATION
Sequa Chemicals adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." Sequa Chemicals has only one segment,
Chemicals, and accordingly no additional segment information has been provided.
F-22
<PAGE> 167
SEQUA CHEMICALS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. TRANSACTIONS WITH PARENT
The Company participates in various corporate programs administered by
Sequa Corporation. Expenses representing the cost to operate Sequa Chemicals on
a stand-alone basis have been included in the accompanying consolidated
statement of income. Such costs include the following:
<TABLE>
<S> <C>
Selling, general and administrative expenses................ $1,170,963
401(k) expenses............................................. 1,011,296
Insurance expenses.......................................... 1,763,708
EPA costs................................................... 3,000,000
Interest expense on average debt............................ 1,474,264
----------
Total corporate expense..................................... $8,420,231
==========
</TABLE>
There were no other material related party transactions for the period.
3. INCOME TAXES
Income taxes are recognized during the year in which transactions enter
into the determination of financial statement income, with deferred taxes being
provided for temporary differences between amounts of assets and liabilities
recorded for tax and financial reporting purposes. The income tax provision
included in the consolidated statement of income has been prepared as if Sequa
Chemicals was a stand-alone entity for the period from January 1, 1998 to
October 28, 1998.
The income tax provision for the period from January 1, 1998 to October 28,
1998, consisted of:
<TABLE>
<S> <C>
United States federal
Current................................................... $ 828,959
Deferred.................................................. (700,216)
State and local............................................. 77,506
---------
$ 206,249
=========
</TABLE>
The income tax provision is different from the amount computed by applying
the U.S. federal statutory income tax rate of 35% to income before income taxes.
The reasons for this difference for the period from January 1, 1998 to October
28, 1998, are as follows:
<TABLE>
<S> <C>
Computed income taxes at statutory rate..................... $115,398
State and local taxes, net of federal income tax benefit.... 50,379
Meals and entertainment..................................... 40,472
--------
$206,249
========
</TABLE>
No provision has been made for U.S. or additional foreign taxes on
undistributed earnings of foreign subsidiaries as those earnings are intended to
be permanently reinvested. Such earnings would become taxable upon the sale or
liquidation of these foreign subsidiaries or upon the remittance of dividends.
The components of income before income taxes for the period from January 1,
1998 to October 28, 1998, were:
<TABLE>
<S> <C>
Domestic.................................................... $323,613
Foreign..................................................... 6,095
--------
$329,708
========
</TABLE>
F-23
<PAGE> 168
SEQUA CHEMICALS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. SUBSEQUENT EVENT
On October 29, 1998, Sequa Corporation sold the net operating assets of
Sequa Chemicals to GenCorp Inc. for approximately $108 million in cash.
F-24
<PAGE> 169
EUROPEAN COMMERCIAL WALLCOVERINGS BUSINESS
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF GENCORP INC.
In our opinion, the accompanying combined profit and loss account, combined
statement of total recognised gains and losses and combined statement of cash
flows present fairly, in all material respects, the combined profit and combined
cash flows of the European Commercial Wallcoverings Business for the years ended
January 31, 1998 and January 31, 1997 in conformity with accounting principles
generally accepted in the United Kingdom. These financial statements are the
responsibility of the management of the European Commercial Wallcoverings
Business; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United Kingdom
which are substantially the same as auditing standards generally accepted in the
United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Accounting principles generally accepted in the United Kingdom vary in
certain significant respects from accounting principles generally accepted in
the United States. The application of the latter would have affected the
determination of combined profit expressed in pounds sterling for both of the
two years in the period ended January 31, 1998 to the extent summarised in note
12 to the combined financial statements.
PRICEWATERHOUSECOOPERS
PRICEWATERHOUSECOOPERS
Chartered Accountants
St Albans, England
May 27, 1999
F-25
<PAGE> 170
EUROPEAN COMMERCIAL WALLCOVERINGS BUSINESS
COMBINED PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED 6 MONTHS ENDED 6 MONTHS ENDED
JANUARY 31, JANUARY 31, JULY 31, 1998 JULY 31, 1997
1998 1997 (UNAUDITED) (UNAUDITED)
NOTE L'000 L'000 L'000 L'000
---- ----------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C>
TURNOVER.............................. 3 40,727 40,657 19,372 19,357
Cost of sales......................... (14,394) (15,653) (6,418) (6,526)
------- ------- ------ ------
GROSS PROFIT.......................... 26,333 25,004 12,954 12,831
Distribution costs.................... (10,740) (11,012) (6,124) (5,948)
Administrative expenses............... (9,702) (9,331) (3,783) (3,961)
Other income.......................... 212 203 1 8
------- ------- ------ ------
OPERATING PROFIT...................... 4 6,103 4,864 3,048 2,930
Investment income and interest
receivable.......................... 5 99 107 49 12
Interest payable and similar
charges............................. 6 (88) (131) (19) (50)
------- ------- ------ ------
PROFIT ON ORDINARY ACTIVITIES BEFORE
TAXATION............................ 6,114 4,840 3,078 2,892
Tax on profit on ordinary
activities.......................... 9 (1,897) (1,734) (978) (1,084)
------- ------- ------ ------
PROFIT FOR THE PERIOD................. 4,217 3,106 2,100 1,808
======= ======= ====== ======
</TABLE>
F-26
<PAGE> 171
EUROPEAN COMMERCIAL WALLCOVERINGS BUSINESS
COMBINED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED 6 MONTHS ENDED 6 MONTHS ENDED
JANUARY 31, JANUARY 31, JULY 31, 1998 JULY 31, 1997
1998 1997 (UNAUDITED) (UNAUDITED)
L'000 L'000 L'000 L'000
----------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
Profit for the financial period............. 4,217 3,106 2,100 1,808
Currency translation differences............ 117 119 55 74
----- ----- ----- -----
Total recognised gains and losses relating
to the period............................. 4,334 3,225 2,155 1,882
===== ===== ===== =====
</TABLE>
COMBINED NOTE OF HISTORICAL COST PROFITS AND LOSSES
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED 6 MONTHS ENDED 6 MONTHS ENDED
JANUARY 31, JANUARY 31, JULY 31, 1998 JULY 31, 1997
1998 1997 (UNAUDITED) (UNAUDITED)
L'000 L'000 L'000 L'000
----------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
Profit on ordinary activities before
taxation.................................. 6,114 4,840 3,078 2,892
Difference between historical cost
depreciation charge and actual
depreciation charge....................... 22 22 11 11
----- ----- ----- -----
Historical cost profit on ordinary
activities before taxation................ 6,136 4,862 3,089 2,903
----- ----- ----- -----
Historical cost profit for the period after
taxation.................................. 4,232 3,121 2,107 1,815
===== ===== ===== =====
</TABLE>
F-27
<PAGE> 172
EUROPEAN COMMERCIAL WALLCOVERINGS BUSINESS
COMBINED CASH FLOW STATEMENT
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED 6 MONTHS ENDED 6 MONTHS ENDED
JANUARY 31, JANUARY 31, JULY 31, 1998 JULY 31, 1997
1998 1997 (UNAUDITED) (UNAUDITED)
NOTE L'000 L'000 L'000 L'000
---- ----------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C>
NET CASH INFLOW/(OUTFLOW) FROM
OPERATING ACTIVITIES................. A 5,235 5,705 (3,779) (33)
RETURNS ON INVESTMENT AND SERVICING OF
FINANCE
Interest received...................... 99 107 49 12
Interest paid.......................... (88) (131) (19) (50)
------ ------ ------ ------
NET CASH INFLOW/(OUTFLOW) FROM RETURNS
ON INVESTMENT AND SERVICING OF
FINANCE.............................. 11 (24) 30 (38)
TAXATION
Corporation tax received/(paid)........ 122 (793) (123) (14)
CAPITAL EXPENDITURE AND FINANCIAL
INVESTMENT
Payments to acquire tangible fixed
assets............................... (2,426) (5,061) (787) (1,075)
Proceeds from sales of tangible fixed
assets............................... 182 82 10 15
------ ------ ------ ------
NET CASH OUTFLOW FROM INVESTING
ACTIVITIES........................... (2,244) (4,979) (777) (1,060)
------ ------ ------ ------
NET CASH INFLOW/(OUTFLOW) BEFORE AND
AFTER FINANCING...................... 3,124 (91) (4,649) (1,145)
====== ====== ====== ======
</TABLE>
F-28
<PAGE> 173
EUROPEAN COMMERCIAL WALLCOVERINGS BUSINESS
NOTES TO THE COMBINED CASH FLOW STATEMENT
A RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM OPERATIONS
<TABLE>
<CAPTION>
6 MONTHS ENDED
YEAR ENDED YEAR ENDED JULY 31, 6 MONTHS ENDED
JANUARY 31, JANUARY 31, 1998 JULY 31, 1997
1998 1997 (UNAUDITED) (UNAUDITED)
L'000 L'000 L'000 L'000
----------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
Operating profit.......................... 6,103 4,864 3,048 2,930
Depreciation.............................. 1,371 1,150 675 651
(Profit)/loss on disposal of fixed
assets.................................. (10) 29 6 --
Decrease/(Increase) in stock.............. 247 (1,020) 623 104
(Increase)/Decrease in debtors............ (2,346) (730) (5,412) (1,198)
(Decrease)/Increase in creditors.......... (130) 1,412 (2,719) (2,520)
------ ------ ------ ------
Net cash inflow/(outflow) from operating
activities.............................. 5,235 5,705 (3,779) (33)
====== ====== ====== ======
</TABLE>
B RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
<TABLE>
<CAPTION>
6 MONTHS ENDED
YEAR ENDED YEAR ENDED JULY 31, 6 MONTHS ENDED
JANUARY 31, JANUARY 31, 1998 JULY 31, 1997
1998 1997 (UNAUDITED) (UNAUDITED)
L'000 L'000 L'000 L'000
----------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
Increase/(decrease) in cash for period.... 3,124 (91) (4,649) (1,145)
Translation difference.................... (29) (40) -- (33)
------ ------ ------ ------
Change in net debt........................ 3,095 (131) (4,649) (1,178)
Net cash opening.......................... 2,455 2,586 5,550 2,455
------ ------ ------ ------
Net cash closing.......................... 5,550 2,455 901 1,277
====== ====== ====== ======
</TABLE>
C ANALYSIS OF CHANGE IN NET DEBT
<TABLE>
<CAPTION>
AT EXCHANGE AT
FEBRUARY 1, 1997 CASH FLOW MOVEMENT JANUARY 31, 1998
L'000 L'000 L'000 L'000
---------------- --------- -------- ----------------
<S> <C> <C> <C> <C>
Cash at bank and in hand..................... 3,254 2,325 (29) 5,550
Bank overdraft............................... (799) 799 -- --
----- ----- --- -----
2,455 3,124 (29) 5,550
===== ===== === =====
</TABLE>
F-29
<PAGE> 174
EUROPEAN COMMERCIAL WALLCOVERINGS BUSINESS
NOTES TO COMBINED CASH FLOW STATEMENT -- (CONTINUED)
<TABLE>
<CAPTION>
AT EXCHANGE AT
FEBRUARY 1, 1996 CASH FLOW MOVEMENT JANUARY 31, 1997
L'000 L'000 L'000 L'000
---------------- --------- -------- ----------------
<S> <C> <C> <C> <C>
Cash at bank and in hand..................... 3,672 (378) (40) 3,254
Bank overdraft............................... (1,086) 287 -- (799)
------ ---- --- -----
2,586 (91) (40) 2,455
====== ==== === =====
</TABLE>
<TABLE>
<CAPTION>
AT EXCHANGE AT
FEBRUARY 1, 1998 CASH FLOW MOVEMENT JULY 31, 1998
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
L'000 L'000 L'000 L'000
---------------- ----------- ----------- ----------------
<S> <C> <C> <C> <C>
Cash at bank and in hand..................... 5,550 (4,349) -- 1,201
Bank overdraft............................... -- (300) -- (300)
----- ------ --- -----
5,550 (4,649) -- 901
===== ====== === =====
</TABLE>
<TABLE>
<CAPTION>
AT EXCHANGE AT
FEBRUARY 1, 1997 CASH FLOW MOVEMENT JULY 31, 1997
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
L'000 L'000 L'000 L'000
---------------- ----------- ----------- ----------------
<S> <C> <C> <C> <C>
Cash at bank and in hand..................... 3,254 (1,944) (33) 1,277
Bank overdraft............................... (799) 799 -- --
----- ------ --- -----
2,455 (1,145) (33) 1,277
===== ====== === =====
</TABLE>
F-30
<PAGE> 175
EUROPEAN COMMERCIAL WALLCOVERINGS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
INFORMATION FOR THE 6 MONTH PERIODS ENDED JULY 31, 1998 AND JULY 31, 1997 IS
UNAUDITED.
1. BASIS OF PREPARATION
The combined financial statements reflect the combined operations of
Brymor, Muraspec, Muraspec Belgium and Muraspec SARL, which together formed the
commercial wallcoverings business ("the European Commercial Wallcoverings
Business") purchased by GenCorp Inc. in a transaction completed on August 13,
1998. Brymor, Muraspec and Muraspec Belgium were operating divisions within the
Walker Greenbank PLC group whilst Muraspec SARL was a wholly-owned subsidiary
whose ultimate parent company was Walker Greenbank PLC.
The combined financial statements comprise a combined profit and loss
account, a combined statement of total recognised gains and losses and a
combined statement of cash flows, together with related accounting policies and
footnotes, for the European Commercial Wallcoverings Business. The combined
financial statements cover the years ended January 31, 1998 and January 31, 1997
and the six month periods ended July 31, 1998 and July 31, 1997.
No balance sheets are presented in these combined financial statements.
Accounting policies in respect of balance sheet items are included only in
respect of their relevance to the reconciliation of movement in shareholders'
funds.
The information presented for the years ended January 31, 1998 and January
31, 1997 is audited ("Audited Combined Financial Statements"). Information for
the 6 month periods ended July 31, 1998 and July 31, 1997 is unaudited
("Unaudited Combined Financial Statements").
The accompanying unaudited combined profit and loss account and cash flows
for the six months ended July 31, 1998 and July 31, 1997 have been prepared on
the same basis as the Audited Combined Financial Statements and, in the opinion
of management, include all adjustments necessary to present fairly the financial
information set forth therein.
During the periods included in these combined financial statements the
European Commercial Wallcoverings Business did not constitute a separate group
or company; however, for the purpose of this presentation, Brymor, Muraspec,
Muraspec Belgium and Muraspec SARL were each accounted for on a stand-alone
basis. In view of the historical structure of the European Commercial
Wallcoverings Business a separate combination of the individual entities has
been prepared for the financial statement periods presented in these financial
statements. These financial statements are the responsibility of GenCorp Inc.
The combined financial statements are based on an aggregation of the
results of Brymor, Muraspec, Muraspec Belgium and Muraspec SARL. Transactions
and balances between these four elements have been eliminated on aggregation.
The combined profit and loss account of the European Commercial Wallcoverings
Business include all material revenues and expenses that would have been
incurred had the European Commercial Wallcoverings Business operated on a
stand-alone basis.
The financial statements have been prepared in all material respects in
accordance with Generally Accepted Accounting Principles in the UK ("UK GAAP")
and are expressed in pounds sterling ("GBP").
INTEREST
The European Commercial Wallcoverings Business has participated in cash
sweep arrangements operated by Walker Greenbank PLC, whereby certain cash
balances have been cleared periodically to central accounts held by Walker
Greenbank PLC. Similarly, to the extent that the European Commercial
Wallcoverings Business has had short-term borrowing requirements it has borrowed
from Walker Greenbank PLC. No interest has generally been received or charged in
respect of balances with Walker Greenbank PLC.
F-31
<PAGE> 176
EUROPEAN COMMERCIAL WALLCOVERINGS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION FOR THE 6 MONTH PERIODS ENDED JULY 31, 1998 AND JULY 31, 1997 IS
UNAUDITED.
TAXATION
During the periods included in these combined financial statements only
Muraspec SARL constituted a separate company for taxation purposes. Brymor,
Muraspec and Muraspec Belgium were operating divisions within Walker Greenbank
PLC. For the purposes of these combined financial statements, separate
corporation and deferred tax calculations have been prepared as if the three
operating divisions had been stand-alone companies. The assumption has been made
that any tax liabilities arising that were not paid by the European Commercial
Wallcoverings Business were settled by Walker Greenbank PLC as a capital
contribution to the European Commercial Wallcoverings business.
GROUP MANAGEMENT CHARGES
During the periods covered by these combined financial statements, the
European Commercial Wallcoverings Business received charges for head office
services carried out, or costs incurred on its behalf, by Walker Greenbank PLC.
These management charges were allocated between the businesses making up the
Walker Greenbank PLC group on bases that Walker Greenbank PLC management
determined to be reasonable. These bases have varied during the periods covered
by those combined financial statements.
It is possible that the level of cost incurred for such services would have
been different had the European Commercial Wallcoverings Business existed as a
stand-alone entity during those periods.
PENSIONS
During the periods covered by these combined financial statements certain
employees of the European Commercial Wallcoverings Business were members of
either one of two separate defined benefit group pension schemes operated by
Walker Greenbank PLC. Separate actuarial calculations have been performed to
determine an appropriate pensions charge for these employees under UK generally
accepted accounting practice.
SUBSEQUENT EVENTS
No account has been taken of changes in accounting policy, estimates or
judgement arising directly from the acquisition by GenCorp Inc. on August 13,
1998.
2. ACCOUNTING POLICIES
The principal accounting policies are set out below.
ACCOUNTING CONVENTION
The financial statements are prepared under the historical cost convention
modified for the revaluation of certain properties and in accordance with
applicable accounting standards.
PATTERN BOOKS AND SHADE CARDS
The cost of pattern books and shade cards for ranges launched in the year
is charged directly to the profit and loss account.
Costs incurred in developing pattern books and shade cards for ranges not
yet launched are held within work in progress in stocks and are written off in
the year of launch. Pattern books and shade cards held for resale are included
in finished goods at the lower of cost and net realisable value.
F-32
<PAGE> 177
EUROPEAN COMMERCIAL WALLCOVERINGS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION FOR THE 6 MONTH PERIODS ENDED JULY 31, 1998 AND JULY 31, 1997 IS
UNAUDITED.
FOREIGN CURRENCY
Monetary assets and liabilities denominated in foreign currencies are
translated at the rate of exchange ruling at the balance sheet date.
Transactions in foreign currencies are recorded at the rate ruling at the date
of the transaction or, if hedged, at the forward contract rate.
The balance sheets of overseas entities are translated at the rates of
exchange ruling at the balance sheet date. The profit and loss accounts are
translated at the average rates of exchange applicable to the accounting period.
TURNOVER
The group turnover represents the invoiced value, excluding VAT, of sales
to external customers.
STOCKS
Stocks and work in progress are stated at the lower of cost and net
realisable value. Cost comprises direct materials, on a first-in, first-out
basis, and direct labour plus attributable production overheads based on a
normal level of activity. Net realisable value is based on estimated selling
prices less anticipated costs to disposal.
PENSIONS
The cost of providing retirement pensions and related benefits is charged
to the profit and loss account over the periods during which members are
employed. Any surplus of assets over liabilities is apportioned over the
expected remaining service lives of current employees in the schemes.
RESEARCH AND DEVELOPMENT
Costs incurred in setting up production lines for new product ranges are
capitalised and amortised over the expected lives of those ranges. Other
research and development expenditure is written off as incurred.
FIXED ASSETS
Depreciation is charged on a straight-line basis on the original cost or
subsequent valuation of assets (excluding freehold land) after deduction of any
estimated residual value.
The principal annual rates are:
<TABLE>
<S> <C>
Freehold Buildings 2%
Short and Long Leaseholds Over the unexpired period of lease
Plant, Equipment and Vehicles Between 5% and 33%
</TABLE>
Land and buildings are stated at cost plus any revaluation reserve less
provision for permanent diminution in value.
The direct costs of developing computer software for internal use are
capitalised as part of fixed assets within the category of Plant, Equipment and
Vehicles.
LEASING AND HIRE PURCHASE COMMITMENTS
Rentals paid under operating leases are charged to income as incurred.
F-33
<PAGE> 178
EUROPEAN COMMERCIAL WALLCOVERINGS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION FOR THE 6 MONTH PERIODS ENDED JULY 31, 1998 AND JULY 31, 1997 IS
UNAUDITED.
DEFERRED TAXATION
Deferred taxation is provided on all timing differences only to the extent
that they are expected to reverse in the foreseeable future, calculated at the
rate at which it is estimated that tax will be payable.
3. TURNOVER
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED 6 MONTHS ENDED 6 MONTHS ENDED
JANUARY 31, JANUARY 31, JULY 31, 1998 JULY 31, 1997
1998 1997 (UNAUDITED) (UNAUDITED)
L'000 L'000 L'000 L'000
----------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
Analysis by geographical market:
United Kingdom.............................. 30,130 30,676 14,699 14,627
Continental Europe.......................... 6,782 5,743 2,793 2,888
Other....................................... 3,815 4,238 1,880 1,842
------ ------ ------ ------
40,727 40,657 19,372 19,357
====== ====== ====== ======
</TABLE>
4. OPERATING PROFIT
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED 6 MONTHS ENDED 6 MONTHS ENDED
JANUARY 31, JANUARY 31, JULY 31, 1998 JULY 31, 1997
1998 1997 (UNAUDITED) (UNAUDITED)
L'000 L'000 L'000 L'000
----------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
Operating profit is stated after charging:
Depreciation of fixed assets................ 1,371 1,150 675 651
Auditor's remuneration - audit services..... 44 39 22 22
- non-audit
services.................................. 25 9 7 9
Operating lease rentals
- - land and buildings........................ 674 733 355 342
- - others.................................... 650 578 295 327
Group management charges.................... 1,833 1,833 879 877
====== ====== ====== ======
</TABLE>
5. INVESTMENT INCOME AND INTEREST RECEIVABLE
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED 6 MONTHS ENDED 6 MONTHS ENDED
JANUARY 31, JANUARY 31, JULY 31, 1998 JULY 31, 1997
1998 1997 (UNAUDITED) (UNAUDITED)
L'000 L'000 L'000 L'000
----------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
Interest received and receivable
Bank interest............................... 99 107 49 12
====== ====== ====== ======
</TABLE>
F-34
<PAGE> 179
EUROPEAN COMMERCIAL WALLCOVERINGS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION FOR THE 6 MONTH PERIODS ENDED JULY 31, 1998 AND JULY 31, 1997 IS
UNAUDITED.
6. INTEREST PAYABLE AND SIMILAR CHARGES
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED 6 MONTHS ENDED 6 MONTHS ENDED
JANUARY 31, JANUARY 31, JULY 31, 1998 JULY 31, 1997
1998 1997 (UNAUDITED) (UNAUDITED)
L'000 L'000 L'000 L'000
----------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
On bank loans and overdrafts repayable
within five years......................... 50 90 19 31
Interest on parent company loan............. 38 41 -- 19
------ ------ ------ ------
88 131 19 50
====== ====== ====== ======
</TABLE>
7. INFORMATION ON EMPLOYEES
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED 6 MONTHS ENDED 6 MONTHS ENDED
JANUARY 31, JANUARY 31, JULY 31, 1998 JULY 31, 1997
1998 1997 (UNAUDITED) (UNAUDITED)
L'000 L'000 L'000 L'000
----------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
Staff costs
Wages and salaries.......................... 10,854 10,782 5,341 5,554
Social Security costs....................... 1,079 1,104 537 558
Other pension costs......................... 832 834 426 417
------ ------ ------ ------
12,765 12,720 6,304 6,529
====== ====== ====== ======
</TABLE>
The average number of employees during the year was as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED 6 MONTHS ENDED 6 MONTHS ENDED
JANUARY 31, JANUARY 31, JULY 31, 1998 JULY 31, 1997
1998 1997 (UNAUDITED) (UNAUDITED)
NUMBER NUMBER NUMBER NUMBER
----------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
Sales/warehouse............................. 240 242 232 238
Management and administration............... 61 60 56 60
Production.................................. 139 134 134 130
Development/marketing....................... 40 40 35 40
------ ------ ------ ------
480 476 457 468
====== ====== ====== ======
</TABLE>
No information is presented for directors' emoluments as the European
Commercial Wallcoverings Business had no directors during the periods covered by
these financial statements.
8. PENSION COSTS
Qualifying employees of the European Commercial Wallcoverings Business were
members of one of two defined benefit pension schemes operated by Walker
Greenbank PLC during the periods covered by these financial statements. The
assets of the schemes are held in separate trustee administered funds.
The pension costs are assessed in accordance with the advice of an
independent qualified actuary using the projected unit method. These schemes are
subjected to triennial actuarial reviews with the most recent ones having been
at 6 April 1996 for the major scheme and 6 April 1995 for the Abaris Holdings
Limited Pension Scheme (formerly Warner Fabrics Scheme).
F-35
<PAGE> 180
EUROPEAN COMMERCIAL WALLCOVERINGS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION FOR THE 6 MONTH PERIODS ENDED JULY 31, 1998 AND JULY 31, 1997 IS
UNAUDITED.
The principal actuarial assumptions applied for the two schemes were as
follows:
<TABLE>
<S> <C>
Investment returns 9.0% per annum
Salary growth 7.0% per annum
Pension increases 5.0% per annum in excess of Guaranteed Minimum Pension
</TABLE>
Assets have been valued using the discounted income method assuming a
dividend growth rate of 4.5% per annum.
At the latest actuarial valuation, the aggregate market value of the assets
of the major scheme was L22,173,000. The actuarial value of the assets of the
scheme was sufficient to cover 106% of the liability for benefits which have
accrued to members on an ongoing basis.
At the last actuarial valuation, the aggregate market value of the assets
of the Abaris Holdings Limited Pension scheme (formerly Warner Fabrics Scheme)
was L2,423,000. The actuarial value of the assets of the scheme was sufficient
to cover 205% of the liability for benefits which have accrued to members on an
ongoing basis.
9. TAX ON PROFIT ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED 6 MONTHS ENDED 6 MONTHS ENDED
JANUARY 31, JANUARY 31, JULY 31, 1998 JULY 31, 1997
1998 1997 (UNAUDITED) (UNAUDITED)
L'000 L'000 L'000 L'000
----------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
The taxation (credit)/charge comprises:
UK corporation tax
- - current year.............................. 1,630 1,376 900 836
Overseas corporation tax.................... 104 (44) 59 60
Deferred tax................................ 163 402 19 188
----- ----- --- -----
1,897 1,734 978 1,084
===== ===== === =====
</TABLE>
10. OPERATING LEASES COMMITMENTS
Annual commitments due under non-cancellable operating leases are as
follows:
<TABLE>
<CAPTION>
6 MONTHS ENDED
YEAR ENDED JULY 31, 1998
JANUARY 31, 1998 (UNAUDITED)
------------------------- -------------------------
LAND & BUILDINGS OTHERS LAND & BUILDINGS OTHERS
L'000 L'000 L'000 L'000
---------------- ------ ---------------- ------
<S> <C> <C> <C> <C>
Within one year................................. 522 275 706 167
Between one and five years...................... 1,389 488 1,431 338
Over five years................................. 92 -- -- --
----- --- ----- ---
2,003 763 2,137 505
===== === ===== ===
</TABLE>
F-36
<PAGE> 181
EUROPEAN COMMERCIAL WALLCOVERINGS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION FOR THE 6 MONTH PERIODS ENDED JULY 31, 1998 AND JULY 31, 1997 IS
UNAUDITED.
11. COMBINED RECONCILIATION OF MOVEMENTS IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED 6 MONTHS ENDED 6 MONTHS ENDED
JANUARY 31, JANUARY 31, JULY 31, 1998 JULY 31, 1997
1998 1997 (UNAUDITED) (UNAUDITED)
L'000 L'000 L'000 L'000
----------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
Retained profit for the year................ 4,217 3,106 2,100 1,808
Currency translation differences............ 117 119 55 74
Capital contribution........................ 1,602 1,319 959 895
------ ------ ------ ------
Net addition to net assets.................. 5,936 4,544 3,114 2,777
Opening net assets.......................... 43,651 39,107 49,587 43,651
------ ------ ------ ------
Closing net assets.......................... 49,587 43,651 52,701 46,428
====== ====== ====== ======
</TABLE>
Capital contribution relates to tax liabilities settled by Walker Greenbank
PLC on behalf of the European Commercial Wallcoverings Business.
12. DESCRIPTION OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP
The combined financial statements are prepared in accordance with generally
accepted accounting principles in the United Kingdom ("UK GAAP"), which differ
in certain respects from generally accepted accounting principles in the United
States ("US GAAP").
The principal differences between UK GAAP and US GAAP are presented below
together with explanations of certain adjustments that affect consolidated net
income and total shareholders' equity as of and for the years ended January 31,
1998 and January 31, 1997 and for the six month periods ended July 31, 1998 and
July 31, 1997:
(1) CAPITALISED PRODUCT AND COMPUTER SOFTWARE DEVELOPMENT COSTS
The European Commercial Wallcoverings Business has a policy of capitalising
certain development costs in respect of new product ranges and computer software
development costs. These development costs are amortised over a three year
period. Under US GAAP, such development costs are expensed as incurred.
(2) REVALUATION OF PROPERTY AND EQUIPMENT
Under UK GAAP, companies are permitted to perform revaluations of property
on a periodic basis and adjust the carrying values to the revalued fair market
value. The related depreciation is calculated on the revalued amounts where
applicable. Any surplus or deficit on the revaluation of property and equipment
is taken directly to a revaluation reserve, which is part of shareholders'
funds.
Under US GAAP, such revaluations are not permitted and depreciation is
provided on the original cost of property and equipment.
(3) PENSIONS
Under UK GAAP, an actuarial valuation method must be used to determine
annual pension cost. The valuation is normally performed every three years. The
benefit obligation is discounted at a long term risk adjusted rate and the plan
assets are valued on an actuarial basis. The expected cost of pensions is
charged to the profit and loss account so as to spread the variation from the
regular cost over the expected remaining service lives of employees.
F-37
<PAGE> 182
EUROPEAN COMMERCIAL WALLCOVERINGS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION FOR THE 6 MONTH PERIODS ENDED JULY 31, 1998 AND JULY 31, 1997 IS
UNAUDITED.
Under US GAAP, annual actuarial valuations must be carried out for defined
benefit pension obligations. The present value of the benefit obligation is
determined using a current market discount rate such as that of a high quality,
fixed rate debt instrument and the plan assets are valued on a market or market
related basis. Actuarial gains and losses that arise within a prescribed
"corridor" do not have to be amortised. Actuarial gains and losses outside the
corridor are amortised over the average expected remaining service of employees.
The principal actuarial assumptions for the two Walker Greenbank PLC UK
pension plans under SFAS Nos. 87 and 132 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 31, 6 MONTHS ENDED 6 MONTHS ENDED
1998 1997 JULY 31, 1998 JULY 31, 1997
----------- ----------- -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Discount rate............................... 6.75% 8% 6.25% 7.75%
Expected return on plan assets.............. 9% 9% 9% 9%
Rate of compensation increase............... 5% 6% 5.25% 5.5%
==== == ==== ====
</TABLE>
F-38
<PAGE> 183
EUROPEAN COMMERCIAL WALLCOVERINGS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION FOR THE 6 MONTH PERIODS ENDED JULY 31, 1998 AND JULY 31, 1997 IS
UNAUDITED.
The components of pension expense which arise under SFAS Nos. 87 and 132
are as follows:
<TABLE>
<CAPTION>
JANUARY 31, 1998 JANUARY 31, 1997 JULY 31, 1998 JULY 31, 1997
L'000 L'000 L'000 L'000
---------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of
year.................................. 8,013 6,003 11,354 8,013
Service cost............................ 747 571 421 366
Interest cost........................... 641 510 384 321
Plan participants' contributions........ 372 367 187 187
Actuarial gain.......................... 1,581 562 1,813 (299)
------ ----- ------ ------
BENEFIT OBLIGATION AT END OF YEAR....... 11,354 8,013 14,159 8,588
====== ===== ====== ======
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning
of year............................... 9,427 7,185 12,248 9,427
Actual return on plan assets............ 2,094 1,287 1,319 706
Contribution by employer................ 355 588 -- 178
Contributions by plan participants...... 372 367 187 187
------ ----- ------ ------
FAIR VALUE OF PLAN ASSETS AT END OF
YEAR.................................. 12,248 9,427 13,754 10,498
====== ===== ====== ======
FUNDED STATUS
Projected benefit obligations........... 11,354 8,013 14,159 8,588
Plan assets at fair value............... 12,248 9,427 13,754 10,498
Funded status........................... 894 1,414 (405) 1,910
Unrecognised transition amount.......... (472) (551) (433) (512)
Unrecognised prior service cost......... -- -- 1,307 (660)
Unrecognised net (gain) or loss......... 256 (79) -- --
------ ----- ------ ------
PREPAID BENEFIT COST.................... 678 784 469 738
====== ===== ====== ======
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost............................ 747 571 421 366
Interest cost........................... 641 510 384 321
Expected return on plan assets.......... (848) (647) (551) (424)
Amortisation of transitional asset...... (79) (79) (39) (39)
Recognised net actuarial gain........... -- -- (6) --
------ ----- ------ ------
NET PERIODIC BENEFIT COST............... 461 355 209 224
====== ===== ====== ======
</TABLE>
(4) COMPREHENSIVE INCOME
Under UK GAAP, the Statement of Total Recognised Gains and Losses presents
the components of other comprehensive income net of tax. Under US GAAP,
disclosure of the amount of income tax expense or benefit separately allocated
to the components of other comprehensive income should be provided. The tax
effect related to comprehensive income -- currency translation
differences -- for the periods ended January 31, 1998 and 1997, and for the six
month periods ended July 31, 1998 and 1997, is L36,000, L43,000, L17,000 and
L28,000 respectively.
F-39
<PAGE> 184
EUROPEAN COMMERCIAL WALLCOVERINGS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION FOR THE 6 MONTH PERIODS ENDED JULY 31, 1998 AND JULY 31, 1997 IS
UNAUDITED.
(5) OTHER DIFFERENCES
Other minor differences exist between UK GAAP and US GAAP in respect of
certain items reflected in the consolidated financial statements. Such
differences are immaterial to the reconciliation of net income and shareholders
funds and accordingly have been excluded from the reconciliations on the
following pages.
(6) EFFECT ON NET INCOME OF DIFFERENCES BETWEEN UK GAAP AND US GAAP
<TABLE>
<CAPTION>
JANUARY 31, 1998 JANUARY 31, 1997 JULY 31, 1998 JULY 31, 1997
L L L L
---------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C>
Reconciliation of net income:
Net income reported under UK GAAP....... 4,217 3,106 2,100 1,808
US GAAP adjustments:
Capitalised product development
costs................................. (101) (113) (9) (50)
Capitalised computer software
development costs..................... (12) (70) (7) (5)
Depreciation of fixed assets.......... 22 22 11 11
Pension expense....................... 152 107 154 83
Deferred tax effect of US GAAP
adjustments........................... (19) 18 (46) (12)
----- ----- ----- -----
Presentation of net income under US
GAAP.................................. 4,259 3,070 2,203 1,835
===== ===== ===== =====
</TABLE>
(7) EFFECT ON NET ASSETS OF DIFFERENCES BETWEEN UK GAAP AND US GAAP
RECONCILIATION OF NET ASSETS:
<TABLE>
<CAPTION>
JANUARY 31, 1998 JANUARY 31, 1997 JULY 31, 1998 JULY 31, 1997
L L L L
---------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C>
Total net assets under UK GAAP.......... 49,587 43,651 52,701 46,428
US GAAP adjustments:
Cumulative write-off of capitalised
product development costs............. (214) (113) (223) (163)
Cumulative write-off of capitalised
computer development costs............ (82) (70) (89) (75)
Accumulated depreciation on revalued
assets................................ 110 88 121 99
Revaluation of assets................... (1,942) (1,942) (1,942) (1,942)
Prepaid pension costs................... 810 658 964 741
Deferred tax effect on US GAAP
adjustments........................... 447 480 400 446
------ ------ ------ ------
Net assets in accordance with US GAAP... 48,716 42,752 51,932 45,534
====== ====== ====== ======
</TABLE>
F-40
<PAGE> 185
EUROPEAN COMMERCIAL WALLCOVERINGS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION FOR THE 6 MONTH PERIODS ENDED JULY 31, 1998 AND JULY 31, 1997 IS
UNAUDITED.
CHANGES IN US GAAP NET ASSETS ARE AS FOLLOWS:
<TABLE>
<S> <C>
Net assets at January 31, 1996.............................. 38,192
Net income for the period................................... 3,070
Currency translation adjustment............................. 83
------
Capital contribution........................................ 1,319
Net assets at January 31, 1997.............................. 42,664
Net income for the period................................... 4,259
Currency translation adjustment............................. 81
------
Capital contribution........................................ 1,602
Net assets at January 31, 1998.............................. 48,606
Net income for the period................................... 2,203
Currency translation adjustment............................. 43
------
Capital contribution........................................ 959
Net assets at July 31, 1998................................. 51,811
======
</TABLE>
(8) CONSOLIDATED STATEMENT OF CASH FLOWS
The Company's consolidated cash flow statement is prepared in accordance
with UK Financial Reporting Standard No 1 "Cash Flow Statements" and presents
substantially the same information as that required under US GAAP. However,
there are certain differences in classification of items within the cash flow
statement and with regard to the definition of cash and cash equivalents between
UK and US GAAP.
Under UK GAAP cash flows represent increases or decreases in cash, which is
comprised of cash in hand and deposits repayable on demand less overdrafts. Cash
flows are presented in the following categories (i) operating activities (ii)
returns on investments and servicing of finance (iii) taxation (iv) capital
expenditure and financial investment (v) acquisitions and disposals (vi) equity
dividends paid (vii) management of liquid resource and (viii) financing
activities.
Under US GAAP cash flows represent increases or decreases in cash and cash
equivalents, which include short term highly liquid investments with original
maturities of less than 90 days and exclude overdrafts. Cash flows are reported
in only three categories of operating activities, investing activities and
financing activities.
Cash flows from taxation and returns on investments and servicing of
finance are operating activities under US GAAP. The payment of dividends and
debt issue costs are included under financing activities. Capitalised interest
is included under investing activities for US GAAP purposes.
Cash flows from capital expenditure and financial investment as well as
cash flows from acquisitions and disposals are included as investing activities
under US GAAP. Cash flows from the management of liquid resources are included
in the overall cash movement since liquid resources are considered cash
equivalents under US GAAP.
Cash, for purposes of the cash flow under UK GAAP, includes bank overdrafts
but excludes liquid resources. Under US GAAP bank overdrafts are considered
loans and the movements thereon are included in financing activities. Liquid
resources are considered cash equivalents and the movements thereon are included
in the overall cash movement.
F-41
<PAGE> 186
EUROPEAN COMMERCIAL WALLCOVERINGS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION FOR THE 6 MONTH PERIODS ENDED JULY 31, 1998 AND JULY 31, 1997 IS
UNAUDITED.
The following table summarises the statement of cash flows for the European
Commercial Wallcoverings Business as if they had been presented in accordance
with US GAAP and included the adjustment which reconcile cash and cash
equivalents under UK GAAP to cash and cash equivalents under US GAAP.
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31, JULY 31, JULY 31,
1998 1997 1998 1997
----------- ----------- -------- --------
<S> <C> <C> <C> <C>
Reconciliation of cash flows
Net cash flow from operating activities................ 5,224 4,724 (3,928) (1,790)
Net cash provided by (used in) investing activities.... (2,244) (4,979) (777) (1,060)
Net cash provided by (used in) financing activities.... (799) (287) 300 799
------ ------ ------ ------
Net increase/(decrease) in cash and cash equivalents
under US GAAP........................................ 2,181 (542) (4,405) (2,051)
Effect of exchange rates on cash and cash
equivalents.......................................... 115 124 56 74
Cash and cash equivalents under US GAAP at beginning of
period............................................... 3,254 3,672 5,550 3,254
------ ------ ------ ------
Cash and cash equivalents under US GAAP at end of
period............................................... 5,550 3,254 1,201 1,277
====== ====== ====== ======
Additional cash flow information
Interest paid.......................................... (88) (131) (19) 50
Income tax paid........................................ -- (793) (123) (14)
====== ====== ====== ======
</TABLE>
F-42
<PAGE> 187
ANNEX A
DISSENTERS' RIGHTS
OHIO GENERAL CORPORATION LAW
SECTION 1701.85 DISSENTING SHAREHOLDER'S DEMAND FOR FAIR CASH VALUE OF SHARES.
(A) (1) A shareholder of a domestic corporation is entitled to relief as a
dissenting shareholder in respect of the proposals described in sections
1701.74,1701.76, and 1701.84 of the Revised Code, only in compliance with this
section.
(2) If the proposal must be submitted to the shareholders of the
corporation involved, the dissenting shareholder shall be a record holder of the
shares of the corporation as to which he seeks relief as of the date fixed for
the determination of shareholders entitled to notice of a meeting of the
shareholders at which the proposal is to be submitted, and such shares shall not
have been voted in favor of the proposal. Not later than ten days after the date
on which the vote on the proposal was taken at the meeting of the shareholders,
the dissenting shareholder shall deliver to the corporation a written demand for
payment to him of the fair cash value of the shares as to which he seeks relief,
which demand shall state his address, the number and class of such shares, and
the amount claimed by him as the fair cash value of the shares.
(3) The dissenting shareholder entitled to relief under division (C) of
section 1701.84 of the Revised Code in the case of a merger pursuant to section
1701.80 of the Revised Code and a dissenting shareholder entitled to relief
under division (E) of section 1701.84 of the Revised Code in the case of a
merger pursuant to section 1701.801 of the Revised Code shall be a record holder
of the shares of the corporation as to which he seeks relief as of the date on
which the agreement of merger was adopted by the directors of that corporation.
Within twenty days after he has been sent the notice provided in section 1701.80
or 1701.801 of the Revised Code, the dissenting shareholder shall deliver to the
corporation a written demand for payment with the same information as that
provided for in division (A)(2) of this section.
(4) In the case of a merger or consolidation, a demand served on the
constituent corporation involved constitutes service on the surviving or the new
entity, whether the demand is served before, on, or after the effective date of
the merger or consolidation.
(5) If the corporation sends to the dissenting shareholder, at the address
specified in his demand, a request for the certificates representing the shares
as to which he seeks relief, the dissenting shareholder, within fifteen days
from the date of the sending of such request, shall deliver to the corporation
the certificates requested so that the corporation may forthwith endorse on them
a legend to the effect that demand for the fair cash value of such shares has
been made. The corporation promptly shall return such endorsed certificates to
the dissenting shareholder. A dissenting shareholder's failure to deliver such
certificates terminates his rights as a dissenting shareholder, at the option of
the corporation, exercised by written notice sent to the dissenting shareholder
within twenty days after the lapse of the fifteen-day period, unless a court for
good cause shown otherwise directs. If shares represented by a certificate on
which such a legend has been endorsed are transferred, each new certificate
issued for them shall bear a similar legend, together with the name of the
original dissenting holder of such shares. Upon receiving a demand for payment
from a dissenting shareholder who is the record holder of uncertificated
securities, the corporation shall make an appropriate notation of the demand for
payment in its shareholder records. If uncertificated shares for which payment
has been demanded are to be transferred, any new certificate issued for the
shares shall bear the legend required for certificated securities as provided in
this paragraph. A transferee of the shares so endorsed, or of uncertificated
securities where such notation has been made, acquires only such rights in the
corporation as the original dissenting holder of such shares had immediately
after the service of a demand for payment of the fair cash value of the shares.
A request under this paragraph by the corporation is not an admission by the
corporation that the shareholder is entitled to relief under this section.
(B) Unless the corporation and the dissenting shareholder have come to an
agreement on the fair cash value per share of the shares as to which the
dissenting shareholder seeks relief, the dissenting shareholder or the
corporation, which in case of a merger or consolidation may be the surviving or
new entity, within three months
A-1
<PAGE> 188
after the service of the demand by the dissenting shareholder, may file a
complaint in the court of common pleas of the county in which the principal
office of the corporation that issued the shares is located or was located when
the proposal was adopted by the shareholders of the corporation, or, if the
proposal was not required to be submitted to the shareholders, was approved by
the directors. Other dissenting shareholders, within that three-month period,
may join as plaintiffs or may be joined as defendants in any such proceeding,
and any two or more such proceedings may be consolidated. The complaint shall
contain a brief statement of the facts, including the vote and the facts
entitling the dissenting shareholder to the relief demanded. No answer to such a
complaint is required. Upon the filing of such a complaint, the court, on motion
of the petitioner, shall enter an order fixing a date for a hearing on the
complaint and requiring that a copy of the complaint and a notice of filing and
of the date for hearing be given to the respondent or defendant in the manner in
which summon is required to be served or substituted service is required to be
made in other cases. On the day fixed for the hearing on the complaint or any
adjournment of it, the court shall determine from the complaint and from such
evidence as is submitted by either party whether the dissenting shareholder is
entitled to be paid the fair cash value of any shares and, if so, the number and
class of such shares. If the court finds that the dissenting shareholder is so
entitled, the court may appoint one or more persons as appraisers to receive
evidence and to recommend a decision on the amount of the fair cash value. The
appraisers have such power and authority as is specified in the order of their
appointment. The court thereupon shall make a finding as to the fair cash value
of a share and shall render judgment against the corporation for the payment of
it, with interest at such rate and from such date as the court considers
equitable. The costs of the proceeding, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable. The proceeding is a special proceeding and final
orders in it may be vacated, modified, or reversed on appeal pursuant to the
Rules of Appellate Procedure and, to the extent not in conflict with those
rules, Chapter 2505 of the Revised Code. If, during the pendency of any
proceeding instituted under this section, a suit or proceeding is or has been
instituted to enjoin or otherwise to prevent the carrying out of the action as
to which the shareholder has dissented, the proceeding instituted under this
section shall be stayed until the final determination of the other suit or
proceeding. Unless any provision in division (D) of this section is applicable,
the fair cash value of the shares that is agreed upon by the parties or fixed
under this section shall be paid within thirty days after the date of final
determination of such value under this division, the effective date of the
amendment to the articles, or the consummation of the other action involved,
whichever occurs last. Upon the occurrence of the last such event, payment shall
be made immediately to a holder of uncertificated securities entitled to such
payment. In the case of holders of shares represented by certificates, payment
small be made only upon and simultaneously with the surrender to the corporation
of the certificates representing the shares for which the payment is made.
(C) If the proposal was required to be submitted to the shareholders of the
corporation, fair cash value as to those shareholders shall be determined as of
the day prior to the day on which the vote by the shareholders was taken and, in
the case of a merger pursuant to section 1701.80 or 1701.801 of the Revised
Code, fair cash value as to shareholders of a constituent subsidiary corporation
shall be determined as of the day before the adoption of the agreement of merger
by the directors of the particular subsidiary corporation. The fair cash value
of a share for the purposes of this section is the amount that a willing seller
who is under no compulsion to sell would be willing to accept and that a willing
buyer who is under no compulsion to purchase would be willing to pay, but in no
event shall the fair cash value of a share exceed the amount specified in the
demand of the particular shareholder. In computing such fair cash value, any
appreciation or depreciation in market value resulting from the proposal
submitted to the directors or to the shareholders small be excluded.
(D)(1) The right and obligation of a dissenting shareholder to receive such
fair cash value and to sell such shares as to which he seeks relief, and the
right and obligation of the corporation to purchase such shares and to pay the
fair cash value of them terminates if any of the following applies:
(a) The dissenting shareholder has not complied with this section,
unless the corporation by its directors waives such failure;
(b) The corporation abandons the action involved or is finally
enjoined or prevented from carrying it out, or the shareholders rescind
their adoption of the action involved;
A-2
<PAGE> 189
(c) The dissenting shareholder withdraws his demand, with the consent
of the corporation by its directors;
(d) The corporation and the dissenting shareholder have not come to an
agreement as to the fair cash value per share, and neither the shareholder
nor the corporation has filed or joined in a complaint under division (B)
of this section within the period provided in that division.
(2) For purposes of division (D)(1) of this section, if the merger or
consolidation has become effective and the surviving or new entity is not a
corporation, action required to be taken by the directors of the corporation
shall be taken by the general partners of a surviving or new partnership or the
comparable representatives of any other surviving or new entity.
(E) From the time of the dissenting shareholder's giving of the demand
until either the termination of the rights and obligations arising from it or
the purchase of the shares by the corporation, all other rights accruing from
such shares, including voting and dividend or distribution rights, are
suspended. If during the suspension, any dividend or distribution is paid in
money upon shares of such class or any dividend, distribution, or interest is
paid in money upon any securities issued in extinguishment of or in substitution
for such shares, an amount equal to the dividend, distribution, or interest
which, except for the suspension, would have been payable upon such shares or
securities, shall be paid to the holder of record as a credit upon the fair cash
value of the shares. If the right to receive fair cash value is terminated other
than by the purchase of the shares by the corporation, all rights of the holder
shall be restored and all distributions which, except for the suspension, would
have been made shall be made to the holder of record of the shares at the time
of termination.
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Credit Suisse First Boston Logo ANNEX B
FINANCIAL VIABILITY OPINION OF CREDIT SUISSE FIRST BOSTON
July 2, 1999
Board of Directors
GenCorp Inc.
175 Ghent Road
Fairlawn, Ohio 44333
Members of the Board:
You have asked us to advise you, from a financial point of view, with
respect to the financial viability of New GenCorp (as defined below) and the
Decorative and Building Products and Performance Chemicals business units
("Omnova Solutions") of GenCorp Inc. ("GenCorp"), which, following distribution
(the "Distribution") to the stockholders of GenCorp of all of the outstanding
shares of common stock of Omnova Solutions, will become a separate public
company. For all purposes of our advice, including for purposes of this opinion,
the term "financial viability" means and refers exclusively to the ability of
New GenCorp (as defined below) and Omnova Solutions to finance their respective
currently anticipated operating and capital requirements as separate, stand
alone entities (as projected in the financial forecasts for New GenCorp and
Omnova Solutions prepared by the management of GenCorp as of June 25, 1999 and
delivered to us prior to the delivery of this opinion) during the period
immediately following the Distribution through the end of fiscal year 2000. As
used in this opinion, the term "New GenCorp" will be deemed to refer to GenCorp
as constituted immediately following the Distribution, the primary assets of
which will be (1) 100% of the stock of Aerojet General Corporation ("Aerojet"),
(2) GenCorp's Vehicle Sealing Group ("VSG") and (3) GenCorp's Fine Chemicals
business ("Fine Chemicals"), which is currently contained within Aerojet.
In arriving at our opinion, we have reviewed certain publicly available
business and financial information relating to GenCorp, New GenCorp and Omnova
Solutions which we believe is relevant to our review. We have also reviewed a
draft of the GenCorp proxy statement dated May 28, 1999, which you have informed
us is substantially in the form in which it will be sent to GenCorp stockholders
in connection with the Distribution (the "Proxy Statement"), as well as certain
other information provided to us prior to the date hereof by GenCorp, New
GenCorp and Omnova Solutions, including financial forecasts, and have met with
the managements of GenCorp, New GenCorp and Omnova Solutions to discuss the
business and prospects of New GenCorp and Omnova Solutions, respectively.
In addition, we have considered certain financial and stock market data of
GenCorp and certain financial data of New GenCorp and Omnova Solutions and we
have compared such data with similar data for other publicly held companies in
businesses similar to GenCorp, New GenCorp and Omnova Solutions and we have
considered the financial terms of certain other transactions similar to the
Distribution which have recently been effected. We have also considered
prevailing market conditions and such other information, financial studies,
analyses and investigations and financial, economic and market criteria which we
deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information (including the
information contained in the Proxy Statement) and have relied on its being
complete and accurate in all material respects. We have assumed that all
necessary governmental and regulatory approvals and consents of third parties
will be obtained on terms and conditions that will not have a material adverse
effect upon New GenCorp and Omnova Solutions. Similarly, we have assumed that
(i) there has been no material adverse change in the financial condition or
prospects of GenCorp, New GenCorp or Omnova Solutions since the date of the most
recent financial information provided to us, (ii) the financing and
capitalization of New GenCorp and Omnova Solutions following the Distribution
will be as set forth in the Proxy Statement, and (iii) the business of New
GenCorp and Omnova Solutions will be conducted substantially as contemplated by
the forecasts provided to us. With respect to the financial forecasts, we have
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the managements of GenCorp, New
GenCorp and Omnova Solutions as to the future financial performance of New
GenCorp and Omnova Solutions and we have relied on such forecasts. We have
further assumed with your
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consent that such forecasts, including the forecasts with respect to contingent
and other liabilities, will in fact be achieved. We assume no responsibility for
and express no view as to such financial forecasts and the assumptions on which
they are based. For purposes of this opinion, we have relied on, with your
consent, and have made no independent evaluation of and assume no responsibility
for, estimates and judgements of management of GenCorp and its counsel with
respect to the size and scope of the environmental liabilities and litigation of
GenCorp, New GenCorp and Omnova Solutions. We have assumed that any increases in
the reserves during the period covered by this opinion will be offset by
recoveries from other sources, such that such increases will not have a material
adverse effect on the forecasts. This opinion also assumes that prior to the
Distribution, GenCorp will receive a $188 million dividend from Omnova Solutions
and that such dividend will be used to repay existing indebtedness of GenCorp.
We were not requested to make, and have not made, an independent evaluation
or appraisal of the assets or liabilities (contingent or otherwise) of GenCorp
or Omnova Solutions, nor have we been furnished with any such appraisals.
Further, our opinion is necessarily based on financial, economic, monetary and
market conditions as they currently exist and can be evaluated on the date
hereof. In rendering our opinion, we have assumed that the Distribution will be
completed on the basis set forth in the first paragraph of this letter and that
the shares of New GenCorp and Omnova Solutions will be fully and widely
distributed among investors and subject only to normal trading activity. We are
not expressing any opinion as to what the market value of the securities of New
GenCorp or Omnova Solutions actually will be following the consummation of the
Distribution or the prices at which such securities will trade subsequent to the
Distribution. The actual combined market value of the New GenCorp and Omnova
Solutions securities could be higher or lower than the current market value of
GenCorp securities depending on, among other things, changes in interest rates,
dividend rates, market conditions, general economic conditions and other factors
which generally influence the price of securities.
We are acting as financial advisor to GenCorp in connection with the
Distribution and will receive a fee for our services, a portion of which is
contingent upon the consummation of the Distribution. Credit Suisse First Boston
and its affiliates have acted, and may in the future act, as an underwriter for,
and have participated as members of underwriting syndicates with respect to,
offerings of GenCorp securities and Credit Suisse First Boston has effected
securities transactions for GenCorp and performed financial advisory services in
connection with certain acquisitions and dispositions by GenCorp. Credit Suisse
First Boston has received fees from GenCorp in the past for these services and
may in the future serve as an underwriter of securities for or financial advisor
to GenCorp, New GenCorp and Omnova Solutions.
In the ordinary course of their business, Credit Suisse First Boston and
its affiliates may actively trade the debt and equity securities of GenCorp for
their own accounts and for the accounts of customers and, accordingly, may at
any time hold a long or short position in such securities.
It is understood that this letter is for the information of the Board of
Directors of GenCorp only in connection with its consideration of the
Distribution, and neither this letter nor Credit Suisse First Boston's advice
may be quoted or referred to, in whole or in part, in any registration
statement, prospectus, or proxy statement, or in any other written document used
in connection with the offering or sale of securities, nor shall this letter or
Credit Suisse First Boston's advice be used for any other purposes, without
Credit Suisse First Boston's prior written consent.
Based upon and subject to the foregoing, and assuming that current
financial, economic and market conditions continue to prevail, it is our opinion
that, as of the date hereof, the Distribution would not have a material adverse
effect on the financial viability of New GenCorp or Omnova Solutions during the
period immediately following the Distribution through the end of fiscal year
2000.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION
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ANNEX C
GENCORP INC.
1999 EQUITY AND PERFORMANCE INCENTIVE PLAN
1. PURPOSE. The purpose of the 1999 Equity and Performance Incentive Plan
is to attract and retain directors, officers and other key employees for GenCorp
Inc., an Ohio corporation and its Subsidiaries and to provide to such persons
incentives and rewards for superior performance.
2. DEFINITIONS. As used in this Plan,
"Appreciation Right" means a right granted pursuant to Section 5 of
this Plan, and shall include both Tandem Appreciation Rights and
Free-Standing Appreciation Rights.
"Base Price" means the price to be used as the basis for determining
the Spread upon the exercise of a Free-Standing Appreciation Right and a
Tandem Appreciation Right.
"Board" means the Board of Directors of the Company and, to the extent
of any delegation by the Board to a committee (or subcommittee thereof)
pursuant to Section 16 of this Plan, such committee (or subcommittee).
"Change in Control" shall have the meaning provided in Section 12 of
this Plan.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Common Shares" means the Common Shares, par value $0.10 per share, of
the Company or any security into which such Common Shares may be changed by
reason of any transaction or event of the type referred to in Section 11 of
this Plan.
"Company" means GenCorp Inc., an Ohio corporation.
"Covered Employee" means a Participant who is, or is determined by the
Board to be likely to become, a "covered employee" within the meaning of
Section 162(m) of the Code (or any successor provision).
"Date of Grant" means the date specified by the Board on which a grant
of Option Rights, Appreciation Rights, Performance Shares or Performance
Units or a grant or sale of Restricted Shares or Deferred Shares shall
become effective which date shall not be earlier than the date on which the
Board takes action with respect thereto.
"Deferral Period" means the period of time during which Deferred
Shares are subject to deferral limitations under Section 7 of this Plan.
"Deferred Shares" means an award made pursuant to Section 7 of this
Plan of the right to receive Common Shares at the end of a specified
Deferral Period.
"Director" means a member of the Board of Directors of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder, as such law, rules and
regulations may be amended from time to time.
"Free-Standing Appreciation Right" means an Appreciation Right granted
pursuant to Section 5 of this Plan that is not granted in tandem with an
Option Right.
"Immediate Family" has the meaning ascribed thereto in Rule 16a-1(e)
under the Exchange Act (or any successor rule to the same effect) as in
effect from time to time.
"Incentive Stock Options" means Option Rights that are intended to
qualify as "incentive stock options" under Section 422 of the Code or any
successor provision.
"Management Objectives" means the measurable performance objective or
objectives established pursuant to this Plan for Participants who have
received grants of Performance Shares or Performance Units or, when so
determined by the Board, Option Rights, Appreciation Rights, Restricted
Shares and dividend
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credits pursuant to this Plan. Management Objectives may be described in
terms of Company-wide objectives or objectives that are related to the
performance of the individual Participant or of the Subsidiary, division,
department, region or function within the Company or Subsidiary in which
the Participant is employed. The Management Objectives may be made relative
to the performance of other corporations. The Management Objectives
applicable to any award to a Covered Employee shall be based on specified
levels of or growth in one or more of the following criteria:
1. cash flow;
2. earnings per share;
3. earnings before interest and taxes;
4. earnings per share growth;
5. net income;
6. return on assets;
7. return on assets employed;
8. return on equity;
9. return on invested capital;
10. return on total capital;
11. revenue growth;
12. stock price;
13. total return to stockholders;
14. economic value added; and
15. operating profit growth; or
any combination of the foregoing.
If the Committee determines that a change in the business, operations,
corporate structure or capital structure of the Company, or the manner in
which it conducts its business, or other events or circumstances render the
Management Objectives unsuitable, the Committee may in its discretion
modify such Management Objectives or the related minimum acceptable level
of achievement, in whole or in part, as the Committee deems appropriate and
equitable, except in the case of a Covered Employee where such action would
result in the loss of the otherwise available exemption of the award under
Section 162(m) of the Code. In such case, the Committee shall not make any
modification of the Management Objectives or minimum acceptable level of
achievement.
"Market Value" means (i) the closing price for Common Shares as
reported in the New York Stock Exchange Composite Transactions in the Wall
Street Journal or similar publication selected by the Board for the
relevant date if Common Shares were traded on such day or, if none were
then traded, the last prior day on which Common Shares were so traded, or
(ii), if clause (i) does not apply, the fair market value of the Common
Stock as determined by the Board.
"Nonemployee Director" means a Director who is not an employee of the
Company or any Subsidiary.
"Optionee" means the optionee named in an agreement evidencing an
outstanding Option Right.
"Option Price" means the purchase price payable on exercise of an
Option Right.
"Option Right" means the right to purchase Common Shares upon exercise
of an option granted pursuant to Section 4 or Section 9 of this Plan.
"Participant" means a person who is selected by the Board to receive
benefits under this Plan and who is at the time an officer or other key
employee of the Company or any one or more of its Subsidiaries, or who has
agreed to commence serving in any of such capacities within 30 days of the
Date of Grant, and shall also include each Nonemployee Director who
receives an award of Option Rights or Restricted Shares.
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"Performance Period" means, in respect of a Performance Share or
Performance Unit, a period of time established pursuant to Section 8 of
this Plan within which the Management Objectives relating to such
Performance Share or Performance Unit are to be achieved.
"Performance Share" means a bookkeeping entry that records the
equivalent of one Common Share awarded pursuant to Section 8 of this Plan.
"Performance Unit" means a bookkeeping entry that records a unit
equivalent to $1.00 awarded pursuant to Section 8 of this Plan.
"Plan" means this GenCorp Inc. 1999 Equity and Performance Incentive
Plan.
"Restricted Shares" means Common Shares granted or sold pursuant to
Section 6 or Section 9 of this Plan as to which neither the substantial
risk of forfeiture nor the prohibition on transfers referred to in such
Section 6 has expired.
"Rule 16b-3" means Rule 16b-3 under the Exchange Act (or any successor
rule to the same effect) as in effect from time to time.
"Spread" means the excess of the Market Value per Share on the date
when an Appreciation Right is exercised, or on the date when Option Rights
are surrendered in payment of the Option Price of other Option Rights, over
the Option Price or Base Price provided for in the related Option Right or
Free-Standing Appreciation Right, respectively.
"Subsidiary" means a corporation, company or other entity (i) more
than 50 percent of whose outstanding shares or securities (representing the
right to vote for the election of directors or other managing authority)
are, or (ii) which does not have outstanding shares or securities (as may
be the case in a partnership, joint venture or unincorporated association),
but more than 50 percent of whose ownership interest representing the right
generally to make decisions for such other entity is, now or hereafter,
owned or controlled, directly or indirectly, by the Company except that for
purposes of determining whether any person may be a Participant for
purposes of any grant of Incentive Stock Options, "Subsidiary" means any
corporation in which, at the time, the Company owns or controls, directly
or indirectly, more than 50 percent of the total combined voting power
represented by all classes of stock issued by such corporation.
"Tandem Appreciation Right" means an Appreciation Right granted
pursuant to Section 5 of this Plan that is granted in tandem with an Option
Right.
"Voting Power" means at any time, the total votes relating to the
then-outstanding securities entitled to vote generally in the election of
Directors.
3. SHARES AVAILABLE UNDER THE PLAN. Subject to adjustment as provided in
Section 3(b) and Section 11 of this Plan, the number of Common Shares that may
be issued or transferred (i) upon the exercise of Option Rights or Appreciation
Rights, (ii) as Restricted Shares and released from substantial risks of
forfeiture thereof, (iii) as Deferred Shares, (iv) in payment of Performance
Shares or Performance Units that have been earned, (v) as awards to Nonemployee
Directors or (vi) in payment of dividend equivalents paid with respect to awards
made under the Plan shall not exceed in the aggregate 2,700,000 (Two Million
Seven Hundred Thousand) Common Shares, plus any shares described in Section
3(b). Such shares may be shares of original issuance or treasury shares or a
combination of the foregoing.
(b) The number of shares available in Section 3(a) above shall be
adjusted to account for shares relating to awards that expire, are
forfeited or are transferred, surrendered or relinquished upon the payment
of any Option Price by the transfer to the Company of Common Shares or upon
satisfaction of any withholding amount. Upon payment in cash of the benefit
provided by any award granted under this Plan, any shares that were covered
by that award shall again be available for issue or transfer hereunder.
(c) Notwithstanding anything in this Section 3, or elsewhere in this
Plan, to the contrary and subject to adjustment as provided in Section 11
of this Plan, (i) the aggregate number of Common Shares actually issued or
transferred by the Company upon the exercise of Incentive Stock Options
shall not exceed 1,000,000 Common Shares; (ii) no Participant shall be
granted Option Rights and Appreciation Rights, in
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the aggregate, for more than 1,000,000 Common Shares during any period of 3
consecutive years; (iii) the number of shares issued as Restricted Shares,
Deferred Shares or Performance Shares shall not in the aggregate exceed
900,000 Common Shares; (iv) during any period of three consecutive fiscal
years, the maximum number of Common Shares covered by awards of Restricted
Shares, Deferred Shares or Performance Shares granted to any one
Participant shall not exceed 900,000 Common Shares; and (v) no Nonemployee
Director shall be granted Option Rights, Appreciation Rights and Restricted
Shares, in the aggregate, for more than 100,000 Common Shares during any
fiscal year of the Company.
(d) Notwithstanding any other provision of this Plan to the contrary,
in no event shall any Participant in any one calendar year receive an award
of Performance Shares of Performance Units having an aggregate maximum
value as of their respective Dates of Grant in excess of $2,000,000.
4. OPTION RIGHTS. The Board may, from time to time and upon such terms and
conditions as it may determine, authorize the granting to Participants of
options to purchase Common Shares. Each such grant may utilize any or all of the
authorizations, and shall be subject to all of the requirements contained in the
following provisions:
(a) Each grant shall specify the number of Common Shares to which it
pertains subject to the limitations set forth in Section 3 of this Plan.
(b) Each grant shall specify an Option Price per share, which may not
be less than the Market Value per Share on the Date of Grant.
(c) Each grant shall specify whether the Option Price shall be payable
(i) in cash or by check acceptable to the Company, (ii) by the actual or
constructive transfer to the Company of Common Shares owned by the Optionee
for at least 6 months (or other consideration authorized pursuant to
Section 4(d) ) having a value at the time of exercise equal to the total
Option Price, or (iii) by a combination of such methods of payment.
(d) The Board may determine, at or after the Date of Grant, that
payment of the Option Price of any Option Right (other than an Incentive
Stock Option) may also be made in whole or in part in the form of
Restricted Shares or other Common Shares that are forfeitable or subject to
restrictions on transfer, Deferred Shares, Performance Shares (based, in
each case, on the Market Value per Share on the date of exercise), other
Option Rights (based on the Spread on the date of exercise) or Performance
Units. Unless otherwise determined by the Board at or after the Date of
Grant, whenever any Option Price is paid in whole or in part by means of
any of the forms of consideration specified in this Section 4(d) , the
Common Shares received upon the exercise of the Option Rights shall be
subject to such risks of forfeiture or restrictions on transfer as may
correspond to any that apply to the consideration surrendered, but only to
the extent, determined with respect to the consideration surrendered, of
(i) the number of shares or Performance Shares, (ii) the Spread of any
unexercisable portion of Option Rights, or (iii) the stated value of
Performance Units.
(e) Any grant may provide for deferred payment of the Option Price
from the proceeds of sale through a bank or broker on a date satisfactory
to the Company of some or all of the shares to which such exercise relates.
(f) Any grant may provide for payment of the Option Price, at the
election of the Optionee, in installments, with or without interest, upon
terms determined by the Board.
(g) Successive grants may be made to the same Participant whether or
not any Option Rights previously granted to such Participant remain
unexercised.
(h) Each grant shall specify the period or periods of continuous
service by the Optionee with the Company or any Subsidiary that is
necessary before the Option Rights or installments thereof will become
exercisable and may provide for the earlier exercise of such Option Rights
in the event of a Change in Control.
(i) Any grant of Option Rights may specify Management Objectives that
must be achieved as a condition to the exercise of such rights.
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(j) Option Rights granted under this Plan may be (i) options,
including, without limitation, Incentive Stock Options, that are intended
to qualify under particular provisions of the Code, (ii) options that are
not intended so to qualify, or (iii) combinations of the foregoing.
(k) The Board may, at or after the Date of Grant of any Option Rights
(other than Incentive Stock Options), provide for the payment of dividend
equivalents to the Optionee on either a current or deferred or contingent
basis or may provide that such equivalents shall be credited against the
Option Price.
(l) The exercise of an Option Right shall result in the cancellation
on a share- for-share basis of any Tandem Appreciation Right authorized
under Section 5 of this Plan.
(m) No Option Right shall be exercisable more than 10 years from the
Date of Grant.
(n) Each grant of Option Rights shall be evidenced by an agreement
executed on behalf of the Company by an officer and delivered to the
Optionee and containing such terms and provisions, consistent with this
Plan, as the Board may approve.
5. APPRECIATION RIGHTS. The Board may authorize the granting (i) to any
Optionee, of Tandem Appreciation Rights in respect of Option Rights granted
hereunder, and (ii) to any Participant, of Free-Standing Appreciation Rights. A
Tandem Appreciation Right shall be a right of the Optionee, exercisable by
surrender of the related Option Right, to receive from the Company an amount
determined by the Board, which shall be expressed as a percentage of the Spread
(not exceeding 100 percent) at the time of exercise. Tandem Appreciation Rights
may be granted at any time prior to the exercise or termination of the related
Option Rights; provided, however, that a Tandem Appreciation Right awarded in
relation to an Incentive Stock Option must be granted concurrently with such
Incentive Stock Option. A Free-Standing Appreciation Right shall be a right of
the Participant to receive from the Company an amount determined by the Board,
which shall be expressed as a percentage of the Spread (not exceeding 100
percent) at the time of exercise.
(b) Each grant of Appreciation Rights may utilize any or all of the
authorizations, and shall be subject to all of the requirements, contained
in the following provisions:
(i) Any grant may specify that the amount payable on exercise of an
Appreciation Right may be paid by the Company in cash, in Common Shares
or in any combination thereof and may either grant to the Participant or
retain in the Board the right to elect among those alternatives.
(ii) Any grant may specify that the amount payable on exercise of
an Appreciation Right may not exceed a maximum specified by the Board at
the Date of Grant.
(iii) Any grant may specify waiting periods before exercise and
permissible exercise dates or periods.
(iv) Any grant may specify that such Appreciation Right may be
exercised only in the event of, or earlier in the event of, a Change in
Control.
(v) Any grant may provide for the payment to the Participant of
dividend equivalents thereon in cash or Common Shares on a current,
deferred or contingent basis.
(vi) Any grant of Appreciation Rights may specify Management
Objectives that must be achieved as a condition of the exercise of such
Rights.
(vii) Each grant of Appreciation Rights shall be evidenced by an
agreement executed on behalf of the Company by an officer and delivered
to and accepted by the Participant, which agreement shall describe such
Appreciation Rights, identify the related Option Rights (if applicable),
state that such Appreciation Rights are subject to all the terms and
conditions of this Plan, and contain such other terms and provisions,
consistent with this Plan, as the Board may approve.
(c) Any grant of Tandem Appreciation Rights shall provide that such
Rights may be exercised only at a time when the related Option Right is
also exercisable and at a time when the Spread is positive, and by
surrender of the related Option Right for cancellation.
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(d) Regarding Free-standing Appreciation Rights only:
(i) Each grant shall specify in respect of each Free-standing
Appreciation Right a Base Price, which shall be equal to or greater or
less than the Market Value per Share on the Date of Grant;
(ii) Successive grants may be made to the same Participant
regardless of whether any Free-standing Appreciation Rights previously
granted to the Participant remain unexercised; and
(iii) No Free-standing Appreciation Right granted under this Plan
may be exercised more than 10 years from the Date of Grant.
6. RESTRICTED SHARES. The Board may also authorize the grant or sale of
Restricted Shares to Participants. Each grant or sale of Restricted Stock may
utilize any or all of the authorizations, and shall be subject to all of the
requirements, contained in the following provisions:
(a) Each such grant or sale shall constitute an immediate transfer of
the ownership of Common Shares to the Participant in consideration of the
performance of services, entitling such Participant to voting, dividend and
other ownership rights, but subject to the substantial risk of forfeiture
and restrictions on transfer hereinafter referred to.
(b) Each such grant or sale may be made without additional
consideration or in consideration of a payment by such Participant that is
less than Market Value per Share at the Date of Grant.
(c) Each such grant or sale shall provide that the Restricted Shares
covered by such grant or sale shall be subject to a "substantial risk of
forfeiture" within the meaning of Section 83 of the Code for a period of
not less than 3 years to be determined by the Board at the Date of Grant
and may provide for the earlier lapse of such substantial risk of
forfeiture in the event of a Change in Control. If the Board conditions the
nonforfeitability of shares of Restricted Stock upon service alone, such
vesting may not occur before three years from the Date of Grant of such
shares of Restricted Stock, and if the Board conditions the
nonforfeitability of shares of Restricted Stock on Management Objectives,
such nonforfeitability may not occur before one year from the Date of Grant
of such shares of Restricted Stock.
(d) Each such grant or sale shall provide that during the period for
which such substantial risk of forfeiture is to continue, the
transferability of the Restricted Shares shall be prohibited or restricted
in the manner and to the extent prescribed by the Board at the Date of
Grant (which restrictions may include, without limitation, rights of
repurchase or first refusal in the Company or provisions subjecting the
Restricted Shares to a continuing substantial risk of forfeiture in the
hands of any transferee).
(e) Any grant of Restricted Shares may specify Management Objectives
that, if achieved, will result in termination or early termination of the
restrictions applicable to such shares. Each grant may specify in respect
of such Management Objectives a minimum acceptable level of achievement and
may set forth a formula for determining the number of Restricted Shares on
which restrictions will terminate if performance is at or above the minimum
level, but falls short of full achievement of the specified Management
Objectives.
(f) Any such grant or sale of Restricted Shares may require that any
or all dividends or other distributions paid thereon during the period of
such restrictions be automatically deferred and reinvested in additional
Restricted Shares, which may be Subject to the same restrictions as the
underlying award.
(g) Each grant or sale of Restricted Shares shall be evidenced by an
agreement executed on behalf of the Company by any officer and delivered to
and accepted by the Participant and shall contain such terms and
provisions, consistent with this Plan, as the Board may approve. Unless
otherwise directed by the Board, all certificates representing Restricted
Shares shall be held in custody by the Company until all restrictions
thereon shall have lapsed, together with a stock power or powers executed
by the Participant in whose name such certificates are registered, endorsed
in blank and covering such Shares.
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7. DEFERRED SHARES. The Board may also authorize the granting or sale of
Deferred Shares to Participants. Each grant or sale of Deferred Shares may
utilize any or all of the authorizations, and shall be subject to all of the
requirements contained in the following provisions:
(a) Each such grant or sale shall constitute the agreement by the
Company to deliver Common Shares to the Participant in the future in
consideration of the performance of services, but subject to the
fulfillment of such conditions during the Deferral Period as the Board may
specify.
(b) Each such grant or sale may be made without additional
consideration or in consideration of a payment by such Participant that is
less than the Market Value per Share at the Date of Grant.
(c) Each such grant or sale shall be subject to a Deferral Period of
not less than one year, as determined by the Board at the Date of Grant,
and may provide for the earlier lapse or other modification of such
Deferral Period in the event of a Change in Control. If the Board
conditions the nonforfeitability of shares of Deferred Stock upon service
alone, such vesting may not occur before three years from the Date of Grant
of such shares of Deferred Stock, and if the Board conditions the
nonforfeitability of shares of Deferred Stock on Management Objectives,
such nonforfeitability may not occur before one year from the Date of Grant
of such shares of Deferred Stock.
(d) During the Deferral Period, the Participant shall have no right to
transfer any rights under his or her award and shall have no rights of
ownership in the Deferred Shares and shall have no right to vote them, but
the Board may, at or after the Date of Grant, authorize the payment of
dividend equivalents on such Shares on either a current or deferred or
contingent basis, either in cash or in additional Common Shares.
(e) Each grant or sale of Deferred Shares shall be evidenced by an
agreement executed on behalf of the Company by any officer and delivered to
and accepted by the Participant and shall contain such terms and
provisions, consistent with this Plan, as the Board may approve.
8. PERFORMANCE SHARES AND PERFORMANCE UNITS. The Board may also authorize
the granting of Performance Shares and Performance Units that will become
payable to a Participant upon achievement of specified Management Objectives.
Each such grant may utilize any or all of the authorizations, and shall be
subject to all of the requirements, contained in the following provisions:
(a) Each grant shall specify the number of Performance Shares or
Performance Units to which it pertains, which number may be subject to
adjustment to reflect changes in compensation or other factors; provided,
however, that no such adjustment shall be made in the case of a Covered
Employee where such action would result in the loss of the otherwise
available exemption of the award under Section 162(m) of the Code.
(b) The Performance Period with respect to each Performance Share or
Performance Unit shall be such period of time not less than 1 year,
commencing with the Date of Grant as shall be determined by the Board at
the time of grant which may be subject to earlier lapse or other
modification in the event of a Change in Control as set forth in the
agreement specified in Section 8(g).
(c) Any grant of Performance Shares or Performance Units shall specify
Management Objectives which, if achieved, will result in payment or early
payment of the award, and each grant may specify in respect of such
specified Management Objectives a minimum acceptable level of achievement
and shall set forth a formula for determining the number of Performance
Shares or Performance Units that will be earned if performance is at or
above the minimum level, but falls short of full achievement of the
specified Management Objectives. The grant of Performance Shares or
Performance Units shall specify that, before the Performance Shares or
Performance Units shall be earned and paid, the Board must certify that the
Management Objectives have been satisfied.
(d) Each grant shall specify the time and manner of payment of
Performance Shares or Performance Units that have been earned. Any grant
may specify that the amount payable with respect thereto may be paid by the
Company in cash, in Common Shares or in any combination thereof and may
either grant to the Participant or retain in the Board the right to elect
among those alternatives.
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(e) Any grant of Performance Shares may specify that the amount
payable with respect thereto may not exceed a maximum specified by the
Board at the Date of Grant. Any grant of Performance Units may specify that
the amount payable or the number of Common Shares issued with respect
thereto may not exceed maximums specified by the Board at the Date of
Grant.
(f) The Board may, at or after the Date of Grant of Performance
Shares, provide for the payment of dividend equivalents to the holder
thereof on either a current or deferred or contingent basis, either in cash
or in additional Common Shares.
(g) Each grant of Performance Shares or Performance Units shall be
evidenced by an agreement executed on behalf of the Company by any officer
and delivered to and accepted by the Participant, which agreement shall
state that such Performance Shares or Performance Units are subject to all
the terms and conditions of this Plan, and contain such other terms and
provisions, consistent with this Plan, as the Board may approve.
9. AWARDS TO NONEMPLOYEE DIRECTORS. The Board may, from time to time and
upon such terms and conditions as it may determine, authorize the granting to
Nonemployee Directors of Option Rights and may also authorize the grant or sale
of Restricted Shares to Nonemployee Directors.
(a) Each grant of Option Rights awarded pursuant to this Section 9
shall be upon terms and conditions consistent with Section 4 of this Plan
and shall be evidenced by an agreement in such form as shall be approved by
the Board. Each grant shall specify an Option Price per share, which shall
not be less than the Market Value per Share on the Date of Grant. Each such
Option Right granted under the Plan shall expire not more than 10 years
from the Date of Grant and shall be subject to earlier termination as
hereinafter provided. Unless otherwise determined by the Board, such Option
Rights shall be subject to the following additional terms and conditions:
(i) Each grant shall specify the number of Common Shares to which
it pertains subject to the limitations set forth in Section 3 of this
Plan.
(ii) Each such Option Right shall become exercisable six (6) months
after the Date of Grant. Such Option Rights shall become exercisable in
full immediately in the event of a Change in Control or other similar
transaction or event.
(iii) In the event of the termination of service on the Board by
the holder of any such Option Rights, other than by reason of
disability, death or retirement, the then outstanding Option Rights of
such holder may be exercised to the extent that they would be
exercisable on the date of such termination until the date that is one
year after the date of such termination, but in no event after the
expiration date of the term of such Option Rights.
(iv) In the event of the death, disability or retirement of the
holder of any such Option Rights, each of the then outstanding Option
Rights of such holder may be exercised at any time within one (1) year
after such death, disability or retirement, but in no event after the
expiration date of the term of such Option Rights.
(v) If a Nonemployee Director subsequently becomes an employee of
the Company or a Subsidiary while remaining a member of the Board, any
Option Rights held under the Plan by such individual at the time of such
commencement of employment shall not be affected thereby.
(vi) Option Rights may be exercised by a Nonemployee Director only
upon payment to the Company in full of the Option Price of the Common
Shares to be delivered. Such payment shall be made in cash or in Common
Shares then owned by the optionee for at least six months, or in a
combination of cash and such Common Shares.
(b) Each grant or sale of Restricted Shares pursuant to this Section 9
shall be upon terms and conditions consistent with Section 6 of this Plan.
10. TRANSFERABILITY. Except as otherwise determined by the Board, no Option
Right, Appreciation Right or other derivative security granted under the Plan
shall be transferable by a Participant other than by will or the
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laws of descent and distribution. Except as otherwise determined by the Board,
Option Rights and Appreciation Rights shall be exercisable during the Optionee's
lifetime only by him or her or by his or her guardian or legal representative.
(b) The Board may specify at the Date of Grant that part or all of the
Common Shares that are (i) to be issued or transferred by the Company upon
the exercise of Option Rights or Appreciation Rights, upon the termination
of the Deferral Period applicable to Deferred Shares or upon payment under
any grant of Performance Shares or Performance Units or (ii) no longer
subject to the substantial risk of forfeiture and restrictions on transfer
referred to in Section 6 of this Plan, shall be subject to further
restrictions on transfer.
(c) Notwithstanding the provisions of Section 10(a), Option Rights
(other than Incentive Stock Options) shall be transferable by a
Participant, without payment of consideration therefor by the transferee,
to any one or more members of the Participant's Immediate Family (or to one
or more trusts established solely for the benefit of one or more members of
the Participant's Immediate Family or to one or more partnerships in which
the only partners are members of the Participant's Immediate Family);
provided, however, that (i) no such transfer shall be effective unless
reasonable prior notice thereof is delivered to the Company and such
transfer is thereafter effected in accordance with any terms and conditions
that shall have been made applicable thereto by the Company or the Board
and (ii) any such transferee shall be subject to the same terms and
conditions hereunder as the Participant.
11. ADJUSTMENTS. The Board may make or provide for such adjustments in the
numbers of Common Shares covered by outstanding Option Rights, Appreciation
Rights, Deferred Shares, and Performance Shares granted hereunder, in the Option
Price and Base Price provided in outstanding Appreciation Rights, and in the
kind of shares covered thereby, as the Board, in its sole discretion, exercised
in good faith, may determine is equitably required to prevent dilution or
enlargement of the rights of Participants or Optionees that otherwise would
result from (a) any stock dividend, stock split, combination of shares,
recapitalization or other change in the capital structure of the Company, or (b)
any merger, consolidation, spin-off, split-off, spin-out, split-up,
reorganization, partial or complete liquidation or other distribution of assets,
issuance of rights or warrants to purchase securities, or (c) any other
corporate transaction or event having an effect similar to any of the foregoing.
Moreover, in the event of any such transaction or event, the Board, in its
discretion, may provide in substitution for any or all outstanding awards under
this Plan such alternative consideration as it, in good faith, may determine to
be equitable in the circumstances and may require in connection therewith the
surrender of all awards so replaced. The Board may also make or provide for such
adjustments in the numbers of shares specified in Section 3 of this Plan as the
Board in its sole discretion, exercised in good faith, may determine is
appropriate to reflect any transaction or event described in this Section 11;
provided, however, that any such adjustment to the number specified in Section
3(c)(i) shall be made only if and to the extent that such adjustment would not
cause any Option intended to qualify as an Incentive Stock Option to fail so to
qualify.
12. CHANGE IN CONTROL. For purposes of this Plan, except as may be
otherwise prescribed by the Board in an agreement evidencing a grant or award
made under the Plan, a "Change in Control" shall mean the occurrence during the
term of any of the following events, subject to the provisions of Section 12(f)
hereof:
(a) All or substantially all of the assets of the Company are sold or
transferred to another corporation or entity, or the Company is merged,
consolidated or reorganized into or with another corporation or entity,
with the result that upon conclusion of the transaction less than 51% of
the outstanding securities entitled to vote generally in the election of
directors or other capital interests of the acquiring corporation or entity
are owned directly or indirectly, by the shareholders of the Company
generally prior to the transaction; or
(b) There is a report filed on Schedule 13D or Schedule 14D-1 (or any
successor schedule, form or report), each as promulgated pursuant to the
Exchange Act, disclosing that any person (as the term "person" is used in
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act (a "Person")) has
become the beneficial owner (as the term "beneficial owner" is defined
under Rule 13d-3 or any successor rule or regulation promulgated under the
Exchange Act (a "Beneficial Owner")) of securities representing 20% or more
of the combined voting power of the then-outstanding voting securities of
the Company; or
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(c) The individuals who, at the beginning of any period of two
consecutive calendar years, constituted the Directors of the Company cease
for any reason to constitute at least a majority thereof unless the
nomination for election by the Company's stockholders of each new Director
of the Company was approved by a vote of at least two-thirds of the
Directors of the Company still in office who were Directors of the Company
at the beginning of any such period; or
(d) There shall be an announcement of the intent of any Person (other
than the Company, any wholly-owned Subsidiary of the Company, or any
employee stock ownership or other employee benefit plan of the Company or
any wholly-owned Subsidiary of the Company) to commence a tender offer or
exchange offer to acquire (when added to any shares as to which such Person
is the Beneficial Owner immediately prior to such tender or exchange offer)
beneficial ownership of 30% or more of the combined voting power of the
then-outstanding voting securities of the Company; or
(e) The Board determines that (a) any particular actual or proposed
merger, consolidation, reorganization, sale or transfer of assets,
accumulation of shares or tender offer for shares of the Company or other
transaction or event or series of transactions or events will, or is likely
to, if carried out, result in a Change in Control falling within
Subsections (a) , (b) , (c) or (d) and (b) it is in the best interests of
the Company and its shareholders, and will serve the intended purposes of
this Section 12, if the provisions of awards which provide for earlier
exercise or earlier lapse of restrictions or conditions upon a Change in
Control shall thereupon become immediately operative.
(f) Notwithstanding the foregoing provisions of this Section (12):
(i) If any such merger, consolidation, reorganization, sale or
transfer of assets, or tender offer or other transaction or event or
series of transactions or events mentioned in Section (12)(e) shall be
abandoned, or any such accumulations of shares shall be dispersed or
otherwise resolved, the Board may, by notice to the Employee, nullify
the effect thereof and reinstate the award as previously in effect, but
without prejudice to any action that may have been taken prior to such
nullification.
(ii) Unless otherwise determined in a specific case by the Board, a
"Change in Control" shall not be deemed to have occurred for purposes of
Section (12)(b) or 12(d) solely because (X) the Company, (Y) a
Subsidiary, or (Z) any Company-sponsored employee stock ownership plan
or any other employee benefit plan of the Company or any Subsidiary
either files or becomes obligated to file a report or a proxy statement
under or in response to Schedule 13D, Schedule 14D-1, Form 8-K or
Schedule 14A (or any successor schedule, form or report or item therein)
under the Exchange Act disclosing beneficial ownership by it of shares
of the then-outstanding voting securities of the Company, whether in
excess of 20% or otherwise, or because the Company reports that a change
in control of the Company has occurred or will occur in the future by
reason of such beneficial ownership.
13. FRACTIONAL SHARES. The Company shall not be required to issue any
fractional Common Shares pursuant to this Plan. The Board may provide for the
elimination of fractions or for the settlement of fractions in cash.
14. WITHHOLDING TAXES. To the extent that the Company is required to
withhold federal, state, local or foreign taxes in connection with any payment
made or benefit realized by a Participant or other person under this Plan, and
the amounts available to the Company for such withholding are insufficient, it
shall be a condition to the receipt of such payment or the realization of such
benefit that the Participant or such other person make arrangements satisfactory
to the Company for payment of the balance of such taxes required to be withheld,
which arrangements (in the discretion of the Board) may include relinquishment
of a portion of such benefit. Common Shares or benefits shall not be withheld in
excess of the minimum number required for such tax withholding. The Company and
a Participant or such other person may also make arrangements with respect to
the payment in cash of any taxes with respect to which withholding is not
required.
15. FOREIGN EMPLOYEES. In order to facilitate the making of any grant or
combination of grants under this Plan, the Board may provide for such special
terms for awards to Participants who are foreign nationals or who are employed
by the Company or any Subsidiary outside of the United States of America as the
Board may consider necessary or appropriate to accommodate differences in local
law, tax policy or custom. Moreover, the
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Board may approve such supplements to or amendments, restatements or alternative
versions of this Plan as it may consider necessary or appropriate for such
purposes, without thereby affecting the terms of this Plan as in effect for any
other purpose, and the Secretary or other appropriate officer of the Company may
certify any such document as having been approved and adopted in the same manner
as this Plan. No such special terms, supplements, amendments or restatements,
however, shall include any provisions that are inconsistent with the terms of
this Plan as then in effect unless this Plan could have been amended to
eliminate such inconsistency without further approval by the shareholders of the
Company.
16. ADMINISTRATION OF THE PLAN. This Plan shall be administered by the
Board, which may from time to time delegate all or any part of its authority
under this Plan to a committee of the Board (or subcommittee thereof) consisting
entirely of three Nonemployee Directors appointed by the Board. A majority of
the committee (or subcommittee) shall constitute a quorum, and the action of the
members of the committee (or subcommittee) present at any meeting at which a
quorum is present, or acts unanimously approved in writing, shall be the acts of
the committee (or subcommittee). To the extent of any such delegation,
references in this Plan to the Board shall be deemed to be references to any
such committee or subcommittee.
(b) The interpretation and construction by the Board of any provision
of this Plan or of any agreement, notification or document evidencing the
grant of Option Rights, Appreciation Rights, Restricted Shares, Deferred
Shares, Performance Shares or Performance Units and any determination by
the Board pursuant to any provision of this Plan or of any such agreement,
notification or document shall be final and conclusive. No member of the
Board shall be liable for any such action or determination made in good
faith.
17. AMENDMENTS, ETC. The Board may at any time and from time to time amend
the Plan in whole or in part; provided, however, that any amendment which must
be approved by the shareholders of the Company in order to comply with
applicable law or the rules of the New York Stock Exchange] or, if the Common
Shares are not traded on the New York Stock Exchange, the principal national
securities exchange upon which the Common Shares are traded or quoted, shall not
be effective unless and until such approval has been obtained. Presentation of
this Plan or any amendment hereof for shareholder approval shall not be
construed to limit the Company's authority to offer similar or dissimilar
benefits under other plans without shareholder approval.
(b) The Board shall not, without the further approval of the
shareholders of the Company, authorize the amendment of any outstanding
Option Right to reduce the Option Price. Furthermore, no Option Right shall
be cancelled and replaced with awards having a lower Option Price without
further approval of the shareholders of the Company. This Section 17(b) is
intended to prohibit the repricing of "underwater" Option Rights and shall
not be construed to prohibit the adjustments provided for in Section 11 of
this Plan.
(c) The Board also may permit Participants to elect to defer the
issuance of Common Shares or the settlement of awards in cash under the
Plan pursuant to such rules, procedures or programs as it may establish for
purposes of this Plan. The Board also may provide that deferred issuances
and settlements include the payment or crediting of dividend equivalents or
interest on the deferral amounts.
(d) The Board may condition the grant of any award or combination of
awards authorized under this Plan on the surrender or deferral by the
Participant of his or her right to receive a cash bonus or other
compensation otherwise payable by the Company or a Subsidiary to the
Participant.
(e) In case of termination of employment by reason of death,
disability or normal or early retirement, or in the case of hardship or
other special circumstances, of a Participant who holds an Option Right or
Appreciation Right not immediately exercisable in full, or any Restricted
Shares as to which the substantial risk of forfeiture or the prohibition or
restriction on transfer has not lapsed, or any Deferred Shares as to which
the Deferral Period has not been completed, or any Performance Shares or
Performance Units which have not been fully earned, or who holds Common
Shares subject to any transfer restriction imposed pursuant to Section
10(b) of this Plan, the Board may, in its sole discretion, accelerate the
time at which such Option Right or Appreciation Right may be exercised or
the time at which such substantial risk of forfeiture or prohibition or
restriction on transfer will lapse or the time when such Deferral Period
will end or the time at which such Performance Shares or Performance Units
will be deemed to have been fully
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earned or the time when such transfer restriction will terminate or may
waive any other limitation or requirement under any such award.
(f) This Plan shall not confer upon any Participant any right with
respect to continuance of employment or other service with the Company or
any Subsidiary, nor shall it interfere in any way with any right the
Company or any Subsidiary would otherwise have to terminate such
Participant's employment or other service at any time.
(g) To the extent that any provision of this Plan would prevent any
Option Right that was intended to qualify as an Incentive Stock Option from
qualifying as such, that provision shall be null and void with respect to
such Option Right. Such provision, however, shall remain in effect for
other Option Rights and there shall be no further effect on any provision
of this Plan.
18. TERMINATION. No grant shall be made under this Plan more than 10 years
after the date on which this Plan is first approved by the shareholders of the
Company, but all grants made on or prior to such date shall continue in effect
thereafter subject to the terms thereof and of this Plan.
19. EXCLUSION FROM CERTAIN RESTRICTIONS. Notwithstanding anything in this
Plan to the contrary, not more than eighty-one thousand (81,000) Common Shares
in the aggregate available under this Plan may be subject to awards as follows:
(a) in the case of grants of Restricted Stock, which do not meet the
requirements of the last sentence of Section 6(c) ;
(b) in the case of grants of Restricted Stock as to which the Board
may accelerate or waive any restrictions imposed under Section 6(d)
(c) in the case of grants of Deferred Stock, which do not meet the
requirements of the last sentence of Section 7(c) ; or
(d) in the case of Performance Shares and Performance Units, which do
not meet the requirements of Section 8(b).
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ANNEX D
OMNOVA SOLUTIONS INC.
1999 EQUITY AND PERFORMANCE INCENTIVE PLAN
1. PURPOSE. The purpose of the 1999 Equity and Performance Incentive Plan
is to attract and retain directors, officers and other key employees for Omnova
Solutions Inc., an Ohio corporation and its Subsidiaries and to provide to such
persons incentives and rewards for superior performance.
2. DEFINITIONS. As used in this Plan,
"Appreciation Right" means a right granted pursuant to Section 5 of
this Plan, and shall include both Tandem Appreciation Rights and
Free-Standing Appreciation Rights.
"Base Price" means the price to be used as the basis for determining
the Spread upon the exercise of a Free-Standing Appreciation Right and a
Tandem Appreciation Right.
"Board" means the Board of Directors of the Company and, to the extent
of any delegation by the Board to a committee (or subcommittee thereof)
pursuant to Section 16 of this Plan, such committee (or subcommittee).
"Change in Control" shall have the meaning provided in Section 12 of
this Plan.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Common Shares" means the Common Shares, par value $0.10 per share, of
the Company or any security into which such Common Shares may be changed by
reason of any transaction or event of the type referred to in Section 11 of
this Plan.
"Company" means Omnova Solutions Inc., an Ohio corporation.
"Covered Employee" means a Participant who is, or is determined by the
Board to be likely to become, a "covered employee" within the meaning of
Section 162(m) of the Code (or any successor provision).
"Date of Grant" means the date specified by the Board on which a grant
of Option Rights, Appreciation Rights, Performance Shares or Performance
Units or a grant or sale of Restricted Shares or Deferred Shares shall
become effective which date shall not be earlier than the date on which the
Board takes action with respect thereto.
"Deferral Period" means the period of time during which Deferred
Shares are subject to deferral limitations under Section 7 of this Plan.
"Deferred Shares" means an award made pursuant to Section 7 of this
Plan of the right to receive Common Shares at the end of a specified
Deferral Period.
"Director" means a member of the Board of Directors of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder, as such law, rules and
regulations may be amended from time to time.
"Free-Standing Appreciation Right" means an Appreciation Right granted
pursuant to Section 5 of this Plan that is not granted in tandem with an
Option Right.
"Immediate Family" has the meaning ascribed thereto in Rule 16a-1(e)
under the Exchange Act (or any successor rule to the same effect) as in
effect from time to time.
"Incentive Stock Options" means Option Rights that are intended to
qualify as "incentive stock options" under Section 422 of the Code or any
successor provision.
"Management Objectives" means the measurable performance objective or
objectives established pursuant to this Plan for Participants who have
received grants of Performance Shares or Performance Units or, when so
determined by the Board, Option Rights, Appreciation Rights, Restricted
Shares and dividend
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credits pursuant to this Plan. Management Objectives may be described in
terms of Company-wide objectives or objectives that are related to the
performance of the individual Participant or of the Subsidiary, division,
department, region or function within the Company or Subsidiary in which
the Participant is employed. The Management Objectives may be made relative
to the performance of other corporations. The Management Objectives
applicable to any award to a Covered Employee shall be based on specified
levels of or growth in one or more of the following criteria:
1. cash flow;
2. earnings per share;
3. earnings before interest and taxes;
4. earnings per share growth;
5. net income;
6. return on assets;
7. return on assets employed;
8. return on equity;
9. return on invested capital;
10. return on total capital;
11. revenue growth;
12. stock price;
13. total return to stockholders;
14. economic value added; and
15. operating profit growth; or
any combination of the foregoing.
If the Committee determines that a change in the business, operations,
corporate structure or capital structure of the Company, or the manner in
which it conducts its business, or other events or circumstances render the
Management Objectives unsuitable, the Committee may in its discretion
modify such Management Objectives or the related minimum acceptable level
of achievement, in whole or in part, as the Committee deems appropriate and
equitable, except in the case of a Covered Employee where such action would
result in the loss of the otherwise available exemption of the award under
Section 162(m) of the Code. In such case, the Committee shall not make any
modification of the Management Objectives or minimum acceptable level of
achievement.
"Market Value per Share" means (i) the closing price of Common Shares
as reported in the New York Stock Exchange Composite Transactions in the
Wall Street Journal or similar publication selected by the Board for the
relevant date if Common Shares were traded on such day or, if none were
then traded, the last prior day on which Common Shares were so traded, or
(ii) if clause (i) does not apply, the fair market value of the Common
Shares as determined by the Board.
"Nonemployee Director" means a Director who is not an employee of the
Company or any Subsidiary.
"Optionee" means the optionee named in an agreement evidencing an
outstanding Option Right.
"Option Price" means the purchase price payable on exercise of an
Option Right.
"Option Right" means the right to purchase Common Shares upon exercise
of an option granted pursuant to Section 4 or Section 9 of this Plan.
"Participant" means a person who is selected by the Board to receive
benefits under this Plan and who is at the time an officer or other key
employee of the Company or any one or more of its Subsidiaries, or who has
agreed to commence serving in any of such capacities within 30 days of the
Date of Grant, and shall also include each Nonemployee Director who
receives an award of Option Rights or Restricted Shares.
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"Performance Period" means, in respect of a Performance Share or
Performance Unit, a period of time established pursuant to Section 8 of
this Plan within which the Management Objectives relating to such
Performance Share or Performance Unit are to be achieved.
"Performance Share" means a bookkeeping entry that records the
equivalent of one Common Share awarded pursuant to Section 8 of this Plan.
"Performance Unit" means a bookkeeping entry that records a unit
equivalent to $1.00 awarded pursuant to Section 8 of this Plan.
"Plan" means this Omnova Solutions Inc. 1999 Equity and Performance
Incentive Plan.
"Restricted Shares" means Common Shares granted or sold pursuant to
Section 6 or Section 9 of this Plan as to which neither the substantial
risk of forfeiture nor the prohibition on transfers referred to in such
Section 6 has expired.
"Rule 16b-3" means Rule 16b-3 under the Exchange Act (or any successor
rule to the same effect) as in effect from time to time.
"Spread" means the excess of the Market Value per Share on the date
when an Appreciation Right is exercised, or on the date when Option Rights
are surrendered in payment of the Option Price of other Option Rights, over
the Option Price or Base Price provided for in the related Option Right or
Free-Standing Appreciation Right, respectively.
"Subsidiary" means a corporation, company or other entity (i) more
than 50 percent of whose outstanding shares or securities (representing the
right to vote for the election of directors or other managing authority)
are, or (ii) which does not have outstanding shares or securities (as may
be the case in a partnership, joint venture or unincorporated association),
but more than 50 percent of whose ownership interest representing the right
generally to make decisions for such other entity is, now or hereafter,
owned or controlled, directly or indirectly, by the Company except that for
purposes of determining whether any person may be a Participant for
purposes of any grant of Incentive Stock Options, "Subsidiary" means any
corporation in which, at the time, the Company owns or controls, directly
or indirectly, more than 50 percent of the total combined voting power
represented by all classes of stock issued by such corporation.
"Tandem Appreciation Right" means an Appreciation Right granted
pursuant to Section 5 of this Plan that is granted in tandem with an Option
Right.
"Voting Power" means at any time, the total votes relating to the
then-outstanding securities entitled to vote generally in the election of
Directors.
3. SHARES AVAILABLE UNDER THE PLAN. (a) Subject to adjustment as provided
in Section 3(b) and Section 11 of this Plan, the number of Common Shares that
may be issued or transferred (i) upon the exercise of Option Rights or
Appreciation Rights, (ii) as Restricted Shares and released from substantial
risks of forfeiture thereof, (iii) as Deferred Shares, (iv) in payment of
Performance Shares or Performance Units that have been earned, (v) as awards to
Nonemployee Directors or (vi) in payment of dividend equivalents paid with
respect to awards made under the Plan shall not exceed in the aggregate
2,400,000 (Two Million Four Hundred Thousand) Common Shares, plus any shares
described in Section 3(b). Such shares may be shares of original issuance or
treasury shares or a combination of the foregoing.
(b) The number of shares available in Section 3(a) above shall be
adjusted to account for shares relating to awards that expire, are
forfeited or are transferred, surrendered or relinquished upon the payment
of any Option Price by the transfer to the Company of Common Shares or upon
satisfaction of any withholding amount. Upon payment in cash of the benefit
provided by any award granted under this Plan, any shares that were covered
by that award shall again be available for issue or transfer hereunder.
(c) Notwithstanding anything in this Section 3, or elsewhere in this
Plan, to the contrary and subject to adjustment as provided in Section 11
of this Plan, (i) the aggregate number of Common Shares actually issued or
transferred by the Company upon the exercise of Incentive Stock Options
shall not exceed 900,000 Common Shares; (ii) no Participant shall be
granted Option Rights and Appreciation Rights, in the
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aggregate, for more than 900,000 Common Shares during any period of 3
consecutive years; (iii) the number of shares issued as Restricted Shares,
Deferred Shares or Performance Shares shall not in the aggregate exceed
800,000 Common Shares; (iv) during any period of three consecutive fiscal
years, the maximum number of Common Shares covered by awards of Restricted
Shares, Deferred Shares or Performance Shares granted to any one
Participant shall not exceed 800,000 Common Shares; and (v) no Nonemployee
Director shall be granted Option Rights, Appreciation Rights and Restricted
Shares, in the aggregate, for more than 100,000 Common Shares during any
fiscal year of the Company.
(d) Notwithstanding any other provision of this Plan to the contrary,
in no event shall any Participant in any one calendar year receive an award
of Performance Shares or Performance Units having an aggregate maximum
value as of their respective Date of Grant in excess of $2,000,000.
4. OPTION RIGHTS. The Board may, from time to time and upon such terms and
conditions as it may determine, authorize the granting to Participants of
options to purchase Common Shares. Each such grant may utilize any or all of the
authorizations, and shall be subject to all of the requirements contained in the
following provisions:
(a) Each grant shall specify the number of Common Shares to which it
pertains subject to the limitations set forth in Section 3 of this Plan.
(b) Each grant shall specify an Option Price per share, which may not
be less than the Market Value per Share on the Date of Grant.
(c) Each grant shall specify whether the Option Price shall be payable
(i) in cash or by check acceptable to the Company, (ii) by the actual or
constructive transfer to the Company of Common Shares owned by the Optionee
for at least 6 months (or other consideration authorized pursuant to
Section 4(d) ) having a value at the time of exercise equal to the total
Option Price, or (iii) by a combination of such methods of payment.
(d) The Board may determine, at or after the Date of Grant, that
payment of the Option Price of any Option Right (other than an Incentive
Stock Option) may also be made in whole or in part in the form of
Restricted Shares or other Common Shares that are forfeitable or subject to
restrictions on transfer, Deferred Shares, Performance Shares (based, in
each case, on the Market Value per Share on the date of exercise), other
Option Rights (based on the Spread on the date of exercise) or Performance
Units. Unless otherwise determined by the Board at or after the Date of
Grant, whenever any Option Price is paid in whole or in part by means of
any of the forms of consideration specified in this Section 4(d), the
Common Shares received upon the exercise of the Option Rights shall be
subject to such risks of forfeiture or restrictions on transfer as may
correspond to any that apply to the consideration surrendered, but only to
the extent, determined with respect to the consideration surrendered, of
(i) the number of shares or Performance Shares, (ii) the Spread of any
unexercisable portion of Option Rights, or (iii) the stated value of
Performance Units.
(e) Any grant may provide for deferred payment of the Option Price
from the proceeds of sale through a bank or broker on a date satisfactory
to the Company of some or all of the shares to which such exercise relates.
(f) Any grant may provide for payment of the Option Price, at the
election of the Optionee, in installments, with or without interest, upon
terms determined by the Board.
(g) Successive grants may be made to the same Participant whether or
not any Option Rights previously granted to such Participant remain
unexercised.
(h) Each grant shall specify the period or periods of continuous
service by the Optionee with the Company or any Subsidiary that is
necessary before the Option Rights or installments thereof will become
exercisable and may provide for the earlier exercise of such Option Rights
in the event of a Change in Control.
(i) Any grant of Option Rights may specify Management Objectives that
must be achieved as a condition to the exercise of such rights.
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(j) Option Rights granted under this Plan may be (i) options,
including, without limitation, Incentive Stock Options, that are intended
to qualify under particular provisions of the Code, (ii) options that are
not intended so to qualify, or (iii) combinations of the foregoing.
(k) The Board may, at or after the Date of Grant of any Option Rights
(other than Incentive Stock Options), provide for the payment of dividend
equivalents to the Optionee on either a current or deferred or contingent
basis or may provide that such equivalents shall be credited against the
Option Price.
(l) The exercise of an Option Right shall result in the cancellation
on a share- for-share basis of any Tandem Appreciation Right authorized
under Section 5 of this Plan.
(m) No Option Right shall be exercisable more than 10 years from the
Date of Grant.
(n) Each grant of Option Rights shall be evidenced by an agreement
executed on behalf of the Company by an officer and delivered to the
Optionee and containing such terms and provisions, consistent with this
Plan, as the Board may approve.
5. APPRECIATION RIGHTS. (a) The Board may authorize the granting (i) to any
Optionee, of Tandem Appreciation Rights in respect of Option Rights granted
hereunder, and (ii) to any Participant, of Free-Standing Appreciation Rights. A
Tandem Appreciation Right shall be a right of the Optionee, exercisable by
surrender of the related Option Right, to receive from the Company an amount
determined by the Board, which shall be expressed as a percentage of the Spread
(not exceeding 100 percent) at the time of exercise. Tandem Appreciation Rights
may be granted at any time prior to the exercise or termination of the related
Option Rights; provided, however, that a Tandem Appreciation Right awarded in
relation to an Incentive Stock Option must be granted concurrently with such
Incentive Stock Option. A Free-Standing Appreciation Right shall be a right of
the Participant to receive from the Company an amount determined by the Board,
which shall be expressed as a percentage of the Spread (not exceeding 100
percent) at the time of exercise.
(b) Each grant of Appreciation Rights may utilize any or all of the
authorizations, and shall be subject to all of the requirements, contained
in the following provisions:
(i) Any grant may specify that the amount payable on exercise of an
Appreciation Right may be paid by the Company in cash, in Common Shares
or in any combination thereof and may either grant to the Participant or
retain in the Board the right to elect among those alternatives.
(ii) Any grant may specify that the amount payable on exercise of
an Appreciation Right may not exceed a maximum specified by the Board at
the Date of Grant.
(iii) Any grant may specify waiting periods before exercise and
permissible exercise dates or periods.
(iv) Any grant may specify that such Appreciation Right may be
exercised only in the event of, or earlier in the event of, a Change in
Control.
(v) Any grant may provide for the payment to the Participant of
dividend equivalents thereon in cash or Common Shares on a current,
deferred or contingent basis.
(vi) Any grant of Appreciation Rights may specify Management
Objectives that must be achieved as a condition of the exercise of such
Rights.
(vii) Each grant of Appreciation Rights shall be evidenced by an
agreement executed on behalf of the Company by an officer and delivered
to and accepted by the Participant, which agreement shall describe such
Appreciation Rights, identify the related Option Rights (if applicable),
state that such Appreciation Rights are subject to all the terms and
conditions of this Plan, and contain such other terms and provisions,
consistent with this Plan, as the Board may approve.
(c) Any grant of Tandem Appreciation Rights shall provide that such
Rights may be exercised only at a time when the related Option Right is
also exercisable and at a time when the Spread is positive, and by
surrender of the related Option Right for cancellation.
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(d) Regarding Free-standing Appreciation Rights only:
(i) Each grant shall specify in respect of each Free-standing
Appreciation Right a Base Price, which shall be equal to or greater or
less than the Market Value per Share on the Date of Grant;
(ii) Successive grants may be made to the same Participant
regardless of whether any Free-standing Appreciation Rights previously
granted to the Participant remain unexercised; and
(iii) No Free-standing Appreciation Right granted under this Plan
may be exercised more than 10 years from the Date of Grant.
6. RESTRICTED SHARES. The Board may also authorize the grant or sale of
Restricted Shares to Participants. Each grant or sale of Restricted Stock may
utilize any or all of the authorizations, and shall be subject to all of the
requirements, contained in the following provisions:
(a) Each such grant or sale shall constitute an immediate transfer of
the ownership of Common Shares to the Participant in consideration of the
performance of services, entitling such Participant to voting, dividend and
other ownership rights, but subject to the substantial risk of forfeiture
and restrictions on transfer hereinafter referred to.
(b) Each such grant or sale may be made without additional
consideration or in consideration of a payment by such Participant that is
less than Market Value per Share at the Date of Grant.
(c) Each such grant or sale shall provide that the Restricted Shares
covered by such grant or sale shall be subject to a "substantial risk of
forfeiture" within the meaning of Section 83 of the Code for a period of
not less than 3 years to be determined by the Board at the Date of Grant
and may provide for the earlier lapse of such substantial risk of
forfeiture in the event of a Change in Control. If the Board conditions the
nonforfeitability of shares of Restricted Stock upon service alone, such
vesting may not occur before three years from the Date of Grant of such
shares of Restricted Stock, and if the Board conditions the
nonforfeitability of shares of Restricted Stock on Management Objectives,
such nonforfeitability may not occur before one year from the Date of Grant
of such shares of Restricted Stock.
(d) Each such grant or sale shall provide that during the period for
which such substantial risk of forfeiture is to continue, the
transferability of the Restricted Shares shall be prohibited or restricted
in the manner and to the extent prescribed by the Board at the Date of
Grant (which restrictions may include, without limitation, rights of
repurchase or first refusal in the Company or provisions subjecting the
Restricted Shares to a continuing substantial risk of forfeiture in the
hands of any transferee).
(e) Any grant of Restricted Shares may specify Management Objectives
that, if achieved, will result in termination or early termination of the
restrictions applicable to such shares. Each grant may specify in respect
of such Management Objectives a minimum acceptable level of achievement and
may set forth a formula for determining the number of Restricted Shares on
which restrictions will terminate if performance is at or above the minimum
level, but falls short of full achievement of the specified Management
Objectives.
(f) Any such grant or sale of Restricted Shares may require that any
or all dividends or other distributions paid thereon during the period of
such restrictions be automatically deferred and reinvested in additional
Restricted Shares, which may be Subject to the same restrictions as the
underlying award.
(g) Each grant or sale of Restricted Shares shall be evidenced by an
agreement executed on behalf of the Company by any officer and delivered to
and accepted by the Participant and shall contain such terms and
provisions, consistent with this Plan, as the Board may approve. Unless
otherwise directed by the Board, all certificates representing Restricted
Shares shall be held in custody by the Company until all restrictions
thereon shall have lapsed, together with a stock power or powers executed
by the Participant in whose name such certificates are registered, endorsed
in blank and covering such Shares.
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7. DEFERRED SHARES. The Board may also authorize the granting or sale of
Deferred Shares to Participants. Each grant or sale of Deferred Shares may
utilize any or all of the authorizations, and shall be subject to all of the
requirements contained in the following provisions:
(a) Each such grant or sale shall constitute the agreement by the
Company to deliver Common Shares to the Participant in the future in
consideration of the performance of services, but subject to the
fulfillment of such conditions during the Deferral Period as the Board may
specify.
(b) Each such grant or sale may be made without additional
consideration or in consideration of a payment by such Participant that is
less than the Market Value per Share at the Date of Grant.
(c) Each such grant or sale shall be subject to a Deferral Period of
not less than one year, as determined by the Board at the Date of Grant,
and may provide for the earlier lapse or other modification of such
Deferral Period in the event of a Change in Control. If the Board
conditions the nonforfeitability of shares of Deferred Stock upon service
alone, such vesting may not occur before three years from the Date of Grant
of such shares of Deferred Stock, and if the Board conditions the
nonforfeitability of shares of Deferred Stock on Management Objectives,
such nonforfeitability may not occur before one year from the Date of Grant
of such shares of Deferred Stock.
(d) During the Deferral Period, the Participant shall have no right to
transfer any rights under his or her award and shall have no rights of
ownership in the Deferred Shares and shall have no right to vote them, but
the Board may, at or after the Date of Grant, authorize the payment of
dividend equivalents on such Shares on either a current or deferred or
contingent basis, either in cash or in additional Common Shares.
(e) Each grant or sale of Deferred Shares shall be evidenced by an
agreement executed on behalf of the Company by any officer and delivered to
and accepted by the Participant and shall contain such terms and
provisions, consistent with this Plan, as the Board may approve.
8. PERFORMANCE SHARES AND PERFORMANCE UNITS. The Board may also authorize
the granting of Performance Shares and Performance Units that will become
payable to a Participant upon achievement of specified Management Objectives.
Each such grant may utilize any or all of the authorizations, and shall be
subject to all of the requirements, contained in the following provisions:
(a) Each grant shall specify the number of Performance Shares or
Performance Units to which it pertains, which number may be subject to
adjustment to reflect changes in compensation or other factors; provided,
however, that no such adjustment shall be made in the case of a Covered
Employee where such action would result in the loss of the otherwise
available exemption of the award under Section 162(m) of the Code.
(b) The Performance Period with respect to each Performance Share or
Performance Unit shall be such period of time not less than 1 year,
commencing with the Date of Grant as shall be determined by the Board at
the time of grant which may be subject to earlier lapse or other
modification in the event of a Change in Control as set forth in the
agreement specified in Section 8(g).
(c) Any grant of Performance Shares or Performance Units shall specify
Management Objectives which, if achieved, will result in payment or early
payment of the award, and each grant may specify in respect of such
specified Management Objectives a minimum acceptable level of achievement
and shall set forth a formula for determining the number of Performance
Shares or Performance Units that will be earned if performance is at or
above the minimum level, but falls short of full achievement of the
specified Management Objectives. The grant of Performance Shares or
Performance Units shall specify that, before the Performance Shares or
Performance Units shall be earned and paid, the Board must certify that the
Management Objectives have been satisfied.
(d) Each grant shall specify the time and manner of payment of
Performance Shares or Performance Units that have been earned. Any grant
may specify that the amount payable with respect thereto may be paid by the
Company in cash, in Common Shares or in any combination thereof and may
either grant to the Participant or retain in the Board the right to elect
among those alternatives.
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(e) Any grant of Performance Shares may specify that the amount
payable with respect thereto may not exceed a maximum specified by the
Board at the Date of Grant. Any grant of Performance Units may specify that
the amount payable or the number of Common Shares issued with respect
thereto may not exceed maximums specified by the Board at the Date of
Grant.
(f) The Board may, at or after the Date of Grant of Performance
Shares, provide for the payment of dividend equivalents to the holder
thereof on either a current or deferred or contingent basis, either in cash
or in additional Common Shares.
(g) Each grant of Performance Shares or Performance Units shall be
evidenced by an agreement executed on behalf of the Company by any officer
and delivered to and accepted by the Participant, which agreement shall
state that such Performance Shares or Performance Units are subject to all
the terms and conditions of this Plan, and contain such other terms and
provisions, consistent with this Plan, as the Board may approve.
9. AWARDS TO NONEMPLOYEE DIRECTORS. The Board may, from time to time and
upon such terms and conditions as it may determine, authorize the granting to
Nonemployee Directors of Option Rights and may also authorize the grant or sale
of Restricted Shares to Nonemployee Directors.
(a) Each grant of Option Rights awarded pursuant to this Section 9
shall be upon terms and conditions consistent with Section 4 of this Plan
and shall be evidenced by an agreement in such form as shall be approved by
the Board. Each grant shall specify an Option Price per share, which shall
not be less than the Market Value per Share on the Date of Grant. Each such
Option Right granted under the Plan shall expire not more than 10 years
from the Date of Grant and shall be subject to earlier termination as
hereinafter provided. Unless otherwise determined by the Board, such Option
Rights shall be subject to the following additional terms and conditions:
(i) Each grant shall specify the number of Common Shares to which
it pertains subject to the limitations set forth in Section 3 of this
Plan.
(ii) Each such Option Right shall become exercisable six (6) months
after the Date of Grant. Such Option Rights shall become exercisable in
full immediately in the event of a Change in Control or other similar
transaction or event.
(iii) In the event of the termination of service on the Board by
the holder of any such Option Rights, other than by reason of
disability, death or retirement, the then outstanding Option Rights of
such holder may be exercised to the extent that they would be
exercisable on the date of such termination until the date that is one
year after the date of such termination, but in no event after the
expiration date of the term of such Option Rights.
(iv) In the event of the death , disability or retirement of the
holder of any such Option Rights, each of the then outstanding Option
Rights of such holder may be exercised at any time within one (1) year
after such death, disability or retirement, but in no event after the
expiration date of the term of such Option Rights.
(v) If a Nonemployee Director subsequently becomes an employee of
the Company or a Subsidiary while remaining a member of the Board, any
Option Rights held under the Plan by such individual at the time of such
commencement of employment shall not be affected thereby.
(vi) Option Rights may be exercised by a Nonemployee Director only
upon payment to the Company in full of the Option Price of the Common
Shares to be delivered. Such payment shall be made in cash or in Common
Shares then owned by the optionee for at least six months, or in a
combination of cash and such Common Shares.
(b) Each grant or sale of Restricted Shares pursuant to this Section 9
shall be upon terms and conditions consistent with Section 6 of this Plan.
10. TRANSFERABILITY. (a) Except as otherwise determined by the Board, no
Option Right, Appreciation Right or other derivative security granted under the
Plan shall be transferable by a Participant other than by will
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or the laws of descent and distribution. Except as otherwise determined by the
Board, Option Rights and Appreciation Rights shall be exercisable during the
Optionee's lifetime only by him or her or by his or her guardian or legal
representative.
(b) The Board may specify at the Date of Grant that part or all of the
Common Shares that are (i) to be issued or transferred by the Company upon
the exercise of Option Rights or Appreciation Rights, upon the termination
of the Deferral Period applicable to Deferred Shares or upon payment under
any grant of Performance Shares or Performance Units or (ii) no longer
subject to the substantial risk of forfeiture and restrictions on transfer
referred to in Section 6 of this Plan, shall be subject to further
restrictions on transfer.
(c) Notwithstanding the provisions of Section 10(a), Option Rights
(other than Incentive Stock Options), shall be transferable by a
Participant, without payment of consideration therefor by the transferee,
to any one or more members of the Participant's Immediate Family (or to one
or more trusts established solely for the benefit of one or more members of
the Participant's Immediate Family or to one or more partnerships in which
the only partners are members of the Participant's Immediate Family);
provided, however, that (i) no such transfer shall be effective unless
reasonable prior notice thereof is delivered to the Company and such
transfer is thereafter effected in accordance with any terms and conditions
that shall have been made applicable thereto by the Company or the Board
and (ii) any such transferee shall be subject to the same terms and
conditions hereunder as the Participant].
11. ADJUSTMENTS. The Board may make or provide for such adjustments in the
numbers of Common Shares covered by outstanding Option Rights, Appreciation
Rights, Deferred Shares, and Performance Shares granted hereunder, in the Option
Price and Base Price provided in outstanding Appreciation Rights, and in the
kind of shares covered thereby, as the Board, in its sole discretion, exercised
in good faith, may determine is equitably required to prevent dilution or
enlargement of the rights of Participants or Optionees that otherwise would
result from (a) any stock dividend, stock split, combination of shares,
recapitalization or other change in the capital structure of the Company, or (b)
any merger, consolidation, spin-off, split-off, spin-out, split-up,
reorganization, partial or complete liquidation or other distribution of assets,
issuance of rights or warrants to purchase securities, or (c) any other
corporate transaction or event having an effect similar to any of the foregoing.
Moreover, in the event of any such transaction or event, the Board, in its
discretion, may provide in substitution for any or all outstanding awards under
this Plan such alternative consideration as it, in good faith, may determine to
be equitable in the circumstances and may require in connection therewith the
surrender of all awards so replaced. The Board may also make or provide for such
adjustments in the numbers of shares specified in Section 3 of this Plan as the
Board in its sole discretion, exercised in good faith, may determine is
appropriate to reflect any transaction or event described in this Section 11;
provided, however, that any such adjustment to the number specified in Section
3(c)(i) shall be made only if and to the extent that such adjustment would not
cause any Option intended to qualify as an Incentive Stock Option to fail so to
qualify.
12. CHANGE IN CONTROL. For purposes of this Plan, except as may be
otherwise prescribed by the Board in an agreement evidencing a grant or award
made under the Plan, a "Change in Control" shall mean the occurrence during the
term of any of the following events, subject to the provisions of Section 12 (f)
hereof:
(a) All or substantially all of the assets of the Company are sold or
transferred to another corporation or entity, or the Company is merged,
consolidated or reorganized into or with another corporation or entity,
with the result that upon conclusion of the transaction less than 51% of
the outstanding securities entitled to vote generally in the election of
directors or other capital interests of the acquiring corporation or entity
are owned directly or indirectly, by the shareholders of the Company
generally prior to the transaction; or
(b) There is a report filed on Schedule 13D or Schedule 14D-1 (or any
successor schedule, form or report), each as promulgated pursuant to the
Exchange Act, disclosing that any person (as the term "person" is used in
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act (a "Person")) has
become the beneficial owner (as the term "beneficial owner" is defined
under Rule 13d-3 or any successor rule or regulation promulgated under the
Exchange Act (a "Beneficial Owner")) of securities representing 20% or more
of the combined voting power of the then-outstanding voting securities of
the Company; or
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(c) The individuals who, at the beginning of any period of two
consecutive calendar years, constituted the Directors of the Company cease
for any reason to constitute at least a majority thereof unless the
nomination for election by the Company's stockholders of each new Director
of the Company was approved by a vote of at least two-thirds of the
Directors of the Company still in office who were Directors of the Company
at the beginning of any such period; or
(d) There shall be an announcement of the intent of any Person (other
than the Company, any wholly-owned Subsidiary of the Company, or any
employee stock ownership or other employee benefit plan of the Company or
any wholly-owned Subsidiary of the Company) to commence a tender offer or
exchange offer to acquire (when added to any shares as to which such Person
is the Beneficial Owner immediately prior to such tender or exchange offer)
beneficial ownership of 30% or more of the combined voting power of the
then-outstanding voting securities of the Company; or
(e) The Board determines that (A) any particular actual or proposed
merger, consolidation, reorganization, sale or transfer of assets,
accumulation of shares or tender offer for shares of the Company or other
transaction or event or series of transactions or events will, or is likely
to, if carried out, result in a Change in Control falling within
Subsections (a), (b), (c) or (d) and (B) it is in the best interests of the
Company and its shareholders, and will serve the intended purposes of this
Section 12, if the provisions of awards which provide for earlier exercise
or earlier lapse of restrictions or conditions upon a change in Control
shall thereupon become immediately operative.
(f) Notwithstanding the foregoing provisions of this Section (12):
(i) If any such merger, consolidation, reorganization, sale or
transfer of assets, or tender offer or other transaction or event or
series of transactions or events mentioned in Section (12)(e) shall be
abandoned, or any such accumulations of shares shall be dispersed or
otherwise resolved, the Board may, by notice to the Employee, nullify
the effect thereof and reinstate the award as previously in effect, but
without prejudice to any action that may have been taken prior to such
nullification.
(ii) Unless otherwise determined in a specific case by the Board, a
"Change in Control" shall not be deemed to have occurred for purposes of
Section (12)(b) or 12(d) solely because (X) the Company, (Y) a
Subsidiary, or (Z) any Company-sponsored employee stock ownership plan
or any other employee benefit plan of the Company or any Subsidiary
either files or becomes obligated to file a report or a proxy statement
under or in response to Schedule 13D, Schedule 14D-1, Form 8-K or
Schedule 14A (or any successor schedule, form or report or item therein)
under the Exchange Act disclosing beneficial ownership by it of shares
of the then-outstanding voting securities of the Company, whether in
excess of 20% or otherwise, or because the Company reports that a change
in control of the Company has occurred or will occur in the future by
reason of such beneficial ownership.
13. FRACTIONAL SHARES. The Company shall not be required to issue any
fractional Common Shares pursuant to this Plan. The Board may provide for the
elimination of fractions or for the settlement of fractions in cash.
14. WITHHOLDING TAXES. To the extent that the Company is required to
withhold federal, state, local or foreign taxes in connection with any payment
made or benefit realized by a Participant or other person under this Plan, and
the amounts available to the Company for such withholding are insufficient, it
shall be a condition to the receipt of such payment or the realization of such
benefit that the Participant or such other person make arrangements satisfactory
to the Company for payment of the balance of such taxes required to be withheld,
which arrangements (in the discretion of the Board) may include relinquishment
of a portion of such benefit. Common Shares or benefits shall not be withheld in
excess of the minimum number required for such tax withholding. The Company and
a Participant or such other person may also make arrangements with respect to
the payment in cash of any taxes with respect to which withholding is not
required.
15. FOREIGN EMPLOYEES. In order to facilitate the making of any grant or
combination of grants under this Plan, the Board may provide for such special
terms for awards to Participants who are foreign nationals or who are employed
by the Company or any Subsidiary outside of the United States of America as the
Board may consider necessary or appropriate to accommodate differences in local
law, tax policy or custom. Moreover, the
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Board may approve such supplements to or amendments, restatements or alternative
versions of this Plan as it may consider necessary or appropriate for such
purposes, without thereby affecting the terms of this Plan as in effect for any
other purpose, and the Secretary or other appropriate officer of the Company may
certify any such document as having been approved and adopted in the same manner
as this Plan. No such special terms, supplements, amendments or restatements,
however, shall include any provisions that are inconsistent with the terms of
this Plan as then in effect unless this Plan could have been amended to
eliminate such inconsistency without further approval by the shareholders of the
Company.
16. ADMINISTRATION OF THE PLAN. (a) This Plan shall be administered by the
Board, which may from time to time delegate all or any part of its authority
under this Plan to a committee of the Board (or subcommittee thereof) consisting
entirely of three Nonemployee Directors appointed by the Board. A majority of
the committee (or subcommittee) shall constitute a quorum, and the action of the
members of the committee (or subcommittee) present at any meeting at which a
quorum is present, or acts unanimously approved in writing, shall be the acts of
the committee (or subcommittee). To the extent of any such delegation,
references in this Plan to the Board shall be deemed to be references to any
such committee or subcommittee.
(b) The interpretation and construction by the Board of any provision
of this Plan or of any agreement, notification or document evidencing the
grant of Option Rights, Appreciation Rights, Restricted Shares, Deferred
Shares, Performance Shares or Performance Units and any determination by
the Board pursuant to any provision of this Plan or of any such agreement,
notification or document shall be final and conclusive. No member of the
Board shall be liable for any such action or determination made in good
faith.
17. AMENDMENTS, ETC. (a) The Board may at any time and from time to time
amend the Plan in whole or in part; provided, however, that any amendment which
must be approved by the shareholders of the Company in order to comply with
applicable law or the rules of the New York Stock Exchange or, if the Common
Shares are not traded on the New York Stock Exchange, the principal national
securities exchange upon which the Common Shares are traded or quoted, shall not
be effective unless and until such approval has been obtained. Presentation of
this Plan or any amendment hereof for shareholder approval shall not be
construed to limit the Company's authority to offer similar or dissimilar
benefits under other plans without shareholder approval.
(b) The Board shall not, without the further approval of the
shareholders of the Company, authorize the amendment of any outstanding
Option Right to reduce the Option Price. Furthermore, no Option Right shall
be cancelled and replaced with awards having a lower Option Price without
further approval of the shareholders of the Company. This Section 17(b) is
intended to prohibit the repricing of "underwater" Option Rights and shall
not be construed to prohibit the adjustments provided for in Section 11 of
this Plan.
(c) The Board also may permit Participants to elect to defer the
issuance of Common Shares or the settlement of awards in cash under the
Plan pursuant to such rules, procedures or programs as it may establish for
purposes of this Plan. The Board also may provide that deferred issuances
and settlements include the payment or crediting of dividend equivalents or
interest on the deferral amounts.
(d) The Board may condition the grant of any award or combination of
awards authorized under this Plan on the surrender or deferral by the
Participant of his or her right to receive a cash bonus or other
compensation otherwise payable by the Company or a Subsidiary to the
Participant.
(e) In case of termination of employment by reason of death,
disability or normal or early retirement, or in the case of hardship or
other special circumstances, of a Participant who holds an Option Right or
Appreciation Right not immediately exercisable in full, or any Restricted
Shares as to which the substantial risk of forfeiture or the prohibition or
restriction on transfer has not lapsed, or any Deferred Shares as to which
the Deferral Period has not been completed, or any Performance Shares or
Performance Units which have not been fully earned, or who holds Common
Shares subject to any transfer restriction imposed pursuant to Section
10(b) of this Plan, the Board may, in its sole discretion, accelerate the
time at which such Option Right or Appreciation Right may be exercised or
the time at which such substantial risk of forfeiture or prohibition or
restriction on transfer will lapse or the time when such Deferral Period
will end or the time at which such Performance Shares or Performance Units
will be deemed to have been fully
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earned or the time when such transfer restriction will terminate or may
waive any other limitation or requirement under any such award.
(f) This Plan shall not confer upon any Participant any right with
respect to continuance of employment or other service with the Company or
any Subsidiary, nor shall it interfere in any way with any right the
Company or any Subsidiary would otherwise have to terminate such
Participant's employment or other service at any time.
(g) To the extent that any provision of this Plan would prevent any
Option Right that was intended to qualify as an Incentive Stock Option from
qualifying as such, that provision shall be null and void with respect to
such Option Right. Such provision, however, shall remain in effect for
other Option Rights and there shall be no further effect on any provision
of this Plan.
18. TERMINATION. No grant shall be made under this Plan more than 10 years
after the date on which this Plan is first approved by the shareholders of the
Company, but all grants made on or prior to such date shall continue in effect
thereafter subject to the terms thereof and of this Plan.
19. EXCLUSION FROM CERTAIN RESTRICTIONS. Notwithstanding anything in this
Plan to the contrary, not more than seventy-two thousand (72,000) Common Shares
in the aggregate available under this Plan may be subject to awards as follows:
(a) in the case of grants of Restricted Stock, which do not meet the
requirements of the last sentence of Section 6(c) ;
(b) in the case of grants of Restricted Stock as to which the Board
may accelerate or waive any restrictions imposed under Section 6(d) ;
(c) in the case of grants of Deferred Stock, which do not meet the
requirements of the last sentence of Section 7(c) ; or
(d) in the case of Performance Shares and Performance Units, which do
not meet the requirements of Section 8(b).
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ANNEX E
[NOTE: MARKINGS INDICATE PROPOSED AMENDMENTS.
TEXT THAT IS STRUCK THROUGH INDICATES LANGUAGE TO BE DELETED.
TEXT THAT IS UNDERLINED AND BOLD INDICATES LANGUAGE TO BE ADDED.]
COMPOSITE VERSION OF
ARTICLES OF INCORPORATION
OF
GENCORP INC.
(AS AMENDED AND PROPOSED TO BE AMENDED)
ARTICLE FIRST: The name of the Corporation shall be GenCorp Inc. The
Corporation shall exist by virtue of, and be governed by, the laws of the State
of Ohio.
ARTICLE SECOND: The place in the State of Ohio where its principal office
is to be located is [Fairlawn, Summit County.]
[Article Third: The purposes of the Corporation are:]
[(a) To manufacture, or otherwise prepare for market, produce,
generate, create, prospect for, explore for, discover, drill for, mine,
quarry, convert, compound, separate, reduce, concentrate, refine, mill,
smelt, crystallize, extract, treat, develop, use, construct, repair,
purchase, lease, rent, import, or otherwise acquire, hold, store, own,
maintain, operate, carry on, exhibit, sell, mortgage, lease, exchange,
license, distribute, export or otherwise dispose of and generally deal or
engage in or with, in the United States, any of its territories or
possessions or in any foreign country:]
[(i) all kinds of rubber, both natural and synthetic, compounds
thereof, substitutes therefor, materials having properties or uses
similar thereto and all products composed in whole or in part thereof,
including, but without limitation, tires and tubes and mechanical rubber
goods of all types and kinds;]
[(ii) chemicals and chemical products of every description
whatsoever, and raw materials for the production thereof, including, but
without limitation, organic and inorganic matter, whether gas, liquid or
solid, useful as end products, intermediates, monomers, polymers,
condensation products, or copolymerization products, natural and
synthetic resins, plastics, pigments, fission and radioactive materials,
vulcanizing and compounding agents, insecticides, parasites, and
medicinal, pharmaceutical and biological products of all kinds;]
[(iii) cotton, rayon, nylon and other fibrous materials, natural or
synthetic, and any compounds thereof and articles, products and fabrics
composed in whole or in part thereof;]
[(iv) metals, metal oxides, metallic ores, earths and substances,
industrial minerals and rocks, and all kinds and grades of oil,
petroleum, bituminous substances, carbon and hydrocarbon products,
gases, organic substances and natural substances, and the products,
by-products, alloys, compounds, blends, elements, constituents, and
combinations thereof of every kind and description, natural and
synthetic;]
[(v) machinery, tools, parts of machinery and similar articles of
commerce of whatever substance composed;]
[(vi) automobiles, trucks, trailers, tractors and any and all other
automotive vehicles, aircraft, ships, boats and all other watercraft,
railroads, waterways, docks and airports, and parts, equipment and
accessories for any thereof;]
[(vii) munitions, war supplies, and articles useful in the national
defense;]
[(viii) electric current and electric, steam, water, gas, atomic
energy and other power, light or heat of every kind and description;]
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[(ix) other goods, wares, merchandise, property and commodities of
every class and description, and all articles used or useful in
connection therewith;]
[(x) devices and appliances for the utilization of any of the
herein described products;]
[(xi) chemical, physical and other laboratories, industrial and
scientific research of every kind and character and all products
invented or developed thereby and all rights, licenses, franchises,
patents, equipment, mechanical devices and contrivances in connection
therewith;]
[(xii) radio, television or other broadcasting, transmission or
reception stations, motion pictures, motion picture films, all dramatic,
musical and motion picture productions and publications of every kind,
including all rights, licenses, franchises, patents, copyrights,
equipment, mechanical devices and contrivances for the production,
projection, exhibition, transmission and reception thereof, and any
property necessary or desirable in connection with the maintenance and
operation thereof, any business involving producing, reproducing,
recording, broadcasting, televising, transmitting and receiving by any
means whatsoever sound, pictures, images, films and photographs, and all
materials, parts, devices, equipment, or related accessories, including
without limitation, films, images and photographs involved therein;]
[(xiii) any mining, manufacturing, extraction, development,
mercantile, entertainment, trading, transportation or navigation
business of any kind or character whatever; and]
[(xiv) such activities as might further any of the purposes above
described.]
[(b) As principal, agent, common merchant or consignee, to acquire,
construct, alter, explore, manage, own, rent, hold, maintain, operate,
patent, use, lease, mortgage, pledge, sell, deal in, turn to account or
otherwise dispose of, any and all real and personal property of every class
and description or any interest therein, rights and privileges suitable or
convenient to any of the purposes or business of the Corporation within or
without the United States, including any mines, wells, lands, quarries,
locations, claims or any plants, factories, buildings, stores, theatres,
warehouses, agencies, outlets, manufacturing and commercial establishments
of every character, together with any equipment, fixtures, machinery, pipe
lines, instruments and supplies necessary or incidental thereto or
connected therewith, and to acquire and sell, exhibit or otherwise dispose
of products of any other manufacturer.]
[(c) To adopt, apply for, purchase, register, lease, or in any manner
acquire and to maintain, protect, hold, own, use, operate, exercise,
develop and introduce, sell, lease assign, pledge or in any manner dispose
of and to grant or take licenses or other rights in respect of and
generally deal with any and all rights, inventions, improvements, letters
patent, patents, patent rights, secret processes, scientific discoveries,
patented processes, designs, and similar rights, copyrights, trademarks,
trade names and similar rights, whether granted by, registered,
established, recognized or otherwise existing under the laws of the United
States or other countries, and to work, operate or develop the same and to
carry on any business, manufacturing or otherwise, which may directly or
indirectly effectuate these objects or any of them.]
[(d) To enter into, make and perform contracts and partnership or
syndicate agreements of every sort and description with any person, firm,
association, corporation, municipality, body politic, county, state,
territory or government, or colony or dependency thereof.]
[(e) To borrow or raise moneys from time to time for any of the
purposes of the Corporation without limit as to amount, whether or not
secured and to take such action and to issue such security as may be
necessary and advisable in connection therewith.]
[(f) To purchase, acquire, hold, assume, pledge, or otherwise
dispose of, stocks, bonds, or other evidences of indebtedness and
securities of any corporation, association, partnership or firm,
domestic or foreign, or of any individual, or of any domestic or foreign
government or authority or political or administrative subdivision
thereof and certificates or receipts of any kind representing or
evidencing any interest in any such stocks, bonds, evidences of
indebtedness or securities; to issue in exchange therefor its stocks,
bonds, other evidences of indebtedness and securities; and, while the
owner or holder of any thereof, to exercise all the rights, powers and
privileges of ownership in respect thereof.]
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[(g) To aid, in any manner whatsoever, any corporation,
partnership, association or individual in whose business the Corporation
may be in any way interested.]
[(h) The foregoing clauses shall be construed as powers as well as
objects and purposes, and the matters expressed in each clause shall,
unless otherwise expressly provided, be in nowise limited by reference
to or inference from the terms of any other clause, but shall be
regarded as independent objects, purposes and powers; and the
enumeration of specific objects, purposes and powers shall not be
construed to limit or restrict in any manner the meaning of general
terms or the general powers of the Corporation; nor shall the expression
of one thing be deemed to exclude another not expressed, although it be
of like nature. The occurrence within any of the foregoing clauses of
any purpose, power or object prohibited by the laws of the State of Ohio
or of any other state or country in which this Corporation shall be
qualified to do business shall not invalidate any other purpose, power
or object not so prohibited by reason of its contiguity or apparent
association therewith.]
[The Corporation shall be authorized to exercise and enjoy all other
powers, rights, and privileges conferred by the laws of the State of Ohio upon
corporations formed under the General Corporation Law of said State, as in force
from time to time, so far as not in conflict herewith, or which may be conferred
by all acts heretofore or hereafter amendatory of or supplemental to said laws,
and the enumeration of certain powers as herein specified is not intended as
exclusive of, or as a waiver of, any of the powers, rights or privileges granted
or conferred by said laws now or hereafter in force; provided, however, that the
Corporation shall not in any jurisdiction carry on any business, or exercise any
powers, which a corporation organized under the laws thereof could not carry on
or exercise, except to the extent permitted or authorized by the laws thereof.]
THE CITY OF CLEVELAND.
ARTICLE THIRD: THE PURPOSE OF THE CORPORATION IS TO ENGAGE IN ANY LAWFUL
ACT OR ACTIVITY FOR WHICH CORPORATIONS MAY BE FORMED UNDER SECTION 1701.01 TO
1701.98, INCLUSIVE, OF THE OHIO REVISED CODE.
ARTICLE FOURTH: The maximum number of shares which the Corporation is
authorized to have outstanding is One Hundred [and Five]SIXTY FIVE Million
[(105,000,000)](165,000,000), of which Fifteen Million (15,000,000) shares of
par value of one dollar [($]($1.00) each shall be classified as Cumulative
Preference Stock and [Ninety]ONE HUNDRED FIFTY Million
[(90,000,000)](150,000,000) shares of the par value of ten cents ($0.10) each
shall be classified as Common Stock. The designation and express terms and
provisions of the shares of Cumulative Preference Stock and Common Stock are as
follows:
CUMULATIVE PREFERENCE STOCK
A. The Cumulative Preference Stock may be issued from time to time in one
(1) or more series with such distinctive serial designations as shall be fixed
by the Board of Directors as hereinafter provided.
The Board of Directors is expressly authorized to adopt from time to time
amendments to the Articles of Incorporation of the Corporation, in respect of
any unissued or treasury shares of Cumulative Preference Stock, to fix or
change:
(a) The division of such shares into series and the designation and
authorized number of shares of each particular series, which number the
Board of Directors may increase or decrease, except as otherwise provided
in the creation of the particular series;
(b) The dividend or distribution rate for each particular series,
which may be at a specified rate, amount or proportion; and the dates on
which dividends or distributions, if declared, shall be payable, and the
date or dates from which dividends shall be cumulative;
(c) The redemption rights and price or prices, if any, for shares of each
particular series;
(d) The amount payable for shares of each particular series upon any
voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Corporation;
(e) The right, if any, of the holders of shares of Cumulative
Preference Stock of each particular series to convert such stock into other
classes of stock, and, if convertible, the terms and conditions of such
conversion;
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(f) The obligation, if any, of the Corporation to purchase and retire
or redeem shares of each particular series pursuant to a sinking fund, and
the terms and amount thereof;
(g) The restrictions, if any, on the issuance of shares of any class
of stock or any series thereof; and
(h) Any or all other express terms in respect of any particular series
as may be permitted or required by law.
All shares of the Cumulative Preference Stock of any one (1) series shall
be identical with each other in all respects except, if so determined by the
Board of Directors, as to the dates from which dividends thereon shall be
cumulative; and all shares of Cumulative Preference Stock shall be of equal rank
with each other, regardless of series, and shall be identical with each other in
all respects except in respect of terms which may be fixed by the Board of
Directors as herein provided.
B. The holders of record of the Cumulative Preference Stock at the time
outstanding shall be entitled to receive, when and as declared by the Board of
Directors of the Corporation out of any funds legally available for such
purpose, cash dividends in the case of each series at the rate for such series
theretofore fixed by the Board of Directors as herein provided. Such dividends
shall be cumulative, in the case of shares of each particular series, from and
after the date or dates fixed with respect to such series. No dividends may be
paid upon or declared or set apart for any of the Cumulative Preference Stock
for any dividend period unless at the same time a like proportionate dividend
for the same dividend period, ratably in proportion to the respective dividend
rates fixed therefor, shall be paid upon or declared or set apart for all
Cumulative Preference Stock of all series then issued and outstanding and
entitled to receive such dividend.
C. Except as otherwise provided by the Board of Directors as to any
particular series, the Cumulative Preference Stock of any series may be redeemed
in whole or in part, at the option of the Corporation, by vote of its Board of
Directors, or by operation of the sinking fund, if any, provided for the
Cumulative Preference Stock of said series, at the time, or from time to time,
at the redemption price or the respective redemption price theretofore fixed by
the Board of Directors as herein provided upon notice duly given as hereinafter
provided. In case of the redemption of a part only of any series of the
Cumulative Preference Stock at the time outstanding, the shares of the
Cumulative Preference Stock of such series to be redeemed shall be selected pro
rata or by lot or in such other manner as the Board of Directors may determine.
Except as otherwise provided by the Board of Directors as to any particular
series, at least thirty (30) days' previous notice of every such redemption of
Cumulative Preference Stock shall be mailed to the holders of record of the
Cumulative Preference Stock to be redeemed at their addresses as shown by the
books of the Corporation, and shall be published at least once in a daily
newspaper printed in the English language and published and of general
circulation in the Borough of Manhattan, in the City of New York, the
publication to be not less than thirty (30) days prior to the date fixed for
redemption.
If notice of redemption shall have been duly given and published, and if,
on or before the redemption date designated in such notice, the funds necessary
for the redemption shall have been set aside, so as to be and continue to be
available therefor, then, notwithstanding that any certificate of the Cumulative
Preference Stock so called for redemption shall not have been surrendered for
cancellation, the dividends thereon shall cease to accrue from and after the
date of redemption so designated, and all rights with respect to the Cumulative
Preference Stock so called for redemption shall forthwith after such redemption
date cease and terminate, except only the right of the holder to receive the
redemption price therefor, but without interest.
Except as otherwise provided by the Board of Directors as to any particular
series, the Corporation may, however, at any time prior to the redemption date
specified in the notice of redemption, deposit in trust, for the account of the
holders of the Cumulative Preference Stock to be redeemed, with a bank or trust
company in the City of New York, New York having a capital and undivided surplus
aggregating at least Five Million Dollars ($5,000,000), named in the not-ice of
redemption, all funds necessary for the redemption, and deliver written
instructions authorizing and directing such bank or trust company, on behalf of
and at the expense of the Corporation, to pay to the respective holders of
shares of Cumulative Preference Stock the redemption price therefor and
thereupon, notwithstanding that any certificate for the shares of Cumulative
Preference Stock so called for redemption shall not have been surrendered for
cancellation, all shares of Cumulative Preference Stock
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with respect to which the deposit shall have been made shall no longer be deemed
to be outstanding and all rights with respect to such shares of Cumulative
Preference Stock shall forthwith cease and terminate, except only the right of
the holders thereof to receive from such bank or trust company at any time after
the time of deposit, the redemption price of the shares so to be redeemed, but
without interest, or the right to exercise, on or before the redemption date,
any unexpired privileges of conversion. Any interest accrued on such funds shall
be paid to the Corporation from time to time.
Any funds so set aside or deposited, as the case may be, and unclaimed at
the end of six (6) years from such redemption date shall be released or repaid
to the Corporation upon its request expressed in a resolution of its Board of
Directors, after which release or repayment the holders of the shares so called
for redemption shall look only to the Corporation for the payment thereof, but
without interest.
D. So long as any shares of the Cumulative Preference Stock are
outstanding, no dividend or other distribution (except in stock of the
Corporation of a class ranking junior to the Cumulative Preference Stock) shall
be declared or paid on the Common Stock of the Corporation or on stock of any
other class ranking junior to the Cumulative Preference Stock as to dividends or
in liquidation, and the Corporation shall not acquire or redeem shares of the
Common Stock or any such junior stock, unless
(a) all dividends on the Cumulative Preference Stock for all past
quarterly dividend periods and for the then current quarterly dividend
period shall have been paid, or declared and set apart; and
(b) the Corporation shall have complied with all of its obligations
theretofore required of it with respect to any sinking fund for all series
of the Cumulative Preference Stock.
E. So long as any shares of the Cumulative Preference Stock are
outstanding, the affirmative vote of the holders of at least a majority of the
Cumulative Preference Stock at the time outstanding, given in person or by proxy
at a special meeting called for that purpose, shall be necessary for effecting
or validating any one or more of the following:
(a) The authorization or creation of any stock of any class, or any
security convertible into stock of any class, ranking prior to the
Cumulative Preference Stock;
(b) The increase in the number of authorized shares of Cumulative
Preference Stock or of any stock of any class ranking prior to or on a
parity with the Cumulative Preference Stock or of any security convertible
into stock of any class ranking prior to or on a parity with the Cumulative
Preference Stock;
(c) The sale, lease or conveyance of all or substantially all of the
property or business of the Corporation, or a consolidation or merger with
any other company, provided, however, that this restriction shall not apply
to, nor shall it operate to prevent, a consolidation or merger with any
domestic subsidiary organized under the laws of one of the states of the
United States of America if none of the rights or preferences of the
Cumulative Preference Stock or the holders thereof will be adversely
affected thereby and if the company resulting from or surviving such
consolidation or merger will have outstanding, after such consolidation or
merger, no class of stock or other securities ranking prior to or on a
parity with the Cumulative Preference Stock, except the same number of
shares of stock and the same amount of other securities with the same
rights and preferences as the stock and securities of the Corporation which
were outstanding immediately preceding such consolidation or merger.
F. So long as any shares of Cumulative Preference Stock are outstanding,
the affirmative vote of the holders of at least sixty-six and two-thirds percent
(66 2/3%) of the Cumulative Preference Stock at the time outstanding, given in
person or by proxy at a special meeting called for that purpose, shall be
necessary for effecting or validating any amendment, alteration or repeal of any
provisions of the Articles of Incorporation of the Corporation, as amended,
which would adversely affect the rights or preferences of outstanding shares of
the Cumulative Preference Stock or of the holders thereof (for the purposes
hereof no action taken pursuant to paragraph E of this Article FOURTH shall be
deemed to adversely affect such rights or preferences); provided, however, that
if any such amendment, alteration or repeal would adversely affect the rights or
preferences of the outstanding shares of any particular series without
correspondingly affecting the rights or preferences of outstanding shares of all
series, a like affirmative vote of the holders of at least sixty-six and
two-thirds percent
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(66 2/3%) of the Cumulative Preference Stock of that particular series at the
time outstanding shall also be necessary for effecting or validating such
amendment, alteration or repeal.
G. Except as otherwise provided in paragraphs E, F and J of this Article
FOURTH or ARTICLE FIFTH OR as specifically provided by statute, the Cumulative
Preference Stock shall have no voting power unless and until six (6)
quarter-yearly dividends payable on the Cumulative Preference Stock, whether or
not consecutive, shall be in default in whole or in part. In such event the
holders of the Cumulative Preference Stock, voting separately as a class and in
addition to all other rights, if any, to vote for Directors, shall be entitled
to elect, as herein provided, two (2) members of the Board of Directors of the
Corporation; provided, however, that the holders of shares of Cumulative
Preference Stock shall not have or exercise such special class voting rights
except at meetings of the shareholders for the election of Directors at which
the holders of not less than a majority of the outstanding shares of Cumulative
Preference Stock of all series then outstanding are present in person or by
proxy; and provided further that the special class voting rights provided for
herein when the same shall have become vested shall remain so vested until all
accrued and unpaid dividends on the Cumulative Preference Stock of all series
then outstanding shall have been paid, whereupon the holders of Cumulative
Preference Stock shall be divested of their special class voting rights in
respect of subsequent elections of Directors, subject to the revesting of such
special class voting rights in the event herein specified in this paragraph, and
the Directors so elected shall thereupon resign.
In the event of default entitling the holders of Cumulative Preference
Stock to elect two (2) Directors as above specified, a special meeting of the
shareholders for the purpose of electing such Directors shall be called by the
Secretary of the Corporation upon written request of, or may be called by, the
holders of record of at least ten percent (10%) of the shares of Cumulative
Preference Stock of all series at the time outstanding, and notice thereof shall
be given in the same manner as that required for the Annual Meeting of
Shareholders,; provided, however, that the Corporation shall not be required to
call such special meeting if the Annual Meeting of Shareholders shall be held
within ninety (90) days after the date of receipt of the foregoing written
request from the holders of Cumulative Preference Stock. At any meeting at which
the holders of Cumulative Preference Stock shall be entitled to elect Directors,
the holders of a majority of the then outstanding shares of Cumulative
Preference Stock of all series, present in person or by proxy, shall be
sufficient to elect the members of the Board of Directors which the holders of
Cumulative Preference Stock are entitled to elect as herein provided.
The two (2) Directors who may be elected by the holders of Cumulative
Preference Stock pursuant to the foregoing provisions shall be in addition to
any other Directors then in office or proposed to be elected otherwise than
pursuant to such provisions, and nothing in such provisions shall prevent any
change otherwise permitted in the total number of Directors of the Corporation
or require the resignation of any Directors elected otherwise than pursuant to
such provisions.
H. In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Corporation, the holders of the Cumulative
Preference Stock shall be entitled to be paid the amount fixed with respect to
shares of each particular series by the Board of Directors as herein provided
which shall include, in the case of each share, an amount computed at the
dividend rate for the series of which the particular share is part, from the
date on which dividends on such shares became cumulative to and including the
date fixed for such distribution or payment, less the aggregate of dividends
paid thereon prior to such distribution or payment date, before any distribution
or payment shall be made to the holders of stock of any class ranking Junior to
the Cumulative Preference Stock. If such payment shall have been made in full to
the holders of the Cumulative Preference Stock, the remaining assets and funds
of the Corporation shall be distributed among the holders of the Common Stock
and the holders of stock of any other class ranking junior to the Cumulative
Preference Stock according to their respective rates and preferences, and
according to their respective shares. If upon any such liquidation, dissolution
or winding up of the affairs of the Corporation the amounts payable on
liquidation are not sufficient to pay in full the holders of all outstanding
Cumulative Preference Stock, the holders of all series of Cumulative Preference
Stock shall share ratably in any distribution of assets in accordance with the
sums which would be payable on such shares if all sums payable were discharged
in full.
The merger or consolidation of the Corporation into or with any other
corporation, or the merger of any other corporation into it, or the sale, lease
or conveyance of all or substantially all the property or business of the
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Corporation, shall not be deemed to be a dissolution, liquidation or winding up
for the purposes of this paragraph H.
I. No holder of Cumulative Preference Stock shall be entitled, as such, as
a matter of right, to subscribe for or purchase any part of any new or
additional issue of stock or of securities of the Corporation convertible into
stock, of any class whatsoever, whether now or hereafter authorized, and whether
issued for cash, property, services or otherwise.
J. In addition to the voting rights expressly provided in paragraphs E, F
and G of this Article Fourth, the holders of Cumulative Preference Stock shall
also be entitled to vote for the election of Directors and on all other matters
submitted to a vote of the holders of the Common Stock of the Corporation,
voting jointly as a single class with the holders of the Common Stock and not as
a separate class, without regard to series, and subject to the provisions of
paragraph AA of this Article Fourth. Except as otherwise required by law, each
holder of stock of the Corporation entitled to vote shall have one (1) vote for
each share held thereof. No adjustment of the voting rights provided by this
paragraph J shall be made in the event of any increase or decrease in the number
of shares of Common Stock authorized, issued or outstanding or in the event of a
stock split or combination of the Common Stock or in the event of a stock
dividend on any class of stock payable in shares of Common Stock; and for the
purposes paragraph F of this Article Fourth, no amendment, alteration or repeal
of any provisions of the Articles of Incorporation of the Corporation, as
amended, adopted for the purpose of effecting any of the foregoing shall be
deemed to affect adversely the voting rights of outstanding shares of the
Cumulative Preference Stock or the holders thereof.
COMMON STOCK
AA. In addition to the express terms and provisions of the Common Stock set
forth above in this Article Fourth, the following terms and provisions shall be
applicable to the Common Stock:
(a) Each holder of Common Stock shall be entitled to one (1) vote for
each share held thereof. Except as otherwise expressly provided in the
Articles of Incorporation of the Corporation, as amended, and except as may
be otherwise required by law or as a lesser vote may be permitted by law,
the Corporation may lease, sell, exchange, transfer or otherwise dispose of
all or substantially all of the property, assets or business of the
Corporation or consolidate or merge with or into, or merge into the
Corporation, any other corporation or corporations, or the Corporation may
be dissolved voluntarily, or the Corporation may amend in any manner its
Articles of Incorporation, or may take such other action as may require the
authorization of shareholders, upon the affirmative vote of the holders of
shares of the Cumulative Preference Stock and of the holders of shares
of the Common Stock, voting jointly as a single class and not as separate
classes, and without regard to series of the Cumulative Preference Stock,
holding shares having a majority of the total voting power of all the
shares of Cumulative Preference Stock and Common Stock at the time
outstanding and entitled to vote. Except as may be otherwise expressly
provided in the Articles of Incorporation of the Corporation, as amended,
and except as may be otherwise required by law or as a lesser vote may be
permitted by law, whenever by law a vote of the holders of the Common Stock
as a separate class may be required to authorize the taking of any action
by the Corporation, the affirmative vote of the holders of a majority of
the shares of Common Stock at the time outstanding and entitled to vote
shall be sufficient authorization by the holders of the Common Stock as a
separate class for the taking of such action.
(b) No holder of Common Stock shalt be entitled, as such, as a matter
of right, to subscribe for or purchase any part of any new or additional
issue of stock or of securities of the Corporation convertible into stock,
of any class whatsoever, whether now or hereafter authorized, and whether
issued for cash, property, services or otherwise.
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ARTICLE FIFTH:
A. [ARTICLE FIFTH:] Series [of] A Cumulative Preference Stock.:
The designation and express terms and provisions of [a series of the]
SERIES A Cumulative Preference Stock of the Corporation be and hereby are fixed
as follows:
[A.] 1. Designation. The distinctive designation of said series shall be
"Series A Cumulative Preference Stock" (hereinafter sometimes called the "Series
A Preference Stock") and the number of shares initially constituting said series
shall be five hundred seventy-five thousand (575,000). The number of authorized
shares of the Series A Preference Stock may be increased or decreased by further
resolution duly adopted by the Board of Directors of the Corporation stating
that such increase or decrease has been so authorized.
[B] 2. Dividends and Distributions. The holders of record of shares of
Series A Preference Stock shall be entitled to receive, when, as and if declared
by the Board of Directors out of funds legally available for the purpose,
quarterly dividends payable in cash on the last day of March, June, September
and December in each year (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Series A Preference Stock (the "Original Issue Date"), in an amount per share
(rounded to the nearest cent) equal to, but no more than, the greater of (a)
Twelve Dollars and Fifty Cents ($12.50) or (b) subject to the provision for
adjustment hereinafter set forth, one hundred (100) times the aggregate per
share amount of all cash dividends, and one hundred (100) times the aggregate
per share amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock of the Corporation since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the Original issue Date. In the
event the Corporation shall at any time on or after the Original Issue Date
declare or pay any dividend on the shares of Common Stock payable in shares of
Common Stock, or effect a subdivision or combination or consolidation of the
outstanding Common Stock (by reclassification or otherwise than by payment of a
dividend in Common Stock) into a greater or lesser number of shares of Common
Stock, therein each such case the amount to which holders of shares of Series A
Preference Stock are entitled (without giving effect to such event) under clause
(b) of the preceding sentence shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
The Corporation shall declare a dividend or distribution on the Series A
Preference Stock as provided in the paragraph above immediately after it
declares a dividend or distribution on the Common Stock (other than a dividend
payable in shares of Common Stock); provided that, in the event no dividend or
distribution shall have been declared on the Common Stock during the period
between any Quarterly Dividend Payment Date and the next subsequent Quarterly
Dividend Payment Date, a dividend of Twelve Dollars and Fifty Cents ($12 50) per
share on the Series A Preference Stock shall nevertheless be payable on such
subsequent Quarterly Dividend Payment Date.
[C.] 3. Redemption. The shares of the Series A Cumulative Preference Stock
shall be redeemable at the option of the Corporation, as a whole or in part, at
any time or from time to time, in accordance with the provisions of paragraph C
of Article FOURTH of the Corporation's Amended Articles of Incorporation, at a
redemption price per share equal to the Market Price (as hereinafter defined) of
the Common Stock on the Trading Day (as hereinafter defined) immediately prior
to the date fixed for redemption, multiplied by one hundred (100) (the
"Multiplier"), plus in each case a sum equal to dividends accrued but unpaid;
provided, however, that if the Series A Preference Stock shall be called for
redemption prior to February 18, 2007, the Multiplier shall be one hundred and
twenty-five (125).
In the event the Corporation shall at any time on or after the Original
Issue Date declare or pay any dividend on the shares of Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or consolidation
of the outstanding Common Stock (by reclassification or otherwise than by
payment of a dividend in Common Stock), into a greater or lesser number of
shares of Common Stock, then in each such case the
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amount to which holders of Series A Preference Stock -were entitled (without
giving effect to such event), shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event. As used herein, the term "Market Price" per share of the Common Stock on
any date of determination shall mean the average of the daily closing price per
share of the Common Stock (determined as described below) on each of the twenty
(20) consecutive Trading Days through and including the Trading Day immediately
preceding such date; provided, however, that if the Company shall at any time
(i) declare a dividend on the Common Stock payable in Common Stock, (ii)
subdivide the outstanding Common Stock, (iii) combine the outstanding Common
Stock into a smaller number of shares of Common Stock or (iv) issue any shares
in a reclassification of the Common Stock, and such event or an event of a type
analogous to any such event shall have caused the closing prices used to
determine the Market Price on any Trading Days not to be fully comparable with
the closing price on such date of determination, each such closing price so used
shall be appropriately adjusted in order to make it fully comparable with the
closing price on such date of determination. The closing price per share of the
Common Stock on any date shall be the last sale price, regular way, or, in case
no such sale takes place on such date, the average of the closing bid and asked
prices, regular way, for each share of the Common Stock, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Common Stock is not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Common Stock is listed or admitted to trading or, if the Common
Stock is not listed or admitted to trading on any national securities exchange,
the average of the high bid and low asked prices for each share of Common Stock
in the over-the-counter market, as reported by the National Association of
Securities Dealers, Inc. Automated Quotation System (NASDAQ) or such other
system then in use, or, if on any such date the Common Stock is not quoted by
any such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the securities
selected by the Board of Directors of the Corporation: provided, however, that
if on such date the Common Stock is not listed or admitted for trading on a
national securities exchange or traded in the over-the-counter market, the
closing price per share of the Common Stock on such date shall mean the fair
value per share of Common Stock on such date as determined in good faith by the
Board of Directors of the Corporation, after consultation with a nationally
recognized investment banking firm with respect to the fair value per share of
such securities, and set forth in a certificate delivered to the Corporation.
As used herein, the term "Trading Day," when used with respect to the
Common Stock, shall mean a day on which the principal national securities
exchange on which the Common Stock is listed or admitted to trading is open for
the transaction of business or, if the Common Stock is not listed or admitted to
trading on any national securities exchange, a Business Day (defined to mean any
day other than a Saturday, Sunday or a day on which banking institutions in New
York, New York are generally authorized or obligated by law or executive order
to close).
[D] 4. Conversion or Exchange. Except as otherwise provided herein, the
holders of shares of this Series A Preference Stock shall not have any rights
herein to convert such shares into or exchange such shares for shares of any
other class or classes or of any other series of any class or classes of capital
stock of the Corporation.
In case the Corporation shall enter into any consolidation, merger,
combination, reclassification or other transaction in which the shares of Common
Stock are exchanged for or changed into other stock or securities, cash and/or
any other property, then in any such case the shares of Series A Preference
Stock shall at the same time be similarly exchanged or changed in an amount per
share (subject to the provision for adjustment hereinafter set forth) equal to
one hundred (100) times the aggregate amount of stock, securities, cash and/or
any other property (payable in kind), as the case may be, into which or for
which each share of Common Stock is changed or exchanged. In the event the
Corporation shall at any time on or after the Original Issue Date declare or pay
any dividend on Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise) into a greater or lesser number of
shares of Common Stock, then in each such case the amount set forth in the
preceding sentence with respect to the exchange or change of shares of Series A
Preference Stock shall be adjusted by multiplying
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such amount by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.
[E] 5. Liquidation Rights. Upon the voluntary liquidation, dissolution or
winding up of the Corporation, the holders of the shares of this Series shall be
entitled to receive an amount equal to the redemption price therefor current at
the time of the distribution or payment date, and any other amounts specified in
paragraph H of Article FOURTH of the Corporation's Amended Articles of
Incorporation. Upon the involuntary liquidation, dissolution or winding up of
the Corporation, the holders of the shares of this series Shall be entitled to
receive an amount equal to Thirty-Three Dollars and Thirty-Three Cents ($33.33)
and any other amounts specified in paragraph H of Article FOURTH of the
Corporation's Amended Articles of Incorporation.
[F] 6. Fractional Shares. Series A Preference Stock may be issued in
fractions of a share which shall entitle the holder, in proportion to such
holders' fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series A Preference Stock.
B. SERIES B CUMULATIVE PREFERENCE STOCK. THE VOTING RIGHTS RELATING TO THE
CUMULATIVE PREFERENCE STOCK SET FORTH IN PARAGRAPHS E, F AND J OF ARTICLE FOURTH
ARE APPLICABLE TO THE SERIES B CUMULATIVE PREFERENCE STOCK, EXCEPT THAT THE
SERIES B CUMULATIVE PREFERENCE STOCK IS ALSO ENTITLED TO ONE VOTE FOR EACH SHARE
OF SUCH STOCK UPON ALL MATTERS PRESENTED TO THE SHAREHOLDERS; AND EXCEPT AS
OTHERWISE PROVIDED HEREIN OR REQUIRED BY LAW, THE HOLDERS OF SERIES B CUMULATIVE
PREFERRED STOCK AND THE HOLDERS OF COMMON STOCK SHALL VOTE TOGETHER AS ONE CLASS
ON ALL MATTERS.
C. SERIES C CUMULATIVE PREFERENCE STOCK. THE VOTING RIGHTS RELATING TO THE
CUMULATIVE PREFERENCE STOCK SET FORTH IN PARAGRAPHS E, F AND J OF ARTICLE FOURTH
ARE APPLICABLE TO THE SERIES C CUMULATIVE PREFERENCE STOCK, EXCEPT THAT THE
SERIES C CUMULATIVE PREFERENCE STOCK IS ALSO ENTITLED TO ONE VOTE FOR EACH SHARE
OF SUCH STOCK UPON ALL MATTERS PRESENTED TO THE SHAREHOLDERS; AND EXCEPT AS
OTHERWISE PROVIDED HEREIN OR REQUIRED BY LAW, THE HOLDERS OF SERIES C CUMULATIVE
PREFERRED STOCK AND THE HOLDERS OF COMMON STOCK SHALL VOTE TOGETHER AS ONE CLASS
ON ALL MATTERS.
ARTICLE SIXTH: The Corporation is authorized by these Articles to purchase
shares of any class issued by it in all instances except as otherwise expressly
prohibited by these Articles or as prohibited by law.
ARTICLE SEVENTH:
A. The right to cumulate votes in the election of Directors shall not exist
with respect to shares of stock of the Corporation.
B. Notwithstanding the provisions of paragraph AA(a) of Article FOURTH
hereof or any other provisions of these Articles of Incorporation or the Code of
Regulations (and notwithstanding that a lesser percentage may be allowed by
law), the provisions of this Article SEVENTH may only be altered, amended, added
to or repealed at a meeting held for such purpose by the affirmative vote of the
holders of not less than eighty percent (80%) of the total voting power of the
Corporation entitled to vote, voting jointly as a single class.
ARTICLE EIGHTH:
A. The Directors shall be divided, with respect to the terms for which they
severally hold office, into three (3) classes, as nearly equal in number as the
then total number of Directors constituting the whole Board permits, as
determined by the Board of Directors, with the term of office of one (1) class
expiring each year. At the Annual Meeting of Shareholders in 1988, at which the
Directors shall be initially classified, Directors of the first class shall be
elected to hold office for a term expiring at the next succeeding Annual Meeting
in 1989, Directors of the second class shall be elected to hold office for a
term expiring at the second succeeding Annual Meeting in 1990 and Directors of
the third class shall be elected to hold office for a term expiring at the third
succeeding Annual Meeting in 1991, with each class of Directors to hold office
until their successors are duly elected and qualified. At each Annual Meeting of
Shareholders following such initial classification and election, Directors
elected to succeed those Directors whose terms shall then expire, other than
those Directors elected as provided in paragraph B of this Article EIGHTH by a
separate class vote of the holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation of the
Corporation, shall be elected to
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hold office for a term expiring at the third succeeding Annual Meeting after
such election. In the event of any increase in the number of Directors of the
Corporation, the additional Director or Directors shall be so classified that
all classes of Directors shall be as nearly equal in number as may be possible,
as determined by the Board of Directors. In the event of any decrease in the
number of Directors of the Corporation, all classes of Directors shall be
decreased in number as nearly equally as may be possible, as determined by the
Board of Directors. No decrease in the number of Directors shall shorten the
term of any incumbent Director. To the extent required by law, each class of
Directors shall consist of at least three (3) Directors.
B. In the event that the holders of any class or series of stock of the
Corporation having a preference over the Common Stock as to dividends or upon
liquidation of the Corporation are entitled, by a separate class vote, to elect
Directors pursuant to the terms of these Articles of Incorporation (as they may
be duly amended from time to time), then the provisions of the Articles of
Incorporation with respect to their rights shall apply. Except as otherwise
expressly provided in the Articles of Incorporation, the Directors that may be
so elected by the holders of any such class or series of stock shall be elected
for terms expiring at the next Annual Meeting of Shareholders and, without
regard to the classification of the remaining members of the Board of Directors,
vacancies among Directors so elected by the separate class vote of any such
class or series of stock shall be filled by the remaining Directors elected by
such class or series, or, if there are no such remaining Directors, by the
holders of such class or series in the same manner in which such class or series
initially elected Directors.
C. If at any meeting for the election of Directors, more than one (1) class
of stock, voting separately as classes, shall be entitled to elect one (1) or
more Directors and there shall be a quorum of only one (1) such class of stock,
that class of stock shall be entitled to elect its quota of Directors
notwithstanding the absence of a quorum of the other class or classes of stock.
D. Notwithstanding the provisions of paragraph AA(a) of Article FOURTH
hereof or any other provisions of these Articles of Incorporation or the
Corporation's Code of Regulations (and notwithstanding that a lesser percentage
may be allowed by law), the provisions of this Article EIGHTH may be altered,
amended, added to or repealed at a meeting held for such purpose only by the
affirmative vote of the holders of not less than eighty percent (80%) of the
total voting power of the Corporation entitled to vote, voting jointly as a
single class.
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ANNEX F
[NOTE: MARKINGS INDICATE PROPOSED AMENDMENTS.
TEXT THAT IS STRUCK THROUGH INDICATES LANGUAGE TO BE DELETED.
TEXT THAT IS UNDERLINED AND BOLD INDICATES LANGUAGE TO BE ADDED.]
COMPOSITE VERSION OF CODE OF REGULATIONS
OF
GENCORP INC.
(AS AMENDED AND AS PROPOSED TO BE AMENDED)
ARTICLE 1.
SHAREHOLDERS' MEETINGS.
SECTION 1. ANNUAL MEETING.
The Annual Meeting of the shareholders shall be held at the principal
office of the Corporation in the State of Ohio, or at such other place in or
outside of the State of Ohio as shall be designated in the notice of such
meeting on such date and at such hour [during the month of March] as may be
fixed by the Board of Directors, for the purpose of electing Directors and for
considering reports to be laid before said Meeting. Upon due notice there may
also be considered and acted upon at an Annual Meeting any matter which could
properly be considered and acted upon at a Special Meeting, in which case and
for which purpose the Annual Meeting shall also be considered as and shall be a
Special Meeting. In the event the Annual Meeting is not held, or if the
Directors are not elected thereat, a Special Meeting may be called and held for
that purpose.
SECTION 2. SPECIAL MEETINGS.
Special Meetings of the shareholders may be called by the Chairman of the
Board, the President or a Vice President, or by a majority of the members of the
Board of Directors acting with or without a meeting, or by the persons who hold
of record an aggregate of at least [twenty-five] FIFTY percent [(25%)] (50%) of
the voting power of the shares outstanding and entitled to be voted on the
proposals to be submitted at said meeting.
Upon the request in writing delivered to the President or Secretary by any
persons entitled to call a meeting of shareholders, it shall be the duty of the
President or Secretary to give notice to shareholders, and if such request be
refused, then the persons making such request may call a meeting by giving
notice in the manner hereinafter provided.
Special meetings of shareholders may be held at such place in or outside of
the State of Ohio as shall be designated in the notice of such meeting.
SECTION 3. NOTICE OF MEETINGS.
Notice of all shareholders' meetings, whether annual or special, shall be
given in writing by the President or a Vice President or the Secretary or an
Assistant Secretary (or in case of their refusal, by the person or persons
entitled to call meetings under the provisions of Section 2 of this Article 1),
which notice shall state the purpose or purposes for which the meeting is called
and the time when and place where it is to be held. Not more than sixty (60) nor
less than seven (7) days prior to any such meeting, a copy of such notice shall
be served upon or mailed to each shareholder of record entitled to vote at such
meeting or entitled to notice thereof, directed, postage prepaid, to his last
address as it appears upon the records of the Corporation.
SECTION 4. WAIVER OF NOTICE.
Notice of shareholders' meetings shall not be required to be given to those
shareholders who attend the meeting either in person or by proxy or if waived,
either before or after the meeting, by written assent, filed with or entered
upon the records of such meeting, of shareholders not so attending who are
entitled to notice.
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SECTION 5. RECORD DATE; CLOSING OF TRANSFER BOOKS.
The Board of Directors may fix a date not exceeding sixty (60) days
preceding any meeting of shareholders, as a record date for the determination of
the shareholders entitled to notice of such meeting and entitled to vote
thereat, and may close the books of the Corporation against transfer of shares
during the whole or any part of such period.
If the Board of Directors shall not fix a record date as aforesaid, the
shareholders of record at the close of business on the fifteenth (15th) day
prior to the date of the meeting shall be the shareholders entitled to notice of
such meeting, and the shareholders of record at the close of business on the
tenth (10th) day prior to the date of the meeting shall be the shareholders
entitled to vote thereat.
At any meeting of shareholders a list of shareholders entitled to vote,
alphabetically arranged, showing the address, number, classes of shares held by
each on the record date fixed as hereinbefore provided shall be produced on the
request of any shareholder and such list shall be prima facie evidence of the
ownership of shares and of the right of shareholders to vote, when certified by
the Secretary of the Corporation or by the agent of the Corporation having
charge of the transfer of shares.
SECTION 6. VOTING.
Except as otherwise provided in the Articles of Incorporation, every
shareholder of record shall be entitled at each meeting of shareholders to one
(1) vote for each share on which no installment is overdue and unpaid standing
in his name on the books of the Corporation at the record date fixed as provided
in Section 5 above.
In all cases, except where otherwise provided by Statute or by the Articles
of Incorporation or this Code of Regulations, a majority of the votes cast shall
control.
SECTION 7. PROXIES.
At any meeting of the shareholders, any shareholder of record entitled to
vote may be represented and may vote by proxy or proxies appointed by an
instrument in [writing executed] A FORM PERMITTED BY CHAPTER 1701 OF THE OHIO
REVISED CODE (OR ANY SUCCESSOR PROVISION) within eleven (11) months prior to the
date of its use (unless the instrument provides for a longer period). [and filed
with the Secretary at or before the meeting]
In the event that such instrument in writing shall designate three (3) or
more persons to act as proxies, a majority of such persons present at the
meeting, or if only one (1) shall be present then that one (1), shall have and
may exercise all of the powers conferred by such written instrument upon all of
the persons so designated unless the instrument shall otherwise provide.
Any signature on such instrument approved by the Inspectors hereinafter
provided for as genuine, shall be deemed to be the signature of the shareholder
whose name is signed thereon, and the falsity of such signature shall in no
manner impair the validity of such instrument or of any vote or action taken at
such meeting, provided that such shareholder shall not have previously filed
with the Secretary of the Corporation his authorized signature guaranteed by a
reputable bank or trust company.
SECTION 8. ORGANIZATION OF MEETINGS.
Any meeting of shareholders having been called to order, the presiding
officer may appoint three (3) Inspectors, who shall determine whether or not a
quorum is present, and in connection with the election of Inspectors by the
shareholders hereinafter referred to, shall decide all questions concerning the
qualifications of voters, the validity of proxies, the acceptance or rejection
of votes and the result of the vote. After a quorum has been determined to be
present any shareholder entitled to vote may request the election of three (3)
Inspectors, who shall thereupon be elected by the vote of a majority of the
shareholders present in person or by proxy and entitled to vote at such meeting.
The Inspectors so elected shall thereafter at said meeting decide all questions
concerning the qualifications of voters, the validity of proxies, the acceptance
or rejection of votes and shall receive and count the votes upon any election or
question submitted to the meeting, shall determine the result of the vote and
make a certificate thereof to be filed with the minutes of the meeting.
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In the event that no shareholder requests the election of Inspectors by the
shareholders as aforesaid, the Inspectors appointed by the presiding officer
pursuant to the provisions of the first paragraph of this section shall have all
of the powers and duties set forth above in respect to Inspectors elected by the
shareholders.
No Inspector, whether appointed or elected, need be a shareholder.
SECTION 9. QUORUM.
At any meeting of shareholders, either annual of special, the presence in
person or by proxy of the holders of record of shares entitling them to exercise
a majority of the voting power of the outstanding shares of a class of stock
shall be necessary to constitute a quorum of that class. If there be no quorum
of a particular class of stock at the time when and place where any such meeting
at which that class is entitled to vote is called to be held, the holders of
shares of that class entitling them to exercise a majority of the voting power
of that class present in person or represented by proxy may adjourn the meeting
as to that class from time to time without notice other than by announcement at
the meeting until a quorum of that class exists. No business shall be transacted
at any such adjourned meeting except such as might have been lawfully transacted
by that class at the original meeting.
In the event that at any meeting at which the holders of more than one (1)
class are entitled to vote a quorum of any class is lacking, the holders of the
class or classes represented by a quorum may proceed with the transaction of the
business to be transacted by the respective classes, and if such business is the
election of Directors, the Directors whose successors shall not have been
elected shall continue in office until their successors shall have been elected
and qualified.
For purposes of the preceding paragraphs of this Section 9, whenever any
series of any class of stock is entitled to vote separately as a series with
respect to any matter, such series shall be deemed to be a "class" as that term
is used in such preceding paragraphs insofar as that matter is concerned, and
whenever two (2) or more classes of stock are entitled to vote only jointly as a
single class and not as separate classes with respect to any matter, such
classes shall together be deemed to be a single "class" as that term is used in
such preceding paragraphs insofar as that matter is concerned.
SECTION 10. ACTION WITHOUT MEETING.
Any action which may be authorized or taken at any meeting of shareholders
may be authorized or taken without a meeting in a writing, or writings, signed
by all the shareholders who would be entitled to notice of a meeting of
shareholders held for such purpose, which writing, or writings, shall be filed
or entered upon the records of the Corporation.
SECTION 11. ACCOUNTS AND REPORTS TO SHAREHOLDERS.
Adequate and correct accounts of the business transactions of the
Corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, stated capital and shares, shall be kept and
maintained. Except for unreasonable or improper purposes, books of accounts,
lists of shareholders, voting trust agreements, if any, and the minutes of
meetings of the shareholders and Directors shall be open to the inspection of
every shareholder at all reasonable times, provided, however, that any
shareholder may be required by the officers of the Corporation to satisfy them
or the Board of Directors that the information sought by such inspection is
desired in good faith and will not be used to the detriment of the Corporation.
At the Annual Meeting, or any other meeting at which Directors are to be
elected, the officers of the Corporation shall lay before the shareholders a
statement of profit and loss and a balance sheet containing a summary of the
assets and liabilities, a summary of profits earned, dividends paid and other
changes in the surplus accounts of the Corporation, made up to a date not more
than four (4) months before said meeting from the date up to which the last
preceding statement, account and balance sheet were made. A certificate signed
by the President or Vice President or the Treasurer or an Assistant Treasurer or
by a public accountant or firm of public accountants shall be appended to such
statement of profit and loss and to the balance sheet, stating that they present
fairly the financial position of the Corporation and the results of its
operations in conformity with generally accepted accounting practices applied on
a consistent basis with that of the preceding period.
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The officers of the Corporation, upon written request of any shareholder
made within sixty (60) days after notice of any such meeting, shall, not later
than the fifth (5th) day after receiving such request or the fifth (5th) day
before the meeting, whichever is the later date, mail to such requesting
shareholder a copy of the financial statements to be laid before the
shareholders at such meeting.
SECTION 12. ORDER OF BUSINESS.
[At all shareholders' meetings the order of business shall be as
established from time to time by the Board of Directors.] (a) THE CHAIRMAN, OR
SUCH OTHER OFFICER OF THE CORPORATION DESIGNATED BY A MAJORITY OF THE TOTAL
NUMBER OF DIRECTORS THAT THE CORPORATION WOULD HAVE IF THERE WERE NO VACANCIES
ON THE BOARD OF DIRECTORS (SUCH NUMBER BEING REFERRED TO AS THE "WHOLE BOARD"),
WILL CALL MEETINGS OF SHAREHOLDERS TO ORDER AND WILL ACT AS PRESIDING OFFICER
THEREOF. UNLESS OTHERWISE DETERMINED BY THE BOARD OF DIRECTORS PRIOR TO THE
MEETING, THE PRESIDING OFFICER OF THE MEETING OF SHAREHOLDERS WILL ALSO
DETERMINE THE ORDER OF BUSINESS AND HAVE THE AUTHORITY IN HIS OR HER SOLE
DISCRETION TO REGULATE THE CONDUCT OF ANY SUCH MEETING INCLUDING, WITHOUT
LIMITATION, BY IMPOSING RESTRICTIONS ON THE PERSONS (OTHER THAN SHAREHOLDERS OF
THE CORPORATION OR THEIR DULY APPOINTED PROXIES) WHO MAY ATTEND ANY SUCH
SHAREHOLDERS' MEETING, BY ASCERTAINING WHETHER ANY SHAREHOLDER OR HIS PROXY MAY
BE EXCLUDED FROM ANY MEETING OF SHAREHOLDERS BASED UPON ANY DETERMINATION BY THE
PRESIDING OFFICER, IN HIS SOLE DISCRETION, THAT ANY SUCH PERSON HAS UNDULY
DISRUPTED OR IS LIKELY TO DISRUPT THE PROCEEDINGS OF THE MEETING, AND BY
DETERMINING THE CIRCUMSTANCES IN WHICH ANY PERSON MAY MAKE A STATEMENT OR ASK
QUESTIONS AT ANY MEETING OF SHAREHOLDERS.
(b) AT AN ANNUAL MEETING OF THE SHAREHOLDERS, ONLY SUCH BUSINESS WILL BE
CONDUCTED OR CONSIDERED AS IS PROPERLY BROUGHT BEFORE THE MEETING. TO BE
PROPERLY BROUGHT BEFORE AN ANNUAL MEETING, BUSINESS MUST BE (i) SPECIFIED IN THE
NOTICE OF MEETING (OR ANY SUPPLEMENT THERETO) GIVEN BY OR AT THE DIRECTION OF
THE PRESIDENT, A VICE PRESIDENT, THE SECRETARY OR AN ASSISTANT SECRETARY IN
ACCORDANCE WITH ARTICLE 1, SECTION 3, (ii) OTHERWISE PROPERLY BROUGHT BEFORE THE
MEETING BY THE PRESIDING OFFICER OR BY OR AT THE DIRECTION OF A MAJORITY OF THE
WHOLE BOARD, OR (iii) OTHERWISE PROPERLY REQUESTED TO BE BROUGHT BEFORE THE
MEETING BY A SHAREHOLDER OF THE CORPORATION IN ACCORDANCE WITH ARTICLE 1,
SECTION 12(c).
(c) FOR BUSINESS TO BE PROPERLY REQUESTED BY A SHAREHOLDER TO BE BROUGHT
BEFORE AN ANNUAL MEETING, (i) THE SHAREHOLDER MUST BE A SHAREHOLDER OF THE
CORPORATION OF RECORD AT THE TIME OF THE GIVING OF THE NOTICE FOR SUCH ANNUAL
MEETING PROVIDED FOR IN THIS CODE OF REGULATIONS, (ii) THE SHAREHOLDER MUST BE
ENTITLED TO VOTE AT SUCH MEETING, (iii) THE SHAREHOLDER MUST HAVE GIVEN TIMELY
NOTICE THEREOF IN WRITING TO THE SECRETARY, AND (iv) IF THE SHAREHOLDER, OR THE
BENEFICIAL OWNER ON WHOSE BEHALF ANY BUSINESS IS BROUGHT BEFORE THE MEETING, HAS
PROVIDED THE CORPORATION WITH A PROPOSAL SOLICITATION NOTICE, AS THAT TERM IS
DEFINED IN THIS ARTICLE 1, SECTION 12(c) BELOW, SUCH SHAREHOLDER OR BENEFICIAL
OWNER MUST HAVE DELIVERED A PROXY STATEMENT AND FORM OF PROXY TO THE HOLDERS OF
AT THE LEAST THE PERCENTAGE OF SHARES OF THE CORPORATION ENTITLED TO VOTE
REQUIRED TO APPROVE SUCH BUSINESS THAT THE SHAREHOLDER PROPOSES TO BRING BEFORE
THE ANNUAL MEETING AND INCLUDED IN SUCH MATERIALS THE PROPOSAL SOLICITATION
NOTICE. TO BE TIMELY, A SHAREHOLDER'S NOTICE MUST BE DELIVERED TO OR MAILED AND
RECEIVED AT THE PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION NOT LESS THAN 60
NOR MORE THAN 90 CALENDAR DAYS PRIOR TO THE FIRST ANNIVERSARY OF DATE ON WHICH
THE CORPORATION FIRST MAILED ITS PROXY MATERIALS FOR THE PRECEDING YEAR'S ANNUAL
MEETING OF SHAREHOLDERS; PROVIDED, HOWEVER, THAT IF THE DATE OF THE ANNUAL
MEETING IS ADVANCED MORE THAN 30 CALENDAR DAYS PRIOR TO OR DELAYED BY MORE THAN
30 CALENDAR DAYS AFTER THE ANNIVERSARY OF THE PRECEDING YEAR'S ANNUAL MEETING,
NOTICE BY THE SHAREHOLDER TO BE TIMELY MUST BE SO DELIVERED NOT LATER THAN THE
CLOSE OF BUSINESS ON THE LATER OF THE 90TH CALENDAR DAY PRIOR TO SUCH ANNUAL
MEETING OR THE 10TH CALENDAR DAY FOLLOWING THE DAY ON WHICH PUBLIC ANNOUNCEMENT
OF THE DATE OF SUCH MEETING IS FIRST MADE. IN NO EVENT SHALL THE PUBLIC
ANNOUNCEMENT OF AN ADJOURNMENT OF AN ANNUAL MEETING COMMENCE A NEW TIME PERIOD
FOR THE GIVING OF A SHAREHOLDER'S NOTICE AS DESCRIBED ABOVE. A SHAREHOLDER'S
NOTICE TO THE SECRETARY MUST SET FORTH AS TO EACH MATTER THE SHAREHOLDER
PROPOSES TO BRING BEFORE THE ANNUAL MEETING (A) A DESCRIPTION IN REASONABLE
DETAIL OF THE BUSINESS DESIRED TO BE BROUGHT BEFORE THE ANNUAL MEETING AND THE
REASONS FOR CONDUCTING SUCH BUSINESS AT THE ANNUAL MEETING, (B) THE NAME AND
ADDRESS, AS THEY APPEAR ON THE CORPORATION'S BOOKS, OF THE SHAREHOLDER PROPOSING
SUCH BUSINESS AND OF THE BENEFICIAL OWNER, IF ANY, ON WHOSE BEHALF THE PROPOSAL
IS MADE, (C) THE CLASS AND NUMBER OF SHARES OF THE CORPORATION THAT ARE OWNED
BENEFICIALLY AND OF RECORD BY THE SHAREHOLDER PROPOSING SUCH BUSINESS AND BY THE
BENEFICIAL OWNER, IF ANY,
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ON WHOSE BEHALF THE PROPOSAL IS MADE, (d) ANY MATERIAL INTEREST OF SUCH
SHAREHOLDER PROPOSING SUCH BUSINESS AND THE BENEFICIAL OWNER, IF ANY, ON WHOSE
BEHALF THE PROPOSAL IS MADE IN SUCH BUSINESS AND (e) WHETHER EITHER SUCH
SHAREHOLDER OR BENEFICIAL OWNER INTENDS TO DELIVER A PROXY STATEMENT AND FORM OF
PROXY TO HOLDERS OF AT LEAST THE PERCENTAGE OF SHARES OF THE CORPORATION
ENTITLED TO VOTE REQUIRED TO APPROVE THE PROPOSAL (AN AFFIRMATIVE STATEMENT OF
SUCH INTENT, A "PROPOSAL SOLICITATION NOTICE"). NOTWITHSTANDING THE FOREGOING
PROVISIONS OF THIS CODE OF REGULATIONS, A SHAREHOLDER MUST ALSO COMPLY WITH ALL
APPLICABLE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AND
THE RULES AND REGULATIONS THEREUNDER WITH RESPECT TO THE MATTERS SET FORTH IN
THIS ARTICLE 1, SECTION 12(c). FOR PURPOSES OF THIS ARTICLE 1, SECTION 12(c) AND
ARTICLE 2, SECTION 12, "PUBLIC ANNOUNCEMENT" MEANS DISCLOSURE IN A PRESS RELEASE
REPORTED BY THE DOW JONES NEWS SERVICE, ASSOCIATED PRESS, OR COMPARABLE NATIONAL
NEWS SERVICE OR IN A DOCUMENT PUBLICLY FILED BY THE CORPORATION WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO SECTIONS 13, 14, OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, OR PUBLICLY FILED BY THE
CORPORATION WITH ANY NATIONAL SECURITIES EXCHANGE OR QUOTATION SERVICE THROUGH
WHICH THE CORPORATION'S STOCK IS LISTED OR TRADED, OR FURNISHED BY THE
CORPORATION TO ITS SHAREHOLDERS. NOTHING IN THIS ARTICLE 1, SECTION 12(c) WILL
BE DEEMED TO AFFECT ANY RIGHTS OF SHAREHOLDERS TO REQUEST INCLUSION OF PROPOSALS
IN THE CORPORATION'S PROXY STATEMENT PURSUANT TO RULE 14A-8 UNDER THE SECURITIES
EXCHANGE ACT OF 1934.
(d) AT A SPECIAL MEETING OF SHAREHOLDERS, ONLY SUCH BUSINESS MAY BE
CONDUCTED OR CONSIDERED AS IS PROPERLY BROUGHT BEFORE THE MEETING. TO BE
PROPERLY BROUGHT BEFORE A SPECIAL MEETING, BUSINESS MUST BE (i) SPECIFIED IN THE
NOTICE OF THE MEETING (OR ANY SUPPLEMENT THERETO) GIVEN BY OR AT THE DIRECTION
OF THE PRESIDENT, A VICE PRESIDENT, THE SECRETARY OR AN ASSISTANT SECRETARY (OR
IN CASE OF THEIR FAILURE TO GIVE ANY REQUIRED NOTICE, THE OTHER PERSONS ENTITLED
TO GIVE NOTICE) IN ACCORDANCE WITH ARTICLE 1, SECTION 3 OR (ii) OTHERWISE
BROUGHT BEFORE THE MEETING BY THE PRESIDING OFFICER OR BY OR AT THE DIRECTION OF
A MAJORITY OF THE WHOLE BOARD.
(e) THE DETERMINATION OF WHETHER ANY BUSINESS SOUGHT TO BE BROUGHT BEFORE
ANY ANNUAL OR SPECIAL MEETING OF THE SHAREHOLDERS IS PROPERLY BROUGHT BEFORE
SUCH MEETING IN ACCORDANCE WITH THIS ARTICLE 1, SECTION 12 WILL BE MADE BY THE
PRESIDING OFFICER OF SUCH MEETING. IF THE PRESIDING OFFICER DETERMINES THAT ANY
BUSINESS IS NOT PROPERLY BROUGHT BEFORE SUCH MEETING, HE OR SHE WILL SO DECLARE
TO THE MEETING AND ANY SUCH BUSINESS WILL NOT BE CONDUCTED OR CONSIDERED.
ARTICLE 2.
BOARD OF DIRECTORS.
SECTION 1. POWERS, NUMBER AND TERM OF OFFICE.
The property and business of the Corporation shall be controlled, and its
powers and authorities vested in and exercised, by a Board of Directors of not
less than seven (7) (to the extent consistent with applicable law) nor more than
seventeen (17) Directors, as shall be determined and fixed from time to time by
the Board of Directors. Subject to the provisions of Article EIGHTH of the
Articles of Incorporation, Directors shall be elected annually at the Annual
Meeting of Shareholders or if not so elected, at a Special Meeting of
Shareholders called for that purpose. Each Director shall hold office until the
next meeting of shareholders at which his successor is elected or until his
resignation, removal from office or death, whichever is earlier.
SECTION 2. CHANGES IN NUMBER OF DIRECTORS.
Subject to the numerical limitations contained in Section 1 of this Article
2, and except as may be provided in the Articles of Incorporation (as it may be
duly amended from time to time) relating to the rights of holders of any class
or series of stock having a preference over the Common Stock as to dividends or
upon liquidation of the Corporation to elect, by separate class vote, additional
Directors, the number of Directors on the Board may be increased or reduced by
the affirmative vote of (i) a majority of the members of the Board of Directors
then in office or (ii) the holders of not less than eighty percent (80%) of the
total voting power of the Corporation entitled to elect Directors, voting
jointly as a single class, but no reduction shall have the effect of removing
any Director prior to the expiration of his term of office.
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SECTION 3. QUALIFICATION OF DIRECTORS.
Within sixty (60) days after his election a Director shall qualify by
accepting his election as a Director either in writing or by acting at a meeting
of the Board of Directors.
SECTION 4. VACANCIES.
In the event of the failure of a Director to so qualify, or in the event of
his being declared of unsound mind by order of court, or in the event of his
being adjudicated a bankrupt, his office may be declared vacant by the Board of
Directors. Any vacancy including vacancies resulting from death or resignation,
if occurring in the office of a Director for whom the holders of a particular
class of stock are entitled to vote, may be filled by the vote of a majority of
the remaining Directors for whom such shareholders are entitled to vote,
although such majority is less than a quorum. Subject to the provisions of the
preceding sentence any vacancy or vacancies in the office of Director may be
filled by the affirmative vote of a majority of the members of the Board of
Directors then in office. Within the meaning of this Section 4 a vacancy or
vacancies shall also be deemed to exist in case the shareholder shall fail at
any time to elect the full Board of authorized Directors or in case the Board of
Directors shall increase the authorized number of Directors.
SECTION 5. MEETINGS.
Meetings of the Board of Directors may be held at any time in or outside
the State of Ohio.
The Board of Directors may by resolution provide for regular meetings to be
held at such times and places as it may determine, and such meetings may be held
without further notice.
Special meetings of the Board of Directors may be called by the Chairman of
the Board or by the President of the Corporation or by not less than one-third
(1/3) of the Directors then in office. Notice of the time and place of such
meeting shall be served upon or telephoned to each Director at least twenty-four
(24) hours, or mailed or telephoned to each Director at his address as shown by
the books of the Corporation at least forty-eight (48) hours prior to the time
of the meeting. Notice of the time, place and purpose of any meeting of
Directors may be waived by a Director either before or after the meeting by his
written assent filed with or entered upon the record of the meeting, or by his
attendance at such meeting.
SECTION 6. ACTION WITHOUT MEETING.
Any action which may be authorized or taken at a meeting of the Directors
may be authorized or taken without a meeting in a writing, or writings, signed
by all of the Directors which shall be filed with or entered upon the records of
the Corporation.
SECTION 7. QUORUM.
A majority of the Directors then in office shall be necessary to constitute
a quorum for the transaction of business, but if at any meeting of the Board
there shall be less than a quorum present, a majority of those present may
adjourn the meeting from time to time without notice other than announcement of
the meeting until a quorum shall attend. The act of a majority of Directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors.
SECTION 8. FIXING OF RECORD DATES.
The Board of Directors may fix a time not exceeding sixty (60) days
preceding any dividend payment date, or any date for the allotment of rights, as
a record date for the determination of the shareholders entitled to receive
dividends or rights, and may close the books of the Corporation against transfer
of shares during the whole or any part of such period.
SECTION 9. COMMITTEES.
The Board of Directors may from time to time appoint certain of its members
to act in the intervals between meetings of the Board as a committee or
committees, and may delegate to such committee or committees powers and duties
to be exercised and performed under the control and direction of the Board.
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In particular, the Board of Directors may create from its membership and
define the powers and duties of an Executive Committee of not less than three
(3) members. During the intervals between meetings of the Board of Directors the
Executive Committee, unless restricted by resolution of the Board, shall possess
and may exercise, under the control and direction of the Board, all of the
powers of the Board of Directors in the management and control of the business
of the Corporation. All action taken by the Executive Committee shall be
reported to the Board of Directors at its first meeting thereafter and shall be
subject to revision or recision of the Board, provided, however, that rights of
third parties shall not be affected by any such action of the Board.
In every case the affirmative vote of a majority of the members present at
a meeting at which a majority of the members are present, or the consent of all
of the members of a Committee, shall be necessary for the approval of any
action, and action may be taken by a Committee without a formal meeting or
written consent. Each Committee shall meet at the call of any member thereof and
shall keep a written record of all actions taken by it.
SECTION 10. INDEMNIFICATION AND INSURANCE.
The Corporation shall indemnify [each official against all expenses,
including attorneys' fees, actually and necessarily incurred by him in
connection with the defense of any action by or in the right of the Corporation
to procure a judgment in its favor, or in connection with any appeal therein, to
which he is made or], TO THE FULL EXTENT THEN PERMITTED BY LAW, ANY PERSON WHO
WAS OR IS A PARTY OR IS threatened to be made a party [by reason of being or
having been an official, except in relation to matters as to which he is
adjudged by the express terms of a judgment rendered on the final determination
of the merits in such action to be liable for negligence or misconduct in the
performance of his duty to the Corporation. Such indemnification shall not
include amounts paid to the Corporation by judgment or in settling or otherwise
disposing of a pending or threatened action] TO ANY THREATENED, PENDING OR
COMPLETED ACTION, SUIT OR PROCEEDING, WHETHER CIVIL, CRIMINAL, ADMINISTRATIVE OR
INVESTIGATIVE, BY REASON OF THE FACT THAT HE IS OR WAS A MEMBER OF THE BOARD OF
DIRECTORS OR AN OFFICER, EMPLOYEE, MEMBER, MANAGER OR AGENT OF THE CORPORATION,
OR IS OR WAS SERVING AT THE REQUEST OF THE CORPORATION AS A DIRECTOR, TRUSTEE,
OFFICER, EMPLOYEE OR AGENT OF ANOTHER CORPORATION, LIMITED LIABILITY COMPANY, OR
A PARTNERSHIP, JOINT VENTURE, TRUST OR OTHER ENTERPRISE. The Corporation shall
[indemnify each official made or threatened to be made a party to any action
(other than one by or in the right of the Corporation to procure a judgment in
its favor but including any action by or in the right of a related corporation)
by reason of being or having been an official, against all judgments, fines,
amounts paid in settlement and] PAY, TO THE FULL EXTENT THEN REQUIRED BY LAW,
expenses, including ATTORNEY'S FEES, INCURRED BY A MEMBER OF THE BOARD OF
DIRECTORS IN DEFENDING ANY SUCH ACTION, SUIT OR PROCEEDING AS THEY ARE INCURRED,
IN ADVANCE OF THE FINAL DISPOSITION THEREOF, AND MAY PAY, IN THE SAME MANNER AND
TO THE FULL EXTENT THEN PERMITTED BY LAW, SUCH EXPENSES INCURRED BY ANY OTHER
PERSON. THE INDEMNIFICATION AND PAYMENT OF EXPENSES PROVIDED HEREBY SHALL NOT BE
EXCLUSIVE OF, AND SHALL BE IN ADDITION TO, ANY OTHER RIGHTS GRANTED TO THOSE
SEEKING INDEMNIFICATION UNDER ANY LAW, THE ARTICLES OF INCORPORATION, ANY
AGREEMENT, VOTE OF SHAREHOLDERS OR DISINTERESTED MEMBERS OF THE BOARD OF
DIRECTORS, OR OTHERWISE, BOTH AS TO ACTION IN OFFICIAL CAPACITIES AND AS TO
ACTION IN ANOTHER CAPACITY WHILE HE OR SHE IS A MEMBER OF THE BOARD OF
DIRECTORS, OR AN OFFICER, EMPLOYEE OR AGENT OF THE CORPORATION, AND SHALL
CONTINUE AS TO A PERSON WHO HAS CEASED TO BE A MEMBER OF [attorneys' fees,
actually and necessarily incurred by him as a result of such action, or any
appeal therein, if he acted in good faith, for a purpose which he reasonably
believed to be in the best interests of the Corporation and, in criminal
actions, in addition, had no reasonable cause to believe that this conduct was
unlawful. The termination of any such action by judgment, settlement, conviction
or upon a plea of nolo contendere, or its equivalent shall not in itself create
a presumption that any such official did not act, in good faith, for a purpose
which he reasonably believed to be in the best interests of the Corporation or
that he had reasonable cause to believe that his conduct was unlawful.]
[If an official has been wholly successful, on the merits or otherwise, in the
defense of an action of the character described in the first two paragraphs of
this Section 10, he shall be entitled to indemnification as authorized in such
paragraphs. Except as provided in the preceding sentence (and unless otherwise
ordered by a court) any indemnification under such paragraphs shall be made by
the Corporation, if and only if authorized in the specific case: (1) By the
Board of Directors acting by a quorum consisting of directors who are not
parties to such action or who were wholly successful in such action on the
merits or otherwise, upon a finding that the official seeking indemnification
under the first paragraph of this Section 10 has not been negligent or guilty of
misconduct in the]
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[performance of his duty to the Corporation as charged in the action, or if
seeking indemnification under the second paragraph of this Section 10, has met
the standard of conduct set forth in such paragraph, or,], trustee, officer,
employee or agent and shall inure to the benefit of the heirs, executors, and
administrators of such a person.
[(2) If such a quorum is not obtainable with due diligence:]
[(a) By the Board of Directors upon the opinion in writing of independent legal
counsel that indemnification is proper in the circumstances because such
official has not been negligent or guilty of misconduct or has met the standard
of conduct set forth in the second paragraph of this Section 10, as the case may
be, or]
[(b) By a committee, appointed] THE CORPORATION MAY, TO THE FULL EXTENT THEN
PERMITTED BY LAW AND AUTHORIZED by the Board of Directors, PURCHASE AND MAINTAIN
INSURANCE OR FURNISH SIMILAR PROTECTION, INCLUDING BUT NOT LIMITED TO TRUST
FUNDS, LETTERS OF CREDIT OR SELF-INSURANCE, ON BEHALF OF OR FOR ANY PERSONS
DESCRIBED IN THE PRECEDING PARAGRAPH AGAINST ANY LIABILITY ASSERTED AGAINST AND
INCURRED BY ANY SUCH PERSON IN ANY SUCH CAPACITY, OR ARISING OUT OF HIS STATUS
AS SUCH, WHETHER OR NOT THE CORPORATION WOULD HAVE THE POWER TO INDEMNIFY SUCH
PERSON AGAINST SUCH LIABILITY. INSURANCE MAY BE PURCHASED FROM OR MAINTAINED
WITH A PERSON [of two (2) or more shareholders who are not Directors, officers
or employees of the Corporation, upon a finding that such official has not been
negligent or guilty of misconduct or has met the standard of conduct set forth
in the second paragraph of this Section 10, as the case may be.]
[For purposes of this Section 10, (1) a "related corporation" shall mean any
corporation in which the Corporation owns or owned shares or of which it is or
was a creditor, (2) "official" shall mean a Director, officer, former Director,
or former officer of the Corporation or any person who serves or has served at
its request as a director or officer of a related corporation, and (3) "action"
shall mean any civil or criminal] HAS A FINANCIAL INTEREST.
THE CORPORATION, UPON APPROVAL BY THE BOARD OF DIRECTORS, MAY ENTER INTO
AGREEMENTS WITH ANY PERSONS WHOM THE CORPORATION MAY INDEMNIFY UNDER THIS CODE
OF REGULATIONS OR UNDER LAW AND UNDERTAKE THEREBY TO INDEMNIFY SUCH PERSONS AND
TO PAY THE EXPENSES INCURRED BY THEM IN DEFENDING ANY action, suit or proceeding
AGAINST THEM, WHETHER OR NOT THE CORPORATION WOULD HAVE THE POWER UNDER LAW OR
THIS CODE OF REGULATIONS TO INDEMNIFY ANY SUCH PERSON.[.]
[Nothing in this Section 10 shall limit the power of the Corporation to
indemnify or agree to indemnify any person not covered by this Section 10 under
these provisions or to indemnify or agree to indemnify any person in any case
not provided for herein.]
[The provisions of this Section 10 shall be in addition to any rights to, or
eligibility for indemnification to which any person concerned may otherwise be
or become entitled by agreement, provision of the Articles of Incorporation,
vote of shareholders, court order or otherwise, and shall inure to the benefit
of the heirs, executors, and administrators of each such person.]
[The provisions of this Section 10 shall apply in respect of all alleged or
actual causes of action or offenses accrued or occurring before, on or after its
adoption.]
SECTION 11. REMOVAL.
Except as may be provided in the Articles of Incorporation (as it may be
duly amended from time to time) relating to the rights of holders of any class
or series of stock which has a preference over the Common Stock as to dividends
or upon liquidation of the Corporation to elect, by separate class vote,
additional Directors, Directors may [be removed from office by shareholders,
with or without cause, only by the affirmative vote of the holders of not less
than eighty percent (80%) of the total voting power of the Corporation entitled
to elect Directors in place of those to be removed, voting jointly as a single
class.] NOT BE REMOVED FROM THE BOARD OF DIRECTORS BY THE SHAREHOLDERS OR
OTHERWISE, EXCEPT THAT A MAJORITY OF THE DIRECTORS THEN IN OFFICE MAY REMOVE A
DIRECTOR IF THE DIRECTOR TO BE REMOVED (i) IS UNABLE TO ENGAGE IN ANY
SUBSTANTIAL GAINFUL ACTIVITY BY REASON OF ANY MEDICALLY DETERMINABLE PHYSICAL OR
MENTAL IMPAIRMENT THAT IS EXPECTED TO BE PERMANENT; (ii) HAS, SINCE HIS OR HER
ELECTION AS A DIRECTOR, BEEN CONVICTED OF A CRIME CONSTITUTING A FELONY OR
INVOLVING FRAUD, EMBEZZLEMENT OR THEFT; OR (iii) HAS, SINCE HIS OR HER ELECTION
AS A DIRECTOR, BEEN FOUND BY A COURT OF
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COMPETENT JURISDICTION IN A CIVIL ACTION TO HAVE BREACHED HIS OR HER DUTY OF
LOYALTY TO THE CORPORATION OR ANY OTHER COMPANY.
SECTION 12. NOMINATIONS OF DIRECTORS; ELECTION.
(a) EXCEPT AS MAY BE OTHERWISE PROVIDED IN THE ARTICLES OF INCORPORATION
(AS IT MAY BE DULY AMENDED FROM TIME TO TIME) RELATING TO THE RIGHTS OF HOLDERS
OF ANY CLASS OR SERIES OF STOCK WHICH HAS A PREFERENCE OVER THE COMMON STOCK AS
TO DIVIDENDS OR UPON LIQUIDATION OF THE CORPORATION TO ELECT, BY SEPARATE CLASS
VOTE, ADDITIONAL DIRECTORS, ONLY PERSONS WHO ARE NOMINATED IN ACCORDANCE WITH
THIS ARTICLE 2, SECTION 12 WILL BE ELIGIBLE FOR ELECTION AT A MEETING OF
SHAREHOLDERS TO BE MEMBERS OF THE BOARD OF DIRECTORS OF THE CORPORATION.
(b) NOMINATIONS OF PERSONS FOR ELECTION AS DIRECTORS OF THE CORPORATION MAY
BE MADE ONLY AT AN ANNUAL MEETING OF SHAREHOLDERS (i) BY OR AT THE DIRECTION OF
THE BOARD OF DIRECTORS OR A COMMITTEE THEREOF OR (ii) BY ANY SHAREHOLDER WHO IS
A SHAREHOLDER OF RECORD AT THE TIME OF GIVING OF NOTICE PROVIDED FOR IN THIS
ARTICLE 2, SECTION 12, WHO IS ENTITLED TO VOTE FOR THE ELECTION OF DIRECTORS AT
SUCH MEETING, AND WHO COMPLIES WITH THE PROCEDURES SET FORTH IN THIS ARTICLE 2,
SECTION 12. IF A SHAREHOLDER, OR A BENEFICIAL OWNER ON WHOSE BEHALF ANY SUCH
NOMINATION IS MADE, HAS PROVIDED THE CORPORATION WITH A NOMINATION SOLICITATION
NOTICE, AS THAT TERM IS DEFINED IN THIS ARTICLE 2, SECTION 12 BELOW, SUCH
SHAREHOLDER OR BENEFICIAL OWNER MUST HAVE DELIVERED A PROXY STATEMENT AND FORM
OF PROXY TO THE HOLDERS OF AT LEAST THE PERCENTAGE OF SHARES OF THE CORPORATION
ENTITLED TO VOTE REQUIRED TO APPROVE SUCH NOMINATION AND INCLUDED IN SUCH
MATERIALS THE NOMINATION SOLICITATION NOTICE. ALL NOMINATIONS BY SHAREHOLDERS
MUST BE MADE PURSUANT TO TIMELY NOTICE IN PROPER WRITTEN FORM TO THE SECRETARY.
(c) TO BE TIMELY, A SHAREHOLDER'S NOTICE MUST BE DELIVERED TO OR MAILED AND
RECEIVED AT THE PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION NOT LESS THAN 60
NOR MORE THAN 90 CALENDAR DAYS PRIOR TO THE FIRST ANNIVERSARY OF THE DATE ON
WHICH THE CORPORATION FIRST MAILED ITS PROXY MATERIALS FOR THE PRECEDING YEAR'S
ANNUAL MEETING OF SHAREHOLDERS; PROVIDED, HOWEVER, THAT IF THE DATE OF THE
ANNUAL MEETING IS ADVANCED MORE THAN 30 CALENDAR DAYS PRIOR TO OR DELAYED BY
MORE THAN 30 CALENDAR DAYS AFTER THE ANNIVERSARY OF THE PRECEDING YEAR'S ANNUAL
MEETING, NOTICE BY THE SHAREHOLDER TO BE TIMELY MUST BE SO DELIVERED NOT LATER
THAN THE CLOSE OF BUSINESS ON THE LATER OF THE 90TH CALENDAR DAY PRIOR TO SUCH
ANNUAL MEETING OR THE 10TH CALENDAR DAY FOLLOWING THE DAY ON WHICH PUBLIC
ANNOUNCEMENT OF THE DATE OF SUCH MEETING IS FIRST MADE. IN NO EVENT SHALL THE
PUBLIC ANNOUNCEMENT OF AN ADJOURNMENT OF AN ANNUAL MEETING COMMENCE A NEW TIME
PERIOD FOR THE GIVING OF A SHAREHOLDER'S NOTICE AS DESCRIBED ABOVE. TO BE IN
PROPER WRITTEN FORM, SUCH SHAREHOLDER'S NOTICE MUST SET FORTH OR INCLUDE: (i)
THE NAME AND ADDRESS, AS THEY APPEAR ON THE CORPORATION'S BOOKS, OF THE
SHAREHOLDER GIVING THE NOTICE AND OF THE BENEFICIAL OWNER, IF ANY, ON WHOSE
BEHALF THE NOMINATION IS MADE; (ii) A REPRESENTATION THAT THE SHAREHOLDER GIVING
THE NOTICE IS A HOLDER OF RECORD OF STOCK OF THE CORPORATION ENTITLED TO VOTE AT
SUCH ANNUAL MEETING AND INTENDS TO APPEAR IN PERSON OR BY PROXY AT THE ANNUAL
MEETING TO NOMINATE THE PERSON OR PERSONS SPECIFIED IN THE NOTICE; (iii) THE
CLASS AND NUMBER OF SHARES OF STOCK OF THE CORPORATION OWNED BENEFICIALLY AND OF
RECORD BY THE SHAREHOLDER GIVING THE NOTICE AND BY THE BENEFICIAL OWNER, IF ANY,
ON WHOSE BEHALF THE NOMINATION IS MADE; (iv) A DESCRIPTION OF ALL ARRANGEMENTS
OR UNDERSTANDINGS BETWEEN OR AMONG ANY OF (A) THE SHAREHOLDER GIVING THE NOTICE,
(B) THE BENEFICIAL OWNER ON WHOSE BEHALF THE NOTICE IS GIVEN, (C) EACH NOMINEE,
AND (D) ANY OTHER PERSON OR PERSONS (NAMING SUCH PERSON OR PERSONS) PURSUANT TO
WHICH THE NOMINATION OR NOMINATIONS ARE TO BE MADE BY THE SHAREHOLDER GIVING THE
NOTICE; (v) SUCH OTHER INFORMATION REGARDING EACH NOMINEE PROPOSED BY THE
SHAREHOLDER GIVING THE NOTICE AS WOULD BE REQUIRED TO BE INCLUDED IN A PROXY
STATEMENT FILED PURSUANT TO THE PROXY RULES OF THE SECURITIES AND EXCHANGE
COMMISSION HAD THE NOMINEE BEEN NOMINATED, OR INTENDED TO BE NOMINATED, BY THE
BOARD OF DIRECTORS; (vi) THE SIGNED CONSENT OF EACH NOMINEE TO SERVE AS A
DIRECTOR OF THE CORPORATION IF SO ELECTED; AND (vii) WHETHER EITHER SUCH
SHAREHOLDER OR BENEFICIAL OWNER INTENDS TO DELIVER A PROXY STATEMENT AND FORM OF
PROXY TO HOLDERS OF AT LEAST THE PERCENTAGE OF SHARES OF THE CORPORATION
ENTITLED TO VOTE REQUIRED TO ELECT SUCH NOMINEE OR NOMINEES (AN AFFIRMATIVE
STATEMENT OF SUCH INTENT, A "NOMINATION SOLICITATION NOTICE"). THE PRESIDING
OFFICER OF ANY ANNUAL MEETING MAY, IF THE FACTS WARRANT, DETERMINE THAT A
NOMINATION WAS NOT MADE IN ACCORDANCE WITH THIS ARTICLE 2, SECTION 12, AND IF HE
OR SHE SHOULD SO DETERMINE, HE OR SHE WILL SO DECLARE TO THE MEETING, AND THE
DEFECTIVE NOMINATION WILL BE DISREGARDED. NOTWITHSTANDING THE FOREGOING
PROVISIONS OF THIS ARTICLE 2,
F-9
<PAGE> 236
SECTION 12, A SHAREHOLDER MUST ALSO COMPLY WITH ALL APPLICABLE REQUIREMENTS OF
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AND THE RULES AND REGULATIONS
THEREUNDER WITH RESPECT TO THE MATTERS SET FORTH IN THIS ARTICLE 2, SECTION 12.
ARTICLE 3.
OFFICERS.
SECTION 1. OFFICERS.
The Corporation shall have a Chairman of the Board of Directors, a
President, a Secretary and a Treasurer, all of whom shall be chosen by the Board
of Directors. The Chairman of the Board of Directors and the President shall be
members of the Board of Directors. The Corporation may also have one or more
Vice Presidents, Assistant Secretaries, Assistant Treasurers and such other
officers as the Board may deem advisable, all of whom shall be chosen by the
Board of Directors. The Board of Directors shall designate a chief executive
officer. Any two (2) or more offices may be held by the same person. All
officers shall hold office for one (1) year and until their successors are
selected and qualified, unless otherwise specified by the Board of Directors,
provided, however, that any officer shall be subject to removal at any time by
the affirmative vote of a majority of the Directors then in office.
SECTION 2. CHAIRMAN OF THE BOARD.
The Chairman of the Board shall preside at all meetings of the shareholders
and of the Board of Directors and shall have such other powers and duties as may
be vested in or imposed upon him by the Board of Directors.
SECTION 3. THE PRESIDENT.
The President shall perform such duties and have such powers as are
assigned to or vested in him by the Board of Directors.
SECTION 4. VICE PRESIDENT.
The Vice President, or, if there be more than one (1), the Vice Presidents,
in order of their seniority by designation (or if not designated, in order of
their seniority of election), shall perform the duties of the President in his
absence or during his disability to act. The Vice Presidents shall have such
other duties and powers as may be assigned to or vested in them by the Board of
Directors or the Executive Committee.
SECTION 5. SECRETARY.
The Secretary shall issue notices of all meetings for which notice is
required to be given, shall keep the minutes thereof, shall have charge of the
corporate seal and corporate record books, shall cause to be prepared for each
meeting of shareholders the list of shareholders referred to in Section 5,
Article 1, hereof, and shall have such other powers and perform such other
duties as assigned to or vested in him by the Board of Directors or the
Executive Committee.
SECTION 6. TREASURER.
The Treasurer shall have the custody of all moneys and securities of the
Corporation and shall keep adequate and correct accounts of the Corporation's
business transactions, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, stated capital and shares, shall prepare and lay
before the shareholders' meetings the data referred to in Section 11, Article 1,
hereof, and shall mail a copy of such data as required in said section to any
shareholder requesting it. The funds of the Corporation shall be deposited in
the name of the Corporation by the Treasurer in such depositories as the Board
of Directors may from time to time designate. The Treasurer shall have such
other powers and perform such other duties as are assigned to or vested in him
by the Board of Directors or the Executive Committee.
SECTION 7. ASSISTANT SECRETARY.
The Assistant Secretary shall perform all the duties of the Secretary in
case of the absence or disability of the latter and shall perform such other and
further duties as may be required of him by the Board of Directors or the
Executive Committee.
F-10
<PAGE> 237
SECTION 8. ASSISTANT TREASURER.
The Assistant Treasurer shall perform all the duties of the Treasurer in
case of the absence or disability of the latter and shall perform such other and
further duties as may be required of him by the Board of Directors or the
Executive Committee.
SECTION 9. OTHER OFFICERS.
Other officers of the Corporation shall have such powers and duties as may
be assigned to or vested in them by the Board of Directors or the Executive
Committee.
SECTION 10. AUTHORITY TO SIGN.
Share certificates shall be assigned as hereinafter in Article 4 provided.
Except as otherwise specifically provided by the Board of Directors or the
Executive Committee, checks, notes, drafts, contracts or other instruments
authorized by the Board of Directors or the Executive Committee may be executed
and delivered on behalf of the Corporation by the Chairman of the Board, the
President or a Vice President and by the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer.
ARTICLE 4.
STOCK CERTIFICATES.
SECTION 1. CERTIFICATES.
Each shareholder of the Corporation shall be entitled to a certificate
signed by the Chairman of the Board, the President or a Vice President and by
the Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer, evidencing the number of full shares of the Corporation's capital
stock held of record by him and fully paid. To the extent permitted by law, said
certificates shall be deemed to be so signed whether the signatures be manual or
facsimile signatures. Said certificates shall be in such form as shall be
approved by the Board of Directors or the Executive Committee.
SECTION 2. TRANSFER AND REGISTRATION.
The Board of Directors and the Executive Committee shall have authority to
make such rules and regulations as it deems expedient concerning the issuance,
transfer and registration of share certificates and may appoint transfer agents
and registrars thereof.
SECTION 3. SUBSTITUTED CERTIFICATES.
In case any certificate be lost, stolen, mutilated or destroyed the Board
of Directors or the Executive Committee may authorize the issuance of a new
certificate in lieu thereof upon such terms and conditions as it may deem
advisable.
ARTICLE 5.
CORPORATE SEAL.
The seal of the Company shall be circular in form with the words "GENCORP
INC.[, AKRON, OHIO,]" stamped around the margin and the words "Corporate Seal"
stamped across the center.
ARTICLE 6.
EMERGENCY POWERS.
SECTION 1. DEFINITION.
"An emergency" shall exist when the governor, or any other person lawfully
exercising the power and discharging the duties of the office of governor,
proclaims that an attack on the United States or any nuclear, atomic, or other
disaster has caused an emergency for corporations, and such an emergency shall
continue until terminated by proclamation of the governor or any other person
lawfully exercising the powers and discharging the duties of the office of
governor.
F-11
Language indicated as being shown by strike out in the typeset document is
enclosed in brackets "[" and "]" in the electronic format.
<PAGE> 238
SECTION 2. DIRECTORS.
In the event of an emergency, meetings of the Board of Directors may be
called by any Director or officer. Notice of the time and place of each such
meeting of the Directors shall be given only to such of the Directors as it may
be feasible to reach at the time and by such means, written or oral, as may be
feasible at the time, including publication, radio, or other forms of mass
communication. The Director or Directors present at any meeting of the Directors
shall constitute a quorum for such meeting, and such Director or Directors may
appoint one (1) or more of the officers of the Corporation Directors for such
meeting. In the event that none of the Directors attends a meeting of the
Directors, which has been duly called and notice of which has been duly given,
the officers of the Corporation who are present, not exceeding three (3), in
order of rank, shall be Directors for such meeting; provided, however, such
officers may appoint one (1) or more of the other officers of the Corporation
Directors for such meeting.
SECTION 3. OFFICERS.
During such period of emergency if the chief executive officer dies, is
missing, or for any reason is temporarily or permanently incapable of
discharging the duties of his office then, until such time as the Directors
shall otherwise order, the next ranking officer who is available shall assume
the duties and authority of the office of such deceased, missing or
incapacitated chief executive officer. The offices of Secretary and Treasurer
shall be deemed to be of equal rank, and within the same office or as between
the offices of Secretary and Treasurer, rank shall be determined by seniority of
the first election to the office, or if two (2) or more persons shall have been
first elected to such office at the same time, by seniority in age.
SECTION 4. CONFLICTING PROVISIONS OF CODE, ARTICLES OR REGULATIONS.
The emergency powers in this Article 6 shall be effective during an
emergency notwithstanding any different provisions in sec. 1701.01 to sec.
1701.98, inclusive, of the Revised Code of Ohio, and notwithstanding any
different provisions of the Articles of Incorporation or Code of Regulations
which are not expressly stated to be operative during an emergency.
SECTION 5. FURTHER AUTHORIZATION TO DIRECTORS.
The Directors further are authorized to adopt either before or during an
emergency, emergency by-laws subject to repeal or change by actions of the
shareholders, which shall be operative during, but only during, an emergency
notwithstanding any different provisions elsewhere in sec. 1701.01 to sec.
1701.98, inclusive, of the Revised Code of Ohio and notwithstanding any
different provisions in the Articles of Incorporation or Code of Regulations
which are not expressly stated to be operative during an emergency. The
emergency by-laws which may be adopted by the Directors under this Section 5 may
make any provision which is consistent with emergency regulations of the
preceding sections of this Article 6 and which may be made by emergency
regulations, as provided in sec. 1701.111, divisions (A) and (B) of the Revised
Code of Ohio.
ARTICLE 7.
AMENDMENTS.
SECTION 1.
Subject to the provisions stated below, this Code of Regulations may be
amended either at any meeting of the shareholders by the affirmative vote of the
holders of record of shares entitling them to exercise a majority of the voting
power on such proposal, or without a meeting by the written consent of the
holders of record of shares entitling them to exercise two-thirds (2/3) of the
voting power on such proposal, provided, however, that in the event this code of
Regulations is amended otherwise than by vote as aforesaid, the Secretary shall
mail a copy of the amendment to each shareholder who would have been entitled to
vote thereon and did not participate in the adoption thereof. Anything in this
Article 7 to the contrary notwithstanding, however, so long as any shares of a
class of stock of the Corporation having the right on certain conditions to
elect Directors representing such class shall be outstanding, no amendment of
the provisions of Section 9 of Article 1 hereof relating to the quorum at
meetings of shareholders, or of Section 4 of Article 2 hereof relating to the
filing of vacancies in the Board of Directors, or of this Article 7, which would
adversely affect the rights or preferences of such class of stock or of
F-12
<PAGE> 239
the holders thereof, shall be made without the affirmative vote of the holders
of at least two-thirds (2/3) of the shares of such class at the time
outstanding.
SECTION 2.
Notwithstanding the provisions of Section 1 of this Article 7 or any other
provisions of the Articles of Incorporation or this Code of Regulations (and
notwithstanding that a lesser percentage may be allowed by law), no alteration,
amendment, addition to or repeal of Sections 1, 2, 3, 4 and 11 of Article 2 or
this Section 2 of Article 7 shall be made except by the affirmative vote of the
holders of not less than eighty percent (80%) of the total voting power of the
Corporation entitled to vote, voting jointly as a single class.
F-13
<PAGE> 240
[GENCORP LOGO]
John B. Yasinsky
Chairman and Chief Executive Officer
July 2, 1999
Dear Shareholder:
Enclosed is GenCorp's Proxy Statement in connection with the special
shareholders meeting scheduled to be held on August 18, 1999. At the meeting,
GenCorp will be seeking approval of the spin-off of its Performance Chemicals
and Decorative & Building Products businesses as a separate publicly traded
company. The Proxy Statement describes in detail both the new company, Omnova
Solutions Inc., and GenCorp Inc. after the spin-off.
As described in the Proxy Statement, the Board is also requesting approval of
various amendments to GenCorp's Articles of Incorporation and Code of
Regulations and approval of the adoption of new Equity and Performance Incentive
Plans for both companies.
Your Board of Directors unanimously recommends that you vote "FOR" adoption of
all four proposals. We believe the spin-off and related proposals will enhance
the ability of both companies to create greater value for shareholders in the
future.
Your vote is important to us. Please take the time to complete and return the
attached proxy card.
Sincerely,
John B. Yasinsky
PLEASE DETACH PROXY CARD HERE
- --------------------------------------------------------------------------------
GENCORP INC.
PROXY FOR HOLDERS OF COMMON STOCK SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints WILLIAM R. PHILLIPS, EDWARD R. DYE and
MICHAEL E. HICKS, and each of them, his proxy, with full power of
P substitution, to vote all shares of common stock of GenCorp Inc. which the
undersigned is entitled to vote at the Special Meeting of Shareholders to
be held at the offices of Jones, Day, Reavis & Pogue, North Point, 901
R Lakeside Avenue, Cleveland, Ohio 44114 on August 18, 1999 and at any
adjournments thereof, and appoints the proxyholders to vote as directed
on the reverse side and in accordance with their judgement on matters
O incident to the conduct of the meeting and any matters of other business
referred to in item 5.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
X SHAREHOLDERS. IF NO DIRECTION IS GIVEN WHEN THE DULY EXECUTED PROXY IS
RETURNED, SUCH SHARES WILL BE VOTED FOR ITEMS 1 THROUGH 4, AND IN
ACCORDANCE WITH THE PROXYHOLDERS' JUDGEMENT ON MATTERS INCIDENT TO THE
Y CONDUCT OF THE MEETING AND ANY MATTERS OF OTHER BUSINESS REFERRED TO IN
ITEM 5. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1 THROUGH 4.
(CONTINUED, AND TO BE SIGNED AND DATED ON OTHER SIDE)
[SEE REVERSE SIDE]
<PAGE> 241
PLEASE DETACH PROXY CARD HERE
- --------------------------------------------------------------------------------
[X] Please mark votes
as in this example.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BELOW.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED AS THE BOARD OF DIRECTORS
RECOMMENDS.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1-4.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
1. Proposal to approve the Distribution. FOR AGAINST ABSTAIN 4.Proposal to adopt the Omnova Solutions FOR AGAINST ABSTAIN
[_] [_] [_] Inc. 1999 Equity and Performance Incentive [_] [_] [_]
Plan.
2. Proposal to amend GenCorp's Articles of FOR AGAINST ABSTAIN
Incorporation and Code of Regulaations. [_] [_] [_] 5.Upon matters incident to the conduct of the
meeting and such other business as may
3. Proposal to adopt the New GenCorp 1999 FOR AGAINST ABSTAIN properly come before the meeting or any
Equity and Performance Incentive Plan [_] [_] [_] adjournments thereof.
</TABLE>
Change of Address and [_]
or Comments Mark Here
Date _________________________, 1999
----------------------------------------
Signature
----------------------------------------
Signature (if held jointly)
IMPORTANT: Please sign your name exactly
as it appears at left. When signing as
attorney, executor, administrator,
trustee, or guardian, give full title as
such. If a corporation, please sign in
full corporate name by President or
other authorized officer. If a
partnership, please sign in full
partnership name by authorized person.
<PAGE> 242
[GENCORP LOGO]
John B. Yasinsky
Chairman and Chief Executive Officer
July 2, 1999
Dear Shareholder:
Enclosed is GenCorp's Proxy Statement in connection with the special
shareholders meeting scheduled to be held on August 18, 1999. At the meeting,
GenCorp will be seeking approval of the spin-off of its Performance Chemicals
and Decorative & Building Products businesses as a separate publicly traded
company. The Proxy Statement describes in detail both the new company, Omnova
Solutions Inc., and GenCorp Inc. after the spin-off.
As described in the Proxy Statement, the Board is also requesting approval of
various amendments to GenCorp's Articles of Incorporation and Code of
Regulations and approval of the adoption of new Equity and Performance Incentive
Plans for both companies.
Your Board of Directors unanimously recommends that you vote "FOR" adoption of
all four proposals. We believe the spin-off and related proposals will enhance
the ability of both companies to create greater value for shareholders in the
future.
Your vote is important to us. Please take the time to complete and return the
attached proxy card.
Sincerely,
John B. Yasinsky
PLEASE DETACH PROXY CARD HERE
- --------------------------------------------------------------------------------
CONFIDENTIAL VOTING INSTRUCTIONS
TO: MELLON BANK, N.A., TRUSTEE FOR THE GENCORP INC.
SAVINGS AND PROFIT SHARING PLANS
YOUR VOTING INSTRUCTIONS ARE SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS OF THE COMPANY
I hereby authorize the Trustee, to vote (or cause to be voted) all shares
P of common stock of GenCorp Inc. which may be allocated to my account in the
GenCorp Stock Fund of the GenCorp Retirement Savings Plan and/or the
GenCorp Profit Sharing Plan at the Special Meeting of Shareholders to be
R held at the offices of Jones, Day Reavis & Pogue, North Point, 901 Lakeside
Avenue, Cleveland, Ohio 44114 on August 18, 1999 and at any adjournments
thereof, and direct the Trustee to vote as instructed below and in
O accordance with its judgement on matters incident to the conduct of the
meeting and any matters of other business referred to in item 5.
THE SHARES REPRESENTED BY THIS VOTING INSTRUCTION FORM WILL BE VOTED AS
X DIRECTED BY THE PLAN PARTICIPANT. IF NO DIRECTION IS GIVEN WHEN THE DULY
EXECUTED VOTING INSTRUCTION FORM IS RETURNED, SUCH SHARES WILL BE VOTED FOR
ITEMS 1 THROUGH 4, AND IN ACCORDANCE WITH THE TRUSTEES' JUDGEMENT ON
Y MATTERS INCIDENT TO THE CONDUCT OF THE MEETING AND ANY MATTERS OF OTHER
BUSINESS REFERRED TO IN ITEM 5.
(CONTINUED, AND TO BE SIGNED AND DATED ON OTHER SIDE)
[SEE REVERSE SIDE]
<PAGE> 243
PLEASE DETACH PROXY CARD HERE
- --------------------------------------------------------------------------------
[X] Please mark votes
as in this example.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BELOW.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED AS THE BOARD OF DIRECTORS
RECOMMENDS.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1-4.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
1. Proposal to approve the Distribution. FOR AGAINST ABSTAIN 4.Proposal to adopt the Omnova Solutions FOR AGAINST ABSTAIN
[_] [_] [_] Inc. 1999 Equity and Performance Incentive [_] [_] [_]
Plan.
2. Proposal to amend GenCorp's Articles of FOR AGAINST ABSTAIN
Incorporation and Code of Regulaations. [_] [_] [_] 5.Upon matters incident to the conduct of the
meeting and such other business as may
3. Proposal to adopt the New GenCorp 1999 FOR AGAINST ABSTAIN properly come before the meeting or any
Equity and Performance Incentive Plan [_] [_] [_] adjournments thereof.
</TABLE>
Change of Address and [_]
or Comments Mark Here
Date _________________________, 1999
----------------------------------------
Signature
IMPORTANT: Please sign your name
exactly as it appears at left. If
GenCorp's proxy solicitor, Georgeson &
Company, the trustee's agent for this
purpose, does not receive voting
instructions from you by the close of
business on August 12, 1999, GenCorp's
Benefits Management Committee will
instruct the trustee to vote the shares
in favor of each of the proposals
specified in items 1 through 4.
<PAGE> 244
[GENCORP LOGO]
John B. Yasinsky
Chairman and Chief Executive Officer
July 2, 1999
Dear Shareholder:
Enclosed is GenCorp's Proxy Statement in connection with the special
shareholders meeting scheduled to be held on August 18, 1999. At the meeting,
GenCorp will be seeking approval of the spin-off of its Performance Chemicals
and Decorative & Building Products businesses as a separate publicly traded
company. The Proxy Statement describes in detail both the new company, Omnova
Solutions Inc., and GenCorp Inc. after the spin-off.
As described in the Proxy Statement, the Board is also requesting approval of
various amendments to GenCorp's Articles of Incorporation and Code of
Regulations and approval of the adoption of new Equity and Performance Incentive
Plans for both companies.
Your Board of Directors unanimously recommends that you vote "FOR" adoption of
all four proposals. We believe the spin-off and related proposals will enhance
the ability of both companies to create greater value for shareholders in the
future.
Your vote is important to us. Please take the time to complete and return the
attached proxy card.
Sincerely,
John B. Yasinsky
PLEASE DETACH PROXY CARD HERE
- --------------------------------------------------------------------------------
CONFIDENTIAL VOTING INSTRUCTIONS
TO: ROYAL TRUST CORPORATION OF CANADA, TRUSTEE FOR THE GENCORP
CANADA INC. SAVINGS PLAN
YOUR VOTING INSTRUCTIONS ARE SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS OF THE COMPANY
I hereby authorize the Trustee, to vote (or cause to be voted) all shares
P of common stock of GenCorp Inc. which may be allocated to my account in the
GenCorp Stock Fund of the GenCorp Canada Inc. Savings Plan at the Special
Meeting of Shareholders to be held at the offices of Jones, Day Reavis &
R Pogue, North Point, 901 Lakeside Avenue, Cleveland, Ohio 44114 on August
18, 1999 and at any adjournments thereof, and direct the Trustee to vote as
instructed below and in accordance with its judgement on matters incident
O to the conduct of the meeting and any matters of other business referred to
in item 5.
X THE SHARES REPRESENTED BY THIS VOTING INSTRUCTION FORM WILL BE VOTED AS
DIRECTED BY THE PLAN PARTICIPANT. IF NO DIRECTION IS GIVEN WHEN THE DULY
EXECUTED VOTING INSTRUCTION FORM IS RETURNED, SUCH SHARES WILL BE VOTED FOR
Y ITEMS 1 THROUGH 4, AND IN ACCORDANCE WITH THE TRUSTEES' JUDGEMENT ON
MATTERS INCIDENT TO THE CONDUCT OF THE MEETING AND ANY MATTERS OF OTHER
BUSINESS REFERRED TO IN ITEM 5.
(CONTINUED, AND TO BE SIGNED AND DATED ON OTHER SIDE)
[SEE REVERSE SIDE]
<PAGE> 245
PLEASE DETACH PROXY CARD HERE
- --------------------------------------------------------------------------------
[X] Please mark votes
as in this example.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BELOW.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED AS THE BOARD OF DIRECTORS
RECOMMENDS.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1-4.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
1. Proposal to approve the Distribution. FOR AGAINST ABSTAIN 4.Proposal to adopt the Omnova Solutions FOR AGAINST ABSTAIN
[_] [_] [_] Inc. 1999 Equity and Performance Incentive [_] [_] [_]
Plan.
2. Proposal to amend GenCorp's Articles of FOR AGAINST ABSTAIN
Incorporation and Code of Regulaations. [_] [_] [_] 5.Upon matters incident to the conduct of the
meeting and such other business as may
3. Proposal to adopt the New GenCorp 1999 FOR AGAINST ABSTAIN properly come before the meeting or any
Equity and Performance Incentive Plan [_] [_] [_] adjournments thereof.
</TABLE>
Change of Address and [_]
or Comments Mark Here
Date _________________________, 1999
----------------------------------------
Signature
IMPORTANT: Please sign your name
exactly as it appears at left. If
GenCorp's proxy solicitor, Georgeson &
Company, the trustee's agent for this
purpose, does not receive voting
instructions from you by the close of
business on August 12, 1999, GenCorp's
Benefits Management Committee will
instruct the trustee to vote the shares
in favor of each of the proposals
specified in items 1 through 4.
<PAGE> 246
[GENCORP LOGO]
John B. Yasinsky
Chairman and Chief Executive Officer
July 2, 1999
Dear Shareholder:
Enclosed is GenCorp's Proxy Statement in connection with the special
shareholders meeting scheduled to be held on August 18, 1999. At the meeting,
GenCorp will be seeking approval of the spin-off of its Performance Chemicals
and Decorative & Building Products businesses as a separate publicly traded
company. The Proxy Statement describes in detail both the new company, Omnova
Solutions Inc., and GenCorp Inc. after the spin-off.
As described in the Proxy Statement, the Board is also requesting approval of
various amendments to GenCorp's Articles of Incorporation and Code of
Regulations and approval of the adoption of new Equity and Performance Incentive
Plans for both companies.
Your Board of Directors unanimously recommends that you vote "FOR" adoption of
all four proposals. We believe the spin-off and related proposals will enhance
the ability of both companies to create greater value for shareholders in the
future.
Your vote is important to us. Please take the time to complete and return the
attached proxy card.
Sincerely,
John B. Yasinsky
PLEASE DETACH PROXY CARD HERE
- --------------------------------------------------------------------------------
CONFIDENTIAL VOTING INSTRUCTIONS
TO: THE TRUSTEE FOR THE GENCORP INC.
STOCK INCENTIVE COMPENSATION PLAN
YOUR VOTING INSTRUCTIONS ARE SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS OF THE COMPANY
I hereby authorize the Trustee, to vote (or cause to be voted) all shares
P of common stock of GenCorp Inc. which may be allocated to my account in the
GenCorp Stock Incentive Compensation Plan Trust at the Special Meeting of
Shareholders to be held at the offices of Jones, Day Reavis & Pogue, North
R Point, 901 Lakeside Avenue, Cleveland, Ohio 44114 on August 18, 1999 and at
any adjournments thereof, and direct the Trustee to vote as instructed
below and in accordance with its judgement on matters incident to the
O conduct of the meeting and any matters of other business referred to in
item 5.
THE SHARES REPRESENTED BY THIS VOTING INSTRUCTION FORM WILL BE VOTED AS
X DIRECTED BY THE PLAN PARTICIPANT. IF NO DIRECTION IS GIVEN WHEN THE DULY
EXECUTED VOTING INSTRUCTION FORM IS RETURNED, SUCH SHARES WILL BE VOTED FOR
ITEMS 1 THROUGH 4, AND IN ACCORDANCE WITH THE TRUSTEES' JUDGEMENT ON
Y MATTERS INCIDENT TO THE CONDUCT OF THE MEETING AND ANY MATTERS OF OTHER
BUSINESS REFERRED TO IN ITEM 5.
(CONTINUED, AND TO BE SIGNED AND DATED ON OTHER SIDE)
[SEE REVERSE SIDE]
<PAGE> 247
PLEASE DETACH PROXY CARD HERE
- --------------------------------------------------------------------------------
[X] Please mark votes
as in this example.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BELOW.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED AS THE BOARD OF DIRECTORS
RECOMMENDS.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1-4.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
1. Proposal to approve the Distribution. FOR AGAINST ABSTAIN 4.Proposal to adopt the Omnova Solutions FOR AGAINST ABSTAIN
[_] [_] [_] Inc. 1999 Equity and Performance Incentive [_] [_] [_]
Plan.
2. Proposal to amend GenCorp's Articles of FOR AGAINST ABSTAIN
Incorporation and Code of Regulaations. [_] [_] [_] 5.Upon matters incident to the conduct of the
meeting and such other business as may
3. Proposal to adopt the New GenCorp 1999 FOR AGAINST ABSTAIN properly come before the meeting or any
Equity and Performance Incentive Plan [_] [_] [_] adjournments thereof.
</TABLE>
Change of Address and [_]
or Comments Mark Here
Date _________________________, 1999
----------------------------------------
Signature
IMPORTANT: Please sign your name
exactly as it appears at left. If
GenCorp's proxy solicitor, Georgeson &
Company, the trustee's agent for this
purpose, does not receive voting
instructions from you by the close of
business on August 12, 1999, GenCorp's
Benefits Management Committee will
instruct the trustee to vote the shares
in favor of each of the proposals
specified in items 1 through 4.
