<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ..... to .....
Commission File Number 1-5263
THE LUBRIZOL CORPORATION
(Exact name of registrant as specified in its charter)
Ohio 34-0367600
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
29400 Lakeland Boulevard
Wickliffe, Ohio 44092-2298
(Address of principal executive offices)
(Zip Code)
(440) 943-4200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Number of the registrant's common shares, without par value, outstanding, as of
October 29, 1999: 54,609,821.
<PAGE> 2
PART I. FINANCIAL INFORMATION
-----------------------------
Item 1 Financial Statements
---------------------------
THE LUBRIZOL CORPORATION
========================
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------------------------
September 30 December 31
(In Thousands of Dollars) 1999 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
- ------
Cash and short-term investments ....................... $ 163,767 $ 53,639
Receivables ........................................... 314,991 301,644
Inventories:
Finished products ................................... 115,318 112,060
Products in process ................................. 56,644 66,485
Raw materials ....................................... 67,135 80,134
Supplies and engine test parts ...................... 17,687 18,933
----------- -----------
256,784 277,612
----------- -----------
Other current assets .................................. 27,632 54,575
----------- -----------
Total current assets .............. 763,174 687,470
Property and equipment - net .......................... 683,831 718,850
Goodwill and intangible assets - net .................. 155,512 166,957
Investments in nonconsolidated companies .............. 29,871 26,490
Other assets .......................................... 41,890 43,470
----------- -----------
TOTAL ........................ $ 1,674,278 $ 1,643,237
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Short-term debt and current portion of long-term debt . $ 17,027 $ 38,926
Accounts payable ...................................... 121,258 112,832
Accrued expenses and other current liabilities ........ 139,266 118,270
----------- -----------
Total current liabilities ......... 277,551 270,028
Long-term debt ........................................ 389,714 390,394
Postretirement health care obligation ................. 107,294 106,641
Noncurrent liabilities ................................ 46,864 48,950
Deferred income taxes ................................. 53,922 58,106
----------- -----------
Total liabilities ................. 875,345 874,119
----------- -----------
Contingencies and commitments
Shareholders' equity:
Preferred stock without par value - authorized
and unissued:
Serial Preferred Stock - 2,000,000 shares
Serial Preference Shares - 25,000,000 shares
Common Shares without par value:
Authorized 120,000,000 shares
Outstanding - 54,609,821 shares as of September 30,
1999 after deducting 31,586,073 treasury
shares, 54,548,110 shares as of December 31,
1998 after deducting 31,647,784 treasury shares . 86,073 84,651
Retained earnings ................................... 756,970 709,994
Accumulated other comprehensive income (loss) ...... (44,110) (25,527)
----------- -----------
Total shareholders' equity ........ 798,933 769,118
----------- -----------
TOTAL ........................ $ 1,674,278 $ 1,643,237
=========== ===========
</TABLE>
Amounts shown are unaudited.
-2-
<PAGE> 3
THE LUBRIZOL CORPORATION
========================
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
- -------------------------------------------------------------------------------------------------------
Third Quarter Nine Months
Ended September 30 Ended September 30
--------------------------------------------------------------
(In Thousands Except Per Share Data) 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales .......................... $ 431,978 $ 403,262 $ 1,311,734 $ 1,208,322
Royalties and other revenues ....... 1,251 782 3,225 2,054
----------- ----------- ----------- -----------
Total revenues ........... 433,229 404,044 1,314,959 1,210,376
Cost of sales ...................... 295,366 283,010 895,525 839,062
Selling and administrative expenses 43,854 45,042 136,376 130,062
Research, testing and development
expenses ......................... 34,753 40,328 107,251 110,700
----------- ----------- ----------- -----------
Total cost and expenses .. 373,973 368,380 1,139,152 1,079,824
Gain from litigation settlement .... 14,476 16,201
Special charges .................... (20,767) (23,903)
Other income (expense) - net ....... (2,398) (1,714) (5,666) (51)
Interest income .................... 2,433 1,272 5,235 4,003
Interest expense ................... (8,066) (5,447) (22,490) (12,385)
----------- ----------- ----------- -----------
Income before income taxes ......... 30,458 29,775 143,459 138,320
Provision for income taxes ......... 10,046 13,161 53,925 52,075
----------- ----------- ----------- -----------
Net income ......................... $ 20,412 $ 16,614 $ 89,534 $ 86,245
=========== =========== =========== ===========
Net income per share ............... $ 0.37 $ 0.30 $ 1.64 $ 1.53
=========== =========== =========== ===========
Net income per share, diluted ...... $ 0.37 $ 0.30 $ 1.64 $ 1.53
=========== =========== =========== ===========
Dividends per share ................ $ 0.26 $ 0.26 $ 0.78 $ 0.78
=========== =========== =========== ===========
Average common shares outstanding .. 54,607 55,625 54,573 56,265
</TABLE>
Amounts shown are unaudited.
-3-
<PAGE> 4
THE LUBRIZOL CORPORATION
========================
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------------------
Nine Months Ended
September 30
-------------------------
(In Thousands of Dollars) 1999 1998
- ----------------------------------------------------------------------------------
<S> <C> <C>
Cash provided from (used for):
Operating activities:
Net income ......................................... $ 89,534 $ 86,245
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization .................. 72,462 66,944
Deferred income taxes .......................... 2,489 4,678
Special charges ................................ 23,903
Change in current assets and liabilities:
Receivables .................................. (19,824) (6,609)
Inventories .................................. 16,807 (12,871)
Accounts payable and accrued expenses ........ 18,620 (31,387)
Other current assets ......................... 21,524 3,765
Other items - net .............................. (53) (610)
--------- ---------
Total operating activities ............... 225,462 110,155
Investing activities:
Capital expenditures ............................. (47,572) (68,320)
Acquisitions and investments in nonconsolidated
companies ...................................... (149,485)
Other - net ...................................... 830 2,493
--------- ---------
Total investing activities ............... (46,742) (215,312)
Financing activities:
Short-term borrowing (repayment) ................ (22,974) 183,516
Long-term borrowing .............................. 5,000 2,762
Long-term repayments ............................. (5,037) (2,147)
Dividends paid ................................... (42,558) (43,924)
Common shares (purchased) net of options exercised 1,422 (56,267)
--------- ---------
Total financing activities ............... (64,147) 83,940
Effect of exchange rate changes on cash ............ (4,445) 197
--------- ---------
Net increase (decrease) in cash and short-term
investments ...................................... 110,128 (21,020)
Cash and short-term investments at the beginning
of period ........................................ 53,639 86,504
--------- ---------
Cash and short-term investments at end of period ... $ 163,767 $ 65,484
========= =========
</TABLE>
Amounts shown are unaudited.
-4-
<PAGE> 5
THE LUBRIZOL CORPORATION
========================
Notes to Consolidated Financial Statements
------------------------------------------
September 30, 1999
1. The accompanying unaudited consolidated financial statements contain all
adjustments (consisting only of normal recurring accruals) necessary to
present fairly the financial position as of September 30, 1999 and December
31, 1998, and the results of operations and cash flows for the applicable
periods ended September 30, 1999 and 1998.
2. Net income per share is computed by dividing net income by average common
shares outstanding during the period. Net income per share, diluted,
includes the dilution effect resulting from outstanding stock options and
stock awards.
Per share amounts are computed as follows:
Three Months Ended Nine Months Ended
September 30 September 30
------------------- ------------------
1999 1998 1999 1998
---- ---- ---- ----
Numerator:
Net income available to
common shares $20,412 $16,614 $89,534 $86,245
======= ======= ======= =======
Denominator:
Weighted average common
shares outstanding 54,607 55,625 54,573 56,265
Dilutive effect of stock
options and awards 169 68 132 219
------- ------- ------- -------
Denominator for net income
per share, diluted 54,776 55,693 54,705 56,484
======= ======= ======= =======
Net income per share $ .37 $ .30 $ 1.64 $ 1.53
======= ======= ======= =======
Net income per share,
diluted $ .37 $ .30 $ 1.64 $ 1.53
======= ======= ======= =======
3. Total comprehensive income for the three- and nine-month periods ended
September 30, 1999 and 1998 is comprised as follows:
Three Months Ended Nine Months Ended
September 30 September 30
--------------------- ----------------------
1999 1998 1999 1998
---- ---- ---- ----
Net income $ 20,412 $ 16,614 $ 89,534 $ 86,245
Other comprehensive
income(loss) 10,335 16,964 (18,583) 13,465
-------- -------- -------- --------
Total comprehensive
income $ 30,747 $ 33,578 $ 70,951 $ 99,710
======== ======== ======== ========
Other comprehensive income(loss) in each of the periods above is solely
comprised of foreign currency translation adjustments, net of related tax
effects.
5
<PAGE> 6
THE LUBRIZOL CORPORATION
========================
Notes to Consolidated Financial Statements
------------------------------------------
September 30, 1999
4. The company recorded a special charge of $23.3 million in the fourth
quarter of 1998 related to the first phase of its cost reduction program.
In the first quarter of 1999, the company recognized additional expense of
$3.1 million, to reflect a greater amount for separation benefits,
principally in Japan. This first phase resulted in a reduction of
approximately 300 employees, most of whom were entitled to special
severance benefit payments with the remaining positions eliminated through
attrition. Substantially all the affected employees had terminated
employment as of September 30, 1999. The special charge, as adjusted, also
included $2.0 million for the impairment of assets related to production
units to be taken out of service. These units were permanently removed from
service during the first quarter of 1999. Cash expenditures related to the
cost reduction program of approximately $5.0 million and $17.3 million were
made in the fourth quarter of 1998 and first nine months of 1999,
respectively. Approximately $2.1 million remains as an accrued liability at
September 30, 1999, representing cash relating to severance and other
payments yet to be made in 1999.
The company recorded a special charge of $20.8 million in the third quarter
of 1999 relating to the second phase of its cost reduction program, which
focuses on lowering costs and improving efficiency in production and
distribution activities. As part of this plan, the company's Painesville,
Ohio, manufacturing plant will be reduced in size from 36 to 13 production
systems between the third quarter of 1999 and the latter part of 2000, with
most of this production to be transferred to the company's Deer Park,
Texas, facility. Staff reductions of approximately 200 employees will occur
by the end of 2000, through a combination of early retirements and
voluntary and involuntary separations. The special charge consists of
employee termination benefits and other exit costs of $11.9 million and an
asset impairment of $8.9 million. The impairment loss represents the
difference between book value of equipment and fair value as measured by
the estimated net present value of cash flow from the sale of affected
products through the system shutdown dates. Through September 30, 1999, the
company has shut down 5 of the 23 targeted production systems, separated
approximately 8% of the employees and made cash payments of $.3 million. In
order to achieve operational savings, the company will spend approximately
$8 million of capital to replace existing Painesville capacity. Annual
savings from the Painesville plant reductions are estimated to be $20
million by the latter part of 2000. After restructuring, the Painesville
plant will continue to operate as a producer of smaller volume specialized
intermediates and blender of certain additive packages.
5. The company has filed claims against Exxon Corporation and/or its
affiliates relating to various commercial matters, including alleged
infringements by Exxon of certain of the company's patents.
On March 31, 1999, the company and Exxon Corporation reached a settlement
of all pending intellectual property litigation between the two companies
and their affiliates, except for litigation pending in Canada. Under the
settlement agreement, Exxon paid the company cash of $16.8 million in April
1999. After deducting related expenses, this settlement increased pre-tax
income by $14.5 million for the three-month period ended March 31, 1999 and
the nine months ended September 30, 1999.
6
<PAGE> 7
THE LUBRIZOL CORPORATION
========================
Notes to Consolidated Financial Statements
------------------------------------------
September 30, 1999
The company has prevailed in a case brought in Canada against Exxon's
Canadian affiliate, Imperial Oil, Ltd., for infringement of the company's
patent pertaining to dispersants, the largest additive component used in
motor oils. A 1990 trial court verdict in favor of the company regarding
the issue of liability was upheld by the Federal Court of Appeals of Canada
in December 1992, and in October 1993, the Supreme Court of Canada
dismissed Imperial Oil's appeal of the Court of Appeals' decision. The case
has been returned to the trial court for an assessment of compensation
damages, but no date has been set for a determination of such damages. In
October 1994, the trial court judge determined that Imperial Oil had
violated an earlier injunction for the manufacture or sale of the
dispersant that is the subject of this case. The determination of penalty
damages, if any, on account of this violation will be made after the court
has determined the compensation damages for patent infringement. A
reasonable estimation of the company's potential recovery relating to this
litigation can not be made at this time, and no amounts that may be
recovered in the future have been recorded in the company's financial
statements as of September 30, 1999.
On April 23, 1998, the company reached a settlement with Exxon of a lawsuit
pending in federal court in Ohio and received cash of $19 million. After
deducting related expenses, this settlement increased pre-tax income by
$16.2 million for the nine-month period ended September 30, 1998.
6. At December 31, 1998, the company adopted Statement of Financial Standards
(SFAS) 131, "Disclosures about Segments of an Enterprise and Related
Information". This statement establishes standards for reporting
information about operating segments and related disclosures about products
and services, geographic areas and major customers. The company aggregates
its product lines into two principal operating segments: chemicals for
transportation and chemicals for industry. The company evaluates
performance and allocates resources based on segment contribution income,
defined as revenues less expenses directly identifiable to the product
lines aggregated within each segment. In addition, the company allocates
corporate research, testing, selling and administrative expenses in
arriving at segment operating profit before tax.
7
<PAGE> 8
THE LUBRIZOL CORPORATION
========================
Notes to Consolidated Financial Statements
September 30, 1999
The following table presents a summary of the company's reportable segments
for the three and nine months ended September 30, 1999 and 1998 on a basis
of segmentation and on a basis of measurement of segment contribution
income consistent with the previous year end:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
---------------------------- ----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue from external customers:
Chemicals for transportation $ 359,030 $ 334,634 $ 1,094,914 $ 1,021,393
Chemicals for industry 74,199 69,410 220,045 188,983
----------- ----------- ----------- -----------
Total revenues $ 433,229 $ 404,044 $ 1,314,959 $ 1,210,376
=========== =========== =========== ===========
Segment contribution income:
Chemicals for transportation $ 78,417 $ 53,715 $ 236,832 $ 192,682
Chemicals for industry 10,003 9,630 30,380 27,399
----------- ----------- ----------- -----------
Total segment contribution
income $ 88,420 $ 63,345 $ 267,212 $ 220,081
=========== =========== =========== ===========
Segment operating profit before tax:
Chemicals for transportation $ 50,282 $ 27,119 $ 150,300 $ 111,648
Chemicals for industry 6,576 6,831 19,841 18,853
----------- ----------- ----------- -----------
Total segment operating
profit before tax 56,858 33,950 170,141 130,501
Gain from litigation settlement 14,476 16,201
Special charge (20,767) (23,903)
Interest expense - net (5,633) (4,175) (17,255) (8,382)
----------- ----------- ----------- -----------
Consolidated income before tax $ 30,458 $ 29,775 $ 143,459 $ 138,320
=========== =========== =========== ===========
</TABLE>
7. In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
133, Accounting for Derivative Instruments and Hedging Activities, which
was to become effective for the company no later than January 1, 2000. In
June 1999, the FASB issued SFAS 137 which delayed the required effective
date for the company until January 1, 2001. SFAS 133 establishes accounting
and reporting standards for derivative instruments and hedging activities.
It requires that all derivatives be measured at fair value and recognized
as either assets or liabilities in the balance sheet. The accounting for
changes in the fair value of a derivative (that is, gains or losses)
depends on the intended use of the derivative and its resulting hedge
designation. The company uses derivative financial instruments only to
manage well-defined foreign currency and interest rate risks. The company
does not use derivative financial instruments for trading purposes. The
company is currently evaluating the requirements and effects of SFAS 133,
but has not yet determined the impact on its financial position and results
of operations when adopted.
8
<PAGE> 9
THE LUBRIZOL CORPORATION
========================
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
Consolidated revenues increased 7% in the third quarter and 9% for the nine
months compared with 1998, primarily as a result of acquisitions and higher
lubricant additive shipment levels in North America and Asia Pacific. The
company also benefited from lower costs and expenses, partially offset, during
the first half of the year, by lower average selling prices. The company
recorded a pre-tax special charge of $20.8 million for the previously announced
downsizing of its Painesville, Ohio production facility. Even after the special
charge, third quarter and year-to-date net income increased 23% and 4%,
respectively, compared with 1998. Excluding the special charge and litigation
settlement gains in the first half of both years, earnings per share increased
103% for the third quarter and 32% for the nine months, compared to 1998.
Detailed comments relating to the company's results of operation and financial
position follow below.
The company groups its product lines into two operating segments: chemicals for
transportation and chemicals for industry. Chemicals for transportation
comprises the predominant portion of the company's consolidated revenues and
segment pretax operating profits. This discussion and analysis of the company's
financial condition and results of operations is primarily focused upon the
company as a whole, rather than the individual operating segments, since the
company believes this provides the most appropriate understanding of its
business. See Note 6 to the financial statements for further financial
disclosures by operating segment.
Consolidated revenues increased $29.2 million or 7% for the third quarter of
1999 compared with the third quarter of 1998, and increased $104.6 million or 9%
for the nine months of 1999 compared with 1998. On a year-to-year comparative
basis, chemicals for transportation revenues increased $24.4 million, or 7%, for
the third quarter and $73.5 million, or 7%, for the nine months. On a similar
basis, chemicals for industry revenues increased $4.8 million, or 7%, for the
third quarter and $31.1 million, or 16%, for the nine months. Acquisitions
accounted for $9.8 million, or two percentage points, of the consolidated
revenue increase in the third quarter and $76.4 million, or six percentage
points, of the nine-month increase, which primarily reflects the acquisitions of
Adibis and Carroll Scientific during the summer of 1998.
Sales volume increased 7% in the third quarter (4% excluding acquisitions) and
10% for the nine months (4% excluding acquisitions) compared with 1998. North
American shipments increased 9% for the quarter and 12% for the nine months, as
the region's results benefited from new business awarded in the second half of
1998 and some spot business in 1999. Shipments to international customers
increased 5% for the third quarter and 8% for the nine months compared with
1998, principally because of acquisitions. Excluding acquisitions, international
volume for the quarter was up 1% and volume for the nine months decreased 1%.
Year-to-date shipments in Asia Pacific, excluding acquisitions, increased 16%
compared to 1998 due partly to the order pattern of a particular customer, but
also to economic improvement in the region. Year-to-date volume in Europe and
Latin America, excluding acquisitions, decreased 7% and 9% respectively in each
region, due primarily to sluggish economies, with some business loss.
9
<PAGE> 10
THE LUBRIZOL CORPORATION
========================
Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
Average additive selling price for the third quarter of 1999 was flat with last
year's third quarter, and for the nine months of 1999 declined 3% compared with
1998, caused primarily by weaker product mix and lower pricing.
Cost of sales for the three and nine-month periods ended September 30, 1999
increased 4% and 7%, respectively, reflecting the increase in shipment levels
between the periods, partially offset by lower average raw material costs as
compared to 1998. However, on a sequential basis, the company has experienced a
4% increase in average raw material costs between the second and third quarters
of 1999 and anticipates a further 3 to 4 percent increase from September to the
end of the year as a result of higher crude oil pricing and its downstream
effect. In November, 1999, the company announced a global price increase to
recover its higher raw material costs, effective December 15, 1999, for the
majority of markets and January 15, 2000, for the remainder. The increase is not
expected to have a significant impact on 1999 revenues. Plant manufacturing
expenses for the nine months, excluding acquisitions, were 1% higher than last
year.
Gross profit (sales less cost of sales) increased $16.4 million or 14% for the
third quarter of 1999, and $46.9 million or 13% for the first nine months of
1999, compared with the same periods in 1998. Approximately $2 million of the
increase in the third quarter and one-third of the increase for the nine months
was due to acquisitions, and approximately 20% in each period was due to
currency effects. The remaining increase was due to higher volume and lower
first half material costs offset, with respect to the nine-month period, by
lower average selling prices. These factors caused the gross profit percentage
(gross profit divided by net sales) to be 31.6% in the third quarter of 1999 and
31.7% for the nine months, compared with 29.8% and 30.6% in the respective
periods of 1998.
Selling and administrative expenses decreased 3% (4% excluding acquisitions) for
the third quarter of 1999 compared with 1998, and increased 5% (flat excluding
acquisitions) for the nine months of 1999 compared with 1998. For the third
quarter, accruals for higher variable performance pay, based on better 1999
results, were offset by lower information technology-related expenses, as the
European phase of the Company's new enterprise-wide management information
system was completed in the second quarter, and by cost reductions at acquired
businesses. For the nine months, the increase was primarily due to the accrual
of higher variable performance pay, system-related expenses in connection with
the implementation of the new enterprise-wide management information system, and
year-2000 compliance efforts during the first half of the year, partially offset
by lower legal expenses and favorable currency effects.
Research, testing and development expenses (technology expenses) decreased 14%
for the third quarter and 3% for the nine months of 1999 compared with the same
periods of 1998. Excluding acquisitions, technology expenses decreased 15% in
the third quarter and 6% for the nine months. The company was able to reduce
spending during the second and third quarters of 1999 for engine tests conducted
at third party facilities to meet performance specifications. In addition, an
industry delay in the effective date of the U.S. passenger car motor oil
technical standard, GF-3, has resulted in a deferral of the related testing
activities. This delay, along with savings generated from the first phase of the
company's cost reduction program implemented late in 1998, has resulted in lower
technical expense in 1999 compared with 1998. The company intends to carefully
manage the impact of the delay on year 2000 testing expenses.
10
<PAGE> 11
THE LUBRIZOL CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
Primarily as a result of the above factors, 1999 third quarter revenues
increased by $23.6 million more than the increase in total cost and expenses,
and 1999 nine month revenues increased $45.3 more than the increase in total
cost and expenses, in each case as compared to 1998.
The change in other income negatively affected pre-tax income by $.7 million for
the third quarter and by $5.6 million for the nine months of 1999 compared with
1998. The unfavorable change for the nine months was due primarily to higher
amortization of goodwill relating to acquisitions made in the second half of
1998 and higher currency translation and transaction losses, principally in
Brazil, which was partially offset by higher equity earnings of affiliated
companies.
Interest expense (net of interest income) increased $1.5 million for the third
quarter and $8.9 million for the nine months principally because of higher
borrowings necessitated by the acquisitions made during the second half of 1998.
On March 31, 1999, the company and Exxon Corporation reached a settlement of all
pending intellectual property litigation between the two companies and their
affiliates, except for litigation pending in Canada. Under the settlement
agreement, Exxon paid the company cash of $16.8 million in April 1999. After
deducting related expenses, this settlement increased pre-tax income by $14.5
million ($9.0 million after-tax or $.16 per share) for the three months ended
March 31, 1999, and the nine months ended September 30, 1999. Refer to Note 5 to
the financial statements for further discussion regarding the company's
litigation with Exxon.
In the first quarter of 1999, the company recognized additional expense of $3.1
million ($2.9 million after-tax or $.05 per share), to reflect an additional
amount for separation benefits, principally in Japan, under its cost reduction
program originally announced and recognized in the fourth quarter of 1998. For
further information, see the caption "Cost Reduction Program" below and Note 4
to the financial statements.
In the third quarter of 1999, the company recorded a special charge of $20.8
million relating to the restructuring of its Painesville, Ohio manufacturing
plant, as more fully described in Note 4 to the financial statements and the
Cost Reduction Programs section of this management's discussion and analysis.
After tax, the special charge reduced net income by $12.9 million, or $.24 per
share.
The company's effective tax rate (ETR) for the nine months ended September 30
was 37.6% in both 1999 and 1998. On an operating basis, excluding the special
charges and the litigation settlement gains in both periods, the ETR was 37.0%
in 1999 (which is the company's anticipated rate for the full year) compared
with 38.0% in 1998 (which was the final rate for that full year). The reduction
in the ETR is due to improvement in the profitability of certain foreign
subsidiaries with loss carryforwards.
For the third quarter, the company's ETR was 33.0% in 1999 (35.0% excluding the
special charge) compared with 44.2% in 1998. The difference in quarterly rates
is due to adjustments required in each period to state the year-to-date ETR at
the expected full-year rate (in the case of 1999, adjusting from a six-month
rate excluding special items of 38.0% to an annual rate of 37.0%, and in the
case of 1998, adjusting from a six-month rate excluding special items of 36.0%
to an annual rate of 38.0%).
11
<PAGE> 12
THE LUBRIZOL CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
Primarily as a result of the above factors, net income for the third quarter of
1999 was $20.4 million or $.37 per share as compared to $16.6 million or $.30
per share for the third quarter of 1998. For the first nine months of 1999, net
income was $89.5 million or $1.64 per share as compared to $86.2 million or
$1.53 per share for the nine months of 1998. After excluding from 1999 the
special charges and the first quarter gain from the litigation settlement, and
after excluding from 1998 the second quarter litigation settlement, net income
in the third quarter of 1999 was $33.3 million ($.61 per share) compared to
$16.6 million ($.30 per share) in the third quarter of 1998; and net income for
the nine months of 1999 was $96.3 million ($1.77 per share) compared to $75.7
million ($1.34 per share) for the nine months of 1998.
WORKING CAPITAL, LIQUIDITY AND CAPITAL RESOURCES
- ------------------------------------------------
Cash provided from operating activities was $225.5 million for the nine months
of 1999 compared with $110.2 million for the nine months of 1998. The
improvement in cash flow from operations was principally attributable to a $37
million reduction in working capital in 1999 compared to $47 million growth in
working capital in 1998, and higher earnings before special charges. The
reduction in working capital resulted from lower inventories, which was a 1999
company initiative, and higher current liabilities. The company expects much
lower cash flow from operating activities during the fourth quarter because
slightly higher inventory levels to meet potential Y2K-driven customer demand
and seasonal payment patterns of current liabilities are expected to largely
offset cash flow from fourth quarter earnings.
Capital expenditures in the first nine months of 1999 were $47.6 million
compared with $68.3 million for same 1998 period. The reduction was due to lower
spending on manufacturing projects and reduced spending on the enterprise-wide
management information system. The company estimates capital spending for the
full year 1999 will be approximately $65 to $70 million, compared with $93.4
million in 1998.
The company expended $149.5 million in cash for four acquisitions during the
first nine months of 1998. The acquisitions were in the company's lubricant and
fuel additives area of the chemicals for transportation segment, and the
metalworking additives and coating additives areas of the chemicals for industry
operating segment. No acquisitions have been made through the first nine months
of 1999.
In prior years the company maintained an active share repurchase program.
However, the company did not repurchase any shares during the first nine months
of 1999 and does not anticipate making share repurchases during the remainder of
1999.
The increase in cash flow from operating activities, and the absence of share
repurchases, enabled the company to reduce its borrowings by $23.0 million
during the nine months ended September 30, 1999. The company's net debt as a
percent of total capitalization (shareholders' equity plus net short- and
long-term debt) decreased from 35% at December 31, 1998 to 26% at September 30,
1999 because of the strong cash flow. Net debt is the total of short- and
long-term debt, reduced by cash and short-term investments in excess of an
assumed operating cash level of $40 million.
Primarily as a result of these activities and the payment of dividends, the
balance of cash and short-term investments increased $110.1 million at September
30, 1999 compared with December 31, 1998.
12
<PAGE> 13
THE LUBRIZOL CORPORATION
========================
Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
The company's financial position remains strong with a ratio of current assets
to current liabilities of 2.7 to 1 at September 30, 1999 compared with a ratio
of 2.5 to 1 at December 31, 1998. The company had $300 million in available
committed revolving credit facilities at December 31, 1998, of which half
expired on June 30, 1999. The other half, which remains unused, expires June 30,
2003. The company did not renew the $150 million in facilities which expired
because the November 1998 issuance of $200 million in long-term notes reduced
the company's expected financial requirements. The company believes its current
credit facilities, internally generated funds and ability to obtain additional
financing will be sufficient to meet its future spending needs.
COST REDUCTION PROGRAMS
- -----------------------
The company initiated a program in 1998 to reduce costs and improve its
worldwide operating structure. The first phase, which began in the fourth
quarter of 1998, has resulted in employee reductions of approximately 7%, or 300
employees at both domestic and international locations. Approximately 55% of the
employee reductions occurred by December 31, 1998, a further 35% occurred in the
first quarter of 1999, and the remainder has substantially been completed by
September 30, 1999. The company estimates these actions will lower future
operating costs by an annualized amount of $28 million, of which approximately
$17 million of cost savings has been realized through September 30, 1999.
The second phase, which began in the third quarter of 1999 and involves
primarily the downsizing of the company's Painesville, Ohio manufacturing plant,
will result in employee reductions of an additional 200 employees, or
approximately 5% of the company's workforce, and the shutdown of 23 of
Painesville's 36 production systems. Through September 30, 1999, the company has
shut down 5 of the 23 targeted production systems and separated approximately 8%
of the employees. Annualized savings of $20 million are expected by the latter
part of 2000; savings thus far from the second phase are minimal. The company
will spend approximately $8 million of capital, in the U.S., to replace existing
Painesville capacity. After restructuring, the Painesville plant will continue
to operate as a production of smaller volume specialized intermediates and
blender of certain additive packages.
Refer to Note 4 to the financial statements for further information regarding
the cost reduction program.
YEAR 2000 MATTERS
- -----------------
THIS IS A YEAR 2000 READINESS DISCLOSURE UNDER THE YEAR 2000 INFORMATION
AND READINESS DISCLOSURE ACT, P.L. 105-271
The company relies on its computer-based management information systems, as well
as computer-based systems used for other purposes, in conducting its normal
business activities. Certain of these computer-based programs may not have been
designed to function properly with respect to the application of dating systems
relating to the Year 2000 and beyond.
13
<PAGE> 14
THE LUBRIZOL CORPORATION
========================
Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
The company has developed a global Year 2000 strategy covering each of its
facilities designed to minimize Year 2000 disruptions to its computer-based
systems, including business information systems and process control, testing and
laboratory equipment and embedded systems. The Year 2000 project manager
regularly updates the company's senior management as to the implementation
status of the Year 2000 strategy, and periodic reviews are conducted with the
company's Audit Committee and Board of Directors. The company believes that its
computer-based systems will be functional and operate without significant
disruption both before and after January 1, 2000.
The company's Year 2000 compliance strategy incorporates the conversion of most
of its business information systems from mainframe systems to compliant,
client/server systems. The company believes that implementation of such systems
has permitted it to avoid approximately 80% of the effort that otherwise would
have been required to make these legacy systems Year 2000 compliant. This
conversion process is part of the company's global enterprise-wide management
information system, which was implemented in the United States during 1998 and
implemented in Europe in April 1999. Although the implementation date for the
global enterprise-wide management system at a number of company facilities
outside of the United States and Europe is anticipated to be after January 1,
2000, the company has developed Year 2000 compliance plans to address business
information systems at each of those facilities.
The company estimates approximately 20% of the total remediation effort is
attributable to activities not related to the global enterprise-wide management
information system discussed above. Based upon the effort expended through
October 31, 1999, the company believes it has completed greater than 96% of the
desired remediation activities that are in addition to its progress on the
enterprise-wide management information systems. The company has completed its
assessment of the actions necessary with respect to all of its other date-based
computer systems in order to minimize Year 2000-related disruptions. The
remediation, testing and certification of such systems at each site and the
development of final contingency plans is substantially finished.
Through September 30, 1999, the company incurred costs of approximately $73
million related to the implementation of its global enterprise-wide management
information systems, of which approximately $52 million was capitalized and $21
million expensed. The company estimates additional costs in 1999 and 2000 of
approximately $3 million. In addition, the company estimates the total costs for
conducting its Year 2000 remedial activities not addressed by the global
enterprise-wide management information system at no more than $7 million. The
company has expended approximately $5.7 million for these activities through
September 30, 1999, including $3.7 million in 1999.
14
<PAGE> 15
THE LUBRIZOL CORPORATION
========================
Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
The company continues to survey suppliers critical to its business for the
purpose of obtaining assurance regarding their ability to properly operate their
systems in the Year 2000. Based on this process, the company believes its
ability to obtain critical materials will not be significantly affected by its
suppliers' Year 2000 situations. The company has also been surveying significant
customers to determine Year 2000 readiness. However, the company has no
contractual or other right to compel its suppliers or customers to be Year 2000
compliant.
The company has developed contingency plans in the event any of its critical
suppliers or significant customers should incur Year 2000 failures in their
systems that would cause a disruption in the company's ability to conduct
business. Some of the areas addressed in these plans include increased staffing,
higher carrying levels of inventory for critical materials, components and
finished goods and alternate suppliers for critical raw materials. The company's
view of a "reasonably likely worst case scenario" would entail the temporary
shutdown of a production unit at one or more of the company's major
manufacturing sites. Although the company does not anticipate such a scenario
will occur, if it were to occur, the company believes it would be able to
correct the problem in a timely fashion, alternatively source the production or
satisfy the customer demand from existing inventory. If the company's
contingency plans are not adequate or its suppliers or customers fail to remedy
their own Year 2000 matters, the company's results of operations and financial
condition may be materially adversely affected.
CAUTIONARY STATEMENT FOR SAFE HARBOR PURPOSES
- ---------------------------------------------
This Management's Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) contains forward-looking statements within the meaning of the
federal securities laws. As a general matter, forward-looking statements are
those focused upon future plans, objectives or performance as opposed to
historical items and include statements of anticipated events or trends and
expectations and beliefs relating to matters not historical in nature. Such
forward-looking statements are subject to uncertainties and factors relating to
the company's operations and business environment, all of which are difficult to
predict and many of which are beyond the control of the company. Such
uncertainties and factors could cause actual results of the company to differ
materially from those matters expressed in or implied by such forward-looking
statements. The company identified certain, but not necessarily all, of these
uncertainties and factors in its MD&A contained on pages 18 and 19 of its 1998
Annual Report to its shareholders, to which reference is made and which are
incorporated by reference herein.
15
<PAGE> 16
THE LUBRIZOL CORPORATION
========================
Item 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
The company operates manufacturing and blending facilities,
laboratories and offices around the world and utilizes fixed and
floating rate debt to finance its global operations. As a result,
the company is subject to business risks inherent in non-U.S.
activities, including political and economic uncertainty, import
and export limitations, and market risk related to changes in
interest rates and foreign currency exchange rates. The company
believes the political and economic risks related to its foreign
operations are mitigated due to the stability of the countries in
which its largest foreign operations are located.
In the normal course of business, the company uses derivative
financial instruments including interest rate swaps and foreign
currency forward exchange contracts to manage its market risks.
The company's objective in managing its exposure to changes in
interest rates is to limit the impact of such changes on earnings
and cash flow and to lower its overall borrowing costs. The
company's objective in managing its exposure to changes in foreign
currency exchange rates is to reduce the economic effect on
earnings and cash flow associated with such changes. The company's
principal currency exposures are in the major European currencies,
the Japanese yen and certain Latin American currencies. The
company does not hold derivatives for trading purposes.
A quantitative and qualitative discussion about the company's
market risk is contained on page 19 of its 1998 Annual Report to
its shareholders. There have been no material changes in the
market risks faced by the company since December 31, 1998.
16
<PAGE> 17
PART II. OTHER INFORMATION
--------------------------
THE LUBRIZOL CORPORATION
========================
Item 2. Changes in Securities and Use of Proceeds
(c) On August 31, 1999, 1,500 common shares were issued in a
private placement transaction exempt from registration
under the Securities Act of 1933 pursuant to Section 4(2)
of that Act. The company issued the shares to a consultant
as partial payment for services rendered in accordance with
a consulting agreement.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(10)(b)* The Lubrizol Corporation Amended Deferred
Compensation Plan for Directors (Amended as of
January 1, 2000)
(10)(h)* The Lubrizol Corporation 1991 Stock Incentive
Plan, as amended
(10)(i)* The Lubrizol Corporation Deferred Stock
Compensation Plan for Outside Directors, as
amended
(10)(k)* The Lubrizol Corporation Deferred Compensation
Plan for Officers, as amended
(10)(l)* The Lubrizol Corporation Executive Council
Deferred Compensation Plan, as amended
(27) Financial Data Schedule
*Indicates management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the Quarter ended
September 30, 1999.
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE LUBRIZOL CORPORATION
/s/ John R. Ahern
--------------------------------
John R. Ahern
Chief Accounting Officer and
Duly Authorized Signatory of
The Lubrizol Corporation
Date: November 12, 1999
17
<PAGE> 1
Exhibit (10)(b)
THE LUBRIZOL CORPORATION
Amended Deferred Compensation Plan For Directors
------------------------------------------------
(Amended as of January 1, 2000)
1. PURPOSE. The purpose of this Amended Deferred Compensation Plan For Directors
(the "Plan"), entered this 27th day of June, 1994, is to continue to permit any
member of the Board of Directors (the "Participant") of The Lubrizol Corporation
(the "Company"), to defer all or a portion of the compensation to be received as
a director until after the Participant ceases to be a director, all as provided
in the Plan.
2. ADMINISTRATION. The Plan shall be administered by the Organization and
Compensation Committee of the Board of Directors of the Company (the
"Committee"). The Committee's interpretation and construction of all provisions
of this Plan shall be binding and conclusive. In the event that a Participant is
a member of the Committee, such Participant shall not participate in any
decision of the Committee relating to that Participant's participation in this
Plan.
3. RIGHT TO DEFER COMPENSATION.
(a) Any director of the Company may, at any time, elect to defer under
this Plan all, or such portion as the director may designate, of (i) that
director's annual retainer fee and/or (ii) the attendance fees for attending
directors' meetings or committees thereof. The annual retainer fee, for this
purpose, shall be deemed to be earned equally and ratably as of the last day of
each calendar quarter during the calendar year. Attendance fees are deemed to be
earned when the director attends the meeting for which the attendance fee is
paid.
(b) The election described in paragraph (a) shall be made by written
notice delivered to the Vice President, Human Resources, of the Company
specifying (i) the length of time, not less than one year, during which the
election shall apply, (ii) the portion of the retainer fee and/or the attendance
fee to be deferred for such year or years, (iii) time of distribution, and (iv)
if applicable, the payment option as provided in Section 6 for distributions
upon ceasing to be a director.
(c) The election under this Section 3 shall take effect on the first
day of the calendar quarter following the month in which the election is made. A
director may designate that the election shall remain in effect until the
director, on a prospective basis, withdraws the election or changes the amount
to be deferred.
1
<PAGE> 2
(d) Any notice of withdrawal of the deferral election or change in the
amount to be deferred shall be effective on the first day of the calendar
quarter following the month in which such notice is given to the Company's Vice
President, Human Resources.
4. COMPENSATION DEFERRAL ACCOUNTS.
(a) On the last day of each month in which compensation deferred under
this Plan would have become payable to the Participant in the absence of an
election under this Plan to defer payment thereof, the amount of such deferred
compensation shall be credited, pursuant to Participant's election, to a Stock
Deferral Account and/or any of the Cash Deferral Account investment portfolios
designated as available by the Committee from time to time. A Participant may
transfer any portion or all of the balance in any Deferral Account among the
Stock Deferral Account and the Cash Deferral Account investment portfolios as
allowed under rules established by the Committee; provided, however that any
deferrals made hereunder into a Stock Deferral Account prior to January 1, 2000,
shall be governed by the provisions of the Plan in effect prior to January 1,
2000. All Deferral Accounts shall be established and maintained for each
Participant in the Company's accounting books and records and the Company shall
be under no obligation to purchase any investments designated by the
Participant.
(b) Participant's Cash Deferral Accounts shall be credited as of the
last day of each month with any gains or losses equal to those generated as if
the Participant's Cash Deferral Account balances had been invested in the
applicable investment portfolio(s) selected by the Participant.
(c) The amount of deferred compensation credited to a Participant's
Stock Deferral Account pursuant to paragraph (a) shall be used to determined the
number of full and fractional units ("Units") representing Company Common Shares
("Shares") which the deferred amount would purchase at the closing price for the
Shares on the New York Stock Exchange ("NYSE") composite transactions reporting
system ("composite tape") on the date that the deferred amount is credited
pursuant to paragraph (a) and if Shares were not traded on that date on the
NYSE, then such computation shall be made as of the first preceding day on which
Shares were so traded. The Company shall credit the Participant's Stock Deferral
Account with the number of full and fractional Units so determined. However, at
no time prior to delivery of such Shares, shall the Company be obligated to
purchase or reserve Shares for such Stock Deferral Account and the Participant
shall not have any of the rights of a shareholder with respect to the Units
credited to such Participant's Stock Deferral Account.
(d) As of each dividend record date declared with respect to the
Shares, the Company shall credit the Participant's Stock Deferral Account with
an additional number of whole and/or fractional Units equal to:
2
<PAGE> 3
(i) the product of (x) the dividend per Share which is
payable with respect to such dividend record date,
multiplied by (y) the number of whole and fractional
Units credited to the Participant's Stock Deferral
Account as of such record date;
divided by
----------
(ii) the closing price of a Share on the dividend record
date (or if Shares were not traded on that date, on
the next preceding day on which Shares were so
traded), as reported on the NYSE-composite tape.
5. PAYMENT OF DEFERRED COMPENSATION UPON CEASING TO BE A DIRECTOR.
(a) The total amount standing as a credit in a Participant's Cash
Deferral Accounts shall, upon Participant ceasing to be a director, be payable
to the Participant either in a lump sum or in periodic installments over such
period, not exceeding ten years, as the Participant shall have selected pursuant
to Section 3(b)(iv). Such periodic payments shall begin or the lump sum payment
shall be made, as the case may be, from the Participant's Cash Deferral
Accounts, at such time, not more than twelve (12) months after the Participant
ceases to be a director of the Company, as the Participant shall have selected
pursuant to Section 3 (b)(iv). Notwithstanding the foregoing, a Participant may
elect no later than thirty (30) days prior to the Participant ceasing to be a
director, nor earlier than ninety (90) days prior thereto, to change the form of
distribution of the Participant's Cash Deferral Accounts.
(b) The amount of each installment payable to a Participant shall be
determined by dividing the aggregate balance of such Participant's Cash Deferral
Accounts by the number of periodic installments (including the current
installment) remaining to be paid. Until a Participant's Cash Deferral Accounts
has been completely distributed, the balance thereof remaining, from time to
time, shall be credited with gains and losses on a monthly basis as provided in
Section 4(b).
(c) The total number of Units credited to the Participant's Stock
Deferral Accounts shall, upon Participant ceasing to be a director, be payable
to the Participant either in a lump sum or in periodic installments, over such
period, not exceeding ten years, as the Participant shall have selected pursuant
to Section 3(b)(iv). Such periodic payments shall begin or the lump sum payment
shall be made, as the case may be, at such time, not more than twelve (12)
months after the Participant ceased to be a director of the Company, as the
Participant shall have selected pursuant to Section 3(b)(iv). Notwithstanding
the foregoing, a Participant may elect no later than thirty (30) days prior to
the Participant ceasing to be a director, no earlier than ninety (90) days prior
thereto, to change the form of distribution of the Participant's Stock Deferral
Accounts.
3
<PAGE> 4
(d) The amount of any installment payable from the Stock Deferral
Accounts to a Participant shall be determined by dividing the balance of the
aggregate number of Units in the Participant's Stock Deferral Accounts by the
number of periodic installments (including the current installment) remaining to
be paid and the quotient shall be the number of Shares that are payable. If the
determination of the installment payable from the Participant's Stock Deferral
Accounts results in a fractional Share being payable, the installment payment
shall exclude any such fractional Share payment except that, in the final
installment payment, any such fractional Share shall be paid in cash in an
amount as determined by the Committee. Until the Participant's Stock Deferral
Accounts have been completely distributed, the balance in the Stock Deferral
Accounts shall continue to be credited with the dividend equivalents on such
balances as provided in Section 4(d).
(e) In the event a Participant dies prior to receiving payment of the
entire amount in that Participant's Cash Deferral Accounts and/or Stock Deferral
Accounts, as the case may be, the unpaid balance shall be paid to such
beneficiary as the Participant may have designated in writing to the Vice
President, Human Resources, of the Company as the beneficiary to receive any
such post-death distribution under the Plan or, in the absence of such written
designation, to the Participant's legal representative or to the beneficiary
designated in the Participant's last will as the one to receive such
distributions. Distributions subsequent to the death of a Participant may be
made either in a lump sum or in periodic installments in such amounts and over
such period, not exceeding ten years from the date of death, as the Committee
may direct and the amount of each installment shall be computed as provided in
Section 6(b), and (d) as the case may be.
(f) Payments from the Cash Deferral Accounts shall be made in cash and
payments from the Stock Deferral Accounts shall be made in Shares. The amount of
any distribution pursuant to Sections 5 through 8 hereunder shall reduce the
balance held in the Participant's corresponding Deferral Accounts as of the date
of such distribution. Installment payments shall be made pro-rata from a
Participant's Deferral Accounts.
6. IN-SERVICE DISTRIBUTIONS. Pursuant to Section 3, a Participant may elect to
receive an in-service distribution of all or any specified percentage of the
Participant's deferral for any calendar quarter commencing not earlier than the
first calendar year following the year that such compensation would have been
payable. In-service distributions shall be made in a lump sum payment. A
Participant may elect once for any calendar quarter of deferral for which the
Participant has elected an in-service distribution, to change the date of
distribution to another in-service year or upon ceasing to be director;
provided, however, that any such modification must be made in writing at least
twelve (12) months prior to the date originally elected for the in-service
distribution.
4
<PAGE> 5
7. SPECIAL DISTRIBUTIONS. Notwithstanding any other provision of this Plan, a
Participant may elect to receive distribution of part or all of the total of
Participant's eligible Deferral Accounts in one or more distributions if (and
only if) the amount of the distribution is reduced by ten (10) percent. The ten
(10) percent reduction shall be forfeited. Distributions shall be made pro-rata
among Participant's eligible Deferral Accounts. Any distribution made pursuant
to such an election shall be made within sixty (60) days of the date such
election is submitted to Vice President - Human Resources.
8. HARDSHIP DISTRIBUTIONS. The Committee may accelerate the distribution of part
or all, in any or all, of Participant's Deferral Accounts for reasons of severe
financial hardship. For purposes of this Plan, severe financial hardship shall
be deemed to exist in the event the Committee determines that a Participant
needs a distribution to meet immediate and heavy financial needs resulting from
a sudden or unexpected illness or accident of the Participant or a member of
his/her family, loss of the Participant's property due to casualty, or other
similar extraordinary and unforeseeable circumstance arising as a result of
events beyond the control of the Participant. A distribution based on financial
hardship shall not exceed the amount required to meet the immediate financial
need created by the hardship.
9. NON-ASSIGNABILITY. None of the rights or interests in any of the
Participant's Deferral Accounts shall, prior to actual payment or distribution
pursuant to this Plan, be assignable or transferable in whole or in part, either
voluntarily or by operation of law or otherwise, and such rights and interest
shall not be subject to payment of debts by execution, levy, garnishment,
attachment, pledge, bankruptcy or in any other manner; provided that, upon the
occurrence of any such assignment or transfer or the attempted assignment or
transfer, all payments hereunder shall be payable in the sole and unrestricted
judgment and discretion of the Committee, as to time and amount, and shall be
distributable to the person who would have received the payment but for this
paragraph 9 only at such time or times and in such amounts as the Committee,
from time to time, shall determine.
10. INTEREST OF PARTICIPANT. The Company shall be under no obligation to
segregate or reserve any funds or other assets for purposes relating to the Plan
and, except as set forth in this Plan, no Participant shall have any rights
whatsoever in or with respect to any funds or other assets held by the Company
for purposes of the Plan or otherwise. Each Participant's accounts maintained
for purposes of the Plan merely constitute bookkeeping entries on records of the
Company, constitute the unsecured promise and obligation of the Company to make
payments as provided herein, and shall not constitute any allocation whatsoever
of any cash, shares or other assets of the Company or be deemed to create any
trust or special deposit with respect to any of the Company's assets.
Notwithstanding the foregoing provisions, nothing in this Plan shall preclude
the Company from setting aside Shares or funds in trust pursuant to
5
<PAGE> 6
one or more trust agreements between a trustee and the Company. However, no
Participant shall have any secured interest or claim in any assets or property
of the Company or any such trust and all Shares or funds contained in such trust
shall remain subject to the claims of the Company's general creditors.
11. SHARES CHANGES. In the event of any change in the number of outstanding
Shares by reason of any stock dividend, stock split up, recapitalization,
merger, consolidation, exchange of shares or other similar corporate change, the
number of units representing Shares to be credited in accordance with Section
4(c), the Shares to be distributed in accordance with this Plan shall be
appropriately adjusted to take into account any such event.
12. AMENDMENT. The Board of Directors of the Company may, from time to time,
amend or terminate this Plan, provided that no such amendment or termination of
the Plan shall adversely affect a Participant's Accounts as they existed
immediately before such amendment or termination or the manner of distribution
thereof, unless such Participant shall have consented thereto in writing.
-END-
6
<PAGE> 1
Exhibit (10)(h)
THE LUBRIZOL CORPORATION 1991 STOCK INCENTIVE PLAN
(As Amended January 1, 2000)
SECTION 1. PURPOSE.
The purposes of The Lubrizol Corporation 1991 Stock Incentive Plan are
to encourage selected employees of The Lubrizol Corporation and its Subsidiaries
and directors of the Company to acquire a proprietary and vested interest in the
growth and performance of the Company, to generate an increased incentive to
contribute to the Company's future success and prosperity, thus enhancing the
value of the Company for the benefit of shareholders, and to enhance the ability
of the Company and its Subsidiaries to attract and retain individuals of
exceptional talent upon whom, in large measure, the sustained progress, growth
and profitability of the Company depends.
SECTION 2. DEFINITIONS.
As used in the Plan, the following terms shall have the meanings set
forth below:
(a) "Award" means any Option, Stock Appreciation Right,
Restricted Stock Award, or Stock Award granted pursuant to the
provisions of the Plan.
(b) "Award Agreement" means a written document evidencing any
Award granted hereunder, signed by the Company and delivered to the
Participant or Outside Director, as the case may be.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(e) "Committee" means a committee of not less than three (3)
Outside Directors of the Board, each of whom shall be a "disinterested
person" within the meaning of Rule 16b-3(d)(3) promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or any successor rule or
statute.
(f) "Company" means The Lubrizol Corporation.
(g) "Employee" means any employee of the Company or of any
Subsidiary.
(h) "Fair Market Value" means the average of the high and low
price of a Share on the New York Stock Exchange on the Grant Date (in
the case of a Grant), or any other relevant date.
(i) "Grant Date" means the date on which the Board approves
the grant of an Option, Stock Appreciation Right, Restricted Stock
Award, or Stock Award, and, with respect to an Option granted to an
Outside Director pursuant to Section 10, the date of the Shareholders'
Meeting on which such Option is granted.
<PAGE> 2
THE LUBRIZOL CORPORATION Page 2
1991 STOCK INCENTIVE PLAN
(j) "Incentive Stock Option" means an Option that is intended
to meet the requirements of Section 422A of the Code or any successor
provision thereto.
(k) "Non-Statutory Stock Option" means an Option that is not
intended to be an Incentive Stock Option.
(l) "Option" means an option to purchase Shares granted
hereunder.
(m) "Option Price" means the purchase price of each Share
under an Option.
(n) "Outside Director" means a member of the Board who is not
an employee of the Company or of any Subsidiary.
(o) "Participant" means an Employee who is selected by the
Committee to receive an Award under the Plan.
(p) "Plan" means The Lubrizol Corporation 1991 Stock Incentive
Plan.
(q) "Restricted Stock Award" means an award of restricted
Shares under Section 8 hereof.
(r) "Restriction Period" means the period of time specified in
an Award Agreement during which the following conditions remain in
effect: (i) certain restrictions on the sale or other disposition of
Shares awarded under the Plan, (ii) subject to the terms of the
applicable Award Agreement, the continued employment of the
Participant, and (iii) such other conditions as may be set forth in the
applicable Award Agreement.
(s) "Shareholders' Meeting" means the annual meeting of
shareholders of the Company in each year.
(t) "Shares" means common shares without par value of the
Company.
(u) "Stock Appreciation Right" means the right to receive a
payment in cash or in Shares, or in any combination thereof, from the
Company equal to the excess of the Fair Market Value of a stated number
of Shares at the exercise date over a fixed price for such Shares.
(v) "Stock Award" means the grant of unrestricted Shares under
the Plan.
(w) "Subsidiary" means a corporation which is at least 80%
owned, directly or indirectly, by the Company.
(x) "Voting Stock" means the then-outstanding securities
entitled to vote generally in the election of directors of the Company.
<PAGE> 3
THE LUBRIZOL CORPORATION Page 3
1991 STOCK INCENTIVE PLAN
SECTION 3. ADMINISTRATION.
The Plan shall be administered by the Committee. Members of the
Committee shall be appointed by and serve at the pleasure of the Board, and may
resign by written notice filed with the Chairman of the Board or the Secretary
of the Company. A vacancy on the Committee shall be filled by the appointment of
a successor member by the Board. Subject to the express provisions of this Plan,
the Committee shall have conclusive authority to select Employees to be
Participants for Awards and determine the type and number of Awards to be
granted, to construe and interpret the Plan, any Award granted hereunder, and
any Award Agreement entered into hereunder, and to establish, amend, and rescind
rules and regulations for the administration of this Plan and shall have such
additional authority as the Board may from time to time determine to be
necessary or desirable. Notwithstanding the foregoing, the Committee shall not
have discretion with respect to Options granted to Outside Directors pursuant to
Section 10 such as to prevent any Award granted under this Plan from meeting the
requirements for exemption from Section 16(b) of the Exchange Act, as set forth
in Rule 16b-3 thereunder or any successor rule or statute.
SECTION 4. SHARES SUBJECT TO THE PLAN.
(a) Subject to adjustment as provided in the Plan, the total
number of Shares available under the Plan in each calendar year shall
be one percent (1%) of the total outstanding Shares as of the first day
of any year for which the Plan is in effect; provided that such number
shall be increased in any year by the number of Shares available for
grant hereunder in previous years but not covered by Awards granted
hereunder in such previous years; provided further, that a total of no
more than two million (2,000,000) Shares shall be available for the
grant of Incentive Stock Options under the Plan; and provided further,
that no more than four hundred thousand (400,000) Shares shall be
available for grant to any Participant during a calendar year.
Settlement of an Award, whether by the issuance of Shares or the
payment of cash, shall not be deemed to be the grant of an Award
hereunder. In addition, any Shares issued by the Company through the
assumption or substitution of outstanding grants from an acquired
company shall not reduce the Shares available for grants under the
Plan. Any Shares issued hereunder may consist, in whole or in part, of
authorized and unissued Shares or treasury shares. If any Shares
subject to any Award granted hereunder are forfeited or if such Award
otherwise terminates without the issuance of such Shares or payment of
other consideration in lieu of such Shares, the Shares subject to such
Award, to the extent of any such forfeiture or termination, shall again
be available for grant under the Plan as if such Shares had not been
subject to an Award.
(b) The number of Shares which remain available for grant
pursuant to this Plan, together with Shares subject to outstanding
Awards, at the time of any change in the Company's capitalization,
including stock splits, stock dividends, mergers, reorganizations,
consolidations, recapitalizations, or other changes in corporate
structure, shall be appropriately and proportionately adjusted to
reflect such change in capitalization.
SECTION 5. ELIGIBILITY.
Any Employee shall be eligible to be selected as a Participant.
<PAGE> 4
THE LUBRIZOL CORPORATION Page 4
1991 STOCK INCENTIVE PLAN
SECTION 6. STOCK OPTIONS.
Non-Statutory Stock Options and Incentive Stock Options may be granted
hereunder to Participants either separately or in conjunction with other Awards
granted under the Plan. Any Option granted to a Participant under the Plan shall
be evidenced by an Award Agreement in such form as the Committee may from time
to time approve. Any such Option shall be subject to the following terms and
conditions and to such additional terms and conditions, not inconsistent with
the provisions of the Plan, as the Committee shall deem desirable.
(a) OPTION PRICE. The purchase price per Share under an Option
shall be fixed by the Committee in its sole discretion; provided that
the purchase price shall not be less than one hundred percent (100%) of
the Fair Market Value of the Share on the Grant Date of the Option.
Payment of the Option Price may be made in cash, Shares, or a
combination of cash and Shares, as provided in the Award Agreement
relating thereto.
(b) OPTION PERIOD. The term of each Option shall be fixed by
the Committee in its sole discretion; provided that no Incentive Stock
Option shall be exercisable after the expiration of ten years from the
Grant Date; and provided further, that no reload Option granted to a
Participant pursuant to the terms of Section 6(e) shall be exercisable
after the expiration of the term of the Option that gave rise to the
grant of such reload Option.
(c) EXERCISE OF OPTION. Options shall be exercisable to the
extent of fifty percent (50%) of the Shares subject thereto after one
year from the Grant Date, seventy-five percent (75%) of such Shares
after two years from the Grant Date, and one hundred percent (100%) of
such Shares after three years from the Grant Date, subject to any
provisions respecting the exercisability of Options that may be
contained in an Award Agreement; provided that a reload Option granted
to a Participant pursuant to the terms of Section 6(e) shall be
exercisable to the extent of one hundred percent (100%) of such Shares
from the Grant Date.
(d) INCENTIVE STOCK OPTIONS. The aggregate Fair Market Value
of the Shares with respect to which Incentive Stock Options held by any
Participant which are exercisable for the first time by such
Participant during any calendar year under the Plan (and under any
other benefit plans of the Company, of any parent corporation, or
Subsidiary) shall not exceed $100,000 or, if different, the maximum
limitation in effect at the Grant Date under Section 422A of the Code,
or any successor provision, and any regulations promulgated thereunder.
The terms of any Incentive Stock Option granted hereunder shall comply
in all respects with the provisions of Section 422A of the Code, or any
successor provision, and any regulations promulgated thereunder.
(e) RELOAD. In the event that a Participant or an Outside
Director exercises an Option and pays some or all of the Option Price
with Shares, such Participant or Outside Director shall be granted a
reload Option to purchase the number of Shares equal to the number of
Shares used as payment of the Option Price, such reload Option to be
granted at the time and subject to the limitation described below. The
Grant Date for the reload Option shall be the next date on which the
Committee otherwise grants Options under this Plan to employees
generally, whether or not during the same calendar year in which the
original Option is exercised. Options granted to Participants pursuant
to this Section 6(e)
<PAGE> 5
THE LUBRIZOL CORPORATION Page 5
1991 STOCK INCENTIVE PLAN
shall have terms and conditions as described in this Section 6 and
Options granted to Outside Directors pursuant to this Section 6(e)
shall have terms and conditions as described in Section 10. Options
granted pursuant to this Section 6(e) shall be of the same character
(i.e., Non-Statutory Stock Options or Incentive Stock Options) as the
Option that is exercised to give rise to the grant of the reload
Option, provided that if an Incentive Stock Option cannot be granted
under this Section 6(e) in compliance with Section 422A of the Code,
then a Non-Statutory Stock Option shall be granted in lieu thereof.
Options shall be granted pursuant to this Section 6(e) only to the
extent that the number of Shares covered by such Option grants does
not, when added to the number of Shares covered by Awards previously
granted during such calendar year, exceed the limitation set forth in
Section 4(a). If such limitation would otherwise be exceeded by the
operation of this Section 6(e), each Participant or Outside Director
entitled to receive an Option under this Section 6(e) shall have the
number of Shares subject to such Option reduced appropriately and
proportionately (i.e., by the same percentage) so that the limitation
set forth in Section 4(a) will not be exceeded.
Shares received upon the exercise of an Option granted pursuant to this
Section 6(e) may not be sold or otherwise transferred (i) by a
Participant until such Participant ceases to be employed by the Company
or a Subsidiary, or (ii) by an Outside Director until such Outside
Director ceases to be an Outside Director, provided, however, that a
Participant or Outside Director may use such Shares as payment of the
Option Price of Options granted under this Plan to the extent permitted
by the applicable Award Agreement, in which case a number of the Shares
(equal to the number of Shares used for such payment) purchased by the
exercise of such Options also shall be subject to the same restrictions
upon transferability. Certificates for such Shares with a
transferability restriction shall bear a legend referencing such
restriction.
SECTION 7. STOCK APPRECIATION RIGHTS.
Stock Appreciation Rights may be granted hereunder to Participants
either separately or in conjunction with other Awards granted under the Plan and
may, but need not, relate to a specific Option granted under Section 6. The
provisions of Stock Appreciation Rights need not be the same with respect to
each Participant. Any Stock Appreciation Right related to a Non-Statutory Stock
Option may be granted at the same time such Option is granted or at any time
thereafter before exercise or expiration of such Option. Any Stock Appreciation
Right related to an Incentive Stock Option must be granted at the same time such
Option is granted. Any Stock Appreciation Right related to an Option shall be
exercisable only to the extent the related Option is exercisable. In the case of
any Stock Appreciation Right related to any Option, the Stock Appreciation Right
or applicable portion thereof shall terminate and no longer be exercisable upon
the termination or exercise of the related Option. Similarly, upon exercise of a
Stock Appreciation Right as to some or all of the Shares covered by a related
Option, the related Option shall be canceled automatically to the extent of the
Stock Appreciation Rights exercised, and such Shares shall not thereafter be
eligible for grant under Section 4(a). The Committee may impose such conditions
or restrictions on the exercise of any Stock Appreciation Right as it shall deem
appropriate.
SECTION 8. RESTRICTED STOCK AWARDS.
<PAGE> 6
THE LUBRIZOL CORPORATION Page 6
1991 STOCK INCENTIVE PLAN
(a) ISSUANCE. Restricted Stock Awards may be issued hereunder
to Participants, either separately or in conjunction with other Awards
granted under the Plan. Each Award under this Section 8 shall be
evidenced by an Award Agreement between the Participant and the Company
which shall specify the vesting schedule, any rights of acceleration
and such other terms and conditions as the Board shall determine, which
need not be the same with respect to each Participant.
(b) REGISTRATION. Shares issued under this Section 8 shall be
evidenced by issuance of a stock certificate or certificates registered
in the name of the Participant bearing the following legend and any
other legend required by, or deemed appropriate under, any federal or
state securities laws:
The sale or other transfer of the common shares represented by
this certificate is subject to certain restrictions set forth
in the Award Agreement between ___________________ (the
registered owner) and The Lubrizol Corporation dated
_______________, under The Lubrizol Corporation 1991 Stock
Incentive Plan. A copy of the Plan and Award Agreement may be
obtained from the Secretary of The Lubrizol Corporation.
Unless otherwise provided in the Award Agreement between the
Participant and the Company, such certificates shall be retained by the
Company until the expiration of the Restriction Period. Upon the
expiration of the Restriction Period, the Company shall (i) cause the
removal of the legend from the certificates for such Shares as to which
a Participant is entitled in accordance with the Award Agreement
between the Participant and the Company and (ii) release such Shares to
the custody of the Participant.
(c) FORFEITURE. Except as otherwise determined by the
Committee at the Grant Date, upon termination of employment of the
Participant for any reason during the Restriction Period, all Shares
still subject to restriction shall be forfeited by the Participant and
retained by the Company; provided that in the event of a Participant's
retirement, permanent disability, death, or in cases of special
circumstances, the Committee may, in its sole discretion, when it finds
that a waiver would be in the best interests of the Company, waive in
whole or in part any or all remaining restrictions with respect to such
Participant's Shares. In such case, unrestricted Shares shall be issued
to the Participant at such time as the Committee determines.
(d) RIGHTS AS SHAREHOLDERS. At all times during the
Restriction Period, Participants shall be entitled to full voting
rights with respect to all Shares awarded under this Section 8 and
shall be entitled to dividends with respect to such Shares.
SECTION 9. STOCK AWARDS.
Awards of Shares may be granted hereunder to Participants, either
separately or in conjunction with other Awards granted under the Plan. Subject
to the provisions of the Plan, the Committee shall have sole and complete
authority to determine (i) the Employees to whom such Awards shall be granted,
(ii) the time or times at which such Awards shall be granted, (iii) the number
of Shares to be granted pursuant to such Awards, and (iv) all other conditions
of the Awards. Such conditions may include issuance of Shares at the time of the
Award is granted or
<PAGE> 7
THE LUBRIZOL CORPORATION Page 7
1991 STOCK INCENTIVE PLAN
issuance of Shares at a time or times subsequent to the time the Award is
granted, which subsequent times may be specifically established by the Committee
and/or may be determined by reference to the satisfaction of one or more
performance measures specified by the Committee. The provisions of stock awards
need not be the same with respect to each Participant.
SECTION 10. OUTSIDE DIRECTORS' OPTIONS.
On the close of business on the date of each Shareholders' Meeting,
each Outside Director shall automatically be granted an Option to purchase 2,500
Shares. All such Options shall be Non-Statutory Stock Options and shall be
subject to the following terms and conditions and to such additional terms and
conditions, not inconsistent with the provisions of the Plan, as are contained
in the applicable Award Agreement.
(a) OPTION PRICE. The purchase price per Share shall be one
hundred percent (100%) of the Fair Market Value of the Share on the
Grant Date. Payment of the Option Price may be made in cash, Shares, or
a combination of cash and Shares, as provided in the Award Agreement in
effect from time to time.
(b) OPTION PERIOD. The term during which Options granted
under this Section 10 shall be exercisable shall be ten (10) years from
the Grant Date; provided that no reload Option granted to an Outside
Director pursuant to the terms of Section 6(e) shall be exercisable
after the expiration of the term of the Option that gave rise to the
grant of such reload Option.
(c) EXERCISE OF OPTIONS. Subject to the provisions of this
Section 10(c), Options shall be exercisable to the extent of fifty
percent (50%) of the Shares subject thereto after one year from the
Grant Date, seventy-five percent (75%) of such Shares after two years
from the Grant Date, and one hundred percent (100%) of such Shares
after three years from the Grant Date; provided that a reload Option
granted to an Outside Director pursuant to the terms of Section 6(e)
shall be exercisable to the extent of one hundred percent (100%) of
such Shares from the Grant Date. Options may be exercised by an Outside
Director during the period that the Outside Director remains a member
of the Board and under the circumstances described below.
(i) If an Outside Director retires under a retirement
plan or policy of the Company, then Options held by such
Outside Director may be exercised for a period of thirty-six
(36) months following retirement, to the extent of 100% of the
Shares covered by such Options (notwithstanding the extent to
which the Outside Director otherwise would have been entitled
to exercise such Options at the date of retirement), provided
that in no event shall an Option be exercisable after the
expiration of the Option period provided in Section 10(b).
(ii) In the event of the death of an Outside Director
while serving as a director, Options held by such Outside
Director may be exercised for a period of twelve (12) months
following the date of death, (A) to the extent of 100% of the
Shares covered by such Options (notwithstanding the extent to
which the Outside Director otherwise would have been entitled
to exercise the Option at the date of death), and (B) only by
the executor or administrator of the Outside Director's
<PAGE> 8
THE LUBRIZOL CORPORATION Page 8
1991 STOCK INCENTIVE PLAN
estate or by the person or persons to whom the Outside
Director's rights under the Options shall pass by the Outside
Director's will or the laws of descent and distribution,
provided that in no event shall an Option be exercisable after
the expiration of the Option period provided in Section 10(b).
(iii) If an Outside Director shall cease to be a
director for any reason other than retirement under a
retirement plan or policy of the Company or death, Options
held by such Outside Director may be exercised for a period of
three (3) months following such cessation, to the extent of
100% of the Shares covered by such Options (notwithstanding
the extent to which the Outside Director otherwise would have
been entitled to exercise such Options at the date of such
cessation), provided that in no event shall an Option be
exercisable after the expiration of the Option period provided
in Section 10(b).
(iv) In the event an Outside Director, after ceasing
to be a director, dies during and subject to one of the
periods described in Section 10(c)(i) or (iii), while
possessed of unexercised Options, the executor or
administrator of the Outside Director's estate, or the person
entitled by will or the applicable laws of descent and
distribution, may exercise such Options held by the Outside
Director at the time of the Outside Director's death during
the period that is applicable, as follows:
(A) If Section 10(c)(i) was in effect, for
one year after the Outside Director's death;
(B) If Section 10(c)(iii) was in effect, for
three months after the Outside Director's death;
provided that, in no event shall the Option be exercisable
after the expiration of the Option period provided in Section
10(b).
SECTION 11. CHANGE IN CONTROL.
Notwithstanding the provisions of Sections 6(c) and 10(c), Options
shall become exercisable with respect to 100% of the Shares upon the occurrence
of any Change in Control (as hereafter defined) of the Company; except that no
Options shall be exercised prior to the end of six months from the Grant Date.
Notwithstanding the provisions of Section 8 and the applicable Award
Agreement, any restricted Shares shall be 100% vested and without any
restrictions upon the occurrence of any Change in Control of the Company.
For all purposes of the Plan, a "Change in Control" shall have occurred
if any of the following events shall occur:
(a) The Company is merged, consolidated or reorganized into or
with another corporation or other legal person, and immediately after
such merger, consolidation or reorganization less than a majority of
the combined voting power of the then-outstanding securities of such
corporation or person immediately after such transaction are held in
<PAGE> 9
THE LUBRIZOL CORPORATION Page 9
1991 STOCK INCENTIVE PLAN
the aggregate by the holders of Voting Stock of the Company immediately
prior to such transaction;
(b) The Company sells all or substantially all of its assets
to any other corporation or other legal person, and less than a
majority of the combined voting power of the then-outstanding
securities of such corporation or person immediately after such sale
are held in the aggregate by the holders of Voting Stock of the Company
immediately prior to such sale;
(c) There is a report filed on Schedule 13D or Schedule 14D-l
(or any successor schedule, form or report), each as promulgated
pursuant to the Exchange Act, disclosing that any person (as the term
"person" is used in Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act) has become the beneficial owner (as the term "beneficial
owner" is defined under Rule 13(d)(3) or any successor rule or
regulation promulgated under the Exchange Act) of securities
representing 20% or more of the Voting Stock;
(d) The Company files a report or proxy statement with the
Securities and Exchange Commission pursuant to the Exchange Act
disclosing in response to Form 8-K or Schedule 14A (or any successor
schedule, form or report or item therein) that a change in control of
the Company has or may have occurred or will or may occur in the future
pursuant to any then-existing contract or transaction; or
(e) If during any period of two consecutive years, individuals
who at the beginning of any such period constitute the Directors of the
Company cease for any reason to constitute at least a majority thereof,
provided, however, that for purposes of this Section 11(e), each
Director who is first elected, or first nominated for election by the
Company's stockholders, by a vote of at least two thirds of the
Directors of the Company (or a committee thereof) then still in office
who were Directors of the Company at the beginning of any such period
will be deemed to have been a Director of the Company at the beginning
of such period.
Notwithstanding the foregoing provisions of Section 11(c) or 11(d)
hereof, unless otherwise determined in a specific case by majority vote of the
Board, a "Change in Control" shall not be deemed to have occurred for purposes
of the Plan solely because (i) the Company, (ii) an entity in which the Company
directly or indirectly beneficially owns 50% or more of the voting securities,
or (iii) any employee stock ownership plan or any other employee benefit plan
sponsored by the Company, either files or becomes obligated to file a report or
a proxy statement under or in response to Schedule 13D, Schedule 14D-l, Form 8-K
or Schedule 14A (or any successor schedule, form or report or item therein)
under the Exchange Act, disclosing beneficial ownership by it of shares of
Voting Stock, whether in excess of 20% or otherwise, or because the Company
reports that a change in control of the Company has or may have occurred or will
or may occur in the future by reason of such beneficial ownership.
SECTION 12. AMENDMENTS AND TERMINATION.
The Board may, at any time, amend, alter or terminate the Plan, but no
amendment, alteration, or termination shall be made that would impair the rights
of an Outside Director or
<PAGE> 10
THE LUBRIZOL CORPORATION Page 10
1991 STOCK INCENTIVE PLAN
Participant under an Award theretofore granted, without the Outside Director's
or Participant's consent, or that without the approval of the shareholders
would:
(a) except as is provided in Sections 4(b) and 13(c) of the
Plan, increase the total number of Shares which may be issued under the
Plan;
(b) change the class of employees eligible to participate in
the Plan; or
(c) materially increase the benefits accruing to Participants
under the Plan;
so long as such approval is required by law or regulation; provided that, as
long as required by law or regulation, the provisions of Section 10 hereof may
not be amended or altered more than once every six (6) months, other than to
comport with changes in the Code, the Employee Retirement Income Security Act,
or the rules thereunder.
The Committee may amend the terms of any Award heretofore granted
(except, with respect to Options granted pursuant to Section 10 hereof, only to
the extent not inconsistent with Rule 16b-3 under the Exchange Act or any
successor rule or statute), prospectively or retroactively, but no such
amendment shall impair the rights of any Participant or Outside Director without
his consent.
SECTION 13. GENERAL PROVISIONS.
(a) No Option, Stock Appreciation Right, or Restricted Stock
Award shall be assignable or transferable by a Participant or an
Outside Director otherwise than by will or the laws of descent and
distribution, and Options and Stock Appreciation Rights may be
exercised during the Participant's or Outside Director's lifetime only
by the Participant or the Outside Director or, if permissible under
applicable law, by the guardian or legal representative of the
Participant or Outside Director.
(b) The term of each Award shall be for such period of months
or years from its Grant Date as may be determined by the Committee or
as set forth in the Plan; provided that in no event shall the term of
any Incentive Stock Option or any Stock Appreciation Right related to
any Incentive Stock Option exceed a period of ten (10) years from the
Grant Date.
(c) In the event of a merger, reorganization, consolidation,
recapitalization, stock dividend or other change in corporate structure
such that Shares are changed into or become exchangeable for a larger
or smaller number of Shares, thereafter the number of Shares subject to
outstanding Awards granted to Participants and to any Shares subject to
Awards to be granted to Participants pursuant to this Plan shall be
increased or decreased, as the case may be, in direct proportion to the
increase or decrease in the number of Shares by reason of such change
in corporate structure; provided, however, that the number of Shares
shall always be a whole number, and the purchase price per Share of any
outstanding Options shall, in the case of an increase in the number of
Shares, be proportionately reduced, and, in the case of a decrease in
the number of Shares, shall be proportionately increased. The above
adjustment shall also apply to any
<PAGE> 11
THE LUBRIZOL CORPORATION Page 11
1991 STOCK INCENTIVE PLAN
Shares subject to Options granted to Outside Directors pursuant to the
provisions of Section 10.
(d) No Employee shall have any claim to be granted any Award
under the Plan and there is no obligation for uniformity of treatment
of Employees or Participants under the Plan.
(e) The prospective recipient of any Award under the Plan
shall not, with respect to such Award, be deemed to have become a
Participant, or to have any rights with respect to such Award, until
and unless such recipient shall have executed an Award Agreement, and
otherwise complied with the then applicable terms and conditions.
(f) All certificates for Shares delivered under the Plan
pursuant to any Award shall be subject to such stock-transfer orders
and other restrictions as the Committee may deem advisable under the
rules, regulations, and other requirements of the Securities and
Exchange Commission, any stock exchange upon which the Shares are then
listed, and any applicable federal or state securities law, and the
Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions.
(g) Except as otherwise required in any applicable Award
Agreement or by the terms of the Plan, Participants shall not be
required, under the Plan, to make any payment other than the rendering
of services.
(h) The Company shall be authorized to withhold from any
payment under the Plan, whether such payment is in Shares or cash, all
withholding taxes due in respect of such payment hereunder and to take
such other action as may be necessary in the opinion of the Company to
satisfy all obligations for the payment of such taxes.
(i) Nothing contained in this Plan shall prevent the Board
from adopting other or additional compensation arrangements, subject to
shareholder approval if such approval is required; and such
arrangements may be either generally applicable or applicable only in
specific cases.
(j) Nothing in the Plan shall interfere with or limit in any
way the right of the Company or any Subsidiary to terminate any
Participant's employment at any time, nor shall the Plan confer upon
any Participant any right to continued employment with the Company or
any Subsidiary.
SECTION 14. EFFECTIVE DATE AND TERM OF PLAN.
The Plan shall be effective as of April 22, 1991, and shall continue in
effect until terminated by the Board.
<PAGE> 1
Exhibit (10)(i)
THE LUBRIZOL CORPORATION
DEFERRED STOCK COMPENSATION PLAN
FOR OUTSIDE DIRECTORS
Adopted: September 17, 1991
Amended: September 27, 1993
Amended: October 1, 1995
Amended: September 27, 1999
1. PURPOSE. The Lubrizol Corporation (the "Company") hereby establishes
its Deferred Stock Compensation Plan for Outside Directors (the "Plan")
in order to promote the interests of the Company and its shareholders
by having a portion of the total compensation payable to its outside
directors be deferred and paid in the form of common shares of the
Company, thereby increasing each Director's beneficial ownership of
Company common shares as well as each Director's proprietary interest
in the Company.
2. EFFECTIVE DATE. The effective date of the plan is October 1, 1991.
3. COMMON SHARE UNITS. In addition to the cash compensation otherwise
payable to each outside director of the Company, the Company shall
establish and maintain a Deferred Stock Account for and in the name of
each outside director. Subject to the provisions of Section 10, on the
first day of October in each calendar year, the Company shall credit
500 common share units ("Units") to the Deferred Stock Account of each
person who is an outside director of the Company on said date.
4. DIVIDEND EQUIVALENTS. As of each dividend record date declared with
respect to the Company's common shares, the Company shall credit the
Deferred Stock Account of each director with an additional number of
Units equal to:
(a) the product of (i) the dividend per common share of the
Company which is payable with respect to such dividend record
date, multiplied by (ii) the number of Units credited to the
director's Deferred Stock Account as of such dividend record
date;
divided by
----------
(b) the closing price of a common share of the Company on the
dividend record date (or if such stock was not traded on that
date, on the next preceding date on which such common shares
were traded), as reported by the New York Stock Exchange -
Composite Transactions Reporting System.
5. DISTRIBUTION OF COMMON SHARES
(a) Each director, or, in the event of death, his/her beneficiary,
shall be entitled to receive one common share of the Company
(a "Share" or "Shares") for each Unit credited to his/her
Deferred Stock Account, payable at such time or times as
-1-
<PAGE> 2
hereinafter provided. Once a Share has been distributed with
respect to a Unit, that Unit shall be canceled.
(b) Unless otherwise elected by the director in accordance with
the provisions of Section 5(c), all Shares shall be
distributed to the director or beneficiary, as the case may
be, on the first day of the month following the date on which
the director ceases to be a director for any reason.
(c) At any time prior to the first time that the Company credits
Units to the director's Deferred Stock Account, the director
may irrevocably elect to have all Shares to which the director
will be entitled under this Plan distributed to him/her (or in
the event of his/her death, the director's designated
beneficiary) in ten or fewer annual installments commencing on
the first day of the month following the date on which such
director ceases to be a director of the Company for any
reason. The number of Shares to be distributed with each
installment shall be equal to the nearer whole number obtained
by dividing the number of Units then credited to the
director's Deferred Stock Account by the number of unpaid
installments.
(d) Units with respect to which no distribution of Shares has yet
occurred shall continue to be held in the director's Deferred
Stock Account and credited with dividend equivalents in
accordance with Section 4.
6. BENEFICIARY DESIGNATION
(a) Each director may, from time to time, by writing filed with
the Company, designate any legal or natural person or persons
(who may be designated contingently or successively) to whom
Shares attributable to the director's Units are to be
distributed if the director dies prior to having received all
of such Shares to which he/she is entitled under Section 5. A
beneficiary designation will be effective only if the signed
form is filed with the Company while the director is alive and
will cancel all beneficiary designation forms filed earlier.
(b) To the extent that a director fails to designate a beneficiary
or beneficiaries as provided in this Section 6, or if all
designated beneficiaries die before the director or before the
distribution of all Shares attributable to the director's
Units, all remaining Shares attributable to such Units shall
be distributed to the estate of the director as soon as
practicable after such death.
7. ACCELERATION OF SHARE DISTRIBUTIONS. The Company may accelerate the
distribution of Shares with respect to Units credited to the Deferred
Stock Account of any director for reasons of severe financial hardship.
For purposes of this Plan, severe financial hardship shall be deemed to
exist in the event the Company determines that a director needs a
distribution to meet immediate and heavy financial needs resulting from
a sudden or unexpected illness or accident of the director or a member
of his/her family, loss of the director's property due to casualty, or
other similar extraordinary and unforeseeable circumstances arising as
a result of events beyond the control of the director. A distribution
based on financial hardship shall not exceed the amount required to
meet the immediate financial need created by the hardship.
-2-
<PAGE> 3
8. TRANSFERABILITY. The interests of any director or beneficiary under the
Plan are not subject to the claims of the director's creditors and may
not otherwise be voluntarily or involuntarily assigned, alienated or
encumbered.
9. INTEREST OF DIRECTOR. The Company shall be under no obligation to
segregate or reserve any funds or other assets for purposes relating to
the Plan and, except as set forth in this Plan, no director shall have
any rights whatsoever in or with respect to any funds or other assets
held by the Company for purposes of the Plan or otherwise. Each
director's Deferred Stock Account maintained for purposes of the Plan
merely constitutes a bookkeeping entry on records of the Company,
constitutes the unsecured promise and obligation of the Company to make
payments as provided herein, and shall not constitute any allocation
whatsoever of any cash or other assets of the Company or be deemed to
create any trust or special deposit with respect to any of the
Company's assets. Notwithstanding the foregoing provisions, nothing in
this Plan shall preclude the Company from setting aside Shares or funds
in trust pursuant to one or more trust agreements between a trustee and
the Company. However, no director shall have any secured interest or
claim in any assets or property of the Company or any such trust and
all Shares or funds contained in such trust shall remain subject to the
claims of the Company's general creditors.
10. CHANGES IN SHARES. In the event of any change in the number of
outstanding Shares by reason of any stock dividend, stock split up,
recapitalization, merger, consolidation, exchange of shares or other
similar corporate change, the number of Units to be credited in
accordance with Section 3, the number of Units held in the director's
Deferred Stock Account and the Shares to be distributed in accordance
with this Plan shall be appropriately adjusted to take into account any
such event.
11. SUCCESSORS. This Plan shall be binding upon any assignee or successor
in interest to the Company whether by merger, consolidation or sale of
all or substantially all of the Company's assets.
12. AMENDMENT AND TERMINATION. The Board of Directors of the Company may,
from time to time, amend or terminate the Plan; provided, however, that
no such amendment or termination shall adversely affect the rights of
any director or beneficiary without his/her consent with respect to
Units credited prior to such amendment or termination.
-3-
<PAGE> 1
Exhibit (10)(k)
THE LUBRIZOL CORPORATION
Deferred Compensation Plan For Officers
---------------------------------------
(Amended as of January 1, 2000)
1. PURPOSE. The purpose of this Deferred Compensation Plan For Officers (the
"Plan") is to permit an officer (as identified by the Company for Section 16
purposes under the Securities Exchange Act of 1934) (sometimes hereinafter
referred to as "officer" or as the "Participant") of The Lubrizol Corporation
(the "Company"), who wishes, to defer a portion of such officer's compensation
as provided in the Plan.
2. ADMINISTRATION. The Plan shall be administered by the Organization and
Compensation Committee of the Board of Directors of the Company (the
"Committee"). The Committee's interpretation and construction of all provisions
of the Plan shall be binding and conclusive upon all Participants and their
heirs and/or successors.
3. RIGHT TO DEFER COMPENSATION.
(a) An officer of the Company may, at any time prior to January 1 of a
given calendar year, elect, for one or more future successive calendar years, to
defer under the Plan a pre-selected amount of such officer's cash compensation,
including bonus, which such officer may thereafter be entitled to receive for
services performed during such elected calendar year or years.
(b) The election under this Section 3 shall take effect on the first
day of the calendar year following the date on which the election is made and
such election shall be irrevocable for any elected calendar year after such
elected calendar year shall have commenced.
(c) The pre-selected amount that an officer may elect to defer shall be
one or more of the following:
(i) a fixed dollar amount or percentage of the officer's bi-weekly
base salary;
(ii) a fixed dollar amount or percentage of the officer's quarterly
pay;
(iii) a fixed dollar amount or percentage of the officer's
participation in the performance pay plan , if any.
(d) Notwithstanding paragraphs (a),(b) and (c), where an officer first
becomes eligible to participate in the Plan, the newly eligible officer may make
the election under this Section 3 to defer the specified compensation for
services to be performed subsequent to the election and for the remainder of the
calendar
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<PAGE> 2
year in which the election under this Section 3 is made provided such election
is made within 30 days after the date the officer first becomes eligible.
(e) Within such periods of time as the Committee shall designate, and
in addition to the provisions of paragraphs (a) through (d), an officer may
elect to defer that portion or all of the officer's cash and/or stock
compensation (i) described in paragraph (c), (ii) the performance share program,
and/or (iii) any other plan or program that provides for cash or stock
compensation, to the extent that such amounts would otherwise be nondeductible
by the Company pursuant to Section 162(m) of the Internal Revenue Code of 1986,
as amended. For purposes of the preceding sentence, the amount to be deferred
with respect to any compensation plans payable in Company shares shall be
determined by taking into consideration any fixed cash compensation (including
biweekly and quarterly pay) to be received subsequent to the date on which
shares are distributable under such program. Notwithstanding any other provision
of this Plan, deferrals under this paragraph (e) shall be distributable only
upon termination of employment in accordance with Section 6.
(f) All elections under this Plan shall be made by written notice
delivered to the Vice President, Human Resources, of the Company specifying (i)
the number of calendar years, one or more, during which the election shall
apply, (ii) the portion, if any, determined under paragraph (c), of each
category of the Participant's compensation to be deferred for such year or
years, as described above, (iii) the time of distribution, and (iv) if,
applicable, the payment option as provided in Section 6 for distributions upon
termination of employment.
(g) A Participant may designate that the deferral election under this
Section 3 shall remain in effect until the Participant, on a prospective basis,
withdraws the election or changes the amount to be deferred. Any notice of the
withdrawal of the deferral election or change of amount to be deferred shall be
effective on the first day of the calendar year following the date on which such
notice is given to the Company's Vice President, Human Resources; provided that,
such notice shall not change, alter or terminate the deferral of the officer's
participation in the performance pay plan for the year in which such notice of
withdrawal is given which, except for the deferral, would be payable in the
calendar year following the date on which such notice of withdrawal is given.
(h) Notwithstanding paragraph (f) and the first sentence of paragraph
(g), any compensation earned after the end of the first month in which a
Participant under this Plan no longer is an officer of the Company, as defined
in Section 1, but continues to be employed by the Company, shall not be
deferred, provided however, the balance in the Participant's Deferral Accounts
shall continue to be held and administered pursuant to the Plan.
2
<PAGE> 3
4. DEFERRAL OF CASH COMPENSATION.
(a) On the last day of each month during which the cash compensation
deferred under the Plan would have become payable to the Participant in the
absence of an election under the Plan to defer payment thereof, the amount of
such deferred compensation shall be credited to a Stock Deferral Account and/or
any of the Cash Deferral Account investment portfolios designated as available
by the Committee from time to time. All Deferral Accounts shall be established
and maintained for each Participant in the Company's accounting books and
records and the Company shall be under no obligation to purchase any investments
designated by the Participant. To the extent that, at the time amounts are
credited to a Participant's Deferral Accounts, any federal, state or local
payroll withholding tax applies (e.g., Medicare withholding tax), the
Participant shall be responsible for the payment of such amount to the Company
and the Company shall promptly remit such amount to the proper taxing authority.
(b) Participant's Cash Deferral Accounts shall be credited as of the
last day of each month with any gains or losses equal to those generated as if
the Participant's Cash Deferral Account balances had been invested in the
applicable investment portfolio(s) selected by the Participant
(c) A Participant's deferred cash compensation credited to a
Participant's Stock Deferral Account shall be used to determine the number of
full and fractional units ("Units") representing Company Common Shares
("Shares") which the deferred amount would purchase at the closing price for the
Shares on the New York Stock Exchange ("NYSE") composite transactions reporting
system on the date that the deferred amount is credited pursuant to paragraph
(a) and if Shares were not traded on that date on the NYSE, then such
computation shall be made as of the first preceding day on which Shares were so
traded. The Company shall credit the Participant's Stock Deferral Account with
the number of full and fractional Units so determined. A Participant's Stock
Deferral Account shall be administered in accordance with Section 5(b) through
(e).
(d) A Participant may elect pursuant to rules established by the
Committee to transfer a portion or all of the balance of any Deferral Account
established under this Section 4 to any other such Deferral Account.
(e) Notwithstanding the foregoing, a Participant may elect to have any
portion or all of the Participant's cash deferrals credited to any of the
Deferral Accounts listed in paragraph (a) and may transfer balances in
accordance with paragraph (d) provided that the Participant is considered, in
the judgement of the Chief Executive Officer of the Company, to be on plan to
meet the Participant's Company Share ownership guideline. Otherwise, a
Participant must elect that at least 50% of any cash deferral hereunder be
credited to a Stock Deferral Account and may not transfer any portion of the
balance of the Stock Deferral Account to another Deferral Account.
3
<PAGE> 4
5. DEFERRAL OF STOCK COMPENSATION.
(a) At the time that Shares are distributable to a Participant, who has
elected to defer the receipt thereof under Section 3(e), in lieu of Shares being
issued, there shall be credited to a separate Stock Deferral Account for the
Participant, full stock equivalent units ("Units') which shall be established
and maintained on the Company's records. One Unit shall be allocated to the
Stock Deferral Account for each such Share. The balance of a Stock Deferral
Account established under this Section 5(a) may not be transferred to any other
Deferral Account.
(b) As of each dividend record date established by the Company for the
payment of cash dividends with respect to its Shares, the Company shall credit
each separate Stock Deferral Account of a Participant with an additional number
of whole and/or fractional Units equal to:
(i) the product of (x) the dividend per Share which is
payable with respect to such dividend record date,
multiplied by (y) the number of whole and fractional
Units credited to the separate Stock Deferral Account
of a Participant as of such record date;
divided by
----------
(ii) The closing price of a Share on the dividend record
date (or if Shares were not traded on that date, on
the next preceding day on which Shares were so
traded), as reported on the NYSE-composite tape.
(c) At no time prior to actual delivery of Shares pursuant to the Plan,
shall the Company be obligated to purchase or reserve Shares for delivery of a
Participant and the Participant shall not be a shareholder nor have any of the
rights of a shareholder with respect to the Units credited to the Participant's
Stock Deferral Accounts.
(d) To the extent that, at the time Units are credited to a Stock
Deferral Account of a Participant, any federal, state or local payroll
withholding tax applies (e.g., Medicare withholding tax), the Participant shall
be responsible for the payment of such amount to the Company and the Company
shall promptly remit such amount to the proper taxing authority.
(e) In the event of any change in the number of outstanding Shares by
reason of any stock dividend, stock split up, recapitalization, merger,
consolidation, exchange of shares or other similar corporate change, the number
of Units in each separate Stock Deferral Account of a Participant shall be
appropriately adjusted to take into account any such event.
4
<PAGE> 5
6. PAYMENT OF DEFERRED COMPENSATION UPON TERMINATION.
(a) The total amount standing as a credit in a Participant's Cash
Deferral Accounts shall, upon termination of employment, be payable to the
Participant either in a lump sum or in periodic installments over such period,
not exceeding ten years, as the Participant shall have selected pursuant to
Section 3(f)(iv). Such periodic payments shall begin or the lump sum payment
shall be made, as the case may be, from the Participant's Cash Deferral
Accounts, at such time, not more than twelve (12) months after the Participant
ceases to be an employee of the Company, as the Participant shall have selected
pursuant to Section 3 (f)(iv). All amounts payable in accordance with this
Section 6(a) shall be subject to applicable federal, state and/or local payroll
withholding taxes then in effect. Notwithstanding the foregoing, a Participant
may elect no later than thirty (30) days prior to the Participant's termination
of employment, nor earlier than ninety (90) days prior thereto, to change the
form of distribution of the Participant's Cash Deferral Accounts.
(b) The amount of each installment payable to a Participant shall be
determined by dividing the aggregate balance of such Participant's Cash Deferral
Accounts by the number of periodic installments (including the current
installment) remaining to be paid. Until a Participant's Cash Deferral Accounts
has been completely distributed, the balance thereof remaining, from time to
time, shall be credited with gains and losses on a monthly basis as provided in
Section 4(b).
(c) The total number of Units credited to the Participant's Stock
Deferral Accounts shall upon termination of employment be payable to the
Participant either in a lump sum or in periodic installments, over such period,
not exceeding ten years, as the Participant shall have selected pursuant to
Section 3(f)(iv). Such periodic payments shall begin or the lump sum payment
shall be made, as the case may be, at such time, not more than twelve (12)
months after the Participant ceased to be an employee of the Company, as the
Participant shall have selected pursuant to Section 3(f)(iv). All amounts
payable in accordance with this Section 6(c) shall be subject to applicable
federal, state and/or local payroll withholding taxes then in effect.
Notwithstanding the foregoing, a Participant may elect no later than thirty (30)
days prior to the Participant's termination of employment, no earlier than
ninety (90) days prior thereto, to change the form of distribution of the
Participant's Stock Deferral Accounts.
(d) The amount of any installment payable from the Stock Deferral
Accounts to a Participant shall be determined by dividing the balance of the
aggregate number of Units in the Participant's Stock Deferral Accounts by the
number of periodic installments (including the current installment) remaining to
be paid and the quotient shall be the number of Shares that are payable. If the
determination of the installment payable from the Participant's Stock Deferral
Accounts results in a fractional Share being payable, the installment payment
shall exclude any such fractional Share payment except that, in the final
installment payment, any such fractional Share shall be paid in cash in an
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<PAGE> 6
amount as determined by the Committee. Until the Participant's Stock Deferral
Accounts have been completely distributed, the balance in the Stock Deferral
Accounts shall continue to be credited with the dividend equivalents on such
balances as provided in Section 5(b).
(e) If the Participant elects to satisfy tax withholding under
paragraph (c) with Shares, then such withholding shall be from those Shares
otherwise issuable pursuant to paragraph (c) above, and shall be such number of
Shares that will provide for the federal, state and/or local income tax at the
rates then applicable for supplemental wages, unless otherwise requested by the
Participant, but in no event less than the statutory minimums for tax
withholding.
(f) For purposes under paragraph (e) of determining the number of
Shares that are to be withheld to provide for the tax withholding, Shares shall
be valued at the closing price on the New York Stock Exchange of a Share on the
date the Shares are distributable (or if the Shares were not traded on that
date, on the next preceding day on which the Shares were so traded). If the
determination of the tax withholding would require the withholding of a
fractional Share, the Participant shall remit cash to the Company in lieu of
such fractional Share.
(g) In the event a Participant dies prior to receiving payment of the
entire amount in that Participant's Cash Deferral Accounts and/or Stock Deferral
Accounts, as the case may be, the unpaid balance shall be paid to such
beneficiary as the Participant may have designated in writing to the Vice
President, Human Resources, of the Company as the beneficiary to receive any
such post-death distribution under the Plan or, in the absence of such written
designation, to the Participant's legal representative or to the beneficiary
designated in the Participant's last will as the one to receive such
distributions. Distributions subsequent to the death of a Participant may be
made either in a lump sum or in periodic installments in such amounts and over
such period, not exceeding ten years from the date of death, as the Committee
may direct and the amount of each installment shall be computed as provided in
Section 6(b), and (d) as the case may be.
(h) Payments from the Cash Deferral Accounts shall be made in cash and
payments from the Stock Deferral Accounts shall be made in Shares. The amount of
any distribution pursuant to Sections 6 through 9 shall reduce the balance held
in the Participant's corresponding Deferral Accounts as of the date of such
distribution. Installment payments shall be made pro-rata from a Participant's
Deferral Accounts.
7. IN-SERVICE DISTRIBUTIONS. Pursuant to Section 3 and other than for deferrals
pursuant to Section 3(e), a Participant may elect to receive an in-service
distribution of all or any specified percentage of the Participant's deferral
for any calendar year commencing not earlier than the first year following the
year that such compensation would have been payable. In-service distributions
shall be made in a lump sum payment. A Participant may elect once for any
calendar year of deferral for which the Participant has elected an in-service
distribution, to
6
<PAGE> 7
change the date of distribution to another in-service year or upon termination;
provided, however, that any such modification must be made in writing at least
twelve (12) months prior to the date originally elected for the in-service
distribution. Notwithstanding the foregoing, any distribution hereunder shall be
subject to further deferral pursuant to an election under Section 3(e).
8. SPECIAL DISTRIBUTIONS. Notwithstanding any other provision of this Plan, a
Participant may elect to receive distribution of part or all of the total of
Participant's eligible Deferral Accounts, other than from deferrals pursuant to
Section 3(e), in one or more distributions if (and only if) the amount of the
distribution is reduced by ten (10) percent. The ten (10) percent reduction
shall be forfeited. Distributions shall be made pro-rata among Participant's
eligible Deferral Accounts. Any distribution made pursuant to such an election
shall be made within sixty (60) days of the date such election is submitted to
Vice President - Human Resources. Notwithstanding the foregoing, any
distribution hereunder shall be limited to an amount that would not be subject
to further deferral pursuant to an election under Section 3(e).
9. HARDSHIP DISTRIBUTIONS. The Committee may accelerate the distribution of part
or all, in any or all, of a Participant's Deferral Accounts for reasons of
severe financial hardship. For purposes of the Plan, severe financial hardship
shall be deemed to exist in the event the Committee determines that a
Participant needs a distribution to meet immediate and heavy financial needs
resulting from a sudden or unexpected illness or accident of the Participant or
a member of the Participant's family, loss of the Participant's property due to
casualty, or other similar extraordinary and unforeseeable circumstance arising
as a result of events beyond the control of the Participant. A distribution
based on financial hardship shall not exceed the amount required to meet the
immediate financial need created by the hardship.
10. NON-ASSIGNABILITY. None of the rights or interests in any of the
Participant's Deferral Accounts shall, at any time prior to actual payment or
distribution pursuant to the Plan, be assignable or transferable in whole or in
part, either voluntarily or by operation of law or otherwise, and such rights
and interest shall not be subject to payment of debts by execution, levy,
garnishment, attachment, pledge, bankruptcy or in any other manner; provided
that, upon the occurrence of any such assignment or transfer or the attempted
assignment or transfer, all payments hereunder shall be payable in the sole and
unrestricted judgment and discretion of the Committee, as to time and amount
(including a lump sum amount), and shall be distributable to the person who
would have received the payment but for this Section 10 only at such time or
times and in such amounts as the Committee, from time to time, and in its sole
and unrestricted judgment and discretion, shall determine. Should an event
covered by this Section 10 occur prior to the death of a Participant, the
balance, if any, in the Participant's accounts shall, after such death, be
thereafter distributed as provided in Section 6 subject to the provisions of
this Section 10.
11. INTEREST OF PARTICIPANT. The Company shall be under no obligation to
segregate or reserve any funds or other assets for purposes relating to the Plan
7
<PAGE> 8
and, except as set forth in this Plan, no Participant shall have any rights
whatsoever in or with respect to any funds or other assets held by the Company
for purposes of the Plan or otherwise. Each Participant's accounts maintained
for purposes of the Plan merely constitute bookkeeping entries on records of the
Company, constitute the unsecured promise and obligation of the Company to make
payments as provided herein, and shall not constitute any allocation whatsoever
of any cash, shares or other assets of the Company or be deemed to create any
trust or special deposit with respect to any of the Company's assets.
Notwithstanding the foregoing provisions, nothing in this Plan shall preclude
the Company from setting aside Shares or funds in trust pursuant to one or more
trust agreements between a trustee and the Company. However, no Participant
shall have any secured interest or claim in any assets or property of the
Company or any such trust and all Shares or funds contained in such trust shall
remain subject to the claims of the Company's general creditors.
12. AMENDMENT. The Board of Directors of the Company, or the Organization and
Compensation Committee may, from time to time, amend or terminate the Plan,
provided that no such amendment or termination of the Plan shall adversely
affect a Participant's accounts as they existed immediately before such
amendment or termination or the manner of distribution thereof, unless such
Participant shall have consented thereto in writing. Notice of any amendment or
termination of the Plan shall be given promptly to all Participants.
13. PLAN IMPLEMENTATION. This Plan is adopted and effective on the 25th day of
July, 1994, as amended on June 17, 1995, as further amended September 25, 1995,
effective as of January 1, 1995, further amended on September 22, 1997 and
further amended on September 27, 1999, effective as of January 1, 2000;
provided, however that any deferrals made hereunder into a Stock Deferral
Account prior to January 1, 2000, shall be governed by the provisions of the
Plan in effect prior to January 1, 2000.
-END-
8
<PAGE> 1
Exhibit (10)(l)
THE LUBRIZOL CORPORATION
EXECUTIVE COUNCIL
DEFERRED COMPENSATION PLAN
As Amended
1. PURPOSE. The purpose of this Executive Council Deferred Compensation Plan
(the "Plan") is to permit a member of the Executive Council (sometimes
hereinafter referred to as the "Member" or as the "Participant") who is employed
by The Lubrizol Corporation (the "Company"), to defer a portion of such Member's
compensation as provided in this Plan.
2. ADMINISTRATION. The Plan shall be administered by the Organization and
Compensation Committee of the Board of Directors of the Company (the
"Committee"). The Committee's interpretation and construction of all provisions
of the Plan shall be binding and conclusive upon all Participants and their
heirs and/or successors.
3. RIGHT TO DEFER COMPENSATION.
(a) A Member may, at any time prior to January 1 of a given calendar
year, elect, for one or more future successive calendar years commencing with
the calendar year immediately following the election (each a "Participation
Year"), to defer under the Plan a pre-selected fixed dollar amount or percentage
of such Member's variable compensation, if any (the "deferred compensation"),
under The Lubrizol Corporation Performance Pay Plan ("Performance Pay Plan"),
which such Participant may thereafter be entitled to receive for services
performed during each elected Participation Year.
(b) The election under this Section 3 shall take effect on the first
day of the first elected Participation Year and such election shall be
irrevocable for any elected Participation Year once such Participation Year
shall have commenced.
(c) Notwithstanding paragraphs (a) and (b), when an individual Member
first becomes eligible to participate in the Plan, the newly eligible Member may
make the election under this Section 3 to defer the specified compensation for
services to be performed subsequent to the date specified in the election and
for the remainder of the calendar year in which the election under this Section
3 is made, provided that such election is made within 30 days after the date
that the Member is notified of the Member's eligibility.
(d) All elections under this Plan shall be made by written notice (on a
form provided by the Company) specifying (i) the number of calendar years, one
or more, during which the election shall apply, and (ii) the deferred
compensation, if any, determined under paragraph (a).
(e) A Participant may designate that the election under this Section 3
shall remain in effect until the Participant, on a prospective basis, withdraws
the election or changes the amount to be deferred. Any notice of the withdrawal
or change in the amount of the election shall be effective on the first day of
the calendar year next following the year on which such notice is given;
provided that, such notice shall not
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<PAGE> 2
change, alter or terminate the deferral of the Member's participation in the
Performance Pay Plan for the year in which such notice of withdrawal or change
is given which, except for the deferral, would be payable in the calendar year
next following the year in which such notice of withdrawal or change is given.
Notwithstanding paragraph (b) and the first sentence of this paragraph (e), any
variable compensation earned after the end of the first month in which a
Participant under this Plan ceases to be a Member, as defined in Section 1, but
continues to be employed by the Company, shall not be deferred, provided
however, the balance in the Participant's Stock Deferral Accounts shall continue
to be held and administered pursuant to the Plan.
(f) All notices by a Participant under the Plan shall be in writing and
shall be given to the Company's Vice President, Human Resources.
4. STOCK DEFERRAL ACCOUNTS.
(a) At the close of business of the day on which the Performance Pay
Plan deferred compensation would have been payable to the Participant in the
absence of the election under the Plan to defer payment thereof, there shall be
credited to a separate Stock Deferral Account for each Participant full and
fractional stock equivalent units ("Units") which shall be established as
hereinafter provided and shall be maintained for each Participant on the
Company's records.
(b) The number of full and fractional Units that shall be credited to a
separate Stock Deferral Account for a Participant shall be equal to an amount
determined by:
(i) Dividing the Participant's deferred compensation for
the applicable Participation Year by the average of
the closing price for Lubrizol Common Shares
("Shares") on the New York Stock Exchange ("NYSE")
composite transactions reporting system ("composite
tape") for each of the ten (10) consecutive trading
days commencing on the fourth business day following
the release of earnings for such Participation Year;
and
(ii) multiplying the quotient determined in subparagraph
(i) by 1.25.
(c) To the extent that, at the time Units are credited to a Stock
Deferral Account of a Participant, any federal, state or local payroll
withholding tax applies (e.g., Medicare withholding tax), the Participant shall
be responsible for the payment of such amount to the Company and the Company
shall promptly remit such amount to the proper taxing authority.
(d) The amount of deferred compensation used in the formula set forth
in paragraph (b) shall not constitute a sum due and owing to Participant. Such
amount shall be used solely as part of the formula to determine the number of
full and fractional Units.
(e) As of each dividend record date established by the Company for the
payment of cash dividends with respect to its Shares, the Company shall credit
each separate Stock Deferral Account of a Participant with an additional number
of whole and/or fractional Units equal to:
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<PAGE> 3
(i) the product of (x) the dividend per Share which is
payable with respect to such dividend record date,
multiplied by (y) the number of whole and fractional
Units credited to the separate Stock Deferral Account
of the Participant as of such record date;
divided by
----------
(ii) the closing price of a Share on the dividend record
date (or if Shares were not traded on that date, on
the next preceding day on which Shares were so
traded), as reported on the NYSE- composite tape.
(f) At no time prior to actual delivery of Shares pursuant to the Plan
shall the Company be obligated to purchase or reserve Shares for delivery to any
Participant and a Participant shall not be a shareholder or have any of the
rights of a shareholder with respect to the Units credited to each separate
Stock Deferral Account of a Participant.
5. PAYMENT OF DEFERRED COMPENSATION.
(a) All Units credited to a separate Stock Deferral Account of
Participant, including dividend equivalents thereon, shall be payable to the
Participant at the end of three years from the first date Units were credited to
such separate Stock Deferral Account of the Participant under Section 4(a);
provided, however, that if a Participant's employment is terminated for any
reason other than retirement or death, the Units credited to each separate Stock
Deferral Account of a Participant as of the Participant's termination of
employment date, including all dividend equivalents thereon, shall be payable to
the Participant within 30 days of such termination of employment.
(b) All distributions or payments of Units to a Participant shall be
made in Shares equal to the number of whole Units credited to the separate Stock
Deferral Account(s) of the Participant which become payable in accordance with
Section 5(a). Any fractional number of Units shall be paid in cash in lieu of
Shares.
(c) To the extent that, at the time Shares are distributed to a
Participant, any federal, state or local payroll withholding tax applies, the
Participant shall be responsible for the payment of such amount to the Company
and the Company shall promptly remit such amount to the proper taxing authority.
Such payment may be made in cash, in Shares, or in any combination of cash and
Shares, at the election of the Participant. All elections must be made in
writing and be submitted to the Vice President - Human Resources. If the
Participant elects to satisfy tax withholding with Shares, then such withholding
shall be from those Shares otherwise issuable pursuant to paragraph (b) above,
and shall be such number of Shares that will provide for the federal, state
and/or local income tax at the rates then applicable for supplemental wages,
unless otherwise requested by the Participant, but in no event less than the
statutory minimums for tax withholding. If no election is made prior to the
first distribution of Shares, the Company shall withhold a sufficient number of
Shares to pay the withholding taxes at the highest marginal tax rate in effect
for such Participant. In no event shall the withholding be less than the
statutory minimum for tax withholding.
3
<PAGE> 4
(d) In the event a Participant dies prior to receiving payment of the
entire amount in each separate Stock Deferral Account of the Participant, the
unpaid balance shall be paid to such beneficiary as the Participant may have
designated in writing to the Vice President, Human Resources, of the Company as
the beneficiary to receive any such post-death distribution under the Plan or,
in the absence of such written designation, to the Participant's legal
representative or to the beneficiary designated in the Participant's last will
as the one to receive such distributions. Distributions subsequent to the death
of a Participant may be made either in accordance with Section 5(a) and (b) or
earlier, as determined by the Committee.
(e) To the extent the Committee deems necessary, the Shares distributed
to a Participant pursuant to Section 5(a) and (b) or 6(a) or to a successor
pursuant to Section 5(d) may contain such restrictions on the right of immediate
transfer as the Committee may reasonably determine.
6. ACCELERATION OF PAYMENTS.
(a) The Committee may accelerate the distribution of part or all of one
or more of a Participant's separate Stock Deferral Accounts for reasons of
severe financial hardship. For purposes of the Plan, severe financial hardship
shall be deemed to exist in the event the Committee determines that a
Participant needs a distribution to meet immediate and heavy financial needs
resulting from a sudden or unexpected illness or accident of the Participant or
a member of the Participant's family, loss of the Participant's property due to
casualty, or other similar extraordinary and unforeseeable circumstance arising
as a result of events beyond the control of the Participant. A distribution
based on financial hardship shall not exceed the amount required to meet the
immediate financial need created by the hardship.
7. NON-ASSIGNABILITY. None of the rights or interests in any of the
Participant's separate Stock Deferral Accounts shall, at any time prior to
actual payment or distribution pursuant to the Plan, be assignable or
transferable in whole or in part, either voluntarily or by operation of law or
otherwise, and such rights and interest shall not be subject to payment of debts
by execution, levy, garnishment, attachment, pledge, bankruptcy or in any other
manner; provided that, upon the occurrence of any such assignment or transfer or
the attempted assignment or transfer, all payments under Section 5 shall be
payable in the sole and unrestricted judgment and discretion of the Committee,
as to time and amount, and shall be distributable to the person who would have
received the payment but for this Section 7 only at such time or times and in
such amounts as the Committee, from time to time, and in its sole and
unrestricted judgment and discretion, shall determine. Should an event covered
by this Section 7 occur prior to the death of a Participant, the balance, if
any, in each of the Participant's Stock Deferral Accounts shall, after such
death, be thereafter distributed as provided in Section 5(d) subject to the
provisions of this Section 7.
8. INTEREST OF PARTICIPANT. The Company shall be under no obligation to
segregate or reserve any funds or other assets for purposes relating to the Plan
and, except as set forth in this Plan, no Participant shall have any rights
whatsoever in or with respect to any funds or other assets held by the Company
for purposes of the Plan or otherwise. Each Participant's separate Stock
Deferral Accounts maintained for purposes of the
4
<PAGE> 5
Plan merely constitutes a bookkeeping entry on records of the Company,
constitutes the unsecured promise and obligation of the Company to make payments
as provided herein, and shall not constitute any allocation whatsoever of any
cash or other assets of the Company or be deemed to create any trust or special
deposit with respect to any of the Company's assets. Notwithstanding the
foregoing provisions, nothing in this Plan shall preclude the Company from
setting aside Shares or funds in trust pursuant to one or more trust agreements
between a trustee and the Company. However, no Participant shall have any
secured interest or claim in any assets or property of the Company or any such
trust and all Shares or funds contained in such trust shall remain subject to
the claims of the Company's general creditors.
9. MISCELLANEOUS. In the event of any change in the number of outstanding Shares
by reason of any stock dividend, stock split up, recapitalization, merger,
consolidation, exchange of shares or other similar corporate change, the number
of Units credited to each separate Stock Deferral Account of a Participant shall
be appropriately adjusted to take into account any such event.
10. AMENDMENT. The Board of Directors of the Company, or the Organization and
Compensation Committee, may, from time to time, amend or terminate the Plan,
provided that no such amendment or termination of the Plan shall adversely
affect any Stock Deferral Account of a Participant as it existed immediately
before such amendment or termination or the manner of distribution thereof,
unless such Participant shall have consented thereto in writing. Notice of any
amendment or termination of the Plan shall be given promptly to all
Participants.
11. PLAN IMPLEMENTATION. This Plan is adopted and effective as of the 1st day of
January, 1997, and amended effective November 23, 1998, and amended effective
September 27, 1999.
5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from consolidated
balance sheet and consolidated statements of income and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000060751
<NAME> THE LUBRIZOL CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1.0
<CASH> 163,767
<SECURITIES> 0
<RECEIVABLES> 286,875
<ALLOWANCES> 2,564
<INVENTORY> 256,784
<CURRENT-ASSETS> 763,174
<PP&E> 1,611,389
<DEPRECIATION> 927,558
<TOTAL-ASSETS> 1,674,278
<CURRENT-LIABILITIES> 277,551
<BONDS> 389,714
0
0
<COMMON> 86,073
<OTHER-SE> 712,860
<TOTAL-LIABILITY-AND-EQUITY> 1,674,278
<SALES> 1,311,734
<TOTAL-REVENUES> 1,314,959
<CGS> 895,525
<TOTAL-COSTS> 895,525
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 780
<INTEREST-EXPENSE> 22,490
<INCOME-PRETAX> 143,459
<INCOME-TAX> 53,925
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 89,534
<EPS-BASIC> 1.64
<EPS-DILUTED> 1.64
</TABLE>
