UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED JUNE 30, 1999 COMMISSION FILE NUMBER 1-3507
R O H M A N D H A A S C O M P A N Y
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(Exact name of registrant as specified in its charter)
DELAWARE 23-1028370
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 INDEPENDENCE MALL WEST, PHILADELPHIA, PENNSYLVANIA 19106
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 592-3000
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Common stock outstanding at July 31, 1999: 217,794,512 SHARES
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ROHM AND HAAS COMPANY AND SUBSIDIARIES
FORM 10-Q
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following are incorporated herein by reference to pages 12 through 17
of the company's Quarterly Report to Stockholders for the second quarter
of 1999, a complete copy of which is attached as Exhibit 20.
1. Statements of Consolidated Earnings
2. Statements of Consolidated Cash Flows
3. Consolidated Balance Sheets
4. Notes to Consolidated Financial Statements
ITEM 2. - MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The management discussion and analysis is incorporated herein by
reference to pages 2 through 9 of the company's Quarterly Report to
Stockholders for the second quarter of 1999, a complete copy of which is
attached as Exhibit 20.
ITEM 3. - MARKET RISK DISCUSSION
Management's discussion of market risk is incorporated herein by reference
to Item 7a of the Form 10-K for the year ended December 31, 1998, filed
with the Securities and Exchange Commission on February 26, 1999.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
A discussion of legal proceedings is incorporated herein by reference to
pages 15 and 16 of the company's Quarterly Report to Stockholders for the
second quarter of 1999, a complete copy of which is attached as Exhibit 20.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The company's 80th annual meeting of stockholders was held on June
21, 1999, in Philadelphia, Pennsylvania.
(c) The following is a tabulation of the results of voting by security
holders:
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Election of directors:
Nominees Votes For Votes Withheld
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William J. Avery 148,354,599 926,169
J. Michael Fitzpatrick 148,261,818 1,018,950
Earl G. Graves 148,418,912 861,856
Rajiv L. Gupta 148,447,794 832,974
David W. Haas 148,393,990 886,778
Thomas W. Haas 148,402,092 878,676
James A. Henderson 148,273,898 1,006,870
John H. McArthur 148,418,378 862,390
Jorge P. Montoya 148,268,591 1,021,177
Sandra O. Moose 148,378,504 902,264
Gilbert S. Omenn 148,385,430 895,338
Ronaldo H. Schmitz 148,241,657 1,039,111
Alan Schriesheim 148,332,017 948,751
Marna C. Whittington 148,398,626 882,142
J. Lawrence Wilson 148,323,756 957,012
Proposal to approve the issuance of Rohm and Haas common stock in
connection with the acquisition of Morton International, Inc:
Common stock only: Total common and preferred stock combined:
For 140,290,849 For 141,300,720
Against 913,873 Against 913,873
Abstain 642,929 Abstain 642,929
Proposal to amend Rohm and Haas' Restated Certificate of Incorporation to
increase the authorized number of shares of common stock from 200 million
to 400 million:
Common stock only: Total common and preferred stock combined:
For 140,332,077 For 141,342,013
Against 854,949 Against 854,949
Abstain 660,624 Abstain 660,624
Proposal to approve the Rohm and Haas 1999 Stock Plan:
Common stock only: Total common and preferred stock combined:
For 141,467,263 For 142,477,134
Against 6,677,267 Against 6,677,332
Abstain 1,136,238 Abstain 1,136,238
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Proposal to amend Rohm and Haas' Restated Certificate of Incorporation to
require that future stockholder action be taken at a meeting of
stockholders:
Common stock only: Total common and preferred stock combined:
For 113,380,282 For 114,390,153
Against 26,891,536 Against 26,891,536
Abstain 1,575,831 Abstain 1,575,896
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit (3)(i) - Certificate of Incorporation as amended and
restated June 21, 1999.
Exhibit (10.1) - Employment Agreement with S. Jay Stewart
Exhibit (10.2) - Employment Agreement with William E. Johnston.
Exhibit (10.3) - Amendment to Employment Agreement with
William E. Johnston
Exhibit (12) - Computation of Ratio of Earnings to Fixed Charges
for the company and subsidiaries.
Exhibit (20) - Copy of the company's Quarterly Report to
Stockholders for the quarter ended June 30, 1999
Exhibit (27) - Financial Data Schedules
(b) On June 8, 1999 the company filed a Report on Form 8-K with the
Securities and Exchange Commission, reporting, under Item 5 of said Report,
an amendment, dated as of June 7, 1999, to the Agreement and Plan of
Merger, dated as of January 31, 1999, by and among Rohm and Haas Company,
Morton Acquisition Corp. and Morton International, Inc.
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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.
DATE: August 12, 1999 ROHM AND HAAS COMPANY
--------------- (Registrant)
BRADLEY J. BELL
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
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EXHIBIT INDEX
(Pursuant to Part 232.102(d) of Regulation S-T)
Exhibit
No. Description
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(3)(i) Certificate of Incorporation as amended and restated
June 21, 1999
(10.1) Employment Agreement with S. Jay Stewart
(10.2) Employment Agreement with William E. Johnston.
(10.3) Amendment to Employment Agreement with William E. Johnston
(12) Computation of Ratio of Earnings to Fixed Charges
(20) Copy of Quarterly Report to Stockholders
(27) Financial Data Schedule
ROHM AND HAAS COMPANY
CERTIFICATE OF INCORPORATION
As amended and restated June 21, 1999
Originally incorporated April 23, 1917
under the name Rohm & Haas Company
I. The name of the Company is Rohm and Haas Company.
II. The principal office of the Company in the State of Delaware is
located at 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of its registered agent is The Corporation Trust Company,
and the address of its registered agent is 1209 Orange Street, in the City
of Wilmington, County of New Castle, Delaware 19801.
III. The purpose of the Company is to engage in any lawful act or
activity for which corporations may be organized under the General
Corporation Law of Delaware.
IV. The Company shall have authority to issue 400,000,000 shares of
Common Stock, of the par value of $2.50 per share, and 25,000,000 shares of
Preferred Stock, of the par value of $1.00 per share. The Board of
Directors of the Corporation is hereby expressly authorized, at any time
and from time to time, to divide the shares of Preferred Stock into one or
more series, to issue from time to time in whole or in part the shares of
Preferred Stock, and in the resolutions providing for the issue of such
shares to fix and determine, except as otherwise expressly limited by
Delaware law, the voting powers, full or limited, or no voting powers, and
such designations, preferences and relative, participating, optional or
other special rights, and qualifications, limitations or restrictions as
may be desired, to the fullest extent permitted by Delaware law. The
provisions of the Certificate of Designation attached hereto as Exhibit A
are hereby included as part of Article IV.
V. The Company is to have perpetual existence.
VI. The private property of the stockholders of the Company shall
not be subject to the payment of corporate debts to any extent whatever.
VII. The Board of Directors shall have the power to adopt, amend or
repeal the bylaws of the Company.
VIII. The Company shall have the power to keep its books of account,
documents and records outside of the state of Delaware at such places as
the Board of Directors may determine.
IX. No holder of securities of any class of the Company shall be
entitled as such, as a matter of right, to subscribe for or purchase any
part of any new or additional issue of securities of any class of the
Company, whether now or hereafter authorized. All securities of the
Company shall be issued and sold to such parties as the Board of Directors
in its discretion may determine.
X. No director of the Company shall be personally liable to the
Company or to any stockholder for monetary damages for any breach of duty as
a director except to the extent such exemption from liability is not
permitted under the Delaware General Corporation Law as currently in effect
or hereafter amended. Neither the amendment to nor repeal of this Article
nor the adoption of any provision of the Certificate of Incorporation
inconsistent with this Article shall apply to or have any effect in respect
of any matter occurring, or any cause of action, suit or claim that, but
for this Article X would accrue or arise, prior to such amendment, repeal
or adoption of an inconsistent provision.
XI. Any action required or permitted to be taken by the holders of
the capital stock of the Company must be effected at a duly called annual or
special meeting of the stockholders and may not be effected by a consent in
writing.
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IN WITNESS WHEREOF, this Restated Certificate of Incorporation, which
restates and integrates and does not further amend the provisions of the
Corporation's Certificate of Incorporation as previously restated and
amended and which has no discrepancy between itself and those provisions
and having been duly adopted by the Board of Directors of the Corporation
in accordance with the provisions of Section 245 of the General Corporation
Laws of the State of Delaware, has been executed this 26th day of July,
1999, by its authorized officer.
s/Gail P. Granoff
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Gail P. Granoff
Corporate Secretary
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EXHIBIT A
CERTIFICATE OF DESIGNATION
OF
$2.75 CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF
ROHM AND HAAS COMPANY
Rohm and Haas Company, a Delaware corporation (the "Corporation"),
certifies that pursuant to the authority contained in Article IV of its
Certificate of Incorporation, as amended, and in accordance with the
provisions of Section 151 of the General Corporation Law of the State of
Delaware, its Board of Directors has adopted the following resolution
creating a series of its Preferred Stock, par value $1.00 per share (the
"Preferred Stock"), designated as "$2.75 Cumulative Convertible
Preferred Stock":
RESOLVED, that a series of the class of authorized Preferred Stock,
par value $1.00 per share, of the Corporation be hereby created, and
that the designation and amount thereof and the voting powers,
preferences and relative, participating, optional and other special
rights of the shares of such series, and the qualifications, limitations
or restrictions thereof are as follows:
1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as the "$2.75 Cumulative Convertible Preferred Stock" (the
"$2.75 Preferred Stock") and the number of shares constituting such
series shall be 2,846,061, which number may be decreased (but not
increased) by the Board of Directors without a vote of stockholders;
provided, however, that such number may not be decreased below the
number of then currently outstanding shares of $2.75 Preferred Stock
plus the number of shares of $2.75 Preferred Stock issuable upon
exercise of the then outstanding options to acquire shares of $2.75
Preferred Stock.
2. DIVIDENDS AND DISTRIBUTIONS.
2.1. The holders of shares of $2.75 Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors
out of funds legally available for the purpose, cumulative dividends at
the annual rate of $2.75 per share, and no more, in equal quarterly
payments on the first business Day of March, June, September and
December in each year (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first Quarterly
Dividend Payment Date that is at least ten days after the date of
original issue of the $2.75 Preferred Stock. The payment of dividends
on the $2.75 Preferred Stock shall be made before any cash dividends are
paid on the Common Stock as provided in Section 9.
2.2. Dividends payable pursuant to Section 2.1 shall begin to
accrue and be cumulative from the date of original issue of the $2.75
Preferred Stock. The amount of dividends so payable shall be determined
on the basis of twelve 30-day months and a 360-day year. Accrued but
unpaid dividends shall not bear interest. The Board of Directors may
fix a record date for the determination of holders of shares of $2.75
Preferred Stock entitled to receive payment of a dividend declared
thereon, which record date shall be no more than 60 days prior to the
date fixed for the payment thereof.
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2.3. If dividends are paid on the shares of $2.75 Preferred
Stock in an amount less than the total amount of dividends at the time
accrued and payable on such shares, (a) such dividends as are paid on
the $2.75 Preferred Stock for any dividend period and on any class or
series of stock of the Corporation ranking on a parity (as to dividends)
with the $2.75 Preferred Stock shall be paid pro rata so that the amount
of dividends per share for such period on the $2.75 Preferred Stock and
on any other such class or series of stock that was outstanding during
such period shall in all cases bear to each other the same ratio that
the accrued dividends per share on the shares of the $2.75 Preferred
Stock and such other stock bear to each other, and (b) such dividends as
are paid on the $2.75 Preferred Stock for any dividend period shall be
allocated pro rata on a share-by-share basis among all such shares at
the time outstanding.
3. VOTING RIGHTS. The holders of shares of $2.75 Preferred Stock
shall have the following voting rights:
3.1. Each share of $2.75 Preferred Stock shall be entitled to
one vote per share. The shares of $2.75 Preferred Stock and the shares
of Common Stock, par value $2.50 per share, of the Corporation (the
"Common Stock") (and any other shares of capital stock of the
Corporation at the time entitled thereto) shall vote together as one
class on all matters submitted to a vote of stockholders of the
Corporation, except (a) as otherwise provided by the Certificate of
Incorporation of the Corporation, as amended (the "Certificate of
Incorporation"), or by law and (b) that holders of shares of $2.75
Preferred Stock shall not have such power to vote with the holders of
other classes of capital stock on matters submitted to a vote of
stockholders (i) on any matters on which they are entitled to vote
separately as a series or as a part of the class of Preferred Stock,
regardless of series or (ii) in the election of directors during any
period when they are entitled to vote as part of the class of Preferred
Stock, regardless of series, to elect two directors as provided in
Section 3.2.
3.2. If on any date a total of six quarterly dividends on the
$2.75 Preferred Stock have fully accrued but have not been paid in full,
the number of directors shall increase by two, and the holders of shares
of $2.75 Preferred Stock, voting together as a class with the holders of
any other series of Preferred Stock upon which the same voting rights as
those of the $2.75 Preferred Stock have been conferred and are
exercisable, shall have the right to elect two directors. The right of
such holders of Preferred Stock to vote for the election of such two
directors may be exercised at any annual meeting or at any special
meeting called for such purpose as hereinafter provided or at any
adjournment thereof, or by the written consent, delivered to the
Secretary of the Corporation, of the holders of a majority of all
outstanding shares of Preferred Stock entitled to vote thereon, until
dividends in default on the outstanding shares of Preferred Stock
entitled to vote thereon shall have been paid in full, at which time the
term of office of the two directors so elected shall terminate
automatically; provided, that if the dividends in default on the
outstanding shares of $2.75 Preferred Stock have been paid in full and
the right to elect two directors continues to be exercisable for other
series of Preferred Stock, the holders of $2.75 Preferred Stock shall
have no right to vote in the election of the two directors. So long as
such right to vote continues (and unless such right has been exercised
by written consent of the holders of a majority of the outstanding
shares of Preferred Stock as hereinabove authorized), the Secretary of
the Corporation may call, and upon the written request of the holders of
record of a majority of the outstanding shares of Preferred Stock
entitled to vote thereon addressed to the Secretary at the principal
office of the Corporation shall call, a special meeting of the holders
of such shares for the election of such two directors as provided
herein. Such meeting shall be held within 60 days after delivery of
such request to the Secretary, at the place and upon the notice provided
by law and in the Bylaws for the holding of meetings of stockholders. No
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such special meeting or adjournment thereof shall be held on a
date less than 60 days before an annual meeting of stockholders or any
special meeting in lieu thereof. If at any such annual or special
meeting or any adjournment thereof the holders of a majority of the then
outstanding shares of Preferred Stock entitled to vote in such election
shall be present or represented by proxy, or if the holders of a
majority of the outstanding shares of Preferred Stock shall have acted
by written consent in lieu of a meeting with respect thereto, then the
authorized number of directors shall be increased by two, and such
holders of the Preferred Stock shall be entitled to elect the two
additional directors. Directors so elected shall serve until the next
annual meeting or until their successors shall be elected and shall
qualify, unless the term of office of the persons so elected as
directors shall have terminated under the circumstances set forth in
this Section 3.2. Any vacancy occurring among the directors elected by
the holders of Preferred Stock as a class shall be filled by the
remaining such director, if any, and otherwise by vote of holders of
Preferred Stock as provided above.
3.3. The affirmative vote of the holders of at least 66-2/3% of
the outstanding shares of $2.75 Preferred Stock, voting separately as a
single series, in person or by proxy, at a special meeting or annual
meeting of stockholders called for the purpose, shall be necessary to
(a) authorize, or to increase the authorized number of shares of, or to
issue, any class or series of the Corporation's capital stock ranking
senior (either as to dividends or upon liquidation, dissolution or
winding up) to the $2.75 Preferred Stock, (b) increase the authorized
number of shares of $2.75 Preferred Stock or (c) amend, repeal or change
any of the provisions of the Certificate of Incorporation, or the
provisions of the Certificate of Designation of $2.75 Cumulative
Convertible Preferred Stock which embodies this resolution, in any
manner that would alter the powers, preferences or special rights of the
shares of $2.75 Preferred Stock so as to affect them materially and
adversely; provided, that any authorization of, increase in the
authorized number of shares of, or issuance of, any class or series of
the Corporation's capital stock, in each case ranking on a parity with
or junior (either as to dividends or upon liquidation, dissolution or
winding up) to the $2.75 Preferred Stock shall not be deemed to
materially and adversely alter such powers, preferences and special
rights.
4. CERTAIN RESTRICTIONS. Whenever quarterly dividends payable on
shares of $2.75 Preferred Stock as provided in Section 2 hereof are in
arrears, thereafter and until all accrued and unpaid dividends, whether
or not declared, on the outstanding shares of $2.75 Preferred Stock
shall have been paid in full or declared and set apart for payment, the
Corporation shall not (a) declare or pay dividends, or make any other
distributions, on any shares of capital stock ranking junior (either as
to dividends or upon liquidation, dissolution or winding up) to the
$2.75 Preferred Stock ("Junior Stock"), other than dividends or
distributions payable in Junior Stock or options, warrants or rights to
subscribe for or purchase Junior Stock or (b) redeem, purchase or
otherwise acquire for consideration, or allow any Subsidiary of the
Corporation to redeem, purchase or acquire, any Junior Stock except in
connection with a reclassification or exchange of any Junior Stock or
the purchase, redemption or other acquisition of Junior Stock with
proceeds of a reasonably contemporaneously sale of Junior Stock.
5. REDEMPTION.
5.1. The Corporation shall not have any right to redeem shares
of $2.75 Preferred Stock prior to June 15, 1999. On and after such
date, subject to and upon compliance with this Section 5, provided that
the Corporation shall not at the time be in default with respect to any
dividend payable on shares of $2.75 Preferred Stock, the Corporation
shall have the right, at its sole option and election, to call for
redemption shares of $2.75 Preferred Stock, in whole or in part, at any
time and from time to time.
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5.2. Upon any call for redemption pursuant to Section 5.1,
holders of shares of $2.75 Preferred Stock called for redemption shall
receive the following:
5.2.1. The Corporation shall deliver to the holders of
$2.75 Preferred Stock called for redemption, for each share of $2.75
Preferred Stock called for redemption, a number of shares of Common
Stock (of the class thereof then most widely traded) equal to (a) the
Redemption Price of the $2.75 Preferred Stock in effect on the date
fixed for redemption (the "Redemption Date") plus any accrued and unpaid
dividends thereon, divided by (b) the Current Market Price of the Common
Stock on the Redemption Date. The "Redemption Price" for each share of
$2.75 Preferred Stock redeemed prior to June 15, 2000 is $50.62; on and
after June 15, 2000 and prior to June 15, 2001 is $50.415; on and after
June 15, 2001 and prior to June 15, 2002 is $50.205; and thereafter is
$50.00.
5.2.2. The foregoing notwithstanding, if the Redemption
Date is on a date when no class of Common Stock shall be listed or
admitted to trading on a national securities exchange or reported on by
the National Association of Securities Dealers, Inc. Automated
Quotations Systems ("NASDAQ") or such other system then in use, or
otherwise publicly traded, then upon any call for redemption pursuant to
Section 5.1, in lieu of the Common Stock provided for in Section 5.2.1,
the holders of $2.75 Preferred Stock shall receive for each share
thereof out of funds legally available therefor, an amount in cash equal
to the Redemption Price in effect on the Redemption Date plus any
accrued and unpaid dividends thereon. On the Redemption Date, the
Corporation shall in such event, and at any time after the notice
provided for in Section 5.3 shall have been mailed and before the
Redemption Date the Corporation may, deposit for the benefit of the
holders of shares of $2.75 Preferred Stock called for redemption the
funds necessary for such redemption with a bank or trust company in the
Borough of Manhattan, the City of New York, having a capital and surplus
of at least $100,000,000 in trust with instructions to apply such funds
to the payment of the Redemption Price upon receipt of the certificates
for the shares called for redemption. Any monies so deposited by the
Corporation and unclaimed at the end of one year from the date
designated for such redemption shall revert to the general funds of the
Corporation. After such reversion, any such bank or trust company
shall, upon demand, pay over to the Corporation such unclaimed amounts
and thereupon such bank or trust company shall be relieved of all
responsibility in respect thereof and any holder of shares of $2.75
Preferred Stock so called for redemption shall look only to the
Corporation for the payment of the Redemption Price. In the event that
monies are deposited pursuant to this Section 5.2.2 in respect of shares
of $2.75 Preferred Stock that are converted in accordance with the
provisions of Section 8 hereof, such monies shall, upon such conversion,
revert to the general funds of the Corporation and, upon demand, such
bank or trust company shall pay over to the Corporation such monies and
shall be relieved of all responsibility to the holders of such converted
shares in respect thereof. Any interest accrued on funds deposited
pursuant to this Section 5.2.2 shall be paid from time to time to the
Corporation for its own account.
5.3. Notice of any redemption of shares of $2.75 Preferred Stock
shall be mailed at least 30 days, but not more than 90 days, prior to
the Redemption Date to each holder of shares of $2.75 Preferred Stock to
be redeemed, at such holder's address as it appears on the transfer
books of the Corporation. In order to facilitate the redemption of
shares of $2.75 Preferred Stock, the Board of Directors may fix a record
date for the determination of shares of $2.75 Preferred Stock to be
redeemed, not more than 90 days or less than 30 days prior to the
Redemption Date.
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5.4. If a redemption shall be made pursuant to Section 5.2.1
hereof, then upon the Redemption Date, notwithstanding that any
certificates for such shares shall not have been surrendered for
cancellation, the shares represented thereby shall no longer be deemed
outstanding, the rights to receive dividends thereon shall cease to
accrue from and after the Redemption Date designated in the notice of
redemption and all rights of the holders of shares of $2.75 Preferred
Stock called for redemption shall cease and terminate, excepting only
the right to receive shares of Common Stock in accordance with Section
5.2.1. The person entitled to receive the shares of Common Stock shall
be treated for all purposes as having become the record holder of such
shares of Common Stock at such time. If a redemption shall be pursuant
to Section 5.2.2 hereof, then upon the deposit of funds pursuant to
Section 5.2.2, notwithstanding that any certificates for such shares
shall not have been surrendered for cancellation, the shares represented
thereby shall no longer be deemed outstanding, the rights to receive
dividends thereon shall cease to accrue from and after the Redemption
Date designated in the notice of redemption and all rights of the
holders of shares of $2.75 Preferred Stock called for redemption shall
cease and terminate, excepting only the right to receive the
consideration provided for in Section 5.2.2.
5.5. In connection with the redemption of any shares of $2.75
Preferred Stock, no fractions of shares of Common Stock shall be issued,
but in lieu thereof the Corporation shall pay a cash adjustment in
respect of such fractional interest in an amount equal to such
fractional interest multiplied by the Current Market Price of the Common
Stock on the Redemption Date.
5.6. If less than all shares of $2.75 Preferred Stock at the
time outstanding are to be redeemed, the shares to be redeemed shall be
selected pro rata. Shares of $2.75 Preferred Stock which have been
called for redemption may be converted into shares of Common Stock at
any time up to the close of business on the Business Day preceding the
Redemption Date, in accordance with Section 8 hereof.
6. REACQUIRED SHARES. Any shares of $2.75 Preferred Stock
converted, redeemed, purchased or otherwise acquired by the Corporation
in any manner whatsoever shall be retired and cancelled promptly after
the acquisition thereof. All such shares shall upon their cancellation
become authorized but unissued shares of Preferred Stock.
7. LIQUIDATION, DISSOLUTION OR WINDING UP.
7.1. Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, no distribution of the
assets of the Corporation shall be made (a) to the holders of shares of
Junior Stock unless, prior thereto, the holders of shares of $2.75
Preferred Stock shall have received the liquidation value of $50 per
share, plus an amount per share equal to all unpaid dividends thereon,
including accrued dividends, whether or not declared, to the date of
such payment or (b) if the assets of the Corporation, or proceeds
thereof, shall be insufficient to pay in full the amount in (a) and the
liquidation value with respect to any other shares of capital stock of
the Corporation ranking on a parity (upon liquidation, dissolution or
winding up) to the $2.75 Preferred Stock, then such assets, or the
proceeds thereof, shall be distributed among the holders of shares of
$2.75 Preferred Stock and any such other stock ratably in accordance
with the respective amounts which would be payable on such shares of
$2.75 Preferred Stock and any such other stock if all amounts payable
thereon were paid in full.
7.2. After payment of the full amount provided in Section
7.1(a), a holder of $2.75 Preferred Stock will not be entitled to any
further participation in any distribution of assets by the Corporation.
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7.3. Neither the consolidation, merger or other business
combination of the Corporation with or into any other Person or Persons
nor the sale, transfer or lease of all or substantially all of the
assets of the Corporation shall be deemed to be a liquidation,
dissolution or winding up of all Corporation for purposes of this
Section 7.
8. CONVERSION.
8.1. Subject to and upon compliance with this Section 8, each
share of $2.75 Preferred Stock shall be convertible at any time, at the
option of the holder thereof, into .7812 (the "Conversion Number") fully
paid and non-assessable shares of Common Stock.
8.2. The Conversion Number shall be subject to adjustment from
time to time as follows:
8.2.1. In case the Corporation shall at any time or from
time to time declare and pay a dividend, or make a distribution, on the
outstanding shares of Common Stock in shares of Common Stock or
subdivide or reclassify the outstanding shares of Common Stock into a
greater number of shares or combine or reclassify the outstanding shares
of Common Stock, then, and in each such case, the Conversion Number
shall be adjusted so that the holder of each share of $2.75 Preferred
Stock shall be entitled to receive, upon the conversion thereof, the
number of shares of Common Stock which the holder of $2.75 Preferred
Stock would have been entitled to receive after the happening of any of
the events described above had such share been converted immediately
prior to the happening of such event or the record date therefor,
whichever is earlier. An adjustment made pursuant to this Section
8.2.1. shall be effective (a) in the case of any such dividend or
distribution, immediately after the close of business on the record date
for the determination of holders of shares of Common Stock entitled to
receive such dividend or distribution, or (b) in the case of any such
subdivision, reclassification or combination, at the close of business
on the day upon which such corporate action becomes effective.
8.2.2. In case the Corporation shall at any time or from
time to time issue to holders of Common Stock rights, options or
warrants, exercisable within 45 days after the applicable record date
for the right to receive such rights, options or warrants, to acquire
Common Stock at a price per share of Common Stock less than 95% of the
Current Market Price of Common Stock as of the date of issuance of such
rights, options or warrants, then, and in each such case, such issuances
shall be deemed to constitute payment of a dividend in Common Stock
pursuant to Section 8.2.1. of that number of shares of Common Stock
which is determined by dividing the Current Market Price per share as of
such time into the difference between (a) the total Current Market Price
as of such time of the number of shares of Common Stock purchasable upon
exercise of such rights, options or warrants and (b) the aggregate
consideration receivable by the Corporation for the total number of
shares of Common Stock into which such rights, options or warrants may
be exercised. An adjustment made pursuant to this Section 8.2.2. shall
be made on the next Business Day following the date on which any such
issuance is made and shall be effective retroactively immediately after
the close of business on such date. For purposes of this Section 8.2,
the aggregate consideration receivable by the Corporation in connection
with the issuance of such rights, options or warrants shall be deemed
equal to the sum of the aggregate offering price (before deduction of
underwriting discounts or commissions and expenses) of all such
securities plus the minimum aggregate amount, if any, payable upon
exercise of any such rights, options or warrants. No adjustment
pursuant to this Section 8.2.2. shall be required to be made for (a) the
issuance of rights, options or warrants to purchase Common Stock
pursuant to any employee benefit plan or program of the Corporation, (b)
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<PAGE>
the issuance of Common Stock pursuant to any plan providing for
the reinvestment of dividends or interest payable on securities of
the Corporation or the investment of additional optional amounts in
shares of Common Stock or (c) any right, option or warrant right
outstanding as of the date hereof.
8.2.3. In case the Corporation shall at any time or from
time to time declare and pay or make a dividend or other distribution
(including, without limitation, any distribution of stock or other
securities or property or rights or warrants to subscribe for
securities) on its Common Stock, other than dividends payable in cash or
shares of Common Stock or issuances pursuant to Section 8.2.2., then,
and in each such case, the Conversion Number shall be adjusted so that
the holder of each share of $2.75 Preferred Stock shall be entitled to
receive, upon the conversion thereof, the number of shares of Common
Stock determined by multiplying (a) the number of shares of Common Stock
into which such share was convertible on the day immediately prior to
the record date fixed for the determination of stockholders entitled to
receive such dividend or distribution by (b) a fraction, the numerator
of which shall be the Current Market Price per share of Common Stock as
of such record date, and the denominator of which shall be such Current
Market Price per share of Common Stock less the Fair Market Value per
share of Common Stock (as determined in good faith by the Board of
Directors of the Corporation) of such dividend or distribution. An
adjustment made pursuant to this Section 8.2.3. shall be made upon the
opening of business on the next Business Day following the date on which
any such dividend or distribution is made and shall be effective
retroactively immediately after the close of business on the record date
fixed for the determination of stockholders entitled to receive such
dividend or distribution.
8.2.4. In case at any time the Corporation shall be a
party to any transaction (including, without limitation, a merger,
consolidation, sale of all or substantially all of the Corporation's
assets or recapitalization of the Common Stock and excluding any
transaction to which Sections 8.2.1, 8.2.2 or 8.2.3 apply) in which the
previously outstanding Common Stock shall be changed into or exchanged
for different securities of the Corporation or common stock or other
securities of another corporation or interests in a noncorporate entity
or other property (including cash) or any combination of any of the
foregoing (each such transaction being herein called the "Transaction"
and the date of consummation of the Transaction being herein called the
"Consummation Date"), then, each share of $2.75 Preferred Stock which is
not converted into the right to receive stock, securities or other
property in connection with such transaction, shall thereafter be
convertible into, in lieu of the Common Stock issuable upon such
conversion prior to the Consummation Date, the amount of securities or
other property to which such holder would actually have been entitled as
a holder of shares of Common Stock upon the consummation of the
Transaction if such holder had converted such shares of $2.75 Preferred
Stock immediately prior to such Transaction (subject to adjustments from
and after the Consummation Date as nearly equivalent as possible to the
adjustments provided for in this Section 8.2); provided, that effective
provision shall be made, in the Articles or Certificate of Incorporation
of the resulting or surviving corporation or otherwise, so that the
provisions set forth herein for the protection of the conversion rights
of the shares of $2.75 Preferred Stock shall thereafter be applicable,
as nearly as reasonably may be, to any such other shares of stock,
securities and other property deliverable upon conversion of the shares
of $2.75 Preferred Stock remaining outstanding; and provided, further,
that any such resulting or surviving corporation shall expressly assume
the obligation to deliver, upon the exercise of the conversion right,
such shares, securities or property as the holders of the shares of
$2.75 Preferred Stock remaining outstanding, shall be entitled to
receive pursuant to these provisions, and to make provisions for the
protection of the conversion right, as provided above.
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<PAGE>
8.2.5. Upon the expiration of any rights, options,
warrants or conversion or exchange privileges, if any thereof shall not
have been exercised, the Conversion Number shall, upon such expiration,
be readjusted and shall thereafter, upon any further conversion, be such
as it would have been had it been originally adjusted (or had the
original adjustment not been required, as the case may be) as if (a) the
only shares of Common Stock so issued were the shares of Common Stock,
if any, actually issued or sold upon the exercise of such rights,
options, warrants or conversion or exchange privileges and (b) such
shares of Common Stock, if any, were issued or sold for the aggregate
consideration receivable by the Corporation upon such exercise plus the
consideration, if any, actually received by the Corporation for
issuance, sale or grant of all such rights, options, warrants or
conversion or exchange rights whether or not exercised.
8.2.6. The Corporation may, in its discretion, make such
increases in the Conversion Number in addition to any other adjustments
provided for in this Section 8.2 as it considers advisable in order that
any event treated for Federal income tax purposes as a dividend of stock
or stock rights shall not be taxable to the recipient.
8.2.7. If a plan to pay any dividend or make any
distribution by the Corporation is legally abandoned before payment,
then any adjustment made in the Conversion Number pursuant to this
Section 8.2 in connection with such dividend or distribution shall be
cancelled as of the date the plan is abandoned.
8.3. The holder of any shares of $2.75 Preferred Stock may
exercise his right to convert such shares into shares of Common Stock by
surrendering for such purposes to the Corporation, at its principal
office or at such other office or agency maintained by the Corporation
for that purpose, a certificate or certificates representing the shares
of $2.75 Preferred Stock to be converted, duly endorsed to the
Corporation on in blank, accompanied by a written notice stating that
such holder elects to convert all or a specified whole number of such
shares in accordance with the provisions of this Section 8 and
specifying the name or names in which such holder wishes the certificate
or certificates for shares of Common Stock to be issued. In case such
notice shall specify a name or names other than that of such holder,
such notice shall be accompanied by payment of all transfer taxes
payable upon the issuance of shares of Common Stock in such name or
names. Other than such taxes, the Corporation will pay any and all
issue and other taxes (other than taxes based on income) that may be
payable in respect of any issue or delivery of shares of Common Stock on
conversion of $2.75 Preferred Stock pursuant hereto. As promptly as
practicable, and in any event within ten Business Days after the
surrender of such certificate or certificates and the receipt of such
notice relating thereto and, if applicable, payment of all transfer
taxes (or the demonstration to the satisfaction of the Corporation that
such taxes have been paid), the Corporation shall deliver or cause to be
delivered (a) certificates representing the number of validly issued,
fully paid and nonassessable full shares of Common Stock to which the
holder of shares of $2.75 Preferred Stock so converted shall be entitled
and (b) if less than the full number of shares of $2.75 Preferred Stock
evidenced by the surrendered certificate or certificates are being
converted, a new certificate or certificates, of like tenor, for the
number of shares evidenced by such surrendered certificate or
certificates less the number of shares converted. Such conversion shall
be deemed to have been made at the close of business on the date of
giving of such notice and of such surrender of the certificate or
certificates representing the shares of $2.75 Preferred Stock to be
converted so that the rights of the holder as to the shares being
converted shall cease except for the right to receive shares of Common
Stock in accordance herewith, and the person entitled to receive the
shares of Common Stock shall be treated for all purposes as having
become the record holder of such shares of Common Stock at such time.
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<PAGE>
The Corporation shall not be required to convert, and no surrender of
shares of $2.75 Preferred Stock shall be effective for that purpose,
while the transfer books of the Corporation for the Common Stock are
closed for any purpose; provided, the surrender of shares of $2.75
Preferred Stock for conversion during any period while such books are
closed shall become effective for conversion immediately upon the
reopening of such books, as if the conversion had been made on the date
such shares of $2.75 Preferred Stock were surrendered, and at the
conversion rate in effect at the date of such surrender.
8.4. Whenever the Conversion Number is adjusted as provided in
this Section 8, the Corporation shall as soon as practicable mail to the
holders of record of the outstanding shares of $2.75 Preferred Stock at
their respective addresses as the same shall appear in the Corporation's
stock records a notice stating that the Conversion Number has been
adjusted and setting forth the new number of shares of Common Stock (or
describing the new stock, securities, cash or other property) into which
each share of $2.75 Preferred Stock is convertible as a result of such
adjustment, a brief statement of the facts requiring such adjustment and
the computation thereof, and when such adjustment became effective.
8.5. No adjustment in the Conversion Number shall be required
unless such adjustment would result in an increase or decrease of at
least 1% in the Conversion Number, provided that any adjustments which
by reason of this Section 8.5 are not required to be made shall be
carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 8.5 shall be made to the nearest
one-hundredth of a share.
8.6. Shares of $2.75 Preferred Stock may be converted at any
time up to the close of business on the Business Day preceding the
Redemption Date of such shares pursuant to Section 5 hereof.
8.7. Upon conversion of any shares of $2.75 Preferred Stock, the
holder thereof shall not be entitled to receive any accumulated, accrued
or unpaid dividends in respect of the shares so converted; provided,
that such holder shall be entitled to receive any dividends on such
shares of $2.75 Preferred Stock declared prior to such conversion if
such holder held such shares on the record date fixed for the
determination of holders of shares of $2.75 Preferred Stock entitled to
receive payment of such dividend.
8.8. In connection with the conversion of any shares of $2.75
Preferred Stock, no fractions of shares of Common Stock shall be issued,
but in lieu thereof the Corporation shall pay a cash adjustment in
respect of such fractional interest in an amount equal to such
fractional interest multiplied by the Current Market Price per share of
Common Stock on the day on which such shares of $2.75 Preferred Stock
are deemed to have been converted.
8.9. The Corporation shall at all times reserve and keep
available out of its authorized and unissued Common Stock, solely for
the purpose of effecting the conversion of the $2.75 Preferred Stock,
such number of shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all then outstanding shares of
$2.75 Preferred Stock. The Corporation shall from time to time, subject
to and in accordance with the laws of Delaware, increase the authorized
amount of Common Stock if at any time the number of authorized shares of
Common Stock remaining unissued shall not be sufficient to permit the
conversion at such time of all then outstanding shares of $2.75
Preferred Stock.
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<PAGE>
8.10. Except as herein otherwise provided, no adjustment in the
Conversion Number shall be made by reason of the issuance, in exchange
for cash, property or services, of shares of Common Stock, or any
securities convertible into or exchangeable for shares of Common Stock,
or carrying the right to purchase any of the foregoing.
9. RANK. The $2.75 Preferred Stock shall, as to dividends and upon
liquidation, dissolution or winding up, rank senior to the Common Stock
and rank senior to or on a parity with all series of the Corporation's
Preferred Stock or other capital stock.
10. DEFINITIONS. For the purposes hereof:
"Business Day" means any day other than a Saturday, Sunday, or a day
on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
"Current Market Price" per share of Common Stock on any date shall be
deemed to be the Trading Price on the Trading Day immediately prior to
such date. If the Common Stock is not listed or admitted to trading on
a national securities exchange or reported on by NASDAQ or such other
system then in use or otherwise publicly trade, "Current Market Price"
shall mean the Fair Market Value per share as determined in good faith
by the Board of Directors of the Corporation.
"Fair Market Value" means the amount that a willing buyer would pay a
willing seller in an arm's-length transaction.
"Person" shall mean any individual, firm, corporation, or other
entity, and shall include any successor (by merger or otherwise) of such
entity.
"Subsidiary" of any Person means any corporation or other entity of
which a majority of the voting equity securities or interests is owned,
directly or indirectly, by such Person.
"Trading Day" means a day on which the principal national securities
exchange on which the Common Stock is listed or admitted to trading is
open for the transaction of business or, if the Common Stock is not
listed or admitted to trading on any national securities exchange, any
day other than a Saturday, Sunday, or a day on which banking
institutions in the State of New York are authorized or obligated by law
or executive order to close.
"Trading Price" per share of Common Stock on any date shall be the
mean between the high and low sale price, regular way, or, in case no
sale takes place on such day, the average of the closing bid and asked
prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities
listed or admitted to trading on the principal national securities
exchange on which the Common Stock is listed or admitted to trading or,
if the Common Stock is not listed or admitted to trading on any national
securities exchange, the mean between the high and low quoted sale price
or, if not so quoted, the average of the high bid and low asked prices
in the over-the-counter market, as reported by NASDAQ or such other
system then in use, or, if on any such date the Common Stock is not
quoted by any such organization, the average of the closing bid and
asked prices as furnished by a professional market maker making a market
in the Common Stock selected by the Board of Directors.
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EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement by and among Rohm and Haas Company, a
Delaware corporation ("Parent"), Morton International, Inc., an Indiana
corporation (the "Company") and S. Jay Stewart (the "Executive") is dated
as of the 31st day of January, 1999.
WHEREAS, the Company, Parent and Gershwin Acquisition Company, an
Indiana corporation and a wholly owned subsidiary of Parent ("Sub"),
have entered into an Agreement and Plan of Merger dated as of the 31st
day of January, 1999 (the "Merger Agreement"), pursuant to which Sub
will merge with and into the Company (the "Merger"), following which the
Company will be a wholly owned subsidiary of Parent; and
WHEREAS, the Executive and the Company are parties to an Executive
Employment Agreement dated as of April 1, 1994 (the "Current Employment
Agreement"); and
WHEREAS, it is acknowledged by the parties hereto that upon either
the consummation of the Offer (as defined in the Merger Agreement) or
the approval of the Merger by the shareholders of the Company, the
Executive will have "Good Reason" to terminate his employment pursuant
to the Current Employment Agreement; and
WHEREAS, the Company and Parent have determined that it is in the
best interests of their respective shareholders to set forth, and the
Executive has agreed to set forth, their mutual agreements as to the
rights and entitlements of the Executive under the Current Employment
Agreement from and after the Effective Time and to provide for the
continuing availability to the Company and Parent of the Executive's
services and expertise, all on the terms and conditions set forth below;
NOW, THEREFORE, it is hereby agreed as follows:
1. Effect of this Agreement; Continued Employment. (a) Effective
Time. This Agreement shall become effective at the Effective Time (as
defined in the Merger Agreement).
(b) Position and Duties. From and after the date on which this
Agreement becomes effective until the first anniversary thereof (the
"Employment Term"), the Executive shall serve as a member of the Board
of Directors of Parent (the "Board"), and Parent shall employ the
Executive; and the Executive shall serve as a Vice Chairman of the
Board, reporting directly to the Chairman of the Board and Chief
Executive Officer of the Company and to the Board. The Executive's
primary duties and responsibilities shall be to work to ensure a smooth
transition and integration of the businesses of Parent and the Company,
with such other duties and responsibilities not inconsistent with his
position as may be assigned to him from time by the Chairman of the
Board and Chief Executive Officer of the Company and the Board.
(c) Full-Time Employment. During the Employment Term, and excluding
any periods of vacation and sick leave to which the Executive is
entitled, the Executive shall devote reasonable attention and time
during normal business hours to the business and affairs of
<PAGE>
Parent and the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive under this Agreement, use the
Executive's reasonable best efforts to carry out such responsibilities
faithfully and efficiently. It shall not be considered a violation of
the foregoing for the Executive to (A) serve on corporate, civic or
charitable boards or committees, (B) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (C) manage personal
investments, so long as such activities do not significantly interfere
with the performance of the Executive's responsibilities as an employee
of the Company in accordance with this Agreement.
(d) Location. During the Employment Term, the Executive shall be
based at the Company's office in Chicago, Illinois, and shall be
required to be absent therefrom on travel status or otherwise only to
the extent reasonably necessary to discharge his duties hereunder.
2. Compensation. (a) Cash Compensation. During the Employment
Term, the Executive shall receive cash compensation, payable at such
intervals as Parent pays the base salary of its other senior executives,
equal to $1,950,000 on an annual basis (which sum represents the
aggregate of (i) his current annual base salary of $745,000, (ii) his
target annual bonus under the Company's 1999 fiscal year annual
incentive plan of $540,000, and (iii) his target long-term incentive
plan award for the award cycle that ends at the end of the Company's
1999 fiscal year of $665,000).
(b) Other Benefits. During the Employment Term: (i) the Executive
shall be entitled to participate in, and shall receive all benefits
under, savings and retirement plans, practices, policies and programs on
the same basis as other senior executives of Parent; and (ii) the
Executive and/or the Executive's family, as the case may be, shall be
eligible for participation in, and shall receive all benefits under,
welfare benefit plans, practices, policies and programs (including,
without limitation, medical, prescription, dental, disability, salary
continuance, employee life insurance, group life insurance, accidental
death and travel accident insurance plans and programs) on the same
basis as other senior executives of Parent.
(c) Expenses. During the Employment Term, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses
incurred by him (in accordance with the policies and procedures
established for the senior executive officers of Parent) in performing
services hereunder, provided that the Executive properly accounts
therefor in accordance with Parent policy.
(d) Vacations. During the Employment Term, the Executive shall be
entitled to the number of paid vacation days determined by Parent for
its senior executive officers, but not less than five weeks in any
calendar year or portion thereof during which the Executive is employed.
The Executive shall also be entitled to all paid holidays given by the
Company to its senior executive officers.
(e) Perquisites. During the Employment Period, the Executive shall
be entitled to continue to receive all perquisites that he is receiving
from the Company as of the date hereof.
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<PAGE>
3. Termination of Employment. (a) Upon any termination of the
Executive's employment for any reason after the Effective Time (whether
or not during the Employment Term), the Executive (or the Executive's
family or estate, as applicable) shall be entitled to the payments and
benefits set forth below in this Section 3. The date of such termination
of employment is hereinafter referred to as the "Date of Termination."
(b) The Company shall pay to the Executive (or the Executive's
estate, as applicable), in a lump sum in cash within 30 days after the
Date of Termination, the product of (i) $2,185,000 (which represents the
annualized amount of cash severance, calculated based upon current
compensation, to which he is entitled under the Current Employment
Agreement) times (ii) a fraction, the numerator of which is the number
of days from the Date of Termination through and including September 30,
2003, and the denominator of which is 365.
(c) From the Date of Termination through and including September 30,
2003, or such longer period as any plan, program, practice, or policy
may provide, Parent shall continue welfare and fringe benefits and
perquisites to the Executive and/or the Executive's family at least
equal in value to those that would have been provided in accordance with
the plans, programs, practices and policies described in clause (i) of
Section 2(b) and in Section 2(e) if the Executive's employment and the
Employment Term had continued through September 30, 2003. From and
after October 1, 2003, the Executive and his spouse shall be entitled to
receive retiree medical benefits ("Retiree Medical Benefits") for life
at least equal in value to those in effect as of the date hereof for
senior executives of the Company who retire with full benefits.
Notwithstanding the foregoing, the Executive may elect for himself and
his family (or his surviving spouse may elect) to cease receiving
medical benefits pursuant to the first sentence of this Section 3(c) and
begin receiving medical benefits pursuant to the second sentence of this
Section 3(c) at any time after the Date of Termination and before
September 30, 2003.
(d) Beginning immediately following the Date of Termination, Parent
shall provide the Executive and the Executive's beneficiaries with
supplemental pension benefits ("Contract Pension Benefits") such that
the Monthly Contract Pension Benefits, plus the monthly pension benefits
received by them pursuant to all qualified and nonqualified defined
benefit pension plans of Parent and the Company, are not less than the
monthly benefits set forth in Schedule I hereto, computed in accordance
with Schedule I. Although the Contract Pension Benefits will begin
immediately following the Date of Termination, they shall not be subject
to any actuarial reduction for early payment.
(e) To the extent not theretofore paid or provided, or otherwise
specified in this Agreement, the Company shall timely pay or provide to
the Executive any other amounts or benefits required to be paid or
provided or which the Executive is eligible to receive under any plan,
program, policy or practice or contract or agreement of Parent, the
Company or their respective affiliates, in accordance with the terms
thereof.
(f) The Executive shall not be required to mitigate the amount of
any payment, benefit or perquisite provided for in this Section 3 by
seeking other employment or otherwise, nor shall the amount of any
payment, benefit or perquisite provided for in this Section 3 be
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<PAGE>
reduced by any compensation earned by the Executive as the result of
employment by another employer after the Date of Termination, or
otherwise.
4. Unauthorized Disclosure; Inventions. (a) The Executive shall
not, without the written consent of the Board or a person authorized
thereby, use for his own purposes or disclose to any person, other than
an employee of Parent or the Company or a person to whom disclosure is
reasonably necessary or appropriate in connection with the performance
by the Executive of his duties hereunder, any confidential information
obtained by him while in the employ of Parent or the Company, including
without limitation confidential information with respect to any of
Parent's or the Company's products, improvements, formulas, designs or
styles, processes, customers, methods of distribution or methods of
manufacture; provided, however, that confidential information shall not
include any information known generally to the public (other than as a
result of unauthorized disclosure by the Executive).
(b) (i) Any and all inventions made, developed or created by the
Executive (whether at the request or suggestion of Parent or the Company
or otherwise, whether alone or in conjunction with others, and whether
during regular hours of work or otherwise) during the Employment Term,
which may be directly or indirectly useful in, or relate to, the
business of or tests being carried out by Parent or the Company or any
of its subsidiaries or affiliates, will be promptly and fully disclosed
by the Executive to an appropriate executive officer of Parent and shall
be Parent's exclusive property as against the Executive, and the
Executive will promptly deliver to an appropriate officer of Parent all
papers, drawings, models, data and other material relating to any
invention made, developed or created by him as aforesaid.
(ii) The Executive will, upon Parent's request and without any
payment therefor, execute any document necessary or advisable in the
opinion of Parent's counsel to direct issuance of patents to the Company
with respect to such inventions as are to be Parent's exclusive property as
against the Executive under this Section 4(b) or to vest in Parent title to
such inventions as against the Executive, the expense of securing any
patent, however, to be borne by Parent.
(c) The foregoing provisions of this Section 4 shall be subject to and
modified by any applicable law providing employee ownership of or rights in
inventions under certain circumstances, and shall be binding upon the
Executive's heirs, successors and legal representatives.
5. Certain Additional Payments. (a) Anything in this Agreement to the
contrary notwithstanding and except as set forth below, in the event it
shall be determined that any payment or distribution by Parent, the Company
or their respective affiliates to or for the benefit of the Executive
(whether paid or payable or distributed or distributable pursuant to the
terms of this Agreement or otherwise, but determined without regard to any
additional payments required under this Section 5) (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Internal Revenue
Code of 1986, as amended (the "Code"), or any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"),
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<PAGE>
then the Executive shall be entitled to receive an additional payment
(a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including, without limitation, any income taxes
(and any interest and penalties imposed with respect thereto) and Excise
Tax imposed upon the Gross-Up Payment, the Executive retains an amount of
the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 5(c), all determinations
required to be made under this Section 5, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be
made by Ernst & Young LLP (the "Accounting Firm") which shall provide
detailed supporting calculations to Parent, the Company and the Executive
within 15 business days of the receipt of notice from the Executive that
there has been a Payment, or such earlier time as is requested by Parent or
the Company. In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group effecting the
Change of Control, the Executive shall appoint another nationally
recognized accounting firm to make the determinations required hereunder
(which accounting firm shall then be referred to as the Accounting Firm
hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by Parent. Any Gross-Up Payment, as determined pursuant to this
Section 5, shall be paid by Parent to the Executive within five days of the
receipt of the Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by the Executive, it shall furnish
the Executive with a written opinion that failure to report the Excise Tax
on the Executive's applicable federal income tax return would not result in
the imposition of a negligence or similar penalty. Any determination by
the Accounting Firm shall be binding upon Parent, the Company and the
Executive. As a result of the uncertainty in the application of Section
4999 of the Code at the time of the initial determination by the Accounting
Firm hereunder, it is possible that Gross-Up Payments which will not have
been made by Parent or the Company should have been made ("Underpayment"),
consistent with the calculations required to be made hereunder. In the
event that Parent exhausts its remedies pursuant to Section 5(c) and the
Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine that amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by Parent or the
Company to or for the benefit of the Executive.
(c) The Executive shall notify Parent in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment of
the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprise Parent of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day
period following the date on which it gives such notice to Parent (or such
shorter period ending on the date that any payment of taxes with respect to
such claim is due). If Parent notifies the Executive in writing prior to
the expiration of such period that it desires to contest such claim, the
Executive shall:
(i) give Parent any information reasonably requested by Parent
relating to such claim.
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<PAGE>
(ii) take such action in connection with contesting such claim as
Parent shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such
claim by an attorney reasonably selected by Parent,
(iii) cooperate with Parent in good faith in order effectively to
contest such claim, and
(iv) permit Parent to participate in any proceedings relating to
such claim;
provided, however, that Parent shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed as a result
of such representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 5(c), Parent shall
control all proceedings taken in connection with such contest and, at its
sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect
of such claim and may, at its sole option, either direct the Executive to
pay the tax claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as Parent shall
determine; provided, however, that if Parent directs the Executive to pay
such claim and sue for a refund, Parent shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and
hold the Executive harmless, on an after-tax basis, from any Excise Tax or
income tax (including interest or penalties with respect thereto) imposed
with respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of the
statute of limitations relating to payment of taxes for the taxable year of
the Executive with respect to which such contested amount is claimed to be
due is limited solely to such contested amount. Furthermore, Parent's
control of the contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other issue raised
by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by
Parent pursuant to Section 5(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall promptly pay to
Parent the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by
the Executive of an amount advanced by Parent pursuant to Section 5(c), a
determination is made that the Executive shall not be entitled to any
refund with respect to such claim and Parent does not notify the Executive
in writing of its intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
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<PAGE>
6. Successors. (a) This Agreement is personal to the Executive and
without the prior written consent of Parent shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
Parent, the Company and their respective successors and assigns.
(c) Parent and the Company shall each require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all
or substantially all of their respective businesses and/or assets to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that Parent or the Company (as applicable) would be required to
perform it if no such succession had taken place. As used in this
Agreement, "Parent" and the "Company" shall mean Parent and the Company,
respectively, as hereinbefore defined and any successor to their respective
businesses and/or assets as aforesaid which assumes and agrees to perform
this Agreement by operation of law, or otherwise.
7. Miscellaneous. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without
reference to principles of conflict of laws. The captions of this
Agreement are not part of the provisions hereof and shall have no force or
effect. This Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their respective
successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:
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If to the Executive:
S. Jay Stewart
1086 Lake Road
Lake Forest, Illinois 60045
Facsimile: (847) 295-5338
If to Parent:
Rohm and Haas Company
100 Independence Mall West
Philadelphia, Pennsylvania 19106
Attention: Corporate Secretary
Facsimile: (215) 592-3227
with an additional copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: William E. Curbow, Esq.
Facsimile: (212) 455-2502
If to the Company:
Morton International, Inc.
100 North Riverside Plaza
Chicago, Illinois 60606
Attention: Corporate Secretary
Facsimile: (312) 807-2101
with an additional copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Eric S. Robinson, Esq.
Facsimile: (212) 403-2000
or to such other address as either party shall have furnished to the
other in writing in accordance herewith. Notice and communications shall
be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision (or portion
thereof) of this Agreement shall not affect the validity or enforceability
of any other provision (or portion thereof) of this Agreement.
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(d) The Company may withhold from any amounts payable under this
Agreement such federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
(e) From and after the Effective Time, this Agreement shall supersede
any other agreement between the parties with respect to the subject matter
hereof, including without limitation the Current Employment Agreement.
(f) This Agreement may be executed in several counterparts, each of
which shall be deemed an original, and said counterparts shall constitute
but one and the same instrument.
(g) The provisions of Sections 3, 4, 5, 6 and 7 of this Agreement shall
survive the end of the Employment Term, the termination of the Executive's
employment, and the termination of this Agreement for any reason, except as
specified in Section 7(h) below.
(h) This Agreement shall be null and void, ab initio, and of no further
effect if the Merger Agreement is terminated before the Effective Time.
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IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from their respective Boards of
Directors, Parent and the Company have each caused these presents to be
executed in its name on its behalf, all as of the day and year first above
written.
/s/ S. Jay Stewart
By ---------------------------------
S. Jay Stewart
MORTON INTERNATIONAL, INC.
/s/ Christopher K. Julsrud
By ---------------------------------
ROHM AND HAAS COMPANY
/s/ J. Lawrence Wilson
---------------------------------
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EXHIBIT 10.2
EMPLOYMENT AGREEMENT
AMENDED AND RESTATED AGREEMENT by and between MORTON INTERNATIONAL,
INC. (the "Company") and William E. Johnston, Jr. (the "Executive"),
dated as of the 22nd day of March, 1990.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its stockholders to
assure that the Company will have the continued dedication of the
Executive, notwithstanding the possibility, threat, or occurrence of a
Change of Control (as defined below) of the Company. The Board believes it
is imperative to diminish the inevitable distraction of the Executive by
virtue of the personal uncertainties and risks created by a pending or
threatened Change of Control and to encourage the Executive's full
attention and dedication to the Company currently and in the event of any
threatened or pending Change of Control, and to provide the Executive with
compensation and benefits arrangements upon a Change of Control which
ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the
Board has caused the Company to enter into this Amended and Restated
Agreement.
<PAGE>
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Change of Control Date" shall be the
first date during the Change of Control Period on which a Change of Control
(as defined in Section 2) occurs. Anything in this Agreement to the
contrary notwithstanding, if a Change of Control occurs and the Company has
terminated the Executive's employment (other than under circumstances which
would constitute Cause or Disability (as such terms are defined below)) or
the Executive has terminated his employment under circumstances which would
constitute Good Reason (as defined below) if such termination occurred the
day after the Change of Control Date, and if it is reasonably demonstrated
by the Executive (i) that such termination of employment was at the request
of a third party who has taken steps reasonably calculated to effect the
Change of Control or (ii) that the Company's actions otherwise arose in
connection with or in anticipation of the Change of Control, then for all
purposes of this Agreement the "Change of Control Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing on
the date hereof and ending on the third anniversary of such date; provided,
however, that commencing on the date one year after the date hereof, and on
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each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal
Date"), the Change of Control Period shall be automatically extended so as
to terminate three years from such Renewal Date, unless at least 60 days
prior to the Renewal Date the Company shall give notice to the Executive
that the Change of Control Period shall not be so extended.
2. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
20% or more of either (i) the then outstanding shares of common stock of
the Company (the "Outstanding Company Common Stock") or (ii) the combined
voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company (excluding an acquisition by virtue of the
exercise of a conversion privilege), (ii) any acquisition by the Com-
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pany, (iii) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation controlled
by the Company or (iv) any acquisition by a corporation pursuant to a
reorganization, merger or consolidation, if, following such reorganization,
merger or consolidation, the conditions described in clauses (i), (ii) and
(iii) of subsection (c) of this Section 2 are satisfied; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
the Company's stockholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office
occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
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<PAGE>
(c) Approval by the stockholders of the Company of a reorganization,
merger, or consolidation, unless, following such reorganization, merger or
consolidation, (i) more than 60% of, respectively, the then outstanding
shares of common stock of the corporation resulting from such
reorganization, merger or consolidation and the combined voting power of
the then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities immediately prior to
such reorganization, merger or consolidation in substantially the same
proportions as their ownership, immediately prior to such reorganization,
merger or consolidation, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (ii) no Person
(excluding the Company, any employee benefit plan (or related trust) of the
Company or such corporation resulting from such reorganization, merger or
consolidation and any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 20% or
more of the Outstanding Company Common Stock or Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or
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<PAGE>
indirectly, 20% or more of, respectively, the then outstanding shares
of common stock of the corporation resulting from such reorganization,
merger or consolidation or the combined voting power of the then
outstanding voting securities of such corporation, entitled to vote
generally in the election of directors and (iii) at least a majority of the
members of the board of directors of the corporation resulting from such
reorganization, merger or consolidation were members of the Incumbent Board
at the time of the execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(d) Approval by the stockholders of the Company of (i) a complete
liquidation or dissolution of the Company or (ii) the sale or other
disposition of all or substantially all of the assets of the Company, other
than to a corporation, with respect to which following such sale or other
disposition, (A) more than 60% of, respectively, the then outstanding
shares of common stock of such corporation and the combined voting power of
the then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then benefically owned, directly
or indirectly, by all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities immediately prior to
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<PAGE>
such sale or other disposition in substantially the same proportion as
their ownership, immediately prior to such sale or other disposition, of
the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (B) no Person (excluding the Company and
any employee benefit plan (or related trust) of the Company or such
corporation and any Person beneficially owning, immediately
prior to such sale or other disposition, directly or indirectly, 20% or
more of the Outstanding Company Common Stock or Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly,
20% or more of, respectively, the then outstanding shares of common stock
of such corporation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in the
election of directors and (C) at least a majority of the members of the
board of directors of such corporation were members of the Incumbent Board
at the time of the execution of the initial agreement or action of the
Board providing for such sale or other disposition of assets of the
Company.
3. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the
employ of the Company, for the period commencing on the Change of Control
Date and ending on the third anniversary of such date (the "Employment
Period").
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<PAGE>
4. Terms of Employment. (a) Position and Duties. (i) During the
Employment Period, (A) the Executive's position (including status, offices,
titles and reporting requirements), authority, duties and responsibilities
shall be at least commensurate in all material respects with the most
significant of those held, exercised and assigned at any time during the
90-day period immediately preceding the Change of Control Date and (B) the
Executive's services shall be performed at the location (the "Principal
Business Location") where the Executive was employed immediately preceding
the Change of Control Date or at any office or location which does not
result in a material increase in the distance or time of commutation
between the Executive's place of primary residence at the Change of Control
Date and the Executive's Principal Business Location, or materially
adversely affect the mode of such commutation.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business hours
to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use
the Executive's reasonable best efforts to perform faithfully and
efficiently such responsibilities. During the Employment Period it shall
not
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be a violation of this Agreement for the Executive to (A) serve on
corporate, civic or charitable boards or committees, (B) deliver lectures,
fulfill speaking engagements or teach at educational institutions and (C)
manage personal investments, so long as such activities do not
significantly interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance with this
Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the
Change of Control Date, the continued conduct of such activities (or the
conduct of activities similar in nature and scope thereto) subsequent to
the Change of Control Date shall not thereafter be deemed to interfere with
the performance of the Executive's responsibilities to the Company.
(b) Compensation and Employment. (i) Base Salary. During the
Employment Period, the Executive shall receive in accordance with the
Company's payroll practices at the Change of Control Date an annual base
salary ("Annual Base Salary"), at least equal to twelve times the highest
monthly base salary paid or payable to the Executive by the Company and its
affiliated companies in respect of the twelve-month period immediately
preceding the month in which the Change of Control Date occurs. During the
Employment Period, the Annual Base Salary shall be reviewed at least
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<PAGE>
annually and shall be increased at any time and from time to time as
shall be substantially consistent with increases in base salary awarded in
the ordinary course of business to other peer executives of the Company and
its affiliated companies but in no event shall the annual increase in Base
Salary be less than a percentage at least equal to the increase, if any, in
the cost-of-living shown on the Consumer Price Index for the area in which
the Principal Business Location is located, published by the Bureau of
Labor Statistics of the United States Department of Labor for the
immediately preceding twelve-month period (or, if no such Consumer Price
Index is then published, any successor index thereto). Any increase in
Annual Base Salary shall not serve to limit or reduce any other obligation
to the Executive under this Agreement. Annual Base Salary shall not be
reduced after any such increase and the term Annual Base Salary as utilized
in this Agreement shall refer to Annual Base Salary as so increased. As
used in this Agreement, the term "affiliated companies" includes (i) any
company controlled by, controlling or under common control with the Company
and (ii) with respect to any period or part of a period prior to July 1,
1989, the Company's predecessor, Morton Thiokol, Inc.
(ii) Bonus. (A) In addition to Annual Base Salary, the Executive shall
be awarded, for each fiscal year
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beginning or ending during the Employment Period, an annual bonus (the
"Annual Bonus") in cash at least equal to the highest annualized (for any
fiscal year consisting of less than twelve full months or with respect to
which the Executive has been employed by the Company for less than twelve
full months) bonus paid or payable (including any amount subject to a
deferral election) to the Executive by the Company and its affiliated
companies in respect of the three fiscal years immediately preceding the
fiscal year in which the Change of Control Date occurs (the "Recent Annual
Bonus"). Each such Annual Bonus shall be paid no later than the end of the
third month of the fiscal year next following the fiscal year for which the
Annual Bonus is awarded, unless the Executive shall elect to defer the
receipt of such Annual Bonus.
(B) In addition to Annual Base Salary and the Annual Bonus, the
Executive shall be paid, for each fiscal year beginning or ending during
the Employment Period, a long-term bonus (the "Long-Term Bonus") in cash at
least equal to the average long-term incentive bonus (the "Recent Long-Term
Bonus") paid or payable to the Executive by the Company and its affiliated
companies under the Company's Long-Term Incentive Compensation Plan (or any
predecessor or successor plan thereto including pursuant to performance
unit awards granted under the Morton Thiokol, Inc. 1985
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Stock Option and Performance Unit Plan) (the "LTIP") in respect of the
last three completed performance cycles ending with the performance cycle
ending in the fiscal year preceding the fiscal year in which the Change of
Control Date occurs (or, if less, in respect of the number of completed
performance cycles for which the Executive has received a long-term bonus).
If the Executive was not a participant in the LTIP in one of such cycles,
but is, at the Change of Control Date, a participant in the LTIP, the
Recent Long-Term Bonus shall be equal to the amount payable to such
Executive under the LTIP upon a Change of Control (as defined in the LTIP),
divided by the number of performance cycles in which the Executive was
participating at such time. For the fiscal year in which the Change of
Control Date occurs and for the next two fiscal years, any such payment may
be reduced (but not below zero) by the amount actually paid upon the Change
of Control (as defined in the LTIP) to the Executive under the terms of the
LTIP with respect to the performance cycle that otherwise would have ended
in such fiscal year. Each such Long-Term Bonus shall be paid pursuant to a
plan which has three-year performance cycles and is otherwise substantially
similar to the LTIP and shall be paid no later than the end of the third
month of the fiscal year next following the fiscal year for which the
Long-Term Bonus is awarded, unless the Executive shall elect to defer the
receipt of such Long-Term Bonus.
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(iii) Incentive, Savings and Retirement Plans. In addition to Annual
Base Salary, Annual Bonus and Long-Term Bonus payable as hereinabove
provided, the Executive shall be entitled to participate during the
Employment Period in all incentive, savings and retirement plans,
practices, policies and programs applicable to other peer executives of the
Company and its affiliated companies, but in no event shall such plans,
practices, policies and programs provide the Executive with incentive,
savings and retirement benefits opportunities, in each case, less
favorable, in the aggregate, than the most favorable of those provided by
the Company and its affiliated companies for the Executive under such
plans, practices, policies and programs as in effect at any time during the
90-day period immediately preceding the Change of Control Date.
(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be
eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and
its affiliated companies (including, without limitation, medical,
prescription, dental, disability, salary continuance, employee life, group
life, accidental death and travel accident insurance plans and programs)
and applicable to other peer executives of the Company and its affiliated
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<PAGE>
companies, but in no event shall such plans, practices, policies and
programs provide benefits which are less favorable, in the aggregate, than
the most favorable of such plans, practices, policies and programs in
effect at any time during the 90-day period immediately preceding the
Change of Control Date.
(v) Expenses. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the most favorable policies,
practices and procedures of the Company and its affiliated companies in
effect at any time during the 90-day period immediately preceding the
Change of Control Date or, if more favorable to the Executive, as in effect
at any time thereafter with respect to other peer executives of the Company
and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the Executive
shall be entitled to fringe benefits including, without limitation, club
memberships and annual physicals, in accordance with the most favorable
plans, practices, programs and policies of the Company and its affiliated
companies in effect at any time during the 90-day period immediately
preceding the Change of Control Date or, if more favorable to the
Executive, as in effect at any time
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<PAGE>
thereafter with respect to other peer executives of the Company and its
affiliated companies.
(vii) Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, to exclusive personal secretarial and
other assistance, and to a Company-provided car, at least equal to the most
favorable of the foregoing provided to the Executive by the Company and its
affiliated companies at any time during the 90-day period immediately
preceding the Change of Control Date or, if more favorable to the
Executive, as provided at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
(viii) Vacation. During the Employment Period, the Executive shall be
entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated
companies as in effect at any time during the 90-day period immediately
preceding the Change of Control Date or, if more favorable to the
Executive, as in effect at any time thereafter with respect to other peer
executives of the Company and its affiliated companies with similar lengths
of service.
5. Termination of Employment. (a) Death or Disability. The
Executive's employment shall terminate auto-
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matically upon the Executive's death during the Employment Period. If
the Company determines in good faith that the Disability of the Executive
has occurred during the Employment Period (pursuant to the definition of
"Disability" set forth below), it may give to the Executive written notice
in accordance with Section 12(b) of this Agreement of its intention to
terminate the Executive's employment. In such event, the Executive's
employment with the Company shall terminate effective on the 30th day after
receipt of such notice by the Executive (the "Disability Change of Control
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties.
For purposes of this Agreement, "Disability" means the absence of the
Executive from the Executive's duties with the Company on a full-time basis
for 180 consecutive business days as a result of incapacity due to mental
or physical illness which is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to the
Executive or the Executive's legal representative (such agreement as to
acceptability not to be withheld unreasonably).
(b) Cause. The Company may terminate the Executive's employment during
the Employment Period for "Cause." For purposes of this Agreement, "Cause"
means (i) an act or acts of personal dishonesty taken by the Executive and
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intended to result in substantial personal enrichment of the Executive
at the expense of the Company, (ii) repeated violations by the Executive of
the Executive's obligations under Section 4(a) of this Agreement which are
demonstrably willful and deliberate on the Executive's part and which are
not remedied in a reasonable period of time after receipt of written notice
from the Company or (iii) the conviction of the Executive of a felony
involving moral turpitude. For purposes of this Section 5(b), no act, or
failure to act, on the Executive's part shall be considered "willful"
unless done, or omitted to be done, by him not in good faith and without
reasonable belief that his action or omission was in the best interest of
the Company. Notwithstanding the foregoing, the Executive shall not be
deemed to have been terminated for Cause unless and until there shall have
been delivered to the Executive a copy of a resolution, duly adopted by the
affirmative vote of not less than three-quarters of the entire membership
of the Board at a meeting of the Board called and held for the purpose
(after reasonable notice to the Executive and an opportunity for him,
together with his counsel, to be heard before the Board), finding that in
the good faith opinion of the Board, the Executive was guilty of conduct
set forth above in clause (i), (ii), or (iii) of the second sentence of
this Section 5(b) and specifying the particulars thereof in detail.
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(c) Good Reason. The Executive's employment may be terminated during
the Employment Period by the Executive for Good Reason. For purposes of
this Agreement, "Good Reason" means
(i) the assignment to the Executive of any duties inconsistent in
any respect with the Executive's position (including status, offices,
titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 4(a) of this Agreement, or
any other action by the Company which results in a diminution in such
position, authority, duties or responsibilities, excluding for this
purpose an isolated, insubstantial and inadvertent action not taken in
bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any
office or location other than that described in Section 4(a)(i)(B)
hereof;
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(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section
11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of
"Good Reason" made by the Executive shall be conclusive. Anything in this
Agreement to the contrary notwithstanding, a termination by the Executive
for any reason during the 30-day period immediately following the first
anniversary of the Change of Control Date shall be deemed to be a
termination for Good Reason for all purposes of this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause or
by the Executive for Good Reason shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12
(b) of this Agreement. For purposes of this Agreement, a "Notice of
Termination" means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) sets forth in
reasonable detail the facts and circumstances claimed to provide a basis
for termination of the Executive's employment under the provision so
indicated and (iii) if the Date of Termination (as defined below) is other
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than the date of receipt of such notice, specifies the termination date
(which date shall be not more than fifteen days after the giving of such
notice). The failure by the Executive to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of
Good Reason shall not waive any right of the Executive hereunder or
preclude the Executive from asserting such fact or circumstance in
enforcing the Executive's rights hereunder.
(e) Date of Termination. "Date of Termination" means the date of
receipt of the Notice of Termination or any later date specified therein,
as the case may be; provided, however, that (i) if the Executive's employment
is terminated by the Company other than for Cause or Disability, the Date
of Termination shall be the date on which the Company notifies the
Executive of such termination and (ii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall
be the date of death of the Executive or the Disability Change of Control
Date, as the case may be.
6. Obligations of the Company upon Termination. (a) Death. If the
Executive's employment terminates by reason of the Executive's death during
the Employment Period, this Agreement shall terminate without further
obligations to the Executive's legal representatives under this
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<PAGE>
Agreement, other than the following obligations: (i) the Executive's
Annual Base Salary through the Date of Termination, to the extent not
theretofore paid, (ii) any amount payable to the Executive pursuant to
4(b)(ii) hereof in respect of the most recently completed fiscal year, to
the extent not theretofore paid, (iii) if the Change of Control Date
occurred after the end of the most recently completed fiscal year and no
Annual Bonus was paid to the Executive in respect of such period, an amount
equal to the Recent Annual Bonus, (iv) the product of the greater of the
Annual Bonus paid or payable (and annualized for any fiscal year consisting
of less than twelve full months or for which the Executive has been
employed for less than twelve full months) to the Executive for the most
recently completed fiscal year during the Employment Period, if any, or the
Recent Annual Bonus (such greater amount hereafter referred to as the
"Highest Annual Bonus") and a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of Termination,
and the denominator of which is 365, (v) for each performance cycle under
the LTIP or any successor thereto which has commenced on or after the
Change of Control Date, the product of the greater of the Long-Term Bonus
paid or payable to the Executive for the most recently completed
performance cycle during the Employment Period, if any, or the Recent
Long-Term Bonus (such
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<PAGE>
greater amount hereafter referred to as the "Greater Long-Term Bonus")
and a fraction, the numerator of which is the number of days which have
elapsed in the performance cycle through the Date of Termination, and the
denominator of which is 1095, and (vi) any compensation previously deferred
by the Executive (together with any accrued interest thereon) and not yet
paid by the Company and any accrued vacation pay not yet paid by the
Company (the amounts described in paragraphs (i) through (vi) hereof are
hereinafter referred to as "Accrued Obligations"). All Accrued Obligations
shall be paid to the Executive's estate or beneficiary, as applicable, in a
lump sum in cash within 30 days of the Date of Termination. Anything in
this Agreement to the contrary notwithstanding, the Executive's family
shall be entitled to receive benefits at least equal to the most favorable
benefits provided by the Company and any of its affiliated companies to
surviving families of peer executives of the Company and such affiliated
companies under such plans, programs, practices and policies relating to
family death benefits, if any, as in effect with respect to other peer
executives and their families at any time during the 90-day period
immediately preceding the Change of Control Date or, if more favorable to
the Executive and/or the Executive's family, as in effect on the date of
the Executive's death with respect to other peer executives of the Company
and its affiliated companies and their families.
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<PAGE>
(b) Disability. If the Executive's employment is terminated by reason
of the Executive's Disability during the Employment Period, this Agreement
shall terminate without further obligations to the Executive, other than
for Accrued Obligations. All Accrued Obligations shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of Termination.
Anything in this Agreement to the contrary notwithstanding, the Executive
shall be entitled after the Disability Change of Control Date to receive
disability and other benefits at least equal to the most favorable of those
provided by the Company and its affiliated companies to disabled executives
and/or their families in accordance with such plans, programs, practices
and policies relating to disability, if any, as in effect with respect to
other peer executives and their families at any time during the 90-day
period immediately preceding the Change of Control Date or, if more
favorable to the Executive and/or the Executive's family, as in effect at
any time thereafter with respect to other peer executives of the Company
and its affiliated companies and their families.
(c) Cause; Other than for Good Reason. If the Executive's employment
shall be terminated for Cause during the Employment Period or if the
Executive terminates employment during the Employment Period other than for
Good Reason, this Agreement shall terminate without further obliga-
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<PAGE>
tions to the Executive other than the obligation to pay to the
Executive Annual Base Salary through the Date of Termination plus the
amount of any compensation previously deferred by the Executive and accrued
vacation pay, in each case to the extent theretofore unpaid.
(d) Good Reason; Other Than for Cause or Disability. If, during the
Employment Period, the Company shall terminate the Executive's employment
other than for Cause or Disability, or if the Executive shall terminate
employment under this Agreement for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the
amounts described in paragraphs A, B and C, below, less the amount
described in paragraph D:
A. the product of (x) three and (y) the sum of (i) Annual Base
Salary, (ii) the Highest Annual Bonus and (iii) the Greater
Long-Term Bonus; and
B. all Accrued Obligations; and
C. a lump-sum retirement benefit equal to the difference
between (a) the actuarial equivalent of the benefit under the
Morton International, Inc. Pension Plan and the Morton
International, Inc.
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<PAGE>
Excess Pension Plan as in effect on the Change of Control Date
or any successor plan which provides more favorable benefits to the
Executive (the "Retirement Plans") which the Executive would
receive if the Executive's employment continued at the compensation
level provided for in Sections 4(b)(i) and 4(b)(ii) of this
Agreement for three years, assuming for this purpose that all
accrued benefits are fully vested, and (b) the actuarial equivalent
of the Executive's actual benefit (paid or payable), if any, under
the Retirement Plans; less
D. the sum of the following amounts calculated for each
performance cycle under the LTIP with respect to which a payment
was made under the terms of the LTIP as a result of the Change of
Control (as defined in the LTIP): the product of (x) the number of
days (but not less than zero) that would have remained in such
cycle as of the Date of Termination if the Change of Control (as
defined in the LTIP) had not occurred divided by 1095 and (y) the
amount paid upon the Change of Control under the terms of the LTIP
with respect to such cycle; and
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<PAGE>
(ii) for the remainder of the Employment Period, or such longer
period as any plan, program, practice or policy may provide, the
Company shall continue benefits to the Executive and/or the Executive's
family at least equal to those which would have been provided to them
in accordance with the plans, programs, practices and policies
described in Section 4(b)(iv) and (vi) of this Agreement if the
Executive's employment had not been terminated in accordance with the
most favorable plans, practices, programs or policies of the Company
and its affiliated companies applicable to other peer executives and
their families during the 90-day period immediately preceding the
Change of Control Date or, if more favorable to the Executive, as in
effect at any time thereafter with respect to other peer executives of
the Company and its affiliated companies and their families. For
purposes of determining the Executive's age and length of service at
the time of his termination of employment in order to determine
eligibility of the Executive for retiree benefits pursuant to such
plans, practices, programs and policies, the Executive shall be
considered to have remained employed until the end of the Employment
Period and to have terminated employment on the last day of such
period; provided, however, that the Executive shall be entitled to the
more favorable of
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<PAGE>
the retiree benefits in effect on the Date of Termination or
the retiree benefits in effect on the date that would have been
the last date of the Employment Period if the Executive had
remained employed.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any benefit,
bonus, incentive or other plans, programs, policies or practices, provided
by the Company or any of its affiliated companies and for which the
Executive may qualify, nor shall anything herein limit or otherwise affect
such rights as the Executive may have under any other agreements with the
Company or any of its affiliated companies. Amounts which are vested
benefits or which the Executive is otherwise entitled to receive under any
plan, policy, practice or program of the Company or any of its affiliated
companies at or subsequent to the Date of Termination shall be payable in
accordance with such plan, policy, practice or program except as explicitly
modified by this Agreement.
8. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have
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<PAGE>
against the Executive or others. In no event shall the Executive be
obligated to seek other employment or take any other action by way of
mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement. The Company agrees to pay, from time to time
promptly upon invoice, to the full extent permitted by law, all legal fees
and expenses which the Executive may reasonably incur as a result of any
contest or controversy (regardless of the outcome thereof and whether or
not litigation is involved) by the Company, the Executive or others of the
validity or enforceability of, or liability under, any provision of this
Agreement or any guarantee of performance thereof (including as a result of
any contest by the Executive about the amount of any payment pursuant to
Section 9 of this Agreement).
9. Certain Additional Payments by the Company. (a) Anything in this
Agreement to the contrary notwithstanding, in the event it shall be
determined that any payment or distribution by the Company to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this
Section 9) (a "Payment") would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code")
or any interest or penalties are incurred by the Executive with
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<PAGE>
respect to such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that after
payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any
income taxes (and any interest and penalties imposed with respect thereto)
and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be
made by Ernst & Young (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Executive within 15
business days of the receipt of notice from the Executive that there has
been a Payment, or such earlier time as is requested by the Company. In
the event that the Accounting Firm is serving (or has, during the three
years preceding the Effective Date, served) as accountant or auditor for
the individual, entity or group
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<PAGE>
effecting the Change of Control, the Executive shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm
shall be borne solely by the Company. Any Gross-Up Payment, as determined
pursuant to this Section 9, shall be paid by the Company to the Executive
within five days of the receipt of the Accounting Firm's determination. If
the Accounting Firm determines that no Excise Tax is payable by the
Executive, it shall furnish the Executive with a written opinion that
failure to report the Excise Tax on the Executive's applicable federal
income tax return would not result in the imposition of a negligence or
similar penalty. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have
been made ("Underpayment"), consistent with the calculations required to be
made hereunder. In the event that the Company exhausts its remedies
pursuant to Section 9(c) and the Executive thereafter is required to make
a payment of any Excise Tax, the Accounting Firm shall determine the amount
of the
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<PAGE>
Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall apprise the
Company of the nature of such claim and the date on which such claim is
requested to be paid. The Executive shall not pay such claim prior to the
expiration of the 30-day period following the date on which it gives such
notice to the Company (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the Company
notifies the Executive in writing prior to the expiration of such period
that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect
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<PAGE>
to such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively
to contest such claim, and
(iv) permit the Company to participate in any proceedings relating
to such claim;
provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties) incurred
in connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed as a result
of such representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 9(c), the Company
shall control all proceedings taken in connection with such contest and, at
its sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect
of such claim and may, at its sole option, either direct the Executive to
pay the tax claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate
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<PAGE>
courts, as the Company shall determine; provided, however, that if the
Company directs the Executive to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to the Executive, on an
interest-free basis and shall indemnify and hold the Executive harmless, on
an after-tax basis, from any Excise Tax or income tax (including interest
or penalties with respect thereto) imposed with respect to such advance or
with respect to any imputed income with respect to such advance; and
further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to
which such contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the contest shall
be limited to issues with respect to which a Gross-Up Payment would be
payable hereunder and the Executive shall be entitled to settle or contest,
as the case may be, any other issue raised by the Internal Revenue Service
or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 9(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 9(c)) promptly pay to
the Company the amount of such refund
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<PAGE>
(together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), a determination is made
that the Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its
intent to contest such denial of refund prior to the expiration of 30 days
after such determination, then such advance shall be forgiven and shall not
be required to be repaid and the amount of such advance shall offset, to
the extent thereof, the amount of Gross-Up Payment required to be paid.
10. Confidential Information. (a) During the period of his employment
hereunder, the Executive shall not, without the written consent of the
Chief Executive Officer, disclose to any person, other than an employee of
the Company or a person to whom disclosure is reasonably necessary or
appropriate in connection with the performance by the Executive of his
duties as an executive of the Company, any material confidential
information obtained by him while in the employ of the Company or Morton
Thiokol, Inc. with respect to any of the products, improvements, formulas,
designs or styles, processes, customers, methods of distribution or methods
of manufacture of the Company or Morton Thiokol, Inc., the disclosure of
which he knows will be ma-
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<PAGE>
terially damaging to the Company; provided, however, that confidential
information shall not include any information known generally to the public
(other than as a result of unauthorized disclosure by the Executive) or any
information of a type not otherwise considered confidential by persons
engaged in the same business or a business similar to that conducted by the
Company. For the period ending two years following the Date of
Termination, the Executive shall not disclose any confidential information
of the type described above except as determined by him to be reasonably
necessary in connection with any business or activity in which he is then
engaged.
(b) Any and all inventions made, developed or created by the Executive
(whether at the request or suggestion of the Company or otherwise, whether
alone or in conjunction with others, and whether during regular hours of
work or otherwise) during the period of his employment by the Company or
Morton Thiokol, Inc., which may be directly or indirectly useful in, or
relate to, the business of or tests being carried out by the Company or any
of its subsidiaries or affiliates, will be promptly and fully disclosed by
the Executive to an appropriate executive officer of the Company and shall
be the Company's exclusive property as against the Executive, and the
Executive will promptly deliver to an appropriate executive officer of the
Company
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<PAGE>
all papers, drawings, models, data and other material relating to any
invention made, developed or created by him as aforesaid.
(c) The Executive will, upon the Company's request and without any
payment therefor, execute any documents necessary or advisable in the
opinion of the Company's counsel to direct issuance of patents to the
Company with respect to such inventions as are to be the Company's
exclusive property as against the Executive under Section 10(b) above or to
vest in the Company title to such inventions as against the Executive,
provided, however, that the expense of securing any such patent will be
borne by the Company.
(d) The foregoing provisions of this Section 10 shall be binding upon
the Executive's heirs, successors and legal representatives.
(e) In no event shall an asserted violation of the provisions of this
Section 10 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
11. Successors. (a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by
the Executive otherwise than by will or the laws of descent and
distribution.
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<PAGE>
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially
all of the business and/or assets of the Company to assume expressly and
agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession had
taken place.
12. Miscellaneous. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois, without
reference to principles of conflict of laws. The captions of this
Agreement are not part of the provisions hereof and shall have no force or
effect. This Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their respective
successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:
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If to the Executive:
-------------------
Home address as currently shown
on Human Resources Department
records of Executive's business unit.
If to the Company:
-----------------
Morton International
110 North Wacker Drive
Chicago, Illinois 60606-1560
Attention: Corporate Secretary
or to such other address as either party shall have furnished to the
other in writing in accordance herewith. Notice and communications shall
be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's failure to insist upon strict compliance with any
provision hereof shall not be deemed to be a waiver of such provision or
any other provision thereof.
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<PAGE>
(f) This Agreement contains the entire understanding of the Company and
the Executive with respect to the subject matter hereof.
(g) Anything in this Agreement to the contrary notwithstanding, the
Executive and the Company acknowledge that the employment of the Executive
by the Company is "at will", and, except as provided in Section 1 hereof,
prior to the Change of Control Date, the employment of the Executive may be
terminated by either the Executive or the Chief Executive Officer of the
Company at any time. Upon a termination of the Executive's employment
prior to the Change of Control Date, except as provided in Section I
hereof, there shall be no further rights under this Agreement.
(h) This Agreement shall supercede and replace the Employment Agreement
dated February 27, 1989 by and between the Executive and the Company.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be
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<PAGE>
executed in its name on its behalf, all as of the day and year first
above written.
/s/ William E. Johnston, Jr.
----------------------------------------
William E. Johnston, Jr.
MORTON INTERNATIONAL, INC.
By: /s/ C. S. Locke
------------------------------------
C. S. Locke
Chairman and Chief Executive
Officer
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EXHIBIT 10.3
AMENDMENT TO EMPLOYMENT AGREEMENT
with William E. Johnston
This Amendment to the Employment Agreement by and between Morton
International, Inc., an Indiana corporation (the "Company"), and William E.
Johnston (the "Executive") dated as of March 22, 1990 (the "Employment
Agreement") is made by and among the Company, Rohm and Haas Company, a
Delaware corporation ("Parent") and the Executive and is dated as of the
31st day of January, 1999.
WHEREAS, the Company, Parent and Gershwin Acquisition Corp., an
Indiana corporation and a wholly owned subsidiary of Parent ("Sub"), have
entered into an Agreement and Plan of Merger dated as of the 31st day of
January, 1999 (the "Merger Agreement"), pursuant to which Sub will merge
with and into the Company (the "Merger"), following which the Company will
be a wholly owned subsidiary of Parent; and
WHEREAS, it is acknowledged by the parties hereto that upon
consummation of the Merger, the Executive will have "Good Reason" to
terminate his employment pursuant to the Employment Agreement; and
WHEREAS, the Company and Parent have determined that it is in the
best interests of their respective shareholders, and the Executive has
agreed, to provide for the continued employment of the Executive following
the Merger and to amend and clarify the Employment Agreement in certain
respects as set forth below;
NOW, THEREFORE, it is hereby agreed as follows:
1. In General. Capitalized terms used and not defined in this
Amendment shall have the meanings assigned to them in the Employment
Agreement. It is acknowledged and agreed that the Employment Period will
have begun before the Effective Time (as defined in the Merger Agreement)
as a result of prior events contemplated by the Merger Agreement.
2. New Position. As of the Effective Time, clause (A) of Section
4(a)((i) of the Employment Agreement shall be amended to read in its
entirety as follows:
the Executive shall serve as a member of the Executive Council of
Parent, with the title of Senior Vice President, and as principal
operating officer of Parent and the Company in Chicago, Illinois,
with such duties and responsibilities commensurate with such
position as may be assigned to him from time to time by a Vice
Chairman or the Chief Operating Officer of Parent (it being
understood that he will not have reporting obligations to more
than one of such persons at any one time), and
3. Severance. At the Effective Time the Executive shall be paid in a
lump sum in cash the amount described in Section 6(d)(i) of the Employment
Agreement, calculated if he had exercised his right to terminate his
employment for Good Reason at the Effective Time. In consideration of the
foregoing payment, the Executive shall cease to be entitled to receive the
<PAGE>
payment described in Section 6(d)(i) of the Employment Agreement upon
the subsequent termination of his employment for any reason. However, in
the event of the termination of the Executive's employment during the
period of one year following the Effective Time by Parent other than for
Cause or Disability, or by the Executive for Good Reason, the Executive
shall be entitled to receive a lump sum in cash within 30 days after the
Date of Termination equal to the aggregate of the following amounts: (a)
the product of (i) the Multiplier (as defined below) and (ii) the sum of
(A) the Annual Base Salary, (B) the Highest Annual Bonus and (C) the
Greater Long-Term Bonus; and (b) all Accrued Obligations (except to the
extent previously paid); and (c) a lump-sum retirement benefit equal to the
difference between (I) the actuarial equivalent of the benefits under the
Retirement Plans which the Executive would receive if the Executive's
employment continued at the compensation level provided for in Sections
4(b)(i) and 4(b)(ii) of the Employment Agreement for a period equal to one
year times the Multiplier, assuming for this purpose that all accrued
benefits are fully vested, and (II) the actuarial equivalent of the
Executive's actual benefit (paid or payable), if any, under the Retirement
Plans; provided, that for purposes of this sentence the term "Good Reason"
shall only relate to events occurring after the Effective Time and shall
mean "Good Reason" as defined in Section 5(c) of the Employment Agreement
except that the reference in clause (i) to Section 4(a) of the Employment
Agreement shall be deemed to refer to said Section 4(a) as amended by
Section 2 of this Amendment, and the last two sentences of said Section
5(c) shall be disregarded. The Executive shall also remain entitled to
receive the other payments and benefits provided for in the Employment
Agreement (other than Section 6(d)(i) thereof) in the event of a
termination of his employment during the Employment Period (it being
acknowledged that any such termination by the Executive will be for Good
Reason for such purposes). For purposes of this Section 3, the
"Multiplier" shall mean a fraction, the numerator of which is the number of
days from the Date of Termination through the first anniversary of the
Effective Time, and the denominator of which is 365.
4. Assumption by Parent. As of the Effective Time, Parent shall be
considered to have assumed the Employment Agreement and expressly agreed to
perform the Employment Agreement in the same manner and to the same extent
as the Company, as required by Section 11(c) of the Employment Agreement.
To effectuate the foregoing, as of the Effective Time: (a) all references
to "the Company" in Sections 3, 5, 9(b), 9(c) and 9(d) of the Employment
Agreement shall be deemed to refer to Parent instead of the Company; (b)
all references to "the Company" in Sections 6, 8, 9(a), 10, and 12(d) of
the Employment Agreement shall be deemed to refer to Parent as well as the
Company; (c) all references to "the Board" in Section 5(b) of the
Employment Agreement shall be deemed to refer to the Board of Directors of
Parent; (d) the reference in Section 10(a) to "the Chief Executive Officer"
shall be deemed to refer to the Chief Executive Officer of Parent; and (e)
notices to Parent under the Employment Agreement shall be given in
accordance with Section 12(b) to Parent at the address provided for in the
Merger Agreement. It is acknowledged that from and after the Effective
Time, Parent shall be considered an "affiliated company" of the Company as
that term is used in the Employment Agreement.
5. Supplemental Executive Retirement Program. It is acknowledged and
agreed that in addition to his rights and entitlements pursuant to the
Employment Agreement, as amended hereby, the Executive is entitled to
certain supplemental retirement benefits (the "SERP
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<PAGE>
Benefits") from the Company pursuant to the Supplemental Executive
Retirement Program (the "SERP") set forth in the letter agreement dated
February 16, 1982, between P. Michael Phelps, on behalf of MortonNorwich,
and the Executive, the letter agreement dated April 26, 1984 between P.
Michael Phelps, on behalf of Morton Thiokol, Inc., and the Executive (the
"1984 Letter") (which incorporates by reference certain definitions set
forth in the Executive Employment Contract dated November 20, 1981 between
Morton-Norwich Products, Inc. and the Executive (the "Prior Employment
Agreement")), and the memorandum entitled "SERP Clarifications" dated March
7, 1989 from Morton Thiokol, Inc. to "Participants in The Supplemental
Executive Retirement Program ("SERP")." Without limiting any of the
Executive's rights under the SERP, it is acknowledged and agreed that
notwithstanding any provision of the Employment Agreement or the SERP, (i)
the Executive is not entitled to receive any benefits pursuant to the Prior
Employment Agreement (which remains in effect only to the extent that
certain provisions thereof are incorporated by reference to the 1984
Letter), (ii) the Retirement Plans referred to in Section 6(d)(i)(C) of the
Employment Agreement shall not be considered to include the SERP, (iii) the
consummation of the transactions contemplated by the Merger Agreement will
constitute a "change of control" for purposes of the SERP, and (iv) upon a
termination of the Executive's employment following the Merger by the
Executive for "Good Reason" or by Parent without "Cause," or as a result of
the Executive's Disability, in each case as defined in the Employment
Agreement, or upon the Executive's death at any time after the beginning of
the Employment Period (as defined in the Employment Agreement) (whether or
not during employment), the Executive (or in the event of his death at a
time when he is married, his surviving spouse) shall have a vested,
nonterminable right to the SERP Benefits provided for in Section 2 of the
1984 Letter.
6. Miscellaneous. (a) Except as specifically set forth in this
Amendment, the Employment Agreement and the SERP are hereby ratified and
confirmed without amendment.
(b) This Amendment may be executed in several counterparts, each of
which shall be deemed an original, and said counterparts shall constitute
but one and the same instrument.
(c) This Amendment shall be null and void, ab initio, and of no further
effect if the Merger Agreement is terminated before the consummation of the
Offer (as defined in the Merger Agreement).
- 3 -
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from their respective Boards of
Directors, Parent and the Company have each caused these presents to be
executed in its name on its behalf, all as of the day and year first above
written.
/s/ William E. Johnston
---------------------------------
William E. Johnston
MORTON INTERNATIONAL, INC.
/s/ Christopher K. Julsrud
By ---------------------------------
ROHM AND HAAS COMPANY
/s/ J. Lawrence Wilson
By ---------------------------------
- 4 -
EXHIBIT 12
ROHM AND HAAS COMPANY
AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(MILLIONS OF DOLLARS)
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, --------------------------------------
1999 1998 1997 1996 1995 1994
------------ ------ ------ ------ ------ ------
Earnings before income
taxes $ 324 $ 680 $ 611 $ 530 $ 441 $ 407
Fixed charges 41 64 71 75 84 82
Capitalized interest
adjustment 4 5 3 (1) (5) (2)
Undistributed earnings
adjustment 7 1 (11) 12 (3) (2)
------------ ------ ------ ------ ------ ------
Earnings $ 376 $ 750 $ 674 $ 616 $ 517 $ 485
------------ ------ ------ ------ ------ ------
Ratio of earnings to
fixed charges 9.2 11.7 9.5 8.2 6.2 5.9
------------ ------ ------ ------ ------ ------
Note: Earnings consist of earnings before income taxes and fixed charges
after eliminating undistributed earnings (losses) of affiliates and
capitalized interest net of amortization of previously capitalized
interest. Fixed charges consist of interest expense, including
capitalized interest, and amortization of debt discount and expense on
all indebtedness, plus one-third of rent expense deemed to represent an
interest factor.
EXHIBIT 20
COPY OF QUARTERLY REPORT TO STOCKHOLDERS
<PAGE>
ROHM AND HAAS COMPANY
SECOND QUARTER 1999
ID: COVER GRAPHIC
<PAGE>
FINANCIAL HIGHLIGHTS (Millions of dollars, except earnings per share)
- -------------------------------------------------------------------------------
Second Quarter Six Months
----------------------- -----------------------
Percent Percent
1999 1998 Change 1999 1998 Change
----------------------- -----------------------
Net sales $1,144 $990 16 $2,084 $1,927 8
Net earnings (loss) (9) 170 (105) 101 279 (64)
Net earnings (loss),
excluding non-
recurring items* 116 122 (5) 220 231 (5)
Net earnings (loss) per
common share:
- Basic $ (.06) $.93 (106) $ .58 $ 1.51 (62)
- Diluted $ (.06) $.91 (107) $ .57 $ 1.49 (62)
Net earnings per
common share,
excluding non-
recurring items:
- Basic $ .67 $.66 2 $ 1.28 $ 1.25 2
- Diluted $ .67 $.65 3 $ 1.23 $ 1.23 0
- -------------------------------------------------------------------------------
*non-recurring items include:
- 1999: (second quarter) write-off of purchased in-process research and
development in connection with the acquisition of Morton, charge related
to 1998 joint venture dispositions and restructuring charges in the
Electronics Materials segment; (first quarter) Electronic Materials
segment asset write-downs and other restructuring charges mostly
associated with the 48%-owned Rodel affiliate and environmental
remediation related insurance settlements.
- 1998: (second quarter) gains on the sale of joint venture interests in
AtoHaas and RohMax, asset write-downs, business realignment costs, and
loss on early extinguishment of debt.
SALES BY BUSINESS SEGMENT
Millions of dollars
- ---------------------------------------------------
PERFORMANCE POLYMERS $659
CHEMICAL SPECIALTIES $250 [PIE CHART]
ELECTRONIC CHEMICALS $166
MORTON $ 69
SALES BY CUSTOMER LOCATION
Millions of dollars
- ---------------------------------------------------
NORTH AMERICA $639
[PIE CHART] EUROPE $279
ASIA-PACIFIC $154
LATIN AMERICA $ 72
<PAGE>
=======================
== CHAIRMAN'S LETTER ==
=======================
June 21, 1999 will long remain an important date in the history of Rohm
and Haas Company.
On that day, the shareholders approved the acquisition of Morton
International and the creation of the new Rohm and Haas. On behalf of
the more than 20,000 employees of our united organization, I thank you
for your vote of confidence.
Integration efforts are well under way. We have set clear performance
targets for the organization and specific milestones to measure
progress. Our goal is to become -- and remain -- the world's premier
specialty chemical company.
On the following pages you will find the details of our financial
performance in the second quarter and the first half of 1999. The
impact of non-recurring items associated with the acquisitions of Morton
and LeaRonal and the divestiture of AtoHaas caused us to report a slight
loss for the second quarter. Nevertheless, the underlying performance
of the legacy businesses remained strong. Absent non-recurring charges
in both 1999 and 1998, earnings per share were $.67 for the second
quarter, compared with $.65 per share in the earlier period, a 3 percent
increase. We now have recorded increases in earnings per share in 27 of
the last 28 quarters.
And while there will be additional restructuring charges in the
remaining quarters of this year, the strength of the underlying
businesses remains strong and external economic factors continue to show
favorable trends. We remain focused on meeting business plans and
growing the company. As separate organizations, both Rohm and Haas and
Morton had good first halves. I am proud to report that we have two
excellent stand alone organizations in great financial health that are
coming together to form one global specialty chemicals powerhouse.
Our Board of Directors has been strengthened with the welcome addition
of David W. Haas and Thomas W. Haas, representing the Haas Family, along
with S. Jay Stewart, the former Chairman of Morton who has joined Rohm
and Haas as a Vice Chairman; and two additional former Morton directors:
James R. Cantalupo, Vice Chairman of McDonald's Corporation, and Richard
L. Keyser, Chairman and CEO of W. W. Grainger, Inc.
I will be a part of the organization for just a while longer. I have
announced my retirement as Chairman of Rohm and Haas, effective
September 30, 1999. As planned and announced earlier, Raj L. Gupta will
succeed me as Chairman and CEO. Raj is well qualified and prepared to
lead this organization. He has a strong and experienced management team
composed of proven executives from LeaRonal, Morton and Rohm and Haas.
I have every confidence in Raj, in the leadership of Rohm and Haas, and
in the bright future of this company.
/s/ J. LAWRENCE WILSON
J. Lawrence Wilson
August 12, 1999
<PAGE>
========================================
== MANAGEMENT DISCUSSION AND ANALYSIS ==
========================================
SECOND QUARTER 1999 VERSUS
SECOND QUARTER 1998
On June 21, 1999, the company acquired Morton International, Inc.
(Morton), a specialty chemicals producer (see details of this
transaction under "Liquidity, Capital Resources and Other Financial
Data" below). The results of Morton have been included in the
consolidated financial statements for the nine day period from the
acquisition date until the end of the quarter ("the partial period").
In addition, unaudited pro forma information is presented in the Notes
to Consolidated Financial Statements.
After recording the non-recurring charges discussed below, the company
reported a loss of $9 million compared to earnings of $170 million in
the second quarter of 1998. The diluted loss per common share for the
quarter was $.06 compared with earnings of $.91 in 1998. Earnings
excluding non-recurring items for both the second quarter of 1999 and
1998 were $116 million and $122 million, respectively. Diluted earnings
per common share on this basis were $.67 for the second quarter, up 3%
versus 1998 earnings of $.65 per share.
In addition to a $105 million, or $.61 per share, charge for purchased
in-process research and development (IPR&D) and an after-tax charge of
$6 million, or $.03 per share, for other non-recurring acquisition
costs, the 1999 period includes an after-tax charge of $14 million, or
$.08 per share, to settle a matter related to the company's 1998 sale of
the AtoHaas joint venture. The second quarter 1998 results included a
one-time gain of $48 million, or $.26 per share, net of non-recurring
items. This net gain affected all segments and regions, except Latin
America, and was the net result of the sale of the company's interest in
the AtoHaas and RohMax joint ventures, an early extinguishment of debt,
the write-off of certain intangible assets in Europe and business
realignment costs primarily in Asia. (A reconciliation from reported
earnings (loss) to earnings excluding non-recurring items by business
segment is presented in the charts on page 3.)
Sales for the second quarter of 1999 increased 16% to $1,144 million
from $990 million in the 1998 period. The 1999 sales included a partial
period contribution from Morton businesses and sales of LeaRonal, Inc.
(LeaRonal), an electronic materials business acquired in January of this
year. Sales on a comparable business basis increased 2% for the quarter
due in part to higher sales in the Performance Polymers businesses in
all geographic regions. The company's earnings decrease of 5%,
excluding non-recurring items, is primarily a result of a moderately
unfavorable selling price versus raw material cost relationship in the
quarter and acquisition-related interest and amortization expense.
Performance Polymers earnings for the second quarter of 1999 were $97
million versus earnings, excluding non-recurring items, of $95 million
in the prior year period. Sales increased by 1% to $659 million from
$652 million in the 1998 period, largely as a result of higher sales in
the Coatings business particularly in Europe and in Asia-Pacific. The
Formulation Chemicals business also showed an increase in sales mostly
in Latin America. Volume was strong in all geographic regions and was a
primary factor in the 2% earnings increase. Earnings were also helped
by the earnings performance of the Coatings, Plastics Additives and
Formulation Chemicals businesses. The earnings increase was mitigated
by rising raw material prices and unfavorable currencies mostly in
Europe.
Chemical Specialties earnings of $25 million for the second quarter of
1999 were down from earnings excluding non-recurring items of $29
million in 1998. Sales increased 4% in the quarter. This sales growth
was apparent in most businesses but was led by the Agricultural
Chemicals business which was strong in most regions, largely due to
weather conditions that drive sales of fungicides such as Dithane. The
earnings decrease was primarily the result of weakness in the Ion
Exchange business, despite reporting higher volume and sales growth
versus the prior year quarter. These unfavorable results caused by
product mix and selling prices were offset, in part, by earnings
generated by Agricultural Chemicals, largely in North America and
Asia-Pacific.
Electronic Materials earnings of $14 million were up slightly compared
with earnings of $13 million in the 1998 period. Both amounts are
excluding non-recurring items. Sales increased to $166 million for the
second quarter of 1999 from $97 million in the 1998 period. Included in
the second quarter of 1999 were sales of approximately $60 million from
LeaRonal,
2
<PAGE>
RECONCILIATION OF EARNINGS (LOSS) AS REPORTED AND EARNINGS EXCLUDING
NON-RECURRING ITEMS, NET OF TAX
(Millions of dollars)
- ------------------------------------------------------------------------------
Quarter Ended Six Months Ended
June 30, June 30,
----------------- ------------------
1999 1998 1999 1998
--------------------------------------
EARNINGS (LOSS) AS REPORTED $ (9) $170 $101 $279
- IPR&D charge 105 -- 105 --
- Joint venture dispositions 14 (76) 14 (76)
- Remediation related insurance
settlements -- -- (13) --
- Asset write-downs, integration
and other costs 6 18 13 18
- Early extinguishment of debt -- 10 -- 10
- ------------------------------------------------------------------------------
EARNINGS EXCLUDING NON-RECURRING
ITEMS $116 $122 $220 $231
- ------------------------------------------------------------------------------
EARNINGS BY BUSINESS SEGMENT EXCLUDING NON-RECURRING ITEMS*
- ------------------------------------------------------------------------------
Quarter Ended Six Months Ended
June 30, June 30,
----------------- ------------------
BUSINESS SEGMENT 1999 1998 1999 1998
--------------------------------------
Performance Polymers $ 97 $ 95 $183 $175
Chemical Specialties 25 29 54 61
Electronic Materials 14 13 26 26
Morton -- -- -- --
Corporate (20) (15) (43) (31)
- --------------------------------------------------------- ------------------
Total $116 $122 $220 $231
- --------------------------------------------------------- ------------------
*Must be read in conjunction with presentation by business group on page 11.
which was acquired in January 1999 (see "Liquidity, Capital Resources
and Other Financial Data" below). Sales excluding LeaRonal increased
9%, largely due to sales in both the Shipley Ronal printed wiring board
business and in microelectronics, with the Asia-Pacific region making a
strong contribution. Earnings excluding non-recurring items increased
as a result of earnings of LeaRonal and improved results recorded for
Rodel.
Corporate expenses totaled $142 million in the second quarter of 1999
compared to $25 million in the prior year period. Included in the 1999
expenses was the $105 million IPR&D write-off and the $14 million
after-tax settlement of the AtoHaas matter mentioned above. The second
quarter of 1998 includes a $10 million after-tax extraordinary loss on
the early extinguishment of debt. Excluding non-recurring items,
corporate expenses increased primarily as a result of higher interest
expense.
The second quarter gross profit margin of 39% was down from 41% in the
prior-year period. This change is primarily a result of the partial
period results of Morton included in the 1999 period, which includes
purchase accounting charges resulting from the preliminary allocation of
purchase price to both fixed assets and inventories. The margin
decrease was also influenced by 3% lower selling prices and weaker
European currencies. Raw material costs were lower than in the second
quarter of 1998.
Selling, administrative and research expenses (SAR) increased 14% for
the quarter versus the 1998 period. Excluding expenses of Morton and
3
<PAGE>
LeaRonal, SAR increased approximately 2%, but as a percentage to net
sales remained unchanged at 21%. Interest expense increased for the
second quarter of 1999 to $18 million from $11 million in the second
quarter of 1998, due largely to higher debt levels resulting from the
LeaRonal and Morton acquisitions. Other expense of $22 million was down
slightly from expense of $23 million in the 1998 period. Both periods
include non-recurring items. The second quarter of 1999 includes
Morton integration costs, primarily consulting fees, and the 1998 period
includes asset write-downs and business realignment costs. The loss on
disposition of joint venture reflects the pre-tax settlement related to
the 1998 sale of AtoHaas.
The effective tax rate for the second quarter of 1999 was 36%, excluding
the non-tax deductible IPR&D charge. The rate reflects the effect of
certain non-deductible amortization charges resulting from the company's
1999 acquisition activities. The second quarter of 1998 rate of 39% was
largely a result of non-recurring items for which there was no tax
benefit, primarily the cumulative translation adjustment associated with
the AtoHaas divestiture and an intangible asset write-off in Europe.
SIX MONTHS 1999 VERSUS
SIX MONTHS 1998
Earnings for the first six months of 1999 were $101 million compared to
last year's earnings of $289 million. Diluted earnings per common share
were $.57 compared to $1.49 in 1998. As discussed above, the second
quarters of 1999 and 1998 included certain non-recurring items.
Earnings excluding these items for the first six months of 1999 were
$220 million, down 5% from comparable 1998 earnings of $231 million.
(Earnings for the first six months of 1999 by business segment excluding
non-recurring items are presented in the chart on page 3, which should
be read in conjunction with the presentation on page 11.)
Sales for the first six months of 1999 increased 8% to $2,084 million
from $1,927 million in 1998. The 1999 sales included a partial period
contribution from Morton businesses and sales of LeaRonal. On a
comparable business basis sales were flat for the six month period of
1999 versus the prior year. The company's earnings decreased 5%
excluding non-recurring items primarily because of 4% lower selling
prices and higher interest and amortization charges resulting from 1999
acquisitions. These were partially offset by volume gains and by lower
overall raw material costs. The earnings decrease affected primarily
the North America and Europe regions with Asia Pacific showing earnings
improvements, reflecting a recovery from the poor business environment
prevailing in the region in 1998. Diluted earnings per common share
before non-recurring items were flat compared with the first six months
of 1998.
Performance Polymers earnings, excluding non-recurring items, were $183
million compared to $175 million in the prior year, an increase of
almost 5%. Sales of $1,245 million were down 1% from $1,263 million in
1998. Sales decreased in the first six months of 1999 compared with the
1998 period as a result of lower selling prices but were partially
offset by a 4% volume increase. Sales in the Coatings and Formulation
Chemicals businesses were up 2% and 10%, respectively. The volume
improvement was also largely as a result of increases in these
businesses and were reflected in all regions. Building products and
Monomer also helped volume. The earnings increase, excluding
non-recurring items, was a result of volume increases, lower raw
material costs and smooth plant operations.
Chemical Specialties earnings for the first half of 1999, excluding
non-recurring items, decreased to $54 million from $61 million in 1998.
Sales of $483 million increased 3% from 1998 sales of $467 million,
largely because of sales in the Agricultural Chemicals business,
particularly in North America and Asia Pacific. Sales in the Ion
Exchange and Primenes businesses were down, offsetting the double digit
sales increases in Agricultural Chemicals. The earnings decrease was
primarily a result of losses in Ion Exchange and a unfavorable results
versus the 1998 period in Biocides and Primenes. Earnings in the
Agricultural Chemicals business were good particularly in Asia Pacific,
due to both favorable weather conditions and the recovery of certain
important local economies.
Electronic Materials earnings were $18 million in 1999 versus $25
million in the prior year. Included in the 1999 results is a one-time
restructuring charge primarily for the planned
4
<PAGE>
divestiture of a North American manufacturing facility owned by the
Rodel affiliate. This charge is reflected in 1999 affiliate losses of
$6 million, compared to earnings of $2 million in 1998. Excluding these
non-recurring items earnings of $26 million were essentially flat
compared with the 1998 period. Sales in the first six months of 1999
increased to $287 million from $197 million in 1998. The 1999 period
included sales of LeaRonal. Excluding this 1999 acquisition, sales
increased 5%. Flat earnings excluding non-recurring items reflect the
combined effects of continued pricing pressure in the Shipley
microelectronics business, earnings of LeaRonal not included in the
prior year and slightly unfavorable earnings recorded for the company's
share of Rodel affiliate earnings.
Corporate expenses totaled $152 million in the first half of 1999 and
compared unfavorably to $41 million in the prior year period. Included
in the 1999 expenses was the IPR&D charge, the settlement of the AtoHaas
matter and an after-tax gain of $13 million resulting from a favorable
settlement with insurance carriers over certain environmental
remediation matters. The 1998 period includes a $10 million after-tax
extraordinary loss on the early extinguishment of debt. Excluding
non-recurring items, corporate expenses increased primarily as a result
of higher interest expense but also as a result of other factors
including consultant fees associated with the company's ongoing study of
its selling and administrative infrastructure and the tentative
settlement of an outstanding U.S. Customs matter.
The gross profit margin for the first six months was 40%, unchanged from
the prior-year period, as a result of the effect of 4% unfavorable
selling prices offset by favorable raw material costs and higher volume.
Currency effects for the first six months of 1999 were negligible.
SAR expenses for the first half of 1999 increased 9% compared to the
1998 period. Excluding expenses of Morton and LeaRonal, SAR increased
approximately 2%, reflecting the net effect of higher administrative
expense and lower expenses for research and development.
Recommendations from the company's study of its selling and
administrative infrastructure are being analyzed and the company is
working to finalize and then implement infrastructure plans and other
cost-saving measures that relate to the integration of Morton and
LeaRonal. The company hopes that, in total, these initiatives will lead
to approximately $300 million in annualized savings. These savings are
expected to result from work re-design, staff reductions and other
measures that will likely result in material restructuring charges
during the third and fourth quarter of 1999 once plans have been
approved.
Interest expense increased 38% due largely to higher debt levels
resulting from 1999 acquisitions. Other expense, net was zero compared
with expense of $22 million in the first six months of 1998. The 1998
amount reflects second quarter asset write-down and business alignment
costs.
The effective tax rate for the first six months was 55%, up from 37% for
the first six months of 1998, largely as a result of the non-tax
deductible write-off of IPR&D. Excluding this charge, the effective tax
rate was 37%, essentially flat with the 1998 rate. The 1999 rate also
reflects the effect of non-deductible amortization charges resulting
from the company's 1999 acquisition activities, while the 1998 rate is
largely as a result of the tax treatment of some of the non-recurring
items in the second quarter of that year.
LIQUIDITY, CAPITAL RESOURCES
AND OTHER FINANCIAL DATA
On June 21, 1999, the company acquired Morton for cash of $3 billion and
the issuance of 45,125,499 shares of common stock, for a total
transaction value of approximately $4.9 billion, including the
assumption of $272 million of debt. The cash portion of the acquisition
was financed primarily through a combination of commercial paper and the
later issuance of longer term instruments (see below). As of June 30,
1999, $180 million had not yet been paid to former Morton shareholders
pending the tender of their shares. This is reflected in accounts
payable and accrued liabilities. Accounted for by the purchase method,
the financial statements reflect the preliminary allocation of the
purchase price based on estimated fair values at the date of
acquisition, pending final determination of the fair value of certain
acquired assets and liabilities. The preliminary allocation as of June
30, 1999, has resulted in acquired goodwill
5
<PAGE>
of approximately $1.5 billion, which is being amortized on a
straight-line basis over 40 years. Based on an independent appraisal,
$105 million of the purchase price was allocated to in-process research
and development, which was recorded as a charge in the second quarter of
1999. Plans are currently in development to integrate the operations of
the combining companies, which will likely result in certain costs,
including severance and asset write-offs. Some of these costs, once
determinable, could result in an increase in goodwill. The results of
Morton have been included in the consolidated financial statements since
the acquisition date. Unaudited pro forma information is presented in
the Notes to Consolidated Financial Statements.
In late January 1999 the company acquired all of the outstanding shares
of LeaRonal for approximately $460 million. LeaRonal develops and
manufactures specialty chemical processes used in the manufacture of
printed circuit boards, semiconductor packaging and for electronic
connector plating and also provides processes for metal-finishing
applications. The acquisition, financed primarily through commercial
paper, was accounted for using the purchase method. The financial
statements reflect the preliminary allocation of the purchase price
based on estimated fair values at the date of acquisition, later
analysis of certain acquired assets and liabilities and the effects of
plans now under way to integrate the two companies, including asset
write-downs and severance costs. The preliminary allocation as of June
30, 1999, has resulted in acquired goodwill of approximately $200
million, which is being amortized on a straight-line basis over 40
years. The results of LeaRonal have been included in the consolidated
financial statements since the acquisition date.
Also in 1999 the company purchased an additional 15% interest in its
Rodel affiliate, bringing its total interest to 48%. These investments
total approximately $149 million. The Rodel investment is accounted for
on the equity method with the company's share of earnings reported as
equity in affiliates.
On July 6, 1999, the company issued $2 billion of long-term debt,
refinancing a portion of the commercial paper borrowings used as initial
financing for the above transactions. These debt securities include
$500 million of five-year 6.95% notes, $500 million of ten-year 7.40%
notes and $1 billion of thirty-year 7.85% debentures. Each series of
securities will mature on July 15 of its respective year of maturity
with interest payable semiannually on January 15 and July 15 of each
year, beginning January 15, 2000. The securities are senior unsecured
obligations of the company and will rank equally with all other senior
unsecured indebtedness. The securities contain restrictions similar to
the company's other long-term debt. There are no restrictions on the
payment of dividends.
Net cash in-flows during the first half of 1999 included these
transactions and resulted in a $193 million increase in cash and cash
equivalents versus year-end 1998. Free cash flows for the first six
months of 1999 versus the prior-year period were as follows:
Six Months Ended
June 30,
----------------
1999 1998
----------------
Cash provided by
operating activities $313 $194
Capital additions (95) (89)
Dividends (60) (62)
----------------
Free cash flow $158 $ 43
----------------
Fixed asset additions during the first half of 1999 included acrylics
expansion in Texas; Coatings expansion in Kentucky; spending on
emulsions plants in Spain and China and additional investment in the
Agricultural Chemicals business. Spending for the full year, excluding
additions related to acquired companies, is expected to be approximately
$250 million.
The debt ratio was 52% as of June 30, 1999, compared with 25% at
year-end 1998, reflecting the effect of the issuance of debt as
discussed above. (The debt ratio is total debt, net of cash, divided by
the sum of net debt, minority interest, stockholders' equity and ESOP
shares.)
The company is a party in various government enforcement and private
actions associated with former waste disposal sites. As of June 21,
1999, these include sites associated with Morton, which has been named a
potentially responsible party at approximately 60 inactive waste
disposal sites where cleanup costs have been or may be incurred under
the Federal Comprehensive Environmental Response, Compensation and
Liability Act and similar state statutes.
6
<PAGE>
Morton's potential exposure was evaluated on a site-by-site basis, and
an accrual reflecting its best estimate of the liability has been
established to the extent sufficient information is available to
reasonably estimate costs that may be incurred. However, at certain of
these sites, Morton was unable, due to a variety of factors, to assess
and quantify the ultimate extent of its responsibility for study and
remediation costs.
The most significant of these sites is located in Wood-Ridge, New
Jersey, where, at present, Morton and Velsicol Chemical Corporation
("Velsicol") have been held jointly and severally liable for the cost of
remediation necessary to correct mercury-related environmental problems
associated with a former mercury processing plant. Although the company
has accrued for expected site study costs and some remedial effort, no
reliable estimate can presently be made of the company's range of
liability due to the absence of site-specific data, the unique nature of
mercury plant wastes and the complex characteristics of the plant site
and adjacent areas. An estimate of the range of liability at Wood-Ridge
is not reasonably possible until technical studies are sufficiently
completed to permit such a determination. The Wood-Ridge plant site
study commenced in 1996, and has been estimated to take approximately 42
months to complete. A separate study of the surrounding area is
expected, but on a timetable yet to be determined. The company's
ultimate exposure will also depend upon the continued participation of
Velsicol and on the results of attempts to obtain contributions from
others believed to share responsibility. A cost recovery action against
other responsible parties is pending in federal court. Settlements in
principle have been reached with those defendants considered de minimis
for claims associated with the Wood-Ridge plant site. Where
appropriate, the analysis to determine the company's liability, if any,
with respect to remedial costs at the above sites reflects an assessment
of the likelihood and extent of participation of other potentially
responsible parties.
During 1996, the U.S. EPA notified Morton of possible irregularities in
water discharge monitoring reports filed by the Moss Point, Mississippi
plant in early 1995. Morton retained an outside law firm to
investigate, and it was confirmed that such reports had been falsified
over a period of years. Other environmental problems at the plant were
also identified, and the investigation has been expanded to address the
additional issues. No administrative or judicial enforcement
proceedings have been initiated, but the company has been served with
grand jury subpoenas seeking documents related to wastewater discharge
and groundwater monitoring reporting at Moss Point. Morton has
furnished the requested documents, and the company is cooperating with
the environmental authorities. As a result of these irregularities and
possible violations, the company may be exposed to material fines,
penalties, and remedial expenses, but is unable to determine the
ultimate resolution.
At June 30, 1999, the reserves for remediation were $171 million,
compared to $131 million at December 31, 1998. The 1999 amount includes
$45 million of reserves for remediation related to Morton. The company
is in the midst of lawsuits over insurance coverage for environmental
liabilities. It is the company's practice to reflect environmental
insurance recoveries in the results of operations for the quarter in
which litigation is resolved through settlement or other appropriate
legal process. Recoveries typically determine coverage for both past
and future environmental spending. In the first half of 1999 and 1998
$7 million, and $8 million, respectively, were charged to earnings
before tax for environmental remediation. In the 1999 period the
company recorded income before tax of $21 million for remediation
related insurance recoveries. The 1999 and 1998 charges include the
aggregation of several small environmental accruals. The company is
also involved in potential remediations at some of its manufacturing
facilities.
In addition to accrued environmental liabilities, the company has
reasonably possible loss contingencies relating to environmental matters
of approximately $148 million. This amount does not include reasonably
possible loss contingencies related to certain Morton sites as these
contingencies have not yet been fully assessed. The company has also
identified other sites, including its larger manufacturing facilities in
the United States, where future environmental remediation expenditures
may be required, but these expenditures are not reasonably estimable at
this time. The company believes that these
7
<PAGE>
matters, when ultimately resolved, which may be over the next decade,
will not have a material adverse effect on the consolidated financial
position of the company, but could have a material adverse effect on
consolidated results of operations in any given quarter.
On July 26, 1999 the board of directors approved an increase in the
quarterly dividend on common shares from 18 cents to 19 cents per common
share payable September 1, 1999 to stockholders of record on August 13,
1999. During the third quarter of 1999, the company notified the
holders of the $2.75 cumulative convertible preferred stock that
redemption will occur on August 16, 1999 under the terms of the issue.
In 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes a new model for
the accounting and reporting of derivative and hedging transactions.
The statement amends a number of existing standards and, as amended by
SFAS No. 137, is scheduled to be effective for fiscal years beginning
after June 15, 2000. The company expects to adopt this standard as
required in fiscal year 2001 and, because of continual business-driven
changes to its derivatives and hedging programs, has not fully assessed
its potential impact on its financial position or results of operations.
During 1996 management initiated an enterprise-wide program to prepare
the company's computer systems and applications for the year 2000, and,
in 1997, began assessing supply chain and customer implications. All of
the company's centralized computer systems have been inventoried and
assessed to determine their Year 2000 readiness. Remediation of all
systems was completed in early 1999. For the most significant of these
remediated systems, testing and implementation into normal operations
("reintegration") was completed by June 30, 1999. For those not yet
reintegrated, none are expected to cause business disruption, even if
they are not completed by year end; nevertheless, all are scheduled for
completion before that time.
In mid-June, 1999, a test of the key systems supporting supply chain and
related processes was completed. This test confirmed that the systems
that enable order processing, manufacturing, logistics and related
activities are not likely to fail as a result of the date change. In
addition to these tested internal systems and processes, the company has
placed a high priority on continuing to assess and update the status of
its critical suppliers and business partners, such as warehouses, toll
manufacturers, distributors and transportation services.
The company expects all of its internal remediation and testing to be
completed as stated above; however, despite its best efforts, business
may be interrupted with potentially material effects on its financial
position or results of operations if any of the following occur:
external supply of raw materials or utilities is delayed or unavailable
for an extended period; manufacturing systems fail; or central corporate
computer systems fail. To limit the effects of these potential
failures, the company has completed corporate contingency planning
guidelines and most business units, staff functions and plant sites have
completed contingency plans for potential disruptions of critical
systems or processes. Final contingency plans across the company are
scheduled to be completed by September 30, 1999. Examples of
contingency plans include a "freezing" of modifications to computer
systems, ensuring availability of additional information technology
personnel during the critical time period, backing-up systems at
off-site facilities, making alternate raw material supply arrangements,
and preparing for temporary shut-downs of certain plants and facilities.
In addition, the company has standard operating procedures in place for
a safe and orderly shut-down of systems and facilities should this be
necessary.
A significant proportion of the costs associated with the Year 2000
effort represent the redeployment of existing information technology
resources. In addition, consulting and other expenses related to
software application and facilities enhancements necessary to prepare
the systems for the year 2000 will be incurred. Approximately 80% of
these costs, which are expected to total $18 million, have been incurred
and charged to expense through June 30, 1999.
The company assumed oversight responsibility for Morton's Year 2000
activities from the date of the acquisition. Review of their process
suggests a state of readiness similar to that of the rest of the
company. Prior to the acquisition, Morton devoted significant
resources to
8
<PAGE>
Year 2000 readiness, and most of the issues appear to have been
addressed; however, their efforts were decentralized, making the overall
status as of June 30, 1999 difficult to fully assess. In addition,
Morton has not undertaken Year 2000 specific contingency planning.
Existing business disruption plans are judged to be adequate for Year
2000 contingencies. The company is collecting status updates and will
conduct Year 2000 audits of a sample of the newly acquired sites and
units during the third quarter of 1999 to better assess their Year 2000
readiness, and provide the supporting data required for more detailed
reporting and any necessary remedial actions.
This discussion contains forward-looking statements based, in part, on
assumptions such as the following: that the manufacturers of the
company's computer systems and software have correctly represented the
year 2000 status of their products; that the company's suppliers and
customers will meet their stated year 2000 compliance obligations; and
that the company's own investigation, remediation, testing and systems
implementations are successful. The year 2000 discussions and other
forward-looking statements made in this report are based on current
expectations and are subject to the risks and uncertainties discussed
here as well as those detailed in the "Cautionary Statements" section of
the 1998 Form 10-K filed with the Securities and Exchange Commission on
February 26, 1999 and the Form S-4 filed on May 21, 1999.
9
<PAGE>
============================================
== ROHM AND HAAS COMPANY AND SUBSIDIARIES ==
============================================
<TABLE>
<CAPTION>
SALES BY BUSINESS SEGMENT AND CUSTOMER LOCATION (Millions of dollars)
- ---------------------------------------------------------------------------------------
SECOND QUARTER 1999 AND 1998
- ---------------------------------------------------------------------------------------
Performance Chemical Electronic
Polymers Specialties Materials Morton Total
--------------- ----------- ---------- ------ --------------
1999 1998* 1999 1998* 1999 1998 1999 1999 1998
--------------- ----------- ---------- ---- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
North America $ 422 $ 418 $ 95 $ 92 $ 75 $ 44 $47 $ 639 $ 554
Europe 152 158 70 75 37 24 20 279 257
Asia-Pacific 51 45 48 40 54 29 1 154 114
Latin America 34 31 37 34 -- -- 1 72 65
--------------- ----------- ---------- ---- --------------
Total $ 659 $ 652 $250 $241 $166 $ 97 $69 $1,144 $ 990
--------------- ----------- ---------- ------ --------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
FIRST SIX MONTHS 1999 AND 1998
- ---------------------------------------------------------------------------------------
Performance Chemical Electronic
Polymers Specialties Materials Morton Total
--------------- ----------- ---------- ------ --------------
1999 1998* 1999 1998* 1999 1998 1999 1999 1998
--------------- ----------- ---------- ---- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
North America $ 788 $800 $177 $174 $130 $ 91 $47 $1,142 $1,065
Europe 298 313 150 157 65 47 20 533 517
Asia-Pacific 97 91 95 73 92 59 1 285 223
Latin America 62 59 61 63 -- -- 1 124 122
--------------- ----------- ---------- ---- --------------
Total $1,245 $1,263 $483 $467 $287 $197 $69 $2,084 $1,927
--------------- ----------- ---------- ---- --------------
</TABLE>
*Certain reclassifications were made to conform to current year segment
presentation.
10
<PAGE>
Rohm and Haas Company and Subsidiaries
NET EARNINGS BY BUSINESS SEGMENT AND CUSTOMER LOCATION
- -------------------------------------------------------------------------------
Quarter Ended Six Months Ended
June 30, June 30,
--------------------- --------------------
1999 1998* 1999 1998*
--------------------------------------------
(Millions of dollars)
BUSINESS SEGMENT --------------------------------------------
Performance Polymers $ 97 $169 $ 183 $249
Chemical Specialties 25 14 54 46
Electronic Materials 13 12 18 25
Morton (2) -- (2) --
Corporate (142) (25) (152) (41)
- --------------------------------------------------------- -------------------
Total $ (9) $170 $ 101 $279
- --------------------------------------------------------- -------------------
CUSTOMER LOCATION
North America $ 91 $137 $161 $220
Europe 20 47 49 78
Asia-Pacific 15 3 28 9
Latin America 7 8 15 13
Corporate (142) (25) (152) (41)
- --------------------------------------------------------- -------------------
Total $ (9) $170 $ 101 $279
- --------------------------------------------------------- -------------------
Corporate includes non-operating items such as interest income and
expense, corporate governance costs and corporate exploratory research. In
1998, it includes loss on early extinguishment of debt while in 1999 it
includes a $105 charge for purchased in-process research and development
costs associated with the Morton acquisition.
*Certain reclassifications were made to conform to current year segment
presentation.
ANALYSIS OF CHANGE IN BASIC PER-SHARE EARNINGS
CURRENT PERIOD RELATIVE TO YEAR-EARLIER PERIOD
- ----------------------------------------------------------------------
$/Share (after-tax)
-----------------------------
SECOND FIRST
QUARTER SIX MONTHS
GROSS PROFIT ------------ --------------
Selling prices $ (.16) $ (.33)
Physical volume and product mix .19 .29
Raw material costs .12 .25
Other manufacturing costs (.06) (.10)
Morton partial period effect on
gross profit .06 .06
Currency effect on gross profit -- .02
- ----------------------------------------------------- ---------------
Increase in gross profit .15 .19
- ----------------------------------------------------- ---------------
OTHER CAUSES
Purchased in-process research
and development (.58) (.58)
Selling, administrative and
research expenses* (.10) (.13)
Remediation related insurance
recoveries -- .07
Share of affiliate earnings .01 (.04)
Interest expense (.03) (.03)
Change in outstanding shares of
common stock -- .04
Morton partial period effect other
than gross profit (.05) (.05)
Effect of prior year items:
- ---------------------------
- Gain on sales of facilities
and investments, net (.50) (.49)
- Extraordinary loss on early
extinguishment of debt .05 .05
- 1998 provision for writedown
of assets .07 .07
Other (.06) (.09)
- ----------------------------------------------------- ---------------
Decrease from other causes (1.19) (1.18)
- ----------------------------------------------------- ---------------
Decrease in basic per-share earnings $(1.04) $ (.99)
- ----------------------------------------------------- ---------------
*Amounts shown are on a U.S. dollar basis and include the impact of
currency movements compared to the prior-year period.
11
<PAGE>
Rohm and Haas Company and Subsidiaries
STATEMENTS OF CONSOLIDATED EARNINGS (Unaudited)
- -------------------------------------------------------------------------------
Quarter Ended Six Months Ended
June 30, June 30,
------------------------ --------------------
1999 1998 1999 1998
------------------------ --------------------
CURRENT EARNINGS (Millions of dollars, except per share amounts)
-----------------------------------------------
Net sales $ 1,144 $ 990 $ 2,084 $ 1,927
Cost of goods sold 695 584 1,253 1,148
- -------------------------------------------------------- --------------------
Gross profit 449 406 831 779
Selling and administrative expense 184 156 347 306
Purchased in-process research
and development 105 -- 105 --
Research and development expense 53 52 100 104
Interest expense 18 11 29 21
Share of affiliate
net (losses) earnings 1 -- (6) 2
Gain (loss) on disposition of
joint ventures (22) 131 (22) 131
Other expense, net (22) (23) -- (20)
- -------------------------------------------------------- --------------------
Earnings before income taxes and
extraordinary item 46 295 222 461
Income taxes 55 115 121 172
- -------------------------------------------------------- --------------------
EARNINGS (LOSS) BEFORE
EXTRAORDINARY ITEM $ (9) $ 180 $ 101 $ 289
Extraordinary loss on early
extinguishment of debt (net
of income tax benefit of $5) -- 10 -- 10
- -------------------------------------------------------- --------------------
NET (LOSS) EARNINGS $ (9) $ 170 $ 101 $ 279
Less preferred stock dividends 1 2 2 4
- -------------------------------------------------------- --------------------
NET (LOSS) EARNINGS APPLICABLE
TO COMMON SHAREHOLDERS $ (10) $ 168 $ 99 $ 275
- -------------------------------------------------------- --------------------
EARNINGS (LOSS) PER COMMON SHARE
BEFORE EXTRAORDINARY ITEM:
- Basic $ (.06) $ .98 $ .58 $ 1.57
- Diluted (.06) .96 .57 1.54
NET (LOSS) EARNINGS PER
COMMON SHARE:
- Basic $ (.06) $ .93 $ .58 $ 1.51
- Diluted (.06) .91 .57 1.49
Common dividends $ .18 $ .17 $ .36 $ .34
Weighted average common shares
outstanding (millions)
- Basic 172.1 181.2 170.2 181.7
- Diluted 172.1 187.5 178.7 187.9
- -------------------------------------------------------- --------------------
See notes to consolidated financial statements.
12
<PAGE>
Rohm and Haas Company and Subsidiaries
STATEMENTS OF CONSOLIDATED CASH FLOWS (Unaudited)
- ------------------------------------------------------------------------
Six Months Ended June 30,
---------------------------
1999 1998
---------------------------
(Millions of dollars)
CASH FLOWS FROM OPERATING ACTIVITIES ---------------------------
Net earnings $ 101 $ 279
Adjustments to reconcile net earnings
to cash provided by operating activities:
Purchased in-process research and
development 105 --
Depreciation 139 132
Loss (gain) on sale of facilities
and investments 14 (76)
Extraordinary loss on early
extinguishment of debt, net of tax -- 10
Provision for the write down of
plant assets -- 16
Changes in current assets and liabilities,
net of acquisitions and divestitures:
Deferred income taxes (45) (15)
Accounts receivable (121) (145)
Inventories (7) (9)
Accounts payable and accrued liabilities 132 (47)
Income taxes payable 65 21
Other, net (70) 28
- ------------------------------------------------------------------------
Net cash provided by operating activities 313 194
- ------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of businesses and affiliates,
net of cash acquired (3,269) (21)
Proceeds on sales of facilities and
investments, net of cash sold -- 287
Additions to land, buildings and equipment (95) (89)
- ------------------------------------------------------------------------
Net cash provided by (used for)
investing activities (3,364) 177
- ------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 3,230 7
Purchases of treasury stock (2) (135)
Repayments of long-term debt -- (169)
Net change in short-term borrowings 63 20
Payment of dividends (60) (62)
Other, net 13 (5)
- ------------------------------------------------------------------------
Net cash provided by (used for)
financing activities 3,244 (344)
- ------------------------------------------------------------------------
Effect of exchange rate changes on cash -- --
- ------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS $ 193 $ 27
- ------------------------------------------------------------------------
See notes to consolidated financial statements.
13
<PAGE>
Rohm and Haas Company and Subsidiaries
CONSOLIDATED BALANCE SHEETS (Unaudited)
- -----------------------------------------------------------------------------
JUNE 30, December 31, June 30,
1999 1998 1998
------------------------------------
(Millions of dollars)
ASSETS ------------------------------------
Current assets:
Cash and cash equivalents $ 209 $ 16 $ 67
Receivables, net 1,382 711 855
Inventories (note f) 866 427 437
Prepaid expenses and other assets 173 133 149
- -----------------------------------------------------------------------------
Total current assets 2,630 1,287 1,508
- -----------------------------------------------------------------------------
Land, buildings and equipment 7,119 4,471 4,373
Less accumulated depreciation 3,644 2,563 2,484
- -----------------------------------------------------------------------------
Net land, buildings and equipment 3,475 1,908 1,889
- -----------------------------------------------------------------------------
Goodwill, net of amortization 2,066 70 84
Other intangible assets, net of
amortization 2,268 22 24
Other assets 847 361 326
- -----------------------------------------------------------------------------
$11,286 $3,648 $3,831
- -----------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 289 $ 172 $ 84
Accounts payable and accrued
liabilities 1,309 653 616
Accrued income taxes payable 140 50 157
- -----------------------------------------------------------------------------
Total current liabilities 1,738 875 857
- -----------------------------------------------------------------------------
Long-term debt 3,902 409 402
Employee benefits payable 612 432 408
Other liabilities 1,546 352 276
Minority interest 25 19 14
Commitments and contingencies
Stockholders' equity:
$2.75 Cumulative convertible preferred
stock (note h) 64 73 110
Common stock: shares
issued -- 242,078,367 605 492 590
Additional paid-in capital 1,891 139 118
Retained earnings 1,326 1,284 2,149
- -----------------------------------------------------------------------------
3,886 1,988 2,967
Less: Treasury stock (note i) 275 286 934
Less: ESOP shares 128 132 135
Accumulated other comprehensive income (20) (9) (24)
- -----------------------------------------------------------------------------
Total stockholders' equity 3,463 1,561 1,874
- -----------------------------------------------------------------------------
$11,286 $3,648 $3,831
- -----------------------------------------------------------------------------
See notes to consolidated financial statements.
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
(A) These interim financial statements are unaudited, but, in the opinion
of management, all adjustments, which are of a normal recurring nature,
have been made to present fairly the company's financial position,
results of operations and cash flows. Certain prior year amounts in
the Statements of Cash Flows have been restated to conform to current
year presentation. These financial statements should be read in
conjunction with the financial statements, accounting policies and the
notes included in the company's annual report for the year ended
December 31, 1998.
(B) The company is a party in various government enforcement and private
actions associated with former waste disposal sites. As of June 21,
1999, these include sites associated with Morton, which has been named
a potentially responsible party at approximately 60 inactive waste
disposal sites where cleanup costs have been or may be incurred under
the Federal Comprehensive Environmental Response, Compensation and
Liability Act and similar state statutes. Morton's potential exposure
was evaluated on a site-by-site basis, and an accrual reflecting
Morton's best estimate of the liability has been established to the
extent sufficient information is available to reasonably estimate costs
that may be incurred. However, at certain of these sites, Morton was
unable, due to a variety of factors, to assess and quantify
the ultimate extent of its responsibility for study and
remediation costs.
The most significant of these sites is located in Wood-Ridge, New
Jersey, where, at present, Morton and Velsicol Chemical Corporation
("Velsicol") have been held jointly and severally liable for the cost
of remediation necessary to correct mercury-related environmental
problems associated with a former mercury processing plant. Although
the company has accrued for expected site study costs and some remedial
effort, no reliable estimate can presently be made of the company's
range of liability due to the absence of site-specific data, the unique
nature of mercury plant wastes and the complex characteristics of the
plant site and adjacent areas. An estimate of the range of liability
at Wood-Ridge is not reasonably possible until technical studies are
sufficiently completed to permit such a determination. The Wood-Ridge
plant site study commenced in 1996, and has been estimated to take
approximately 42 months to complete. A separate study of the
surrounding area is expected, but on a timetable yet to be determined.
The company's ultimate exposure will also depend upon the continued
participation of Velsicol and on the results of attempts to obtain
contributions from others believed to share responsibility. A cost
recovery action against other responsible parties is pending in federal
court. Settlements in principle have been reached with those
defendants considered de minimis for claims associated with the
Wood-Ridge plant site. Where appropriate, the analysis to determine
the company's liability, if any, with respect to remedial costs at the
above sites reflects an assessment of the likelihood and extent of
participation of other potentially responsible parties.
During 1996, the U.S. EPA notified Morton of possible irregularities
in water discharge monitoring reports filed by the Moss Point,
Mississippi plant in early 1995. Morton retained an outside law firm
to investigate, and it was confirmed that such reports had been
falsified over a period of years. Other environmental problems at the
plant were also identified, and the investigation has been expanded to
address the additional issues. No administrative or judicial
enforcement proceedings have been initiated, but the company has been
served with grand jury subpoenas seeking documents related to
wastewater discharge and groundwater monitoring reporting at Moss
Point. Morton has furnished the requested documents, and the company
is cooperating with the environmental authorities. As a result of
these irregularities and possible violations, the company may be
exposed to material fines, penalties, and remedial expenses, but is
unable to determine the ultimate resolution.
At June 30, 1999, the reserves for remediation were $171 million,
compared to $131 million at December 31, 1998. The 1999 amount
includes $45 million of reserves for remediation related to Morton.
The company is in the midst of lawsuits over insurance coverage for
environmental liabilities. It is the company's practice to reflect
environmental insurance recoveries in the results of operations for the
quarter in which litigation is resolved through settlement or other
appropriate legal process. Recoveries typically determine coverage for
both past and future environmental spending. In the first half of 1999
and 1998 $7 million, and $8 million, respectively, were charged to
earnings before tax for environmental remediation. In the 1999 period
the company recorded income before tax of $21 million for remediation
related insurance recoveries. The 1999 and 1998 charges include the
aggregation of several small environmental accruals. The company is
also involved in potential remediations at some of its manufacturing
facilities.
In addition to accrued environmental liabilities, the company has
reasonably possible loss contingencies relating to environmental
matters of approximately $148 million. This amount does not include
reasonably possible loss contingencies related to certain Morton sites
as these contingencies have not yet been fully assessed.
15
<PAGE>
The company has also identified other sites, including its larger
manufacturing facilities in the United States, where future
environmental remediation expenditures may be required, but these
expenditures are not reasonably estimable at this time. The company
believes that these matters, when ultimately resolved, which may be
over the next decade, will not have a material adverse effect on the
consolidated financial position of the company, but could have a
material adverse effect on consolidated results of operations in any
given quarter.
(C) The company and its subsidiaries are parties to litigation arising out
of the ordinary conduct of its business. Recognizing the amounts
reserved for such items and the uncertainty of the outcome, it is the
company's opinion that the resolution of all pending lawsuits and
claims will not have a material adverse effect, individually or in the
aggregate, upon the results of operations and the consolidated
financial position of the company. The company had been the subject of
an investigation by U.S. Customs into the labeling of some products
imported into the U.S. from some of the company's non-U.S. locations.
In the first quarter of 1999 the company reached a tentative settlement
and agreed to pay $3 million subject to further government approval.
This non-tax deductible tentative settlement was charged to income in
the quarter. In 1998, subsequent to the sale of the AtoHaas joint
venture, the buyer asserted a claim against the company related to the
value of certain joint venture assets. In the second quarter of 1999
the company settled this matter for approximately $22 million ($14
million, after-tax).
(D) In the third quarter of 1998, the board of directors declared a
three-for-one split of the company's common stock. The stock split was
effected in the form of a 200 percent common stock dividend paid on
September 1, 1998 to stockholders of record on August 7, 1998. The par
value of the common stock remained $2.50 per share. Also during the
third quarter of 1998, the company retired 39 million treasury shares.
As a result of these transactions, the company reclassified $296
million from retained earnings to common stock. This amount represents
the total par value of new shares issued. Amounts per share, numbers
of common shares and capital accounts have been restated to give
retroactive effect to the stock split.
(E) On June 21, 1999, the company acquired Morton for cash of $3 billion
and the issuance of 45,125,499 shares of common stock, for a total
transaction value of approximately $4.9 billion, including the
assumption of $272 million of debt. The cash portion of the
acquisition was financed primarily through a combination of commercial
paper and the later issuance of longer term instruments (see below).
As of June 30, 1999, $180 million had not yet been paid to former
Morton shareholders pending the tender of their shares. This is
reflected in accounts payable and accrued liabilities. Accounted for
by the purchase method, the financial statements reflect the
preliminary allocation of the purchase price based on estimated fair
values at the date of acquisition, pending final determination of the
fair value of certain acquired assets and liabilities. The preliminary
allocation as of June 30, 1999, has resulted in acquired goodwill of
approximately $1.5 billion, which is being amortized on a straight-line
basis over 40 years. Based on an independent appraisal, $105 million
of the purchase price was allocated to in-process research and
development, which was recorded as a charge in the second quarter of
1999. Plans are currently in development to integrate the operations
of the combining companies, which will likely result in certain costs,
including severance and asset write-offs. Some of these costs, once
determinable, could result in an increase in goodwill. The results of
Morton have been included in the consolidated financial statements
since the acquisition date. Unaudited pro forma information is
presented below.
In late January 1999 the company acquired all of the outstanding shares
of LeaRonal for approximately $460 million. LeaRonal develops and
manufactures specialty chemical processes used in the manufacture of
printed circuit boards, semiconductor packaging and for electronic
connector plating and also provides processes for metal-finishing
applications. The acquisition, financed primarily through commercial
paper, was accounted for using the purchase method. The financial
statements reflect the preliminary allocation of the purchase price
based on estimated fair values at the date of acquisition, later
analysis of certain acquired assets and liabilities and the effects of
plans now under way to integrate the two companies, including asset
write-downs and severance costs. The preliminary allocation as of June
30, 1999, has resulted in acquired goodwill of approximately $200
million, which is being amortized on a straight-line basis over 40
years. The results of LeaRonal have been included in the consolidated
financial statements since the acquisition date.
The following unaudited pro forma information presents the results of
operations of the Company as if the above acquisitions had taken place
on January 1, 1998 and excludes the write-off of purchased in-process
research and development of $105 million:
16
<PAGE>
Six Months Ended
--------------------
(In millions, except per June 30, June 30,
share amounts) 1999 1998
-------- --------
Net sales $3,424 $3,309
Net earnings 171 240
Diluted earnings per share $ .76 $ 1.03
These pro forma results of operations have been prepared for
comparative purposes only and do not purport to be indicative of the
results of operations which actually would have resulted had the
acquisitions occurred on the date indicated, or which may result in the
future.
On July 6, 1999, the company issued $2 billion of long-term debt,
refinancing a portion of the commercial paper borrowings used as
initial financing for the above transactions. These debt securities
include $500 million of five-year 6.95% notes, $500 million of ten-year
7.40% notes and $1 billion of thirty-year 7.85% debentures. Each
series of securities will mature on July 15 of its respective year of
maturity with interest payable semiannually on January 15 and July 15
of each year, beginning January 15, 2000. The securities are senior
unsecured obligations of the company and will rank equally with all
other senior unsecured indebtedness. The securities contain
restrictions similar to the company's other long-term debt. There are
no restrictions on the payment of dividends.
(f) Inventories consist of:
(Millions of dollars)
JUNE 30, Dec. 31, June 30,
1999 1998 1998
--------- -------- ---------
Finished products and work in process $670 $330 $334
Raw materials and supplies 196 97 103
---- ---- ----
Total inventories $866 $427 $437
---- ---- ----
(G) The components of comprehensive income are as follows
(millions of dollars):
Quarter Ended
June 30
----------------
1999 1998
---- ----
Net earnings $ (9) $180
Other comprehensive
income, net of tax:
Foreign currency
translation adjustment (8) (6)
---- ----
Comprehensive income $(17) $174
---- ----
Six Months
Ended
June 30
----------------
1999 1998
---- ----
Net earnings $101 $289
Other comprehensive
income, net of tax:
Foreign currency
translation adjustment (12) (10)
---- ----
Comprehensive income $ 89 $279
---- ----
(H) The number of preferred shares issued and outstanding were:
June 30, 1999 1,271,176
December 31, 1998 1,457,956
June 30, 1997 2,199,842
(I) The number of common treasury shares were:
June 30, 1999 28,213,687
December 31, 1998 29,369,853
June 30, 1998 56,540,907
17
<PAGE>
APPENDIX TO EXHIBIT 20
(Pursuant to Part 232.304(a) of Regulation S-T)
Graphic Description/Cross Reference
- ----------- -----------------------------------------------------------
Cover Illustration and the words "Second Quarter Report 1999"
Pie Charts Description included in introduction to Exhibit 20
(not incorporated by reference)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM FINANCIAL STATEMENTS AS OF JUNE 30, 1999 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 209
<SECURITIES> 0
<RECEIVABLES> 1288
<ALLOWANCES> 32
<INVENTORY> 866
<CURRENT-ASSETS> 2,630
<PP&E> 7,119
<DEPRECIATION> 3,644
<TOTAL-ASSETS> 11,286
<CURRENT-LIABILITIES> 1,738
<BONDS> 3,902
0
64
<COMMON> 605
<OTHER-SE> 2,794
<TOTAL-LIABILITY-AND-EQUITY> 11,286
<SALES> 1,144
<TOTAL-REVENUES> 1,144
<CGS> 695
<TOTAL-COSTS> 695
<OTHER-EXPENSES> 259
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18
<INCOME-PRETAX> 46
<INCOME-TAX> 55
<INCOME-CONTINUING> (9)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9)
<EPS-BASIC> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
