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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998
COMMISSION FILE NUMBER 1-12854
MCWHORTER TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3919940
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
400 EAST COTTAGE PLACE 847-428-2657
CARPENTERSVILLE, ILLINOIS 60110
(Address of principal executive (Registrant's telephone number
offices including zip code) including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Exchange on
Title of Each Class Which Registered
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COMMON STOCK, $0.01 PAR VALUE NEW YORK STOCK EXCHANGE
PREFERRED STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes /x/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. /X/
As of December 31, 1998, the aggregate market value of the voting and
nonvoting stock held by nonaffiliates of McWhorter Technologies, Inc. (based
upon the New York Stock Exchange closing prices) was approximately
$233,891,000.
As of December 31, 1998, 10,351,329 shares of common stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of McWhorter Technologies, Inc.'s Proxy Statement filed with
the Securities and Exchange Commission on December 29, 1998 ("Proxy Statement")
are incorporated in Part III hereof by reference.
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MCWHORTER TECHNOLOGIES, INC.
TABLE OF CONTENTS
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Page
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PART I
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 3. Legal Proceedings and Environmental Matters . . . . . . . . . 7
Item 4. Submission of Matters to a Vote of Security Holders . . . . . 8
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters. . . . . . . . . . . . . . . . . . . . . 8
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . 9
Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition. . . . . . . . . . . . . . 9
Item 8. Financial Statements and Supplementary Data . . . . . . . . . 16
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . 34
PART III
Item 10. Directors and Executive Officers of the Registrant. . . . . . 35
Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . . . 36
Item 12. Security Ownership of Certain Beneficial Owners and
Management. . . . . . . . . . . . . . . . . . . . . . . . . . 36
Item 13. Certain Relationships and Related Transactions. . . . . . . . 36
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K .. . . . . . . . . . . . . . . . . . . . . . . . . . 37
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
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PART I
ITEM 1. BUSINESS
McWhorter Technologies, Inc. (McWhorter or the Company) is a leading
manufacturer of surface coating resins and colorants and is a manufacturer of
resins used in the reinforced fiberglass plastics industry. Surface coating
resins are a primary component of paint and coatings which are used for a
variety of protective and decorative purposes. Colorants are used to
disperse pigments in paints and coatings. Resins used for reinforced
fiberglass plastics are a primary component for various fiberglass products.
The Company strengthened its global presence with the purchase of the equity
interests of its joint venture partners in McWhorter Technologies Europe in
the first quarter of 1998. As a result, the Company increased its equity
interest in McWhorter Europe from 33% to 100%. On April 1, 1998, the Company
completed the acquisition of Accurate Coatings and Dispersions, Inc.
(Accurate). Accurate, located in South Holland, Illinois, manufactures and
distributes colorants for the coatings industry. The acquisition of Accurate
expands McWhorter's presence in the colorant market and better enables the
Company to serve its customers. McWhorter purchased Arizona Chemical's
customer list and technology related to its European alkyd resin business in
April 1998.
All references to years are to fiscal years ended October 31 unless otherwise
stated.
PRODUCTS AND MARKETS
McWhorter's product lines focus primarily on the requirements of customers in
the paint and coatings and reinforced fiberglass plastics industries. Each of
these industries are highly fragmented with a large number of competitors.
For example, in the paint and coatings industry, McWhorter believes there are
over 800 active companies manufacturing paint and coatings for a variety of
end uses.
The paint and coatings industry is a mature market, growing at an estimated
2% per annum, or about the same rate as durable goods. Although a number of
paint and coating manufacturers have captive resin and colorant manufacturing
capabilities today, increased costs of product reformulation and updating of
resin and colorant manufacturing processes to comply with environmental
regulations are causing a shift from captive manufacturing to outsourcing.
McWhorter believes this trend will increase its sales opportunities in future
years.
McWhorter produces various products including alkyds, copolymers,
polyurethanes, polyester resins, unsaturated polyesters, acrylic emulsions,
polyvinyl acetate emulsions, solution acrylics, powder resins, powder curing
agents, a number of specialty resins, and waterborne and solvent-based
colorant systems. Various types of resins are required by customers due to
differing application and product performance characteristics.
ALKYD RESINS AND COPOLYMERS. Alkyd resins and copolymers are McWhorter's
largest product category and are used in the manufacture of oil-based paints
and coatings. Alkyd resins and copolymers can be used in consumer paints
(e.g., house paint, deck stains, etc.), industrial coatings (e.g., decorative
and protective coatings used on machinery, equipment, tools, etc.) and
special purpose coatings (e.g., traffic-striping paints, automotive refinish
coatings, and industrial maintenance coatings). Alkyd resins and copolymers
are formulated and engineered according to customer specifications for
various purposes and the same product can be used in
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different applications depending on the product's formulation. Alkyd resins
and copolymers can also be modified with other raw materials to improve
performance; silicone for longer-lasting products or high temperature
applications, vinyl toluene for quicker-dry applications, and acrylics for
improved durability.
POLYURETHANE RESINS. Oil-modified polyurethane resins are a form of an alkyd
resin used primarily in varnishes and other clear wood coatings for
application on wood floors, furniture, kitchen cabinets, etc. Oil-modified
polyurethane resins are also used as additives to floor coatings and other
products to improve a product's performance characteristics.
POLYESTER RESINS. Polyester resins are used in industrial coatings requiring
specific properties such as gloss and color retention, resistance to
corrosion, and flexibility. Typical uses for polyesters are coil coated
metal buildings, appliances and metal office furniture.
UNSATURATED POLYESTER RESINS. Unsaturated polyester resins are used for
various applications in the reinforced fiberglass plastics industry. The
largest uses are marine applications where unsaturated polyester resins are
used in the manufacture of boats. Other applications include tub and shower
enclosures, fiberglass tanks, and cultured marble surfaces.
ACRYLIC AND POLYVINYL ACETATE EMULSION RESINS. Acrylic and polyvinyl acetate
emulsion resins are used primarily in consumer latex paints. Acrylic
emulsion resins are used in trim paints and exterior applications where
weathering, color and gloss retention are critical. Emulsions are also used
in industrial and special purpose coatings. The major advantage of acrylic
emulsion resins is their ability to meet or exceed environmental regulations
because of their low solvent content.
SOLUTION ACRYLICS. Solvent-borne acrylic resins are used in applications
where resistance to weathering is required. Coatings produced from
solvent-borne acrylic resins may be thermoplastic or may be combined with
crosslinkers to form high performance thermoset coatings. Typical
applications include marine and maintenance paints and automotive topcoats.
POWDER RESINS. Powder resins are used in the manufacture of industrial
powder coatings. Powder coatings are dry coatings which provide an
alternative to liquid coatings. The principal advantage of powder coatings
are that they emit no solvents, have excellent application and performance
characteristics, and have a high degree of transfer efficiency. Powder
coatings is the fastest growing segment of the industrial coatings industry.
POWDER CURING AGENTS. Powder curing agents are used in conjunction with certain
powder resins to impart durability and hardness. McWhorter produces urethane
curing agents, the largest volume category for powder paint.
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SPECIALTY RESINS. Specialty resins include natural and synthetic adhesives
used in the paper industry. These resins are used for high pressure
laminates and surface particle boards including water-soluble amino resins
for treated panels and laminated plastics and phenol formaldehyde resins for
laminated plastics.
WATERBORNE AND SOLVENT-BASED COLORANT SYSTEMS. Colorants are used in
formulated interior and exterior paints, specifically, exterior aerospace
applications, topcoat and interior applications for vehicles, general and
light industrial, coil coatings for builders panels, and coatings for
beverage containers.
SALES AND DISTRIBUTION
McWhorter sells its products primarily to customers in the paint and coatings
and reinforced fiberglass plastics industry through a direct sales force, with
the balance sold through agents or distributors. McWhorter's business is
primarily focused in North America and Europe.
McWhorter's business is somewhat seasonal with sales volume being
traditionally the highest during the third quarter of its fiscal year. This
seasonality is largely due to the buying cycle of the consumer paint and
maintenance coatings businesses. Since orders are generally filled within a
minimum lead time, McWhorter has no significant backlog.
MANUFACTURING AND RESEARCH AND DEVELOPMENT
McWhorter operates its manufacturing plants 24 hours a day on a five- or
seven-day schedule, depending on local work practices, capacity utilization,
and customer requirements.
Solvent-based products are generally produced in high temperature reactors.
Raw materials are fed into a reactor and heated to 400DEG. -500DEG. F for
10-30 hours, depending on the formulation. Once the desired properties are
achieved, the product is transferred to a mixing vessel, where additional
materials are added to complete the batch. Finally, the resin is filtered
and pumped into drums or bulk storage tanks before shipment to customers.
Emulsions are processed differently from solvent-based resins. Emulsions are
created by exothermic reactions in reactors designed to control the reaction
by cooling the product. Once the reaction is complete, material is filtered
and transferred to bulk storage tanks before shipment to customers.
Colorants are produced by mixing precise amounts of pigment and solvent at
low temperatures. Once the desired dispersion is attained, the product is
filtered and then pumped into drums for shipment to customers.
McWhorter manufactures certain proprietary resins under tolling arrangements,
which are common in the resin industry. Such arrangements are subject to
confidentiality and secrecy agreements which safeguard the customer's
technology.
McWhorter's research and development activities have emphasized emerging
technologies in the paint and coatings industry, focusing on developing
products designed to comply with
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environmental laws and maintain the integrity of a product's performance
characteristics. In 1998, McWhorter completed construction of a new 42,000
square-foot corporate technology center in Carpentersville, Illinois, which
accommodates the Company's U.S. product development, information technology,
technical service, and marketing and sales personnel.
RAW MATERIALS
Materials used in the manufacturing of resins and colorants are procured
primarily from domestic suppliers. Most of the raw materials are derived
from either petroleum or vegetable oil. McWhorter has not experienced
difficulty in recent years in obtaining an adequate supply of raw materials
or other supplies needed in the manufacturing process. The majority of the
materials purchased are subject to national supply contracts which generally
average one to three years in length with pricing subject to periodic reviews
and adjustment based on market conditions. Raw material prices fluctuate due
to market conditions in the petrochemical or vegetable oil markets.
INTELLECTUAL PROPERTY
McWhorter's business is not materially dependent upon franchises, licenses or
similar rights, or on any single patent or trademark or group of related patents
or trademarks. The techniques and formulas used to produce solvent-based resins
are mature and well known. The techniques and formulas used to produce acrylic
emulsions, powder resins, curing agents, other specialty resins and colorants
are in some instances not well known or are protected by patents or as trade
secrets.
COMPETITION
McWhorter encounters competition from numerous other companies with respect to
each of the products it produces. A significant number of resin and colorant
producers are vertically integrated into coatings manufacturers, providing a
captive source of products for such manufacturers. Some of these captive
producers also sell directly to third parties.
Consistent quality, responsive service, technology and price are the critical
elements that customers use to select their resin and colorant suppliers.
McWhorter believes that it competes favorably in each of these areas.
EMPLOYEES
McWhorter employs approximately 1,040 full- and part-time employees worldwide.
ITEM 2. PROPERTIES
The Company's principal plants and facilities have an aggregate square footage
of approximately 1,027,000 square feet, of which 73%, or 745,000 square feet, is
located in the U.S., and approximately 27%, or 282,000 square feet, is located
outside the U.S., primarily in
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Italy and Sweden. Approximately 97% of the square footage is owned and the
balance is held under lease. All facilities are well maintained, utilized for
their intended purpose, and have sufficient capacity to meet their
reasonably-anticipated needs. There are no material encumbrances on any of
the facilities. Total practical production capacity of McWhorter's plant
facilities is approximately 896 million wet pounds per year. The Company's
corporate headquarters is located in Carpentersville, Illinois.
ITEM 3. LEGAL PROCEEDINGS AND ENVIRONMENTAL MATTERS
McWhorter is involved in an administrative proceeding with the California
Department of Toxic Substances Control (DTSC). McWhorter is appealing a
Corrective Action Order issued by the DTSC. Because of the subjective nature
of the Order's requirements and the pending ruling upon the Order's merits
and validity, it is impossible to quantify any potential resulting impact to
liabilities. Other than the above, McWhorter is not party to any legal or
administrative proceedings, other than routine litigation incidental to the
business or involving claims for immaterial amounts.
The operations of McWhorter, like those of other companies in its industry,
involve the generation and disposal of substances regulated by the United
States Environmental Protection Agency and certain state agencies under
various federal and state environmental laws. As a result, McWhorter is
involved in various claims relating to environmental and waste disposal
matters. These claims generally allege that McWhorter, together with other
parties, is responsible under federal and state environmental laws for the
remediation of hazardous waste at a particular site. Several of these laws
provide that potentially responsible parties may be held jointly and
severally liable for investigation and remediation costs regardless of fault.
Although McWhorter continually assesses its potential liability with respect
to its past and present operations, any potential liability that may be
attributable to McWhorter is subject to a number of uncertainties, including,
among others, the number of parties involved with respect to any given site,
the volumetric contribution which may be attributed to McWhorter relative to
that attributable to other parties, the nature and magnitude of the wastes
involved, and the method and extent of remediation. McWhorter does not
believe that any potential liability, either individually or in the
aggregate, ultimately determined to be attributable to McWhorter will have a
material adverse effect on its business or financial condition.
At October 31, 1998 the estimated amount of probable environmental liability of
McWhorter is approximately $3,420,000. Cargill Incorporated (Cargill) has
agreed to indemnify McWhorter, subject to certain limitations, for damages
resulting from certain environmental matters relating to its former Resin
Products Division (RPD) that was acquired by the Company in 1994.
Indemnification for environmental liabilities, subject to certain limitations,
related to the Company's Italian facilities is provided for under the escrow
provisions of the Syntech S.p.A. acquisition agreement. As a result of the
probable recoveries under these indemnification agreements of $2,722,000,
McWhorter's net estimated environmental liability is approximately $698,000.
There are a total of twelve sites at which McWhorter believes it has probable
environmental liability, including three sites for which the estimated liability
is
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less than $10,000 per site. The maximum estimated amount of environmental
liability attributable to any individual site is approximately $945,000, of
which a significant portion is expected to be reimbursed. During 1998,
McWhorter spent approximately $693,000 on remediation costs, of which
$584,000 was spent for on-site liabilities and has been or is expected to be
reimbursed. During 1999, McWhorter expects to spend approximately $1,854,000
on remediation costs, of which $1,416,000 is expected to be reimbursed under
the indemnification agreeements. During 1998, McWhorter spent approximately
$1,279,000 on capital expenditures to comply with environmental laws and
regulations and during 1999 McWhorter expects to spend approximately
$2,200,000 on such expenditures.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1998.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
McWhorter common stock is traded on the New York Stock Exchange under the
trading symbol "MWT."
The following table sets forth the high and low bid and ask sales prices for
the common stock for fiscal 1998 and 1997. The Company did not declare any
cash dividends on its common stock in either fiscal year.
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1998 1997
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LOW HIGH LOW HIGH
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First quarter $23.63 $26.38 $13.13 $15.63
Second quarter 24.31 26.50 13.38 18.13
Third quarter 24.00 28.38 16.38 19.38
Fourth quarter 18.88 24.75 17.13 20.13
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As of December 31, 1998, there were 1,268 holders of record of the common
stock. There have been no sales of securities by the Company during the
period covered by this report that were not registered under the Securities
Act of 1933.
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ITEM 6. SELECTED FINANCIAL DATA
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YEAR ENDED
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IN THOUSANDS, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
EXCEPT PER SHARE AMOUNTS 1998(a) 1997(c) 1996 1995 1994(d)
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Net sales $454,930 $331,456 $315,925 $311,398 $242,331
Net income 12,844(b) 15,418(b) 13,833 11,070 8,444(e)
Earnings per share-diluted 1.24(b) 1.48(b) 1.32 1.02 .78(e)
Total assets 362,465 259,182 153,254 138,127 138,563
Long-term debt 130,128 57,152 13,145 19,182 30,087
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(a) REFLECTS THE ACQUISITION OF THE MCWHORTER EUROPE JOINT VENTURE AND ACCURATE
SINCE THE DATES OF ACQUISITION
(b) REFER TO NOTE 14 OF THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(c) REFLECTS THE ACQUISITION OF SYNTECH S.p.A. SINCE THE DATE OF ACQUISITION
(d) MCWHORTER TECHNOLOGIES, INC. WAS FORMED AS A RESULT OF THE SPIN-OFF ON
APRIL 29, 1994 BY THE VALSPAR CORPORATION OF ITS WHOLLY-OWNED SUBSIDIARY
MCWHORTER INC. INCLUDING THE RESIN PRODUCTS DIVISION (RPD) OF CARGILL
INCORPORATED THAT WAS ACQUIRED BY MCWHORTER ON FEBRUARY 18, 1994. THE PRO
FORMA INFORMATION DOES NOT NECESSARILY REFLECT WHAT THE RESULTS FOR THE
COMPANY WOULD HAVE BEEN HAD IT BEEN AN INDEPENDENT COMPANY OR HAD THE
BUSINESS OF THE COMPANY AND THE RPD BUSINESS BEEN COMBINED DURING THE PRO
FORMA PERIOD.
(e) INCLUDES A CHARGE OF $2,472,000 PRETAX, $1,497,000 AFTER TAXES, OR $.14 PER
SHARE, TO RECOGNIZE THE IMPAIRMENT IN VALUE OF THE LOS ANGELES RESIN
FACILITY. THIS FACILITY WAS TRANSFERRED TO THE VALSPAR CORPORATION DURING
THE SECOND QUARTER AT THE TIME THE COMPANY ACQUIRED THE RESIN PRODUCTS
DIVISION ASSETS OF CARGILL INCORPORATED.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and Notes. All references to years are to
fiscal years ended October 31 unless otherwise stated. Unless otherwise stated,
per share information is on a diluted basis.
OVERVIEW The Company's net sales surpassed the levels achieved in all prior
years as a result of strategic acquisitions completed in 1998 and 1997. In
April 1998, the Company completed the acquisition of substantially all of the
assets of Accurate Coatings and Dispersions, Inc. (Accurate) for
approximately $39,400,000 in cash and the assumption of $6,500,000 of debt.
Accurate, located in South Holland, Illinois, manufactures and distributes
dispersed pigments for the coatings industry. The Company strengthened its
global presence with the purchase of the equity interests of its joint
venture partners in McWhorter Technologies Europe (McWhorter Europe) for
approximately $8,200,000 in the first quarter of 1998. As a result, the
Company increased its equity interest in McWhorter Europe from 33.3 percent
to 100 percent. In April 1998, the Company purchased Arizona Chemical's
customer
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list and technology related to its European alkyd resin business. In August
1997, the Company completed the acquisition of Syntech S.p.A. and its
affiliated entities and subsidiaries (Syntech) for $48,300,000 in cash and
approximately $17,100,000 in assumed liabilities. Syntech is an Italian based
resin company with two production facilities in Italy and a joint venture in
China. These acquisitions were accounted for using the purchase method. Refer
to Note 2 of the Notes to Consolidated Financial Statements.
The Company completed the construction of a 42,000 square foot research and
development facility in Carpentersville, Illinois during 1998. As a result of
this project, the Company closed its research and development facility in
Minneapolis, Minnesota. Employees from the product development, technical
support, and information technology groups were relocated to the new facility
to serve McWhorter's liquid coating resins, powder coating resins, and
composite polymers businesses. In total, the Company incurred pretax charges
of $1,546,000, $.09 per share after taxes, related to this move. Refer to
Note 14 of the Notes to Consolidated Financial Statements.
In August 1998, the Company announced plans to close its manufacturing
facility in Chicago Heights, Illinois and to write-off its investment in the
McWhorter Thailand joint venture. Pretax charges related to these plans of
$4,650,000, $.27 per share after taxes, and $2,617,000, $.15 per share after
taxes, respectively, were recorded in the fourth quarter of 1998. Additional
pretax charges of approximately $650,000 related to the retention of
employees at the Chicago Heights facility will be recorded in conjunction
with the closing of the facility. The planned closure of the Chicago Heights
facility was the result of an in-depth review of the Company's North American
production capabilities as part of a continuing effort to improve efficiency.
Production from the Chicago Heights facility will be transferred to the
Company's other U.S. facilities. This transition is expected to be completed
and the facility closed over the next eighteen months. The Company estimates
savings at approximately $2,800,000 per year when completed. The Company's
decision not to proceed further with the construction of the manufacturing
facility in Thailand was influenced by the poor economic prospects for this
joint venture and the level of additional investment that would have been
required to complete the facility. Refer to Note 14 of the Notes to the
Consolidated Financial Statements.
RESULTS OF OPERATIONS 1998 VS. 1997 Net sales for 1998 were $454,930,000
compared to $331,465,000 in the 1997, an increase of 37 percent.
Acquisitions accounted for the entire increase. Volume decreases in the
Company's liquid coating resins business were offset by strong sales in the
composite polymers and powder coating resins businesses. The Company expects
that the continued global integration of its acquisitions, the introduction
of new products, and expansion efforts will lead to improved performance in
all of the Company's businesses in 1999.
The Company's gross profit margin was 16.3 percent in 1998 and 1997. Margins
were favorably impacted by sales mix , internal process improvements, and raw
material price decreases. This impact was offset by absorption issues in the
Company's liquid coating resins
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business resulting from lower than anticipated volumes. The Company expects
raw material costs to continue to decrease in 1999 and internal process
improvements to continue to favorably impact margins.
Operating expenses (research, selling, general and administrative) were 9.0
percent of sales in 1998 compared to 7.9 percent of sales in 1997. The higher
expenses compared to 1997 resulted primarily from the businesses acquired in
1998 and 1997.
Other expense in 1998 included pretax charges of $931,000, $4,650,000, and
$2,617,000 for the relocation of the research and development facility, the
closing of the Chicago Heights plant, and the write-off of the Thailand joint
venture, respectively. In 1997, other expense included pretax charges of
$811,000 for the relocation of the research and development facility and the
write-off of a tax related receivable. Refer to Note 14 of the Notes to
Consolidated Financial Statements.
Net interest expense was $7,737,000 in 1998 compared to $2,166,000 in 1997.
This comparison reflects higher debt levels due to the acquisitions.
The effective tax rate was 28.4 percent in 1998 and 38.3 percent in 1997.
Tax rates in both years were affected by adjustments that reduced income tax
expense as discussed in Note 8 of the Notes to Consolidated Financial
Statements. Excluding these adjustments, the 1998 and 1997 tax rates were
41.3 percent and 40.7 percent, respectively. The 1998 rate was higher as a
result of the nondeductibility of goodwill amortization related to the
Syntech acquisition and foreign tax rate differential.
Net income for 1998 was $15,752,000, or $1.52 per share, excluding net
after-tax charges related to the nonrecurring items discussed in Note 14 of
the Notes to Consolidated Financial Statements. This represents a 3 percent
increase in earnings per share over net income of $15,418,000, or $1.48 per
share, for 1997. Including the nonrecurring items, net income for 1998 was
$12,844,000, or $1.24 per share.
RESULTS OF OPERATIONS 1997 VS. 1996 Net sales for 1997 were $331,465,000
compared to $315,925,000 in the 1996. The sales increase of 5 percent was
made up of 4 percent from the acquisition of Syntech in August 1997 and a
3 percent volume increase offset by a 2 percent price decrease. Volume
increases in the Company's large national customers were offset by loss of
low margin industrial toll business and delayed timing of inventory
replenishments by certain customers.
The Company's gross profit margin was 16.3 percent in 1997 compared to 15.4
percent in 1996. The 1997 margins were favorably impacted by an increase of
specialty products in the sales mix combined with the continuing focused
efforts in the area of process improvements.
Operating expenses were 7.9 percent of sales in 1997 compared to 7.5 percent of
sales in 1996. The higher expenses compared to 1996 reflect higher headcount
levels, and the
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amortization of costs related to the acquisition of Syntech.
Other expense in 1997 included charges totaling $811,000, $.05 per share
after taxes, for the estimated amount of employee termination benefits
related to the relocation of the Minneapolis research and development
facility to Carpentersville and the write-off of a tax related receivable.
Net interest expense was $2,166,000 in 1997 compared to $1,653,000 in 1996.
This comparison reflects higher debt levels due to the acquisition of
Syntech. Excluding the acquisition, interest expense in 1997 was impacted by
a reduction in debt of approximately $7,500,000.
The effective tax rate was 38.3 percent in 1997 and 40.5 percent in 1996. The
1997 tax rate reflects the tax benefit of an income tax audit of $591,000, or
$.06 per share.
Net income in 1997 was $15,418,000, or $1.48 per share, compared to
$13,833,000, or $1.32 per share, in 1996. Excluding the acquisition of
Syntech, net income for 1997 was $15,746,000, or $1.52 per share, which
represents a 15 percent increase over 1996 earnings per share.
FINANCIAL CONDITION In 1998, operations generated cash of $23,696,000
compared to $27,583,000 in 1997. The Company's current ratio was 1.5 at the
end of 1998 compared to 1.3 at the end of 1997. Working capital increased
$10,580,000 primarily as a result of higher inventories and receivables in
the U.S. and lower payables in Europe. EBITDA increased to $42,087,000 in
1998 from $37,502,000 in 1997, primarily as a result of the acquired
businesses.
Investing activities used cash of $82,320,000 in 1998 compared to $62,402,000
in 1997 due to the 1998 acquisitions and increased capital expenditures.
Capital expenditures were $25,663,000 in 1998 versus $11,203,000 in 1997. The
1998 capital expenditures were primarily for the construction of the new
research and development facility, powder capacity expansion, the
implementation of an Enterprise Resource Planning (ERP) package, and
productivity improvements. Capital spending for 1999 is expected to be
approximately $30,000,000, primarily for the completion of the ERP project
and capacity expansion for powder, solution acrylics, and composite polymers.
Financing activities provided cash of $58,794,000 in 1998 compared to
$37,688,000 in 1997. Total debt increased to $156,602,000 at October 31, 1998
from $80,858,000 a year ago. The increase was primarily due to borrowings to
fund acquisitions. Debt as a percentage of invested capital increased to
59.3 percent at October 31, 1998 from 46.9 percent a year ago as a result of
the acquisitions.
The Board of Directors of the Company adopted a resolution in 1998
authorizing the repurchase by the Company of up to an aggregate of 500,000
shares of its common stock. As
12
<PAGE>
of October 31, 1998, the Company had acquired 33,600 shares at a cost of
$672,000. The resolution expires in May 1999.
The Company has a $150,000,000 unsecured revolving credit facility that
terminates on July 30, 2002. At October 31, 1998, $26,653,000 was available
under this facility. The Company's European subsidiaries, primarily the
Italian subsidiary, have short-term lines of credit that are cancelable at
any time of $28,591,000, of which $13,280,000 was available for future use at
October 31, 1998. These credit facilities and internally generated funds are
expected to be adequate to finance McWhorter's capital expenditures and other
operating requirements in 1999. Refer to Note 6 of the Notes to Consolidated
Financial Statements for discussion of the Company's debt.
Refer to Note 9 of the Notes to Consolidated Financial Statements for
discussion of environmental liabilities. Refer to Note 1 of the Notes to
Consolidated Financial Statements for a discussion of new accounting
pronouncements.
YEAR 2000 During 1998, the Company continued its program to prepare its
information technology (IT) and non-information technology (non-IT) systems
for year 2000 compliance. The year 2000 issue relates to computer systems
that use two digits rather than four to define the applicable year and
whether such systems will properly process information when the year changes
to 2000.
The Company has completed an assessment of the impact of the year 2000 on its
purchased and internally developed IT systems. The current purchased software
and a majority of the internally developed software is year 2000 compliant.
Non-compliant internally developed software is expected to be replaced by
June 1999. The Company is currently in the process of modifying and testing
its non-IT systems to ensure that these systems will function properly with
respect to dates in the year 2000. The Company has begun formal
communications with significant suppliers and customers to determine the
extent to which the Company's activities would be impacted by those third
parties' failure to remediate their own year 2000 issues.
The estimated costs related to testing and modifying existing systems for
year 2000 compliance are approximately $300,000, of which $200,000 has been
spent or committed to date. Approximately $100,000 of the total compliance
costs are expected to be capital expenditures. No significant information
systems projects have been deferred to accommodate the year 2000 issues.
Year 2000 compliance is expected to be achieved no later than June 1999. The
Company believes that with the planned modifications, year 2000 issues will
not have a material impact on operations. However, if these modifications are
not made, or are not completed on a timely basis, year 2000 issues could
result in the temporary inability to process orders, send invoices, or engage
in similar business activities, which would have a material impact on the
Company's operations. Failure by significant suppliers and customers to be
year 2000 compliant could also have a material impact the Company. The
amounts of potential liability and lost revenue
13
<PAGE>
resulting from the failure to be year 2000 compliant cannot be reasonably
estimated at this time.
The Company's contingency plans will be finalized as the testing of systems
is completed. Contingency plans are expected to be completed by the first
quarter of 1999 and will include the manual processes required to perform
critical business functions that could be affected by year 2000 issues.
This is a year 2000 readiness disclosure statement within the meaning of the
Year 2000 Information and Readiness Disclosure Act. (P.L. 105-271)
CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
This report on form 10-K contains forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. Such statements relate to, among other things, expenditures, cost
reductions, cash flow, operating improvements, and year 2000 compliance, and
are indicated by words such as "estimates", "expects", and similar words and
phrases. Such statements are subject to inherent uncertainties and risks
which could cause actual results to vary materially from expected results,
including but not limited to the following: levels of industrial activity and
economic conditions in the U.S. and other countries around the world, pricing
pressures and other competitive factors, and levels of capital spending in
certain industries, all of which could have a material impact on the
Company's order rates and product sale prices; McWhorter's ability to
integrate and operate acquired businesses on a profitable basis; the
relationship of the U.S. dollar to other currencies and its impact on pricing
and cost competitiveness; interest rates; utilization of McWhorter's capacity
and the effect of capacity utilization on McWhorter's costs; labor market
conditions and raw material costs; developments with respect to
contingencies, such as environmental matters and litigation; year 2000
compliance; and other risks detailed from time to time in the Company's
filings with the Securities and Exchange Commission.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates, foreign
exchange rates, and commodity prices.
As of October 31, 1998, the Company does not use significant levels of
derivative financial instruments to manage this risk.
The Company had $129,630,000 of long-term variable rate debt outstanding at
October 31, 1998. At this borrowing level, a hypothetical 10% adverse change
in interest rates at October 31, 1998 would have a $750,000 unfavorable
impact on the Company's pretax earnings and cash flows. The primary interest
rate exposures on floating rate debt are with respect to U.S. and European
interbank rates. The majority of the Company's long-term obligations are
variable rate debt. Therefore, the Company's exposure to changes in the fair
value of its
14
<PAGE>
financial instruments is not significant.
The Company and its subsidiaries generally enter into transactions
denominated in their respective functional currencies. As a result, foreign
currency exposures arising from transactions are not material to the Company.
The primary foreign currency exposure arises from the translation of the
Company's net equity investment in its foreign subsidiaries to U.S. dollars.
The Company generally views as long-term its investments in foreign
subsidiaries with functional currencies other than the U.S. dollar. The
primary currencies to which the Company is exposed are the Italian lira and
other European currencies. The fair value of the Company's net foreign
investments would not be materially affected by a 10% adverse change in
foreign currency exchange rates from October 31, 1998 levels.
The Company is a purchaser of certain commodity products which are procured
at market prices established with the vendor at the time of purchase. The
Company does not use significant levels of commodity financial instruments to
hedge commodity prices due to a high correlation between the commodity cost
and the ultimate selling price of the Company's products.
15
<PAGE>
<TABLE>
<CAPTION>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA PAGE
----
<S> <C>
Report of Independent Auditors. . . . . . . . . . . . . . . . . . . . . 17
Statements of Income for the Years Ended October 31, 1998,
1997 and 1996.. . . . . . . . . . . . . . . . . . . . . . . . . . .18
Balance Sheets as of October 31, 1998 and 1997 . . . . . . . . . . . . .19
Statements of Cash Flows for the Years Ended October 31, 1998,
1997 and 1996.. . . . . . . . . . . . . . . . . . . . . . . . . . .20
Statements of Changes in Shareholders' Equity for the Years Ended
October 31, 1998, 1997 and 1996 . . . . . . . . . . . . . . . . . .21
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . .22
</TABLE>
16
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors of McWhorter Technologies, Inc.
We have audited the accompanying consolidated balance sheets of McWhorter
Technologies, Inc. and subsidiaries, as of October 31, 1998 and 1997, and the
related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended October 31, 1998.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of McWhorter
Technologies, Inc. and subsidiaries, at October 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended October 31, 1998, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
November 18, 1998
17
<PAGE>
MCWHORTER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
- ---------------------------------------------------------------------------------------
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 1998 1997 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $454,930 $331,465 $315,925
Costs and expenses:
Cost of sales (Note 14) 380,971 277,372 267,161
Research 10,818 8,384 7,469
Selling, general and administrative 30,063 17,637 16,368
Other expense (income), net (Note 14) 7,395 923 25
--------------------------------
Income from operations 25,683 27,149 24,902
Interest expense, net 7,737 2,166 1,653
--------------------------------
Income before income taxes 17,946 24,983 23,249
Income tax expense (Note 8) 5,102 9,565 9,416
--------------------------------
Net income $ 12,844 $ 15,418 $ 13,833
--------------------------------
--------------------------------
Earnings per share - basic $ 1.25 $ 1.50 $ 1.32
--------------------------------
--------------------------------
Earnings per share - diluted $ 1.24 $ 1.48 $ 1.32
--------------------------------
--------------------------------
</TABLE>
18
See Notes to Consolidated Financial Statements
<PAGE>
MCWHORTER TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------
IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash $ 4,099 $ 3,929
Accounts receivable less allowances for
doubtful accounts of $1,909 in 1998 and
$1,812 in 1997 82,765 67,762
Inventories (Note 3) 40,207 26,487
Other current assets 12,193 8,743
-----------------------
139,264 106,921
Property, plant and equipment (Note 4) 198,900 148,609
Less accumulated depreciation 58,384 43,315
-----------------------
Net property, plant and equipment 140,516 105,294
Intangibles, net (Notes 2 and 5) 76,117 36,153
Other assets 6,568 10,814
-----------------------
$362,465 $259,182
-----------------------
-----------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt (Note 6) $ 26,474 $ 23,706
Trade accounts payable 49,808 43,265
Accrued liabilities (Notes 5 and 9) 17,812 15,276
-----------------------
94,094 82,247
Long-term debt, less current portion (Note 6) 130,128 57,152
Deferred income taxes (Note 8) 23,695 22,446
Accrued environmental liabilities (Note 9) 1,566 2,201
Other liabilities 5,538 3,468
Shareholders' equity
Common stock (par value $.01 per share;
authorized 30,000,000 shares; issued
10,965,547 shares in 1998 and 1997) 110 110
Additional paid-in capital 10,931 10,867
Retained earnings 105,824 92,980
Currency translation adjustments 2,381 (940)
Treasury stock, at cost (644,451 shares
in 1998 and 612,460 shares in 1997) (10,471) (9,716)
Other (Note 10) (1,331) (1,633)
-----------------------
107,444 91,668
-----------------------
$362,465 $259,182
-----------------------
-----------------------
</TABLE>
19
See Notes to Consolidated Financial Statements
<PAGE>
MCWHORTER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
- -------------------------------------------------------------------------------------------
IN THOUSANDS 1998 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 12,844 $ 15,418 $ 13,833
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 16,404 10,353 9,079
Deferred income taxes (2,846) 711 3,530
Provision for plant closure and joint venture
write-down 7,267
Other, net 607 906 (87)
Changes in working capital:
Accounts and notes receivable (2,650) 8,674 (5,943)
Inventories (3,537) (2,218) (6,131)
Trade accounts payable and accrued
liabilities (3,340) (5,364) 10,993
Other current assets (1,053) (897) 504
---------------------------------------
Net cash provided by operating activities 23,696 27,583 25,778
---------------------------------------
INVESTING ACTIVITIES
Acquisition spending, net of cash acquired (55,231) (48,318)
Capital expenditures (25,663) (11,203) (6,991)
Investment in joint ventures (1,194) (2,915) (5,467)
Other, net (232) 34 41
---------------------------------------
Net cash used by investing activities (82,320) (62,402) (12,417)
---------------------------------------
FINANCING ACTIVITIES
Increase (decrease) in debt, net 59,318 40,326 (8,624)
Purchase of treasury stock (672) (2,683) (5,683)
Other, net 148 45 102
---------------------------------------
Net cash provided (used) by financing activities 58,794 37,688 (14,205)
---------------------------------------
Increase (decrease) in cash 170 2,869 (844)
Cash at beginning of period 3,929 1,060 1,904
---------------------------------------
Cash at end of period $ 4,099 $ 3,929 $ 1,060
---------------------------------------
---------------------------------------
</TABLE>
20
See Notes to Consolidated Financial Statements
<PAGE>
MCWHORTER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CURRENCY
-------------------- PAID-IN RETAINED TRANSLATION TREASURY
IN THOUSANDS, EXCEPT SHARE AMOUNTS SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENTS STOCK OTHER
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance October 31, 1995 10,847,064 $110 $10,895 $63,729 $(1,747) $(1,463)
Net income 13,833
Issuance of common stock for
restricted stock awards 1,483 22
Exercise of stock options 14,693 (114) 216
Purchase of treasury stock (397,300) (5,683)
Currency translation
adjustments $ (74)
--------------------------------------------------------------------------------------
Balance October 31, 1996 10,465,940 110 10,803 77,562 (74) (7,214) (1,463)
Net income 15,418
Issuance of common stock for
restricted stock awards 8,993 69 131 (170)
Exercise of stock options 3,376 (5) 50
Purchase of treasury stock (125,222) (2,683)
Currency translation
adjustments (866)
--------------------------------------------------------------------------------------
Balance October 31, 1997 10,353,087 110 10,867 92,980 (940) (9,716) (1,633)
Net income 12,844
Issuance of common stock for
restricted stock awards 6,300 55 100 (94)
Deferred compensation
stock plan (13,444) (322) 396
Exercise of stock options 8,753 9 139
Purchase of treasury stock (33,600) (672)
Currency translation
adjustments 3,321
--------------------------------------------------------------------------------------
Balance October 31, 1998 10,321,096 $110 $10,931 $105,824 $2,381 $(10,471) $(1,331)
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
</TABLE>
21
See Notes to Consolidated Financial Statements
<PAGE>
MCWHORTER TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS The Company operates in one business segment, the manufacture and
distribution of resin and colorants used in coatings and composite polymer
industries, and sells primarily to customers located in North America and
Europe.
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include
the accounts of the parent company and its subsidiaries. Investments in 50
percent or less owned companies and joint ventures are carried on the equity
basis with the Company's share of earnings reflected as a component of other
expense (income), net. All significant intercompany accounts and transactions
are eliminated in consolidation.
USE OF ESTIMATES The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
INVENTORIES Inventories are stated at the lower of cost or market. At
October 31, 1998 and 1997 costs were recorded on the last-in, first-out
(LIFO) method for approximately 63 percent and 76 percent of the inventories,
respectively. Inventory costs not stated on the LIFO method are stated on the
first in, first out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are recorded at
cost. Depreciation is based upon estimated useful lives of 10 to 40 years for
buildings and 3 to 15 years for machinery and equipment, using the
straight-line method.
INTANGIBLE ASSETS Intangible assets are amortized using the straight line
method over the estimated useful lives; 40 years for goodwill and 15 years
for other intangible assets. Goodwill represents the cost in excess of the
fair value of net assets acquired in purchase transactions.
STOCK-BASED COMPENSATION The Company accounts for stock-based compensation
plans under the provisions of Accounting Principles Board Opinion (APB) No.
25. Refer to Note 11 for disclosures required by Statement of Financial
Accounting Standard (SFAS) No. 123, "Accounting for Stock-based Compensation".
EARNINGS PER SHARE The Company adopted SFAS No. 128, "Earnings Per Share"
in 1998 which requires the disclosure of two earnings per share computations:
basic and diluted. Earnings per share (EPS) is computed by dividing net
income by the weighted average number of shares of stock (basic) plus stock
equivalents (diluted) outstanding during the year. Stock
22
<PAGE>
equivalents consist primarily of stock options and are included in the
calculation of weighted average shares outstanding using the treasury stock
method. EPS computations for prior years have been restated to reflect this
new standard.
The basic weighted average shares reconciles to diluted weighted average
shares as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------------
<S> <C> <C> <C>
Basic weighted average shares outstanding 10,240,720 10,299,873 10,441,102
Dilutive effect of common stock equivalents 147,870 92,027 28,689
-----------------------------------
Diluted weighted average shares outstanding 10,388,590 10,391,900 10,469,791
-----------------------------------
-----------------------------------
</TABLE>
Options to purchase 102,352 shares of common stock at a weighted average
option price of $25.13 per share were outstanding during 1998 but were not
included in the computation of diluted earnings per share because the options
exercise price was greater than the average market price of the common shares
and, therefore, the effect would be antidilutive.
TRANSLATION OF FOREIGN CURRENCIES Assets and liabilities of foreign
subsidiaries are translated at the exchange rate in effect at the balance
sheet date while the income and expenses are translated at the average
exchange rates prevailing during the year. The related translation
adjustments are reflected as a separate component of shareholders' equity.
Gains and losses resulting from foreign currency transactions denominated in
a currency other than the entity's functional currency are included in net
income.
NEW ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board
(FASB) issued SFAS No. 130, "Reporting Comprehensive Income", SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information", and
SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits". SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components. SFAS No. 131 establishes standards
for reporting information about operating segments and related disclosures
about products and services, geographic areas and major customers. SFAS No.
132 revises current disclosure requirements for employers' pensions and other
retiree benefits. These standards are effective for fiscal years beginning
after December 15, 1997. These standards expand or modify current
disclosures and, accordingly, will have no impact on the Company's reported
financial position, results of operations, or cash flows. The FASB also
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities". This standard is effective for fiscal years beginning after
June 15, 1999. As of October 31, 1998, the Company had no derivative
instruments. The Company adopted Statement of Position (SOP) 98-1
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" in 1998. In accordance with SOP 98-1, internal and external
costs incurred to develop internal use software are expensed during the
preliminary project stage and capitalized during the application development
stage and amortized over five to seven years. Costs of computer software
developed or obtained for internal use were immaterial in 1997 and 1996.
23
<PAGE>
NOTE 2 - ACQUISITIONS
In April 1998, the Company completed the acquisition of substantially all of
the assets of Accurate for approximately $39,400,000 in cash and the
assumption of $6,500,000 of debt. Accurate, located in South Holland,
Illinois, manufactures and distributes dispersed pigments for the coatings
industry. The excess of the purchase price over the net book value of the
assets was approximately $35,000,000, the largest component of which was
allocated to goodwill. In the first quarter of 1998, the Company purchased
the equity interests of its joint venture partners in McWhorter Europe for
approximately $8,200,000 in cash, which approximated the net book value of
the identifiable assets. As a result, the Company increased its equity
interest in McWhorter Europe from 33.3 percent to 100 percent. Both
acquisitions were accounted for using the purchase method and the results of
the acquired companies have been included in the consolidated results of the
Company from the dates of acquisition. The finalization of the purchase
price for both acquisitions is subject to completion. The pro forma
operating results including the acquired companies would not have been
significantly different from the consolidated results of the Company.
In August 1997, the Company completed the acquisition of Syntech for
$48,300,000 in cash and approximately $17,100,000 of assumed debt. Syntech
is an Italian based resin company with two production facilities in Italy and
a joint venture in China. The acquisition was accounted for using the
purchase method. The excess of purchase price over the net book value of
identifiable assets was approximately $30,800,000, the largest component of
which was allocated to goodwill. Syntech results since the date of
acquisition are included in the consolidated results of the Company. The
unaudited pro forma results for 1997 and 1996 below reflect the purchase
price accounting adjustments assuming the Syntech acquisition occurred at the
beginning of each year presented.
Pro Forma Results (Unaudited)
<TABLE>
<CAPTION>
IN THOUSANDS EXCEPT PER SHARE AMOUNTS 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C>
Net Sales $407,495 $408,052
Net Income $ 14,207 $ 12,704
Earnings per Share $ 1.37 $ 1.21
</TABLE>
NOTE 3 - INVENTORIES
The major classes of inventories as of October 31 were:
<TABLE>
<CAPTION>
IN THOUSANDS 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Manufactured products $ 26,339 $ 16,407
Raw materials, supplies and work-in-process 13,868 10,080
-----------------------
$ 40,207 $ 26,487
-----------------------
-----------------------
</TABLE>
24
<PAGE>
Inventories stated at cost as determined by the LIFO method were
approximately $905,000 and $2,276,000 lower at October 31, 1998 and 1997,
respectively, than such costs determined under the FIFO method. Compared to
the FIFO method, the LIFO method increased (decreased) pretax income by
$1,371,000, $(125,000), and $1,358,000 in 1998, 1997, and 1996, respectively,
due to decreased (increased) raw material costs. The related impact on
earnings per share after taxes was $.08, $(.01), and $.08, in 1998, 1997,
and 1996, respectively.
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment classifications as of October 31 were:
<TABLE>
<CAPTION>
IN THOUSANDS 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C>
Land $ 11,084 $ 9,673
Buildings 39,396 24,257
Machinery and equipment 133,716 108,426
Construction in progress 14,704 6,253
------ -----
198,900 148,609
Less accumulated depreciation 58,384 43,315
------------------------
Net property, plant and equipment $140,516 $105,294
------------------------
------------------------
</TABLE>
Depreciation expense for 1998, 1997, and 1996 was $13,993,000, $9,962,000,
and $9,002,000, respectively.
NOTE 5 - OTHER BALANCE SHEET COMPONENTS
The components of certain other balance sheet accounts as of October 31 were:
<TABLE>
<CAPTION>
INTANGIBLES IN THOUSANDS 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C>
Goodwill $ 62,885 $ 24,934
Other 16,536 11,693
------------------------
79,421 36,627
Less accumulated amortization 3,304 474
------------------------
$ 76,117 $ 36,153
------------------------
------------------------
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
ACCRUED LIABILITIES IN THOUSANDS 1998 1997
- ------------------------------------------------------------------
<S> <C> <C>
Employee compensation $ 5,002 $ 5,263
Environmental liabilities 1,854 1,288
Other 10,956 $ 8,725
-----------------------
$17,812 $15,276
-----------------------
-----------------------
</TABLE>
NOTE 6 - DEBT
Long-term debt as of October 31, consists of the following:
<TABLE>
<CAPTION>
IN THOUSANDS 1998 1997
- --------------------------------------------------------------------
<S> <C> <C>
Revolving credit borrowings $123,347 $55,000
Variable rate note payable due semiannually
with final payment due in 2001 5,605
6% note payable due in annual installments with
final payment in 1998 2,164
Variable rate mortgage loans due semiannually
through March 2005 1,555 1,764
11% note payable due in 1998 638
Capital Lease Obligation (Note 7) 498 1,083
Other 286 563
--------------------
131,291 61,212
Less current maturities 1,163 4,060
--------------------
$130,128 $57,152
--------------------
--------------------
</TABLE>
The Company has $150,000,000 available under a revolving credit facility that
enables the Company to borrow funds on an unsecured basis. Under the terms of
the agreement, interest rates are determined at the time of borrowing and are
based on London Interbank Offered Rates plus an applicable margin, including
facility fee, of up to .875 percent or other alternative rates. The weighted
average interest rate at October 31, 1998 was 5.8 percent. This facility
terminates on July 30, 2002. At October 31, 1998, borrowings totaling
$123,347,000 were outstanding under this agreement, all of which were classified
with long-term debt as they are supported by the long-term credit facility and
will continue to be refinanced beyond October 31, 1999. The weighted average
interest rate at October 31, 1998 for the variable rate note payable and
variable rate mortgage loans was 3.90 percent and 6.56 percent, respectively.
The mortgage loans are guaranteed by mortgages on certain property and
equipment.
The aggregate payments of long-term debt outstanding for the next five years and
thereafter, excluding revolving credit borrowings, are $1,163,000 in 1999,
$1,145,000 in 2000, $5,127,000 in 2001, $212,000 in 2002, $113,000 in 2003, and
$184,000 thereafter.
26
<PAGE>
In addition, the Company had $10,000,000 outstanding at October 31, 1998, under
an overnight credit facility with a weighted average interest rate of 5.93
percent. The Company's European subsidiaries, primarily its Italian subsidiary,
have short-term lines of credit that are cancelable at any time of $28,591,000,
at a weighted average interest rate at October 31, 1998 of 4.90 percent, of
which $15,311,000 was outstanding at October 31, 1998.
Interest paid during 1998, 1997, and 1996 was $6,950,000, $2,146,000, and
$1,725,000, respectively. At October 31, 1998, the Company had $4,307,000 in
unissued letters of credit. The carrying value of the Company's debt
approximates fair value at October 31, 1998.
NOTE 7- LEASE COMMITMENTS
The Company leases an industrial site in Italy under a capital lease agreement.
The lease agreement provides the Company with a bargain purchase option at lease
expiration in 1999 and the Company intends to exercise this option. Included in
property, plant, and equipment as of October 31, were the following assets held
under this capital lease:
<TABLE>
<CAPTION>
IN THOUSANDS 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C>
Land $1,067 $1,023
Buildings 3,113 2,985
Machinery and equipment 404 388
------------------
4,584 4,396
Less accumulated depreciation 155 20
------------------
$4,429 $4,376
------------------
------------------
</TABLE>
Amortization of leased assets is included in depreciation and amortization and
in accumulated depreciation. The total and current capital lease obligation at
October 31, 1998 is $498,000. Total future minimum payments under the capital
lease, including interest of $24,000, is $522,000, payable in 1999.
NOTE 8 - INCOME TAXES
The components of the provision for income taxes for the years ended October 31
were:
<TABLE>
<CAPTION>
IN THOUSANDS 1998 1997 1996
- ----------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $5,399 $7,035 $4,568
State 1,175 1,523 1,318
Foreign 1,374 296
-----------------------------
Total current income taxes 7,948 8,854 5,886
Deferred income taxes (2,846) 711 3,530
------------------------------
Total income taxes $5,102 $9,565 $9,416
------------------------------
------------------------------
</TABLE>
27
<PAGE>
Income taxes paid during 1998, 1997 and 1996 were $7,350,000, $8,416,000 and
$5,315,000, respectively.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities as of October 31, were:
<TABLE>
<CAPTION>
IN THOUSANDS 1998 1997
- ------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Employee compensation $ 1,079 $ 798
Chicago Heights closure 1,860
Thailand capital loss carryover 982
Other 1,735 1,811
------------------------
Total deferred tax assets 5,656 2,609
Deferred tax liabilities:
Tax over book depreciation 22,869 21,711
Other 2,047 1,150
------------------------
Total deferred tax liabilities 24,916 22,861
Net deferred tax liability $19,260 $20,252
------------------------
------------------------
</TABLE>
The principal items comprising the difference between income tax expense
computed at the federal statutory rate and the actual provision for income taxes
for the years ended October 31 were:
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS 1998 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate applied to
pretax income (35%) $6,281 $8,744 $8,138
Effect of:
State income taxes (net of
federal tax benefit) 531 1,078 1,170
Foreign tax rate differential 664 111
Adjustment from income tax audit (591)
Foreign tax law changes (2,311)
Other, net (63) 223 108
------------------------------------
$5,102 $ 9,565 $9,416
------------------------------------
------------------------------------
Effective tax rate 28.4% 38.3% 40.5%
------------------------------------
------------------------------------
</TABLE>
1998 results included a reduction in income tax expense of $2,311,000, $.22 per
share, relating to the impact on deferred income taxes of changes in the Italian
income tax regulations and rates. 1997 results included a reduction in income
tax expense of $591,000, $.06 per share, that resulted from the conclusion of an
income tax audit for the period prior to the Company's spin-off from The Valspar
Corporation.
28
<PAGE>
NOTE 9- ENVIRONMENTAL LIABILITIES
With respect to environmental liabilities, management reviews each individual
site, taking into consideration the numerous factors that influence the costs
that will likely be incurred. Based on these reviews, McWhorter accrues for
potential environmental liabilities. Reserves are adjusted as additional
information becomes available to better estimate the total remediation costs at
individual sites. While uncertainties exist with respect to the amounts and
timing of McWhorter's ultimate environmental liabilities, management believes
that such costs, individually and in the aggregate, will not have a material
adverse effect on the Company's financial condition or results of operations.
Relating to Company plants located in Philadelphia, Pennsylvania; Portland,
Oregon; Carpentersville, Illinois; and Italy; the Company has been named a
potentially responsible party for the remediation of independently operated
waste disposal sites previously used by these plants.
At October 31, 1998 the estimated amount of probable environmental liability of
the Company is approximately $3,420,000. Cargill Incorporated has agreed to
indemnify the Company, subject to certain limitations, for damages resulting
from environmental matters relating to its former Resin Products Division that
was acquired by the Company in 1994. Indemnification for environmental
liabilities, subject to certain limitations, related to the Italian facilities
is provided for under the escrow provisions of the Syntech acquisition
agreement. As a result of the probable recoveries of $2,722,000 under the
indemnification agreements above, the Company's net estimated environmental
liability is approximately $698,000.
NOTE 10- RETIREMENT BENEFIT PROGRAMS
In February 1994, McWhorter adopted an Employee Stock Ownership Plan (ESOP) and
an Employee Savings Plan (ESP). These primary retirement benefit programs are
defined contribution plans covering the majority of the employees in the U.S.
The total costs of the ESOP were $1,158,000, $1,557,000, and $1,556,000 in 1998,
1997, and 1996, respectively. The total costs of the ESP were $575,000,
$568,000, and $515,000 in 1998, 1997, and 1996, respectively. Contributions are
made to the ESOP at the rate of 4 percent of each participant's compensation and
additional contributions can be made at the Company's discretion. Contributions
to the ESP are based on a percentage of each employee's contributions to the
plan.
The Company sponsors defined benefit plans for certain hourly employees in the
U.S. and for its employees at the European locations. The related pension costs
and obligations are not material.
The Company also has a nonqualified deferred compensation plan which permits key
employees to defer certain portions of their compensation. Such compensation is
fully vested at the time of the contribution. The Company can also make
discretionary contributions to the
29
<PAGE>
plan which vest upon the completion of 5 years employment. Deferred
compensation liability at the end of 1998 was $974,000 of which $396,000 is
required to be settled by a fixed number of shares of the Company's common
stock. The Company established an irrevocable rabbi trust in 1997 to fund
this plan. The value of the assets, excluding shares of the Company's stock,
in the trust at October 31, 1998 was $357,000. The shares of the Company's
stock in the trust are classified as treasury stock and the associated
liability of $396,000 is classified as other within the shareholders' equity.
The Company accrues for its Italian employees' benefits in accordance with
Italian statutes. Such benefits are based on length of service, employment
category, and remuneration and are payable when an employee leaves the Company.
The liability as of October 31, 1998 and 1997 of $2,307,000 and $2,015,000,
respectively, is the amount to which the employee is entitled for services
rendered to date. Amounts charged to expense in 1998 and 1997 were $363,000 and
$52,000, respectively.
NOTE 11- STOCK PLANS
The Company's two stock incentive plans adopted in 1994 and 1996 provide for the
granting of options and the issuance of restricted stock, deferred stock and
stock appreciation rights of up to 1,050,000 shares of common stock, of which
276,302 shares are available for future grants. Options issued to date under
these plans have a term of ten years and become fully vested over a period of up
to five years. Outstanding options will expire over a period ending no later
than June 1, 2008. A summary of stock option activity for the 1994 and 1996
Stock Incentive Plans follows:
<TABLE>
<CAPTION>
NUMBER OF AVERAGE OPTION
OPTIONS PRICE PER SHARE
- ------------------------------------------------------------------
<S> <C> <C>
Options outstanding October 31, 1995 409,244 $15.86
Granted 55,636 15.49
Exercised (14,693) 7.03
Canceled (3,802) 18.61
-----------
Options outstanding October 31, 1996 446,385 16.09
Granted 116,258 22.68
Exercised (3,376) 13.09
Canceled (4,405) 18.18
-----------
Options outstanding October 31, 1997 554,862 17.47
Granted 92,158 25.33
Exercised (8,753) 16.93
Canceled (23,429) 24.05
-----------
Options outstanding October 31, 1998 614,838 18.43
-----------
-----------
Options exercisable at October 31, 1998 349,656 16.47
-----------
-----------
</TABLE>
30
<PAGE>
Under APB No. 25, because the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized. The impact on 1998, 1997 and 1996 net income
and earnings per share under the fair value method required by SFAS No. 123
would have been immaterial based upon fair value at the date of grant for awards
granted in 1998, 1997, and 1996. The weighted average fair value for the 1998,
1997, and 1996 option grants was $8.01, $7.33, and $4.95, respectively. The
fair value at the date of grant was determined using the Black-Scholes option
pricing model with the assumptions below. In management's opinion, the
Company's employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, the existing models
do not provide a reliable single measure of the value of the employee stock
options.
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------
<S> <C> <C> <C>
Assumptions:
Weighted average risk-free interest rate 5.67% 5.98% 5.98%
Expected dividend yield 0% 0% 0%
Expected volatility 21.9% 21.6% 21.6%
Weighted average expected life of
options (in years) 5 5 5
</TABLE>
The exercise price for the options outstanding as of October 31, 1998 ranged
from $13.78 to $27.94 with a weighted average remaining contractual life of 6.9
years segregated as follows:
<TABLE>
<CAPTION>
Range of exercise prices $13.78-$18.61 $20.13-$27.94
- -------------------------------------------------------------------------------
<S> <C> <C>
Outstanding options:
Number 429,622 185,216
Weighted average remaining contractual life
(in years) 5.92 9.05
Weighted average exercise price $16.09 $23.75
Exercisable options:
Number 330,507 19,149
Weighted average exercise price $16.13 $22.39
</TABLE>
Restricted stock performance awards have been granted to key officers under the
1994 plan. These restricted stock awards will vest only if the Company achieves
certain financial goals over a five-year performance period. Restricted shares
granted under the plan were 3,800 in 1998 at a market value of $24.81 per share;
7,493 in 1997 at market value of $22.75 per share; and 94,354 in 1995 at a
market value of $15.50 per share. The awards were recorded at the market value
of the shares at the time the shares were awarded. The total market value of the
shares will be charged to compensation expense based on achievement of the
related financial goals. After comparing the Company's performance to the
financial goals, $250,000 was charged to expense in 1998, 1997 and 1996.
31
<PAGE>
The Company also issued 2,500, 1,500, and 1,483 restricted and deferred shares
in 1998, 1997 and 1996, respectively, with vesting periods of up to three years.
Amounts charged to expense were $4,000 in 1998, $30,000 in 1997, and $22,000 in
1996.
In 1996 the Company established the 1996 Non-employee Director Stock Option and
Award Plan (the 1996 Directors' Plan). The 1996 Directors' Plan provides for
the issuance of up to 50,000 shares of the Company's common stock of which
36,231 shares are available for future grants. Participation in the 1996
Directors' Plan is limited to members of the Board of Directors of the Company
who are not salaried officers or employees of the Company or any of its direct
or indirect subsidiaries. Deferred stock awards granted under this plan were
3,884, 3,814 and 6,071 in 1998, 1997 and 1996, respectively, and amounts charged
to expense were $93,000, $93,000 and $110,000 in 1998, 1997, and 1996,
respectively.
Each outstanding common share includes a right to purchase one one-hundredth
share of Series A Junior Preferred Participating Stock (Preferred Stock) under
certain circumstances. Until exercisable, the rights are not separable from the
underlying common shares. The rights only become exercisable if a person or
group (an acquiring person) acquires, or makes an offer to acquire, 15 percent
or more of the Company's common stock without the prior approval of the
Company's Board of Directors. The exercise price of each right is $70. If
someone becomes an acquiring person, the holder of each right (other than the
acquiring person) will be entitled to purchase common stock of the Company
having a value of twice the exercise price of the right. In addition, if the
Company is acquired in a transaction in which the Company's common stock is
exchanged for cash or securities or more than 50 percent of its consolidated
assets or earnings power are sold, each holder (other than the acquiring person)
will have the right to purchase common stock of the acquiring company having a
market value of twice the exercise price of the right. The rights may be
redeemed by the Company at the price of $.01 per right at any time prior to
anyone becoming an acquiring person. 150,000 shares of Preferred Stock are
reserved for issuance upon the exercise of the rights. The Preferred Stock is
nonredeemable, with a $100 liquidation preference and 100 votes per share, and
is entitled to 100 times the per share dividends on the common stock.
NOTE 12- CONTINGENCIES
The Company is involved in various legal actions arising in the normal course of
business. Management, after taking into consideration legal counsel's
evaluation of such actions, is of the opinion that the outcome of these matters
will not have a material adverse effect on the Company's financial position.
NOTE 13- GEOGRAPHIC SEGMENTS INFORMATION
The Company's operations include foreign subsidiaries beginning in August 1997.
Prior to that, all the Company's facilities were in the U. S. Inter-geographic
sales are not significant. The Company operates facilities in the U. S. and
Europe. Sales, operating income, and identifiable assets for the European
operations in 1998 were 26 percent, 25 percent, and 37
32
<PAGE>
percent of the consolidated totals, respectively. In 1997, the comparable
percentages were 3 percent, 3 percent, and 35 percent of the consolidated
totals.
NOTE 14- NONRECURRING ITEMS
Fourth quarter 1998 expense (income), net included charges of $4,650,000, $.27
per share after taxes, related to the planned closure of the Chicago Heights,
Illinois facility, and $2,617,000, $.15 per share after taxes, related to the
write-off of the investment in the McWhorter Thailand joint venture. Third
quarter 1998 other expense (income), net included a charge of $931,000, $.05
per share after taxes, related to the relocation of the research and
development facility from Minneapolis to Carpentersville. Second quarter 1998
cost of sales included a charge of $500,000, $.03 per share after taxes, related
to the one-time write-off of the excess of fair value over net book value
associated with inventories acquired as part of the purchase of Accurate. 1997
other expense (income), net includes a second quarter charge of $811,000, $.05
per share after taxes, related to costs, primarily severance, for the research
and development facility relocation and the write-off of a tax related
receivable. As discussed in Note 8 of the Notes to Consolidated Financial
Statements, 1998 second quarter and 1997 second quarter were impacted by
reduction in income tax expense of $2,311,000, $.22 per share, and $591,000,
$.06 per share, respectively.
The planned closure of the Chicago Heights facility is the result of an in-depth
review of the Company's North American production capabilities as part of a
continuing effort to improve efficiency. Production from the Chicago Heights
facility will be transferred to the Company's other U.S. facilities.
Approximately 36 employees will be impacted by the closing. The 1998 charge for
the Chicago Heights facility closing is composed of approximately $4,240,000 for
the write-down of plant and equipment with a carrying value of $4,800,000 to
their fair value and approximately $410,000 for severance and other exit costs.
The write-down for the plant and equipment reflects impairment in their carrying
value because the gross undiscounted future cash flows to be generated by the
assets were less than the carrying value. The fair value of the plant and
equipment was based on the estimated future cash flows to be generated by the
facility. The Company's decision not to proceed further with the construction
of the manufacturing facility in Thailand was influenced by the poor economic
prospects for this joint venture and the level of additional investment that
would have been required to complete the facility.
33
<PAGE>
NOTE 15 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
IN THOUSANDS, NET SALES GROSS NET EPS EPS
EXCEPT PER SHARE AMOUNTS PROFIT INCOME BASIC DILUTED
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fiscal 1998 quarter ended (a):
January 31 $ 98,120 $ 12,989 $ 1,209 $ .12 $ .12
April 30 (b) 115,614 18,851 6,360 .62 .61
July 31 (b) 125,770 21,869 4,852 .47 .47
October 31 (b) 115,426 20,250 423 .04 .04
--------------------------------------------------------
$454,930 $73,959 $12,844 $1.25 $1.24
--------------------------------------------------------
--------------------------------------------------------
Fiscal 1997 quarter ended:
January 31 $ 71,534 $10,848 $ 2,514 $ .24 $ .24
April 30 (b) 80,882 12,737 3,876 .38 .37
July 31 85,581 14,563 4,832 .47 .47
October 31 (a) 93,468 15,945 4,196 .41 .40
--------------------------------------------------------
$331,465 $54,093 $15,418 $1.50 $1.48
--------------------------------------------------------
--------------------------------------------------------
</TABLE>
(a) See Note 2 of the Notes to Consolidated Financial Statements
(b) See Note 14 of the Notes to Consolidated Financial Statements
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Inapplicable.
34
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) IDENTIFICATION OF DIRECTORS
Incorporated by reference from pages 2-3 of the Proxy Statement section
entitled "Election of Directors."
(b) IDENTIFICATION OF EXECUTIVE OFFICERS
Set forth below are the names, ages and titles of the persons who serve as
executive officers of McWhorter:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
John R. Stevenson 56 Chairman and Chief Executive Officer
Jeffrey M. Nodland 43 President and Chief Operating Officer
Patrick T. Heffernan 49 Senior Vice President, Liquid Coating Resins
Kevin W. Brolsma 44 Vice President, Acquisitions Integration/
Environmental, Health and Safety
Douglas B. Rahrig 47 Vice President, Technology
Louise M. Tonozzi-Frederick 42 Vice President and Chief Financial Officer
and Secretary
Douglas J. Graff 47 Vice President, Composite Polymers
</TABLE>
JOHN R. STEVENSON is Chairman and Chief Executive Officer of the Company.
Effective February 1999, Mr. Stevenson's Chief Executive Officer
responsibilities will be assumed by Jeffrey M. Nodland, current President and
Chief Operating Officer. Mr. Stevenson will retain his responsibilities as
Chairman. Prior to being named in January 1997 to his current position, Mr.
Stevenson was President and Chief Executive Officer of the Company beginning in
February 1994. Previously he held the position of Vice President, Special
Products Group and Administration of Valspar beginning in August 1992 and Vice
President, Administration of Valspar beginning in February 1991.
JEFFREY M. NODLAND is President and Chief Operating Officer of the Company.
Effective February 1999, Mr. Nodland will assume Chief Executive Officer
responsibilities. Prior to being named in January 1997 to his current position,
Mr. Nodland was Executive Vice President, Chief Operating Officer, and Secretary
of the Company beginning in May 1995. Previously he held the position of
Senior Vice President, Chief Financial Officer, Secretary, and Treasurer of the
Company beginning in February 1994, and President of McWhorter, Inc. beginning
in June 1991.
PATRICK T. HEFFERNAN is Senior Vice President, Liquid Coating Resins of the
Company. Prior to being named in February 1994 to his current position, Mr.
Heffernan was an Assistant Vice President and General Manager of the Midwest
Region of the Resin Products Division of
35
<PAGE>
Cargill beginning in January 1986. Mr. Heffernan held various positions with
Cargill since January 1968.
KEVIN W. BROLSMA is Vice President, Acquisitions Integration/Environment, Health
and Safety of the Company. Effective February 1999, Mr. Brolsma will assume
Vice President Global Operations duties which include responsibility for
worldwide manufacturing. Prior to being named in August 1997 to his current
position, Mr. Brolsma was Vice President, Powder of the Company beginning in May
1996 and Vice President, Operations of the Company beginning in February 1994.
Previously he was the General Manager of the Southeast Region of the Resin
Products Division of Cargill beginning in January 1990. From January 1988 to
January 1990, Mr. Brolsma was the National Accounts Manager and General Sales
Manager of the Resin Products Division.
DOUGLAS B. RAHRIG is Vice President, Technology of the Company. Prior to being
named in February 1994 to his current position, Dr. Rahrig was Department
Manager of the Technology Department of S.C. Johnson & Son, Inc. beginning in
February 1993. Dr. Rahrig held various technical and management positions with
S.C. Johnson & Son, Inc. since 1985.
LOUISE M. TONOZZI-FREDERICK is Vice President, Chief Financial Officer and
Secretary of the Company. Prior to being named in September 1996 to her current
position, Ms. Tonozzi-Frederick was Treasurer and Controller beginning in May
1995. Previously, she was Controller beginning in May 1994, and prior to then
was associated with Mallinkrodt Group, Inc. for seven years in various financial
positions, most recently as Assistant Controller.
DOUGLAS J. GRAFF is Vice President, Composite Polymers of the Company. Prior to
his current position, Mr. Graff held the position of Assistant Vice President
and General Manager of the West Region of the Resin Products Division of Cargill
beginning in October 1981. Mr. Graff held various positions with Cargill since
July 1973.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from pages 9-11 of the Proxy Statement section
entitled "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from pages 7-8 of the Proxy Statement section entitled
"Security Ownership of Certain Beneficial Owners."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from pages 2-11 of the Proxy Statement sections
entitled "Election of Directors," "Security Ownership of Certain Beneficial
Owners" and "Executive Compensation."
36
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements commence on page 16.
(2) Financial Statement Schedules. All schedules for which provision
is made in the applicable accounting regulation of the Securities
and Exchange Commission are not required under the related
instructions or are inapplicable and therefore have been omitted.
(3) Exhibits:
<TABLE>
<CAPTION>
Exhibit Incorporated Herein
Number Description by Reference to
- ----------------------------------------------------------------------------------
<S> <C> <C>
3.1 Certificate of Incorporation, as Form 10-K Registration
amended Statement for the fiscal
year ended October 31, 1994
3.2 By-Laws, as amended Form 10-K Registration
Statement for the fiscal
year ended October 31, 1996
4.1 Form of Common Stock Certificate Form 10-K Registration
Statement for the fiscal
year ended October 31, 1994
4.2 Rights Agreement Form 10-K Registration
Statement for the fiscal
year ended October 31, 1994
10.1 Distribution Agreement Form S-1 Registration
Statement (Registration No.
33-75726) originally filed
on February 25, 1994
10.2 Environmental Matters Agreement Form S-1 Registration
Statement (Registration No.
33-75726) originally filed
on February 25, 1994
10.3 Amended and Restated Technology Form 10-K Registration
License Agreement Statement for the fiscal
year ended October 31, 1994
10.4 Tax Sharing Agreement Form S-1 Registration
Statement (Registration No.
33-75726) originally filed
on February 25, 1994
10.5 Amended and Restated Master Tolling Form 10-K Registration
Agreement Statement for the fiscal
year ended October 31, 1994
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Exhibit Incorporated Herein
Number Description by Reference to
- ----------------------------------------------------------------------------------
<S> <C> <C>
10.8 1994 Stock Incentive Plan Form S-1 Registration
Statement (Registration
No. 33-75726) originally
filed on February 25, 1994
10.8.1 Amendment to 1994 Stock Incentive Plan Form 10-Q for the
quarterly period ended
April 30, 1995
10.9 Employee Stock Ownership Plan and Trust Form 10-K Registration
Statement for the fiscal
year ended October 31,
1994
10.9.1 Amendment to Employee Stock Ownership
Trust
10.10 Employee 401(k) Savings Plan and Trust Form 10-K Registration
Statement for the fiscal
year ended October 31,
1994
10.10.1 Amendment to 401(k) Savings Plan Trust
10.11 Sale and Purchase of Assets Agreement Registration Statement on
between Cargill, Incorporated and Form 10 (File No. 1-12638)
McWhorter, Inc. dated as of May 19, filed on December 3, 1993
1993, as subsequently modified and
amended
10.12 Agreement Containing Consent Order Registration Statement on
executed as of September 30, 1993 by the Form 10 (File No. 1-12638)
Federal Trade Commission, The Valspar filed on December 3, 1993
Corporation and McWhorter, Inc.
10.16.2 Indemnification Agreement dated November
12, 1998 between McWhorter Technologies,
Inc. and John R. Stevenson
10.17 Indemnification Agreement dated May 17, Form 10-Q for the
1995 between McWhorter Technologies, quarterly period ended
Inc. and Jeffrey M. Nodland. April 30, 1995
10.17.1 Amendment to Indemnification Agreement Form 10-Q for the
dated May 17, 1995 between McWhorter quarterly period ended
Technologies, Inc. and Jeffrey M. July 31, 1996
Nodland
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
Exhibit Incorporated Herein
Number Description by Reference to
- ----------------------------------------------------------------------------------
<S> <C> <C>
10.18.1 Amendment to Indemnification Agreement Form 10-Q for the
dated May 17, 1995 between McWhorter quarterly period ended
Technologies, Inc. and Michelle L. July 31, 1996
Collins
10.19 Indemnification Agreement dated May 17, Form 10-Q for the
1995 between McWhorter Technologies, quarterly period ended
Inc. and Edward M. Giles April 30, 1995
10.19.1 Amendment to Indemnification Agreement Form 10-Q for the
dated May 17, 1995 between McWhorter quarterly period ended
Technologies, Inc. and Edward M. Giles July 31, 1996
10.20 Indemnification Agreement dated May 17, Form 10-Q for the
1995 between McWhorter Technologies, quarterly period ended
Inc. and D. George Harris April 30, 1995
10.20.1 Amendment to Indemnification Agreement Form 10-Q for the
dated May 17, 1995 between McWhorter quarterly period ended
Technologies, Inc. and D. George Harris July 31, 1996
10.21 Indemnification Agreement dated May 17, Form 10-Q for the
1995 between McWhorter Technologies, quarterly period ended
Inc. and Heinn F. Tomfohrde III April 30, 1995
10.21.1 Amendment to Indemnification Agreement Form 10-Q for the
dated May 17, 1995 between McWhorter quarterly period ended
Technologies, Inc. and Heinn F. July 31, 1996
Tomfohrde III
10.23 Indemnification Agreement dated December Form 10-K Registration
13, 1995 between McWhorter Technologies, Statement for the fiscal
Inc. and John G. Johnson, Jr. year ended October 31,
1995
10.23.1 Amendment to Indemnification Agreement Form 10-Q for the
dated December 13, 1995 between quarterly period ended
McWhorter Technologies, Inc. and John G. July 31, 1996
Johnson, Jr.
10.24 1996 Incentive Stock Plan Form 10-K Registration
Statement for the fiscal
year ended October 31,
1996
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
Exhibit Incorporated Herein
Number Description by Reference to
- ----------------------------------------------------------------------------------
<S> <C> <C>
10.25 1996 Nonemployee Director Stock Option Form 10-K Registration
and Award Plan Statement for the fiscal
year ended October 31,
1996
10.26 Stockholders Agreement for McWhorter Form 10-K Registration
Technologies Europe Statement for the fiscal
year ended October 31,
1996
10.27 Deferred Compensation Plan Form 10-K Registration
Statement for the fiscal
year ended October 31,
1996
10.27.1 Amendment to Deferred Compensation Plan
10.28 $150,000,000 Credit Agreement dated Form 10-Q for the
July 30, 1997 among McWhorter quarterly period ended
Technologies, Inc., the banks listed July 31, 1997
therein and Wachovia Bank of Georgia,
N.A., as agent
10.29 Stock Purchase Agreement By and Between Form 8-K dated August 11,
McWhorter Technologies, Inc. and 1997
Antonio Napoli & C.s.a.p.a. and Gestin
S.r.l.
10.30 Warrant Purchase Agreement Between Form 8-K dated August 11,
McWhorter Technologies, Inc. and Cable 1997
Beach Holdings Ltd.
10.31 Waiver and First Amendment to the Form 10-K Registration
$150,000,000 Credit Agreement Statement for fiscal year
ended October 31, 1997
10.32 Asset Purchase Agreement by and among Form 10-Q for the
Accurate Coatings & Dispersions, Inc., quarterly period ended
the principal stockholders thereof and April 30, 1998
McWhorter Technologies, Inc. dated as
of March 23, 1998
21.1 Subsidiaries of Registrant
23.1 Consent of Independent Auditors
27.1 Financial Data Schedules
</TABLE>
40
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
McWHORTER TECHNOLOGIES, INC.
January 25, 1999
By: /s/ John R. Stevenson
------------------------------------
JOHN R. STEVENSON
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
/s/ John R. Stevenson January 25, 1999
- -------------------------------------
JOHN R. STEVENSON
Chairman, Chief Executive Officer and Director (Principal Executive Officer)
/s/ Jeffrey M. Nodland January 25, 1999
- -------------------------------------
JEFFREY M. NODLAND
President, Chief Operating Officer, and Director
/s/ Louise M. Tonozzi-Frederick January 25, 1999
- -------------------------------------
LOUISE M. TONOZZI-FREDERICK
Vice President, Chief Financial Officer and Secretary (Principal Financial
and Accounting Officer)
/s/ D. George Harris January 25, 1999
- -------------------------------------
D. GEORGE HARRIS
Director
/s/ Michelle L. Collins January 25, 1999
- -------------------------------------
MICHELLE L. COLLINS
Director
/s/ Edward M. Giles January 25, 1999
- -------------------------------------
EDWARD M. GILES
Director
/s/ Heinn F. Tomfohrde, III January 25, 1999
- -------------------------------------
HEINN F. TOMFOHRDE, III
Director
/s/ John G. Johnson, Jr. January 25, 1999
- -------------------------------------
JOHN G. JOHNSON, JR.
Director
41
<PAGE>
THIRD AMENDMENT
OF
McWHORTER TECHNOLOGIES, INC.
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
(As Adopted Effective February 18, 1994)
WHEREAS, McWhorter Technologies, Inc. (the "Company") maintains
McWhorter Technologies, Inc. Employee Stock Ownership Plan and Trust (the
"Plan"); and
WHEREAS, amendment of the Plan is now considered desirable;
NOW, THEREFORE, the Company, acting in accordance with Section 17.1 of
the Plan, hereby amends the Plan, effective July 1, 1998, as follows:
1. By adding the following at the end of Paragraph 2.1(15) of the
Plan:
"Only an Affiliate of the Company may become an Employer."
2. By adding the following new Paragraph 2.1(39) to the Plan:
"(39) "Company" shall mean McWhorter
Technologies, Inc. or its successor."
3. By substituting the following for Subsection 6.4(b) of the Plan:
"(b) In the exercise of voting rights, Employer
Securities held in the suspense accounts
described in Sections 5.7 or 6.2 and
allocated shares of Employer Securities
<PAGE>
held for the benefit of Participants who do
not give timely voting instructions shall
be voted by the Trustee as instructed by
the Committee."
4. By substituting the following sentence for the last sentence of
Section 12.1 of the Plan:
"Except to the extent such duties may be expressly
allocated to the Trustee by the terms of this Plan
and Trust, the Trustee in its capacity as such shall
have no authority or responsibility with respect to
the operation and administration of the Plan."
5. By adding the following sentence at the end of Section 12.7 of
the Plan:
"Upon the expiration of ninety (90) days from the
date of filing such account, the Trustee shall be
forever released and discharged from all liability
and accountability to the Administrative Committee
with respect to the accuracy of such accounting and
the propriety of all acts and failures to act of the
Trustee reflected in such account for which it shall
be responsible hereunder, except with respect to any
such acts or transactions as to which the
Administrative Committee shall within such 90 day
period file with the Trustee specific written
objections."
6. By inserting the wording "gross" immediately prior to the
word "negligence" where the latter appears in the first sentence of Section
12.10 of the Plan.
7. By substituting the following for the second sentence of Section
12.10 of the Plan:
"The Employer shall indemnify the Trustee for any
loss, damage or liability which the Trustee may incur
or sustain arising out of any direction given to it
by the Employer, the Committee or an investment
advisor in accordance with the Plan."
-2-
<PAGE>
8. By adding the following at the end of Paragraph 16.1:
"Only an Affiliate of the Company may become a
Participant Employer."
9. By substituting "Company" for "Employer" when the latter
appears in Section 11.1, 13.1 and 13.2."
IN WITNESS WHEREOF, the Company, acting through its duly authorized
representative, hereby adopts the foregoing this 2nd day of June, 1998.
McWHORTER TECHNOLOGIES, INC.
By /s/ Mia F. Igyarto
-------------------------------------
Its VP, Human Resources & Quality
-3-
<PAGE>
TRUST AGREEMENT FOR
McWHORTER TECHNOLOGIES, INC.
EMPLOYEE 401(k) SAVINGS PLAN
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I 1
Introduction 1
Name 1
Purpose 1
Use of Terms 1
ARTICLE II 2
Fiduciary Responsibility 2
ARTICLE III 2
The Trust Fund and Its Administration 2
The Trust Fund 2
Plan Administrator 2
General Powers 2
Investment Managers 8
Compensation and Expenses 8
Limit of Trustee"s Responsibility 9
Common Fund 9
Loans 9
ARTICLE IV 10
Trust Investments 10
Investment by Trustee 10
Investment Manager-Directed Investment 10
Investment Funds 10
Employer Securities 11
Trustee"s Investment of Amounts Subject to Participant
Investment Direction 13
ARTICLE V 15
General Provisions 15
Action by Employers 15
Warranty 15
Disagreement as to Acts 15
Courts 15
Evidence 15
Third Parties 15
No Reversion in Employer 16
Interests Not Transferable 16
Indemnification 17
Litigation by Participants 17
Liabilities Mutually Exclusive 18
<PAGE>
Waiver of Notice 18
Controlling Law 18
Gender and Number 18
Successors 18
Severability 18
Statutory References 18
ARTICLE VI 19
Changes in Trustee 19
Resignation or Removal of Trustee 19
Appointment of Successor Trustee 19
Duties of Resigning or Removed Trustee and of 19
ARTICLE VII 19
Amendment and Termination 19
Amendment By Company 19
Termination 20
ARTICLE VIII 20
Incorporation of Collective Investment Trusts 20
-ii-
<PAGE>
TRUST AGREEMENT FOR
McWHORTER TECHNOLOGIES, INC.
EMPLOYEE 401(k) SAVINGS PLAN
ARTICLE I
INTRODUCTION
I-1. NAME. The trust agreement set forth below may be referred to as
TRUST AGREEMENT FOR McWHORTER TECHNOLOGIES, INC. EMPLOYEE 401(k) SAVINGS PLAN
(the "trust").
I-2. PURPOSE. This trust agreement forms a part of McWhorter
Technologies, Inc. Employee 401(k) Savings Plan (the "plan"). As part of the
plan, McWhorter Technologies, Inc. ("company") has designated Bank of America
National Trust & Savings Association to serve as "trustee" pursuant to this
trust agreement. The company and each other entity that has adopted the plan
shall be referred to collectively as the "employers" and individually as an
"employer." The trust is established, operated and maintained in the United
States of America exclusively for the investment and reinvestment of funds
contributed under the plan.
I-3. USE OF TERMS. Words and phrases used and defined for
purposes of the plan, which may be capitalized in the plan to indicate that
they are defined in the plan, but are not capitalized herein, are similarly
used and defined for purposes of this trust. The terms "trust,"
"agreement," "herein," "hereunder," and similar terms mean this
agreement and do not include the plan; but, unless qualified by the context
or otherwise defined in this agreement, a word, term or phrase defined in
this agreement is similarly defined for purposes of the plan.
<PAGE>
ARTICLE II
FIDUCIARY RESPONSIBILITY
The plan administrator, the trustee, any investment manager appointed
pursuant to paragraph III-4, and any other fiduciaries with respect to the plan
or trust shall discharge their duties thereunder solely in the interest of
participants and beneficiaries, for the exclusive purpose of providing their
benefits and defraying reasonable expenses of plan and trust administration,
with the care, skill, prudence and diligence under the circumstances then
prevailing that a prudent man acting in a like capacity and familiar with such
matters would use in the conduct of an enterprise of a like character and with
like aims.
ARTICLE III
THE TRUST FUND AND ITS ADMINISTRATION
III-1. THE TRUST FUND. The "trust fund" as at any date means all
property then held by the trustee under this agreement.
III-2. PLAN ADMINISTRATOR. The plan is administered by an
Administrative Committee (the "plan administrator"), appointed by the company
pursuant to the plan. Benefits payable under the plan are distributed by the
trustee as directed by the plan administrator. The company will certify to the
trustee from time to time the person or persons appointed as members of the plan
administrator. The trustee may rely on the latest certificate received without
further inquiry or verification.
III-3. GENERAL POWERS. The trustee shall have exclusive authority
and discretion to manage and control the trust fund except to the extent that
authority to manage investments has been allocated to one or more investment
managers pursuant to paragraph III-4, to the administrator pursuant to paragraph
III-3(r), paragraph III-3(s), paragraph III-3(t) or paragraph IV-4, or to
participants pursuant to paragraph IV-5. The trustee shall have the following
powers, rights and duties in addition to those provided elsewhere in this
agreement, the plan or by law:
(a) To manage, sell, contract to sell, grant options to
purchase, convey, exchange, transfer, abandon, improve,
repair, insure, lease for any term (although commencing in
-2-
<PAGE>
the future or extending beyond the term of this trust) and
otherwise deal with all property, real or personal, in such
way, for such considerations, and on such terms and
conditions as the trustee decides.
(b) To retain in cash such amounts as the trustee considers
advisable and as are permitted by applicable law; and to
invest and reinvest part or all of the balance of the trust
fund in stocks, bonds, notes, mortgages, mutual fund shares
or other property of any kind, real or personal, and to
diversify such investments so as to minimize the risk of
large losses, unless under the circumstances it is clearly
prudent not to do so.
(c) To deposit cash in any depositary (including the banking
department of the bank acting as trustee or any affiliate of
the bank acting as trustee) without liability for interest
and, without limiting the generality of the foregoing, to
invest cash in savings accounts or time certificates of
deposits bearing a reasonable rate of interest in the
banking department of the bank acting as trustee or any
affiliate of the bank acting as trustee.
(d) To make any payment or distribution from the trust fund as
directed by the plan administrator without inquiring as to
whether a payee or distributee is entitled thereto or as to
whether it is proper, and the trustee shall not be liable
for a payment or distribution made as directed by the plan
administrator without notice or knowledge that the payment
or distribution is not proper under the terms of the plan or
this agreement; and to notify the plan administrator if a
payment or distribution is returned to the trustee, and the
trustee shall have no obligation to search for or ascertain
the whereabouts of a payee or distributee.
(e) To the extent permitted by law, to borrow from anyone, with
the company"s approval, such sum or sums from time to time
as the trustee considers desirable to carry out this trust,
and to mortgage or pledge all or part of the trust fund as
security, provided that the trustee shall not borrow to
acquire employer securities as described in paragraph
-3-
<PAGE>
IV-4, or pledge employer securities held under the trust as
security for any loan.
(f) To retain any funds or property subject to any dispute
without liability for interest and to decline to make
payment or delivery thereof until final adjudication by a
court of competent jurisdiction or until an appropriate
release is obtained.
(g) To begin, maintain or defend any litigation necessary in
connection with the administration of the plan or this
trust, except that, unless otherwise required by law, the
trustee shall not be obliged or required to do so unless
indemnified to the trustee"s satisfaction.
(h) With the consent of the company or the plan administrator,
to compromise, contest, arbitrate or abandon claims or
demands.
(i) Except as provided in paragraph IV-4 with respect to
employer securities, to give proxies to vote stocks and
other voting securities, to join in or oppose (alone or
jointly with others) voting trusts, mergers, consolidations,
foreclosures, reorganizations, liquidations, or other
changes in the financial structure of any corporation, and
to exercise or sell stock subscription or conversion rights.
(j) To hold securities or other property in the name of a
nominee, in a depositary, or in any other way, with or
without disclosing the trust relationship; provided,
however, that except as authorized by regulations issued by
the Secretary of Labor, the indicia of ownership of the
assets of the trust fund shall not be maintained outside the
jurisdiction of the district courts of the United States.
(k) Except as provided in paragraph IV-4 with respect to certain
employer securities, to report to the employers and the plan
administrator on each accounting date under the plan, or as
soon thereafter as practicable, or at such other times as
the employer may request, the then net worth of the trust
fund (that is, the fair market value of the trust fund, less
liabilities, if any, other than
-4-
<PAGE>
liabilities to persons entitled to benefits under the plan)
determined on the basis of such evidence, data or information
as the trustee considers pertinent and reliable.
(l) To furnish to the employers and the administrator an annual
account, or an account for such other period as the plan
administrator may specify or as may be required under this
agreement or the plan, on an accrual basis showing all
investments, receipts, disbursements, and other transactions
involving the trust during the account period, and also
showing the assets of the trust fund held at the end of the
period. Upon the expiration of ninety (90) days from the
date of filing such account, the trustee shall be forever
released and discharged from all liability and
accountability to the plan administrator with respect to the
accuracy of such accounting and the propriety of all acts
and failures to act of the trustee reflected in such account
for which it shall be responsible hereunder, except with
respect to any such acts or transactions as to which the
plan administrator shall within such 90 day period file with
the trustee specific written objections.
(m) To pay any estate, inheritance, income or other tax, charge
or assessment attributable to any benefit payable under the
plan out of such benefit after giving the employers and the
plan administrator notice as far in advance as practicable
(except that mandatory federal or state withholding of
income tax may be made without such notice); to defer making
payment of any such tax, charge or assessment if it is
indemnified to its satisfaction in the premises; and to
require before making any payment such release or other
document from any lawful taxing authority and such indemnity
from the intended payee as the trustee considers necessary
for its protection.
(n) To maintain records and accounts reflecting all receipts and
disbursements under this agreement and such other records
and accounts as the plan administrator may specify, all of
which shall be open to the inspection of the employers or
the plan administrator at all reasonable times, and may be
audited from
-5-
<PAGE>
time to time by anyone named by the employer or plan
administrator.
(o) To employ agents, attorneys, accountants or other persons
(who also may be employed by the employer) and to delegate
to them such powers as the trustee considers desirable
(except that the trustee may not delegate its
responsibilities as to the management or control of the
assets of the trust fund), provided that such delegation,
and the acceptance thereof, by such agents, attorneys,
accountants or other persons, shall be in writing; and, to
the extent permitted by law, the trustee shall be protected
in acting or refraining from acting on the advice of persons
so employed without court action.
(p) To appoint a bank, trust company, or broker or dealer
registered under the Securities Exchange Act of 1934 to act
as custodian with respect to any portion of the trust fund;
and a custodian so appointed shall have custody of such
assets as are deposited with it and as custodian such
rights, powers and duties with respect thereto as shall be
agreed upon from time to time by the trustee and such
custodian.
(q) When directed by the plan administrator, to make loans to
participants under the plan from the trust fund in an amount
or amounts specified by the plan administrator without
inquiring as to whether a participant is entitled to such a
loan or as to whether the loan is proper under the terms of
the plan or under any applicable state or federal law.
(r) When directed by the plan administrator or an investment
manager, to apply for and invest all or any part of the
assets of the trust fund in one or more guaranteed
investment contracts issued by one or more legal reserve
life insurance companies legally authorized to issue such
contracts in the state of Illinois, which contracts shall
provide for a guarantee as to principal and interest. The
plan administrator or an investment manager may direct the
trustee to accept and retain any insurance contracts
transferred to the trust from any insurance company or other
contract holders. The trustee may be
-6-
<PAGE>
designated as the contract holder under any such insurance
contracts, but any action required or permitted to be taken by
the trustee as contract holder shall be taken only in
accordance with the directions of the plan administrator or
the investment manager. The trustee may delegate to the plan
administrator or the investment manager any or all of its
duties as contract holder under any contract. The trustee
shall have no duty to question the propriety of any direction
of the plan administrator or any investment manager, and shall
incur no liability for any action taken pursuant to such
direction or for any failure to act in the absence of such
direction, nor shall the trustee be obligated to inquire into
the terms and conditions of any insurance contract purchased
or accepted and retained pursuant to such direction.
(s) When directed by the plan administrator or an investment
manager, to invest all or any portion of the assets of an
investment fund in one or more mutual funds selected by the
plan administrator or an investment manager, or to purchase
individual securities selected by the plan administrator or
an investment manager.
(t) When directed by the plan administrator or an investment
manager, to purchase one or more group annuity, deposit
administration or separate account contracts for the payment
of benefits to participants or their beneficiaries from one
or more legal reserve life insurance companies legally
authorized to issue such contracts in the state of Illinois.
(u) To furnish the plan administrator with such information in
the trustee"s possession as the plan administrator may need
for tax or other purposes.
(v) At the direction of the plan administrator to receive, hold
and invest any funds or other property transferred to the
trustee from any other trust forming a part of a plan
intended to meet the requirements of Section 401(a) of the
Internal Revenue Code; and to allocate, credit and
distribute any such funds and other property so transferred
as directed by
-7-
<PAGE>
the plan administrator in accordance with the terms of the plan.
(w) To transfer all or any portion of the trust fund to another
trust or trusts forming a part of a plan or plans that are
intended to meet the requirements of Section 401(a) of the
Internal Revenue Code, as directed by the plan
administrator.
(x) To perform any and all other acts which in the trustee"s
judgment are appropriate for the proper management,
investment and distribution of the trust fund.
(y) To transfer an eligible rollover distribution described in
Section 402(c)(4) of the Internal Revenue Code directly to
an eligible retirement plan described in Section
402(c)(8)(B) of the Internal Revenue Code, as directed by
the plan administrator.
III-4. INVESTMENT MANAGERS. The plan administrator may appoint one
or more investment managers for the purpose of directing the investment of part
or all of the assets of the trust fund. Except as otherwise provided by law,
the trustee shall have no obligation for investment of any assets of the trust
fund that are subject to management by an investment manager. Appointment of an
investment manager shall be made by written notice to the investment manager and
the trustee, which notice shall specify those powers, rights and duties of the
trustee under this agreement that are allocated to the investment manager and
that portion of the assets of the trust fund subject to investment management.
An investment manager so appointed pursuant to this paragraph shall be either a
registered investment adviser under the Investment Advisers Act of 1940, a bank,
as defined in said Act, or an insurance company qualified to manage, acquire and
dispose of the assets of the plan under the laws of more than one state of the
United States. Any such investment manager shall acknowledge to the plan
administrator in writing that it accepts such appointment and that it is a
fiduciary with respect to the plan and trust. An investment manager may resign
at any time upon written notice to the trustee and the employer. The plan
administrator may remove an investment manager at any time by written notice to
the investment manager and the trustee.
III-5. COMPENSATION AND EXPENSES. Except as otherwise provided below
in this agreement, all reasonable costs, charges and expenses incurred in the
administration of this trust and the plan, including compensation to the trustee
(as agreed upon
-8-
<PAGE>
between the employer and the trustee), compensation to an investment manager
(as agreed upon between the employer and the investment manager), and any
compensation to agents, attorneys, accountants and other persons employed by
the trustee or the plan administrator, will be paid from the trust fund to
the extent such costs and expenses are not paid by the employers in such
proportions as the company directs. Expenses incurred in connection with the
sale, investment and reinvestment of the trust fund (such as brokerage,
postage, express and insurance charges and transfer taxes) shall be paid from
the trust fund.
III-6. LIMIT OF TRUSTEE"S RESPONSIBILITY. No power, duty or
responsibility is imposed upon the trustee under the plan, except as set forth
in this agreement or the plan. Until they determine or are advised to the
contrary, the trustee and any investment manager (appointed as provided in
paragraph III-5) may assume that this trust is qualified under Section 401(a),
and is entitled to tax exemption under Section 501(a), of the Internal Revenue
Code of 1986.
III-7. COMMON FUND. If more than one employer has adopted the plan,
the trustee shall not be required to make any separate investment of the trust
fund for the account of the plan as applied to the several employers and may
administer and invest all contributions made under the plan as one trust fund.
If, for any purpose, it becomes necessary to determine as of any date the
portion of the trust fund allocable to all or any group of participants employed
by any one of the employers, such portion shall be determined by the plan
administrator, taking into consideration the relative aggregate employer
contributions to the trust fund with respect to such participants, the relative
aggregate benefits paid and payable from the trust fund to or on behalf of such
participants, and such other factors as the plan administrator deems
appropriate. Any such determination by the plan administrator shall be binding
upon all of the employers, participants and all other persons. The trustee will
have no duty or responsibility to question any determination or direction by the
plan administrator under this paragraph III-7.
III-8. LOANS. The plan administrator shall be the named fiduciary
exclusively responsible for the administration of the participant loan program
pursuant to the terms of the plan, including responsibility for issuing and
maintaining custody of promissory notes and other documentation pertaining to
such loans, and for all related loan disclosure and recordkeeping matters. Loan
payments shall be collected by the plan administrator and remitted to the
trustee, who shall invest such repayments among the investment funds in the
proportions directed by the plan administrator. Promissory notes held by the
plan administrator shall not be included as assets of the trust fund
-9-
<PAGE>
for purposes of the reports and accounts furnished by the trustee. The
trustee shall not be liable for any actions taken by the plan administrator
under this paragraph.
ARTICLE IV
TRUST INVESTMENTS
IV-1. INVESTMENT BY TRUSTEE. Except to the extent that an
investment manager has been appointed, except to the extent the trustee is
directed to invest in guaranteed investment contracts under subparagraph
III-3(r), in mutual funds or individual securities under subparagraph
III-3(s), in group annuity deposit administration or separate account
contracts under subparagraph III-3(t), or in employer securities under
paragraph IV-4, and except to the extent that participants direct investments
among investment funds under paragraph IV-5, the trustee shall have the sole
investment responsibility with respect to the assets of the trust fund, and
the trustee shall have the sole and exclusive authority and discretion to
manage, acquire, dispose and control such assets of the trust fund and may
invest and reinvest any portion or all of such assets in stocks, bonds,
notes, mortgages, mutual fund shares or other property of any kind, real or
personal.
IV-2. INVESTMENT MANAGER-DIRECTED INVESTMENT. If the plan
administrator has appointed an investment manager pursuant to paragraph III-4 of
the trust, such investment manager shall have sole and exclusive authority and
discretion to direct the trustee as to the investment of part or all of the
assets of the trust fund and, except as provided by law, the trustee shall have
no obligation with respect to the investment of such plan assets.
IV-3. INVESTMENT FUNDS. If the plan administrator has authorized the
establishment of investment funds under the plan, the plan administrator shall
decide which investment funds shall be offered under the plan and the employer
shall establish written guidelines and objectives for each fund under the plan.
Examples of investment funds include a fixed income fund, an equity fund, a fund
consisting of mutual funds selected by the plan administrator or an investment
manager, and a employer stock fund designed to invest primarily in employer
securities, as described in paragraph IV-4. The trustee will invest
contributions and account balances among the investment funds in the proportions
directed by the plan administrator, but shall have no duty to verify such
directions and shall not be responsible for any loss that results from following
such directions. The trustee may, upon at least 30 days" advance written notice
to the employer, terminate an existing investment fund or funds.
-10-
<PAGE>
IV-4. EMPLOYER SECURITIES. The plan administrator may direct the
trustee to invest all or any part of the assets of an investment fund in
employer securities, in accordance with the following provisions:
(a) The term "employer security" means stock that is a
qualifying employer security (as defined in Section
407(d)(5) of the Employee Retirement Income Security Act of
1974 ("ERISA")) issued by an employer of employees covered
by the plan, or by an affiliate of such employer.
(b) The plan administrator may direct the trustee to invest any
portion of the assets of the trust fund (other than assets
under the control of an investment manager appointed under
paragraph III-4) in employer securities, may direct the
trustee to sell any such securities held as an asset of the
trust fund and may direct the trustee to accept a
contribution from an employer in the form of employer
securities; provided that, all such purchases and sales
shall be for adequate consideration (as defined in Section
3(18) of ERISA) and shall meet the requirements exempting
such transactions from the prohibited transaction provisions
of ERISA and the Internal Revenue Code. Adequate
consideration means: in the case of a security for which
there is a generally recognized market, either (i) the price
of the security prevailing on a national securities exchange
that is registered under Section 6 of the Securities
Exchange Act of 1934, or (ii) if the security is not traded
on such a national securities exchange, a price not less
favorable to the plan than the offering price for the
security as established by the current bid and asked prices
quoted by persons independent of the issuer and of any party
in interest (as defined in Section 3(14) of ERISA); and in
the case of an employer security (including an employer
security acquired directly from the issuer) other than a
security for which there is a generally recognized market,
the fair market value of such security as determined in good
faith by the plan administrator pursuant to the terms of the
plan and in accordance with applicable law. The trustee
will not undertake to value or be responsible for the
valuation of employer
-11-
<PAGE>
securities not traded on a national securities exchange.
The trustee shall not be required to hire an independent
valuation firm to value employer securities not traded on a
national securities exchange. The trustee may rely on any
valuation figure supplied by the plan administrator or the
opinion of an independent valuation firm hired by the plan
administrator, but shall have no duty to verify such opinion
or valuation figure and shall not be responsible for any loss
that results from reliance upon such opinion or valuation
figure. The trustee may, in its sole discretion, direct the
plan administrator to obtain an opinion of an independent
valuation firm or may require that an additional valuation be
obtained.
(c) If securities issued by an employer are acquired from or
sold to a party in interest, no commission shall be charged
to the trust fund with respect to such acquisition or sale.
(d) Directions to be given or furnished by the plan
administrator to the trustee in accordance with the
provisions of this paragraph shall be in writing or such
other form of communication as is mutually acceptable to the
plan administrator and the trustee. Absent any direction by
the plan administrator, the trustee shall have no obligation
or responsibility to acquire or sell any employer securities
pursuant to the provisions of this paragraph and may invest
any assets of the trust fund without regard to this
paragraph.
(e) The trustee shall not exercise any voting rights with
respect to the securities of an employer unless directed by
the plan administrator and shall not be liable for the
voting of such securities, the failure to vote such
securities if not directed by the plan administrator or the
direct or indirect results of such voting or failure to
vote. The plan administrator shall direct the trustee with
respect to the exercise of stock subscription rights,
conversion rights, warrants, options, tender offers,
buy-sell arrangements and other rights or duties with
respect to employer securities held by the
-12-
<PAGE>
trust fund. The plan administrator also shall direct the
trustee with respect to the disposition of any dividend
income related to the employer securities held under the
trust fund.
(f) The plan administrator shall determine whether the employer
securities purchased by the trust fund must be registered or
must comply with any provision of the Securities Act of 1933
(the "Act") or any other state or federal law governing or
pertaining to securities. If the plan administrator
determines that such registration or other action is
necessary, the plan administrator shall complete and file a
Registration Statement under the Act or such other
documentation as is required by applicable state or federal
law.
IV-5. TRUSTEE"S INVESTMENT OF AMOUNTS SUBJECT TO PARTICIPANT
INVESTMENT DIRECTION. If the plan administrator has specified that participants
may individually direct the investment of their accounts, the trustee shall,
upon written direction from a participant given in accordance with the terms of
the plan, invest and reinvest amounts credited to such participant"s account as
directed by the participant subject to the following:
(a) The trustee, except as otherwise provided below, shall make
purchases, pledges or sales of any property for a
participant"s accounts only as the participant directs in
writing and the trustee shall be under no obligation to
inquire as to the propriety of or the amount of any
investment direction of a participant.
(b) The trustee shall have the power to invest any portion of
the assets in a participant"s investment account that is
held in cash or cash equivalents in short term, fixed income
investments pending receipt of instructions from the
participant regarding the investment of his accounts.
(c) Each participant shall indemnify and hold the trustee and
the employer harmless for any losses suffered as a result of
investments and reinvestments made by the trustee in good
faith reliance upon any investment direction given by such
participant in accordance with
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<PAGE>
this paragraph IV-5 and the terms of the plan.
(d) The trustee shall have the power, right and duty to
determine and report to the plan administrator, at such
times as the plan administrator and the trustee shall agree
upon, the fair market value (as determined in the sole
discretion of the trustee) of the assets held for the
benefit of each participant in accordance with this
paragraph IV-5. The trustee shall have the right to rely on
valuations prepared by third parties as to assets held by
any such third party.
(e) The trustee shall have the power, right and duty to provide
to the plan administrator on each accounting date or as soon
thereafter as practicable a statement showing the assets
held for the benefit of each participant in accordance with
this paragraph IV-5 and any expenses attributable to the
acquisition and maintenance of such assets and expenses
attributable to any assets disposed of since the last
preceding accounting date.
(f) On the written direction of a participant, given in
accordance with the plan, the trustee shall liquidate for
their fair market value (as determined by the trustee after
consulting with the participant) all of the assets held for
the benefit of the participant in accordance with this
paragraph IV-5 and credit to such participant"s accounts
under the plan the amount realized on such liquidation.
(g) Notwithstanding paragraph III-5, all expenses incurred in
connection with the sale, investment and reinvestment of
assets in accordance with this paragraph IV-5 (such as
custodial, maintenance, investment manager, brokerage,
postage, express and insurance charges and transfer taxes)
shall be charged to the appropriate accounts of a
participant.
(h) If required by law, the trustee reserves the right to
disapprove any investment direction filed with the trustee.
(i) Except to the extent otherwise required by law, the trustee
is not liable or responsible for any loss resulting to
accounts by reason
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<PAGE>
of any investment or reinvestment made by the trustee at the
direction of a participant, and, therefore, the trustee is
relieved of any duty to review from time to time such property
included in a participant"s investment accounts.
ARTICLE V
GENERAL PROVISIONS
V-1. ACTION BY EMPLOYERS. Any action required or permitted to be
taken by an employer under the trust shall be by resolution of its Board of
Directors, by resolution of a duly authorized committee of its Board of
Directors, or by a person or persons authorized by resolution of its Board of
Directors or such committee.
V-2. WARRANTY. The employer warrants that all directions or
authorizations by it or the plan administrator, whether for the payment of money
or otherwise, will comply with the plan and this trust.
V-3. DISAGREEMENT AS TO ACTS. If there is a disagreement between the
trustee and anyone as to any act or transaction reported in any accounting, the
trustee shall have the right to a settlement of its account by any proper court.
V-4. COURTS. Except as otherwise provided by law, in case of any
court proceedings involving an employer, the plan administrator, the trustee or
the trust fund, only the employer or the plan administrator, as the case may be,
and the trustee shall be necessary parties to the proceedings, and no other
person shall be entitled to notice of process. A final judgment entered in any
such proceedings shall be conclusive.
V-5. EVIDENCE. Evidence required of anyone under this agreement may
be by certificate, affidavit, document or other information which the person
acting on it considers pertinent and reliable, and signed, made or presented by
the proper party or parties.
V-6. THIRD PARTIES. Except as otherwise provided by law, the
trustee"s exercise or non-exercise of its powers and discretions in good faith
shall be conclusive on all persons. No one shall be obliged to see to the
application of any money paid
-15-
<PAGE>
or property delivered to the trustee, except to the extent such person is
acting as an investment manager as respects such money or property. The
certificate of the trustee that it is acting according to this agreement will
fully protect all persons dealing with the trustee. An insurance company or
investment manager may assume that this agreement and the plan have not been
amended or changed unless notice of such amendment or change is received by
the investment manager or by the insurance company at its home office.
V-7. NO REVERSION IN EMPLOYER. The employers shall have no right,
title or interest in the trust fund, nor shall any part of the trust fund revert
or be repaid to an employer, directly or indirectly, unless:
(a) a contribution is made by such employer by mistake of fact
and such contribution is returned to the employer within one
year after payment to the trustee; or
(b) a contribution conditioned on the deductibility thereof is
disallowed as an expense for federal income tax purposes and
such contribution (to the extent disallowed) is returned to
the employer within one year after the disallowance of the
deduction; or
(c) the Internal Revenue Service initially determines that the
plan, as applied to the employer, does not meet the
requirements of Section 401(a) of the Internal Revenue Code,
in which event, any trust assets attributable to
contributions made by such employer shall be returned to it
within one year of the date of the denial of qualification
of the plan.
The amount of any contribution that may be returned to the employer pursuant to
subparagraph (a) or (b) above must be reduced by any portion thereof previously
distributed from the trust fund and by any losses of the trust fund allocable
thereto, and in no event may the return of such contribution cause any
participant"s account balances to be less than the amount of such balances had
the contribution not been made under the plan.
V-8. INTERESTS NOT TRANSFERABLE. The interests of persons entitled
to benefits under the plan are not subject to their debts or other obligations
and, except as may be required by the tax withholding provisions of the Internal
Revenue Code or any state"s income tax act or pursuant to a qualified domestic
relations order as defined in Section 414(p) of the Internal Revenue Code, may
not be voluntarily or involuntarily sold,
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<PAGE>
transferred, alienated, assigned or encumbered. Notwithstanding the
foregoing, to the extent that a participant has loans outstanding from the
plan at the time distribution of his accounts is to commence, the amount of
principal and interest then outstanding shall reduce the distribution of the
account balances as set forth in the plan.
V-9. INDEMNIFICATION. To the extent permitted by law, no present or
former plan administrator member, nor any person who is or was a director,
officer, or employee of the employer shall be personally liable for any act done
or omitted to be done in good faith in the administration of the plan or this
trust. Any employee of an employer to whom the plan administrator or an
employer has delegated any portion of its responsibilities under the plan, any
person who is or was a director or officer of an employer, members and former
members of the plan administrator, and each of them, shall, to the extent
permitted by law, be indemnified and saved harmless by the employers (to the
extent not indemnified or saved harmless under any liability insurance or other
indemnification arrangement with respect to the plan or this trust) from and
against any and all liability or claim of liability to which they may be
subjected by reason of any act done or omitted to be done in good faith in
connection with the administration of the plan or this trust or the investment
of the trust fund, including all expenses reasonably incurred in their defense
if the employers fail to provide such defense after having been requested to do
so in writing. The trustee shall be indemnified and saved harmless by the
employers with respect to any liability or claim of liability to which the
trustee shall be subjected by reason of its compliance with any directions given
in accordance with the provisions of the plan or this trust by an investment
manager, the plan administrator or employers, or any person duly authorized by
the plan administrator or the employers, or by reason of its failure to take any
action with respect to any assets of the trust fund that are subject to
investment direction from an investment manager or the plan administrator in the
absence of direction from the investment manager or the plan administrator,
including all expenses reasonably incurred in its defense if the employers fail
to provide such defense after having been requested to do so in writing.
V-10. LITIGATION BY PARTICIPANTS. If a legal action begun against
the trustee, an employer or the plan administrator by or on behalf of any person
results adversely to that person, or if a legal action arises because of
conflicting claims to a participant"s or other person"s benefits, the cost to
the trustee, the employers or the plan administrator of defending the action
will be charged to the extent permitted by law to the sums, if any, which were
involved in the action or were payable to the person concerned.
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<PAGE>
V-11. LIABILITIES MUTUALLY EXCLUSIVE. To the extent permitted by
law, the trustee, an investment manager, the employers and each plan
administrator member shall be responsible only for its own acts or omissions and
neither the plan administrator nor the trustee shall be required to collect any
contribution from an employer or any other person or to verify that it is in the
proper amount. No insurance company shall be a party to this agreement for any
purpose or be responsible for the validity of this agreement, it being intended
that an insurance company shall be liable only for the obligations set forth in
the contracts issued by it.
V-12. WAIVER OF NOTICE. Any notice required under this agreement may
be waived by the person entitled to such notice.
V-13. CONTROLLING LAW. Except to the extent superseded by laws of
the United States, the laws of Illinois shall be controlling in all matters
relating to this agreement.
V-14. GENDER AND NUMBER. Where the context admits, words in the
masculine gender shall include the feminine and neuter genders, the singular
shall include the plural, and the plural shall include the singular.
V-15. SUCCESSORS. This agreement shall be binding on all persons
entitled to benefits under the plan and their respective heirs and legal
representatives, on the employers and its successors and assigns, on the trustee
and its successors and on the plan administrator members and their successors.
The term "employer" as used in the plan and this agreement includes any entity
that continues the plan and this trust in effect, as provided in the plan.
V-16. SEVERABILITY. If any provision of this agreement is held to be
illegal or invalid, such illegality or invalidity shall not affect the remaining
provisions of this agreement, and it shall be construed and enforced as if such
illegal or invalid provision had never been inserted therein.
V-17. STATUTORY REFERENCES. Any references in this agreement to a
Section of the Internal Revenue Code of 1986 or the Employee Retirement Income
Security Act of 1974 shall include any comparable section or sections of any
future legislation that amends, supplements or supersedes said Section.
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<PAGE>
ARTICLE VI
CHANGES IN TRUSTEE
VI-1. RESIGNATION OR REMOVAL OF TRUSTEE. The trustee may resign at
any time by giving sixty days" advance written notice to the company. The
company may remove a trustee by giving sixty days" advance written notice to the
trustee. The company shall promptly appoint a successor trustee, and if no
successor trustee has been appointed by the effective date of the trustee"s
resignation, the trustee may petition a court of competent jurisdiction to
appoint a successor trustee at the expense of the trust fund.
VI-2. APPOINTMENT OF SUCCESSOR TRUSTEE. The company shall fill any
vacancy in the office of trustee as soon as practicable and shall give prompt
written notice thereof to the person or corporation appointed to fill the
vacancy, the other employers, if any, and to the plan administrator.
VI-3. DUTIES OF RESIGNING OR REMOVED TRUSTEE AND OF SUCCESSOR
TRUSTEE. A trustee that resigns or is removed shall furnish promptly to the
employers and the successor trustee an account of its administration of the
trust from the date of its last account. Each successor trustee shall succeed
to the title to the trust fund vested in its predecessor without the signing or
filing of any instrument, but each predecessor trustee shall execute all
documents and do all acts necessary to vest such title of record in the
successor trustee. Each successor trustee shall have all the powers conferred
by this agreement as if originally named trustee. No successor trustee shall be
personally liable for any act or failure to act of a predecessor trustee. With
the approval of the company, a successor trustee may accept the account
furnished and the property delivered by a predecessor trustee without incurring
any liability for so doing.
ARTICLE VII
AMENDMENT AND TERMINATION
VII-1. AMENDMENT BY COMPANY. This trust may not be amended by the
company, except with the advance written consent of the trustee. Except as
provided in paragraph V-7, under no condition shall an amendment result in the
return or repayment to an employer of any part of the trust fund or the income
from it or result in the distribution of the trust fund for the benefit of
anyone other than persons entitled to benefits under the plan.
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<PAGE>
VII-2. TERMINATION. If the plan is terminated as to an employer,
this trust, including all rights, titles, powers, duties, discretions and
immunities imposed on or reserved to the trustee, the employer and the plan
administrator nevertheless shall continue in effect until all assets have been
distributed by the trustee as directed by the plan administrator under the plan.
ARTICLE VIII
INCORPORATION OF COLLECTIVE INVESTMENT TRUSTS
Notwithstanding any other provisions of this agreement, the trustee or
any investment manager may cause any part or all of the trust assets for which
it has investment responsibility to be invested in any common, collective or
commingled trust fund or pooled investment fund qualified under Section 401(a)
and entitled to tax exemption under Section 501(a) of the Internal Revenue Code
of 1986. To the extent trust assets are invested in any such common, collective
or commingled trust fund or pooled investment fund, the provisions of the
documents under which such fund is maintained, as amended from time to time,
shall govern any investment therein, and such provisions are hereby incorporated
herein and made a part of this agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Trust
Agreement to be executed by their duly authorized officer this 2nd day of
June, 1998.
McWHORTER TECHNOLOGIES, INC.
By: /s/ Mia F. Igyarto
-------------------------------------
Title: VP, Human Resources & Quality
BANK OF AMERICA NT & SA
By: /s/ Elizabeth Carey
--------------------------------------
Title: Vice President
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<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is hereby made and entered into
as of this 12th day of November, 1998, by and between McWhorter Technologies,
Inc., a Delaware corporation (the "Company"), and John R. Stevenson (the
"Employee").
W I T N E S S E T H
WHEREAS, the Employee is currently employed by the Company as its Chief
Executive Officer;
WHEREAS, the Employee desires to resign from his duties and position as
Chief Executive Officer effective March 1, 1999 (the "Effective Date");
WHEREAS, the Employee possesses an intimate knowledge of the business and
affairs of the Company and its policies, procedures, methods and personnel; and
WHEREAS, the Company desires to secure the services and employment of the
Employee on behalf of the Company in such other capacities as the parties may
determine, and the Employee is willing to render such services on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and intending to be legally bound hereby, the parties hereto agree as follows:
1. EMPLOYMENT TERM. Subject to the terms and conditions of this
Agreement, following his resignation as the Company's Chief Executive Officer,
Employee hereby agrees to remain in the employment of the Company, and the
Company hereby agrees to continue to employ Employee, for the period commencing
on the Effective Date and
<PAGE>
ending on February 29, 2004 (the "Employment Term"). The term of this Agreement
shall be coincident with the Employment Term.
2. DUTIES.
(a) During the Employment Term, the Employee shall serve as an employee of
the Company in such capacities, offices or positions as may be mutually agreed
upon between the Company and the Employee. In such capacities, Employee agrees
to perform such duties, services and responsibilities incident to and consistent
with such position(s) as reasonably determined from time to time by the Board of
Directors of the Company (the "Board") and the Company's Chief Executive
Officer, including but not limited to, continuing involvement in such areas as
strategic planning, corporate development, and the colorant business.
(b) The Employee will devote the level of time to his employment that is
specified for the applicable time periods in Schedule A hereto. The Employee
will not, without the prior written approval of the Board, engage in any other
business activity that would reduce the number of such expected hours.
(c) Employee further agrees that, during the period beginning on the
Effective Date and ending on February 28, 2004, he will not accept full time
employment with another employer and will remain available to return to full
time employment with the Company as its Chief Executive Officer, and in such
additional offices or positions as the Employee and the Company may mutually
agree upon. Notwithstanding anything to the contrary in this Agreement whether
express or implied, Employee shall not be obligated to return to full time
employment with the Company after the Effective Date unless Employee and the
Company mutually agree on all of the relevant terms and conditions relating to
such full time employment, including compensation and other benefits. In the
event the parties fail to reach a mutually acceptable agreement regarding any
such requested return to full time
-2-
<PAGE>
employment, this Agreement and Employee's employment hereunder shall continue
in accordance with the remaining terms hereof.
-3-
<PAGE>
3. COMPENSATION AND CERTAIN BENEFITS.
(a) In consideration of the performance by Employee of his obligations
during the Employment Term, the Company will pay Employee a base annual salary
(the "Salary") at an annual rate set forth for each year during the Employment
Term as follows:
<TABLE>
<CAPTION>
Period Annual Salary
<S> <C>
3/1/1999 - 2/29/2000 $350,000.00
3/1/2000 - 2/28/2001 $250,000.00
</TABLE>
During each of the remaining periods of the Employment Term, Employee's Salary
shall equal the annual compensation paid by the Company to its non-employee
directors (including, but not limited to, annual retainers, meeting fees, etc.).
Payments under this Section 3(a) shall be made in regular installments in
accordance with the Company's general payroll practices; provided that payments
under the preceding sentence shall be made at the same time or times as the
Company pays such compensation to its non-employee directors.
(b) On the date hereof, the Company will grant to Employee an award of
_____ restricted shares of Common Stock of the Company, pursuant to the
Company's 1996 Incentive Stock Plan (the "Plan"). The terms and conditions of
such restricted stock award shall be more fully set forth in a formal stock
award entered into between the Company and Employee substantially in the form
attached as Exhibit A hereto. Following the Company's fiscal year ending
October 31, 1999, Employee shall be considered an eligible participant in the
Plan and shall be entitled to receive an additional award of restricted shares
of Common Stock for that number of shares, if any, as may be determined by the
Board in its sole discretion.
(c) Employee shall be solely responsible for taxes imposed on him by
reason of any compensation or benefits provided hereunder and the Company shall
be entitled to
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<PAGE>
withhold from all such compensation and benefits all applicable taxes required
to be withheld pursuant to federal, state or local law.
4. BENEFITS. In addition to the payments and benefits described above,
during the Employment Term:
(a) The Company shall furnish Employee with, and Employee shall be allowed
full use of, office facilities, automobiles, secretarial and clerical
assistance, and other Company property and services of a quality, nature and to
the extent made available to executive employees, during the first two years of
the Employment term, and to non-employee directors, during the balance of the
Employment Term, of the Company from time to time;
(b) Except as otherwise provided in Section 4(d) hereof, Employee shall be
eligible to participate in any non-discretionary compensation or employee
benefit plans or programs, if any, maintained by the Company from time to time
for its executive employees, including, but not limited to, life, health,
dental, and long-term disability insurance programs, employee stock ownership
plans, 401(k) and other pension programs, and other fringe benefit programs, in
all events subject to the terms of such plans or programs adopted by the
Company;
(c) Employee shall also be eligible to participate in, and to receive
benefits under, any discretionary compensation plans or programs, if any,
maintained by the Company from time to time for its executive employees,
including, but not limited to, stock purchase programs, stock option plans,
bonus plans, or other incentive or deferred compensation plans or programs,
provided that Employee's participation, if any, under any such discretionary
plans or programs shall at all times be determined by the Board in its sole
discretion;
(d) If at any time during the Employment Term Employee is not otherwise
eligible to participate in the Company's group medical or dental plans because
he does not work
-5-
<PAGE>
the minimum number of hours specified in the plan for eligibility, and during
periods after the Employment Term (but not beyond the earlier of (i) the deaths
of both he and his spouse or (ii) he and his spouse both attaining age 65),
Employee and his spouse shall be eligible to participate in such plans on the
same basis and at the same cost as former married employees of the Company who
have elected COBRA continuation coverage under Part 6 of Title I of ERISA
(without regard to the time limit in Section 602(2)(A)(i) of ERISA).
(e) The Company shall reimburse Employee for all reasonable out-of-pocket
expenses incurred by Employee in the performance of his duties hereunder in
accordance with the Company's policies from time to time in effect, provided
that Employee presents an itemized statement of such expenditures, which
itemized statement shall comply with the Company's expense reimbursement
procedures.
5. TERMINATION. Notwithstanding anything to the contrary in this
Agreement whether express or implied, Employee's employment with the Company and
the Employment Term shall terminate upon the expiration of the Employment Term
or upon the earlier occurrence of any of the following events:
(a) The death of the Employee.
(b) The voluntary termination of employment by Employee. Employee shall
have the right to terminate this Agreement and the Employment Term at any time
and for any reason upon delivery of prior written notice to the Company not
less than sixty (60) days prior to the effective date of such termination.
Notwithstanding anything to the contrary herein, whether express or implied, in
the event that Employee voluntarily terminates his employment with the Company
at any time following a "Change of Control" of the Company (as defined in the
Grant of Nonqualified Stock Option to Employee from the Company dated November
13, 1997), Employee's employment shall be deemed for all purposes of this
Agreement to have been terminated by the Company without Cause,
-6-
<PAGE>
thereby entitling the Executive to the post-termination benefits provided for
under Section 5(f) hereof.
(c) The termination of employment by the Company for Cause. Termination
of employment for "Cause" shall mean termination based on the Employee's breach
of this Agreement, conduct by the Employee that is dishonest, fraudulent or
unlawful, gross negligence, or willful misconduct by the Employee, in any case,
which discredits or materially damages the Company.
(d) The termination of employment by the Company for Disability. In the
event that during the Employment Term Employee shall be unable to perform his
duties under this Agreement for 180 consecutive days during any twelve-month
period due to illness, accident or other incapacity (as determined in good faith
by the Board) or if a physician selected in good faith by the Board (and
consented to by Employee or his personal representative) examines Employee and
advises the Company that it is likely that Employee will be unable to perform
such duties for 180 consecutive days during the succeeding twelve-month period
(a "Disability"), the Company may elect to terminate Employee's employment by
sending written notice of such election to Employee at any time during the
period of such disability.
(e) After any termination of Employee's employment hereunder for any
reason, Employee (or his legal representative) shall be entitled to
receive accrued and unpaid Salary and expense reimbursements due for the period
ending on the effective date of such termination. After termination of
Employee's employment hereunder for any reason, the Company and the Employee
shall have no further obligations hereunder except as otherwise described in
this Section 5(e) and in Sections 4(d), 5(f), 5(g), 6, and 9 hereof.
(f) If the Employee's employment with the Company terminates after the
date hereof for any reason OTHER THAN (i) a termination by the Company for Cause
pursuant to Section 5(c) hereof, or (ii) a voluntary termination by Employee
pursuant to Section 5(b)
-7-
<PAGE>
(except as otherwise expressly provided in the last sentence of Section 5(b)
hereof), in addition to the amounts described in the preceding paragraph, the
Company will be obligated to continue to pay Employee an amount equal to
Employee's Salary at the rates set forth in Section 3 hereof, for the period
beginning on the effective date of such termination and ending on February 29,
2004.
(g) In the event of termination of this Agreement for any reason other
than Employee's death or Disability, Employee agrees to cooperate with the
Company and to be reasonably available to the Company with respect to continuing
and/or future matters arising out of the Employee's employment or any other
relationship with the Company, whether such matters are business-related, legal
or otherwise. The provisions of this paragraph shall survive termination of
this Agreement.
6. EXPENSES. The Company will pay or reimburse Employee for all costs and
expenses (including court costs and reasonable attorneys' fees) incurred by
Employee as a result of any claim, action or proceeding arising out of, or
challenging the validity or enforceability of, this Agreement or any provision
hereof.
7. MITIGATION. In the event of a termination of Employee's employment for
any reason, Employee shall not be required to seek other employment; in
addition, no amount payable under Section 6 of this Agreement, if any, following
the termination of Employee's employment with the Company, shall be reduced by
any compensation earned by Employee as a result of employment by another
employer after such termination of employment with the Company.
8. DESIGNATED BENEFICIARY. In the event of the death of Employee while in
the employ of the Company, or at any time thereafter during which amounts remain
payable to Employee under Section 5 hereof, such payments shall thereafter be
made to such person or persons as Employee may specifically designate
(successively or contingently) to receive payments under this Agreement
following Employee's death by filing a written
-8-
<PAGE>
beneficiary designation with the Company during Employee's lifetime. Such
beneficiary designation shall be in such form as may be prescribed by the
Company and may be amended from time to time or may be revoked by Employee
pursuant to written instruments filed with the Company during his lifetime.
Beneficiaries designated by Employee may be any natural or legal person or
persons, including a fiduciary, such as a trustee of a trust or the legal
representative of an estate. Unless otherwise provided by the beneficiary
designation filed by Employee, if all of the persons so designated die before
Employee or on the occurrence of a contingency not contemplated in such
beneficiary designation, or if Employee shall have failed to provide such
beneficiary designation, then the amount payable under this Agreement shall be
paid to Employee's estate.
9. EMPLOYEE COVENANTS.
(a) During the Employment Term and for a period of two years thereafter,
the Employee shall not (i) disclose any information likely to be regarded as
confidential and relating to the Company's business, (ii) solicit the Company's
employees to work for a competitor of the Company, or (iii) perform any act
detrimental to the Company or its employees, including, but not limited to,
disparaging the Company, its senior management or its products.
(b) The Employee agrees that any breach or threatened breach of Section
9(a) shall entitle the Company to apply for and to obtain injunctive relief,
which shall be in addition to any and all other rights and remedies available to
the Company at law or in equity.
(c) All of the Employee rights and benefits under this Agreement shall
cease upon any material breach by the Employee of Section 9(a) of this
Agreement.
10. NON-WAIVER OF RIGHTS. The failure to enforce at any time the
provisions of this Agreement or to require at any time performance by the other
party of any of the provisions hereof shall in no way be construed to be a
waiver of such provisions or to
-9-
<PAGE>
affect either the validity of this Agreement or any part hereof, or the right of
either party to enforce each and every provision in accordance with its terms.
11. NOTICES. Any notice provided for in this Agreement shall be in
writing and shall be either personally delivered, or mailed by first class mail,
return receipt requested, to the recipient at the address below indicated:
NOTICES TO EMPLOYEE:
John R. Stevenson
12637 East Laurel Lane
Scottsdale, AZ 85259
NOTICES TO THE COMPANY:
McWhorter Technologies, Inc.
400 East Cottage Place
Carpentersville, IL 60110
Attn: Chief Executive Officer
IN EACH CASE WITH A COPY TO:
McDermott, Will & Emery
227 W. Monroe
Chicago, IL 60606-5096
Attn: Mr. Thomas J. Murphy
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when so delivered
or mailed. Every notice relating to this Agreement shall be in writing and
shall be given by personal delivery or by registered or certified mail, postage
prepaid, return receipt requested.
12. BINDING EFFECT; ASSIGNMENT. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective heirs, executors,
personal
-10-
<PAGE>
representatives, estates, successors (including, without limitation, by way of
merger) and assigns. Notwithstanding the provisions or the immediately
preceding sentence, the Employee shall not assign all or any portion of this
Agreement without the prior written consent of the Company.
13. ENTIRE AGREEMENT. This Agreement sets forth the entire understanding
of the parties hereto with respect to the subject matter hereof and supersedes
all prior agreements, written or oral, between them as to such subject matter.
This Agreement may not be amended, nor may any provision hereof be modified or
waived, except by an instrument in writing duly signed by the party to be
charged.
14. SEVERABILITY. If any provision of this Agreement, or any application
thereof to any circumstances, is invalid, in whole or in part, such provision or
application shall to that extent be severable and shall not affect other
provisions or applications of this Agreement.
15. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Illinois, without reference to
the principles of conflict of laws.
16. MODIFICATIONS AND WAIVERS. No provision of this Agreement may be
modified, altered or amended except by an instrument in writing executed by the
parties hereto. No waiver by either party hereto of any breach by the other
party hereto of any provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions at the time
or at any prior or subsequent time.
17. HEADINGS. The headings contained herein are solely for the purposes
of reference, are not part of this Agreement and shall not in any way affect the
meaning or interpretation of this Agreement.
-11-
<PAGE>
18. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of
which together shall constitute one and the same instrument.
[Signature page follows]
-12-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
authority of its Board of Directors, and the Employee has hereunto set his hand,
the day and year first above written.
McWHORTER TECHNOLOGIES, INC. JOHN R. STEVENSON
/s/ Jeffrey M. Nodland /s/ John R. Stevenson
- ---------------------------------------- --------------------------
By: Jeffrey M. Nodland
Title: President and Chief Operating Officer
ACKNOWLEDGED AND AGREED ON BEHALF
OF THE COMPENSATION COMMITTEE
/s/ Heinn F. Tomfohrde III
- ----------------------------------------
By: Heinn F. Tomfohrde III
Title: Chairman of the Compensation Committee
-13-
<PAGE>
EXHIBIT A
MCWHORTER TECHNOLOGIES, INC.
STOCK AWARD AND RESTRICTION AGREEMENT
Pursuant to your employment agreement dated November __, 1998 (the
"Employment Agreement") with McWhorter Technologies, Inc. (the "Company"), the
Company has agreed to grant you an award of restricted stock under the Company's
1996 Incentive Stock Plan (the "Plan"), as specified below:
GRANTEE: John R. Stevenson
DATE OF GRANT: November __, 1998
NUMBER OF SHARES OF RESTRICTED STOCK GRANTED: _________
THIS DOCUMENT CONSTITUTES PART OF THE PROSPECTUS COVERING SECURITIES THAT HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
THIS AGREEMENT, effective as of the Date of Grant set forth above, is
between McWhorter Technologies, Inc., a Delaware corporation (the "Company") and
the Grantee named above (the "Grantee"), covering a grant by the Company to the
Grantee of shares of Restricted Stock under the Plan.
1. GRANT OF SHARES. Pursuant to action of the Board of Directors of
the Company and the Compensation Committee of the Board of Directors of the
Company (the "Committee"), and in consideration of valuable service
heretofore rendered by the Grantee to the Company and of the agreements
contained in the Employment Agreement, the Company hereby grants to the
Grantee a Stock Award of shares of common stock, $.01 par value, of the
Company (the "Shares"), subject to the Restrictions set forth in Section 2
and the other terms and conditions of the Plan and this Agreement. The
Shares shall be recorded in the books of the Company and the Company's
transfer agent in the Grantee's name. The Grantee shall have all the rights
of a stockholder with respect to the Shares, including the right to vote and
to receive all dividends or other distributions paid or made with respect to
the Shares. However, any securities of the Company which may be issued
<PAGE>
with respect to such Shares by virtue of any stock split, combination, stock
dividend or recapitalization shall be deemed to be "Shares" hereunder and
shall be subject to all the terms and conditions of the Plan and this
Agreement.
2. RESTRICTIONS. The Shares may not be sold, exchanged, assigned,
transferred, pledged or otherwise disposed of, and shall be subject to
forfeiture as set forth in Section 4 below (the "Restrictions") unless and until
such Restrictions shall have lapsed as set forth in Section 3 below.
3. TERMINATION OF RESTRICTIONS. In the event that Grantee's employment
by the Company terminates for any reason other than (i) Cause (as defined in the
Employment Agreement) or (ii) the voluntary termination by Grantee prior to
February 28, 2001, any Restrictions which have not lapsed will lapse
immediately. In the event of a "Change of Control" of the Company (as defined
in the Grant of Nonqualified Stock Option to Grantee from the Company dated
November 13, 1997) any Restrictions which have not lapsed will lapse
immediately. Any Restrictions which have not lapsed by February 29, 2004 will
lapse on that date.
4. FORFEITURE OF SHARES. In the event of the termination of the
Grantee's employment by the Company for Cause or a voluntarily termination by
Grantee prior to February 28, 2001 and prior to a "Change of Control" of the
Company, all of the Shares then subject to the Restrictions shall be forfeited
to the Company by the Grantee, without consideration to the Grantee or Grantee's
executor, administrator, personal representative or heirs ("Representative").
5. DELIVERY OF CERTIFICATES. Certificates representing Shares as to
which the Restrictions have lapsed shall be issued in the name of the Grantee
and delivered by the Company to the Grantee or the Grantee's Representative.
-2-
<PAGE>
6. WITHHOLDING TAXES. The lapse of the Restrictions on any Shares
pursuant to Section 3 above shall be conditioned on the Grantee or the Grantee's
Representative having made appropriate arrangements with the Company to provide
for the payment of any taxes required to be withheld by Federal, State or local
law in respect of such lapse.
7. NOTICES. All notices hereunder shall be in writing and shall be
deemed to be given when delivered in person or upon the second day after the
same are deposited in the U.S. Mail, postage prepaid by certified mail,
addressed as follows:
To the Company: McWhorter Technologies, Inc.
400 East Cottage Place
Carpentersville, IL 60110
To the Grantee or Grantee's Representative at the address of the Grantee
applicable to the notice provisions of Section 11 of the Employment Agreement.
Either party may designate a different address for its receipt of notice by
notice given to the other in accordance with these provisions.
8. TERM OF AGREEMENT. This Agreement shall terminate on the date the
Shares are forfeited pursuant to Section 4, or the date the Restrictions have
lapsed.
9. SUCCESSION. This Agreement shall be binding upon and operate for the
benefit of the Company and its successors and assigns and the Grantee and
Grantee's Representative.
10. CONTINUATION OF EMPLOYMENT. This Agreement shall not confer upon
Grantee any right to continuation of employment by the Company, nor shall this
Agreement interfere in any way with the Company's right to terminate Grantee's
employment at any time.
-3-
<PAGE>
11. MISCELLANEOUS.
(a) This Agreement and the rights of Grantee hereunder are subject to
all the terms and conditions of the Plan, as the same may be amended from
time to time, as well as to such rules and regulations as the Committee may
adopt for administration of the Plan. It is expressly understood that the
Committee is authorized to administer, construe, and make all
determinations necessary or appropriate to the administration of the Plan
and this Agreement, all of which shall be binding upon Grantee. Any
inconsistency between this Agreement and the Plan shall be resolved in
favor of the Plan. All terms used herein that are not defined herein but
are defined in the Plan shall have the same meaning as in the Plan.
(b) With the approval of the Board of Directors of the Company, the
Committee may terminate, amend, or modify the Plan; provided, however, that
no such termination, amendment, or modification of the Plan may in any way
adversely affect Grantee's rights under this Agreement.
(c) Grantee agrees to take all steps necessary to comply with all
applicable provisions of Federal and state securities law in exercising
Grantee's rights under this Agreement.
(d) The Plan and this Agreement are not intended to qualify for
treatment under the provisions of the Employee Retirement Income Security
Act of 1974.
-4-
<PAGE>
(e) This Agreement shall be subject to all applicable laws, rules,
and regulations, and to such approvals by any governmental agencies or
national securities exchanges as may be required.
(f) To the extent not preempted by Federal law, this Agreement shall
be governed by, and construed in accordance with the laws of the State of
Illinois.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the Date of Grant.
MCWHORTER TECHNOLOGIES, INC.
By:
-------------------------
Grantee:
--------------------
Social Security number:
----------
-5-
<PAGE>
SCHEDULE A
During the first two years of the Employment Term, Employee shall devote an
average of approximately 30 hours per week to his employment with the Company,
including time spent in his home office and travel time, and will use his
reasonable best efforts during such time to promote the interests of the
Company. During the balance of the Employment Term, Employee shall devote a
reasonable amount of time commensurate with his compensation level, currently
expected to be an average of approximately 25 hours per calendar quarter, to his
employment with the Company.
<PAGE>
McWHORTER TECHNOLOGIES, INC.
DEFERRED COMPENSATION PLAN
- -------------------------------------------------------------------------------
AMENDMENT NO. 1998-1
TO
McWHORTER TECHNOLOGIES, INC.
DEFERRED COMPENSATION PLAN
McWhorter Technologies, Inc., a Delaware corporation (the "Company"),
pursuant to the power granted to it by Section 11.2 of the McWhorter
Technologies, Inc. Deferred Compensation Plan (the "Plan"), hereby amends the
Plan as follows, effective as of August 19, 1998:
1. A new Section 1.9 shall be added, and all subsequent Sections in Article 1
accordingly renumbered, as follows:
1.9 ""Annual Installment Method" shall be an annual installment payment
over the number of years selected by the Participant in accordance with
this Plan calculated as follows: The Stock Account Balance shall be
calculated as of the close of business on the last business day of the
year. The annual installment shall be calculated by multiplying this
balance by a fraction, the numerator of which is one, and the denominator
of which is the remaining number of annual payments due the Participant.
By way of example, if the Participant elects a 10-year Annual Installment
Method, the first payment shall be 1/10 of the Participant's Stock Account
Balance, calculated as described in this definition. The following year,
the payment shall be 1/9 of the Participant's Stock Account Balance,
calculated as described in this definition. Each annual installment shall
be paid on or as soon as practicable after the last business day of the
applicable year."
2. A new Section 1.18 shall be added, and all subsequent Sections in Article 1
accordingly renumbered, as follows:
1.18 ""Cash Account Balance" shall mean, as to a Participant, that portion
of his or her Account Balance which is attributable to his or her Base
Annual Salary Account, Annual Bonus Account and Company Contribution
Account."
3. A new Section 1.51 shall be added, and all subsequent Sections in Article 1
accordingly renumbered, as follows:
1.51 ""Stock Account Balance" shall mean, as to a Participant, that
portion of his or her Account Balance which is attributable to his or her
Stock Option Deferral Account, ESOP Restoration Subaccount and Restricted
Stock Account."
<PAGE>
McWHORTER TECHNOLOGIES, INC.
DEFERRED COMPENSATION PLAN
- -------------------------------------------------------------------------------
4. Section 3.12 shall be restated in its entirety as follows:
"INTEREST CREDITING FOR INSTALLMENT OBLIGATIONS.
(a) "CASH ACCOUNT BALANCE. A Participant's benefits under this Plan which
are attributable to his or her Cash Account Balance shall be paid either in
lump sum or in equal monthly installments in accordance with such
Participant's Election Form. If a Participant's benefits attributable to
his or Cash Account Balance are paid in installments, such payments shall
be determined by amortizing the Participant's specified benefit over the
number of months elected, using the interest rate specified below and
treating the first installment payment as all principal and each subsequent
installment payment, first as interest accrued for the applicable
installment period on the unpaid Cash Account Balance and second as a
reduction in the Cash Account Balance. The interest rate to be used to
calculate installment payment amounts shall be a fixed interest rate that
is determined by averaging 100% of the Moody's Rates for the Plan Year in
which installment payments commence and the two (2) preceding Plan Years.
This rate shall be treated as the nominal rate for making such
calculations. If a Participant has completed fewer than three (3) Years of
Plan Participation, this average shall be determined using 100% of the
Moody's Rates for the Plan Years during which the Participant participated
in the Plan.
(b) "STOCK ACCOUNT BALANCE. A Participant's benefits under this Plan which
are attributable to his or her Stock Account Balance shall be paid either
in lump sum or in installments in accordance with such Participant's
Election Form. If a Participant's benefits attributable to his or her
Stock Account Balance are paid in installments, such payments shall be
determined using the Annual Installment Method. Any payment relating to a
Participant's Stock Option Deferral Account, ESOP Restoration Subaccount or
Restricted Stock Account shall be payable only in Stock."
5. A new sentence shall be added to the end of Section 4.3 as follows:
"Notwithstanding the foregoing, any Withdrawal Amount relating to a
Participant's Stock Option Deferral Account, ESOP Restoration Subaccount or
Restricted Stock Account shall be payable only in Stock."
6. Section 5.2 shall be restated in its entirety as follows:
5.2 "PAYMENT OF RETIREMENT BENEFIT. A Participant, in connection with his
or her commencement of participation in the Plan, shall elect on an
Election Form to receive his or her Retirement in a lump sum or in
Iinstallments pursuant to Section 3.12. The Participant may annually
change his or her election as his or her Retirement Benefit to an allowable
<PAGE>
McWHORTER TECHNOLOGIES, INC.
DEFERRED COMPENSATION PLAN
- -------------------------------------------------------------------------------
alternative payout period and/or installment periods by submitting a new
Election Form to the Committee, provided that any such Election Form is
submitted at least one year prior to the Participant's Retirement and is
accepted by the Committee in its sole discretion. The Election Form most
recently accepted by the Committee shall govern the payout of the
Retirement Benefit. If a Participant does not make any election with
respect to the payment of the Retirement Benefit, then the entire
Retirement Benefit shall be payable in a lump sum. The lump sum payment
shall be made, or installment payments shall commence, no later than
60 days after the last day of the Plan Year in which the Participant
Retires. Any payment made shall be subject to the Deduction Limitation.
Notwithstanding the foregoing, any payment relating to a Participant's
Stock Option Deferral Account, ESOP Restoration Subaccount or Restricted
Stock Account shall be payable only in Stock."
7. The reference in Section 5.3 to "months" shall be replaced by "years".
8. A new sentence be added to the end of Section 6.2 as follows:
"Notwithstanding the foregoing, any payment relating to a Participant's
Stock Option Deferral Account, ESOP Restoration Subaccount or Restricted
Stock Account shall be payable only in Stock."
9. A new sentence shall be added to the end of Section 7.2 as follows:
"Notwithstanding the foregoing, any payment relating to a Participant's
Stock Option Deferral Account, ESOP Restoration Subaccount or Restricted
Stock Account shall be payable only in Stock."
10. Section 11.1 shall be restated in its entirety as follows:
11.1 "TERMINATION. Although each Employer anticipates that it will
continue the Plan for an indefinite period of time, there is no guarantee
that any Employer will continue the Plan or will not terminate the Plan at
any time in the future. Accordingly, each Employer reserves the right to
discontinue its sponsorship of the Plan and/or to terminate the Plan at any
time with respect to any or all of its participating Employees, by action
of its board of directors. Upon the termination of the Plan with respect
to any Employer, the Plan Agreements of the affected Participants who are
employed by that Employer shall terminate and their Account Balances,
determined as if they had experienced a Termination of Employment on the
date of Plan termination or, if Plan termination occurs after the date upon
which a Participant was eligible to Retire, then with respect to that
Participant as if he or she had Retired on the date of Plan termination,
shall be paid to the Participants as follows: Prior to a Change in
Control, if the Plan is
<PAGE>
McWHORTER TECHNOLOGIES, INC.
DEFERRED COMPENSATION PLAN
- -------------------------------------------------------------------------------
terminated with respect to all of its Participants, an Employer shall
have the right, in its sole discretion, and notwithstanding any
elections made by the Participant, to pay such benefits pursuant to an
amortization period of 15 years (in the case of a Participant's Cash
Account Balance) or pursuant to an Annual Installment Method of 15 years
(in the case of a Participant's Stock Account Balance), with amounts
credited and debited during the installment period as provided herein.
If the Plan is terminated with respect to less than all of its
Participants, an Employer shall be required to pay such benefits in a
lump sum. After a Change in Control, the Employer shall be required to
pay such benefits in a lump sum. The termination of the Plan shall not
adversely affect any Participant or Beneficiary who has become entitled
to the payment of any benefits under the Plan as of the date of
termination; provided however, that the Employer shall have the right to
accelerate installment payments without a premium or prepayment penalty
by paying the Account Balance pursuant to an amortization period of
fewer years (in the case of a Participant's Cash Account Balance) or
pursuant to an Annual Installment Method using fewer years (in the case
of a Participant's Stock Account Balance); provided that the present
value of all payments that will have been received by a Participant at
any given point of time under the different payment schedule shall equal
or exceed the present value of all payments that would have been
received at that point in time under the original payment schedule."
11. Section 11.2 shall be restated in its entirety as follows:
11.2 "AMENDMENT. Any Employer may, at any time, amend or modify the Plan
in whole or in part with respect to that Employer by the action of its
board of directors; provided, however, that: (i) no amendment or
modification shall be effective to decrease or restrict the value of a
Participant's Account Balance in existence at the time the amendment or
modification is made, calculated as if the Participant had experienced a
Termination of Employment as of the effective date of the amendment or
modification or, if the amendment or modification occurs after the date
upon which the Participant was eligible to Retire, the Participant had
Retired as of the effective date of the amendment or modification, and (ii)
no amendment or modification of this Section 11.2 or Section 12.2 of the
Plan shall be effective. The amendment or modification of the Plan shall
not affect any Participant or Beneficiary who has become entitled to the
payment of benefits under the Plan as of the date of the amendment or
modification; provided, however, that the Employer shall have the right to
accelerate installment payments by paying the Account Balance in a lump
sum, pursuant to an amortization period of fewer years (in the case of a
Participant's Cash Account Balance) or pursuant to an Annual Installment
Method using fewer years (in the case of a Participant's Stock Account
Balance). In all cases, the present value of all payments that will have
been received by a Participant at any given point of time under the
different payment schedule shall equal or exceed the present value of all
payments that
<PAGE>
McWHORTER TECHNOLOGIES, INC.
DEFERRED COMPENSATION PLAN
- -------------------------------------------------------------------------------
would have been received at that point in time under the original
payment schedule. Notwithstanding the foregoing, any payment relating
to a Participant's Stock Option Deferral, ESOP Restoration Subaccount or
Restricted Stock Account shall be payable only in Stock."
The Company has caused this Amendment to be signed by its duly authorized
officer as of the date written below.
McWhorter Technologies, Inc.,
a Delaware corporation
By: /s/ Mia Igyarto
Its: Vice President-Human Resources
Date: August 20, 1998
McWhorter Technologies, Inc.
Deferred Compensation Plan
<PAGE>
EXHIBIT 21.1 - Subsidiaries of the Registrant
McWhorter Technologies Sales Corporation (Bermuda)
McWhorter Holdings Ltd. (United Kingdom)
McWhorter Technologies, S.p.A. (Italy)
Syntech France S.a.r.l. (France)
Syntech (Far East) Company Ltd. 50% owned (Hong Kong)
Shunde Synthetic Resin Company Ltd. 100% owned by Syntech (Far East)
McWhorter Technologies, Ltd. (United Kingdom)
McWhorter Technologies Holdings AB (Sweden)
McWhorter Technologies, AB (Sweden)
McWhorter Technologies, OY (Finland)
McWhorter Technologies Thailand Company Limited less than 50% owned (Thailand)
<PAGE>
EXHIBIT 23.1 - Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 33-78412 and 333-4540) pertaining to the McWhorter Technologies,
Inc. 1994 Stock Incentive Plan, McWhorter Technologies, Inc. Employee 401(k)
Savings Plan, McWhorter Technologies, Inc. 1996 Incentive Stock Plan and
McWhorter Technologies, Inc. 1996 Nonemployee Director Stock Option and Award
Plan of our report dated November 18, 1998, with respect to the consolidated
financial statements of McWhorter Technologies, Inc. included in the Annual
Report (Form 10-K) for the year ended October 31, 1998.
ERNST & YOUNG LLP
Chicago, Illinois
January 25, 1999
<TABLE> <S> <C>
<PAGE>
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<CASH> 4,099
<SECURITIES> 0
<RECEIVABLES> 82,765
<ALLOWANCES> 0
<INVENTORY> 40,207
<CURRENT-ASSETS> 139,264
<PP&E> 198,900
<DEPRECIATION> 58,384
<TOTAL-ASSETS> 362,465
<CURRENT-LIABILITIES> 94,094
<BONDS> 130,128
0
0
<COMMON> 110
<OTHER-SE> 107,334
<TOTAL-LIABILITY-AND-EQUITY> 362,465
<SALES> 454,930
<TOTAL-REVENUES> 454,930
<CGS> 380,971
<TOTAL-COSTS> 380,971
<OTHER-EXPENSES> 48,276
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,737
<INCOME-PRETAX> 17,946
<INCOME-TAX> 5,102
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