FILED PURSUANT TO RULE 424(B)(3)
REGISTRATION NO. 333-108647
PROSPECTUS
$297,000,000
[RPM COMPANY LOGO]
SENIOR CONVERTIBLE NOTES DUE 2033
This prospectus amends, restates and completes the prospectus dated November
4, 2003 of RPM International Inc relating to the resale by certain holders of
senior convertible notes due 2033 of RPM International Inc. and the shares of
RPM International Inc. common stock into which the notes are convertible. This
prospectus will be used by selling securityholders or persons selling on their
behalf to resell their notes and the shares of common stock into which the notes
are convertible.
THE OFFERING:
This prospectus relates to $297,000,000 aggregate principal amount at
maturity of senior convertible notes due 2033 of RPM International Inc.,
including $49,486,000 in aggregate principal amount of the notes that were
issued pursuant to the exercise of an overallotment option. The notes may be
sold from time to time by or on behalf of the selling securityholders named in
this prospectus or in a supplement to this prospectus. This prospectus also
relates to 8,034,355 shares of our common stock, par value $.01 per share,
issuable upon conversion of the notes held by certain selling securityholders,
plus such additional indeterminate number of shares as may become issuable upon
conversion of the notes by reason of adjustment to the conversion price in
certain circumstances.
The selling securityholders may sell all or a portion of the notes in market
transactions, negotiated transactions, or otherwise and at prices which will be
determined by the prevailing market price for the notes or in negotiated
transactions. The selling securityholders also may sell all or a portion of the
shares of common stock from time to time on the New York Stock Exchange, in
negotiated transactions or otherwise, and at prices which will be determined by
the prevailing market price for the shares or in negotiated transactions. The
selling securityholders will receive all of the proceeds from the sale of the
notes and the common stock. We will not receive any proceeds from the sale of
notes or common stock by the selling securityholders.
Interest on the notes at the rate of 1.389% per year on the principal amount
at maturity is payable semiannually in arrears in cash on May 13 and November 13
of each year, beginning November 13, 2003 until May 13, 2008. After that date,
we will not pay cash interest on the notes prior to maturity unless contingent
cash interest becomes payable. Instead, on May 13, 2033, the maturity date of
the notes, a holder will receive $1,000 per note. The rate of accrual of
original issue discount represents a yield to maturity of 2.75% per year,
computed on a semiannual bond equivalent basis and calculated from May 13, 2008.
The notes are senior unsecured obligations and rank equally with our existing
and future senior unsecured indebtedness. In addition, the notes effectively
rank junior to our existing and future secured indebtedness as to the assets
securing such indebtedness and to all existing and future indebtedness and other
liabilities of our subsidiaries.
CONVERTIBILITY OF THE NOTES:
Holders may convert each of their notes into 27.0517 shares of our common
stock, subject to adjustment, (1) in any fiscal quarter commencing after May 31,
2003, if, as of the last day of the preceding fiscal quarter, the closing sale
price of our common stock for at least 20 trading days in a period of 30
consecutive trading days exceeds a specified threshold, (2) during any period in
which the credit rating of the notes is below a specified level, (3) if the
notes are called for redemption, or (4) if specified corporate transactions have
occurred. Upon conversion, we will have the right to deliver, in lieu of our
common stock, cash or a combination of cash and common stock in an amount
described herein. Our common stock currently trades on the New York Stock
Exchange under the symbol "RPM." On November 3, 2003, the last reported sale
price of our common stock on the NYSE was $14.74 per share.
CONTINGENT CASH INTEREST:
We will pay contingent cash interest to the holders of the notes during any
six-month period commencing May 14, 2008 if the average market price of a note
for a five trading day measurement period preceding the applicable six-month
period equals 120% or more of the sum of the issue price, accrued original issue
discount and accrued cash interest, if any, for such note. The contingent cash
interest payable per note in respect of any six-month period in which contingent
interest is payable will equal an annual rate of 1.0% of the average market
price of a note for the five trading day measurement period. For United States
federal income tax purposes, the notes will constitute contingent payment debt
instruments. You should read the discussion on "Material United States Federal
Income Tax Consequences" relevant to the notes beginning on page 44.
PURCHASE OF THE NOTES BY RPM AT THE OPTION OF THE HOLDER:
Holders may require us to purchase all or a portion of their notes on May
13, 2008 at a price of $505.19 per note, on May 13, 2013 at a price of $579.11
per note, on May 13, 2018 at a price of $663.85 per note, on May 13, 2023 at a
price of $761.00 per note, and on May 13, 2028 at a price of $872.35 per note,
in each case, plus accrued cash interest, if any. We may choose to pay the
purchase price of such notes in cash or common stock or a combination of cash
and common stock. In addition, if a change in control of RPM occurs, each holder
may require us to purchase for cash all or a portion of such holder's notes at a
price equal to the sum of the issue price plus accrued original issue discount
and accrued cash interest, if any, to the date of purchase.
REDEMPTION OF THE NOTES AT OUR OPTION:
We may redeem for cash all or a portion of the notes for cash at any time on
or after May 13, 2008, at a price equal to the sum of the issue price plus
accrued original issue discount and accrued cash interest, if any, to the
redemption date.
INVESTING IN THE NOTES INVOLVES RISKS, SOME OF WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 11 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC") NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is November 24, 2003
TABLE OF CONTENTS
PAGE
WHERE YOU CAN FIND MORE INFORMATION....................................... ii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... ii
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS......................... iii
SUMMARY................................................................... 1
RISK FACTORS.............................................................. 11
USE OF PROCEEDS........................................................... 16
PRICE RANGE OF COMMON STOCK AND DIVIDENDS................................. 16
RATIO OF EARNINGS TO FIXED CHARGES........................................ 17
DESCRIPTION OF OUR OTHER INDEBTEDNESS..................................... 18
DESCRIPTION OF NOTES...................................................... 19
DESCRIPTION OF OUR CAPITAL STOCK.......................................... 36
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES.................... 41
SELLING SECURITYHOLDERS................................................... 47
PLAN OF DISTRIBUTION...................................................... 52
LEGAL MATTERS............................................................. 54
INDEPENDENT ACCOUNTANTS................................................... 54
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an offer
to sell these securities in any jurisdiction where the offer or sale is not
permitted. You should assume that the information appearing in this prospectus
or any documents incorporated by reference is accurate only as of the date on
the front cover of the applicable document. Our business, financial condition,
results of operations and prospects may have changed since such dates.
This prospectus is based on information provided by us and by other sources
that we believe are reliable. We cannot assure you that information from other
sources is accurate or complete. This prospectus summarizes certain documents
and other information and we refer you to them for a more complete understanding
of what we discuss in this prospectus. In making an investment decision, you
must rely on your own examination of our company and the terms of this offering
and the notes, including the merits and risks involved.
We are not making any representation to any purchaser of the notes regarding
the legality of an investment in the notes by such purchaser under any legal
investment or similar laws or regulations. You should not consider any
information in this prospectus to be legal, business or tax advice. You should
consult your own attorney, business advisor and tax advisor for legal, business
and tax advice regarding an investment in the notes.
References in this prospectus to "RPM," "we," "us" and "our" refer to RPM
International Inc., a holding company incorporated in Delaware, and its
subsidiaries, unless the context otherwise requires. References in this
prospectus to our Common Stock include the rights related to our Common Stock
pursuant to our stockholder rights plan.
This prospectus contains references to certain of our trademarks. '33', Alex
Plus, American Accents, Automotive Stops Rust, B-I-N, Bondex, Bondo, Bulls Eye
1-2-3, Bulls Eye Oil Base, Bulls Eye waterbase, Carboline, Chemspec,
Cover-Stain, DAP, Day-Glo, Drydex, Dryvit, Dymeric, Euco, Flecto, Kop-Coat, Kwik
Seal, Mohawk, Papertiger, Plasite, Plastic Wood, Prepz, Rust-Oleum, Shieldz,
Specialty Plastic Primer, Stonhard, Stops Rust, Testors, TCI, Tremclad, Tremco,
Varathane, Vulkem, Woolsey, Z-Spar and Zinsser are registered trademarks of our
subsidiary corporations. Bondo/Mar-Hyde, Chemical Coatings, DIF, Dynatron/Bondo,
Hard Hat, Painter's Touch, Pettit, SideWinder and Westfield are trademarks of
our subsidiary corporations. All other trademarks or tradenames referred to in
this prospectus are the property of their respective owners.
i
WHERE YOU CAN FIND MORE INFORMATION
We are required to comply with the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance with
those requirements, we file annual, quarterly and other reports, proxy
statements and other information with the SEC. You can inspect and copy these
reports, proxy statements and other information at the SEC's Public Reference
Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-732-0330. In addition, the SEC maintains a website (www.sec.gov) that
contains the reports, proxy statements and other information that we have filed.
Our SEC filings are also available at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We "incorporate by reference" into this prospectus the information we file
with the SEC, which means we are disclosing important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus. We incorporate by reference the documents
listed below and any filings we make with the SEC under Sections 13(a), 13(c),
14, or 15(d) of the Exchange Act, other than Current Reports on Form 8-K
containing only Regulation FD disclosure furnished pursuant to Item 9 of Form
8-K or disclosure regarding a completed quarterly or annual fiscal period
furnished pursuant to Item 12 of Form 8-K which are not listed below, after the
date of this prospectus and to the end of this offering under this prospectus:
- Our Annual Report on Form 10-K for the fiscal year ended May 31,
2003;
- Our Quarterly Report on Form 10-Q for the quarter ended August 31,
2003;
- The description of our common stock and rights to purchase shares of
our common stock contained in the Registration Statement on Form S-8
(Registration Number 333-101501), filed with the SEC on November 27,
2002 and any amendments and reports filed for the purpose of
updating that description; and
- Our Registration Statement on Form 8-A, filed with the SEC on May
11, 1999, related to the Rights.
All documents subsequently filed by us pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Securities Exchange Act of 1934, prior to the termination of
this offering, will be deemed to be incorporated by reference in this prospectus
and to be a part of this prospectus from the date of filing of such documents.
You should rely only on the information contained in this document or that
information to which we have referred you. We have not authorized anyone to
provide you with additional information.
Any statement contained in this prospectus or a document incorporated or
deemed to be incorporated by reference into this prospectus will be deemed to be
modified or superseded for purposes of this prospectus to the extent that a
statement contained in this prospectus or any other subsequently filed document
that is deemed to be incorporated by reference into this prospectus modifies or
supersedes the statement. Any statement so modified or superseded will not be
deemed, except as so modified or superseded, to constitute a part of this
prospectus.
The documents incorporated by reference into this prospectus are available
from us upon request. We will provide a copy of any and all of the information
that is incorporated by reference in this prospects to any person, without
charge, upon written or oral request. Requests for such copies should be
directed to the following:
Secretary
RPM International Inc.
P.O. Box 777
2628 Pearl Road
Medina, Ohio 44258
(330) 273-5090
Except as provided above, no other information, including information on our
website, is incorporated by reference into this prospectus.
ii
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus (including the information incorporated by reference)
contains forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. These statements relate to
our plans, expectations, estimates and beliefs of future events or our future
financial performance and involve known and unknown risks, uncertainties and
other factors that may cause our or our industry's actual results, levels of
activity, performance or achievements to be materially different from those
expressed or implied by any forward-looking statements. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"could," "would," "should," "expect," "plan," "anticipate," "target," "project,"
"intend," "believe," "estimate," "predict," "potential," "pro forma," "seek," or
"continue" or the negative of those terms or other comparable terminology. These
statements are only predictions and we can give no assurance that such
expectations will prove to be correct. Some of the things that could cause our
actual results to differ substantially from our expectations are:
- general economic conditions;
- the price and supply of raw materials, particularly titanium dioxide,
certain resins, aerosols and solvents;
- continued growth in demand for our products;
- legal, environmental and litigation risks inherent in our construction
and chemicals businesses and risks related to the adequacy of insurance
and reserves for such matters;
- the effect of changes in interest rates;
- the effect of fluctuations in currency exchange rates upon our foreign
operations;
- the effect of non-currency risks in investing in and conducting
operations in foreign countries, including those relating to domestic
and international political, social, economic and regulatory factors;
- risks and uncertainties associated with our ongoing acquisition and
divestiture activities; and
- other factors referenced in this prospectus, including those set forth
under the caption "Risk Factors."
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise,
after the date of this prospectus to conform them to actual results. All of the
forward-looking statements are qualified in their entirety by reference to the
factors discussed under the caption "Risk Factors."
We caution you that these risk factors may not be exhaustive. We operate in
a continually changing business environment, and new risk factors emerge from
time to time. Management cannot predict such new risk factors, nor can it assess
the impact, if any, of such new risk factors on our businesses or the extent to
which any factor or combination of factors, may cause actual results to differ
materially from those projected in any forward-looking statements. In light of
these risks, uncertainties and assumptions, the forward-looking events discussed
in this prospectus might not occur.
For these statements, we claim the protection of the safe harbor for
forward-looking statements contained in Section 27A of the Securities Act.
You should carefully read this prospectus and the documents incorporated by
reference in their entirety. They contain information that you should consider
when making your investment decision.
iii
SUMMARY
The following summary is qualified in its entirety by the more detailed
information included elsewhere or incorporated by reference in this prospectus.
Because this is a summary, it may not contain all the information that may be
important to you. You should read the entire prospectus as well as the documents
incorporated by reference before making an investment decision.
RPM INTERNATIONAL INC.
We manufacture and market high quality specialty paints, protective coatings
and roofing systems, sealants and adhesives, focusing on the maintenance and
improvement needs of both the industrial and consumer markets. Our family of
products includes many well-known brand names such as Carboline, DAP, Day-Glo,
Flecto, Rust-Oleum, Stonhard, Tremco and Zinsser. We sell our products in
approximately 130 countries with approximately 23% of sales generated in
international markets. For the fiscal year ended May 31, 2003 and the three
months ended August 31, 2003, we recorded sales of $2.083 billion and $590.1
million, respectively.
Our portfolio of businesses is organized into two segments, industrial and
consumer. Our Industrial Segment constituted approximately 54% of sales for the
fiscal year ended May 31, 2003 and the three months ended August 31, 2003, and
includes maintenance and protection products for roofing and waterproofing
systems, flooring, corrosion control and other specialty applications. Our
Consumer Segment constituted approximately 46% of sales for the fiscal year
ended May 31, 2003 and the three months ended August 31, 2003, and includes
rust-preventative, special purpose and decorative paints, caulks, sealants,
primers and other branded consumer products.
INDUSTRIAL SEGMENT
The Industrial Segment has operations primarily in North America and Europe
as well as a presence in regions of South America, Asia, South Africa, Australia
and the Middle East. Our industrial businesses, which account for the majority
of our international sales, sell directly to contractors, distributors and
end-users, such as industrial manufacturing facilities, educational and
governmental institutions and commercial establishments. Our Industrial Segment
generated $1.118 billion and $316.2 million, respectively, in sales for the
fiscal year ended May 31, 2003 and the three months ended August 31, 2003, and
includes the following major product lines:
- institutional roofing systems and sealants used in building protection,
maintenance and weatherproofing applications marketed under our
well-established Tremco, Republic, Vulkem and Dymeric brand names;
- high-performance polymer flooring systems for industrial, institutional
and commercial facility floor surfaces under the Stonhard brand name. We
also manufacture and supply molded and pultruded fiberglass reinforced
plastic gratings used for industrial platforms, staircases and walkways
marketed under the Fibergrate brand name;
- high-performance, heavy-duty corrosion control coatings and structural
and fireproofing protection products and secondary containment linings
for a wide variety of industrial infrastructure applications under the
Carboline, Nullifire and Plasite brand names;
- exterior insulating finishing systems, including textured finish coats,
sealers and variegated aggregate finishes marketed under the Dryvit
brand name; and
- a variety of products for specialized applications, including powder
coatings for exterior and interior applications marketed under the TCI
brand name, fluorescent colorants and pigments marketed under the
Day-Glo brand name, concrete and masonry additives marketed under the
Euco brand name, commercial carpet cleaning solutions marketed under the
Chemspec brand name, specialty processing chemicals for the textile
industry marketed under the American Emulsions brand name, wood and
lumber treatments marketed under the Kop-Coat brand name and pleasure
marine coatings marketed under the Pettit, Woolsey and Z-Spar brand
names.
1
CONSUMER SEGMENT
The Consumer Segment manufactures and markets professional and
do-it-yourself ("DIY") products for home maintenance and improvement, auto
repair and maintenance and hobby and leisure applications. The Consumer
Segment's major manufacturing and distribution operations are located in North
America. We market our products through a wide range of distribution channels
including home improvement centers, mass merchandisers, hardware stores, paint
stores and distributors. Our Consumer Segment generated $0.966 billion and
$273.9 million, respectively, in sales for the fiscal year ended May 31, 2003
and the three months ended August 31, 2003, and includes the following major
product lines:
- small project rust-preventative, decorative and assorted specialty
paints and coatings for the DIY and professional markets in the U.S. and
Canada through our wide assortment of Rust-Oleum products. In addition
to the original line of rust-preventative coatings sold under the Stops
Rust name, leading brands within the Rust-Oleum portfolio include
American Accents, Painter's Touch, Tremclad, Hard Hat, Flecto, Varathane
and Watco. Recently introduced brands within the Rust-Oleum portfolio
include Specialty Plastic Primer, Epoxy Shield, Road Warrior, Industrial
Choice Marking Aerosol and Automotive Stops Rust;
- a complete line of caulks and sealants, patch and repair products and
adhesives for the home improvement, repair and construction markets
through our wide assortment of DAP products. Leading brands within the
DAP portfolio include Alex Plus, Kwik Seal Plus with Microban,
SideWinder Advanced Siding and Window Sealant, Weldwood, '33' Glazing
and Plastic Wood. Recently introduced products include caulks and
related products marketed under the Drydex, Easy Solutions and Crackshot
brand names;
- a broad line of specialty primers and sealers marketed under the
Zinsser, B-I-N, Bulls Eye 1-2-3, Cover-Stain and Sealcoat Universal
brand names, as well as wallcovering removal and preparation coatings
under the principal brands of DIF, Papertiger and Shieldz. Recently
introduced products include specialty primers marketed under the Bulls
Eye waterbase and Bulls Eye Oil Base brand names and wallcovering
preparation products marketed under the Zinsser Plus Mildewproof
Commercial Wallcovering System and Prepz brand names; and
- an assortment of other products, including autobody paints and repair
products marketed under the Bondo brand name, hobby paints and cements
marketed under the Testors brand name, wood furniture finishes and
touch-up products marketed under the CCI, Mohawk, Chemical Coatings and
Westfield Coatings brand names, deck and fence restoration products
marketed under the Wolman brand name and shellac-based chemicals for
industrial uses, edible glazes and food coatings by Mantrose-Haeuser
under the Nature Seal brand name.
Our principal executive offices are at 2628 Pearl Road, P.O. Box 777,
Medina, Ohio 44258, and our telephone number is (330) 273-5090. Our website
address is www.rpminc.com. Information on our website does not constitute part
of this prospectus.
2
THE OFFERING
Notes Offered........................................ The resale by the selling securityholders of $297,000,000 aggregate
principal amount at maturity of senior convertible notes due 2033. Each
note has a principal amount at maturity of $1,000 and was issued at a
price of $505.19 per note (50.519% of the principal amount at maturity).
Maturity Date........................................ May 13, 2033.
Cash Interest........................................ 1.389% per year on the principal amount at maturity, payable semiannually
in arrears in cash on May 13 and November 13 of each year, beginning
November 13, 2003 until May 13, 2008.
Contingent Cash Interest............................. We will pay contingent cash interest to holders of the notes during any
six-month period from May 14 to November 13 and from November 14 to May
13, commencing May 14, 2008, if the average market price of the notes for
the five trading days ending on the third trading day immediately
preceding the first day of the relevant six-month period equals 120% or
more of the sum of the issue price, accrued original issue discount and
accrued cash interest, if any, for a note to the day immediately preceding
the relevant six-month period.
The contingent cash interest payable per note in respect of any six-month
period in which contingent interest is payable will equal an annual
rate of 1.0% of the average market price of a note for the five trading day
measuring period.
Contingent cash interest, if any, will accrue and be payable to holders of
notes as of the fifteenth day preceding the last day of the relevant
six-month period. Such payments will be paid on the last day of the
relevant six-month period. Original issue discount will continue
to accrue at the yield to maturity whether or not contingent cash
interest is paid.
Yield-to-Maturity of Notes........................... 2.75% per year, computed on a semiannual bond equivalent basis and
calculated from May 13, 2003, excluding any contingent cash interest.
Original Issue Discount.............................. We offered our notes at an issue price significantly below the principal
amount at maturity of the notes. As a result, original issue discount, for
non-tax purposes, will accrue daily at a rate of 2.75% per year beginning
on May 13, 2008, calculated on a semiannual bond equivalent basis using a
360-day year comprised of twelve 30-day months.
3
Tax Original Issue Discount.......................... In addition, the notes are debt instruments subject to the United States
federal income tax contingent payment debt regulations. You should be aware
that, even if we do not pay any contingent cash interest on the notes, you
will be required to include imputed interest in your gross income for
United States federal income tax purposes. For United States federal income
tax purposes, interest, also referred to as tax original issue discount,
will accrue from May 13, 2003, at a constant rate of 5.05% per year,
calculated on a semiannual bond equivalent basis, which represents the
yield on a comparable non-contingent, nonconvertible, fixed-rate debt
instrument with terms and conditions otherwise similar to the notes. U.S.
holders will be required to include tax original issue discount (including
the portion of the tax original issue discount represented by cash interest
payments) in their gross income as it accrues regardless of their method of
tax accounting. The rate at which the tax original issue discount will
accrue for United States federal income tax purposes will exceed payments
of cash interest and will exceed the stated yield of 2.75% for accrued
original issue discount.
You also will recognize gain or loss on the sale, purchase by us at
your option, exchange, conversion or redemption of a note in an amount
equal to the difference between the amount realized on the sale, purchase
by us at your option, exchange, conversion or redemption, including the
fair market value of any common stock received upon conversion or
otherwise, and your adjusted tax basis in the note. Any gain recognized by
you on the sale, purchase by us at your option, exchange, conversion or
redemption of a note generally will be ordinary interest income; any loss
will be ordinary loss to the extent of the interest previously included in
income, and thereafter, capital loss. See "Material United States Federal
Income Tax Consequences."
Conversion Rights.................................... For each $1,000 principal amount at maturity of notes surrendered for
conversion, if the conditions for conversion are satisfied, you will
receive 27.0517 shares of our common stock.
In lieu of delivering shares of our common stock upon conversion
of all or any portion of the notes, we may elect to pay holders
surrendering notes cash or a combination of cash and shares of
our common stock for the notes surrendered. If we elect to pay
holders cash for their notes, the payment will be based on the
average sale price of our common stock for the five consecutive
trading days immediately following either:
- the date of our notice of our election to deliver cash,
which we must give within two business days after receiving
a conversion notice, unless we have earlier given notice of
redemption as described in this prospectus; or
- the conversion date, if we have given notice of redemption
specifying that we intend to deliver cash upon conversion
thereafter.
4
The conversion rate may be adjusted for certain reasons, but will not be
adjusted for accrued original issue discount, accrued cash interest, any
contingent cash interest or interest payable upon the occurrence of a tax
event. Upon conversion, a holder will not receive any cash payment
representing accrued original issue discount, accrued cash interest or
contingent cash interest. Instead, accrued original issue discount, accrued
cash interest or contingent cash interest will be deemed paid by the shares
of common stock received by the holder on conversion.
Commencing after May 31, 2003, holders may surrender notes for
conversion into shares of our common stock in any fiscal quarter (and
only during such fiscal quarter), if, as of the last day of the
preceding fiscal quarter, the closing sale price of our common stock for
at least 20 trading days in a period of 30 consecutive trading days
ending on the last trading day of such preceding fiscal quarter is more
than 120% of the accreted conversion price per share of common stock on
the last day of such preceding fiscal quarter. The accreted conversion
price per share as of any day will equal the sum of the issue price of
the note plus the accrued original issue discount, if any, divided by
the number of shares issuable upon conversion of a note subject to any
adjustments to the conversion rate through that day.
Holders may also surrender notes for conversion during any period in
which the credit rating assigned to the notes is Ba3 or lower by
Moody's Investors Service, Inc. ("Moody's") or BB or lower by
Standard & Poor's, a division of the McGraw-Hill Companies
("Standard & Poor's"), the notes are no longer rated by either
Moody's or Standard & Poor's, or the credit rating assigned to the
notes has been suspended or withdrawn by either Moody's or Standard
& Poor's.
Notes or portions of notes in integral multiples of $1,000
principal amount at maturity called for redemption may be
surrendered for conversion until the close of business on the
second business day prior to the redemption date. In addition,
if we make a significant distribution to our stockholders or if
we are a party to certain consolidations, mergers or binding
share exchanges, notes may be surrendered for conversion, as
provided in "Description of Notes -- Conversion Rights." The
ability to surrender notes for conversion will expire at the
close of business on May 11, 2033.
Optional Conversion to Semiannual Coupon Notes upon
Tax Event....................................... From and after the occurrence of a tax event, as described in this
prospectus, at our option, interest in lieu of future accrued original
issue discount will accrue on each note from the option exercise date at
2.75% per year, calculated on a semiannual bond equivalent basis, on the
restated principal amount and will be payable semiannually. Any such
interest in lieu of original issue discount will be computed
5
in the same manner and payable at the same time as the cash interest and
will accrue from the most recent date to which cash interest, if payable,
has been paid or provided for or, if no cash interest is payable or has
been paid or provided for, the option exercise date. In such event, the
redemption price, purchase price and change in control purchase price will
be adjusted, as described herein. However, there will be no change in the
holder's conversion rights. See "Description of Notes -- Optional
Conversion to Semiannual Coupon Notes upon Tax Event."
Redemption of Notes at Our Option.................... We may redeem for cash all or a portion of the notes at any time on or
after May 13, 2008, at redemption prices equal to the sum of the issue
price plus accrued original issue discount and accrued cash interest, if
any, to the applicable redemption date. See "Description of Notes --
Redemption of Notes at Our Option."
Purchase of the Notes by RPM at the Option of the
Holder.......................................... Holders may require us to purchase all or a portion of their notes on each
of the following dates at the following prices, plus accrued cash
interest, if any, to the purchase date:
- On May 13, 2008 at a price of $505.19 per note;
- On May 13, 2013 at a price of $579.11 per note;
- On May 13, 2018 at a price of $663.85 per note;
- On May 13, 2023 at a price of $761.00 per note; and
- On May 13, 2028 at a price of $872.35 per note.
We may pay the purchase price in cash or shares of our common stock
or in a combination of cash and shares of our common stock. If we
elect to pay the purchase price, in whole or in part, in shares of
our common stock, the number of shares we deliver will be equal to
the portion of the purchase price to be paid in common stock divided
by the market price of a share of common stock. If we elect to pay
all or part of the purchase price in shares of our common stock, we
will notify holders not less than 20 business days before the
applicable purchase date, specifying the percentages of cash and
common stock.
Change in Control.................................... Upon a change in control of RPM, the holders may require us to purchase
for cash all or a portion of their notes at a price equal to the sum of
the issue price plus accrued original issue discount and accrued cash
interest, if any, to the date of purchase.
6
Ranking.............................................. The notes are senior, unsecured obligations of RPM and rank equal in right
of payment to all of our other unsecured and unsubordinated indebtedness.
The notes are effectively subordinated to our existing and future secured
indebtedness as to the assets securing such indebtedness.
In addition, we are structured as a holding company, and we conduct
all of our business operations through our subsidiaries. The notes
are effectively subordinated to all existing and future indebtedness
and other liabilities and commitments of our subsidiaries.
As of August 31, 2003, we had an aggregate of $104.2 million of secured
indebtedness outstanding and $625.8 million of senior unsecured
indebtedness outstanding. As of August 31, 2003, our consolidated
subsidiaries had an aggregate of $4.8 million of indebtedness outstanding.
Use of Proceeds...................................... The selling securityholders will receive all of the net proceeds from the
sale of the notes (or the shares of common stock underlying the notes)
sold under this prospectus. We will not receive any of the proceeds from
the sale by any selling securityholder of notes or the underlying shares
of common stock.
Guarantees........................................... None.
Sinking Fund......................................... None.
Depository Trust Company Eligibility................. The notes were issued in fully registered book-entry form and were
represented by one or more permanent global notes without coupons. Global
notes have been deposited with a custodian for and registered in the name
of a nominee of The Depository Trust Company ("DTC") in New York, New
York. Beneficial interests in global notes are shown on, and transfers
thereof are effected only through, records maintained by DTC and its
direct and indirect participants, and your interest in any global note may
not be exchanged for certificated notes, except in limited circumstances
described herein. See "Description of Notes -- Book-Entry System."
Trading.............................................. The notes will not be listed on any securities exchange or included in any
automated quotation system. The notes will be new securities for which
there is currently no public market. The notes issued in the initial
private placement are eligible for trading in the PORTAL market. The
notes sold using this prospectus, however, are not eligible for trading in
the PORTAL market.
7
NYSE Symbol for our common stock..................... Our common stock is listed on the New York Stock Exchange under the symbol
"RPM."
Risk Factors......................................... See "Risk Factors" beginning on page 11 of this prospectus and the other
information in this prospectus for a discussion of factors you should
consider carefully before deciding to invest in the notes.
8
SUMMARY CONSOLIDATED FINANCIAL DATA
The summary consolidated financial data as of and for the fiscal years
ended May 31, 1999, May 31, 2000, May 31, 2001, May 31, 2002 and May 31, 2003
shown below are derived from our audited consolidated financial statements for
such years, which have been audited by Ciulla, Smith & Dale, LLP, our
independent auditors. Our audited consolidated financial statements for the
fiscal years ended May 31, 2001, May 31, 2002 and May 31, 2003 and the notes to
those statements are incorporated by reference in this prospectus. The summary
consolidated financial data as of and for the three month periods ended August
31, 2003 and August 31, 2002 shown below are derived from our unaudited
consolidated financial statements for the respective periods. In the opinion of
our management, the unaudited consolidated financial statements reflect all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation of the results of operations and financial position of our
company for the periods presented. Operating results for the three months ended
August 31, 2003 are not necessarily indicative of the results that may be
expected for the entire fiscal year ending May 31, 2004. You should read this
table in conjunction with the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" sections of our Annual Report on Form 10-K
and our Quarterly Report on Form 10-Q for the fiscal quarter ended August 31,
2003, as well as in conjunction with our consolidated financial statements and
the related notes incorporated by reference in this prospectus.
THREE MONTHS ENDED
FISCAL YEAR ENDED MAY 31, AUGUST 31,
----------------------------------------------------------- -------------------
1999 2000 2001 2002 2003 2002 2003
--------- --------- --------- --------- --------- -------- --------
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND PERCENTAGES)
STATEMENT OF OPERATIONS DATA:
Net sales................................ $ 1,720.6 $ 1,962.4 $ 2,007.8 $ 1,986.1 $ 2,083.5 $ 542.4 $ 590.1
Cost of sales............................ 927.1 1,074.0 1,101.4 1,079.7 1,134.2 284.3 314.0
--------- --------- --------- --------- --------- -------- --------
Gross profit....................... 793.5 888.4 906.4 906.4 949.3 258.1 276.1
Selling, general and administrative
expenses(a)........................ 601.1 712.8 739.7 711.8 734.7 183.0 195.9
Asbestos charge.......................... 0.0 0.0 0.0 0.0 140.0 0.0 0.0
Restructuring and asset impairment charge 0.0 52.0 0.0 0.0 0.0 0.0 0.0
Interest expense, net.................... 32.8 51.8 65.2 40.5 26.7 7.2 6.3
--------- --------- --------- --------- --------- -------- --------
Income before income taxes............... 159.6 71.8 101.5 154.1 47.9 67.9 73.9
Provision for income taxes............... 65.1 30.8 38.5 52.5 12.6 23.7 26.2
--------- --------- --------- --------- --------- -------- --------
Net income............................... $ 94.5 $ 41.0 $ 63.0 $ 101.6 $ 35.3 $ 44.2 $ 47.7
========= ========= ========= ========= ========= ======== ========
Earnings per share (basic)............... $ 0.87 $ 0.38(b) $ 0.62 $ 0.97 $ 0.31(c) $ 0.38 $ 0.41
Earnings per share (diluted)............. 0.86 0.38(b) 0.62 0.97 0.30(c) $ 0.38 $ 0.41
Dividends per share...................... 0.4645 0.4850 0.4980 0.5000 0.5150 0.1250 0.1300
Average number of shares of common
stock outstanding:
Basic................................. 108.7 107.2 102.2 104.4 115.3 114.8 115.6
Diluted............................... 111.4 107.4 102.2 105.1 116.0 115.8 116.2
OTHER DATA:
EBIT(d).................................. $ 192.4 $ 183.5(e) $ 166.7 $ 194.6 $ 74.6(f) $ 75.1 $ 80.2
EBITDA(d)................................ 254.5 262.7(e) 248.2 251.5 133.3(f) 89.2 95.3
EBITDA margin(g)...................... 14.8% 13.4% 12.4% 12.7% 6.4%(f) 16.4% 16.1%
Depreciation and amortization............ $ 62.1 $ 79.2 $ 81.5 $ 56.9 $ 58.7 $ 14.1 $ 15.1
Cash flows from operating activities..... 117.2 101.7 73.5 191.9 164.9 22.0 26.7
Cash flows (used in) investing
activities......................... (98.1) (338.1) (18.0) (37.7) (110.4) (12.8) (19.8)
Cash flows from (used in) financing
activities......................... (40.2) 248.0 (62.8) (136.0) (45.9) (11.1) (10.1)
Capital expenditures..................... 63.4 63.2 54.1 39.9 41.8 5.3 6.8
footnotes on following page
9
AS OF MAY 31, AS OF AUGUST 31,
----------------------------------------------------- --------------------
1999 2000 2001 2002 2003 2002 2003
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
(IN MILLIONS)
BALANCE SHEET DATA:
Cash and cash equivalents..... $ 19.7 $ 31.3 $ 23.9 $ 42.2 $ 50.7 $ 40.2 $ 47.5
Other current assets.......... 685.7 753.8 795.5 801.6 877.4 796.3 871.2
Working capital............... 402.9 408.9 443.7 479.0 500.4 511.2 529.7
Property, plant and equipment,
net........................... 339.7 366.2 362.0 355.8 370.8 351.7 367.1
Total assets.................. 1,737.2 2,099.2 2,078.5 2,078.8 2,247.2 2,069.8 2,234.2
Current and long-term debt.... 585.9 964.3 962.8 713.8 726.1 716.3 730.2
Stockholders' equity.......... 742.9 645.7 639.7 858.1 877.0 891.0 901.6
----------
(a) Selling, general and administrative includes research and development and
other operating expenses.
(b) Excluding the effect of the restructuring and asset impairment charges and
related inventory write-down, fiscal year 2000 basic and diluted earnings
per share would have been $0.73.
(c) Excluding the impact of the asbestos charge, fiscal year 2003 basis and
diluted earnings per share would have been $1.07 and $1.06, respectively.
(d) EBIT is defined as earnings before interest and taxes, while EBITDA is
defined as earnings before interest, taxes, depreciation and amortization.
We believe that EBITDA provides one of the best comparative measures for
pure operating performance and is a widely accepted financial indicator
used by certain investors and analysts. EBITDA is not intended to
represent cash flows for the period, nor is it presented as an alternative
to operating income or as an indicator of operating performance. EBITDA
should not be considered in isolation, but with generally accepted
accounting principles in the United States, and it is not indicative of
operating income or cash flow from operations as determined by those
principles. Our method of computation may or may not be comparable to
other similarly titled measures of other companies. EBITDA may not be
indicative of our historical operating results nor is it meant to be
predictive of potential future results. The table below shows how we
calculate EBIT and EBITDA.
THREE MONTHS ENDED
FISCAL YEAR ENDED MAY 31, AUGUST 31,
---------------------------------------------------------------------------- ------------------
1999 2000 2001 2002 2003 2003 2002 2003
------ ------ ------ ------ ------ ------ ----- -----
(AS REPORTED) (PRO FORMA (UNAUDITED)
------------- EXCLUDING
ASBESTOS CHARGE)
----------------
(IN MILLIONS)
Income before income taxes .. $159.6 $ 71.8 $101.5 $154.1 $ 47.9 $ 47.9 $67.9 $73.9
Restructuring and asset
impairment charges .......... -- 52.0 -- -- -- -- -- --
Inventory write-down related
to restructuring ............ -- 7.9 -- -- -- -- -- --
Asbestos charge ............. -- -- -- -- -- 140.0 -- --
Interest expense, net ....... 32.8 51.8 65.2 40.5 26.7 26.7 7.2 6.3
------ ------ ------ ------ ------ ------ ----- -----
EBIT ........................ 192.4 183.5 166.7 194.6 74.6 214.6 75.1 80.2
Depreciation and amortization
62.1 79.2 81.5 56.9 58.7 58.7 14.1 15.1
------ ------ ------ ------ ------ ------ ----- -----
EBITDA ...................... $254.5 $262.7 $248.2 $251.5 $133.3 $273.3 $89.2 $95.3
====== ====== ====== ====== ====== ====== ===== =====
(e) Fiscal year 2000 EBIT and EBITDA exclude restructuring and asset
impairment charges totaling $52.0 million and a related inventory
write-down charge of $7.9 million included in cost of sales.
(f) Fiscal year 2003 EBIT and EBITDA include the asbestos charge of $140
million.
(g) EBITDA margin represents the percentage of EBITDA to net sales. See
footnote (c) above for a reconciliation of income before income taxes to
EBITDA. Excluding the impact of the $140.0 million asbestos charge from
fiscal year 2003, the EBITDA margin for 2003 would have been 13.1%.
10
RISK FACTORS
You should carefully consider the following risks, as well as the other
information contained in this prospectus, before investing in the notes. If any
of the following risks actually occur, our business could be harmed. You should
refer to the other information set forth in this prospectus and our consolidated
financial statements and the related notes incorporated by reference in this
prospectus.
RISKS RELATED TO THE OFFERING
YOUR RIGHT TO RECEIVE PAYMENTS ON THESE NOTES IS EFFECTIVELY SUBORDINATED TO THE
RIGHTS OF OUR EXISTING AND FUTURE SECURED CREDITORS. THE NOTES ARE ALSO
EFFECTIVELY SUBORDINATED TO ANY EXISTING AND FUTURE LIABILITIES OF OUR
SUBSIDIARIES.
The notes represent unsecured obligations of RPM. Accordingly, holders of
our secured indebtedness will have claims that are superior to your claims as
holders of the notes to the extent of the value of the assets securing that
other indebtedness. Also, we and our subsidiaries may incur substantial
additional indebtedness in the future, which may be senior to the notes. The
terms of the notes do not impose any limitation on our or our subsidiaries'
ability to incur such additional debt.
WE ARE A HOLDING COMPANY AND WE DEPEND UPON CASH FROM OUR SUBSIDIARIES TO
SERVICE OUR DEBT. IF WE DO NOT RECEIVE CASH DISTRIBUTIONS, DIVIDENDS OR OTHER
PAYMENTS FROM OUR SUBSIDIARIES, WE MAY NOT BE ABLE TO MAKE PAYMENTS ON THE
NOTES.
We are a holding company and all of our operations are conducted through
our subsidiaries. Accordingly, we are dependent upon the earnings and cash flows
of, and cash distributions, dividends or other payments from, our subsidiaries
to provide the funds necessary to meet our debt service obligations, including
the required payments on the notes. If we do not receive cash distributions,
dividends or other payments from our subsidiaries, we may not be able to pay the
principal or interest on the notes or dividends on the common stock issuable
upon conversion of the notes.
Our subsidiaries are permitted under the terms of our indebtedness to
incur additional indebtedness that may restrict or prohibit the making of
distributions, the payment of dividends or the making of loans by our
subsidiaries to us. We cannot assure you that agreements governing the current
and future indebtedness of our subsidiaries will permit our subsidiaries to
provide us with sufficient cash distributions, dividends or other payments to
fund payments on these notes when due.
WE MAY NOT HAVE THE ABILITY TO PURCHASE NOTES WHEN REQUIRED UNDER THE TERMS OF
THE NOTES.
Holders of notes may require us to purchase for cash all or a portion of
their notes upon the occurrence of certain specific kinds of change in control
events and on May 13, 2008, May 13, 2013, May 13, 2018, May 13, 2023 and May 13,
2028. As a result, upon a change of control or if we are otherwise required to
purchase notes at the option of the holder, it is possible that we may not have
sufficient funds at that time to make the required purchase of notes.
In addition, the terms of any future indebtedness we incur may also
restrict our ability to purchase notes upon a change of control or if we are
otherwise required to purchase notes at the option of the holder. If such
indebtedness contained such a restriction, we would have to seek the consent of
the lenders or repay those borrowings. If we were unable to obtain the necessary
consent or unable to repay those borrowings, we would be unable to purchase the
notes and, as a result, would be in default under the notes.
YOU SHOULD CONSIDER THE UNITED STATED FEDERAL INCOME TAX CONSEQUENCES OF OWNING
THE NOTES.
The notes were issued at a substantial discount from their principal
amount and constitute contingent payment debt instruments. Consequently, the
notes are treated as issued with original issue discount for United States
federal income tax purposes, and you are required to include such original issue
discount in your income as it accrues for United States federal income tax
purposes in advance of receipt of any payment on the notes to which the income
is attributable. See "Material United States Federal Income Tax Consequences"
for a more detailed discussion of the United States federal income tax
consequences to the holders of the notes of the purchase, ownership and
disposition of the notes.
11
THERE IS NO PUBLIC MARKET FOR THE NOTES, AND TRANSFERS OF THE NOTES WILL BE
RESTRICTED.
The notes are a new issue of securities for which there is currently no
public market. Although the initial purchasers of the notes have advised us that
they intend to make a market in the notes, they are not obligated to do so. The
initial purchasers could stop making a market at any time without notice.
Accordingly, no market for the notes may develop, and any market that develops
may not last. Although the notes that were sold to qualified institutional
buyers under Rule 144A are eligible for trading in the PORTAL market, any notes
resold under this prospectus will no longer trade on the PORTAL market. We do
not intend to apply for listing of the notes on any securities exchange or other
stock market.
Even though we have registered the notes and the shares of underlying
common stock, we will have the right, pursuant to the registration rights
agreement, to suspend the use of the shelf registration statement in certain
circumstances. In the event of such a suspension, you would not be able to sell
any notes or shares of common stock issuable upon conversion of the notes
pursuant to the registration statement.
RISKS RELATED TO OUR BUSINESS
THE INDUSTRY IN WHICH WE OPERATE IS HIGHLY COMPETITIVE AND SOME OF OUR
COMPETITORS MAY BE LARGER AND MAY HAVE BETTER RESOURCES THAN WE DO.
The industry in which we operate is fragmented and we do not face
competition from any one company across our product lines. Any increase in
competition may cause us to lose market share or compel us to reduce prices to
remain competitive, which could result in reduced gross margins. This may impair
our ability to grow or even to maintain our current levels of revenues and
earnings. Companies that operate in our industry include Carlisle, Degussa, GE
Plastics, ICI, Masco, PPG, Rohm and Haas, Sika Finanz, Sherwin-Williams and
Valspar. Several of these companies are larger than us and may have greater
resources than we do. Increased competition with these companies could prevent
the institution of price increases or could require price reductions or
increased spending on research and development and marketing and sales, which
could adversely affect our results of operations.
CERTAIN OF OUR SUBSIDIARIES, PRINCIPALLY BONDEX INTERNATIONAL, INC., ARE
DEFENDANTS IN NUMEROUS ASBESTOS-RELATED PERSONAL INJURY LAWSUITS. RESOLUTION OF
EXISTING AND FUTURE ASBESTOS RELATED LAWSUITS MAY HAVE A MATERIAL EFFECT ON OUR
FUTURE CONSOLIDATED FINANCIAL CONDITION, OPERATING RESULTS AND LIQUIDITY.
Certain of our wholly owned subsidiaries, principally Bondex
International, Inc. (Bondex), along with many other U.S. companies, are and have
been involved in asbestos-related suits filed primarily in state courts during
the past two decades. These suits principally allege personal injury resulting
from exposure to asbestos-containing products.
Asbestos-related suits against Bondex increased in the fourth quarter of
2002 and the first two quarters of 2003, influenced by the bankruptcy filings of
numerous other defendants in asbestos-related litigation. The following table
provides an overview of our Bondex-related asbestos bodily injury claims on a
fiscal year basis.
FISCAL YEAR ENDED
MAY 31,
-----------------------------
2001 2002 2003
--------- --------- -------
CLAIMS FILED............................................ 671 1,029 2,064
CLAIMS RESOLVED......................................... 156 396 1,846
CLAIMS UNRESOLVED AT END OF PERIOD...................... 1,151 1,784 2,002
SETTLEMENTS (BEFORE ANY INSURANCE RECOVERIES) (IN
MILLIONS)............................................. $ 8.5 $ 24.9 $ 54.4
Based on the significant increase in asbestos claims and the inequitable
impact of joint and several liability laws on Bondex, as previously reported,
12
our third party insurance was depleted during the first quarter of 2004. Prior
to this sudden precipitous increase in loss rates, the combination of reserves
and insurance coverage was expected to adequately cover our asbestos claims for
the foreseeable future. We are contesting various of our third-party insurers'
claims of exhaustion.
During the last seven months of 2003, new state liability laws were
enacted in three states where more than 80% of the claims against Bondex are
pending. The changes generally provide for liability to be determined on a
proportional cause basis. These state law changes are not expected to have an
impact on asbestos litigation until the latter part of 2004.
During the fourth quarter of 2003, a nationally recognized consulting firm
was retained to evaluate whether it would be possible to estimate the cost of
disposing pending claims and to assist in determining whether future
asbestos-related claims were measurable. Bondex has provided the consultants
with all relevant data regarding asbestos-related claims filed against Bondex
through May 31, 2003.
At this time, we cannot estimate the liability that will result from all
future claims. We have established a reserve for those pending cases that have
progressed to a stage where the cost to dispose of these cases can reasonably be
estimated. The reserve was established by taking an asbestos charge to 2003
operations of $140 million for measurable known claims and a provision for
future claims that can presently be estimated. We believe this asbestos reserve
will be sufficient to cover asbestos-related cash flow requirements for
approximately three years. Additionally, Bondex's share of costs (net of
then-available third-party insurance) for asbestos-related product liability
were $2.3 million, $2.8 million and $6.7 million for the years ended May 31,
2001, 2002 and 2003, respectively. Future facts, events and legislation, both
state and/or federal, may alter our estimates of both pending and future claims.
We cannot estimate possible liabilities in excess of those accrued because we
cannot predict the number of additional claims that may be filed in the future,
the grounds for such claims, the damages that may be demanded, the probable
outcome, or the impact of recent state and pending federal legislation on
prospective asbestos claims.
In conjunction with our outside advisors, we will continue to study our
asbestos-related exposure, and regularly evaluate the adequacy of this reserve
and the related cash flow implications in light of actual claims experience, the
impact of state law changes and the evolving nature of federal legislative
efforts to address asbestos litigation.
For a further discussion, please see the disclosure set forth in the
sections entitled "Legal Proceedings" and "Management's Discussion and Analysis
of Results of Operations and Financial Condition" in our most recent Annual
Report on Form 10-K and most recent Quarterly Report on Form 10-Q.
THE CHEMICAL AND CONSTRUCTION PRODUCTS INDUSTRIES WE SERVE INHERENTLY EXPOSE US
TO OTHER POTENTIAL SIGNIFICANT LITIGATION-RELATED COSTS.
As a participant in the chemical and construction products industries, we
face an inherent risk of exposure to claims in the event that the failure, use
or misuse of our products results, or is alleged to result, in bodily injury
and/or property damage. For example, one of our subsidiaries, Dryvit Systems,
Inc. ("Dryvit"), a manufacturer of coatings for exterior insulating finishing
systems, or EIFS, is a defendant or co-defendant in numerous ongoing property
damage claims, some of which involve attempted class actions in various states,
related to the alleged defects of EIFS. Some of the EIFS claims also stem from
alleged personal injuries from exposure to mold. Dryvit's and our insurers,
which include First Colonial Insurance Company, our wholly-owned captive
insurance company, are currently paying a substantial portion of Dryvit's
defense and/or settlement costs in the EIFS litigation.
WE DEPEND ON A NUMBER OF LARGE CUSTOMERS FOR A SIGNIFICANT PORTION OF OUR NET
SALES AND, THEREFORE, SIGNIFICANT DECLINES IN THE LEVEL OF PURCHASES BY THESE
CUSTOMERS COULD HARM OUR BUSINESS.
Certain of our operating companies, particularly in the Consumer Segment,
face a substantial amount of customer concentration. Our key customers include
Ace Hardware Stores, Canadian Tire, Cotter & Company, Do It Best, The Home
Depot, Lowe's Home Centers, W.W. Grainger and Wal-Mart. Sales to our eight
largest customers accounted for approximately 23%, 23% and 19% of our
consolidated net sales for the fiscal years ended May 31, 2003, 2002 and 2001,
respectively, and 50%, 49% and 41% of the Consumer Segment's sales for the same
years.
13
For the fiscal years ended May 31, 2003 and 2002, sales to The Home Depot
accounted for approximately 12% and 11%, respectively, of our consolidated net
sales. If we lose one or more of our key customers or experience a delay or
cancellation of a significant order or a decrease in the level of purchases from
any of our key customers, our net revenues could decline and our operating
results and business could be harmed. In addition, our net revenues could
decline and our operating results and business could be harmed if we experience
any difficulty in collecting amounts due from one or more of our key customers.
MANY OF OUR CUSTOMERS OPERATE IN CYCLICAL INDUSTRIES AND DOWNWARD ECONOMIC
CYCLES MAY REDUCE OUR BUSINESS.
Many of our customers, especially in our Industrial Segment, are in
businesses and industries that are cyclical in nature and sensitive to changes
in general economic conditions and other factors, including consumer spending
and preferences. As a result, the demand for our products by these customers
depends, in part, upon general economic conditions. Downward economic cycles
affecting the industries of our customers may reduce sales of our products
resulting in reductions to our revenues and net earnings.
IF OUR EFFORTS IN ACQUIRING AND INTEGRATING OTHER COMPANIES OR PRODUCT LINES
FAIL, OUR BUSINESS MAY NOT GROW.
As part of our growth strategy, we have pursued, and intend to continue
pursuing, acquisitions of complementary businesses or products and joint
ventures. Our ability to grow through acquisitions or joint ventures depends
upon our ability to identify, negotiate and complete suitable acquisitions or
joint venture arrangements. In addition, acquisitions and integration of those
acquisitions involve a number of risks, including:
o inaccurate assessments of disclosed liabilities and the potentially
adverse effects of undisclosed liabilities;
o difficulties in assimilating acquired companies and products into
our existing business;
o delays in realizing the benefits from acquired companies or
products, including projected efficiencies, cost savings, revenue
synergies and profit margins;
o diversion of our management's time and attention from other business
concerns;
o difficulties because of our lack of or limited prior experience in
any new markets we may enter;
o difficulties in retaining key employees and customers of the
acquired businesses; and
o increases in our indebtedness and contingent liabilities, which
could in turn restrict our ability to access additional capital when
needed or to pursue other important elements of our business
strategy.
WE HAVE A SIGNIFICANT AMOUNT OF INDEBTEDNESS.
We have a significant amount of indebtedness as a result of several of our
most recent acquisitions. Our total debt increased from $586 million at May 31,
1999 to approximately $730 million at August 31, 2003. This compares with
approximately $902 million in stockholders' equity at August 31, 2003. When
these notes were originally offered, we repaid a portion of our indebtedness
under our revolving credit facility with the proceeds of the offering.
Nevertheless, our level of indebtedness could have important consequences to
you. For example, it:
o may require us to dedicate a material portion of our cash flow from
operations to make payments on our indebtedness, thereby reducing
the cash flow available to fund working capital, capital
expenditures, acquisitions, dividend payments or other general
corporate purposes;
o could result in a downgrading of our credit rating, which would
increase our borrowing costs and subsequently diminish our financial
results and also would likely require us to pay a higher interest
rate in future financings which could cause our potential pool of
investors and funding sources to decrease;
o may restrict our operations since our credit facility contains
certain financial and operating covenants; or
14
o may limit our flexibility to adjust to changing business and market
conditions and make us more vulnerable to a downturn in general
economic conditions as compared to a competitor that may have less
debt.
WE DERIVE A SUBSTANTIAL PORTION OF OUR REVENUES FROM FOREIGN MARKETS, WHICH
SUBJECTS US TO ADDITIONAL BUSINESS RISKS.
Our foreign manufacturing operations accounted for approximately 19% of
our net sales for the fiscal year ended May 31, 2003, not including exports
directly from the United States which accounted for less than 10% of our net
sales for fiscal 2003. Our international operations could be adversely affected
by changes in political and economic conditions, trade protection measures,
restrictions on repatriation of earnings, differing intellectual property rights
and changes in regulatory requirements that restrict the sales of our products
or increase our costs. Also, changes in exchange rates between the U.S. dollar
and other currencies could potentially result in increases or decreases in our
costs and earnings and may adversely affect the value of our assets outside the
United States.
FLUCTUATIONS IN THE SUPPLY AND PRICES OF RAW MATERIALS COULD NEGATIVELY IMPACT
OUR FINANCIAL RESULTS.
We obtain the raw materials needed to manufacture our products from a
number of suppliers. Many of our raw materials are petroleum-based derivatives,
minerals and metals. Under normal market conditions, these materials are
generally available on the open market and from a variety of producers. From
time to time, however, the prices and availability of these raw materials
fluctuate, which could impair our ability to procure necessary materials, or
increase the cost of manufacturing our products. If the prices of raw materials
increase, and we are unable to pass these increases on to our customers, we
could experience reductions to our profit margins.
A LOSS IN THE ACTUAL OR PERCEIVED VALUE OF OUR BRANDS COULD LIMIT OR REDUCE THE
DEMAND FOR OUR PRODUCTS.
Our family of products includes a number of well-known brand names that
are used in a variety of industrial maintenance, consumer do-it-yourself and
professional applications. We believe that continuing to maintain the strength
of our brands is critical to increasing demand for and maintaining widespread
acceptance of our products. However, a loss in the actual or perceived value of
our brands could limit or reduce the demand for our products.
ENVIRONMENTAL LAWS AND REGULATIONS COULD SUBJECT US TO SIGNIFICANT FUTURE
LIABILITIES.
We are subject to numerous environmental laws and regulations that impose
various environmental controls on us or otherwise relate to environmental
protection, the sale and export of certain chemicals or hazardous materials, and
various health and safety matters, including among other things, the discharge
of pollutants into the air and water, the handling, use, treatment, storage and
clean-up of solid and hazardous wastes, and the investigation and remediation of
soil and groundwater affected by hazardous substances. These laws and
regulations often impose strict, retroactive and joint and several liability for
the costs of, and damages resulting from, cleaning up our, or our predecessors',
past or present facilities, and at third party disposal sites. We are currently
undertaking remedial activities at a number of facilities and properties, and
have received notices under the federal Comprehensive Environmental Response,
Compensation and Liability Act or analogous state laws of liability or potential
liability in connection with the disposal of material from our current or former
operations, and currently unknown conditions could be discovered in the future.
Our expenditures related to environmental matters have not had, and are not
currently expected to have, a material adverse effect on our business, financial
condition, results of operations or cash flows. However, the environmental laws
under which we operate are numerous, complicated and often increasingly more
stringent, and may be applied retroactively. In addition, if we violate or fail
to comply with environmental laws, we could be fined or otherwise sanctioned by
regulators. We could also be liable for consequences arising out of human
exposure to hazardous substances relating to our products or operations.
Accordingly, we cannot guarantee that we will not be required to make additional
expenditures to remain in or to achieve compliance with environmental laws in
the future or that any such additional expenditures will not have a material
adverse effect on our business, financial condition, results of operations or
cash flows.
15
OUR STOCKHOLDER RIGHTS PLAN AND AMENDED AND RESTATED CHARTER DOCUMENTS MAY MAKE
IT HARDER FOR OTHERS TO OBTAIN CONTROL OF US EVEN THOUGH SOME STOCKHOLDERS MIGHT
CONSIDER SUCH A DEVELOPMENT FAVORABLE, WHICH MAY ADVERSELY AFFECT OUR STOCK
PRICE.
Our stockholder rights plan and provisions of our amended and restated
certificate of incorporation and by-laws may delay, inhibit or prevent someone
from gaining control of us through a tender offer, business combination, proxy
contest or some other method even if some of our stockholders might believe a
change in control is desirable.
USE OF PROCEEDS
The selling securityholders will receive all of the net proceeds from the
sale of the notes or the underlying shares of common stock under this
prospectus. We will not receive any of the proceeds from sales by the selling
securityholders of the notes or the underlying shares of common stock.
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
Our common stock is traded on the New York Stock Exchange under the symbol
"RPM." The following table sets forth the high and low sale prices on the New
York Stock Exchange for the periods indicated.
HIGH LOW
-------- --------
FISCAL YEAR ENDED MAY 31, 2002
First Quarter............................. $ 11.15 $ 8.02
Second Quarter............................ $ 15.05 $ 7.91
Third Quarter............................. $ 17.08 $ 12.90
Fourth Quarter............................ $ 17.87 $ 14.15
FISCAL YEAR ENDED MAY 31, 2003
First Quarter............................. $ 16.59 $ 11.58
Second Quarter............................ $ 16.01 $ 12.90
Third Quarter............................. $ 15.90 $ 9.29
Fourth Quarter............................ $ 12.50 $ 9.10
FISCAL YEAR ENDING MAY 31, 2004
First Quarter............................. $ 14.20 $ 12.38
Second Quarter (through November 3)....... $ 14.68 $ 12.90
On November 3, 2003, the last reported sale price of our common stock on
the New York Stock Exchange was $14.74 per share. As of August 15, 2003, we had
approximately 38,684 stockholders of record of our common stock.
Our stockholders are entitled to receive dividends out of assets legally
available at the times and in the amounts that our board of directors may from
time to time determine. In fiscal year 2001, we paid a dividend of $0.1225 per
share for the first quarter and dividends of $0.1250 per share for the remaining
quarters of the fiscal year. In fiscal year 2002, we paid a dividend of $0.1250
per share per quarter. For the first quarter of fiscal 2003, we paid a dividend
of $0.1250 per share and for the remaining three quarters of fiscal 2003, we
paid dividends of $0.1300 per share per quarter.
16
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of earnings to fixed charges for
the periods indicated:
FISCAL YEAR ENDED MAY 31, THREE MONTHS ENDED
-------------------------------------------------------- ------------------
1999 2000 2001 2002(1) 2003(2) AUGUST 31, 2003
---- ---- ---- ------- ------- ---------------
Ratio of earnings to fixed charges 4.75 2.19 2.33 4.03 2.28 8.92
==== ==== ==== ==== ==== ====
----------
(1) RPM adopted Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets," effective June 1, 2001, which resulted in a
reduction of amortization expense for the fiscal year ended May 31, 2002
by approximately $24 million. Had RPM not adopted the required accounting
change, the ratio of earnings to fixed charges would have been 3.56 for
the fiscal year ended May 31, 2002.
(2) Excluding the impact of the $140 Million asbestos charge, the ratio of
earnings to fixed charges would have been 6.04 for the fiscal year ended
May 31, 2003.
For purposes of calculating the ratios, fixed charges consist of interest
expense, amortized expenses related to debt and estimated interest portion of
operating leases. The ratio of earnings to fixed charges is calculated as
follows:
(income before income taxes) + (fixed charges)
----------------------------------------------
(fixed charges)
17
DESCRIPTION OF OUR OTHER INDEBTEDNESS
CREDIT FACILITIES
We have a $500 million, 5-year revolving credit facility with a syndicate
of banks, which expires on July 14, 2005 and bears interest tied to LIBOR.
Borrowings under the revolving credit facility are unsecured. As of August 31,
2003, we had $93.0 million in the aggregate outstanding under the revolving
credit facility at a weighted average interest rate of 2.11%.
We also have an unsecured credit facility with a bank for $28.0 million
which expires on October 12, 2004. We have two revolving multi-currency credit
facilities totaling $25.0 million in the aggregate with a bank; one for $15.0
million which expires on December 31, 2005 and another for $10.0 million which
expires on December 22, 2003. The unsecured line of credit and revolving
multi-currency credit facilities bear interest tied to one of various rates. As
of August 31, 2003, we had $9.0 million in the aggregate outstanding under the
unsecured line of credit and $2.2 million in the aggregate outstanding under the
revolving multi-currency credit facilities.
SECURITIZATION TRANSACTION
In June 2002 we entered into a securitization transaction with several
banks for certain of our subsidiaries, providing for a wholly-owned special
purpose entity ("SPE") to receive investments of up to $125 million. This
securitization is accomplished by having certain subsidiaries sell various of
their accounts receivable to the SPE, and by having the SPE then transfer those
receivables to a conduit administered by the banks. This securitization
transaction did not constitute a form of off-balance sheet financing, and is
fully reflected in our financial statements. This transaction increases our
liquidity and reduces our financing costs by replacing up to $125 million of
existing borrowings at lower interest rates. As of August 31, 2003, $104.0
million was securitized under this arrangement.
COMMERCIAL PAPER PROGRAM
We have recently established a $200 million non-rated commercial paper
program under which borrowings are unsecured and are issued for terms of 270
days or less. As of August 31, 2003, there was $64.3 million outstanding under
this commercial paper program, the proceeds of which were used to reduce the
outstanding balance on our revolving credit facility. Our $500 million revolving
credit facility is available to back up our commercial paper program to the
extent it is not drawn upon.
SENIOR NOTES
In November 2001, we issued and sold $30 million aggregate principal
amount of 7.3% Senior Unsecured Notes due 2008, $10 million aggregate principal
amount of 6.61% Senior Unsecured Notes due 2006, and $15 million aggregate
principal amount of 6.12% Senior Unsecured Notes due 2004.
In March 1998, we issued and sold $100 million aggregate principal amount
of Senior Unsecured Notes due 2008. The notes bear interest at the three month
LIBOR rate.
In June 1995, we issued and sold $150 million aggregate principal amount
of 7.0% Senior Unsecured Notes due 2005.
We also have other notes and mortgages payable at various rates of
interest due in installments through 2011, substantially secured by property. As
of August 31, 2003, we had $2.5 million outstanding under these other notes and
mortgages payable.
18
DESCRIPTION OF NOTES
The notes were issued under an indenture, dated as of May 13, 2003,
between RPM International Inc., as issuer, and The Bank of New York, as trustee.
The notes constitute senior debt securities under the indenture. The following
summarizes the material provisions of the notes and does not purport to be
complete and is subject to, and qualified by reference to, all of the provisions
of the indenture, the registration rights agreement and the notes, which we urge
you to read because they define your rights as a note holder. Copies of the
indenture, registration rights agreement and form of the note have been filed
with the SEC as exhibits to this registration statement. As used in this
description of notes, the words "we," "us," "our" or "RPM" refer only to RPM
International Inc. and do not include any current or future subsidiary of RPM
International Inc.
GENERAL
The notes are limited to $297,000,000 aggregate principal amount at
maturity. The notes will mature on May 13, 2033. The principal amount at
maturity of each note is $1,000. The notes will be payable at the principal
corporate trust office of the paying agent, which initially will be an office or
agency of the trustee, or an office or agency maintained by us for such purpose,
in the Borough of Manhattan, The City of New York.
The notes bear cash interest at the rate of 1.389% per year on the
principal amount at maturity from the issue date, or from the most recent date
to which interest has been paid or provided for, until May 13, 2008. During such
period, cash interest will be payable semiannually in arrears on May 13 and
November 13 of each year, commencing on November 13, 2003, to holders of record
at the close of business on the April 28 or October 29 immediately preceding
such interest payment date. Each payment of cash interest on the notes will
include interest accrued through the day before the applicable interest payment
date (or purchase or redemption date, as the case may be). Any payment required
to be made on any day that is not a business day will be made on the next
succeeding business day.
The notes were sold to the initial purchasers at a substantial discount
from their $1,000 principal amount at maturity. The notes were issued at an
issue price of $505.19 per note. Beginning May 13, 2008, for non-tax purposes
the notes will accrue original issue discount while they remain outstanding at a
rate of 2.75% per year. Original issue discount is the difference between the
issue price and the principal amount at maturity of a note. The calculation of
the accrual of original issue discount will be on a semiannual bond equivalent
basis, using a 360-day year composed of twelve 30-day months.
The notes are debt instruments subject to treasury regulations governing
contingent payment debt instruments. Even if we do not pay any contingent cash
interest on the notes, holders are required to include accrued tax original
issue discount (including the portion of the tax original issue discount
represented by cash interest payments) in their gross income for federal income
tax purposes as it accrues from May 13, 2003. The rate at which the tax original
issue discount will accrue will exceed the stated yield of 2.75% for accrued
original issue discount. See "Material United States Federal Income Tax
Consequences."
Original issue discount or cash interest, as the case may be, will cease
to accrue on a note upon its maturity, conversion, purchase by us at the option
of a holder or redemption. We may not reissue a note that has matured or been
converted, purchased by us at your option, redeemed or otherwise cancelled,
except for registration of transfer, exchange or replacement of such note.
Notes may be presented for conversion at the office of the conversion
agent and for exchange or registration of transfer at the office of the
registrar. The conversion agent and the registrar shall initially be the
trustee. No service charge will be made for any registration of transfer or
exchange of notes. However, we may require the holder to pay any tax, assessment
or other governmental charge payable as a result of such transfer or exchange.
RANKING OF THE NOTES
The notes are senior unsecured obligations of RPM and rank equal in right
of payment to all of our other senior unsecured indebtedness. The notes are
effectively subordinated to any future secured indebtedness to the extent of the
assets securing such indebtedness. In addition, we are structured as a holding
company, and we conduct all of our business operations through our subsidiaries.
19
The notes are effectively subordinated to all existing and future indebtedness
and other liabilities and commitments of our subsidiaries which are distinct
legal entities having no obligation to pay any amounts pursuant to the notes or
to make funds available therefor. See "Risk Factors -- Risks Related to the
Offering -- Your right to receive payments on these notes is effectively
subordinated to the rights of our existing and future secured creditors. The
notes are also effectively subordinated to any existing and future liabilities
of our subsidiaries" and " -- We are a holding company and we depend upon cash
from our subsidiaries to service our debt. If we do not receive cash
distributions, dividends or other payments from our subsidiaries, we may not be
able to make payments on the notes."
As of August 31, 2003, we had an aggregate of $104.2 million of secured
indebtedness outstanding and $625.8 million of senior unsecured indebtedness
outstanding. As of August 31, 2003, our consolidated subsidiaries had an
aggregate of $4.8 million of indebtedness outstanding.
CONVERSION RIGHTS
A holder may convert a note in integral multiples of $1,000 principal
amount at maturity, into common stock only if the conditions for conversion
described below are satisfied. In addition, a holder may convert a note only
until the close of business on the second business day prior to the redemption
date if we call a note for redemption. A note for which a holder has delivered a
purchase notice or a change in control purchase notice requiring us to purchase
the note may be surrendered for conversion only if such notice is withdrawn in
accordance with the indenture.
For each $1,000 principal amount at maturity of notes surrendered for
conversion, if the conditions for conversion are satisfied, a holder will
receive 27.0517 shares of our common stock, subject to adjustment upon the
occurrence of the events described below. A holder of a note otherwise entitled
to a fractional share will receive cash equal to the applicable portion of the
sale price of our common stock on the trading day immediately preceding the
conversion date. Upon a conversion, we will have the option to deliver cash or a
combination of cash and shares of our common stock for the notes surrendered as
described below. The ability to surrender notes for conversion will expire at
the close of business on May 11, 2033.
To convert a note into shares of common stock, a holder must:
o complete and manually sign a conversion notice, a form of which is
on the back of the note, and deliver the conversion notice to the
conversion agent;
o surrender the note to the conversion agent;
o if required by the conversion agent, furnish appropriate
endorsements and transfer documents; and
o if required, pay all transfer or similar taxes.
On conversion of a note, a holder will not receive any cash payment of
interest representing accrued original issue discount or, except as described
below, any accrued cash interest or contingent cash interest. Instead, accrued
original issue discount or accrued cash interest or contingent cash interest
will be deemed paid by the shares of common stock received by the holder on
conversion. Delivery to the holder of the full number of shares of common stock
into which the note is convertible, together with any cash payment of such
holder's fractional shares, will thus be deemed:
o to satisfy our obligation to pay the principal amount at maturity of
the note;
o to satisfy our obligation to pay accrued original issue discount or
accrued cash interest attributable to the period from the issue date
through the conversion date; and
o to satisfy our obligation to pay accrued and unpaid contingent cash
interest.
20
As a result, accrued original issue discount or accrued cash interest is
deemed paid in full rather than cancelled, extinguished or forfeited. Holders of
notes surrendered for conversion during the period from the close of business on
any regular record date next preceding any interest payment date to the opening
of business of such interest payment date will receive the semiannual interest
payable on such notes on the corresponding interest payment date notwithstanding
the conversion, and such notes upon surrender must be accompanied by funds equal
to the amount of such payment, unless such notes have been called for
redemption, in which case no such payment shall be required.
If contingent cash interest is payable to holders of notes during any
particular six-month period, and such notes are converted after the applicable
accrual or record date therefor and prior to the next succeeding interest
payment date, holders of such notes at the close of business on the accrual or
record date will receive the contingent cash interest payable on such notes on
the corresponding interest payment date notwithstanding the conversion. Such
notes, upon surrender for conversion, must be accompanied by funds equal to the
amount of contingent cash interest payable on the principal amount of notes so
converted, unless such notes have been called for redemption, in which case no
such payment shall be required.
The conversion rate will not be adjusted for accrued original issue
discount, accrued cash interest, any contingent cash interest or interest
payable upon occurrence of a tax event. A certificate for the number of full
shares of common stock into which any note is converted, together with any cash
payment for fractional shares, will be delivered through the conversion agent as
soon as practicable following the conversion date. For a discussion of the tax
treatment of a holder receiving shares of our common stock upon surrendering
notes for conversion, see "Material United States Federal Income Tax
Consequences."
In lieu of delivery of shares of our common stock upon notice of
conversion of any notes (for all or any portion of the notes), we may elect to
pay holders surrendering notes an amount in cash per note (or a portion of a
note) based on the average sale price of our common stock for the five
consecutive trading days immediately following either (a) the date of our notice
of our election to deliver cash, which we must give within two business days
after receiving a conversion notice, unless we have earlier given notice of
redemption as described in this prospectus; or (b) the conversion date, if we
have given notice of redemption specifying that we intend to deliver cash upon
conversion thereafter, in either case multiplied by the conversion rate in
effect on that date. We will inform the holders through the trustee no later
than two business days following the conversion date of our election to deliver
shares of our common stock or to pay cash in lieu of delivery of the shares,
unless we have already informed holders of our election in connection with our
optional redemption of the notes as described under " -- Redemption of Notes at
Our Option." If we elect to pay all or a portion of such payment in cash, the
payment, including any delivery of our common stock, will be made to holders
surrendering notes no later than the tenth business day following the applicable
conversion date. If an event of default, as described under " -- Events of
Default and Acceleration" below (other than a default in a cash payment upon
conversion of the notes), has occurred and is continuing, we may not pay cash
upon conversion of any notes or portion of a note (other than cash for
fractional shares).
We will adjust the conversion rate for:
(1) dividends or distributions on our common stock payable in our
common stock or other capital stock of RPM;
(2) subdivisions, combinations or certain reclassifications of our
common stock;
(3) distributions to all holders of our common stock of certain
rights to purchase shares of our common stock for a period expiring within
60 days of such distribution at less than the then current sale price of
our common stock at that time; and
(4) distributions to the holders of our common stock of a portion of
our assets (including shares of capital stock of, or similar equity
interests in, a subsidiary or other business unit of ours) or debt
securities issued by us or certain rights to purchase our securities
(excluding cash dividends or other cash distributions from current or
retained earnings other than extraordinary cash dividends). "Extraordinary
cash dividends" means the amount of any cash dividend or distribution
that, together with all other cash dividends paid during the preceding
12-month period, are on a per share basis in excess of the sum of (i) 5%
of the sale price of the shares of our common stock on the day preceding
the date of declaration of such dividend or distribution and (ii) the
quotient of the amount
21
of any contingent cash interest paid on a note during such 12-month period
divided by the number of shares of common stock issuable upon conversion
of a note at the conversion rate in effect on the payment date of such
contingent cash interest.
In the event that we elect to make a distribution to all holders of shares
of our common stock pursuant to clause (3) or (4) of the preceding paragraph,
which, in the case of clause (4), has a per share value equal to more than 15%
of the sale price of our shares of common stock on the day preceding the
declaration date for such distribution, we will be required to give notice to
the holders of notes at least 20 days prior to the date for such distribution
and, upon the giving of such notice, the notes may be surrendered for conversion
at any time until the close of business on the business day prior to the date of
distribution or until we announce that such distribution will not take place.
In the event that we pay a dividend or make a distribution on shares of
our common stock consisting of capital stock of, or similar equity interests in,
a subsidiary or other business unit of ours, the conversion rate will be
adjusted based on the market value of the securities so distributed relative to
the market value of our common stock, in each case based on the average closing
prices of those securities for the 10 trading days commencing on and including
the fifth trading day after the date on which "ex-dividend trading" commences
for such dividend or distribution on the principal United States securities
exchange or market on which the securities are then listed or quoted.
No adjustment to the conversion rate need be made if holders of the notes
may participate in the transaction without conversion or in certain other cases.
In addition, the indenture provides that upon conversion of the notes, the
holders of such notes will receive, in addition to the shares of common stock
issuable upon such conversion, the rights related to such common stock pursuant
to our existing and any future shareholder rights plan, whether or not such
rights have separated from the common stock at the time of such conversion.
However, there shall not be any adjustment to the conversion privilege or
conversion rate as a result of:
o the issuance of such rights;
o the distribution of separate certificates representing such rights;
o the exercise or redemption of such rights in accordance with any
rights agreement; or
o the termination or invalidation of such rights.
The indenture permits us to increase the conversion rate from time to
time.
Holders of the notes may, in certain circumstances, be deemed to have
received a distribution subject to United States federal income tax as a
dividend upon:
o a taxable distribution to holders of common stock that results in an
adjustment of the conversion rate on the notes;
o an increase in the conversion rate at our discretion; or
o failure to adjust the conversion rate in some instances.
See "Material United States Federal Income Tax Consequences."
If we are a party to a consolidation, merger or binding share exchange or
a transfer of all or substantially all of our assets, the right to convert a
note into common stock may be changed into a right to convert it into the kind
and amount of securities, cash or other assets of RPM or another person which
the holder would have received if the holder had converted the holder's note
immediately prior to the transaction.
Upon determining that the holders are or will be entitled to convert their
notes into shares of common stock in accordance with these provisions, we will
promptly issue a press release and publish such information on our website or
otherwise publicly disclose this information.
22
CONVERSION BASED ON COMMON STOCK PRICE
Commencing after May 31, 2003, holders may surrender notes for conversion
into shares of our common stock in any fiscal quarter (and only during such
fiscal quarter), if, as of the last day of the preceding fiscal quarter, the
closing sale price of our common stock for at least 20 trading days in a period
of 30 consecutive trading days ending on the last trading day of such preceding
fiscal quarter is more than 120% of the accreted conversion price per share of
common stock on the last day of such preceding fiscal quarter. Upon a
conversion, we will have the right to deliver cash or a combination of cash and
common stock, as described below.
The accreted conversion price per share as of any day will equal the sum
of the issue price of a note plus the accrued original issue discount, if any,
divided by the number of shares of common stock issuable upon conversion of a
note on that day, subject to any adjustments to the conversion rate through that
day. The closing sale price of our common stock on any trading day means the
closing per share sale price (or if no closing sale price is reported, the
average of the bid and ask prices or, if more than one in either case, the
average of the average bid and the average ask prices) on such date on the
principal national securities exchange on which the common stock is listed or,
if our common stock is not listed on a national securities exchange, as reported
by the Nasdaq system or otherwise as provided in the indenture.
The conversion trigger price per share of our common stock in respect of
each of the first 20 fiscal quarters following issuance of the notes is $22.41.
This conversion trigger price reflects the accreted conversion price per share
of common stock multiplied by 120%. Thereafter, the accreted conversion price
per share of common stock increases each fiscal quarter by the accreted original
issue discount for the quarter. The conversion trigger price per share for the
fiscal quarter beginning March 1, 2033 is $44.12. The foregoing conversion
trigger prices assume that no events have occurred that would require an
adjustment to the conversion rate.
CONVERSION RIGHTS BASED ON CREDIT RATINGS DOWNGRADE
Holders may also surrender notes for conversion during any period in which
the credit rating assigned to the notes is Ba3 or lower by Moody's or BB or
lower by Standard & Poor's, the notes are no longer rated by either Moody's or
Standard & Poor's, or the credit rating assigned to the notes has been suspended
or withdrawn by either Moody's or Standard & Poor's. The notes will cease to be
convertible pursuant to this paragraph during any period or periods in which all
of the credit ratings are increased above such levels.
CONVERSION BASED ON REDEMPTION
A holder may surrender for conversion a note called for redemption at any
time prior to the close of business on the second business day immediately
preceding the redemption date, even if it is not otherwise convertible at such
time. A note for which a holder has delivered a purchase notice or a change in
control purchase notice, as described below, requiring us to purchase such note
may be surrendered for conversion only if such notice is withdrawn in accordance
with the indenture.
A "business day" is any weekday that is not a day on which banking
institutions in The City of New York are authorized or obligated to close. A
"trading day" is any day on which the NYSE is open for trading or, if the
applicable security is quoted on the Nasdaq system, a day on which trades may be
made on such market or, if the applicable security is not so listed, admitted
for trading or quoted, any business day.
CONVERSION UPON OCCURRENCE OF CERTAIN CORPORATE TRANSACTIONS
If we are party to a consolidation, merger or binding share exchange or a
transfer of all or substantially all of our assets, a note may be surrendered
for conversion at any time from and after the date which is 15 days prior to the
anticipated effective date of the transaction until the date that is 15 days
after the actual effective date of such transaction, and at the effective date,
the right to convert a note into common stock will be changed into a right to
convert it into the kind and amount of securities, cash or other assets of RPM
or another person which the holder would have received if the holder had
converted the holder's notes immediately prior to the transaction. If such
23
transaction also constitutes a change in control of RPM, the holder will be able
to require us to purchase all or a portion of such holder's notes as described
under " -- Change in Control Permits Purchase of Notes by RPM at the Option of
the Holder."
The notes will also be convertible upon the occurrence of certain
distributions resulting in an adjustment to the conversion price as described
above.
CONTINGENT CASH INTEREST
Subject to the accrual and record date provisions described below, we will
pay contingent cash interest to the holders of the notes during any six-month
period from May 14 to November 13 and from November 14 to May 13, commencing May
14, 2008 if the average market price of the notes for the five trading days
ending on the third trading day immediately preceding the first day of the
relevant six-month period equals 120% or more of the sum of the issue price,
accrued original issue discount and accrued cash interest, if any, for a note to
the day immediately preceding the first day of the applicable six-month period.
The amount of contingent cash interest payable per note in respect of any
six-month period in which contingent interest is payable will equal the annual
rate of 1.0% of the average market price of a note for the five trading day
measurement period. For United States federal income tax purposes, the notes
will constitute contingent payment debt instruments.
Contingent cash interest, if any, will accrue and be payable to holders of
notes as of the 15th day preceding the last day of the relevant six-month
period. Such payments will be paid on the last day of the relevant six-month
period. Original issue discount will continue to accrue at the yield to maturity
whether or not contingent cash interest is paid.
The market price of a note on any date of determination means the average
of the secondary market bid quotations per note obtained by the bid solicitation
agent for $5 million principal amount at maturity of notes at approximately 4:00
p.m., New York City time, on such determination date from three independent
nationally recognized securities dealers we select, provided that if:
o at least three such bids are not obtained by the bid solicitation
agent; or
o in our reasonable judgment, the bid quotations are not indicative of
the secondary market value of the notes,
then the market price of the note will equal (a) the then applicable conversion
rate of the notes multiplied by (b) the average sale price of our common stock
on the five trading days ending on such determination date, appropriately
adjusted.
The bid solicitation agent will initially be The Bank of New York. We may
change the bid solicitation agent, but the bid solicitation agent will not be
our affiliate. The bid solicitation agent will solicit bids from securities
dealers that are believed by us to be willing to bid for the notes.
Upon determination that note holders will be entitled to receive
contingent cash interest during a relevant six-month period, we will issue a
press release and publish such information on our website or through such other
public medium as we may use at that time.
We may unilaterally increase the amount of contingent cash interest we may
pay or pay interest or other amounts we are not obligated to pay, but we will
have no obligation to do so.
24
REDEMPTION OF NOTES AT OUR OPTION
No sinking fund is provided for the notes. Prior to May 13, 2008, we
cannot redeem the notes at our option. Beginning on May 13, 2008, we may redeem
the notes for cash, as a whole at any time or from time to time in part. We will
give not less than 30 days' or more than 60 days' notice of redemption by mail
to holders of notes.
If redeemed at our option, the notes will be redeemed at a price equal to
the sum of the issue price plus accrued original issue discount and accrued and
unpaid cash interest, if any, on such notes to the applicable redemption date.
The table below shows the redemption prices of a note on May 13, 2008, on each
May 13 thereafter prior to maturity and at maturity on May 13, 2033. In
addition, the redemption price of a note that is redeemed between the dates
listed below would include an additional amount reflecting the additional
accrued original issue discount that has accrued on such note since the
immediately preceding date in the table below.
(2) (3)
(1) ACCRUED ORIGINAL REDEMPTION
REDEMPTION DATE NOTE ISSUE ISSUE PRICE (1)+(2)
MAY 13: PRICE DISCOUNT DISCOUNT
------- ----- -------- --------
2008........................ $ 505.19 $ 0.00 $ 505.19
2009........................ 505.19 13.99 519.18
2010........................ 505.19 28.36 533.55
2011........................ 505.19 43.14 548.33
2012........................ 505.19 58.32 563.51
2013........................ 505.19 73.92 579.11
2014........................ 505.19 89.96 595.15
2015........................ 505.19 106.44 611.63
2016........................ 505.19 123.37 628.56
2017........................ 505.19 140.78 645.97
2018........................ 505.19 158.66 663.85
2019........................ 505.19 177.05 682.24
2020........................ 505.19 195.94 701.13
2021........................ 505.19 215.35 720.54
2022........................ 505.19 235.30 740.49
2023........................ 505.19 255.81 761.00
2024........................ 505.19 276.88 782.07
2025........................ 505.19 298.53 803.72
2026........................ 505.19 320.79 825.98
2027........................ 505.19 343.66 848.85
2028........................ 505.19 367.16 872.35
2029........................ 505.19 391.32 896.51
2030........................ 505.19 416.14 921.33
2031........................ 505.19 441.65 946.84
2032........................ 505.19 467.87 973.06
At stated maturity.......... 505.19 494.81 1,000.00
If we convert the notes to semiannual coupon notes following the
occurrence of a tax event, the notes will be redeemable at the restated
principal amount plus accrued and unpaid interest from the date of the
conversion through the redemption date. However, in no event may the notes be
redeemed prior to May 13, 2008. For more information on this optional
conversion, see "Optional Conversion to Semiannual Coupon Notes upon Tax Event."
If less than all of the outstanding notes are to be redeemed, the trustee
will select the notes to be redeemed in principal amounts at maturity of $1,000
or integral multiples of $1,000. In this case, the trustee may select the notes
by lot, pro rata or by any other method the trustee considers fair and
appropriate. If a portion of a holder's notes is selected for partial redemption
and the holder converts a portion of the notes, the converted portion will be
deemed to be part of the portion of notes selected for redemption.
25
PURCHASE OF NOTES BY RPM AT THE OPTION OF THE HOLDER
On the purchase dates of May 13, 2008, May 13, 2013, May 13, 2018, May 13,
2023 and May 13, 2028, we may, at the option of the holder, be required to
purchase, at the purchase price set forth below plus accrued cash interest, if
any, to the purchase date, all or a portion of such holder's outstanding notes
for which a written purchase notice has been properly delivered by the holder
and not withdrawn, subject to certain additional conditions. Holders may submit
their written purchase notice to the paying agent at any time from the opening
of business on the date that is 20 business days prior to such purchase date
until the close of business on the business day immediately preceding such
purchase date.
The purchase price of a note will be:
o $505.19 per note on May 13, 2008;
o $579.11 per note on May 13, 2013;
o $663.85 per note on May 13, 2018;
o $761.00 per note on May 13, 2023; and
o $872.35 per note on May 13, 2028.
The above purchase prices reflect a price equal to the sum of the issue price
and accrued original issue discount, if any, on such notes as of the applicable
purchase date. We may, at our option, elect to pay the purchase price in cash or
shares of our common stock, or any combination thereof. See "Material United
States Federal Income Tax Considerations -- United States Holders -- Sale,
Exchange, Conversion or Redemption of Notes."
If prior to a purchase date the notes have been converted to semiannual
coupon notes following the occurrence of a tax event, the purchase price will be
equal to the restated principal amount plus accrued and unpaid cash interest
from the date of the conversion to the purchase date. For more information on
this optional conversion, see " -- Optional Conversion to Semiannual Coupon
Notes upon Tax Event."
We will be required to give notice on a date not less than 20 business
days prior to each purchase date to all holders at their addresses shown in the
register of the registrar, and to beneficial owners as required by applicable
law, stating among other things:
o the amount of the purchase price;
o whether we will pay the purchase price of the notes in cash or
common stock or any combination thereof, specifying the percentage
of each;
o if we elect to pay in common stock, the calculation of the market
price of the common stock; and
o the procedures that holders must follow to require us to purchase
their notes.
The purchase notice given by each holder electing to require us to
purchase notes shall state:
o the certificate numbers of the holder's notes to be delivered for
purchase;
o the portion of the principal amount at maturity of notes to be
purchased, which must be $1,000 or an integral multiple of $1,000;
o that the notes are to be purchased by us pursuant to the applicable
provisions of the notes; and
o in the event we elect, pursuant to the notice that we are required
to give, to pay the purchase price in common stock, in whole or in
part, but the purchase price is ultimately to be paid to the holder
entirely in cash because
26
any of the conditions to payment of the purchase price or portion of
the purchase price in common stock is not satisfied prior to the
close of business on the purchase date, as described below, whether
the holder elects:
(a) to withdraw the purchase notice as to some or all of the notes
to which it relates; or
(b) to receive cash in respect of the entire purchase price for all
notes or portions of notes subject to such purchase notice.
If the purchase price for the notes subject to the purchase notice is
ultimately to be paid to a holder entirely in cash because we have not satisfied
one or more of the conditions to payment of the purchase price in common stock
prior to the close of business on the purchase date, a holder shall be deemed to
have elected to receive cash in respect of the entire purchase price for all
such notes unless such holder has properly notified us of its election to
withdraw the purchase notice.
Any purchase notice may be withdrawn by the holder by a written notice of
withdrawal delivered to the paying agent prior to the close of business on the
business day prior to the purchase date. The notice of withdrawal shall state:
o the principal amount at maturity being withdrawn;
o the certificate numbers of the notes being withdrawn; and
o the principal amount at maturity, if any, of the notes that remain
subject to the purchase notice.
If we elect to pay the purchase price, in whole or in part, in shares of
our common stock, the number of shares we deliver will be equal to the portion
of the purchase price to be paid in common stock divided by the market price of
a share of common stock. We will pay cash based on the market price for all
fractional shares of common stock in the event we elect to deliver common stock
in payment, in whole or in part, of the purchase price. For a discussion of the
tax treatment of a holder receiving cash, common stock or any combination
thereof, see "Material United States Federal Income Tax Consequences."
The market price of our common stock shall be an amount equal to the
average of the sale prices of our common stock for the five trading-day period
ending on the third business day prior to the applicable purchase date, or, if
such business day is not a trading day, then on the last trading day prior to
such business day, appropriately adjusted to take into account any occurrence
that would result in an adjustment of the conversion rate with respect to the
common stock. See " -- Conversion Rights" for a description of the manner in
which the sale price of our common stock is determined.
Because the market price of our common stock is determined prior to the
applicable purchase date, holders of notes bear the market risk with respect to
the value of the common stock to be received from the date such market price is
determined to such purchase date. We may pay the purchase price or any portion
of the purchase price in common stock only if the information necessary to
calculate the market price is published in a daily newspaper of national
circulation.
Upon determination of the actual number of shares of common stock in
accordance with the foregoing provisions, we will promptly issue a press release
and publish such information on our website or through such other public medium
as we may use at that time.
Our right to purchase notes, in whole or in part, with common stock is
subject to our satisfying various conditions, including:
o listing the common stock on the principal United States securities
exchange on which our common stock is then listed or, if not so
listed, on the Nasdaq system;
o the registration of the common stock under the Securities Act and
the Exchange Act, if required; and
27
o any necessary qualification or registration under applicable state
securities law or the availability of an exemption from such
qualification and registration.
If such conditions are not satisfied with respect to a holder prior to the
close of business on the purchase date, we will pay the purchase price of the
notes of the holder entirely in cash. See "Material United States Federal Income
Tax Consequences." We may not change the form or components or percentages of
components of consideration to be paid for the notes once we have given the
notice that we are required to give to holders of notes, except as described in
the first sentence of this paragraph.
In connection with any purchase offer, we will, if required:
o comply with the provisions of Rule 13e-4, Rule l4e-1 and any other
tender offer rules under the Exchange Act which may then be
applicable; and
o file Schedule TO or any other required schedule under the Exchange
Act.
Payment of the purchase price for a note for which a purchase notice has
been delivered and not validly withdrawn is conditioned upon delivery of the
note, together with necessary endorsements, to the paying agent at any time
after delivery of the purchase notice. Payment of the purchase price for the
note will be made promptly following the later of the purchase date or the time
of delivery of the note.
If the paying agent holds money or securities sufficient to pay the
purchase price of the note on the business day following the purchase date in
accordance with the terms of the indenture, then, immediately after the purchase
date, the note will cease to be outstanding and cash interest or original issue
discount on such note will cease to accrue, whether or not the note is delivered
to the paying agent. Thereafter, all other rights of the holder shall terminate,
other than the right to receive the purchase price upon delivery of the note.
No notes may be purchased for cash at the option of holders if there has
occurred and is continuing an event of default with respect to the notes, other
than a default in the payment of the purchase price with respect to such notes.
CHANGE IN CONTROL PERMITS PURCHASE OF NOTES BY RPM AT THE OPTION OF THE HOLDER
In the event of a change in control of RPM, each holder will have the
right, at the holder's option, subject to the terms and conditions of the
indenture, to require us to purchase for cash all or any portion of the holder's
notes. However, the principal amount at maturity submitted for purchase by a
holder must be $1,000 or an integral multiple of $1,000.
We will be required to purchase the notes as of a date no later than 30
business days after the occurrence of such change in control at a cash price
equal to the sum of the issue price plus accrued original issue discount and
accrued cash interest, if any, on such note to such date of purchase.
If prior to such date of purchase upon a change in control the notes have
been converted to semiannual coupon notes following the occurrence of a tax
event, we will be required to purchase the notes at a cash price equal to the
restated principal amount plus accrued and unpaid interest from the date of the
conversion to such date of purchase.
Within 15 days after the occurrence of a change in control, we are
obligated to mail to the trustee and to all holders of notes at their addresses
shown in the register of the registrar and to beneficial owners as required by
applicable law a notice regarding the change in control, which notice shall
state, among other things:
o the events causing a change in control;
o the date of such change in control;
o the last date on which the purchase right may be exercised;
28
o the change in control purchase price;
o the change in control purchase date;
o the name and address of the paying agent and the conversion agent;
o the conversion rate and any adjustments to the conversion rate
resulting from such change in control;
o that notes with respect to which a change in control purchase notice
is given by the holder may be converted only if the change in
control purchase notice has been withdrawn in accordance with the
terms of the indenture; and
o the procedures that holders must follow to exercise these rights.
To exercise this right, the holder must deliver a written notice to the
paying agent prior to the close of business on the business day prior to the
change in control purchase date. The required purchase notice upon a change in
control shall state:
o the certificate numbers of the notes to be delivered by the holder;
o the portion of the principal amount at maturity of notes to be
purchased, which portion must be $1,000 or an integral multiple of
$1,000; and
o that we are to purchase such notes pursuant to the applicable
provisions of the notes.
Any such change in control purchase notice may be withdrawn by the holder
by a written notice of withdrawal delivered to the paying agent prior to the
close of business on the business day prior to the change in control purchase
date. The notice of withdrawal shall state:
o the principal amount at maturity being withdrawn;
o the certificate numbers of the notes being withdrawn; and
o the principal amount at maturity, if any, of the notes that remain
subject to a change in control purchase notice.
Payment of the change in control purchase price for a note for which a
change in control purchase notice has been delivered and not validly withdrawn
is conditioned upon delivery of the note, together with necessary endorsements,
to the paying agent at any time after the delivery of such change in control
purchase notice. Payment of this change in control purchase price for such note
will be made promptly following the later of the change in control purchase date
or the time of delivery of such note.
If the paying agent holds money sufficient to pay the change in control
purchase price of the note on the business day following the change in control
purchase date in accordance with the terms of the indenture, then immediately
after the change in control purchase date, cash interest or original issue
discount on the note will cease to accrue, whether or not the note is delivered
to the paying agent. Thereafter, all other rights of the holder shall terminate,
other than the right to receive the change in control purchase price upon
delivery of the note.
Under the indenture, a "change in control" of RPM is deemed to have
occurred at such time as:
o any person, including its respective affiliates and associates,
other than RPM, its subsidiaries or their employee benefit plans,
files a Schedule 13D or Schedule TO (or any successor schedule, form
or report under the Exchange Act) disclosing that such person has
become the beneficial owner of 50% or more of the aggregate voting
power of our common stock and other capital stock with equivalent
voting rights, or other capital stock into which the common stock is
reclassified or changed, with certain exceptions; or
29
o there shall be consummated any share exchange, consolidation or
merger of RPM pursuant to which the common stock would be converted
into cash, securities or other property in which the holder of our
common stock and other capital stock with equivalent voting rights
immediately prior to the share exchange, consolidation or merger,
have directly or indirectly, less than a majority of the total
voting power in the aggregate of all classes of capital stock of the
continuing or surviving corporation immediately after the share
exchange, consolidation or merger.
The indenture does not permit our board of directors to waive our
obligation to purchase notes at the option of holders in the event of a change
in control.
In connection with any purchase offer in the event of a change in control,
we will:
o comply with the provisions of Rule 13e-4, Rule 14e-1 and any other
tender offer rules under the Exchange Act which may then be
applicable; and
o file Schedule TO or any other required schedule under the Exchange
Act.
The change in control purchase feature of the notes may, in certain
circumstances, make more difficult or discourage a takeover of RPM. The change
in control purchase feature, however, is not the result of our knowledge of any
specific effort:
o to accumulate shares of common stock;
o to obtain control of us by means of a merger, tender offer,
solicitation or otherwise; or
o part of a plan by management to adopt a series of anti-takeover
provisions.
Instead, the change in control purchase feature is a standard term contained in
other offerings of securities similar to the notes that have been marketed by
the initial purchasers. The terms of the change in control purchase feature
resulted from negotiations between the initial purchasers and us.
We could, in the future, enter into certain transactions, including
certain recapitalizations, that would not constitute a change in control with
respect to the change in control purchase feature of the notes but that would
increase the amount of our or our subsidiaries' outstanding indebtedness.
No notes may be purchased at the option of holders upon a change in
control if there has occurred and is continuing an event of default with respect
to the notes, other than a default in the payment of the change in control
purchase price with respect to the notes.
EVENTS OF DEFAULT AND ACCELERATION
The following are events of default under the indenture:
o default in the payment of any principal amount (including accrued
original issue discount and, if the notes have been converted to
semiannual coupon notes following a tax event, the restated
principal amount) at maturity, redemption price, purchase price, or
change in control purchase price due with respect to the notes, when
the same become due and payable;
o default in payment of any interest under the notes, which default
continues for 30 days;
o our failure to comply with any of our other agreements in the notes
or the indenture upon our receipt of notice of such default from the
trustee or from holders of not less than 25% in aggregate principal
amount at maturity of the notes, and our failure to cure (or obtain
a waiver of) such default within 60 days after we receive such
notice;
30
o default in the payment of principal when due or resulting in
acceleration of other indebtedness of RPM or any subsidiary for
borrowed money where the aggregate principal amount with respect to
which the default or acceleration has occurred exceeds $50.0
million, and such acceleration has not been rescinded or annulled
within a period of 10 days after written notice to us by the trustee
or to us and the trustee by the holders of at least 25% in principal
amount at maturity of the notes, provided that if any such default
is cured, waived, rescinded or annulled, then the event of default
by reason thereof would be deemed not to have occurred;
o one or more judgments or orders shall have been rendered against us
or any of our subsidiaries for the payment of money in excess of
$100 million, either individually or in the aggregate (net of any
amounts to the extent that they are covered by insurance), which has
not been discharged and (a) an enforcement proceeding upon such
judgment or order has been commenced or (b) such judgment or order
has been stayed for a period of 60 consecutive days; or
o certain events of bankruptcy, insolvency or reorganization affecting
us.
If an event of default shall have happened and be continuing, either the trustee
or the holders of not less than 25% in aggregate principal amount at maturity of
the notes then outstanding may declare the issue price of the notes plus the
original issue discount on the notes accrued through the date of such
declaration, and any accrued and unpaid cash interest (or, if the notes have
been converted to semiannual coupon notes following a tax event, the restated
principal amount, plus accrued and unpaid interest) through the date of such
declaration, to be immediately due and payable. In the case of certain events of
bankruptcy or insolvency, the issue price of the notes plus the original issue
discount accrued thereon, together with any accrued cash interest (or, if the
notes have been converted to semiannual coupon notes following a tax event, the
restated principal amount, plus accrued and unpaid interest) through the
occurrence of such event shall automatically become and be immediately due and
payable. If a bankruptcy proceeding is commenced in respect of us, the claim of
the beneficial owner of a note may be limited, under Section 502(6)(2) of Title
11 of the United States Code, to the issue price of the note plus the original
issue discount and any contingent cash interest which has accrued as of the
commencement of the proceeding.
CONSOLIDATION, MERGERS OR SALES OF ASSETS
The indenture provides that we may not consolidate with or merge into any
person or convey, transfer or lease our properties and assets substantially as
an entity to another person unless:
o the resulting, surviving or transferee person is a corporation
organized and existing under the laws of the United States, any
state thereof or the District of Columbia, and such corporation (if
other than us) assumes all our obligations under the notes and the
indenture;
o after giving effect to the transaction no event of default, and no
event that, after notice or passage of time, would become an event
of default, has occurred and is continuing; and
o other conditions described in the indenture are met.
Upon the assumption of our obligations by such corporation in such
circumstances, subject to certain exceptions, we shall be discharged from all
obligations under the notes and the indenture. Although such transactions are
permitted under the indenture, certain of the foregoing transactions occurring
could constitute a change in control of RPM, permitting each holder to require
us to purchase the notes of such holder as described above.
OPTIONAL CONVERSION TO SEMIANNUAL COUPON NOTES UPON TAX EVENT
From and after the date of the occurrence of a tax event we shall have the
option to elect to have interest in lieu of future accrued original issue
discount or cash interest accrue at 2.75% per year on a principal amount per
note equal to the sum of the issue price, accrued original issue discount and
accrued cash interest, if any, on such note on the date of the tax event or the
date on which we exercise such option, whichever is later.
Such interest shall accrue from the option exercise date, and shall be
payable semiannually on the interest payment dates of May 13 and November 13 of
each year to holders of record at the close of business on the April 28 or
October 29 immediately preceding the interest payment date. Interest will be
computed on the basis of a 360-day year
31
comprised of twelve 30-day months. Interest will accrue from the most recent
date to which interest, if applicable, has been paid or provided for or, if no
interest is payable or has been paid or provided for, from the option exercise
date. In the event that we exercise our option to pay interest in lieu of
accrued original issue discount or accrued cash interest, if any, the redemption
price, purchase price and change in control purchase price on the notes will be
adjusted. However, there will be no change in the holder's conversion rights.
A "tax event" means that we shall have received an opinion from
independent tax counsel experienced in such matters to the effect that, on or
after the date of this prospectus, as a result of
o any amendment to, or change (including any announced prospective
change) in, the laws (or any regulations thereunder) of the United
States or any political subdivision or taxing authority thereof or
therein; or
o any amendment to, or change in, an interpretation or application of
such laws or regulations by any legislative body, court,
governmental agency or regulatory authority,
in each case which amendment or change is enacted, promulgated, issued or
announced or which interpretation is issued or announced or which action is
taken, on or after the date of this prospectus, there is more than an
insubstantial risk that accrued original issue discount payable on the notes
either:
o would not be deductible on a current accrual basis; or
o would not be deductible under any other method;
in either case in whole or in part, by us (by reason of deferral, disallowance,
or otherwise) for United States federal income tax purposes.
If a legislative proposal were ever enacted and made applicable to the
notes in a manner that would limit our ability to either:
o deduct the interest, including the accrued original issue discount,
payable on the notes on a current accrual basis; or
o deduct the interest, including accrued original issue discount,
payable on the notes under any other method for United States
federal income tax purposes,
such enactment would result in a tax event and the terms of the notes would be
subject to modification at our option as described above.
The modification of the terms of notes by us upon a tax event as described
above could possibly alter the timing of income recognition by holders of the
notes with respect to the semiannual payments of interest due on the notes after
the date on which we exercise our option to pay interest in lieu of accrued
original issue discount or accrued cash interest, if any, on the notes.
MODIFICATION
The trustee and we may modify or amend the indenture or the notes with the
consent of the holders of not less than a majority in aggregate principal amount
at maturity of the notes then outstanding. However, the consent of the holders
of each outstanding note is required to:
o alter the manner of calculation or rate of accrual of original issue
discount or interest on any note or change the time of payment;
o make any note payable in money or securities other than that stated
in the note;
o change the stated maturity of any note;
32
o reduce the principal amount at maturity, restated principal amount,
issue price, accrued original issue discount, redemption price,
purchase price or change in control purchase price with respect to
any note;
o make any change that adversely affects the rights of a holder to
convert any note;
o make any change that adversely affects the right to require us to
purchase a note;
o impair the right to institute suit for the enforcement of any
payment with respect to the notes or with respect to conversion of
the notes; or
o change the provisions in the indenture that relate to modifying or
amending the indenture.
Without the consent of any holder of notes, the trustee and we may enter
into supplemental indentures for any of the following purposes:
o to evidence a successor to us and the assumption by that successor
of our obligations under the indenture and the notes;
o to add to our covenants for the benefit of the holders of the notes
or to surrender any right or power conferred upon us;
o to secure our obligations in respect of the notes;
o to cure any ambiguity, omission, defect or inconsistency in the
indenture; or
o to make any change that does not adversely affect the rights of any
holder of the notes.
The holders of a majority in principal amount at maturity of the
outstanding notes may, on behalf of all the holders of all notes:
o waive compliance by us with restrictive provisions of the indenture,
as detailed in the indenture; or
o waive any past default under the indenture and its consequences,
except a default in the payment of the principal amount at maturity,
issue price, accrued and unpaid interest, accrued original issue
discount, redemption price, purchase price or change in control
purchase price or obligation to deliver common stock upon conversion
with respect to any note or in respect of any provision which under
the indenture cannot be modified or amended without the consent of
the holder of each outstanding note affected.
DISCHARGE OF THE INDENTURE
We may satisfy and discharge our obligations under the indenture by
delivering to the trustee for cancellation all outstanding notes or by
depositing with the trustee, the paying agent or the conversion agent, if
applicable, after the notes have become due and payable, whether at stated
maturity or any redemption date, or any purchase date, or a change in control
purchase date, or upon conversion or otherwise, cash or shares of common stock
(as applicable under the terms of the indenture) sufficient to pay all of the
outstanding notes and paying all other sums payable under the indenture.
CALCULATIONS IN RESPECT OF NOTES
We are responsible for making all calculations called for under the notes.
These calculations include, but are not limited to, determination of the average
market prices of the notes and of our common stock and amounts of contingent
cash interest payments, if any, payable on the notes. We will make all these
calculations in good faith and, absent manifest error, our calculations are
final and binding on holders of notes. We will provide a schedule of our
calculations to the trustee, and the trustee is entitled to conclusively rely
upon the accuracy of our calculations without independent verification.
33
LIMITATIONS OF CLAIMS IN BANKRUPTCY
If a bankruptcy proceeding is commenced in respect of RPM, the claim of a
holder of a note is, under title 11 of the United States Code, limited to the
issue price of the note plus that portion of the original issue discount,
together with any unpaid cash interest or contingent cash interest, that has
accrued from the date of issue to the commencement of the proceeding.
GOVERNING LAW
The indenture and the notes are governed by, and construed in accordance
with, the law of the State of New York.
INFORMATION CONCERNING THE TRUSTEE
The Bank of New York is the trustee, registrar, paying agent and
conversion agent under the indenture for the notes. The Bank of New York is an
affiliate of BNY Capital Markets, Inc., one of the initial purchasers of the
notes.
BOOK-ENTRY SYSTEM
The notes were issued in the form of global securities without coupons
held in fully registered book-entry form. DTC or its nominee, Cede & Co., is the
sole registered holder of the notes for all purposes under the indenture. Owners
of beneficial interests in the notes represented by the global securities hold
their interests pursuant to the procedures and practices of DTC. As a result,
beneficial interests in any such securities are shown on, and may only be
transferred through, records maintained by DTC and its direct and indirect
participants and any such interest may not be exchanged for certificated
securities, except in limited circumstances. Owners of beneficial interests must
exercise any rights in respect of their interests, including any right to
convert or require purchase of their interests in the notes, in accordance with
the procedures and practices of DTC. Beneficial owners will not be holders and
will not be entitled to any rights under the global securities or the indenture.
RPM and the trustee, and any of their respective agents, may treat DTC as the
sole holder and registered owner of the global securities.
EXCHANGE OF GLOBAL SECURITIES
Notes represented by a global security will be exchangeable for
certificated securities with the same terms only if:
o DTC is unwilling or unable to continue as depositary or if DTC
ceases to be a clearing agency registered under the Exchange Act and
a successor depositary is not appointed by us within 90 days;
o we decide to discontinue use of the system of book-entry transfer
through DTC (or any successor depositary); or
o a default under the indenture occurs and is continuing.
DTC has advised us as follows: DTC is a limited-purpose trust company
organized under the New York Banking Law, a "banking organization" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
facilitates the settlement of transactions among its participants through
electronic computerized book-entry changes in participants' accounts,
eliminating the need for physical movement of securities certificates. DTC's
participants include securities brokers and dealers, including the initial
purchasers, banks, trust companies, clearing corporations and other
organizations, some of whom and/or their representatives, own DTC. Access to
DTC's book-entry system is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
34
REGISTRATION RIGHTS
When we issued the notes, we entered into a registration rights agreement
with the initial purchasers. As required under that agreement, we have filed
with the SEC, at our expense, a shelf registration statement, of which this
prospectus forms a part, covering resale of the notes and the shares of our
common stock issuable upon conversion of the notes. Under the terms of the
registration rights agreement, we have agreed to use reasonable best efforts to
keep the shelf registration statement effective until the earlier of (1) the
sale pursuant to the shelf registration statement of all the notes and the
shares of common stock issuable upon conversion of the notes and (2) the
expiration of the holding period applicable to such securities held by persons
that are not affiliates of RPM under Rule 144(k) under the Securities Act, or
any successor provision, subject to certain permitted exceptions. We are
permitted to suspend the use of a prospectus that is part of a shelf
registration statement under certain circumstances relating to corporate
developments, public filings with the SEC and similar events for a period not to
exceed 45 days in any three-month period and not to exceed an aggregate of 120
days in any 12-month period.
We have agreed to pay predetermined liquidated damages as described herein
("liquidated damages") to holders of the notes and holders of shares of common
stock issuable upon conversion of the notes if the prospectus is unavailable for
the periods in excess of those permitted above. Such liquidated damages shall
accrue until such unavailability is cured, (i) in respect of any notes, at a
rate per year equal to 0.25% for the first 90 day period after the occurrence of
such event and 0.5% thereafter of the applicable principal amount (as defined
below) thereof and, (ii) in respect of any shares of common stock issued upon
conversion at a rate per year equal to 0.25% for the first 90 day period and
0.5% thereafter of the then applicable conversion price (as defined below). So
long as the unavailability continues, we will pay liquidated damages in cash on
May 13 and November 13 of each year to the holders of record of the notes or
shares of common stock on the immediately preceding April 28 or October 29. When
such registration default is cured, accrued and unpaid liquidated damages will
be paid in cash to the record holder as of the date of such cure.
A holder who sells notes and shares of common stock issued upon conversion
of the notes pursuant to the shelf registration statement generally is required
to be named as a selling securityholder in the related prospectus, deliver a
prospectus to purchasers and be bound by certain provisions of the registration
rights agreement that are applicable to such holder, including certain
indemnification provisions. We will pay all expenses of a shelf registration
statement, provide to each registered holder and the trustee copies of such
prospectus, notify each registered holder and the trustee when the shelf
registration statement has become effective and take certain other actions as
are required to permit, subject to the foregoing, unrestricted resales of the
notes and the shares of common stock issued upon conversion of the notes.
The term "applicable principal amount" means, as of any date of
determination, with respect to each $1,000 principal amount at maturity of
notes, the sum of the initial issue price of such notes plus accrued original
issue discount and any accrued cash interest with respect to such notes through
such date of determination or, if no notes are then outstanding, such sum
calculated as if such notes were then outstanding.
The term "applicable conversion price" means, as of any date of
determination, the applicable principal amount per $1,000 principal amount at
maturity of notes as of such date of determination divided by the conversion
rate in effect as of such date of determination or, if no notes are then
outstanding, the conversion rate that would be in effect were notes then
outstanding.
Under the terms of the registration rights agreement, we agreed to give
notice to all holders of the filing and effectiveness of a shelf registration
statement by release made to Reuters Economic Services and Bloomberg Business
News or other reasonable means of distribution. A holder who sells notes or
shares of common stock issued upon conversion of the notes pursuant to the shelf
registration statement generally will be required to be named as a selling
securityholder in this prospectus (or a supplement to that prospectus) and to
deliver a prospectus (together with any prospectus supplement) to purchasers.
The holder is also bound by the provisions of the registration rights agreement,
which are applicable to that holder (including certain indemnification
provisions).
THIS SUMMARY OF CERTAIN PROVISIONS OF THE REGISTRATION RIGHTS AGREEMENT IS
SUBJECT TO, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, ALL THE PROVISIONS
OF THE REGISTRATION RIGHTS AGREEMENT, A COPY OF WHICH HAS BEEN FILED WITH THE
SEC AS AN EXHIBIT TO THIS REGISTRATION STATEMENT.
35
DESCRIPTION OF OUR CAPITAL STOCK
The following description of our capital stock, amended and restated
certificate of incorporation and amended and restated by-laws is a summary only
and is subject to the complete text of our amended and restated certificate of
incorporation and by-laws and the rights agreement between us and the rights
agent named therein, which we have filed as exhibits to this registration
statement.
Our authorized capital stock consists of 300,000,000 shares of common
stock, par value $0.01 per share, and 50,000,000 shares of preferred stock, par
value $0.01 per share. As of August 15, 2003, there were 115,592,050 shares of
common stock outstanding, net of treasury shares, held by approximately 38,684
stockholders of record. No shares of preferred stock were outstanding as of the
date of this prospectus.
COMMON STOCK
The holders of our common stock are entitled to one vote per share on all
matters to be voted upon by stockholders generally, including the election of
directors. There are no cumulative voting rights, and, as a result, a plurality
of stockholders voting are able to elect directors. Holders of common stock are
entitled to receive ratably dividends, if any, as may be declared from time to
time by the board of directors out of funds legally available for that purpose.
In the event of our liquidation, dissolution or winding up, the holders of
common stock are entitled to share ratably in all assets remaining after payment
of liabilities, subject to prior distribution rights of outstanding shares of
preferred stock, if any. The holders of common stock have no preemptive or
similar rights or other subscription rights. There are no redemption or sinking
fund provisions applicable to the common stock. All outstanding shares of common
stock are legally issued, fully paid and nonassessable.
PREFERRED STOCK
Our board of directors has the authority, without stockholder approval, to
issue shares of preferred stock in one or more series and to fix the number of
shares and terms of each series. The board may determine the designation and
other terms of each series, including, among others:
o dividend rights;
o voting powers;
o preemptive rights;
o conversion rights;
o redemption rights; and
o liquidation rights.
The issuance of preferred stock, while providing desired flexibility in
connection with possible acquisitions and other corporate purposes, could
adversely affect the voting power of holders of common stock. It also could
affect the likelihood that holders of common stock will receive dividend
payments and payments upon liquidation.
RIGHTS PLAN
RIGHTS
In connection with the 2002 reincorporation, we assumed the Rights
Agreement by and between RPM, Inc. and National City Bank (as successor to
Computershare Investor Services, formerly Harris Trust and Savings Bank), dated
as of April 28, 1999, as amended. Our board of directors has declared a dividend
of one right for each outstanding share of common stock. Rights have been issued
in connection with each outstanding share of common stock; and rights will be
issued in connection with shares of common stock issued subsequently until the
distribution
36
date, and, in certain circumstances, for shares of common stock issued after the
distribution date referred to below. Each right, when it becomes exercisable as
described below, will entitle the registered holder to purchase from us
one-tenth of a share of common stock at a price of $7.00 or $70.00 per whole
share, subject to adjustment in certain circumstances. A more detailed
description and the terms of the rights are set forth in the rights agreement.
The rights will not be exercisable until the distribution date and will expire
on the tenth annual anniversary of the rights agreement, unless earlier redeemed
by us. Until a right is exercised, the holder, as such, will have no rights as a
stockholder, including the right to vote or to receive dividends.
DISTRIBUTION DATE
Under the rights agreement, the "distribution date" is the earlier of:
(1) such time as we learn that a person or group, including any
affiliate or associate of such person or group, has acquired, or has
obtained the right to acquire, beneficial ownership of more than 15% of
our outstanding voting securities (such person or group being an
"acquiring person"), unless provisions preventing accidental triggering of
the distribution of the rights apply; and
(2) the close of business on such date, if any, as may be designated
by our board of directors following the commencement of, or first public
disclosure of an intent to commence, a tender or exchange offer for more
than 15% or more of the outstanding shares of voting securities.
TRIGGERING EVENT AND EFFECT OF TRIGGERING EVENT
When there is an acquiring person, the rights will entitle each holder,
other than such acquiring person, of a right to purchase, at the purchase price,
that number of shares of common stock that at the time of such event would have
a market value of twice the purchase price.
If we are acquired in a merger or other business combination by an
acquiring person or an affiliate or associate of an acquiring person, or if 50%
or more of our assets or assets representing 50% or more of our earning power
are sold to an acquiring person or an affiliate or associate of an acquiring
person, each right will entitle its holder, other than rights beneficially owned
by such acquiring person, to purchase, for the purchase price, that number of
shares of common stock of such corporation which at the time of the transaction
would have a market value of twice the purchase price.
Any rights that are at any time beneficially owned by an acquiring person,
or any affiliate or associate of an
acquiring person, will be null and void and nontransferable, and any holder of
any such right will be unable to exercise or transfer any such right.
REDEMPTION
At any time prior to the earlier of (i) such time as a person or group
becomes an acquiring person and (ii) the expiration date, our board of directors
may redeem the rights in whole, but not in part, at a price of $.001 per right,
which amount shall be subject to adjustment as provided in the rights agreement.
Immediately upon the action of our board of directors ordering the redemption of
the rights, and without any further action and without any notice, the right to
exercise the rights will terminate and the only right of the holders of rights
will be to receive the redemption price.
In addition, at any time after there is an acquiring person, our board of
directors may elect to exchange each right for consideration per right
consisting of one share of common stock, subject to adjustment.
AMENDMENT
At any time prior to the distribution date, we may, without the approval
of any holder of any rights, supplement or further amend any provision of the
rights agreement, including the date on which the expiration date or
distribution date shall occur, the definition of acquiring person or the time
during which the rights may be redeemed, except that no supplement or amendment
shall be made that reduces the redemption price other than under certain
adjustments therein.
37
CERTAIN EFFECTS OF THE RIGHTS AGREEMENT
The rights agreement is designed to protect our stockholders in the event
of unsolicited offers to acquire us and other coercive takeover tactics which,
in the opinion of our board of directors, could impair its ability to represent
stockholder interests. The provisions of the rights agreement may render an
unsolicited takeover of us more difficult or less likely to occur or might
prevent such a takeover, even though such takeover may offer our stockholders
the opportunity to sell their stock at a price above the prevailing market rate
and may be favored by a majority of our stockholders.
ANTI-TAKEOVER EFFECTS OF CERTIFICATE OF INCORPORATION, BY-LAWS AND THE DELAWARE
GENERAL CORPORATION LAW
There are provisions in our amended and restated certificate of
incorporation and amended and restated by-laws, and Delaware General Corporation
Law that could discourage potential takeover attempts. They could also make it
more difficult for stockholders to change management. These provisions could
adversely affect the market price of our common stock. These provisions include:
AUTHORIZED BUT UNISSUED STOCK
The authorized but unissued common stock and preferred stock may be issued
without stockholder approval (although the board of directors has represented
that it will not issue any series of preferred stock for any defensive or
anti-takeover purpose without stockholder approval). Authorized but unissued
stock may be used for a variety of corporate purposes, including future public
offerings to raise additional capital, corporate acquisitions and employee
benefit plans. The existence of authorized but unissued common stock and
preferred stock could render it more difficult or discourage an attempt to
obtain control of us by means of a proxy contest, tender offer, merger or
otherwise.
STAGGERED BOARD
Our board of directors is divided into three classes, with regular
three-year staggered terms. This classification system increases the difficulty
of replacing a majority of the directors and may tend to discourage a
third-party from making a tender offer or otherwise attempting to gain control
of us. In addition, under Delaware law and our amended and restated certificate
of incorporation and amended and restated by-laws, our directors may be removed
from office by the stockholders only for cause and only in the manner provided
for in our amended and restated certificate of incorporation. These factors may
maintain the incumbency of our board of directors.
AMENDMENT OF CERTIFICATE OF INCORPORATION
Under Delaware law, in general, to amend a corporation's certificate of
incorporation, the directors of the corporation must first adopt a resolution
deeming the amendment advisable and then the holders of a majority of the
outstanding stock entitled to vote must vote in favor of the amendment. Our
amended and restated certificate of incorporation does not change the effect of
Delaware law in this regard, except that the provision in our amended and
restated certificate of incorporation regarding the number, election and terms
of directors may not be repealed or amended without the vote of the holders of
not less than 80% of our voting stock, voting as a single class.
AMENDMENT OF BY-LAWS
Under Delaware law, the power to adopt, amend or repeal by-laws is
conferred upon the stockholders. A corporation may, however, in its certificate
of incorporation also confer upon the board of directors the power to adopt,
amend or repeal its by-laws. Our amended and restated certificate of
incorporation and amended and restated by-laws grant our board of directors the
power to adopt, amend or repeal our by-laws at any meeting of the board. Our
stockholders also may adopt, amend or repeal our by-laws by a vote of a majority
of our voting stock, except that the provision in our amended and restated
by-laws regarding the number, election and terms of directors may not be
repealed or amended without the vote of the holders of not less than 80% of our
voting stock, voting as a single class.
38
STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS OF STOCKHOLDERS
Our amended and restated by-laws provide that no action that is required
or permitted to be taken by our stockholders at any annual or special meeting
may be taken by written consent of stockholders in lieu of a meeting, and that,
unless otherwise prescribed by law, a special meeting of stockholders may be
called only by the chairman of the board, the president, a majority of the board
of directors or the chairman of the board or president at the written request of
stockholders holding a majority of our voting stock.
INTERESTED STOCKHOLDER RULE
We are a Delaware corporation and are subject to Section 203 of the
Delaware General Corporation Law, which regulates corporate acquisitions.
Section 203 prevents an "interested stockholder," which is defined generally as
a person owning 15% or more of a corporation's voting stock, or any affiliate or
associate of that person, from engaging in a broad range of "business
combinations" with the corporation for three years after becoming an interested
stockholder unless:
o the board of directors of the corporation had previously approved
either the business combination or the transaction that resulted in
the stockholder's becoming an interested stockholder;
o upon completion of the transaction that resulted in the
stockholder's becoming an interested stockholder, that person owned
at least 85% of the voting stock of the corporation outstanding at
the time the transaction commenced, excluding shares owned by
persons who are directors and also officers and shares owned in
employee stock plans in which participants do not have the right to
determine confidentially whether shares held subject to the plan
will be tendered; or
o following the transaction in which that person became an interested
stockholder, the business combination is approved by the board of
directors of the corporation and holders of at least two-thirds of
the outstanding voting stock not owned by the interested
stockholder.
Under Section 203, the restrictions described above also do not apply to
specific business combinations proposed by an interested stockholder following
the announcement or notification of designated extraordinary transactions
involving the corporation and a person who had not been an interested
stockholder during the previous three years or who became an interested
stockholder with the approval of a majority of the corporation's directors, if
such extraordinary transaction is approved or not opposed by a majority of the
directors who were directors prior to any person becoming an interested
stockholder during the previous three years or were recommended for election or
elected to succeed such directors by a majority of such directors.
Section 203 may make it more difficult for a person who would be an
interested stockholder to effect various business combinations with a
corporation for a three-year period.
LIMITATIONS ON LIABILITY; INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under Delaware law and Article VIII of our amended and restated
certificate of incorporation, our directors will not be personally liable to us
or our stockholders for monetary damages for breach of fiduciary duty as a
director, except, if required by Delaware law, for liability:
o for any breach of the duty of loyalty to us or our stockholders;
o for acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of the law;
o for unlawful payment of a dividend or unlawful stock purchases or
redemptions; and
o for any transaction from which the director derived an improper
personal benefit.
As a result, neither we nor our stockholders have the right, through
stockholders' derivative suits on our behalf,
39
to recover monetary damages against a director for breach of fiduciary duty as a
director, including breaches resulting from grossly negligent behavior, except
in the situations described above.
Under Delaware law, Delaware corporations may indemnify directors and
officers from liability if the person acted in good faith and in a manner
reasonably believed by such person to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal actions, if the person had
no reason to believe his or her action was unlawful. In the case of an action by
or on behalf of a corporation, indemnification may not be made if the person
seeking indemnification is adjudged liable to the corporation, unless the
Delaware Court of Chancery or the court in which such action was brought
determines upon application that, despite the adjudication but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnification. The indemnification provisions of Delaware law require
indemnification of any director or officer who has been successful on the merits
or otherwise in defense of any action, suit or proceeding that he or she was a
party to by reason of the fact that he or she is or was a director or officer of
the corporation. Delaware law permits corporations to advance amounts to
directors and officers in payment of expenses. The indemnification authorized by
Delaware law is not exclusive and is in addition to any other rights granted to
directors under any by-law, agreement, vote of stockholders or disinterested
directors or otherwise.
Our indemnification arrangements are set forth in our amended and restated
certificate of incorporation. Article IX of our amended and restated certificate
of incorporation provides that we shall indemnify any person against all
expenses, liability and loss reasonably incurred or suffered by such person in
connection with the defense of either any action, suit or proceeding to which he
or she may be a party defendant or any claim of liability asserted against such
person by reason of the fact that he or she is or was our director or he or she
is or was serving at our request as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, provided that he or she acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to our best interests, and, with
respect to any criminal action or proceeding, if he or she had no reasonable
cause to believe his or her action was unlawful.
In addition, unless ordered by a court, indemnification shall be made by
us only as authorized in the specific case upon a determination that
indemnification of the director or officer is proper because the person has met
the applicable standard of conduct under Delaware law. This determination is
made, with respect to a person who is a director or officer at the time of such
determination, by (i) a majority vote of the directors who are not parties to or
threatened with the action, even though less than a quorum, (ii) a committee of
such directors designated by a majority vote of such directors, even though less
than a quorum, (iii) if there are no such directors, or if such directors so
direct, independent legal counsel in a written opinion or (iv) the stockholders.
The indemnification provided for in our amended and restated certificate of
incorporation is not exclusive of any other rights to which a director or
officer may be entitled to under any statute, our amended and restated
certificate of incorporation, our amended and restated by-laws, any agreement, a
vote of stockholders or disinterested directors or otherwise. We have also
entered into indemnity agreements under which we have agreed, among other
things, to indemnify our directors and officers to the maximum extent then
authorized or permitted by our amended and restated certificate of incorporation
or Delaware law.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is National City
Bank. Its address is 1900 E. 9th Street, Cleveland, Ohio 44114, and its
telephone number is (800) 622-6757.
LISTING
Our common stock is listed on the New York Stock Exchange under the
trading symbol "RPM."
40
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
GENERAL
This is a summary of material United States federal income tax
consequences relevant to holders of the notes and, where noted, common stock
issuable upon conversion or repurchase of the notes. This summary is based upon
the Internal Revenue Code of 1986, as amended (the "Code"), administrative
pronouncements, judicial decisions and existing and proposed Treasury
regulations now in effect, all of which are subject to change (possibly with
retroactive effect) or differing interpretations. The discussion below deals
only with notes and common stock held as capital assets and does not purport to
deal with persons in special tax situations, such as financial institutions,
insurance companies, regulated investment companies, dealers in securities or
currencies, partnerships or other entities classified as partnerships for United
States federal income tax purposes, tax-exempt entities, persons holding notes
in a tax-deferred or tax-advantaged account, persons who hold the notes whose
functional currency is not the United States dollar or persons holding notes as
a hedge against currency risks, as a position in a "straddle" or as part of a
"hedge," "conversion" or other risk-reduction transaction for tax purposes. It
also is limited to original purchasers of notes who acquire the notes at the
issue price (as defined below). Persons considering the purchase of the notes
should consult their own tax advisors concerning the application of the United
States federal income tax laws to their particular situations as well as any
consequences of the purchase, ownership and disposition of the notes or our
common stock arising under the laws of any state, local, foreign or other taxing
jurisdiction.
We do not address all of the tax consequences that may be relevant to a
holder of notes. In particular, we do not address:
o the United States federal income tax consequences to shareholders
in, or partners or beneficiaries of, an entity that is a holder of
notes or common stock;
o the United States federal estate (other than with respect to
Non-United States Holders, as defined below), gift or alternative
minimum tax consequences of the purchase, ownership or disposition
of notes or common stock; and
o any state, local or foreign tax consequences of the purchase,
ownership or disposition of notes or common stock.
No statutory or judicial authority directly addresses the treatment of the
notes or of instruments similar to the notes for United States federal income
tax purposes. The Internal Revenue Service (the "IRS") has recently issued a
revenue ruling (Revenue Ruling 2002-31) with respect to instruments similar to
the notes. To the extent it addresses the issues, this ruling supports certain
aspects of the treatment described below. No ruling has been or is expected to
be sought from the IRS, however, with respect to any specific federal income tax
consequences applicable to the notes. As a result, no assurance can be given
that the IRS will agree with the tax characterizations and the tax consequences
described below.
WE URGE PROSPECTIVE INVESTORS TO CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF NOTES AND COMMON STOCK IN LIGHT OF THEIR OWN PARTICULAR
CIRCUMSTANCES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND
OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR
OTHER TAX LAWS.
CLASSIFICATION OF THE NOTES
We have received an opinion from our counsel, Calfee, Halter & Griswold
LLP, that the notes will be treated as indebtedness for United States federal
income tax purposes and will be subject to the Treasury regulations governing
contingent payment debt instruments (to which we refer as the "contingent debt
regulations"). Pursuant to the terms of the indenture, we and every holder agree
(in the absence of administrative pronouncement or judicial ruling to the
contrary), for United States federal income tax purposes, to treat the notes as
debt instruments that are subject to the contingent debt regulations and to be
bound by our application of the contingent debt regulations to the notes,
including generally our determination of the rate at which interest will be
deemed to accrue on the notes (and the related "projected payment schedule"
determined by us as described below).
41
Notwithstanding the recent issuance by the IRS of the revenue ruling
mentioned above, the proper application of the contingent debt regulations to
the notes is not entirely certain, and no assurance can be given that the IRS
will not assert that the notes should be treated in a manner different from that
described below. A different treatment from that described below could affect
the amount, timing, source and character of income, gain or loss with respect to
an investment in the notes. In particular, the IRS might take the position that
a holder should accrue interest income at a higher or lower rate, that a holder
should not recognize income or gain upon the conversion of a note, or that a
holder should recognize capital gain or loss upon a taxable disposition of a
note. Accordingly, holders are urged to consult their own tax advisors regarding
the United States federal income tax consequences of an investment in the notes
(including alternative characterizations of the notes) and with respect to any
tax consequences arising under the laws of any state, local, foreign, or other
taxing jurisdiction.
The remainder of this discussion assumes that the notes are treated as
indebtedness subject to the contingent debt regulations.
UNITED STATES HOLDERS
For purposes of this discussion, a United States Holder is a beneficial
owner of the notes or common stock who or which is any of the following:
o a citizen or individual resident of the United States for United
States federal income tax purposes;
o a corporation, including any entity treated as a corporation for
United States federal income tax purposes, created or organized in
or under the laws of the United States, any state thereof or the
District of Columbia;
o an estate if its income is subject to United States federal income
taxation regardless of its source; or
o a trust if (i) a United States court can exercise primary
supervision over its administration and (ii) one or more United
States persons have the authority to control all of its substantial
decisions.
Notwithstanding the preceding sentence, certain trusts in existence on
August 20, 1996, and treated as United States persons prior to such date, may
also be treated as United States Holders.
ACCRUAL OF INTEREST ON THE NOTES
Pursuant to the contingent debt regulations, United States Holders of the
notes are required to accrue interest income on the notes on a constant-yield
basis, as described below, regardless of whether such holders use the cash or
accrual method of tax accounting. Accordingly, United States Holders of the
notes are required to include interest in income each year in excess of the
accruals on the notes for non-tax purposes and in excess of any interest
payments actually received in that year.
The contingent debt regulations provide that a United States Holder must
accrue an amount of ordinary interest income, as original issue discount for
United States federal income tax purposes, for each accrual period prior to and
including the maturity date of the notes that equals:
(i) the product of (a) the adjusted issue price (as defined below)
of the notes as of the beginning of the accrual period and (b) the
comparable yield to maturity (as defined below) of the notes, adjusted for
the length of the accrual period;
(ii) divided by the number of days in the accrual period; and
(iii) multiplied by the number of days during the accrual period
that the United States Holder held the notes.
A note's issue price is the first price at which a substantial amount of
the notes is sold to the public, excluding sales to bond houses, brokers or
similar persons or organizations acting in the capacity of underwriters,
placement agents or wholesalers. The adjusted issue price of a note is its issue
price increased by any interest income
42
previously accrued, determined without regard to any adjustments to interest
accruals described below, and decreased by the projected amount of any payments
previously made with respect to the notes.
Calfee, Halter & Griswold LLP, our counsel, has advised us that the term
"comparable yield" means the annual yield we would pay, as of the initial issue
date, on a fixed-rate, nonconvertible debt security with no contingent payments,
but with terms and conditions otherwise comparable to those of the notes. Based
in part on that advice, we have determined that the "comparable yield" on the
notes is 5.05%, compounded semi-annually, which is the yield we believe we would
pay, as of the initial issue date of the notes, on a fixed-rate nonconvertible
debt security with no contingent payments, but with terms and conditions
otherwise comparable to the notes. As was noted above, however, the precise
manner of calculating the comparable yield is not entirely clear. Accordingly,
there can be no assurance that the IRS will not challenge our calculation of the
comparable yield or that such a challenge would not be successful.
The contingent debt regulations require that we provide to United States
Holders, solely for United States federal income tax purposes, a schedule of the
projected amounts of payments (to which we refer as "projected payments") on the
notes. This schedule must produce a yield to maturity that equals the comparable
yield. The projected payment schedule includes estimates for certain contingent
interest payments and an estimate for a payment at maturity taking into account
the conversion feature of the notes. In this connection, the fair market value
of any common stock (and cash, if any) received by a holder upon the conversion
of a note is treated as a contingent payment. The comparable yield and the
projected payment schedule will be set forth in the indenture. United States
Holders may also obtain the projected payment schedule by submitting a written
request for such information to us at: RPM International Inc., Attn: Treasurer,
P.O. Box 777, 2628 Pearl Road, Medina, Ohio 44258.
For United States federal income tax purposes, a United States Holder must
use the comparable yield and the projected payment schedule in the indenture in
determining its interest accruals and the adjustments thereto (described below)
in respect of the notes, unless such United States Holder timely discloses and
justifies the use of other estimates to the IRS. A United States Holder that
determines its own comparable yield or projected payment schedule must also
establish that our comparable yield or projected payment schedule is
unreasonable.
THE COMPARABLE YIELD AND THE PROJECTED PAYMENT SCHEDULE ARE NOT USED FOR
ANY PURPOSE OTHER THAN TO DETERMINE A HOLDER'S INTEREST ACCRUALS AND ADJUSTMENTS
THERETO IN RESPECT OF THE NOTES FOR UNITED STATES FEDERAL INCOME TAX PURPOSES.
THEY DO NOT CONSTITUTE A PROJECTION OR REPRESENTATION REGARDING THE ACTUAL
AMOUNTS PAYABLE ON THE NOTES OR THE VALUE AT ANY TIME OF THE COMMON STOCK INTO
WHICH THE NOTES MAY BE CONVERTED.
We may be required to make payments of liquidated damages if the
prospectus is unavailable for a period exceeding 45 days in any 3-month period
or exceeding 120 days in any 12-month period, as described under "Description of
Notes -- Registration Rights." We intend to take the position for United States
federal income tax purposes that any payments of liquidated damages should be
taxable to United States Holders as additional ordinary income when received or
accrued, in accordance with their method of tax accounting. If we do fail to
make the prospectus available within the prescribed time periods, United States
Holders of notes should consult their own tax advisors concerning the
appropriate tax treatment of any payment of liquidated damages with respect to
the notes.
ADJUSTMENTS TO INTEREST ACCRUALS ON THE NOTES
If, during any taxable year, a United States Holder of notes receives
actual payments with respect to such notes that, in the aggregate, exceed the
total amount of projected payments for that taxable year, the United States
Holder will incur a "net positive adjustment" under the contingent debt
regulations equal to the amount of such excess. The United States Holder will
treat a "net positive adjustment" as additional interest income. For this
purpose, the payments in a taxable year include the fair market value of
property (including common stock received upon conversion or repurchase of the
notes) received in that year.
If a United States Holder receives in a taxable year actual payments with
respect to the notes that, in the aggregate, are less than the amount of
projected payments for that taxable year, the United States Holder will incur a
"net negative adjustment" under the contingent debt regulations equal to the
amount of such deficit. This negative adjustment will (i) reduce the United
States Holder's interest income on the notes for that taxable year, and (ii) to
43
the extent of any excess after the application of (i), give rise to an ordinary
loss to the extent of the United States Holder's interest income on the notes
during prior taxable years, reduced to the extent such interest was offset by
prior net negative adjustments. Any negative adjustment in excess of the amounts
described in (i) and (ii) will be carried forward to offset future interest
income with respect to the notes or to reduce the amount realized on a sale,
exchange, conversion or retirement of the notes.
SALE, EXCHANGE, CONVERSION OR REDEMPTION OF NOTES
Generally, the sale or exchange of a note or the redemption of a note for
cash will result in taxable gain or loss to a United States Holder. As described
above, our calculation of the comparable yield and the projected payment
schedule for the notes, which generally is binding on holders of notes, includes
the receipt of stock upon conversion as a contingent payment with respect to the
notes. Accordingly, upon either (i) the conversion of a note or (ii) a United
States Holder's exercise of its option to require us to repurchase its note that
we elect to purchase with common stock, we intend to treat the receipt of common
stock by the United States Holder as a payment under the contingent debt
regulations. Under this treatment, a conversion of a note into common stock, or
a repurchase where we elect to pay in common stock, will also result in taxable
gain or loss to a United States Holder.
The amount of gain or loss on a sale, exchange, conversion or redemption
will be equal to the difference between (i) the amount of cash plus the fair
market value of any other property received by the United States Holder,
including the fair market value of any common stock received, and (ii) the
United States Holder's adjusted tax basis in the note.
A United States Holder's adjusted tax basis in a note will generally be
equal to the United States Holder's original purchase price for the note,
increased by any interest income previously accrued by the United States Holder
(determined without regard to any adjustments to interest accruals described
above) and decreased by the amount of any projected payments that previously
have been scheduled to be made in respect of the notes (without regard to the
actual amount paid).
Gain recognized upon a sale, exchange, conversion or redemption of a note
will generally be treated as ordinary interest income; any loss will be ordinary
loss to the extent of interest previously included in income, and thereafter
capital loss (which will be long-term if the note is held for more than one
year). The deductibility of capital losses is subject to limitations.
A United States Holder's tax basis in common stock received upon a
conversion of a note, or upon a United States Holder's exercise of a put right
that we elect to pay in common stock, will equal the then current fair market
value of such common stock. The United States Holder's holding period for the
common stock received will commence on the day immediately following the date of
conversion or repurchase.
CONSTRUCTIVE DIVIDENDS TO HOLDERS OF NOTES
If at any time we were to make a distribution of property to our
stockholders that would be taxable to the stockholders as a dividend for United
States federal income tax purposes and, in accordance with the anti-dilution
provisions of the notes, the conversion rate of the notes were increased, such
increase might be deemed to be the payment of a taxable dividend to holders of
the notes.
For example, an increase in the conversion rate in the event of
distributions of our evidences of indebtedness or our assets or an increase in
the event of an extraordinary cash dividend generally would result in deemed
dividend treatment to holders of the notes, but an increase in the event of
stock dividends or the distribution of rights to subscribe for common stock
generally would not.
DIVIDENDS ON COMMON STOCK
If we make distributions on our common stock, those distributions will
generally be treated as dividends to a United States Holder of our common stock
to the extent of our current or accumulated earnings and profits as of the year
of distribution, then as tax-free return of capital to the extent of the United
States Holder's adjusted tax basis in the common stock and thereafter as gain
from the sale or exchange of that stock.
44
DISPOSITION OF COMMON STOCK
Upon the sale, exchange or other disposition of common stock received on
conversion or repurchase of a note, a United States Holder will generally
recognize capital gain or loss equal to the difference between (i) the amount of
cash and the fair market value of any property received upon the sale, exchange
or other disposition and (ii) the United States Holder's adjusted tax basis in
the common stock. That capital gain or loss will be long-term if the United
States Holder's holding period for the common stock is more than one year. The
deductibility of capital losses is subject to limitations.
NON-UNITED STATES HOLDERS
As used herein, the term "Non-United States Holder" means a beneficial
holder of a note or common stock that, for United States federal income tax
purposes, is one of the following:
o an individual who is classified as a nonresident for United States
federal income tax purposes;
o a foreign corporation; or
o an estate or trust that is not a United States estate or trust, as
described above.
NOTES
Payments on the notes made to a Non-United States Holder, including a
payment in common stock pursuant to a conversion, and any gain realized on a
sale or exchange of the notes (other than gain attributable to accrued
contingent interest payments), will be exempt from United States income or
withholding tax, provided that (i) such Non-United States Holder does not own,
actually or constructively, 10% or more of the total combined voting power of
all classes of our stock entitled to vote, is not a controlled foreign
corporation related, directly or indirectly, to us through stock ownership, and
is not a bank receiving certain types of interest, (ii) the statement
requirement set forth in section 871(b) or section 881(c) of the Code has been
fulfilled with respect to the beneficial owner, as discussed below, (iii) such
payments and gain are not effectively connected with the conduct by such
Non-United States Holder of a trade or business in the United States, (iv) our
common stock continues to be actively traded within the meaning of section
871(h)(4)(C)(v)(I) of the Code (which, for these purposes and subject to certain
exceptions, includes trading on the New York Stock Exchange), and (v) we are not
and have not been a United States real property holding corporation ("USRPHC")
at any time within the five-year period preceding the disposition or the
Non-United States Holder's holding period, whichever is shorter. We believe that
we are not and have never been, nor do we anticipate becoming, a USRPHC. (Even
if we were to become a USRPHC, so long as our common stock continued to be
traded regularly on an established securities market, only a Non-United States
Holder of notes with a fair market value on the date of their acquisition
greater than 5% of the total fair market value of our common stock would be
subject to United States federal income tax on the sale or exchange of such
notes.) There can be no assurance that our common stock will continue to be
regularly traded on an established securities market.
The statement requirement referred to in the preceding paragraph will be
fulfilled if the beneficial owner of a note certifies on IRS Form W-8BEN, under
penalties of perjury, that it is not a United States person and provides its
name and address or otherwise satisfies applicable documentation requirements.
If a Non-United States Holder of a note were deemed to have received a
constructive dividend (see "United States Holders -- Constructive Dividends to
Holders of Notes" above), the Non-United States Holder would generally be
subject to United States withholding tax at a 30% rate on the taxable amount of
such dividend (which generally would be satisfied by withholding subsequent
payments on the notes) subject to reduction (i) by an applicable treaty if the
Non-United States Holder provides an IRS Form W-8BEN certifying that it is
entitled to such treaty benefits or (ii) upon the receipt of a Form W-8ECI from
a Non-United States Holder claiming that the payments are effectively connected
with the conduct of a United States trade or business.
45
COMMON STOCK
Dividends paid to a Non-United States Holder of common stock will
generally be subject to withholding tax at a 30% rate subject to reduction (i)
by an applicable treaty if the Non-United States Holder provides an IRS Form
W-8BEN certifying that it is entitled to such treaty benefits or (ii) upon the
receipt of a Form W-8ECI from a Non-United States Holder claiming that the
payments are effectively connected with the conduct of a United States trade or
business.
A Non-United States Holder generally will not be subject to United States
federal income tax on gain realized on the sale or exchange of common stock
unless (i) the gain is effectively connected with the conduct of a trade or
business of the Non-United States Holder, (ii) in the case of a Non-United
States Holder who is a non-resident alien individual, the individual is present
in the United States for 183 or more days in the taxable year of the disposition
and certain other conditions are met, or (iii) we are or have been a USRPHC at
any time within the five-year period preceding the disposition or the Non-United
States Holder's holding period, whichever is shorter. We believe that we are not
and have never been, nor do we anticipate becoming, a USRPHC. If we become a
USRPHC, so long as our common stock continues to be traded regularly on an
established securities market, only a Non-United States Holder who actually or
constructively owns (or owned at any time during the five-year period ending on
the date of disposition) more than 5% of our common stock will be subject to
United States federal income tax on the sale or exchange thereof. There can be
no assurance that our common stock will continue to be regularly traded on an
established securities market.
INCOME EFFECTIVELY CONNECTED WITH A UNITED STATES TRADE OR BUSINESS
If a Non-United States Holder of notes or common stock is engaged in a
trade or business in the United States, and if interest on the notes, dividends
on the stock, or gain realized on the sale or exchange of the notes or common
stock is effectively connected with the conduct of such trade or business, the
Non-United States Holder, although exempt from the withholding tax discussed in
the preceding paragraphs, will generally be subject to regular United States
federal income tax on interest, dividends and any gain realized on the sale or
exchange of the notes or stock in the same manner as if it were a United States
Holder. Such a Non-United States Holder will be required to provide the
withholding agent with a properly executed IRS Form W-8ECI in order to claim an
exemption from withholding tax. In addition, if such a Non-United States Holder
is a foreign corporation, it may be subject to a branch profits tax on its
effectively connected earnings and profits at a 30% rate or a lower rate as may
be specified by an applicable tax treaty.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Payments of principal, premium, if any, and interest (including original
issue discount and a payment in common stock pursuant to the conversion of a
note) on, and the proceeds of dispositions of, the notes will be subject to
information reporting and may be subject to the United States federal
withholding tax if a United States Holder thereof fails to supply an accurate
taxpayer identification number or otherwise fails to comply with applicable
United States information reporting or certification requirements. A Non-United
States Holder may be subject to United States backup withholding tax on payments
on the notes and on proceeds from a sale or other disposition notes unless the
Non-United States Holder complies with certification procedures to establish
that it is not a United States person. Any amounts so withheld will be allowed
as a credit against a Non-United States Holder's United States federal income
tax liability and may entitle a holder to a refund, provided the required
information is timely furnished to the IRS.
TAX EVENT
The modification of the terms of the notes by us upon a Tax Event as
described in "Description of Notes -- Optional Conversion to Semiannual Cash Pay
Upon Tax Event," could possibly alter the timing of income recognition by the
holders with respect to the semiannual payments of interest due after the option
exercise date.
46
SELLING SECURITYHOLDERS
The notes originally were issued by us and sold by Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Wachovia Securities, Inc.,
BNY Capital Markets, Inc., Bank One Capital Markets, Inc. and McDonald
Investments Inc., a Keycorp Company, as the initial purchasers, in transactions
exempt from the registration requirements of the Securities Act of 1933 to
persons reasonably believed by the initial purchasers to be qualified
institutional buyers. Selling securityholders, including their transferees,
pledges or donees or their successors, may from time to time offer and sell any
or all of the notes and the common stock into which the notes are convertible
pursuant to this prospectus. The selling securityholders may offer all, some or
none of the notes and the underlying common stock.
The table below sets forth the name of each selling securityholder, the
principal amounts of notes that may be offered by each selling securityholder
under this prospectus and the number of shares of common stock into which the
notes are convertible. The information is based on information provided to us by
or on behalf of the selling securityholders on or prior to October 31, 2003. The
selling securityholders identified below may have sold, transferred or otherwise
disposed of all or a portion of their notes or common stock since the date on
which they provided this information in transactions exempt from the
registration requirements of the Securities Act. Information about the selling
securityholders may change from time to time. Any changed information will be
set forth in prospectus supplements or post-effective amendments, as required.
Because the selling securityholders may offer all or some portion of the
notes or the common stock into which the notes are convertible, we cannot
estimate the amount of notes or common stock that may be held by the selling
securityholders upon the completion of any sales. For information on the
procedure for sales by selling securityholders, read the disclosure under the
heading "Plan of Distribution" below:
PRINCIPAL
AMOUNT OF NUMBER OF NUMBER OF
NOTES SHARES OF SHARES OF PERCENTAGE
BENEFICIALLY PERCENTAGE COMMON STOCK COMMON STOCK OF COMMON
NAME OF OWNED THAT OF NOTES BENEFICIALLY THAT MAY BE STOCK
SELLING SECURITYHOLDER (1) MAY BE SOLD OUTSTANDING OWNED (2) SOLD (3)(4) OUTSTANDING (5)
-------------------------- ----------- ----------- --------- ----------- ---------------
AIG DKR SoundShore Opportunity Holding Fund $ 2,000,000 * __ 54,103 *
Ltd.
AM Investment E Fund Ltd. 4,800,000 1.62% __ 129,848 *
AM Investment D Fund (QP) LP 900,000 * __ 24,347 *
American Fidelity Assurance Company 590,000 * __ 15,961 *
Aviva Life Insurance Co. 5,000,000 1.68% __ 135,259 *
Blue Cross Blue Shield of Delaware, Inc. 160,000 * __ 4,328 *
BNP Baribas Equity Strategies SNC 1,864,000 * __ 50,424 *
Cave First Blue Choice, Inc. 130,000 * __ 3,517 *
Cave First of Maryland, Inc. 460,000 * __ 12,444 *
CIBC World Markets 14,440,000 4.86% 390,627
Cigna Life Fund 2,500,000 * __ 67,629 *
47
PRINCIPAL
AMOUNT OF NUMBER OF NUMBER OF
NOTES SHARES OF SHARES OF PERCENTAGE
BENEFICIALLY PERCENTAGE COMMON STOCK COMMON STOCK OF COMMON
NAME OF OWNED THAT OF NOTES BENEFICIALLY THAT MAY BE STOCK
SELLING SECURITYHOLDER (1) MAY BE SOLD OUTSTANDING OWNED (2) SOLD (3)(4) OUTSTANDING (5)
-------------------------- ----------- ----------- --------- ----------- ---------------
City of Birmingham Retirement & Relief System 1,350,000 * __ 36,520 *
CNH CA Master Account, L.P. 500,000 * __ 13,526 *
Commercial Union Life Fund 3,200,000 1.08% __ 86,565 *
Convertible Securities Fund 110,000 * __ 2,976 *
CooperNeff Convertible Strategies (Cayman) 1,560,000 * __ 42,201 *
Credit Suisse First Boston Europe Limited 4,000,000 1.35% __ 108,207 *
Free State Health Plan, Inc. 55,000 * __ 1,488 *
Genesee County Employees' Retirement System 630,000 * __ 17,043 *
GLG Market Neutral Fund 25,000,000 8.42% __ 676,293 *
Group Hospitalization and Medical Services, 500,000 * __ 13,526 *
Inc.
Guggenheim Portfolio Co. XV, LLC 700,000 * __ 18,936 *
HealthNow New York, Inc. 275,000 * __ 7,439 *
HFR TOA Master Trust 59,000 * __ 1,596 *
Jackson County Employees' Retirement System 275,000 * __ 7,439 *
KBC Financial Products Ltd. 2,000,000 * __ 54,103 *
Laurel Ridge Capital, LP 8,000,000 2.69% __ 216,414 *
LDG Limited 257,000 * __ 6,952 *
Lexington Vantage Fund, Ltd. 43,000 * __ 1,163 *
Lyxor/AM Investment Fund Ltd. 1,050,000 * __ 28,404 *
Nations Convertible Securities Fund 10,890,000 3.67% __ 294,593 *
NORCAL Mutual Insurance Company 520,000 * __ 14,067 *
Norwich Union Life & Pensions 5,000,000 1.68% __ 135,259 *
O'Connor Global Convertible Arbitrage Master 2,500,000 * __ 67,629 *
Limited
48
PRINCIPAL
AMOUNT OF NUMBER OF NUMBER OF
NOTES SHARES OF SHARES OF PERCENTAGE
BENEFICIALLY PERCENTAGE COMMON STOCK COMMON STOCK OF COMMON
NAME OF OWNED THAT OF NOTES BENEFICIALLY THAT MAY BE STOCK
SELLING SECURITYHOLDER (1) MAY BE SOLD OUTSTANDING OWNED (2) SOLD (3)(4) OUTSTANDING (5)
-------------------------- ----------- ----------- --------- ----------- ---------------
O'Connor Global Convertible Portfolio 500,000 * __ 13,526 *
Peoples Benefit Life Insurance Company 2,500,000 * __ 67,629 *
Teamsters
Physicians' Reciprocal Insurers Account #7 1,550,000 * __ 41,930 *
Pioneer High Yield Fund 130,700,000 44.01% __ 3,535,657 3.05%
Pioneer High Yield VCT Portfolio 1,000,000 * __ 27,052 *
Pioneer High Yield Bond Sub Fund 15,800,000 5.32% __ 427,417 *
Privilege Portfolio Sicav 7,000,000 2.36% __ 189,362 *
RAM Trading Inc. 2,500,000 * __ 67,629 *
Ramius Master Fund, LTD 2,750,000 * __ 74,392 *
RCG Halifax Master Fund, LTD 500,000 * __ 13,526 *
RCG Latitude Master Fund, LTD 2,750,000 * __ 74,392 *
RCG Multi Strategy Master Fund, LTD 300,000 * __ 8,116 *
R2 Investments, LDC 750,000 * __ 20,289 *
S.A.C. Capital Associates, LLC 13,000,000 4.38% 400,000 351,672 *
Singlehedge US Convertible Arbitrage Fund 312,000 * __ 8,440 *
Sphinx Fund, Ltd. 50,000 * __ 1,353 *
St. Albans Partners Ltd. 2,500,000 * __ 67,629 *
Sturgeon Limited 264,000 * __ 7,142 *
Sunrise Partners Limited Partnership 2,000,000 * 9,800 54,103 *
Thrivent Financial for Lutherans 3,000,000 1.01% __ 81,155 *
TQA Master Fund, LTD 2,444,000 * __ 66,114 *
TQA Master Plus Fund, LTD 1,671,000 * __ 45,203 *
Xavax Convertible Arbitrage #5 500,000 * __ 13,526 *
Xavax - Convertible Arbitrage 7 Fund 171,000 * __ 4,626 *
49
PRINCIPAL
AMOUNT OF NUMBER OF NUMBER OF
NOTES SHARES OF SHARES OF PERCENTAGE
BENEFICIALLY PERCENTAGE COMMON STOCK COMMON STOCK OF COMMON
NAME OF OWNED THAT OF NOTES BENEFICIALLY THAT MAY BE STOCK
SELLING SECURITYHOLDER (1) MAY BE SOLD OUTSTANDING OWNED (2) SOLD (3)(4) OUTSTANDING (5)
-------------------------- ----------- ----------- --------- ----------- ---------------
Yield Strategies Fund I, L.P. 810,000 1.01% __ 21,912 *
Zurich Institutional Benchmarks Master Fund, 305,000 * __ 8,251 *
Ltd.
Any other holder of notes or future $ 55,000 * __ 1,488 *
transferee, pledgee, donee or successor of
any holder (6)
----------
*Less than 1%
(1) Also includes any sale of the notes and the underlying common stock
by pledgees, donees, transferees or other successors in interest
that receive such securities by pledge, gift, distribution or other
non-sale related transfer from the named selling securityholders.
Information about other selling securityholders will be set forth in
prospectus supplements or in other documents that we file from time
to time with the Securities and Exchange Commission that are
incorporated by reference in this prospectus, if required. See
"Where You Can Find More Information."
(2) Excludes common stock issuable upon conversion of the selling
securityholder's notes.
(3) Assumes conversion of all of the selling securityholder's notes at a
conversion rate of 27.0517 per note and a cash payment in lieu of
the issuance of any fractional share interest. However, this
conversion rate is subject to adjustment as described under
"Description of the Notes -Conversion Rights." As a result, the
number of shares of common stock issuable upon conversion of the
notes may increase in the future.
(4) Reflects rounding to the nearest share of common stock issuable to
each selling securityholder upon conversion of the notes.
(5) Calculated based on Rule 13d-3 of the Securities Exchange Act of
1934 using 115,592,050 shares of common stock outstanding as of
August 15, 2003. In calculating this amount, we did not treat as
outstanding the common stock issuable upon conversion of notes.
(6) Assumes that any other holders of notes, or any future transferees,
pledgees, donees or successors of or from any such other holders of
notes do not beneficially own any common stack other than the common
stock issuable upon conversion of the notes at the initial
conversion rate.
None of the selling securityholders listed above has, or within the
past three years had, any position, office or any material relationship
with us or any of our affiliates.
To the extent that any of the selling securityholders identified
above are broker-dealers, they are deemed to be, under interpretations of
the Securities and Exchange Commission, "underwriters" within the meaning
of the Securities Act.
With respect to selling securityholders that are affiliates of
broker-dealers, we believe that such entities acquired their notes or
underlying common stock in the ordinary course of business and, at the
time of the purchase of the notes or the underlying common stock, such
selling securityholders had no agreements or understandings, directly or
indirectly, with any person to distribute the notes or underlying common
stock. To the extent that we become aware that such entities did not
acquire their notes or underlying common stock in the ordinary course of
business or did have such an agreement or understanding, we will file a
post-effective amendment to the registration statement of which this
prospectus forms a part to designate such affiliate as an "underwriter"
within the meaning of the Securities Act.
50
Only selling securityholders identified above who beneficially own the
notes set forth opposite each such selling securityholder's name in the
foregoing table on the effective date of the registration statement, of which
this prospectus forms a part, may sell such securities pursuant to the
registration statement. Prior to any use of this prospectus in connection with
an offering of the notes or the underlying common stock by any holder not
identified above, the registration statement of which this prospectus forms a
part will be amended by a post-effective amendment to set forth the name and
aggregate amount of notes beneficially owned by the selling securityholder
intending to sell such notes or the underlying common stock and the aggregate
amount of notes or the number of shares of the underlying common stock to be
offered. The prospectus, which will be a part of such a post-effective
amendment, will also disclose whether any selling securityholder selling in
connection with such prospectus has held any position or office with, has been
employed by or otherwise has had a material relationship with us during the
three years prior to the date of the prospectus if such information has not been
disclosed herein.
51
PLAN OF DISTRIBUTION
The notes and the underlying common stock are being registered to permit
the resale of such securities by the holders of them from time to time after the
date of this prospectus. We will not receive any of the proceeds from the sale
by the selling securityholders of the notes and the underlying common stock. We
will bear the fees and expenses incurred in connection with our obligation to
register the notes and the underlying common stock. These fees and expenses
include registration and filing fees, printing and duplications expenses, fees
and disbursements of our counsel, reasonable fees and disbursements of the
trustee and its counsel and of the registrar and transfer agent for the common
stock, and fees and disbursements of one firm of legal counsel for the
securityholders. However, the selling securityholders will pay all underwriting
discounts, commissions and agent's commissions, if any.
The selling securityholders may offer and sell the notes and the common
stock into which the notes are convertible from time to time in one or more
transactions at fixed prices, at prevailing market prices at the time of sale,
at varying prices determined at the time of sale or at negotiated prices. Such
sales may be effected by a variety of methods, including the following:
- in market transactions;
- in privately negotiated transactions;
- through the writing of options;
- in a block trade in which a broker-dealer will attempt to sell a
block of securities as agent but may position and resell a portion
of the block as principal to facilitate the transaction;
- if we agree to it prior to the distribution, through one or more
underwriters on a firm commitment or best-efforts basis;
- through broker-dealers, which may act as agents or principals;
- directly to one or more purchasers;
- through agents; or
- in any combination of the above or by any other legally available
means.
In connection with the sales of the notes and the common stock into which
the notes are convertible or otherwise, the selling securityholders may enter
into hedging transactions with broker-dealers, which may in turn engage in short
sales of the offered securities, short and deliver the notes and the common
stock into which the notes are convertible to close out such short positions, or
loan or pledge the notes and the common stock into which the notes are
convertible to broker-dealers that in turn may sell such securities.
If a material arrangement with any underwriter, broker, dealer or other
agent is entered into for the sale of any notes and the common stock into which
the notes are convertible through a secondary distribution or a purchase by a
broker or dealer, or if other material changes are made in the plan of
distribution of the notes and the common stock into which the notes are
convertible, a prospectus supplement will be filed, if necessary, under the
Securities Act disclosing the material terms and conditions of such arrangement.
The underwriter or underwriters with respect to an underwritten offering of
notes and the common stock into which the notes are convertible and the other
material terms and conditions of the underwriting will be set forth in a
prospectus supplement relating to such offering and, if an underwriting
syndicate is used, the managing underwriter or underwriters will be set forth on
the cover of the prospectus supplement. In connection with the sale of the notes
and the common stock into which the notes are convertible, underwriters will
receive compensation in the form of underwriting discounts or commissions and
may also receive commissions from purchasers of notes and underlying common
stock for whom they may act as agent. Underwriters may sell to or through
dealers, and such dealers may receive compensation in the form of discounts,
concessions or commissions from the underwriters or commissions from the
purchasers for whom they may act as agent.
To our knowledge, there are currently no plans, arrangements or
understandings between any selling securityholders and any underwriter,
broker-dealer or agent regarding the sale of the notes or the underlying common
stock by the selling securityholders. Selling securityholders may decide not to
sell all or a portion of the notes or the underlying common stock offered by
them pursuant to this prospectus or may decide not to sell notes or the
underlying common, stock under this prospectus. In addition, any selling
securityholder may transfer, devise or
52
give the notes or the underlying common stock by other means not described in
this prospects. Any notes or underlying common stock covered by this prospectus
that qualify for sale pursuant to Rule 144 or Rule 144A of the Securities Act
may be sold under Rule 144 or Rule 144A rather than pursuant to this prospectus.
The selling securityholders and any underwriters, broker-dealers or agents
participating in the distribution of the notes and the common stock into which
the notes are convertible may be deemed to be "underwriters" within the meaning
of the Securities Act, and any profit on the sale of the notes or common stock
by the selling securityholders and any commissions received by any such
underwriters, broker-dealers or agents may be deemed to be underwriting
commissions under the Securities Act. If the selling securityholders were deemed
to be underwriters, the selling securityholders may be subject to statutory
liabilities including, but not limited to, those of Sections 11, 12 and 17 of
the Securities Act and Rule 10b-5 under the Exchange Act.
The selling securityholders and any other person participating in the
distribution will be subject to the applicable provisions of the Exchange Act
and the rules and regulations under the Exchange Act, including, without
limitation, Regulation M, which may limit the timing of purchases and sales of
any of the notes and the common stock into which the notes are convertible by
the selling securityholders and any other relevant person. Furthermore,
Regulation M may restrict the ability of any person engaged in the distribution
of the notes and the common stock into which the notes are convertible to engage
in market-making activities with respect to the particular notes and the common
stock into which the notes are convertible being distributed. All of the above
may affect the marketability of the notes and the common stock into which the
notes are convertible and the ability of any person or entity to engage in
market-making activities with respect to the notes and the common stock into
which the notes are convertible.
Under the securities laws of certain states, the notes and the common
stock into which the notes are convertible may be sold in those states only
through registered or licensed brokers or dealers. In addition, in certain
states the notes and the common stock into which the notes are convertible may
not be sold unless the notes and the common stock into which the notes are
convertible have been registered or qualified for sale in the state or an
exemption from registration or qualification is available and complied with.
We have agreed to indemnify the selling securityholders against certain
civil liabilities, including certain liabilities arising under the Securities
Act, and the selling securityholders will be entitled to contribution from us in
connection with those liabilities. The selling securityholders will indemnify us
against certain civil liabilities, including liabilities arising under the
Securities Act, and will be entitled to contribution from the selling
securityholders in connection with those liabilities.
We are permitted to suspend the use of this prospectus under certain
circumstances relating to corporate developments, public filings with the SEC
and similar events for a period not to exceed 45 days in any three-month period
and not to exceed an aggregate of 120 days in any 12-month period. If the
duration of such suspension exceeds any of the periods above-mentioned, we have
agreed to pay liquidated damages. Please refer to the section entitled
"Description of Notes-Registration Rights."
53
LEGAL MATTERS
The validity of the notes offered by us has been passed upon by Calfee,
Halter & Griswold LLP, 1400 McDonald Investment Center, 800 Superior Avenue,
Cleveland, Ohio 44114.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements and schedule incorporated in this
prospectus by reference from our Annual Report on Form 10-K for the fiscal year
ended May 31, 2003 have been audited by Ciulla, Smith & Dale, LLP, independent
auditors, as stated in their report thereto. We are the only public SEC
reporting company for whom Ciulla, Smith & Dale, LLP is engaged to provide audit
services.
54