-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U3MVDwAyRtOauMirFdTfazX7fk3CtdU+vgI1tSG8TeJFgM2N+CJkamt+59gMA0TZ iiph43HF12qIbCykr/KRDQ== /in/edgar/work/0000950152-00-007828/0000950152-00-007828.txt : 20001114 0000950152-00-007828.hdr.sgml : 20001114 ACCESSION NUMBER: 0000950152-00-007828 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LUBRIZOL CORP CENTRAL INDEX KEY: 0000060751 STANDARD INDUSTRIAL CLASSIFICATION: [2860 ] IRS NUMBER: 340367600 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-05263 FILM NUMBER: 760726 BUSINESS ADDRESS: STREET 1: 29400 LAKELAND BLVD CITY: WICKLIFFE STATE: OH ZIP: 44092 BUSINESS PHONE: 2169434200 MAIL ADDRESS: STREET 1: 29400 LAKELAND BLVD CITY: WICKLIFFE STATE: OH ZIP: 44092 10-Q 1 l84324ae10-q.txt LUBRIZOL CORPORATION 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ..... to ..... Commission File Number 1-5263 THE LUBRIZOL CORPORATION (Exact name of registrant as specified in its charter) Ohio 34-0367600 (State or other jurisdiction of (I.R.S.Employer incorporation or organization) Identification No.) 29400 Lakeland Boulevard Wickliffe, Ohio 44092-2298 (Address of principal executive offices) (Zip Code) (440) 943-4200 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Number of the registrant's common shares, without par value, outstanding, as of October 31, 2000: 52,071,877. 2 PART I. FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS --------------------------- THE LUBRIZOL CORPORATION ======================== CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------------------- September 30 December 31 (In Thousands of Dollars) 2000 1999 - -------------------------------------------------------------------------------------------- ASSETS Cash and short-term investments ........................ $ 106,153 $ 185,465 Receivables ............................................ 308,135 301,256 Inventories: Finished products .................................... 133,902 118,135 Products in process .................................. 67,801 56,855 Raw materials ........................................ 71,936 66,102 Supplies and engine test parts ....................... 16,899 17,057 ----------- ----------- 290,538 258,149 ----------- ----------- Other current assets ................................... 31,617 35,572 ----------- ----------- Total current assets ............... 736,443 780,442 Property and equipment - net ........................... 674,676 670,512 Goodwill and intangible assets - net ................... 172,640 149,779 Investments in nonconsolidated companies ............... 34,771 30,441 Other assets ........................................... 50,643 51,180 ----------- ----------- TOTAL ......................... $ 1,669,173 $ 1,682,354 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Short-term debt and current portion of long-term debt .. $ 16,987 $ 37,584 Accounts payable ....................................... 153,743 138,841 Accrued expenses and other current liabilities ......... 127,140 134,875 ----------- ----------- Total current liabilities .......... 297,870 311,300 ----------- ----------- Long-term debt ......................................... 380,666 365,372 Postretirement health care obligation .................. 101,704 108,717 Noncurrent liabilities ................................. 50,334 45,054 Deferred income taxes .................................. 59,562 61,787 ----------- ----------- Total liabilities .................. 890,136 892,230 ----------- ----------- Minority interest ...................................... 32,344 Contingencies and commitments Shareholders' equity: Preferred stock without par value - authorized and unissued: Serial Preferred Stock - 2,000,000 shares Serial Preference Shares - 25,000,000 shares Common Shares without par value: Authorized 120,000,000 shares Outstanding - 52,214,677 shares as of September 30, 2000 after deducting 33,981,217 treasury shares, 54,477,292 shares as of December 31, 1999 after deducting 31,718,602 treasury shares .. 83,588 85,984 Retained earnings .................................... 749,678 758,090 Accumulated other comprehensive income (loss) ....... (86,573) (53,950) ----------- ----------- Total shareholders' equity ......... 746,693 790,124 ----------- ----------- TOTAL ......................... $ 1,669,173 $ 1,682,354 =========== ===========
Amounts shown are unaudited. -2- 3 THE LUBRIZOL CORPORATION ========================
CONSOLIDATED STATEMENTS OF INCOME - ------------------------------------------------------------------------------------------------------------- Third Quarter Nine Months Ended September 30 Ended September 30 ------------------------------------------------------------------- (In Thousands Except Per Share Data) 2000 1999 2000 1999 - ------------------------------------------------------------------------------------------------------------- Net sales .......................... $ 424,032 $ 431,978 $ 1,298,413 $ 1,311,734 Royalties and other revenues ....... 954 1,251 3,293 3,225 ----------- ----------- ----------- ----------- Total revenues ........... 424,986 433,229 1,301,706 1,314,959 Cost of sales ...................... 302,408 295,366 919,615 895,525 Selling and administrative expenses 41,790 43,854 128,655 136,376 Research, testing and development expenses ......................... 39,051 34,753 110,154 107,251 ----------- ----------- ----------- ----------- Total cost and expenses .. 383,249 373,973 1,158,424 1,139,152 Gain from litigation settlement .... 14,476 Special (charge) credit ............ (20,767) 2,577 (23,903) Other income (expense) - net ....... (5,661) (2,398) (10,014) (5,666) Interest income .................... 1,820 2,433 6,342 5,235 Interest expense ................... (6,427) (8,066) (20,480) (22,490) ----------- ----------- ----------- ----------- Income before income taxes ......... 31,469 30,458 121,707 143,459 Provision for income taxes ......... 8,214 10,046 36,635 53,925 ----------- ----------- ----------- ----------- Net income ......................... $ 23,255 $ 20,412 $ 85,072 $ 89,534 =========== =========== =========== =========== Net income per share ............... $ 0.44 $ 0.37 $ 1.59 $ 1.64 =========== =========== =========== =========== Net income per share, diluted ...... $ 0.44 $ 0.37 $ 1.59 $ 1.64 =========== =========== =========== =========== Dividends per share ................ $ 0.26 $ 0.26 $ 0.78 $ 0.78 =========== =========== =========== =========== Average common shares outstanding .. 52,790 54,607 53,546 54,573
Amounts shown are unaudited. -3- 4 THE LUBRIZOL CORPORATION ========================
CONSOLIDATED STATEMENTS OF CASH FLOWS - --------------------------------------------------------------------------------------- Nine Months Ended September 30 ------------------------------------ (In Thousands of Dollars) 2000 1999 - ---------------------------------------------------------------------------------------- Cash provided from (used for): Operating activities: Net income ......................................... $ 85,072 $ 89,534 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization .................. 73,221 72,462 Deferred income taxes .......................... 3,524 2,489 Special charges ................................ (2,577) 23,903 Change in current assets and liabilities: Receivables .................................. (19,981) (19,824) Inventories .................................. (39,261) 16,807 Accounts payable and accrued expenses ........ 19,902 18,620 Other current assets ......................... 2,907 21,524 Other items - net .............................. 2,873 (53) --------- --------- Total operating activities ............... 125,680 225,462 Investing activities: Capital expenditures ............................. (59,566) (47,572) Acquisitions and investments in nonconsolidated companies ...................................... (41,141) Other - net ...................................... 1,680 830 --------- --------- Total investing activities ............... (99,027) (46,742) Financing activities: Short-term borrowing (repayment) ................ 2,211 (22,974) Long-term borrowing .............................. 18,375 5,000 Long-term repayments ............................. (26,720) (5,037) Dividends paid ................................... (41,858) (42,558) Common shares (purchased) net of options exercised (54,602) 1,422 --------- --------- Total financing activities ............... (102,594) (64,147) Effect of exchange rate changes on cash ............ (3,371) (4,445) --------- --------- Net increase (decrease) in cash and short-term investments ...................................... (79,312) 110,128 Cash and short-term investments at the beginning of period ........................................ 185,465 53,639 --------- --------- Cash and short-term investments at end of period ... $ 106,153 $ 163,767 ========= =========
Amounts shown are unaudited. -4- 5 THE LUBRIZOL CORPORATION ======================== NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2000 1. The accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position as of September 30, 2000 and December 31, 1999, and the results of operations and cash flows for the applicable periods ended September 30, 2000 and 1999. 2. Net income per share is computed by dividing net income by average common shares outstanding during the period. Net income per share, diluted, includes the dilution effect resulting from outstanding stock options and stock awards. Per share amounts are computed as follows:
Three Months Ended Nine Months Ended September 30 September 30 ------------------ -------------------- 2000 1999 2000 1999 ---- ---- ---- ---- Numerator: Net income available to common shares $23,255 $20,412 $85,072 $89,534 ======= ======= ======= ======== Denominator: Weighted average common shares outstanding 52,790 54,607 53,546 54,573 Dilutive effect of stock options and awards 65 169 117 132 ------- ------- ------- ------- Denominator for net income per share, diluted 52,855 54,776 53,663 54,705 ======= ======= ======= ======= Net income per share $ .44 $ .37 $ 1.59 $ 1.64 ======= ======= ======= ======= Net income per share, diluted $ .44 $ .37 $ 1.59 $ 1.64 ======= ======= ======= =======
3. Total comprehensive income is comprised of the following:
Three Months Ended Nine Months Ended September 30 September 30 ------------------------ -------------------------- 2000 1999 2000 1999 -------- ------- ------- -------- Net income $23,255 $20,412 $85,072 $ 89,534 Other comprehensive income (loss) (14,104) 10,335 (32,623) (18,583) ------- ------- ------- -------- Total comprehensive income $ 9,151 $30,747 $52,449 $ 70,951 ======= ======= ======= ========
Other comprehensive income (loss) in each of the periods above is solely comprised of foreign currency translation adjustments, net of related tax effects. 5 6 THE LUBRIZOL CORPORATION ======================== NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2000 4. In March 2000, the company purchased certain assets of Alox Corporation (Alox) from RPM, Inc. Alox is a leading supplier of additives for corrosion prevention in metalworking products, with 1999 revenues of approximately $20 million. In March 2000, the company also acquired an additional 10% interest in its India joint venture, increasing the company's ownership interest to 50%. The aggregate purchase price of both acquisitions was approximately $36 million, of which $26 million was assigned to goodwill and intangible assets. Amortization of goodwill is on a straight-line basis over 15 years. In June 2000, the company made an investment of approximately $4.9 million in a joint venture with GE Transportation Systems to develop and market products and services to manage critical diesel engine fluids to optimize service intervals and improve fuel consumption and fueling processes. This investment will be accounted for using the equity method of accounting. In September 2000, the company signed a new agreement with PetroChina Company Limited giving the company control over its subsidiary in China and providing for capital contributions by each party of approximately $28 million. The agreement was effective on September 4, 2000, with a business license issued on September 29, 2000 and therefore, the company has consolidated this operation as of September 30, 2000. 5. The second phase of the company's cost reduction program began in the third quarter of 1999 and involves primarily the downsizing of the company's Painesville, Ohio, manufacturing plant. In the second quarter of 2000, the company recorded a pre-tax adjustment of $2.6 million ($1.7 million after-tax or $.03 per share), to reduce the amount of the special charge previously recorded in the third quarter of 1999, principally because the cost of workforce reductions at Painesville will be less than originally anticipated. This second phase will result in the reduction of approximately 5% of the company's workforce, or 190 positions, and the shutdown of 21 of Painesville's 36 production systems. Through September 30, 2000, the company has shut down 15 of the 21 targeted systems and completed approximately 59% of the workforce reduction. Cash expenditures of approximately $.5 million were made in 2000 related to the cost reduction program. Approximately $7.5 million remains as an accrued liability at September 30, 2000, of which $5.0 million relates to employee separations and $2.5 million relates to equipment cleaning and dismantling. The company expects to shut down the remaining targeted production units and complete the workforce reduction by the end of the fourth quarter of 2000. 6. On March 28, 2000, the company entered into an interest rate swap agreement that effectively converts the interest on $25 million of outstanding 5.875% notes due in 2008 to a variable rate of three-month LIBOR less 143 basis points. On April 5, 2000, the company entered into a similar agreement, for another $25 million of these notes, at a rate of three-month LIBOR less 118 basis points. On May 12, 2000, the company entered into two additional similar agreements for these notes, for $25 million each, at respective rates of three-month LIBOR less 188 basis points and three-month LIBOR less 187.5 basis points. 7. The company had an effective tax rate of 26.1% for the three months ended September 30, 2000 and 30.1% for the nine months ended September 30, 2000 (30.0% for the nine months before the special charge adjustment) compared to 33.0% for the three months ended September 30, 1999 (35.0% for the three months ended September 30, 1999 before the special charge) and 37.6% for the nine months ended September 30, 1999 (37.0% for the nine months ended September 30, 1999 before the 6 7 THE LUBRIZOL CORPORATION ======================== NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2000 litigation settlement and special charge). The decrease in the year-to-date effective tax rate compared to 1999 is due to the U.S. tax benefit from charitable contributions of technology to an educational institution, the favorable impact of statutory tax rate changes for certain foreign subsidiaries and an increase in the U.S. Foreign Sales Corporation tax benefit on export sales. 8. On May 24, 2000, the company borrowed $18,375,000, through the issuance of Harris County (Texas) Industrial Development Corporation Marine Terminal Refunding Revenue Bonds, Series 2000 (the "Bonds"). Proceeds from the Bonds were used, on June 30, 2000, to repay $18,375,000 aggregate amount of Harris County (Texas) Industrial Development Corporation Marine Terminal Refunding Revenue Bonds, Series 1991. The Bonds have a stated maturity of July 1, 2018 and bear interest at a variable interest rate which will be determined weekly by Morgan Stanley and Co., the remarketing agent for the Bonds (the interest rate at September 30, 2000 was 5.6%). At each weekly reset date, the bondholders may put the Bonds back to the company; however, the company expects that these Bonds would then be remarketed. If the Bonds cannot be remarketed, the company has credit facilities in place that would enable it to refinance the debt for a period beyond one year. The Bonds are, therefore, classified as long-term debt in the financial statements. 9. In September 2000, the Emerging Issues Task Force (EITF) of the Financial Accounting Standards Board issued EITF 00-10, Accounting for Shipping and Handling Fees and Costs, which is to become effective for the company no later than the fourth quarter of 2000. EITF 00-10 provides that all amounts billed to a customer in a sale transaction related to shipping and handling represent revenues earned for the goods sold and should be classified as revenue. The company currently nets freight revenues against freight expenses within cost of sales. The company is currently evaluating the requirements and effects of EITF 00-10, and estimates that implementation will result in an increase in revenues of approximately 1% to 3% with a corresponding increase in cost of sales for the same amount. There will be no effect on the dollar amount of the company's gross profit or net income. 10. On October 12, 2000, the company reached a settlement of all pending patent litigation with Imperial Oil Limited (Imperial), a Canadian affiliate of Exxon Mobil Corporation. Under the settlement agreement, Lubrizol received $25 million, which will be recorded in the fourth quarter of 2000, net of related expenses of $5.6 million. The company and Imperial have also entered into a ten-year agreement for the supply by the company of $490 million (Canadian dollars) of product to Imperial. 11. In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 133, "Accounting for Derivative Instruments and Hedging Activities," which was to become effective for the company no later than January 1, 2000. In June 1999, the FASB delayed the required effective date for SFAS 133, which delayed the required effective date for the company until January 1, 2001. The company has substantially completed its evaluation of the requirements of SFAS 133 and believes that adoption of the standard will not have a material effect on the company's financial statements. 7 8 THE LUBRIZOL CORPORATION ======================== NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2000 12. The company aggregates its product lines into two principal operating segments: chemicals for transportation and chemicals for industry. The company evaluates performance and allocates resources based on segment contribution income, defined as revenues less expenses directly identifiable to the product lines aggregated within each segment. In addition, the company allocates corporate research, testing, selling and administrative expenses, and excess production capacity costs in arriving at segment operating profit before tax. The following table presents a summary of the company's reportable segments for the three- and nine- months ended September 30, 2000 and 1999 on a basis of segmentation consistent with the previous year end:
Three Months Ended Nine Months Ended September 30 September 30 ----------------------------- ----------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- Revenue from external customers: Chemicals for transportation $ 346,964 $ 358,147 $ 1,066,573 $ 1,092,009 Chemicals for industry 78,022 75,082 235,133 222,950 ----------- ----------- ----------- ----------- Total revenues $ 424,986 $ 433,229 $ 1,301,706 $ 1,314,959 =========== =========== =========== =========== Segment contribution income: Chemicals for transportation $ 65,542 $ 86,860 $ 217,132 $ 262,028 Chemicals for industry 10,140 12,073 34,840 36,726 ----------- ----------- ----------- ----------- Total segment contribution income $ 75,682 $ 98,933 $ 251,972 $ 298,754 =========== =========== =========== =========== Segment operating profit before tax: Chemicals for transportation $ 30,508 $ 49,939 $ 112,152 $ 149,138 Chemicals for industry 5,568 6,919 21,116 21,003 ----------- ----------- ----------- ----------- Total segment operating profit before tax 36,076 56,858 133,268 170,141 Gain from litigation settlement 14,476 Special (charge) credit (20,767) 2,577 (23,903) Interest expense - net (4,607) (5,633) (14,138) (17,255) ----------- ----------- ----------- ----------- Consolidated income before tax $ 31,469 $ 30,458 $ 121,707 $ 143,459 =========== =========== =========== ===========
Prior-year amounts have been restated to reflect reclassifications of products between chemicals for transportation and chemicals for industry operating segments. Prior-year segment contribution income has been restated to reflect the exclusion, for internal management reporting purposes, effective January 1, 2000, of excess production capacity from product costs; this change had no effect on segment operating profit before tax. 8 9 THE LUBRIZOL CORPORATION ======================== Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations ------------------------------------------------- RESULTS OF OPERATIONS Our consolidated revenues for the third quarter and nine months ended September 30, 2000 were down slightly compared to the corresponding periods of 1999. We continued to experience significant increases in raw material costs in the third quarter of 2000, and we had lower profit margins for the third quarter and the first nine months of 2000 as compared to the corresponding periods of 1999. We have been raising prices, but the increases have not recovered the higher raw material costs and have been diluted by currency effects. We have benefited from lower operating expenses and a lower effective tax rate. However, net income for the third quarter of 2000 decreased 30% compared to the third quarter of 1999 and decreased 13% for the first nine months of 2000 as compared to the first nine months of 1999, after excluding special items from all periods. We group our product lines into two operating segments: chemicals for transportation and chemicals for industry. Chemicals for transportation comprised approximately 83% of our consolidated revenues and 87% of our segment pre-tax operating profits for the full year 1999 (82% of revenues and 84% of operating profits for the nine months ended September 30, 2000). This discussion and analysis of our financial condition and results of operations is primarily focused upon the company as a whole, since we believe this provides the most appropriate understanding of our business. See Note 12 to the financial statements for further financial disclosures by operating segment. Consolidated revenues decreased $8.2 million, or 2% (3% excluding acquisitions), for the third quarter of 2000 compared with the third quarter of 1999, and decreased $13.3 million, or 1% (2% excluding acquisitions), for the first nine months of 2000 compared with the first nine months of 1999. On a year-to-year comparative basis, chemicals for transportation revenues decreased $11.2 million, or 3%, for the third quarter and $25.4 million, or 2%, for the nine months. On a similar basis, chemicals for industry revenues increased $2.9 million, or 4%, for the third quarter and $12.2 million, or 5%, for the nine months. Shipment volume decreased 3% in the third quarter of 2000 (4% excluding acquisitions) and decreased 2% in the first nine months of 2000 (2% excluding acquisitions) compared with the same periods in 1999. Shipments to North American customers decreased 2% for the third quarter and 4% for the first nine months of 2000, and international shipments decreased 3% for the third quarter and were flat for the first nine months of 2000 compared with the same periods in 1999. The drop in international shipments for the third quarter occurred entirely in September. We believe most of this decrease was due to customer order pattern, as it appears that October international volume is back to normal. Nine-month shipments to customers in Asia Pacific and Latin America increased 3% and 4%, respectively, compared to 1999, as both regions experienced strong third quarters. Nine-month shipments to customers in Europe decreased 3%, compared to 1999, due to 11% lower shipments in the third quarter of 2000 compared with third quarter of 1999. This decrease was partially because of lower customer orders in September 2000 due to disruption from fuel tax protests in the region and some large tender shipments in the third quarter of 1999 that did not occur in 2000. Average additive selling price increased 1% for the third quarter of 2000 and was flat for the first nine months of 2000 compared with the same periods in 1999, because higher pricing was offset by unfavorable 9 10 THE LUBRIZOL CORPORATION ======================== Management's Discussion and Analysis of Financial Condition and Results of Operations currency and product mix. Sequentially, average selling price increased 1% from the second quarter to the third quarter of 2000, as a 2% real increase in selling price was partially offset by unfavorable currency impact. Cost of sales increased 2% for the third quarter of 2000 and increased 3% for the first nine months of 2000, compared to the same periods in 1999, because of higher raw material costs partially offset by lower manufacturing expenses. Average raw material cost increased 11% for the third quarter of 2000 and 9% for the first nine months of 2000, compared with the same periods in 1999, due to the impact of higher crude oil costs on petrochemical prices. Sequentially, average raw material cost increased 5% in the third quarter as compared to the second quarter. We expect further increases in average raw material cost of 3% to 4% in the fourth quarter. In response to the higher raw material costs experienced during the second quarter, we implemented a third price increase in the third quarter of 2000. We have now implemented three price increases in the past twelve months, but these have failed to recover the full amount of material cost increases and have been diluted by negative currency affects. Fluctuating crude oil and petrochemical prices make it difficult to accurately predict when material costs will stabilize and gross margins will improve, but we do not expect any improvement during the remainder of this year. Further price increases will be necessary to recover higher material costs, and therefore, we have announced another price increase in November 2000. Manufacturing costs were 9% lower for the third quarter of 2000 compared with the third quarter of 1999 and 8% lower for the first nine months of 2000 compared with the first nine months of 1999. Half of the reduction in manufacturing costs for the quarter and a third of the reduction for the nine months resulted from higher inventory levels with corresponding increases in capitalized manufacturing labor and overhead costs. Some of this favorable variance will reverse in the fourth quarter, as we expect to reduce inventory levels. Manufacturing savings also resulted from the integration of the Adibis business, restructuring savings at our Painesville plant and favorable currency effects. Gross profit (sales less cost of sales) decreased $15.0 million or 11% for the third quarter of 2000, and $37.4 million or 9% for the first nine months of 2000, compared with the same periods in 1999. The decreases resulted from higher raw material costs, lower volume and negative currency impact, partially offset by lower manufacturing expense and the impact of an acquisition. Chemicals for transportation gross profit decreased $15.6 million, or 14%, for the third quarter of 2000, and $40.7 million, or 12%, for the first nine months of 2000 compared with the same periods in 1999 due to the factors mentioned above. Chemicals for industry gross profit increased $.6 million, or 2%, for the third quarter of 2000, and $3.3 million, or 4%, for the first nine months of 2000 compared with the same periods in 1999, primarily due to gross profit increases in our performance chemicals, coatings and inks, and synthetic refrigerant lubricant product groups. These factors caused our gross profit percentage (gross profit divided by net sales) to be 28.7% in the third quarter of 2000 and 29.2% in the first nine months of 2000, compared with 31.6% and 31.7% in the respective periods of 1999. Sequentially, gross profit decreased 6% from the second quarter of 2000 and the gross profit percentage decreased from 29.6% in the second quarter of 2000. 10 11 THE LUBRIZOL CORPORATION ======================== Management's Discussion and Analysis of Financial Condition and Results of Operations Selling and administrative expenses decreased $2.1 million, or 5%, for the third quarter of 2000 and $7.7 million, or 6%, for the first nine months of 2000 compared with the respective 1999 periods, due to lower legal expenses, lower implementation costs for our enterprise-wide management information system, lower variable compensation costs and favorable currency effects. Our research, testing and development expenses (technology expenses) increased $4.3 million, or 12%, for the third quarter of 2000 and increased $2.9 million, or 3%, for the first nine months of 2000 compared with the same periods of 1999. Technology expenses were favorably affected in the first half of the year because of lower activity at third-party testing facilities in the first quarter of the year resulting, in part, from an industry delay in finalizing specifications for the U.S. passenger car motor oil technical standard, GF-3. The specification issues have been resolved and we began testing in the third quarter, which accounts for the 7% sequential increase in technology expenses for the third quarter as compared to the second quarter. We expect GF-3 testing to continue for two to three more quarters. The change in other income (expense) negatively affected pre-tax income by $3.3 million for the third quarter of 2000 and by $4.3 million for the first nine months of 2000 compared with the respective 1999 periods. The unfavorable changes were primarily due to lower equity earnings of affiliated companies and losses on miscellaneous sales of assets. We also had higher goodwill amortization resulting from the Alox acquisition. Interest expense decreased $1.6 million for the third quarter of 2000 and $2.0 million for the first nine months of 2000 compared to the same periods in 1999 principally because of lower interest rates due to the interest rate swap agreements that we entered into in the first and second quarters of 2000, and lower principal amounts outstanding because of debt retirement in Germany in 2000. On March 31, 1999, the company and Exxon Corporation reached a settlement of all pending intellectual property litigation between the two companies and their affiliates, except for litigation that was pending in Canada. Under the settlement agreement, Exxon paid us cash of $16.8 million in April 1999. After deducting related expenses, this settlement increased pre-tax income by $14.5 million ($9.0 million after-tax or $.16 per share) for the first nine months of 1999. On October 12, 2000, the company reached a settlement of all pending patent litigation with Imperial Oil Limited (Imperial), a Canadian affiliate of Exxon Mobil Corporation. Under the settlement agreement, Lubrizol received $25 million, in October 2000 that will be recorded in the fourth quarter of 2000, net of related expenses of $5.6 million. The company and Imperial have also entered into a ten-year agreement for the supply by the company of $490 million (Canadian dollars) of product to Imperial. In the first quarter of 1999, we recognized additional expense of $3.1 million ($2.9 million after-tax or $.05 per share), to reflect an additional amount for separation benefits, principally in Japan, under a cost reduction program originally announced and recognized in the fourth quarter of 1998. In the third quarter of 1999, we recorded a special charge of $20.8 million ($12.9 million after-tax or $.24 per share) relating principally to the restructuring of our Painesville, Ohio manufacturing plant. 11 12 THE LUBRIZOL CORPORATION ======================== Management's Discussion and Analysis of Financial Condition and Results of Operations --------------------------------------------- In the second quarter of 2000, we recorded a pre-tax adjustment of $2.6 million ($1.7 million after-tax or $.03 per share), to reduce the amount of the special charge recorded in the third quarter of 1999 relating to the downsizing of our Painesville manufacturing facility. The cost of workforce reductions at Painesville will be less than we originally anticipated because we have increased the planned number of employees at the end of the second phase of our cost reduction program due to the assumption of Alox production, retention of a waste incineration process and higher expected throughput. We also have eliminated a number of positions without severance pay cost since we have been able to transfer employees to positions in our other facilities outside of Painesville. We had an effective tax rate of 26.1% for the third quarter of 2000 and 30.1% for the first nine months of 2000 (30.0% for the nine months before the special charge adjustment) compared to 33.0% for the third quarter of 1999 and 37.6% for the first nine months of 1999 (35.0% for the first quarter of 1999 and 37.0% for the first nine months of 1999 before special items for all periods). We also anticipate an effective tax rate of 30.0% for the full year 2000, as compared with 36.5% for the full year 1999, prior to the litigation settlement and special charge. This anticipated decrease in the annual effective tax rate is due to the U.S. tax benefit from charitable contributions of technology to an educational institution, the favorable impact of statutory tax rate changes for certain of our foreign subsidiaries and an increase in the U.S. Foreign Sales Corporation tax benefit on export sales. The lower tax rate used for the third quarter of 2000 and first nine months of 2000 (prior to special charge adjustment) had a favorable effect of $.05 per share and $.15 per share, respectively, when compared to the rates used for the third quarter of 1999 (prior to the special charge) and for the first nine months of 1999 (prior to litigation settlement and special charge). Changes in currency exchange rates in effect during the third quarter and first nine months of 2000 had an unfavorable effect on net income per share of $.03 and $.12 per share, respectively, as compared to exchange rates in effect during the comparable periods in 1999. Primarily as a result of the above factors, net income for the third quarter of 2000 was $23.3 million or $.44 per share as compared to $20.4 million or $.37 per share for the third quarter of 1999 ($33.3 million or $.61 per share for the third quarter of 1999, after excluding the special charge). For the first nine months of 2000, net income was $85.1 million or $1.59 per share as compared to $89.5 million or $1.64 per share for the first nine months of 1999. After excluding the 2000 second quarter adjustment to the special charge and the 1999 first quarter gain from the litigation settlement and adjustment to the special charge and the 1999 third quarter special charge, net income for the first nine months of 2000 was $83.4 million ($1.56 per share; $1.55 per share diluted) compared to $96.3 million ($1.76 per share) for the first nine months of 1999. WORKING CAPITAL, LIQUIDITY AND CAPITAL RESOURCES Cash provided from operating activities was $125.7 million for the first nine months of 2000 compared with $225.5 million for the first nine months of 1999. The decrease in cash flow from operations was principally attributable to a $36 million increase in working capital in 2000 compared to $37 million reduction in working capital in 1999. The working capital change resulted from increased inventories in 2000 in advance of planned maintenance at some of our facilities, inventory build up in Texas as safety stock against hurricane disruption and lower 12 13 THE LUBRIZOL CORPORATION ======================== Management's Discussion and Analysis of Financial Condition and Results of Operations --------------------------------------------- September 2000 shipment volume, as compared to decreased inventory levels in the first nine months of last year as part of our working capital initiative and the collection of a $16.1 million income tax refund in the first quarter of 1999, with no comparable collection this year. Our capital expenditures in the first nine months of 2000 were $59.6 million compared with $47.6 million for the same 1999 period. We estimate capital spending for the full year 2000 will be approximately $80 million as compared to $64.9 million in 1999. Approximately half of the increase over the prior year is due to capital spent to transfer capacity from our Painesville facility to our Texas facilities as part of our cost reduction program. During the first quarter of 2000, we spent approximately $36 million on two acquisitions. We acquired certain production assets and working capital of Alox Corporation (Alox), a leading supplier of additives for corrosion prevention in metalworking products, with annual revenues of approximately $20 million. We are integrating the Alox operation into our existing infrastructure and relocating the manufacturing activity to our Painesville, Ohio plant. We also acquired an additional 10% interest in our India joint venture, increasing our ownership interest to 50%. During the second quarter of 2000, we made an investment of approximately $4.9 million in a joint venture with GE Transportation Systems to develop and market products and services to manage critical diesel engine fluids to optimize service intervals and improve fuel consumption and fueling processes. In September 2000, the company signed a new agreement with PetroChina Company Limited giving the company control over its subsidiary in China and providing for capital contributions by each party of approximately $28 million. We have maintained an active share repurchase program for a number of years, although we suspended repurchases for most of 1999. We resumed share repurchases in late 1999 and repurchased approximately 2,325,000 shares for $55.9 million in the first nine months of 2000. We plan to spend approximately $20 million on share repurchases during the fourth quarter of 2000. Our net debt to capitalization ratio, which had decreased from approximately 35% to 25% during the time share repurchases were suspended, was 30.7% at September 30, 2000. Net debt is the total of short- and long-term debt, reduced by cash and short-term investments in excess of an assumed operating cash level of $40 million. Capitalization is shareholders' equity plus net debt. Primarily as a result of these activities and the payment of dividends, our balance of cash and short-term investments decreased $79.3 million at September 30, 2000 compared with December 31, 1999. Our financial position remains strong with a ratio of current assets to current liabilities of 2.5 to 1 at September 30, 2000, the same as our ratio at December 31, 1999. We believe our current credit facilities, internally generated funds and ability to obtain additional financing will be sufficient to meet our future spending needs. COST REDUCTION PROGRAM We initiated a program in 1998 to reduce costs and improve our worldwide operating structure. The first phase of this program was substantially completed by the end of the third quarter of 1999. The second phase, which began in the third quarter of 1999 and involves primarily the downsizing of our Painesville, Ohio manufacturing facility, will result in the reduction of approximately 5% of our workforce, or 190 positions, and the shutdown of 21 of Painesville's 36 production systems. Through 13 14 THE LUBRIZOL CORPORATION ======================== Management's Discussion and Analysis of Financial Condition and Results of Operations --------------------------------------------- September 30, 2000, we have shut down 15 of the 21 targeted production systems and completed approximately 59% of the anticipated workforce reduction. We expect to shut down the remaining targeted production units, and complete the workforce reduction, by the end of the fourth quarter of 2000. We have achieved approximately $5.0 million of savings from the second phase of this program through September 30, 2000 and we expect to achieve $7.0 million in total savings by the end of 2000. Beginning in 2001 we estimate we will achieve an additional $13 million in savings for total estimated annualized savings of $20 million. We will spend approximately $8 million of capital to transfer a portion of the capacity to our Texas plants, of which $7.8 million has been spent through September 30, 2000. CAUTIONARY STATEMENT FOR SAFE HARBOR PURPOSES This Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of the federal securities laws. As a general matter, forward-looking statements are those focused upon future plans, objectives or performance as opposed to historical items and include statements of anticipated events or trends and expectations and beliefs relating to matters not historical in nature. Such forward-looking statements are subject to uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Such uncertainties and factors could cause our actual results to differ materially from those matters expressed in or implied by such forward-looking statements. We identified certain, but not necessarily all, of these uncertainties and factors in the Management's Discussion and Analysis contained on pages 22 and 23 of our 1999 Annual Report to our shareholders, and they are incorporated by reference herein. 14 15 THE LUBRIZOL CORPORATION ======================== Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We operate manufacturing and blending facilities, laboratories and offices around the world and utilize fixed and variable rate debt to finance our global operations. As a result, we are subject to business risks inherent in non-U.S. activities, including political and economic uncertainty, import and export limitations, and market risk related to changes in interest rates and foreign currency exchange rates. We believe the political and economic risks related to our foreign operations are mitigated due to the stability of the countries in which our largest foreign operations are located. In the normal course of business, we use derivative financial instruments including interest rate swaps and foreign currency forward exchange contracts to manage our market risks. Our objective in managing our exposure to changes in interest rates is to limit the impact of such changes on earnings and cash flow and to lower our overall borrowing costs. Our objective in managing our exposure to changes in foreign currency exchange rates is to reduce the economic effect on earnings and cash flow associated with such changes. Our principal currency exposures are in the major European currencies, the Japanese yen and certain Latin American currencies. We do not hold derivatives for trading purposes. A quantitative and qualitative discussion about our market risk is contained on page 23 of our 1999 Annual Report to our shareholders. There have been no material changes in the market risks faced by us since December 31, 1999. 15 16 PART II. OTHER INFORMATION Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS (c) On August 30, 2000, 1,500 common shares were issued in a private placement transaction exempt from registration under the Securities Act of 1933 pursuant to section 4(2) of that Act. The company issued the shares to a consultant as partial payment for services rendered in accordance with a consulting agreement. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (10)(c)* Form of Employment Agreement between The Lubrizol Corporation and certain of its executive officers. (10)(d)* The Lubrizol Corporation Excess Defined Benefit Plan (As Amended 10/1/00). (10)(e)* The Lubrizol Corporation Excess Defined Contribution Plan (As Amended 10/1/00). (10)(j)* The Lubrizol Corporation Officers' Supplemental Retirement Plan (As Amended 10/1/00). (27) Financial Data Schedule *Indicates management contract or compensatory plan or arrangement. (b) Reports on Form 8-K There were no reports on Form 8-K filed during the quarter ended September 30, 2000. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE LUBRIZOL CORPORATION /s/ John R. Ahern ---------------------------- John R. Ahern Chief Accounting Officer and Duly Authorized Signatory of The Lubrizol Corporation Date: November 13, 2000 16 EX-10.C 2 l84324aex10-c.txt EXHIBIT 10(C) 1 Exhibit (10)(c) EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (this "Agreement"), dated as of , by and between The Lubrizol Corporation, an Ohio corporation (the "Company"), and (the "Executive"); WITNESSETH: WHEREAS, the Executive is a senior executive of the Company and has made and is expected to continue to make major contributions to the profitability, growth and financial strength of the Company; WHEREAS, the Company recognizes that, as is the case for most publicly held companies, the possibility of a Change in Control (as that term is hereafter defined) exists; WHEREAS, the Company desires to assure itself of both present and future continuity of management in the event of a Change in Control and desires to establish certain minimum compensation rights of its key senior executive officers, including the Executive, applicable in the event of a Change in Control; WHEREAS, the Company wishes to ensure that it's senior executives are not practically disabled from discharging their duties upon a Change in Control; WHEREAS, this Agreement is not intended to alter materially the compensation and benefits which the Executive could reasonably expect to receive from the Company absent a Change in Control and, accordingly, although effective and binding as of the date hereof, this Agreement shall become operative only upon the occurrence of a Change in Control; and WHEREAS, the Executive is willing to render services to the Company on the terms and subject to the conditions set forth in this Agreement; NOW, THEREFORE, the Company and the Executive agree as follows: 1. Operation of Agreement (a) This Agreement shall be effective and binding immediately upon its execution, but, anything in this Agreement to the contrary notwithstanding, this Agreement shall not be operative unless and until there shall have occurred a Change in Control. For purposes of this Agreement, a "Change in Control" shall have occurred if at any time during the Term (as that term is hereafter defined) any of the following events shall occur: (i) The Company is merged, consolidated or reorganized into or with another corporation or other legal person, and immediately after such merger, consolidation or reorganization less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such transaction are held in the aggregate by the holders of Voting Stock (as that term is hereafter defined) of the Company immediately prior to such transaction; (ii) The Company sells all or substantially all of its assets to any other corporation or other legal person, less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such sale are held in the aggregate by the holders of Voting Stock of the Company immediately prior to such sale; 1 of 14 2 (iii) There is a report filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form or report), each as promulgated pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), disclosing that any person (as the term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities representing 20% or more of the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors of the Company ("Voting Stock"); (iv) The Company files a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) that a change in control of the Company has or may have occurred or will or may occur in the future pursuant to any then existing contract or transaction; or (v) If during any period of 2 consecutive years, individuals who at the beginning of any such period constitute the Directors of the Company cease for any reason to constitute at least a majority thereof, provided, however, that for purposes of this clause (v), each Director who is first elected, or first nominated for election by the Company's stockholders by a vote of at least two-thirds of the Directors of the Company (or a committee thereof) then still in office who were Directors of the Company at the beginning of any such period will be deemed to have been a Director of the Company at the beginning of such period. Notwithstanding the foregoing provisions of Section 1(a)(iii) or 1(a)(iv) hereof, unless otherwise determined in a specific case by majority vote of the Board of Directors of the Company (the "Board"), a "Change in Control" shall not be deemed to have occurred for purposes of this Agreement solely because (i) the Company, (ii) an entity in which the Company directly or indirectly beneficially owns 50% or more of the voting securities (a "Subsidiary"), or (iii) any Company-sponsored employee stock ownership plan or any other employee benefit plan of the Company, either files or becomes obligated to file a report or a proxy statement under or in response to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) under the Exchange Act, disclosing beneficial ownership by it of shares of Voting Stock, whether in excess of 20% or otherwise, or because the Company reports that a change in control of the Company has or may have occurred or will or may occur in the future by reason of such beneficial ownership. (b) Upon the occurrence of a Change in Control at any time during the Term, this Agreement shall become immediately operative. (c) The period during which this Agreement shall be in effect (the "Term") shall commence as of the date hereof and shall expire as of the later of (i) the close of business on and (ii) the expiration of the Period of Employment (as that term is hereinafter defined); provided, however, that (A) commencing on January 1 , and each January 1 thereafter, the term of this Agreement shall automatically be extended for an additional year unless, not later than September 30 of the immediately preceding year, the Company or the Executive shall have given notice that it or he, as the case may be, does not wish to have the Term extended and (B) subject to Section 10 hereof, if, prior to a Change in Control, the Executive ceases for any reason to be an employee of the Company and any Subsidiary, thereupon the Term shall be deemed to have expired and this Agreement shall immediately terminate and be of no further effect. 2 of 14 3 2. Employment; Period of Employment (a) Subject to the terms and conditions of this Agreement, upon the occurrence of a Change in Control, the Company shall continue the Executive in its employ and the Executive shall remain in the employ of the Company and/or a Subsidiary, as the case may be, for the period set forth in Section 2(b) hereof (the "Period of Employment"), in the position and with substantially the same duties and responsibilities that he had immediately prior to the Change in Control, or to which the Company and the Executive may hereafter mutually agree in writing. Throughout the Period of Employment, the Executive shall devote substantially all of his time during normal business hours (subject to vacations, sick leave and other absences in accordance with the policies of the Company as in effect for senior executives immediately prior to the Change in Control) to the business and affairs of the Company, but nothing in this Agreement shall preclude the Executive from devoting reasonable periods of time during normal business hours to (i) serving as a director, trustee or member of or participant in any organization or business so long as such activity would not constitute Competitive Activity (as that term is hereafter defined) if conducted by the Executive after the Executive's Termination Date (as that term is hereafter defined), (ii) engaging in charitable and community activities, or (iii) managing his personal investments. (b) The Period of Employment shall commence on the date of an occurrence of a Change in Control and, subject only to the provisions of Section 4 hereof, shall continue until the earliest of (i) the expiration of the third anniversary of the occurrence of the Change in Control, (ii) the Executive's death, (iii) by reason of the Executive's disability and the actual receipt of disability benefits in accordance with Section 4(a)(ii), or (iv) the Executive's attainment of age 65; provided, however, that commencing on each anniversary of the Change of Control, the Period of Employment shall automatically be extended for an additional year unless, not later than 90 calendar days prior to such anniversary date, either the Company or the Executive shall have given written notice to the other that the Period of Employment shall not be so extended. 3. Compensation During Period of Employment (a) Upon the occurrence of a Change in Control, the Executive shall receive during the Period of Employment (i) annual base salary at a rate not less than the Executive's annual fixed or base compensation (payable monthly or otherwise as in effect for senior executives of the Company immediately prior to the occurrence of a Change in Control) or such higher rate as may be determined from time to time by the Board or the Compensation Committee thereof (which base salary at such rate is herein referred to as "Base Pay," and 1 year's worth of such Base Pay is herein referred to as the "Annual Base Pay Amount") and (ii) an annual amount (the "Annual Incentive Pay Amount") equal to not less than the highest aggregate annual bonus, incentive or other payments of cash compensation in addition to the amounts referred to in clause (i) above made or to be made in regard to services rendered in any calendar year during the 3 calendar years immediately preceding the year in which the Change in Control occurred pursuant to any bonus, incentive, profit-sharing, performance, discretionary pay or similar agreement, policy, plan, program or arrangement (whether or not funded) of the Company or any successor thereto providing benefits at least as great as the benefits payable thereunder prior to a Change in Control ("Incentive Pay"); provided, however, that (A) with the prior written consent of the Executive, nothing herein shall preclude a change in the mix between Base Pay and Incentive Pay so long as that the aggregate cash compensation received by the Executive in any 1 calendar year is not reduced in connection therewith or as a result thereof, (B) in no event shall any increase in the Executive's aggregate cash compensation or any portion thereof in any way diminish any other obligation of the Company under this Agreement, and (C) no duplicate payment hereunder will be made in respect of any 3 of 14 4 amount actually paid to the Executive pursuant to any such agreement, policy, plan, program or arrangement. (b) For his service pursuant to Section 2(a) hereof during the Period of Employment the Executive shall be a full participant in, and shall be entitled to the perquisites, benefits and service credit for benefits as provided under, any and all employee retirement income and welfare benefit policies, plans, programs or arrangements in which senior executives of the Company participate, including without limitation any stock option, stock purchase, stock appreciation, savings, pension, supplemental executive retirement or other retirement income or welfare benefit, deferred compensation, incentive compensation, group and/or executive life, health, medical/ hospital or other insurance (whether funded by actual insurance or self-insured by the Company), disability, salary continuation, expense reimbursement and other employee benefit policies, plans, programs or arrangements that may now exist or any equivalent successor policies, plans, programs or arrangements that may be adopted hereafter by the Company providing perquisites, benefits and service credit for benefits at least as great as are payable thereunder prior to a Change in Control (collectively, "Employee Benefits"); provided, however, that except as expressly provided in, and subject to the terms of, Section 3(a) hereof, the Executive's rights thereunder shall be governed by the terms thereof and shall not be enlarged hereunder or otherwise affected hereby. If and to the extent such perquisites, benefits or service credit for benefits are not payable or provided under any such policy, plan, program or arrangement as a result of the amendment or termination thereof, then the Company shall itself pay or provide therefor. Nothing in this Agreement shall preclude improvement or enhancement of any such Employee Benefits, provided that no such improvement shall in any way diminish any other obligation of the Company under this Agreement. 4. Termination Following a Change in Control (a) In the event of the occurrence of a Change in Control, the Executive's employment may be terminated by the Company during the Period of Employment and the Executive shall not be entitled to the benefits provided by Sections 5 and 6 hereof only upon the occurrence of one or more of the following events: (i) The Executive's death; (ii) If the Executive shall become permanently disabled within the meaning of, and begins actually to receive disability benefits pursuant to, the long-term disability plan in effect for senior executives of the Company immediately prior to the Change in Control; or (iii) The Executive's attainment of age 65; (iv) "Cause", which for purposes of this Agreement shall mean that, prior to any termination pursuant to Section 4(b) hereof, the Executive shall have committed: (A) an intentional act of fraud, embezzlement or theft in connection with his duties or in the course of his employment with the Company and/or any Subsidiary; (B) intentional wrongful damage to property of the Company and/or any Subsidiary; (C) intentional wrongful disclosure of secret processes or confidential information of the Company and/or any Subsidiary; or (D) intentional wrongful engagement in any Competitive Activity; 4 of 14 5 and any such act shall have been materially harmful to the Company. For purposes of this Agreement, no act, or failure to act, on the part of the Executive shall be deemed "intentional" if it was due primarily to an error in judgment or negligence, but shall be deemed "intentional" only if done, or omitted to be done, by the Executive not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for "Cause" hereunder unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the Board then in office at a meeting of the Board called and held for such purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with his counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive had committed an act set forth above in Section 4(a)(iv) and specifying the particulars thereof in detail. Nothing herein shall limit the right of the Executive or his beneficiaries to contest the validity or propriety of any such determination. (b) In the event of the occurrence of a Change in Control, this Agreement may be terminated by the Executive during the Period of Employment with the right to severance compensation as provided in Sections 5 and 6 hereof upon the occurrence of one or more of the following events (regardless of whether any other reason, other than Cause as hereinabove provided, for such termination exists or has occurred, including without limitation other employment): (i) Any termination by the Company of the employment of the Executive prior to the date upon which the Executive shall have attained age 65, which termination shall be for any reason other than for Cause or as a result of the death of the Executive or by reason of the Executive's disability and the actual receipt of disability benefits in accordance with Section 4(a)(ii) hereof; or (ii) Termination by the Executive of his employment with the Company and any Subsidiary within 3 years after the Change in Control upon the occurrence of any of the following events: (A) Failure to elect or reelect or otherwise to maintain the Executive in the office or the position, or a substantially equivalent office or position, of or with the Company and/or a Subsidiary, as the case may be, which the Executive held immediately prior to a Change in Control, or the removal of the Executive as a Director of the Company (or any successor thereto) if the Executive shall have been a Director of the Company immediately prior to the Change in Control; (B) A significant adverse change in the nature or scope of the authorities, powers, functions, responsibilities or duties attached to the position with the Company and any Subsidiary which the Executive held immediately prior to the Change in Control, a reduction in the aggregate of the Executive's Base Pay and Incentive Pay received from the Company and any Subsidiary, or the termination or denial of the Executive's rights to Employee Benefits as herein provided, any of which is not remedied within 10 calendar days after receipt by the Company of written notice from the Executive of such change, reduction or termination, as the case may be; (C) A determination by the Executive made in good faith that as a result of a Change in Control and a change in circumstances thereafter significantly affecting his position, including without limitation a change in the scope of the 5 of 14 6 business or other activities for which he was responsible immediately prior to a Change in Control, he has been rendered substantially unable to carry out, has been substantially hindered in the performance of, or has suffered a substantial reduction in, any of the authorities, powers, functions, responsibilities or duties attached to the position held by the Executive immediately prior to the Change in Control, which situation is not remedied within 10 calendar days after written notice to the Company from the Executive of such determination; (D) The liquidation, dissolution, merger, consolidation or reorganization of the Company or transfer of all or a significant portion of its business and/or assets, unless the successor or successors (by liquidation, merger, consolidation, reorganization or otherwise) to which all or a significant portion of its business and/or assets have been transferred (directly or by operation of law) shall have assumed all duties and obligations of the Company under this Agreement pursuant to Section 12 hereof; (E) The Company shall relocate its principal executive offices, or require the Executive to have his principal location of work changed, to any location which is in excess of 25 miles from the location thereof immediately prior to the Change of Control or to travel away from his office in the course of discharging his responsibilities or duties hereunder significantly more (in terms of either consecutive days or aggregate days in any calendar year) than was required of him prior to the Change of Control without, in either case, his prior written consent; or (F) Without limiting the generality or effect of the foregoing, any material breach of this Agreement by the Company or any successor thereto. (iii) Termination by the Executive of his employment with the Company and any Subsidiary, for any reason or for no reason, at any time during the 90 day period commencing on the first anniversary of the Change in Control, provided that the Executive remains employed by the Company up to the date of that termination by the Executive. (c) A termination by the Company pursuant to Section 4(a) hereof or by the Executive pursuant to Section 4(b) hereof shall not affect any rights which the Executive may have pursuant to any agreement, policy, plan, program or arrangement of the Company providing Employee Benefits (except as provided in Section 5(a)(v) hereof), which rights shall be governed by the terms thereof. If this Agreement or the employment of the Executive is terminated under circumstances in which the Executive is not entitled to any payments under Sections 3, 5 or 6 hereof, the Executive shall have no further obligation or liability to the Company hereunder with respect to his prior or any future employment by the Company. 5. Severance Compensation (a) If, following the occurrence of a Change in Control, the Company shall terminate the Executive's employment during the Period of Employment other than pursuant to Section 4(a) hereof, or if the Executive shall terminate his employment pursuant to Section 4(b) hereof, the Company shall continue to provide the following benefits and shall further pay to the Executive the following amounts within 5 business days after the date (the "Termination Date") that the Executive's employment is terminated (the effective date of which shall be the date of termination, or such other date that may be specified by the Executive if the termination is pursuant to Section 4(b) hereof): 6 of 14 7 (i) Base Pay through the Termination Date, to the extent not previously paid to the Executive. (ii) Incentive Pay for any calendar year ended before the Termination Date in the same amount that would have been payable to the Executive with respect to that calendar year if the Executive had remained in the employ of the Company through the end of the Period of Employment, to the extent not previously paid to the Executive. (iii) An amount constituting a pro rata Incentive Pay award for the partial year ending on the Termination Date and equal to (A) the greater of (I) the Annual Incentive Pay Amount or (II) the aggregate Incentive Pay to which the Executive would have been entitled pursuant to this Agreement or any agreement, policy, plan, program or arrangement referred to therein had he remained in the employ of the Company through the end of the calendar year in which his employment is terminated, multiplied by (B) a fraction, the numerator of which is the number of days from January 1 of the calendar year in which the Termination Date occurs to the Termination Date, inclusive, and the denominator of which is 365. (iv) In lieu of any further payments to the Executive for periods subsequent to the Termination Date, but without affecting the rights of the Executive referred to in Section 5(b) hereof, a lump sum payment (the "Severance Payment") in an amount equal to 3 times the sum of (A) the Annual Base Pay Amount (at the highest rate in effect for any period prior to the Termination Date), plus (B) the Annual Incentive Pay Amount. (v) For the period commencing on the Termination Date and ending on the third anniversary of the Termination Date (the "Benefit Continuation Period"), the Company shall arrange to provide the Executive with Employee Benefits that are welfare benefits, but not stock option, stock purchase, stock appreciation, or similar compensatory benefits, substantially similar to those which the Executive was receiving or entitled to receive immediately prior to the Termination Date (and if and to the extent that such benefits shall not or cannot be paid or provided under any policy, plan, program or arrangement of the Company or any Subsidiary, as the case may be, then the Company shall itself pay or provide for the payment to the Executive, his dependents and beneficiaries, such Employee Benefits). Without otherwise limiting the purposes or effect of Section 7 hereof, Employee Benefits otherwise receivable by the Executive pursuant to the first sentence of this Section 5(a)(ii) shall be reduced to the extent comparable welfare benefits are actually received by the Executive from another employer during the Benefit Continuation Period, and any such benefits actually received by the Executive shall be reported by the Executive to the Company. Notwithstanding the foregoing, the Benefit Continuation Period shall be considered service with the Company for the purpose of determining service credits and benefits due and payable to the Executive under the Company's retirement income, supplemental executive retirement and other benefit plans of the Company applicable to the Executive or his beneficiaries immediately prior to the Termination Date. (b) Upon written notice given by the Executive to the Company prior to the occurrence of a Change in Control, the Executive, at his sole option, without reduction to reflect the present value of such amounts as aforesaid, may elect to have all or any of the Severance Payment payable pursuant to Section 5(a) hereof paid to him on a quarterly or monthly basis during the Benefit Continuation Period. 7 of 14 8 (c) There shall be no right of set-off or counterclaim in respect of any claim, debt or obligation against any payment to or benefit for the Executive provided for in this Agreement, except as expressly provided in Section 5(a)(v) hereof. (d) Without limiting the rights of the Executive at law or in equity, if the Company fails to make any payment required to be made hereunder on a timely basis, the Company shall pay interest on the amount thereof at an annualized rate of interest equal to the then-applicable discount rate required to be utilized for purposes of Section 280G of the Code or any successor provision thereto, or if no such rate is so required to be used, a rate equal to the then applicable interest rate prescribed by the Pension Benefit Guarantee Corporation for benefit valuations in connection with non-multiemployer pension plan terminations assuming the immediate commencement of benefit payments. (e) Notwithstanding any other provision hereof, the parties' respective rights and obligations under this Section 5 will survive any termination or expiration of this Agreement or the termination of the Executive's employment for any reason whatsoever. 6. Certain Additional Payments by the Company (a) Anything in this Agreement to the contrary notwithstanding, in the event that this Agreement shall become operative and it shall be determined (as hereafter provided) that any payment or distribution by the Company or any of its affiliates to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise pursuant to or by reason of any other agreement, policy, plan, program or arrangement, including without limitation any stock option, stock appreciation right or similar right, or the lapse or termination of any restriction on or the vesting or exercisability of any of the foregoing (individually and collectively a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Code (or any successor provision thereto) by reason of being considered "contingent on a change in ownership or control" of the Company, within the meaning of Section 280G of the Code (or any successor provision thereto), or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, being hereafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment or payments (individually and collectively, a "Gross-Up Payment"). The Gross-Up Payment shall be in an amount such that, after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment. (b) Subject to the provisions of Section 6(e) hereof, all determinations required to be made under this Section 6, including whether an Excise Tax is payable by the Executive and the amount of such Excise Tax and whether a Gross-Up Payment is required to be paid by the Company to the Executive and the amount of such Gross-Up Payment, if any, shall be made by a nationally recognized accounting firm (the "Accounting Firm") selected by the Executive in his sole discretion. The Executive shall direct the Accounting Firm to submit its determination and detailed supporting calculations to both the Company and the Executive within 30 calendar days after the Termination Date, if applicable, and any such other time or times as may be requested by the Company or the Executive. If the Accounting Firm determines that any Excise Tax is payable by the Executive, the Company shall pay the required Gross-Up Payment to the Executive within 5 business days after receipt of such determination and calculations with respect to any Payment to the Executive. The federal tax returns filed by the Executive shall be prepared and filed on a consistent basis with the determination of the Accounting Firm with respect to the Excise Tax payable by the Executive. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall, at the same time as it makes such 8 of 14 9 determination, furnish the Company and the Executive an opinion that the Executive has substantial authority not to report any Excise Tax on his federal income tax return. As a result of the uncertainty in the application of Section 4999 of the Code (or any successor provision thereto) at the time of any determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (an "Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts or fails to pursue its remedies pursuant to Section 6(e) hereof and the Executive thereafter is required to make a payment of any Excise Tax, the Executive shall direct the Accounting Firm to determine the amount of the Underpayment that has occurred and to submit its determination and detailed supporting calculations to both the Company and the Executive as promptly as possible. Any such Underpayment shall be promptly paid by the Company to, or for the benefit of, the Executive within 5 business days after receipt of such determination and calculations. (c) The Company and the Executive shall each provide the Accounting Firm access to and copies of any books, records and documents in the possession of the Company or the Executive, as the case may be, reasonably requested by the Accounting Firm, and otherwise cooperate with the Accounting Firm in connection with the preparation and issuance of the determinations and calculations contemplated by Section 6(b) hereof. (d) The fees and expenses of the Accounting Firm for its services in connection with the determinations and calculations contemplated by Section 6(b) hereof shall be borne by the Company. If such fees and expenses are initially paid by the Executive, the Company shall reimburse the Executive the full amount of such fees and expenses within 5 business days after receipt from the Executive of a statement therefor and reasonable evidence of his payment thereof. (e) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification shall be given as promptly as practicable but no later than 10 business days after the Executive actually receives notice of such claim and the Executive shall further apprise the Company of the nature of such claim and the date on which such claim is requested to be paid (in each case, to the extent known by the Executive). The Executive shall not pay such claim prior to the earlier of (i) the expiration of the 30-calendar-day period following the date on which he gives such notice to the Company and (ii) the date that any payment of amount with respect to such claim is due. If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) provide the Company with any written records or documents in his possession relating to such claim reasonably requested by the Company; (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including without limitation accepting legal representation with respect to such claim by an attorney competent in respect of the subject matter and reasonably selected by the Company; (iii) cooperate with the Company in good faith in order effectively to contest such claim; and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including interest and penalties) incurred in connection with such contest and shall indemnify and hold harmless the Executive on an after-tax basis, for and against any Excise Tax or 9 of 14 10 income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limiting the foregoing provisions of this Section 6(e), the Company shall control all proceedings taken in connection with the contest of any claim contemplated by this Section 6(e) and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim (provided, however, that the Executive may participate therein at his own cost and expense) and may, at its option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay the tax claimed and sue for a refund, the Company shall advance the amount of such payment to the Executive on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance; and provided further, however, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which the contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of any such contested claim shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (f) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 6(e) hereof, the Executive receives any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 6(e) hereof) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after any taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 6(e) hereof, a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial or refund prior to the expiration of 30 calendar days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of any such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid by the Company to the Executive pursuant to this Section 6. 7. No Mitigation Obligation The Company hereby acknowledges that it will be difficult, and may be impossible, for the Executive to find reasonably comparable employment following the Termination Date and that the noncompetition covenant contained in Section 8 hereof will further limit the employment opportunities for the Executive. In addition, the Company acknowledges that its severance pay plans applicable in general to its salaried employees do not provide for mitigation, offset or reduction of any severance payment received thereunder. Accordingly, the parties hereto expressly agree that the payment of the severance compensation by the company to the Executive in accordance with the terms of this Agreement will be liquidated damages, and that the Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor shall any profits, income, earnings or other benefits from any source whatsoever create any mitigation, offset, reduction or any other obligation on the part of the Executive hereunder or otherwise, except as expressly provided in Section 5(a)(v) hereof. 10 of 14 11 8. Competitive Activity During a period ending 1 year following the Termination Date, if the Executive shall have received or shall be receiving benefits under Section 5 hereof and, if applicable, Section 6 hereof, the Executive shall not, without the prior written consent of the Company, which consent shall not be unreasonably withheld, engage in any Competitive Activity. For purposes of this Agreement, the term "Competitive Activity" shall mean the Executive's participation, without the written consent of an officer of the Company, in the management of any business enterprise if such enterprise engages in substantial and direct competition with the Company and such enterprise's sales of any product or service competitive with any product or service of the Company amounted to 25% of such enterprise's net sales for its most recently completed fiscal year and if the Company's net sales of said product or service amounted to 25% of the Company's net sales for its most recently completed fiscal year. "Competitive Activity" shall not include (i) the mere ownership of securities in any such enterprise and exercise of rights appurtenant thereto or (ii) participation in management of any such enterprise other than in connection with the competitive operations of such enterprise. 9. Legal Fees and Expenses (a) It is the intent of the Company that the Executive not be required to incur legal fees and the related expenses associated with the enforcement or defense of his rights under this Agreement by litigation or other legal action because the cost and expense thereof would substantially detract from the benefits intended to be extended to the Executive hereunder. Accordingly, if it should appear to the Executive that the Company has failed to comply with any of its obligations under this Agreement or in the event that the Company or any other person takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other action or proceeding designed to deny, or to recover from, the Executive the benefits provided or intended to be provided to the Executive hereunder, the Company irrevocably authorizes the Executive from time to time to retain counsel of his choice, at the expense of the Company as hereafter provided, to represent the Executive in connection with the initiation or defense of any litigation or other legal action, whether by or against the Company or any Director, officer, stockholder or other person affiliated with the Company, in any jurisdiction. Notwithstanding any existing or prior attorney-client relationship between the Company and such counsel, the Company irrevocably consents to the Executive's entering into an attorney-client relationship with such counsel, and in that connection the Company and the Executive agree that a confidential relationship shall exist between the Executive and such counsel. Without respect to whether the Executive prevails, in whole or in part, in connection with any of the foregoing, the Company shall pay or cause to be paid and shall be solely responsible for any and all attorneys' and related fees and expenses incurred by the Executive in connection with any of the foregoing. (b) Without limiting the generality or effect of Section 9(a) hereof, in order to ensure the benefits intended to be provided to the Executive under Section 9(a) hereof, the Company will promptly use its best efforts to secure an irrevocable standby letter of credit (the "Letter of Credit"), issued by National City Bank or another bank having combined capital and surplus in excess of $500 million (the "Bank") for the benefit of the Executive and certain other of the officers of the Company and providing that the fees and expenses of counsel selected from time to time by the Executive pursuant to this Section 9 shall be paid, or reimbursed to the Executive if paid by the Executive, on a regular, periodic basis upon presentation by the Executive to the Bank of a statement or statements prepared by such counsel in accordance with its customary practices. The Company shall pay all amounts and take all action necessary to maintain the Letter of Credit during the Period of Employment and for 2 years thereafter and 11 of 14 12 if, notwithstanding the Company's complete discharge of such obligations, such Letter of Credit shall be terminated or not renewed, the Company shall obtain a replacement irrevocable clean letter of credit drawn upon a commercial bank selected by the Company and reasonably acceptable to the Executive, upon substantially the same terms and conditions as contained in the Letter of Credit, or any similar arrangement which, in any case, assures the Executive the benefits of this Agreement without incurring any cost or expense in connection therewith. (c) Notwithstanding any other provision hereof, the parties' respective rights and obligations under this Section 9 will survive any termination or expiration of this Agreement or the termination of the Executive's employment for any reason whatsoever. 10. Employment Rights Nothing expressed or implied in this Agreement shall create any right or duty on the part of the Company or the Executive to have the Executive remain in the employment of the Company prior to any Change in Control; provided, however, that any termination of employment of the Executive or the removal of the Executive from his office or position in the Company or any Subsidiary following the commencement of any discussion with a third person that ultimately results in a Change in Control shall be deemed to be a termination or removal of the Executive after a Change in Control for purposes of this Agreement. 11. Withholding of Taxes The Company may withhold from any amounts payable under this Agreement all federal, state, city or other taxes as shall be required pursuant to any law or government regulation or ruling. 12. Successors and Binding Agreement (a) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent the Company would be required to perform if no such succession had taken place. This Agreement shall be binding upon and inure to the benefit of the Company and any successor to the Company, including without limitation any persons acquiring directly or indirectly all or substantially all of the business and/or assets of the Company whether by purchase, merger, consolidation, reorganization or otherwise (and such successor shall thereafter be deemed the "Company" for the purposes of this Agreement), but shall not otherwise be assignable, transferable or delegable by the Company. (b) This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees and/or legatees. (c) This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign, transfer or delegate this Agreement or any rights or obligations hereunder except as expressly provided in Sections 12(a) and 12(b) hereof. Without limiting the generality of the foregoing, the Executive's right to receive payments hereunder shall not be assignable, transferable or delegable, whether by pledge, creation of a security interest or otherwise, other than by a transfer by his will or by the laws of descent and distribution and, in the event of any attempted assignment or transfer contrary to this Section 12(c), the Company shall have no liability to pay any amount so attempted to be assigned, transferred or delegated. 12 of 14 13 (d) The Company and the Executive recognize that each party will have no adequate remedy at law for breach by the other of any of the agreements contained herein and, in the event of any such breach, the Company and the Executive hereby agree and consent that the other shall be entitled to a decree of specific performance, mandamus or other appropriate remedy to enforce performance of this Agreement. 13. Notice For all purposes of this Agreement, all communications including without limitation notices, consents, requests or approvals, provided for herein shall be in writing and shall be deemed to have been duly given when delivered or 5 business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed to the Company (to the attention of the Secretary of the Company) at its principal executive office and to the Executive at his principal residence, or to such other address as any party may have furnished to the other in writing and in accordance herewith, except that notices of change of address shall be effective only upon receipt. 14. Governing Law The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Ohio, without giving effect to the principles of conflict of laws of such State. 15. Validity If any provision of this Agreement or the application of any provision hereof to any person or circumstances is held invalid, unenforceable or otherwise illegal, the remainder of this Agreement and the application of such provision to any other person or circumstances shall not be affected, and the provision so held to be invalid, unenforceable or otherwise illegal shall be reformed to the extent (and only to the extent) necessary to make it enforceable, valid and legal. 16. Miscellaneous No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto or compliance with any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, expressed or implied with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. 17. Counterparts This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same agreement. 18. Prior Agreement This Agreement amends and restates the Agreement, dated as of June 10, 1996 (the "Prior Agreement"), between the Company and the Executive, which Prior Agreement, shall, without further action, be superseded as of the date hereof. 13 of 14 14 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the date first above written. EXECUTIVE THE LUBRIZOL CORPORATION By: 14 of 14 EX-10.D 3 l84324aex10-d.txt EXHIBIT 10(D) 1 Exhibit (10)(d) THE LUBRIZOL CORPORATION EXCESS DEFINED BENEFIT PLAN (As Amended 10/1/00) The Lubrizol Corporation hereby establishes, effective as of January 1, 1986, The Lubrizol Corporation Excess Defined Benefit Plan (the "Plan") for the purpose of providing supplemental benefits to certain employees, as permitted by Section 3(36) of the Employee Retirement Income Security Act of l974. ARTICLE I DEFINITIONS AND CONSTRUCTION 1.1 Definitions. For the purposes hereof, the following words and phrases shall have the meanings indicated, unless a different meaning is plainly required by the context: (a) Code. the term "Code" shall mean the Internal Revenue Code as amended from time to time. Reference to a section of the Code shall include such section and any comparable section or sections of any future legislation that amends, supplements, or supersedes such section. (b) Company. The term "Company" shall mean The Lubrizol Corporation, an Ohio corporation, its corporate successors and the surviving corporation resulting from any merger of The Lubrizol Corporation with any other corporation or corporations. (c) Lubrizol Pension Plan. The term "Lubrizol Pension Plan" shall mean The Lubrizol Corporation Revised Pension Plan as the same shall be in effect on the date of a Participant's retirement, death, or other termination of employment. (d) Participant. Effective June 22, 1992, the term "Participant" shall mean any person employed by the Company who is listed on Appendix A attached hereto, or who is designated by the Board of Directors as an officer for the purposes of Section 16 of the Securities Exchange Act of 1934, or whose benefits under the Lubrizol Pension Plan are limited by the application of Section 401(a)(17) of the Internal Revenue Code of 1986, as amended. (e) Plan. The term "Plan" shall mean the excess defined benefit pension plan as set forth herein, together with all amendments hereto, which Plan shall be called "The Lubrizol Corporation Excess Defined Benefit Plan." (f) Trust. The term "Trust" shall mean The Lubrizol Corporation Excess Defined Benefit Plan Trust established pursuant to the Trust Agreement. (g) Trust Agreement. The term "Trust Agreement" shall mean The Lubrizol Corporation Excess Defined Benefit Plan Trust Agreement. 1.2. Additional Definitions. All other words and phrases used herein shall have the meanings given them in the Lubrizol Pension Plan, unless a different meaning is clearly required by the context. ARTICLE II 2 SUPPLEMENTAL PENSION BENEFIT 2.1 Eligibility. Effective January 1, 1997, A Participant who retires, dies, or otherwise terminates his employment with the Company and its subsidiaries and (a) whose benefits under the Lubrizol Pension Plan are limited by the provisions of Section 401(a)(17) or 415 of the Code, (b) who either was a Participant on January 1, 1989 or had attained age 55 on January 1, 1989, and thereafter became a Participant, and whose benefits under the Lubrizol Pension Plan are curtailed due to the revision of the pension benefit formula, effective as of January 1, 1989, to comply with the requirements of the Tax Reform Act of 1986, as amended, (c) who participated in The Lubrizol Corporation Deferred Compensation Plan for Officers (which was adopted effective July 25, 1994), or (d) who participated in The Lubrizol Corporation Executive Council Deferred Compensation Plan (which was adopted effective January 1, 1997) shall be eligible for a supplemental pension benefit determined in accordance with the provisions of Section 2.2. 2.2 Amount. Effective January 1, 1997, subject to the provisions of Article III, the monthly supplemental pension benefit payable to an eligible Participant shall be an amount which when added to the monthly pension payable to such Participant under the Lubrizol Pension Plan (prior to any reduction applicable to an optional method of payment) equals the monthly pension benefit which would have been payable under the Lubrizol Pension Plan (prior to any reduction applicable to an optional method of payment and adjusted for any amount payable under The Lubrizol Corporation Excess Defined Contribution Plan which is attributable to The Lubrizol Corporation Employees' Profit-Sharing Plan and which would have affected the benefit that the Participant would have received under the Lubrizol Pension Plan had it been payable from The Lubrizol Corporation Employees' Profit-Sharing Plan) if the limitations of Section 401(a)(17) and 415 of the Code were not in effect and, (if he is a Participant described in Section 2.1(ii)), his benefits had not been curtailed due to the revision of the Lubrizol Pension Plan effective as of January 1989, to comply with the provisions of the Tax Reform Act of 1986, as amended, and, (if he is a Participant described in Section 2.1(iii)), if he did not participate in The Lubrizol Corporation Deferred Compensation Plan for Officers (which was adopted effective July 25, 1994) or in The Lubrizol Corporation Executive Council Deferred Compensation Plan (which was adopted effective January 1, 1997). 2.3 Payment. The terms of payment of the supplemental pension benefit shall be identical to those specified in the Lubrizol Pension Plan for the type of benefit the Participant receives under the Lubrizol Pension Plan. 2.4 Vesting. Each Participant as of December 31, 1993, shall be 100 percent vested in his supplemental pension benefit determined in accordance with the provisions of Section 2.2. Each new Participant after December 31, 1993, shall be vested in his supplemental pension 3 benefit under this Plan as determined in accordance with the vesting provisions of the Lubrizol Pension Plan. ARTICLE III PAYMENT OF BENEFITS 3.1 Payment to Participant. (Effective November 27, 1995) (a) Each Participant who terminates employment with the Company and its related corporations shall receive payment of his supplemental pension benefit under the Plan determined as of his date of termination of employment in the standard form of benefit of a monthly retirement benefit commencing within 30 days following employment termination and payable to such Participant for his lifetime following such employment termination, with the continuance to his Beneficiary of such amount after his death for the remainder, if any, of the 120-month term that commenced with the date as of which the first payment of such monthly benefit is made, and with any such monthly benefits remaining unpaid upon the death of the survivor of the Participant and his Beneficiary to be made to the estate of such survivor. (b) Participants may instead elect within a 60 day period commencing 90 days prior to employment termination to receive the actuarial equivalent of the standard form of benefit determined under paragraph (a), on the date of employment termination, in accordance with any one of the following options: (i) for Participants hired prior to February 1, 1984, a single lump-sum payment payable within 30 days following employment termination; (ii) effective October 1, 2000, for Participants hired prior to February 1, 1984, a single lump-sum payment payable within 30 days following the end of the calendar year in which the Participant's employment terminated. Interest on the lump-sum deferral shall accrue and be paid with the lump-sum; such interest to be computed at the applicable interest rate, as defined in Section 417(e)(3)(A)(ii)(II) of the Code, in effect on the date of the employment termination. (iii) a reduced monthly retirement benefit commencing within 30 days following employment termination and payable to such Participant for his lifetime following such employment termination, with the continuance of a monthly benefit equal to fifty percent (50%) of such reduced amount after his death to the Participant's Beneficiary during the lifetime of the Beneficiary, provided that such Beneficiary is living at the time of such Participant's employment termination and survives such Participant; (iv) a reduced monthly retirement benefit commencing within 30 days following employment termination and payable to such Participant during his lifetime following his termination, with the continuance of a monthly benefit equal to one hundred percent (100%) of such reduced amount after his death to the Participant's Beneficiary during the lifetime of the Beneficiary, provided such Beneficiary is living at the time of such Participant's termination and survives such Participant. 4 Such optional forms of payment described above shall be calculated using the same actuarial factors and interest rates used under The Lubrizol Corporation Pension Plan (or its successor) as in effect on the date of employment termination; provided, however, that for any person who was a Participant as of December 31, 1993, who elects to have his supplemental pension benefit paid in a single lump-sum payment, the interest rate used to discount the portion of the Participant's supplemental pension benefit which represents his accrued benefit as of December 31, 1993, shall be the arithmetic average of the 7-day compound yield rates for the six full calendar months prior to the month of termination as published in Donoghue's Tax-Free MONEY FUND AVERAGE which is reported weekly in Barron's; provided further that such rate with respect to any month shall be the rate reported in the first issue of Barron's published during such month. Notwithstanding the foregoing provisions of the Plan to the contrary, if the present actuarial value of any retirement benefit or survivor benefit under the Plan to any person, determined as described above, is less than $25,000, such benefit shall be paid in a single lump-sum payment to such person within 30 days following employment termination. 3.2 Payment in the Event of Death Prior to Commencement of Distribution. If a Participant dies prior to commencement of benefits under the Plan, his surviving spouse, if any, shall be eligible for a survivor benefit which is equal to one-half of the reduced monthly benefit the Participant would have received under the Plan if the Participant had retired on the day before his death and had elected to receive his benefit under the Lubrizol Pension Plan in a 50 percent joint and survivor annuity form. In making the determinations and reductions required in this Section 3.2, the Company shall apply the assumptions then in use under the Lubrizol Pension Plan. For purposes hereof, a surviving spouse shall only be eligible for a benefit under this Section 3.2, if such spouse had been married to the deceased Participant for at least one year as of the date of the Participant's death. 3.3 Special Form of Benefit for E. Victor Luoma. Notwithstanding the first sentence of Section 3.1, E. Victor Luoma may elect prior to his retirement or other termination of employment to receive payment of his supplemental pension benefit under the Plan in the form of a single sum amount, determined and payable in accordance with the second and third sentences of Section 3.1. 3.4 Lump Sum Form of Benefit for Roger Y. K. Hsu. Effective January 1, 1996, notwithstanding the provisions of Section 3.1(b), Roger Y. K. Hsu shall receive payment of his supplemental pension benefit under the Plan in the form of a single sum amount. ARTICLE IV ADMINISTRATION The Company shall be responsible for the general administration of the Plan, for carrying out the provisions hereof, and for making, or causing the Trust to make, any required supplemental benefit payments. The Company shall have all such powers as may be necessary to carry out the provisions of the Plan, including the power to determine all questions relating to eligibility for and the amount of any supplemental pension benefit and all questions pertaining to claims for benefits and procedures for claim review; to resolve all other questions arising under the Plan, including any questions of construction; and to take such further action as the 5 Company shall deem advisable in the administration of the Plan. The Company may delegate any of its powers, authorities, or responsibilities for the operation and administration of the Plan to any person or committee so designated in writing by it and may employ such attorneys, agents, and accountants as it may deem necessary or advisable to assist it in carrying out its duties hereunder. The actions taken and the decisions made by the Company hereunder shall be final and binding upon all interested parties. ARTICLE V AMENDMENT AND TERMINATION The Company reserves the right to amend or terminate the Plan in whole or in part at any time and to suspend operation of the Plan, in whole or in part, at any time, by resolution or written action of its Board of Directors or by action of a committee to which such authority has been delegated by the Board of Directors; provided, however, that no amendment shall result in the forfeiture or reduction of the interest of any Participant or person claiming under or through any one or more of them pursuant to the Plan. Any amendment of the Plan shall be in writing and signed by authorized individuals. ARTICLE VI MISCELLANEOUS 6.1 Non-Alienation of Retirement Rights or Benefits. No Participant shall encumber or dispose of his right to receive any payments hereunder, which payments or the right thereto are expressly declared to be non-assignable and non-transferable. If a Participant attempts to assign, transfer, alienate or encumber his right to receive any payment hereunder or permits the same to be subject to alienation, garnishment, attachment. execution, or levy of any kind, then thereafter during the life of such Participant, and also during any period in which any Participant is incapable in the judgment of the Company of attending to his financial affairs, any payments which the Company is required to make hereunder may be made, in the discretion of the Company, directly to such Participant or to any other person for his use or benefit or that of his dependents, if any, including any person furnishing goods or services to or for his use or benefit or the use or benefit of his dependents, if any. Each such payment may be made without the intervention of a guardian, the receipt of the payee shall constitute a complete acquittance to the Company with respect thereto, and the Company shall have no responsibility for the proper allocation thereof. 6.2 Plan Non-Contractual. Nothing herein contained shall be construed as a commitment or agreement on the part of any person employed by the Company to continue his employment with the Company, and nothing herein contained shall be construed as a commitment on the part of the Company to continue the employment or the annual rate of compensation of any such person for any period, and all Participants shall remain subject to discharge to the same extent as if the Plan had never been established. 6.3 Trust. In order to provide a source of payment for its obligations under the Plan, the Company has established the Trust, the terms of which are governed by the Trust Agreement. 6 6.4 Interest of a Participant. Subject to the provisions of the Trust Agreement, the obligation of the Company under the Plan to provide a Participant with a supplemental pension benefit constitutes the unsecured promise of the Company to make payments as provided herein, and no person shall have any interest in, or a lien or prior claim upon, any property of the Company. 6.5 Controlling Status. No Participant shall be eligible for a benefit under the Plan unless such Participant is a Participant on the date of his retirement, death, or other termination of employment. 6.6 Claims of Other Persons. The provisions of the Plan shall in no event be construed as giving any person, firm or corporation any legal or equitable right as against the Company, its officers, employees, or directors, except any such rights as are specifically provided for in the plan or are hereafter created in accordance with the terms and provisions of the Plan. 6.7 Severability. The invalidity or unenforceability of any particular provision of the Plan shall not affect any other provision hereof, and the Plan shall be construed in all respects as if such invalid or unenforceable provision were omitted herefrom. 6.8 Governing Law. The provisions of the Plan shall be governed and construed in accordance with the laws of the State of Ohio. 7 APPENDIX A TO THE LUBRIZOL CORPORATION EXCESS DEFINED BENEFIT PLAN Participants(1) Effective Date 1. W. G. Bares December 31, 1986 2. G. R. Hill December 31, 1986 3. J. R. Ahern April 1, 1990 4. K. H. Hopping April 21, 1991 5. J. W. Bauer April 27, 1992 6. S. F. Kirk April 26, 1993 7. Y. Le Couedic April 26, 1993 8. J. E. Hodge April 26, 1993 9. M. W. Meister April 26, 1993 10. S. A. Di Biase April 26, 1993 11. G. P. Lieb April 25, 1994 12. L. M. Reynolds April 24, 1995 13. R. D. Robins April 22, 1996 14. C. P. Cooley April 1, 1998 15. D. W. Bogus April 1, 2000 16. J. L. Hambrick May 1, 2000 Former Participants(2) 1. P. L. Krug (R) 2. W. T. Beargie (R) 3. W. D. Manning (R) 4. R. W. Scher (R) 5. J. P. Arzul (D) 6. J. R. Cooper (R) 7. J. I. Rue (R) 8. R. J. Senz (T) 9. E. V. Luoma (R) 10. R. Y. K. Hsu (R) 11. L. E. Coleman (R) 12. J. G. Bulger (R) 13. D. A. Muskat (R) 14. W. R. Jones (R) 15. R. A. Andreas (R) 16. J. A. Thomas (R) - -------- (1) This listing of Participants is limited to those Participants who are also officers for purposes of Section 16 of the Securities Exchange Act of 1934. (2) R= Retired, D = Deceased, T = Terminated. EX-10.E 4 l84324aex10-e.txt EXHIBIT 10(E) 1 Exhibit (10)(e) THE LUBRIZOL CORPORATION EXCESS DEFINED CONTRIBUTION PLAN (As Amended 10/1/00) The Lubrizol Corporation hereby establishes, effective as of December 31, 1986, The Lubrizol Corporation Excess Defined Contribution Plan (the "Plan") for the purpose of supplementing the benefits of certain employees, as permitted by Section 3(36) of the Employee Retirement Income Security Act of 1974. ARTICLE I DEFINITIONS 1.1 Definitions. For the purposes hereof, the following words and phrases shall have the meanings indicated, unless a different meaning is plainly required by the context: (a) Beneficiary. The term "Beneficiary" shall mean the person or persons who shall be designated by a Participant to receive distribution of such Participant's interest under the Plan in the event such Participant dies before full distribution of his interest. (b) Code. The term "Code" shall mean the Internal Revenue Code as amended from time to time. Reference to a section of the Code shall include such section and any comparable section or sections of any future legislation that amends, supplements, or supersedes such section. (c) Company. Effective December 30, 1994, the term "Company" shall mean The Lubrizol Corporation, an Ohio corporation, its corporate successors and the surviving corporation resulting from any merger of The Lubrizol Corporation with any other corporation or corporations, and any subsidiaries of The Lubrizol Corporation which adopt the Plan. (d) Fund. The term "Fund" shall mean each separate investment fund established and maintained under the Trust Agreement. (e) Lubrizol Profit-Sharing Plan. The term "Lubrizol Profit-Sharing Plan" shall mean The Lubrizol Corporation Employees' Profit-Sharing Plan as the same shall be in effect on the date of a Participant's retirement, death, or other termination of employment. (f) Participant. Effective September 30, 1994, The term "Participant" shall mean any person employed by the Company who is listed on Appendix A attached hereto, or who is designated by the Board of Directors as an officer for the purposes of Section 16 of the Securities Exchange Act of 1934, or whose benefits under the Profit-Sharing Plan are limited by the application of Section 401(a)(17) of the Internal Revenue Code of 1986, as amended. (g) Plan. The term "Plan" shall mean the excess defined contribution retirement plan as set forth herein, together with all amendments hereto, which Plan shall be called "The Lubrizol Corporation Excess Defined Contribution Plan." 2 (h) Plan Year. The term "Plan Year" shall mean the calendar year. (i) Supplemental Company Contributions. The term "Supplemental Company Contributions" shall mean the contributions made by the Company under the Plan in accordance with the provisions of Section 2.2. (j) Trust Agreement. The term "Trust Agreement" shall mean The Lubrizol Corporation Excess Defined Contribution Plan Trust Agreement. (k) Trust Assets. The term "Trust Assets" shall mean all property held by the Trustee pursuant to the Trust Agreement. (l) Trustee. The term "Trustee" shall mean the trustee of The Lubrizol Corporation Excess Defined Contribution Trust. (m) Valuation Date. The term "Valuation Date" shall mean the last day of each Plan Year and any other date as may be agreed upon by the Company and the Trustee. (n) Separate Accounts. The term "Separate Accounts" shall mean each account established on behalf of a Participant under the Plan and credited with Supplemental Company Contributions in accordance with the provisions of Section 2.3. (o) Lubrizol Deferred Compensation Plan. Effective July 1, 1994, the term "Lubrizol Deferred Compensation Plan" shall mean The Lubrizol Corporation Deferred Compensation Plan for Officers (which was adopted effective July 1, 1994), as shall be in effect on the date of the Participant's retirement, death, or other termination of employment. (p) Executive Council Deferred Compensation Plan. Effective January 1, 1997, the term "Executive Council Deferred Compensation Plan" shall mean The Lubrizol Corporation Executive Council Deferred Compensation Plan, as shall be in effect on the date of the Participant's retirement, death, or other termination of employment. 1.2 Additional Definitions. All other words and phrases used herein shall have the meanings given them in the Lubrizol Profit-Sharing Plan, unless a different meaning is clearly required by the context. ARTICLE II SUPPLEMENTAL CONTRIBUTIONS 2.1 Eligibility. Effective January 1, 1997, a Participant whose benefits under the Lubrizol Profit-Sharing Plan are limited with respect to any Plan Year by Section 401(a)(17) or 415 of the Code, or who participated in the Lubrizol Deferred Compensation Plan or the Executive Council Deferred Compensation Plan, shall be eligible to have contributions made with respect to him under the Plan in accordance with the provisions of this Article II. 2.2 Supplemental Company Contributions. Effective January 1, 1997, in the event that Company contributions under the Lubrizol Profit-Sharing Plan with respect to a Participant are limited for any Plan Year due to the provisions of Section 401(a)(17) or 415 of the Code, or 3 due to the Participant's participation in the Lubrizol Deferred Compensation Plan or the Executive Council Deferred Compensation Plan, the amounts by which such contributions are limited shall be credited under the Plan by the Company and shall be designated as Supplemental Company Contributions. 2.3 Allocation of Contributions. Effective September 30, 1994, Supplemental Company Contributions shall be allocated among the Separate Accounts of the Participants on whose behalf such contributions are made. 2.4 Administration of Separate Accounts. Effective September 30, 1994, each Separate Account to which contributions under Sections 2.2 and 2.3 are credited and allocated shall be credited monthly with the net monthly increase experienced by the General Fund of the Lubrizol Profit-Sharing Plan. ARTICLE III DISTRIBUTION 3.1 Vesting. Each Participant as of December 31, 1993, shall be 100 percent vested in the value of his Separate Accounts. Each new Participant after December 31, 1993, shall be vested in the value of his Separate Accounts under this Plan as determined in accordance with the vesting provisions of the underlying qualified plans. 3.2 Distribution. (Effective November 27, 1995) (a) Each Participant who terminates employment with the Company and its related corporations shall receive payment of the balance in his Separate Account in the standard form of payment of a single lump-sum payment payable within 30 days following employment termination; (b) Effective October 1, 2000, Participants may instead elect within a 60-day period commencing 90 days prior to employment termination to receive the balance of his Separate Account in any one of the following payment options: i. a single lump-sum payment payable within 30 days following the calendar year in which the Participant's employment terminated. Interest shall accrue and be paid with the lump-sum; such interest to be computed at the applicable interest rate, as defined in Section 417(e)(3)(A)(ii)(II) of the Code, in effect on the date of employment termination. ii. annual installments of up to ten payments, the first of which shall be paid within 30 days of the Participant's employment termination, and subsequent installments of which shall be paid on the anniversary date of the payment of the first installment. Such installments shall be determined by dividing the value of the Participant's Separate Account (determined in the same manner as under the Lubrizol Profit-Sharing Plan by the number of installments to be paid and adjusting for interest based on the applicable interest rate, as defined in Section 417(e)(3)(A)(ii)(II) of the Code, in effect on the date of employment termination. Installments after the first installment shall include such interest, which accrues during the 12-month period occurring since the date the prior installment was paid. 4 Notwithstanding the foregoing provisions of the Plan to the contrary, if the present value of the Separate Account is less than $25,000, such benefit shall be paid in a single lump-sum payment to such person within 30 days following employment termination. 3.3 Distribution in the Event of Death. Effective September 30, 1994, in the event of the death of a Participant prior to distribution in full of his interest under the Plan, his Beneficiary shall receive distribution of such interest. In the event of death of a Participant prior to making an election for benefits, such Beneficiary shall receive distribution of such interest as soon as practicable after such Participant's death in the form elected by such Beneficiary pursuant to Section 3.2. The Beneficiary under this Section 3.3 shall be the person designated as the Participant's beneficiary under the Lubrizol Profit-Sharing Plan. If no Beneficiary survives such Participant or if no Beneficiary has been designated by such Participant, the estate of such Participant shall be the Beneficiary and receive distribution thereof. If any Beneficiary dies after becoming entitled to receive distribution hereunder and before such distribution is made in full, and if no other person or persons have been designated to receive the balance of such distribution upon the happening of such contingency, the estate of such deceased Beneficiary shall become the Beneficiary as to such balance. ARTICLE IV ADMINISTRATION The Company shall be responsible for the general administration of the Plan, for carrying out the provisions hereof, and for making any required supplemental benefit payments. The Company shall have all such powers as may be necessary to carry out the provisions of the Plan, including the power to determine all questions relating to eligibility for and the amount of any supplemental retirement benefits and all questions pertaining to claims for benefits and procedures for claim review; to resolve all other questions arising under the Plan, including any questions of construction; and to take such further action as the Company shall deem advisable in the administration of the Plan. The Company may delegate any of its powers, authorities, or responsibilities for the operation and administration of the Plan to any person or committee so designated in writing by it and may employ such attorneys, agents, and accountants as it may deem necessary or advisable to assist it in carrying out its duties hereunder. The actions taken and the decisions made by the Company hereunder shall be final and binding upon all interested parties. ARTICLE V AMENDMENT AND TERMINATION The Company reserves the right to amend or terminate the Plan in whole or in part at any time and to suspend operation of the Plan, in whole or in part, at any time, by resolution or written action of its Board of Directors or by action of a committee to which such authority has been delegated by the Board of Directors; provided, however, that no amendment shall result in the forfeiture or reduction of the interest of any Participant or person claiming under or through any one or more of them pursuant to the Plan. Any amendment of the Plan shall be in writing and signed by authorized individuals. 5 ARTICLE VI MISCELLANEOUS 6.1 Non-Alienation of Retirement Rights or Benefits. No Participant shall encumber or dispose of his right to receive any payments hereunder, which payments or the right thereto are expressly declared to be non-assignable and non-transferable. If a Participant or Beneficiary attempts to assign, transfer, alienate or encumber his right to receive any payment under the Plan or permits the same to be subject to alienation, garnishment, attachment, execution, or levy of any kind, then thereafter during the life of such Participant or Beneficiary and also during any period in which any Participant or Beneficiary is incapable in the judgment of the Company of attending to his financial affairs, any payments which the Company is required to make hereunder may be made, in the discretion of the Company, directly to such Participant or Beneficiary or to any other person for his use or benefit or that of his dependents, if any, including any person furnishing goods or services to or for his use or benefit or the use or benefit of his dependents, if any. Each such payment may be made without the intervention of a guardian, the receipt of the payee shall constitute a complete acquittance to the Company with respect thereto, and the Company shall have no responsibility for the proper allocation thereof. 6.2 Plan Non-Contractual. Nothing herein contained shall be construed as a commitment or agreement on the part of any person employed by the Company to continue his employment with the Company, and nothing herein contained shall be construed as a commitment on the part of the Company to continue the employment or the annual rate of compensation of any such person for any period, and all Participants shall remain subject to discharge to the same extent as if the Plan had never been established. 6.3 Trust. In order to provide a source of payment for its obligations under the Plan, the Company has established The Lubrizol Corporation Excess Defined Contribution Plan Trust. 6.4 Interest of a Participant. Subject to the provisions of the Trust Agreement, the obligation of the Company under the Plan to provide a Participant or Beneficiary with supplemental retirement benefits merely constitutes the unsecured promise of the Company to make payments as provided herein, and no person shall have any interest in, or a lien or prior claim upon, any property of the Company. 6.5 Controlling Status. No Participant shall be eligible for a benefit under the Plan unless such Participant is a Participant on the date of his retirement, death, or other termination of employment. 6.6 Claims of Other Persons. The provisions of the Plan shall in no event be construed as giving any person, firm or corporation any legal or equitable right as against the Company, its officers, employees, or directors, except any such rights as are specifically provided for in the Plan or are hereafter created in accordance with the terms and provisions of the Plan. 6.7 Severability. The invalidity or unenforceability of any particular provision of the Plan shall not affect any other provision hereof, and the Plan shall be construed in all respects as if such invalid or unenforceable provision were omitted herefrom. 6.8 Governing Law. The provisions of the Plan shall be governed and construed in accordance with the laws of the State of Ohio. 6 APPENDIX A TO THE LUBRIZOL CORPORATION EXCESS DEFINED CONTRIBUTION PLAN Participants(1) Effective Date 1. W. G. Bares December 31, 1986 2. G. R. Hill December 31, 1986 3. J. R. Ahern April 1, 1990 4. K. H. Hopping April 21, 1991 5. J. W. Bauer April 27, 1992 6. S. F. Kirk April 26, 1993 7. Y. Le Couedic April 26, 1993 8. J. E. Hodge April 26, 1993 9. M. W. Meister April 26, 1993 10. S. A. Di Biase April 26, 1993 11. G. P. Lieb April 25, 1994 12. L. M. Reynolds April 24, 1995 13. R. D. Robins April 22, 1996 14. C. P. Cooley April 1, 1998 15. D. W. Bogus April 1, 2000 16. J. L. Hambrick May 1, 2000 Former Participants(2) 1. P. L. Krug (R) 2. W. T. Beargie (R) 3. W. D. Manning (R) 4. R. W. Scher (R) 5. J. P. Arzul (D) 6. J. R. Cooper (R) 7. J. I. Rue (R) 8. R. J. Senz (T) 9. E. V. Luoma (R) 10. R. Y. K. Hsu (R) 11. L. E. Coleman (R) 12. J. G. Bulger (R) 13. D. A. Muskat (R) 14. W. R. Jones (R) 15. R. A. Andreas (R) 16. J. A. Thomas (R) - -------- (1) This listing of Participants is limited to those Participants who are also officers for purposes of Section 16 of the Securities Exchange Act of 1934. (2) R = Retired, D = Deceased, T = Terminated. EX-10.J 5 l84324aex10-j.txt EXHIBIT 10(J) 1 Exhibit (10)(j) THE LUBRIZOL CORPORATION OFFICERS' SUPPLEMENTAL RETIREMENT PLAN (As Amended 10/1/00) The Lubrizol Corporation hereby establishes, effective as of January 1, 1993, The Lubrizol Corporation Officers' Supplemental Retirement Plan (the "Plan") for the purpose of providing deferred compensation benefits to a select group of management or highly compensated employees. Section 1. Definitions. For the purposes hereof, the following words and phrases shall have the meanings indicated, unless a different meaning is plainly required by the context: (a) Beneficiary. The term "Beneficiary" shall mean a person who is designated by a Participant to receive benefits payable upon his death pursuant to the provisions of Section 6. (b) Code. The term "Code" shall mean the Internal Revenue Code as amended from time to time. Reference to a section of the Code shall include such section and any comparable section or sections of any future legislation that amends, supplements, or supersedes such section. (c) Company. The term "Company" shall mean The Lubrizol Corporation, an Ohio corporation, its corporate successors and the surviving corporation resulting from any merger of The Lubrizol Corporation with any other corporation or corporations. (d) Credited Service. The term "Credited Service" shall mean a Participant's years of service with the Company equal to the number of full and fractional years of service (to the nearest twelfth of a year) beginning on the date the Participant first performed an hour of service for the Company and ending on the date he is no longer employed by the Company. (e) Final Average Pay. Effective, January 1, 1997, the term "Final Average Pay" shall mean the aggregated amount of Basic Compensation (as that term is defined in the Lubrizol Pension Plan modified to add cash (but not shares), if any, which the Participant has elected to defer under The Lubrizol Corporation Deferred Compensation Plan for Officers (which was adopted effective July 25, 1994) or under The Lubrizol Corporation Executive Council Deferred Compensation Plan (which was adopted effective January 1, 1997), received by the Participant during the three consecutive calendar years during which such Participant received the greatest aggregate amount of Basic Compensation, as defined above, within the most recent ten years of employment, divided by 36. 2 (f) Lubrizol Pension Plan. The term "Lubrizol Pension Plan" shall mean The Lubrizol Corporation Pension Plan as the same shall be in effect on the date of a Participant's retirement, death, or other termination of employment. (g) Normal Retirement Date. The term "Normal Retirement Date" shall mean the first day of the month following the date on which a Participant attains age sixty-five (65). (h) Participant. The term "Participant" shall mean the Chief Executive Officer, the Chief Operating Officer and any other officer of the Company who is designated by the Board of Directors of the Company and the Chief Executive Officer to participate in the Plan, and who has not waived participation in the Plan. (i) Plan. The term "Plan" shall mean a deferred compensation plan set forth herein, together with all amendments hereto, which Plan shall be called "The Lubrizol Corporation Officers' Supplemental Retirement Plan." Section 2. VESTING. The Participant shall be 100 percent vested in his accrued supplemental retirement benefit hereunder. Section 3. Normal Retirement Benefit. Each Participant who retires from employment with the Company on or after his Normal Retirement Date shall receive, subject to the provisions of Sections 6 and 7, a monthly supplemental retirement benefit which shall be equal to two percent (2%) of his Final Average Pay multiplied by his Credited Service (up to 30 years) offset by the following amounts: (a) Benefits payable to the Participant under the Lubrizol Pension Plan; (b) Benefits payable to the Participant under The Lubrizol Corporation Employees' Stock Purchase and Savings Plan, including benefits attributable to Matching Contributions, but excluding benefits attributable to CODA Contributions, Supplemental Contributions, Rollover Contributions or Transferred Contributions, as defined thereunder; (c) Benefits payable to the Participant under The Lubrizol Corporation Employees' Profit-Sharing Plan; (d) Benefits payable to the Participant under The Lubrizol Corporation Excess Defined Contribution Plan; (e) Benefits payable to the Participant under The Lubrizol Corporation Excess Defined Benefit Plan; (f) The Participant's Social Security benefits; (g) Any other employer-provided benefits not specifically excluded herein which are payable to the Participant pursuant to any qualified or nonqualified retirement plan maintained by the Company. 3 Such offsets shall be determined using the actuarial factors provided in the Lubrizol Pension Plan. Section 4. Early Retirement Eligibility and Determination of Benefit. Each Participant who retires from employment with the Company at or after age 55, but prior to his Normal Retirement Date, shall receive a percentage of his supplemental retirement benefit determined under Section 3, in accordance with the early retirement schedule provided in the Lubrizol Pension Plan. Section 5. Termination of Employment. If a Participant terminates employment prior to age 55, he shall receive the actuarial equivalent of his supplemental retirement benefit determined under Section 3 in a single lump-sum payment; such actuarial equivalent of which shall be calculated using the same actuarial factors and interest rates used in the Lubrizol Pension Plan as in effect on the date the Participant terminates employment in accordance with this Section 5. Section 6. Payment to Participant. (Effective November 27, 1995) (a) Each Participant who retires in accordance with Sections 3 or 4 shall receive payment of his supplemental pension benefit under the Plan determined as of his date of retirement in the standard form of benefit of a monthly retirement benefit commencing within 30 days following retirement and payable to such Participant for his lifetime following such retirement, with the continuance to his Beneficiary of such amount after his death for the remainder, if any, of the 120-month term that commenced with the date as of which the first payment of such monthly benefit is made, and with any such monthly benefits remaining unpaid upon the death of the survivor of the Participant and his Beneficiary to be made to the estate of such survivor. (b) Participants may instead elect within a 60 day period commencing 90 days prior to retirement to receive the actuarial equivalent of the standard form of benefit determined under paragraph a, on the date of retirement, in accordance with any one of the following options: (i) a single lump-sum payment payable within 30 days following retirement; (ii) effective October 1, 2000, a single lump-sum payment payable within 30 days following the end of the calendar year in which the Participant retires. Interest on the lump-sum deferral shall accrue and be paid with the lump-sum; such interest to be computed at the applicable interest rate, as defined in Section 417(e)(3)(A)(ii)(II) of the Code, in effect on the date of retirement; (iii) a reduced monthly retirement benefit commencing within 30 days following retirement and payable to such Participant for his lifetime following his retirement, with the continuance of a monthly benefit equal to fifty percent (50%) of such reduced amount after his death to his Beneficiary during the lifetime of the Beneficiary, provided that such 4 Beneficiary is living at the time of such Participant's retirement and survives him; (iv) a reduced monthly retirement benefit commencing within 30 days following retirement and payable to such Participant for his lifetime following his retirement, with the continuance of a monthly benefit equal to one hundred percent (100%) of such reduced amount after his death to his Beneficiary during the lifetime of the Beneficiary, provided such Beneficiary is living at the time of such Participant's retirement and survives him. (v) annual installments of up to ten payments, the first of which shall be paid within 30 days following retirement, and subsequent installments of which shall be paid on the anniversary date of the payment of the first installment. Such installments shall be determined by dividing the commuted lump-sum equivalent of the supplemental retirement benefit (determined in the same manner as under the Lubrizol Pension Plan) by the number of installments to be paid and adjusting for interest based on the interest rate used to determine the commuted lump-sum payment. Installments after the first installment shall include such interest which accrues during the 12-month period occurring since the date the prior installment was paid. Notwithstanding the foregoing provisions of the Plan to the contrary, if the present actuarial value of any retirement benefit or survivor benefit under the Plan to any person, determined as described above, is less than $25,000, such benefit shall be paid in a single lump-sum payment to such person within 30 days following retirement. Section 7. Payment in the Event of Death Prior to Commencement of Distribution. If a Participant dies prior to commencement of benefits under the Plan, his surviving spouse, if any, shall be eligible for a survivor benefit which is equal to one-half of the reduced monthly benefit the Participant would have received under the Plan if the Participant had terminated employment on the day before his death and had elected to receive his benefit hereunder in the form of a 50 percent joint and survivor annuity. In making the determinations and reductions required in this Section 7, the Company shall apply the assumptions then in use under the Lubrizol Pension Plan. For purposes hereof, a surviving spouse shall only be eligible for a benefit under this Section 7, if such spouse had been married to the deceased Participant for at least one year as of the date of the Participant's death. Section 8. Actuarial Factors. All actuarial assumptions and factors used in this Plan shall be the same as those used in the Lubrizol Pension Plan. Section 9. Funding. The obligation of the Company to pay benefits provided hereunder shall be unfunded and unsecured and such benefits shall be paid by the Company out of its general funds. In order to provide a source of payment for its obligations under the Plan, the Company may cause a trust fund to be maintained and/or arrange for insurance contracts. Subject to the provisions of the trust agreement governing any such trust fund or the insurance contract, the obligation of the Company under the Plan to provide a Participant with a benefit shall nonetheless constitute the 5 unsecured promise of the Company to make payments as provided herein, and no person shall have any interest in, or a lien or prior claim upon, any property of the Company. Section 10. Plan Administrator. The Company shall be the plan administrator of the Plan. The plan administrator shall perform all ministerial functions with respect to the Plan. Further, the plan administrator shall have full power and authority to interpret and construe the Plan and shall determine all questions arising in the administration, interpretation, and application of the Plan. Any such determination shall be conclusive and binding on all persons. The plan administrator shall employ such advisors or agents as it may deem necessary or advisable to assist it in carrying out its duties hereunder. Section 11. Not a Contract of Continuing Employment. Nothing herein contained shall be construed as a commitment or agreement on the part of the Participant to continue his employment with the Company, and nothing herein contained shall be construed as a commitment or agreement on the part of the Company to continue the employment or the annual rate of compensation of the Participant for any period, and the Participant shall remain subject to discharge to the same extent as if this Plan had never been put into effect. Section 12. Right of Amendment and Termination. Effective October 1, 1994, the Company reserves the right to amend or terminate the Plan in whole or in part at any time and to suspend operation of the Plan, in whole or in part, at any time, by resolution or written action of its Board of Directors or by action of a committee to which such authority has been delegated by the Board of Directors; provided, however, that no amendment shall result in the forfeiture or reduction of the interest of any Participant or person claiming under or through any one or more of them pursuant to the Plan. Any amendment of the Plan shall be in writing and signed by authorized individuals. Section 13. Termination and Distribution of Accrued Benefits. The Plan may be terminated at any time by the Company, and in that event the amount of the accrued benefits as of the date of such termination shall remain an obligation of the Company and shall be payable as if the Plan had not been terminated. Section 14. Construction. Where necessary or appropriate to the meaning hereof, the singular shall be deemed to include the plural, the plural to include the singular, the masculine to include the feminine, and the feminine to include the masculine. Section 15. Severability. In the event any provision of the Plan is deemed invalid, such provision shall be deemed to be severed from the Plan, and the remainder of the Plan shall continue to be in full force and effect. Section 16. Governing Law. Except as otherwise provided, the provisions of the Plan shall be construed and enforced in accordance with the laws of the State of Ohio. EX-27 6 l84324aex27.txt EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 106,153 0 286,736 4,805 290,538 736,443 1,624,127 949,451 1,669,173 297,870 380,666 0 0 83,588 663,105 1,669,173 1,298,413 1,301,706 919,615 919,615 0 1,149 20,480 121,707 36,635 0 0 0 0 85,072 1.59 1.59
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