-----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, WoD0HdYcm03tR7nyg74TTf7xARuY1IGyBgCoD+q3QXmG/34tE+Dq8l42QQx7zZTu ZFH/qpn/cOh0Nis4SOPe6g== 0000950152-03-005122.txt : 20030507 0000950152-03-005122.hdr.sgml : 20030507 20030507134851 ACCESSION NUMBER: 0000950152-03-005122 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030507 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LUBRIZOL CORP CENTRAL INDEX KEY: 0000060751 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL ORGANIC CHEMICALS [2860] IRS NUMBER: 340367600 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05263 FILM NUMBER: 03685844 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 l00403ae10vq.txt THE LUBRIZOL CORPORATION 10-Q/QTR. END 3-31-03 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 March 31, 2003 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 [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ] Number of the registrant's common shares, without par value, outstanding, as of March 31, 2003: 51,491,270. PART I. FINANCIAL INFORMATION Item 1 Financial Statements THE LUBRIZOL CORPORATION
CONSOLIDATED BALANCE SHEETS - ----------------------------------------------------------------------------------------------------- March 31 December 31 (In Thousands of Dollars) 2003 2002 - ----------------------------------------------------------------------------------------------------- ASSETS Cash and short-term investments ...................... $ 227,146 $ 266,428 Receivables .......................................... 332,955 295,508 Inventories: Finished products .................................. 143,119 148,478 Products in process ................................ 80,249 58,643 Raw materials ...................................... 72,395 76,779 Supplies and engine test parts ..................... 19,248 19,068 ----------- ----------- 315,011 302,968 ----------- ----------- Other current assets ................................. 44,510 44,875 ----------- ----------- Total current assets ............. 919,622 909,779 Property and equipment - net ......................... 670,800 679,155 Goodwill ............................................. 168,807 168,352 Intangible assets - net .............................. 41,932 43,162 Investments in nonconsolidated companies ............. 7,298 6,690 Other assets ......................................... 54,528 52,999 ----------- ----------- TOTAL ....................... $ 1,862,987 $ 1,860,137 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Short-term debt and current portion of long-term debt $ 12,639 $ 17,046 Accounts payable ..................................... 129,480 140,424 Accrued expenses and other current liabilities ....... 139,512 150,271 ----------- ----------- Total current liabilities ........ 281,631 307,741 ----------- ----------- Long-term debt ....................................... 384,155 384,845 Postretirement health care obligation ................ 96,973 96,495 Noncurrent liabilities ............................... 94,810 92,655 Deferred income taxes ................................ 56,165 55,761 ----------- ----------- Total liabilities ................ 913,734 937,497 ----------- ----------- Minority interest in consolidated companies .......... 51,616 53,388 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 - 51,491,270 shares as of Mar. 31, 2003 after deducting 34,704,624 treasury shares, 51,457,642 shares as of December 31, 2002 after deducting 34,738,252 treasury shares 120,197 118,985 Retained earnings .................................. 854,341 828,318 Accumulated other comprehensive loss ............... (76,901) (78,051) ----------- ----------- Total shareholders' equity ....... 897,637 869,252 ----------- ----------- TOTAL ....................... $ 1,862,987 $ 1,860,137 =========== ===========
Amounts shown are unaudited. 2 THE LUBRIZOL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME - ----------------------------------------------------------------------------------------- Three Month Period Ended March 31 -------------------------------------- (In Thousands Except Per Share Data) 2003 2002 - ----------------------------------------------------------------------------------------- Net sales .................................. $ 507,000 $ 466,713 Royalties and other revenues ............... 1,213 799 --------- --------- Total revenues ................... 508,213 467,512 Cost of sales .............................. 368,263 331,210 Selling and administrative expenses ........ 50,815 48,743 Research, testing and development expenses . 41,633 40,566 Restructuring charge ....................... 3,506 -- --------- --------- Total cost and expenses .......... 464,217 420,519 Other income (expense) - net ............... (309) (719) Interest income ............................ 1,041 1,709 Interest expense ........................... (5,888) (5,387) --------- --------- Income before income taxes and cumulative effect of change in accounting principle .. 38,840 42,596 Provision for income taxes ................. 12,817 12,779 --------- --------- Income before cumulative effect of change in accounting principle ................... 26,023 29,817 Cumulative effect of change in accounting principle ................................. -- (7,785) --------- --------- Net income ................................. $ 26,023 $ 22,032 ========= ========= Net income per share ....................... Income before cumulative effect of change in accounting principle ........... $ 0.50 $ 0.58 Cumulative effect of change in accounting principle ................................ -- (0.15) --------- --------- Net income per share ....................... $ 0.50 $ 0.43 ========= ========= Net income per share, diluted .............. Income before cumulative effect of change in accounting principle ........... $ 0.50 $ 0.58 Cumulative effect of change in accounting principle ................................ -- (0.15) --------- --------- Net income per share, diluted ............. $ 0.50 $ 0.43 ========= ========= Dividends per share ........................ $ 0.26 $ 0.26 ========= ========= Weighted average common shares outstanding . 51,643 51,343
Amounts shown are unaudited. 3 THE LUBRIZOL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS - --------------------------------------------------------------------------------------------------- Three Month Period Ended March 31 ------------------------------------- (In Thousands of Dollars) 2003 2002 - --------------------------------------------------------------------------------------------------- Cash provided from (used for): Operating activities: Net income .......................................... $ 26,023 $ 22,032 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization ..................... 24,452 22,492 Deferred income taxes ............................. 1,535 (365) Restructuring charge .............................. 3,506 Cumulative effect of change in accounting principle 7,785 Change in current assets and liabilities: Receivables ..................................... (34,228) (22,496) Inventories ..................................... (10,566) 10,650 Accounts payable and accrued expenses ........... (13,558) 10,596 Other current assets ............................ (1,002) (4,823) Other items - net ................................. (1,947) (421) --------- --------- Total operating activities .................. (5,785) 45,450 Investing activities: Capital expenditures ................................ (15,331) (12,126) Acquisitions and investments in nonconsolidated companies ......................................... (17,235) Other - net ......................................... (235) 2,252 --------- --------- Total investing activities .................. (15,566) (27,109) Financing activities: Short-term borrowings,(repayments) net .............. (4,225) 1,528 Long-term repayments ................................ (103) (14) Long-term borrowings ................................ 11 Dividends paid ...................................... (13,379) (13,328) Stock options exercised ............................. 1,190 5,622 --------- --------- Total financing activities .................. (16,506) (6,192) Effect of exchange rate changes on cash ............... (1,425) 361 --------- --------- Net increase (decrease) in cash and short-term investments ......................................... (39,282) 12,510 Cash and short-term investments at beginning of period 266,428 189,095 --------- --------- Cash and short-term investments at end of period ...... $ 227,146 $ 201,605 ========= =========
Amounts shown are unaudited. 4 THE LUBRIZOL CORPORATION Notes to Consolidated Financial Statements Amounts in thousands (except per share data) March 31, 2003 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 March 31, 2003 and December 31, 2002, and the results of operations and cash flows for the applicable periods ended March 31, 2003 and 2002. 2. Net income per share is computed by dividing net income by average common shares outstanding during the period, including contingently issuable shares. Net income per diluted share includes the dilutive effect resulting from outstanding stock options and stock awards. Per share amounts are computed as follows:
Three Month Period Ended March 31 ----------------------------- 2003 2002 ---------- --------- Numerator: Income before cumulative effect of change in accounting principle ............................ $ 26,023 $ 29,817 Cumulative effect of change in accounting principle .......................................... -- (7,785) ---------- -------- Net income ........................................... $ 26,023 $ 22,032 ========== ======== Denominator: Weighted average common shares outstanding ........... 51,643 51,343 Dilutive effect of stock options and awards .......... 89 401 ---------- -------- Denominator for net income per share, diluted ......... 51,732 51,744 ========== ======== Net Income Per Share: Net income before cumulative effect of change in accounting principle ..................... $ 0.50 $ 0.58 ========== ======== Net income per share ................................. $ 0.50 $ 0.43 ========== ======== Diluted Net Income Per Share: Income per share before cumulative effect of change in accounting principle ..................... $ 0.50 $ 0.58 ========== ======== Net income per share, diluted ........................ $ 0.50 $ 0.43 ========== ========
Weighted average shares issuable upon the exercise of stock options which were excluded from the diluted earnings per share calculations because they were antidilutive were 4.0 million in 2003 and 1.0 million in 2002. 5 THE LUBRIZOL CORPORATION Notes to Consolidated Financial Statements Amounts in thousands (except per share data) March 31, 2003 3. Total comprehensive income for the three-month periods ended March 31, 2003 and 2002 is comprised as follows:
Three Month Period Ended March 31 2003 2002 -------- -------- Net income $ 26,023 $ 22,032 Foreign currency translation adjustment 872 (3,028) Unrealized gains - interest rate swaps 278 511 -------- -------- Total comprehensive income $ 27,173 $ 19,515 ======== ========
4. The company aggregates its product lines into four principal operating segments: fluid technologies for transportation, fluid technologies for industry, advanced fluid systems and emulsified products. Fluid technologies for transportation (FTT) is comprised of additives for lubricating engine oils, such as for gasoline, diesel, marine and stationary gas engines and additive components; additives for driveline oils, such as automatic transmission fluids, gear oils and tractor lubricants; and additives for fuel products and refinery and oil field chemicals. In addition, this segment sells additive components and viscosity improvers within its lubricant and fuel additives product lines. The company's fluid technologies for transportation product lines are generally produced in shared manufacturing facilities and sold largely to a common customer base. Fluid technologies for industry (FTI) includes industrial additives, such as additives for hydraulic, grease and metalworking fluids and compressor lubricants; and performance chemicals, such as additives for coatings and inks, defoamers and process chemicals. The advanced fluid systems and emulsified products operating segments do not constitute reportable business segments. The results of these two operating segments have been aggregated into the all other segment. Advanced fluid systems is comprised of fluid metering devices, particulate emission trap devices, and FluiPakTM sensor systems, and emulsified products is comprised of PuriNOxTM low-emissions diesel fuel. The company primarily 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, as well as projected future returns. In addition, in calculating segment operating profit before tax, the company allocates corporate research, testing, selling and administrative expenses, primarily based upon revenues, and assigns excess capacity costs to the segments to which it applies. The following table presents a summary of the company's reportable segments for the three months ended March 31, 2003 and 2002 based on the current reporting structure. Prior-year amounts have been restated to reflect reclassifications of products between reporting segments and changes in allocation methodology of corporate expenses. 6 THE LUBRIZOL CORPORATION Notes to Consolidated Financial Statements Amounts in thousands (except per share data) March 31, 2003
Three Month Period Ended March 31 ------------------------------ 2003 2002 --------- --------- Revenues from external customers: Fluid technologies for transportation (FTT) $ 390,476 $ 381,421 Fluid technologies for industry (FTI) 110,542 80,315 All other 7,195 5,776 --------- --------- Total revenues $ 508,213 $ 467,512 ========= ========= Segment contribution income(loss): Fluid technologies for transportation (FTT) $ 75,398 $ 77,317 Fluid technologies for industry (FTI) 20,578 16,155 All other (2,065) (3,024) --------- --------- Total segment contribution income $ 93,911 $ 90,448 ========= ========= Segment operating profit(loss): Fluid technologies for transportation (FTT) $ 38,530 $ 39,777 Fluid technologies for industry (FTI) 12,057 10,608 All other (3,394) (4,111) --------- ---------- Total segment operating profit 47,193 46,274 Restructuring charge (3,506) Interest expense - net (4,847) (3,678) --------- --------- Income before income taxes and cumulative effect of change in accounting principle $ 38,840 $ 42,596 ========= =========
5. In February, 2003, the company notified employees at its Bromborough, England facility of plans to restructure and reduce operational costs to remain competitive. The facility is planning to consolidate various operational activities to achieve greater efficiency through improved business processes. There will be a reduction by the end of 2003 of 40 employees, or approximately 35% of the facility's headcount. These changes began during the first quarter of 2003 and are expected to be completed by the end of 2003. As a result of these changes, the company recorded a restructuring charge of $3.5 million during the first quarter of 2003, which consisted of $2.1 million in severance costs and $1.4 million in asset impairment for production units taken out of service. The charge is reported as a separate line item in the consolidated income statement, entitled "Restructuring charge" and is included in the "Total cost and expenses" subtotal on the consolidated income statement. Cash expenditures of $.6 million were made in the first quarter of 2003 and $1.5 million remains as an accrued liability at March 31, 2003, relating to employees to be separated within the legal notification period of 90 days of the restructuring announcement date. Additional severance costs of approximately $1.0 million are expected to be incurred during the remainder of 2003 for those employees that will be separated after 90 days of the legal notification date of the restructuring. Additionally, further production equipment may be written off, having a book value in the range of $1.0 million to $2.0 million. 7 THE LUBRIZOL CORPORATION Notes to Consolidated Financial Statements Amounts in thousands (except per share data) March 31, 2003 6. The company has elected the intrinsic value method to account for employee stock options. The following table shows the pro forma effect on net income and earnings per share if the company had applied the fair value recognition provisions of SFAS 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation.
Three Month Period Ended March 31 ----------------------------- 2003 2002 --------- --------- Reported net income $ 26,023 $ 22,032 Plus: Stock-based employee compensation (net of tax) included in net income 181 9 Less: Stock-based employee compensation (net of tax) using the fair value method (1,400) (1,508) --------- --------- Pro forma net income $ 24,804 $ 20,533 ========= ========= Reported net income per share $ 0.50 $ 0.43 ========= ========= Pro forma net income per share $ 0.47 $ 0.40 ========= ========= Reported net income per share, diluted $ 0.50 $ 0.43 ========= ========= Pro forma net income per share, diluted $ 0.47 $ 0.40 ========= =========
8 THE LUBRIZOL CORPORATION Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS Our revenues increased in the first quarter of 2003 as compared with the first quarter of 2002, primarily due to higher average selling price caused by favorable currency, and the impact of acquisitions made in 2002. The increased revenues were partially offset by higher raw material costs and higher manufacturing expenses. Slightly higher STAR (selling, testing, administration and research) expenses and a restructuring charge resulted in a decrease in total revenues less total costs and expenses in 2003 compared with 2002. Higher interest expense along with an increased effective tax rate in the first quarter of 2003, compared with the same period in 2002, resulted in lower income before the cumulative effect of a change in accounting principle. Net income increased in the first quarter of 2003, compared with the same period in 2002, due to the absence in 2003 of the cumulative effect of a change in accounting principle that was recorded in the prior year for goodwill impairment. We group our product lines into three reportable segments: fluid technologies for transportation, fluid technologies for industry and all other. Fluid technologies for transportation comprised approximately 77% of our consolidated revenues and 80% of our segment pre-tax operating profits for the first quarter of 2003. See Note 4 to the financial statements for further financial disclosures by reporting segment. Our consolidated revenues increased $40.7 million, or 9%, for the first quarter of 2003 compared with the same period in 2002. The increase was due to a 3% increase in our shipment volume from acquisitions along with a 6% increase in average selling price. Excluding 2002 acquisitions (Kabo Unlimited, Inc., Dock Resins Corporation, Chemron Corporation and Intermountain Specialties, Inc., also known as Brose Chemical Company), revenues increased $20.1 million, or 4%, due to higher average selling price primarily driven by favorable currency. Changes in our shipment volume vary in different geographic areas. The following table shows our 2003 first quarter shipment volume by geographic area as well as the corresponding changes compared with first quarter 2002:
1st Qtr 1st Qtr 1st Qtr 2003 vs. 2002 2003 vs. 2002 2003 Total Excluding Acquisitions Volume Increase/(Decrease) Increase/(Decrease) ------ ------------------- ---------------------- North America 45% 10% (5%) Europe 29% (3%) (3%) Asia-Pacific/Middle East 19% (3%) (3%) Latin America 7% 7% 7% ----- Total 100% 3% (3%)
Excluding 2002 acquisitions, volume decreased 3% in the first quarter of 2003 compared with the first quarter of 2002. Approximately 2% of the decrease was due to a shift in our viscosity modifier product line from liquids to a higher-value concentrated solid form. The remaining volume decrease was due to losses associated with a major international customer. See the "Segment Analysis" section for additional explanation of shipment volume variances by zone for the first quarter of 2003 compared with the comparable period in 2002. Our average additive selling price increased 6% in the first quarter of 2003 compared with the first quarter of 2002. The increase was primarily due to 5% 9 THE LUBRIZOL CORPORATION Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations favorable currency effects as the dollar weakened against the euro, along with a slight increase in the combination of price and mix. Sequentially, first quarter 2003 average additive selling price was 4% higher than the fourth quarter of 2002 equally due to an increase in the combination of price and mix and favorable currency effects. Royalties and other revenues increased $.4 million, or 52%, primarily due to higher royalties for synthetic refrigerant lubricants and third party toll processing fees at our Canadian subsidiary. Our cost of sales for the first quarter of 2003 increased $37.1 million, or 11% ($21.6 million, or 7%, excluding 2002 acquisitions), compared with the first quarter of 2002, primarily due to increases in average raw material cost and total manufacturing expenses. Average raw material cost increased 6% primarily due to a 3.5% increase in the combination of raw material prices and higher priced product mix along with 2.5% unfavorable currency effects. Sequentially, average raw material cost increased 2% from the fourth quarter of 2002. We believe raw material costs will continue to increase in the second quarter of 2003. Total manufacturing expenses increased 16% primarily due to unfavorable currency, higher utility and maintenance expenses and higher shipment volume associated with acquisitions. Total manufacturing expenses also included a reclassification of approximately $1.5 million in expenses at certain subsidiaries of our fluid technologies for industry (FTI) and advanced fluid systems (AFS) segments that were previously charged to selling and administrative expenses. We estimate the total impact of the reclassification of expenses for 2003 will be approximately $5.0 million. In April 2003, an after working hours fire destroyed a metalworking additive blending facility we leased in Detroit. There were no injuries, nor any damage to a nearby warehouse where we store finished goods, and we have been able to supply customers from this warehouse and by shifting production to our Painesville, Ohio plant. The costs associated with the fire have been estimated to be in the $1.5 million to $2.0 million range. In April 2003, a fire associated with a maintenance shutdown also occurred in a dispersant production unit in our plant in Le Havre, France. Based upon our initial assessment, the costs for this fire may reach up to $2.5 million. The costs for both fires will be included in costs of sales as manufacturing expenses, most of which will be incurred in the second quarter of 2003. Gross profit (net sales less cost of sales) for the first quarter of 2003 increased $3.2 million, or 2% (decreased $1.8 million, or 1%, excluding 2002 acquisitions), compared with the first quarter of 2002. The increase was primarily due to higher volume from acquisitions and higher average selling price, partially offset by higher average raw material cost and higher manufacturing expenses. Our gross profit percentage (gross profit divided by net sales) decreased to 27.4% in the first quarter of 2003, compared with 29.0% in the first quarter of 2002. The decrease was primarily due to higher average raw material cost, higher unit manufacturing cost (manufacturing expenses per metric ton sold) and the reclassification of the FTI and AFS selling and administrative expenses to manufacturing expenses. The impact of 2002 acquisitions and the expense reclassification accounted for a decrease of 40 basis points in our gross profit percentage. Sequentially, the gross profit percentage increased from 26.6% in the fourth quarter of 2002. We anticipate our full year 2003 gross profit percentage could decrease in the range of 100 to 125 basis points from our 2002 annual average of 28.5%. Selling and administrative expenses increased by $2.1 million, or 4% ($.2 million, or less than 1%, excluding 2002 acquisitions), for the first quarter of 2003 compared with the same period in 2002. The increase excluding acquisitions was due to unfavorable currency and higher salaries and employee 10 THE LUBRIZOL CORPORATION Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations benefit costs, partially offset by the absence of the $2.0 million charge which occurred in 2002 for a contract claim related to an employee offsite personal injury. Our research, testing and development expenses (technology expenses) increased $1.1 million, or 3% ($.5 million, or 1%, excluding 2002 acquisitions), for the first quarter of 2003 compared with the same period in 2002, primarily due to unfavorable currency as a result of the weaker dollar. In addition, there was a write-down of $.9 million in the value of a former technical facility in Japan that we expect to sell this year, partially offset by lower outside testing expenses. In the first quarter of 2003, we recorded a restructuring charge of $3.5 million, or $.05 per share, for our Bromborough, England intermediate production and blending facility. We have eliminated some capacity at this facility and have planned a reduction of 40 positions, or approximately 35% of this facility's headcount, by the end of 2003. The restructuring charge included $2.1 million in employee separation benefits and a $1.4 million asset impairment for production units taken out of service. We estimate the Bromborough restructuring will be completed by year-end and will cost an additional $2.0 to $3.0 million. Total annualized savings are projected to be $4.0 million, of which $1.5 million will be realized in 2003. The change in other income (expense) favorably affected pre-tax income by $.4 million for the first quarter of 2003 compared to the first quarter of 2002. Higher currency translation gains were partially offset by higher intangibles amortization expense and minor losses at our Asian joint ventures. Interest income decreased $.7 million for the first quarter of 2003 compared to the first quarter of 2002, due to lower interest rates. Interest expense increased by $.5 million for the first quarter of 2003 compared with the first quarter of 2002, due to the absence of the interest rate swap agreements we utilized in 2002. The swap agreements reduced 2002 interest expense by approximately $1.2 million, calculated as the difference in interest expense between our fixed rate interest and the lower variable rate interest per the swap agreements. As a result of the interest rate swaps that were terminated in 2002, the unrecognized gain is being amortized as a reduction of interest expense through December 1, 2008. Amortization of the unrealized gain reduced interest expense in the first quarter of 2003 by approximately $.7 million. As a result of the above factors, our income before income taxes and the cumulative effect of a change in accounting principle for the first quarter of 2003 decreased 9% to $38.8 million, compared with $42.6 million for the first quarter of 2002. We had an effective tax rate of 33% for the first quarter of 2003, compared with 30% for the first quarter of 2002. The higher effective tax rate in 2003, which reduced first quarter earnings by $.02 per share, was primarily due to the absence of a U.S. tax benefit from a charitable contribution of technology made in 2002 that is not expected to recur in 2003. As a result of the factors described above, income before the cumulative effect of a change in accounting principle decreased $3.8 million, or 13%, for the first quarter of 2003, compared with the same period in 2002. Income per share, before the cumulative effect of a change in accounting principle, was $.50 for the first quarter of 2003, compared with $.58 for the corresponding period in 2002. 11 THE LUBRIZOL CORPORATION Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations During the first half of 2002, we completed the impairment analysis required for Statement of Financial Accounting Standards 142 (SFAS 142), "Goodwill and Other Intangible Assets," which we adopted on January 1, 2002. There was no impairment either in the fluid technologies for transportation segment or in the fluid technologies for industry operating segment. However, for the advanced fluid systems operating segment, which is included in the all other reporting segment, we recorded an impairment of $7.8 million, thus eliminating all the goodwill for the all other reporting segment. The charge was recorded as a cumulative effect of a change in accounting principle as of January 1, 2002. Primarily as a result of the above factors, our net income for the first quarter of 2003 increased 18% to 26.0 million ($.50 per share) compared with $22.0 million ($.43 per share) for the first quarter of 2002. SEGMENT ANALYSIS A description of the company's operating segments along with the products, services and markets for each of the operating segments is included in Note 4 to the financial statements. Prior year amounts have been restated to reflect reclassifications of products among the reportable segments. OPERATING RESULTS BY SEGMENT (in Millions of Dollars)
Three Month Period Ended March 31 2003 2002 --------- --------- Revenues: Fluid technologies for transportation $ 390.5 $ 381.4 Fluid technologies for industry 110.5 80.3 All other 7.2 5.8 -------- -------- Total $ 508.2 $ 467.5 ======== ======== Gross Profit: Fluid technologies for transportation $ 112.1 $ 114.5 Fluid technologies for industry 36.1 29.1 All other 1.9 1.1 -------- -------- Total $ 150.1 $ 144.7 ======== ======== Segment Contribution Income: Fluid technologies for transportation $ 75.4 $ 77.3 Fluid technologies for industry 20.6 16.2 All other (2.1) (3.0) -------- -------- Total $ 93.9 $ 90.5 ======== ========
Fluid Technologies for Transportation Segment In the first quarter of 2003, segment revenues increased $9.1 million, or 2%, compared with the same period in 2002. Shipment volume decreased 3%, but was more than offset by a 6% increase in average selling price. The increase in average selling price was due to 5% favorable currency impact and a 1% increase in the combination of price and product mix effects. 12 THE LUBRIZOL CORPORATION Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations The following table shows the corresponding changes in shipment volume by geographic zone in the first quarter of 2003 compared with the same period in 2002: 1st Qtr 2003 vs. 2002 Total Increase/(Decrease) ------------------- North America (5%) Europe (3%) Asia-Pacific, Middle East (3%) Latin America 6% Total (3%) Over half of the volume decrease occurred in our engine oils additives business and was a result of lower unit sales of viscosity modifiers, caused principally by a shift from liquid polymers to solid polymers. Generally, solids are one-tenth the volume of liquids. Excluding this shift in our viscosity modifier product line, total volume decreased 1%. The volume decreases in North America and Europe were due to losses in our passenger car additives business and specialty driveline business associated with a major international customer. The losses were partially offset by business gains in our heavy duty diesel additives business associated with the current U.S. heavy duty motor oil technical standard, PC-9, which was implemented in September 2002. The decrease in Asia-Pacific, Middle East zone is the result of the weak business environment and competitive intensity in Asia. Latin America, our smallest zone, experienced some volume gains in our engine oil additives business. The fluid technologies for transportation segment implemented a price increase in December, 2002 for the North America zone and in January, 2003 for the rest of the world. The objective of the increase was to restore material margins to their levels prior to the 2002 increases in raw material costs. In March, 2003 we began to implement a second price increase to offset continued raw material increases since the beginning of 2003 and the higher cost of natural gas used for utilities at our U.S. plants. Segment gross profit decreased $2.4 million, or 2%, for the first quarter of 2003 compared with the same period in 2002. The decrease was due to higher material and manufacturing expenses and lower shipment volume, partially offset by higher average selling price. In calculating gross profit at the operating segment level, we exclude our estimate of the cost of excess capacity from product costs (See Note 4 to the financial statements). The gross profit percentage for this segment was 28.7% for the first quarter of 2003 compared with 30.0% for the first quarter of 2002. The decrease was primarily due to higher average raw material cost and higher unit manufacturing cost. Direct selling, marketing and technical expenses decreased $.9 million, or 2% for the first quarter of 2003 compared with the first quarter of 2002, primarily due to lower technical spending at outside test laboratories. As a result, segment contribution income (revenues less expenses directly identifiable to the product lines aggregated within each segment) decreased $1.9 million, or 2%, for the first quarter of 2003 compared with the same period in 2002. 13 THE LUBRIZOL CORPORATION Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Fluid Technologies for Industry Segment In the first quarter of 2003, segment revenues increased $30.2 million, or 38%, compared with the same period in 2002, primarily due to a 67% increase in total shipment volume. 2002 acquisitions contributed $20.5 million to the increase in segment revenues, primarily due to Chemron and Dock Resins. Segment revenues, excluding 2002 acquisitions, increased $9.6 million, or 12%, primarily due to 10% ongoing volume growth as a result of new business gains and the introduction of new products and a 1% increase in average selling price. Favorable currency effects contributed 5.5% to higher average selling price, but were partially offset by a 4.5% decrease in the combination of price and product mix. The decrease in price and mix occurred in our inks additives business, process chemicals business and synthetic refrigerant lubricants business and was primarily due to lower priced product mix. Higher royalty income of $.2 million in the first quarter of 2003, compared with the first quarter of 2002, also contributed to the increased segment revenues. The favorable increase in royalties was in our synthetic refrigerant lubricants business. The following table shows the corresponding changes in shipment volume by geographic zone in the first quarter of 2003 compared with the same period in 2002:
1st Qtr 1st Qtr 2003 vs. 2002 2003 vs. 2002 Total Excluding Acquisitions Increase/(Decrease) Increase/(Decrease) ------------------- ---------------------- North America 115% 8% Europe 9% 9% Asia-Pacific, Middle East 27% 26% Latin America 11% 11% Total 67% 10%
The increases in North America and Europe in the first quarter of 2003, compared with the same period in 2002, were primarily due to the 2002 acquisitions of Chemron and Dock Resins. Excluding 2002 acquisitions, increases in North America and Europe were partially due to increases in our metalworking and synthetic refrigerant lubricants businesses from market share gains. Additionally, the introduction of new products in the inks business in North America and new applications in our specialty monomers business in Europe contributed to the volume increases for these zones. The increase in the first quarter of 2003 for the Asia-Pacific, Middle East zone was partially due to increased shipments in our metalworking business as a result of a distributor relationship that was terminated at the beginning of 2002. Our metalworking sales in this zone for the first half of 2002 were below normal levels because our customers were buying from the distributor's inventory. Our customers have subsequently resumed purchasing the products from us, beginning in the second half of 2002. The increase in the Latin America zone in the first quarter of 2003, compared with the same period in 2002, was due to a shift of our specialty emulsifiers business with some of our existing customers from North America to Latin America, along with some business gains in our coatings and inks business. Segment gross profit increased $7.0 million, or 24% ($1.9 million, or 7%, excluding acquisitions), in the first quarter of 2003 compared with the same period in 2002. The increases were primarily due to higher shipment volume and higher average selling price, partially offset by higher manufacturing expenses. The gross profit percentage for this segment was 32.9% in the first quarter of 14 THE LUBRIZOL CORPORATION Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 2003, compared with 36.4% in the same period of 2002. The decrease in the gross profit percentage was partially due to the impact of the Chemron acquisition, due to its lower-priced product mix, the reclassification of the FTI selling and administrative expenses to manufacturing expense along with higher raw material costs. Segment contribution income increased $4.4 million, or 27%, in the first quarter of 2003, compared with the same period in 2002, due to higher gross profit, partially offset by higher direct technical and selling expenses. WORKING CAPITAL, LIQUIDITY AND CAPITAL RESOURCES Cash used by operating activities was $5.8 million for the first quarter of 2003 as compared with cash provided by operating activities of $45.5 million for the first quarter of 2002. The decrease in cash from operating activities of $51.2 million in the first quarter of 2003 was primarily due to higher receivables and inventory balances. Receivables increased by $34 million because sales in March, 2003 were higher than December, 2002 sales and days sales outstanding increased by two days, partially due to a delay in payment by one of our large customers resulting from its conversion to a new computer system. Inventory increased by $11 million, primarily due to higher unit values. Inventory quantities were approximately the same as of December 31, 2002. Our capital expenditures in the first three months of 2003 were $15.3 million, as compared with $12.1 million for same period in 2002. In 2003, we estimate capital expenditures will be in the range of $95 million to $100 million as compared with $65.3 million in 2002. On April 30, 2003, we purchased a multipurpose chemical production facility in Spartanburg, South Carolina for $2.5 million. The facility is capable of producing several products used in a variety of applications for the fluid technologies for industry segment. Our net debt to capitalization ratio at March 31, 2003 was 17.8%. 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 and excluding unrealized gains and losses on derivative instruments designated as fair value hedges of fixed rate debt. Capitalization is shareholders' equity plus net debt. Total debt as a percent of capitalization was 29.8% at March 31, 2003. Our share repurchase program has been suspended indefinitely as we are holding our financial resources in reserve for future acquisitions. As a result of these activities and the payment of dividends, our balance of cash and short-term investments decreased $39.3 million at March 31, 2003 compared with December 31, 2002. Our financial position remains strong with a ratio of current assets to current liabilities of 3.3 to 1 at March 31, 2003, compared with 3.0 to 1 at December 31, 2002. We currently have $525 of committed revolving credit facilities; $175 million expire in July, 2003 and $350 million expire in July, 2006. We do not anticipate renewing the $175 million of committed revolving credit facilities that expire in July, 2003. We believe our remaining credit facilities, internally generated funds and ability to obtain additional financing, if desired, will be sufficient to meet our future capital needs, including acquisitions to expand into new and existing fluid technology markets. 15 THE LUBRIZOL CORPORATION Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 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. These uncertainties and factors could cause our actual results to differ materially from those matters expressed in or implied by such forward-looking statements. We believe that the following factors, among others, could affect our future performance and cause our actual results to differ materially from those expressed or implied by forward-looking statements made in this quarterly report: - - the overall demand for lubricant and fuel additives on a worldwide basis, which has a slow growth rate in mature markets such as North America and Europe; - - the effect on our business resulting from economic and political uncertainty within the Asia-Pacific, Middle East and Latin American regions; - - the lubricant additive demand in developing regions such as China and India, which geographic areas are an announced focus of our activities; - - the potential negative impact on product pricing and volume demand from the consolidation of finished lubricant marketers; - - the degree of competition resulting from lubricant additive industry overcapacity; - - technology developments that affect longer-term trends for lubricant additives, such as improved equipment design, fuel economy, longer oil drain intervals, alternative fuel powered engines and emission system compatibility; - - the overall global economic environment, which affects the operating results of fluid technologies for industry in particular; - - the extent to which we are successful in expanding our business in new and existing fluid technology markets incorporating chemicals, systems and services for industry and transportation; - - our ability to identify, complete and integrate acquisitions for profitable growth; - - our success at continuing to develop proprietary technology to meet or exceed new industry performance standards and individual customer and original equipment manufacturers' expectations; - - the frequency of change in industry performance standards, which affects the level and timing of our technology costs, the product life cycles and the relative quantity of additives required for new specifications; - - our ability to continue to reduce complexities and conversion costs and modify our cost structure to maintain and enhance our competitiveness; - - our success in strengthening relationships and growing business with our largest customers, including those with affiliated lubricant additive companies, and retaining the business of our largest customers over extended time periods; - - the cost, availability and quality of raw materials, including petroleum-based products; - - the cost and availability of energy, including natural gas and electricity; 16 THE LUBRIZOL CORPORATION Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations - - the effects of fluctuations in currency exchange rates upon our reported results from international operations, together with non-currency risks of investing in and conducting significant operations in foreign countries, including those relating to political, social, economic and regulatory factors; - - the extent to which we achieve market acceptance of our PuriNOx(TM) low-emission, water-blend fuel product; - - significant changes in government regulations affecting environmental compliance. 17 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 uncertainties, import and export limitations, and market risks 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 forward foreign currency 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 volatility on our earnings and cash flow associated with such changes. Our principal currency exposures are the euro, the pound sterling, 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 21 of our 2002 Annual Report to our shareholders. There have been no material changes in the market risks faced by us since December 31, 2002. Item 4. Controls and Procedures Within the 90 days prior to the date of this report, we carried out an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-(14c)). Based on that evaluation, our chief executive officer and chief financial officer concluded that, as of the evaluation date, our disclosure controls and procedures are effective in timely alerting them to material information relating to the company and its consolidated subsidiaries required to be included in our periodic SEC filings. Subsequent to the date of their evaluation, there have been no significant changes in our internal controls or in other factors that could significantly affect these controls, including any corrective actions with regard to significant deficiencies and material weaknesses. 18 THE LUBRIZOL CORPORATION PART II. OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds (c) On January 24, 2003, 1,894 common shares were issued in transactions exempt from registration under the Securities Act of 1933 pursuant to Regulation S. The common shares were issued pursuant to an employee benefit plan to 21 employees of a wholly-owned Canadian subsidiary of the company. On February 3, 2003, 250 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. We issued the common shares to the surviving spouse of a former director pursuant to a deferred compensation plan for directors. On March 10, 2003, 11,024 common shares were issued in private placement transactions exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) of that Act. We issued the common shares to three officers pursuant to a deferred compensation plan for officers. Item 5 Other Information The following information is being furnished pursuant to Item 11 "Temporary Suspension of Trading Under Registrant's Benefit Plans." Reason for the blackout: The transition of the record keeper of The Lubrizol Corporation Employees' Profit Sharing and Savings Plan from Victory Capital Management to CitiStreet LLC. Suspended Plan Transactions: Investment reallocations Class of Equity Securities Affected: Common Shares of The Lubrizol Corporation Length of Blackout Period: Blackout began January 28, 2003 and ended February 21, 2003 Contact Information for Questions: Leslie M. Reynolds The Lubrizol Corporation 29400 Lakeland Boulevard Wickliffe OH 44092 440-943-4200
We received notice required by Section 101(i)(2)(E) of the Employment Retirement Income Security Act of 1974 (29 U.S.C. 1021(i)(2)(E)) on December 20, 2002. 19 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (10)(g)* The Lubrizol Corporation Executive Death Benefit Plan, as amended. (10)(j)* The Lubrizol Corporation Deferred Officers' Supplemental Retirement Plan, as amended. (10)(k)* The Lubrizol Corporation Deferred Compensation Plan for Officers, as amended. (10)(o)* Employment Agreement effective January 1, 2003, between The Lubrizol Corporation and Charles P. Cooley. (10)(p)* Employment Agreement effective January 1, 2003, between The Lubrizol Corporation and Stephen F. Kirk. (10)(q)* Employment Agreement effective January 1, 2003, between The Lubrizol Corporation and Stephen A. Di Biase. (10)(r)* Employment Agreement effective January 1, 2003, between The Lubrizol Corporation and Donald W. Bogus * 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 three months ended March 31, 2003. 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: May 7, 2003 20 THE LUBRIZOL CORPORATION Part II. Other Information CERTIFICATIONS I, William G. Bares, certify that: 1. I have reviewed this quarterly report on Form 10-Q of The Lubrizol Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the consolidated financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ William G. Bares - ------------------------- William G. Bares Chief Executive Officer May 2, 2003 21 THE LUBRIZOL CORPORATION Part II. Other Information CERTIFICATIONS I, Charles P. Cooley, certify that: 1. I have reviewed this quarterly report on Form 10-Q of The Lubrizol Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the consolidated financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Charles P. Cooley - --------------------------- Charles P. Cooley Chief Financial Officer May 2, 2003 22 THE LUBRIZOL CORPORATION Certification of Chief Executive Officer and Chief Financial Officer of The Lubrizol Corporation Pursuant to 18 U.S.C. Section 1350 I certify that, to the best of my knowledge and belief, the Quarterly Report on Form 10-Q of The Lubrizol Corporation for the period ending March 31, 2003: (1) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of The Lubrizol Corporation. /s/ William G. Bares - ---------------------------------- William G. Bares Chief Executive Officer May 2, 2003 I certify that, to the best of my knowledge and belief, the Quarterly Report on Form 10-Q of The Lubrizol Corporation for the period ending March 31, 2003: (1) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of The Lubrizol Corporation. /s/ Charles P. Cooley - ------------------------------- Charles P. Cooley Chief Financial Officer May 2, 2003 23 EX-10.G 3 l00403aexv10wg.txt EX-10(G) Exhibit (10)(g) THE LUBRIZOL CORPORATION EXECUTIVE DEATH BENEFIT PLAN (As Amended) The Lubrizol Executive Death Benefit Plan (hereinafter referred to as the "Plan") shall provide death benefits to the designated beneficiaries of certain executives of The Lubrizol Corporation (hereinafter referred to as the "Corporation") in accordance with the provisions hereinafter set forth. Section 1. Eligibility. Participation in the Plan shall be limited to those executives of the Corporation who are designated by the Organization and Compensation Committee of the Board of Directors of the Corporation (hereinafter referred to as the "Committee") to participate in the Plan; who complete a physical examination to the satisfaction of the Corporation as soon as reasonably possible after being so designated; and who waive participation and benefits in the basic term-life insurance coverage sponsored by the Corporation or any of its affiliates, in a form satisfactory to the Corporation. Any executive so designated shall be listed in Appendix A attached hereto and shall hereinafter be referred to as a "Participant". Section 2. Benefits. Effective July 25, 1994, upon the death of a Participant, a death benefit shall be made to the Participant's Beneficiary (as defined in Section 5) equal to a percentage of the Participant's bi-weekly salary multiplied by 26, plus quarterly pay, including any such bi-weekly salary or quarterly pay which is deferred under The Lubrizol Corporation Deferred Compensation Plan for Officers (hereinafter referred to as "Covered Pay") rounded to the nearest $1,000.00. Covered Pay for the Participants designated by the Board to participate in the Plan shall have the meaning as described in Appendix A, attached hereto. The Committee will periodically review the Plan and may, at its discretion, change the level of Covered Pay for any Participant. A death benefit shall be calculated in accordance with Paragraph (a) or (b) below, whichever is applicable. (a) The amount of the death benefit payable with respect to a Participant, who at the time of his death, (i) is employed by the Corporation, or (ii) has retired under the normal retirement provisions of a qualified defined benefit plan maintained by the Corporation, shall be as follows: Age of Participant at Death Death Benefit ------------------ ------------- Less than age 70 250% of Covered Pay At least age 70, but less than age 75 150% of Covered Pay Age 75 and over 100% of Covered Pay (b) The amount of the death benefit payable with respect to a Participant who (i) has retired under the early retirement provisions of a qualified defined benefit plan maintained by the Corporation, or (ii) has voluntarily terminated his employment with the Corporation but has not obtained competitive employment with another employer, shall be as follows: Years after Early Retirement or Voluntary Termination Death Benefit --------------------- ------------- 0 through 5 250% of Covered Pay 6 through 10 150% of Covered Pay 11 or more 100% of Covered Pay Section 3. Funding. The obligation of the Corporation to pay benefits provided hereunder shall be satisfied by the Corporation out of its general funds. In order to provide a source of payment for its obligations under the Plan, the Corporation will 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 Corporation under the Plan to provide a benefit shall nonetheless constitute the unsecured promise of the Corporation 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 Corporation. Section 4. Payment of Benefits. Payment of any death benefit under the Plan shall be made to the decreased Participant's beneficiary in a single lump sum as soon as practicable after the Participant's death. Section 5. Beneficiaries. A Participant may designate any person or person as a beneficiary (hereinafter referred to as a "Beneficiary") to receive payment of the death benefit provided under the Plan. Such designation shall be made in writing in the form prescribed by the plan administrator and shall become effective only when filed by the Participant with the Corporation. A Participant may change or revoke his Beneficiary designation at any time by completing and filing with the Corporation a new Beneficiary designation. If at the time of the Participant's death there is no Beneficiary designation on file with the Corporation, or the Beneficiary does not survive to the date of distribution, the death benefit provided hereunder shall be paid to the Participant's estate. Section 6. Plan Administrator. The Corporation shall be the administrator of the Plan. The plan administrator shall perform all ministerial functions with respect to the Plan. 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. 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. Section 7. Reduction or Termination of Benefits. The Committee reserves the right to reduce or eliminate the benefit of any Participant who is dismissed for cause, or who voluntarily terminates employment to obtain competitive employment. 2 For Plan purposes, "Cause" means (i) willful violation of a Corporation policy, or (ii) willful misconduct or gross negligence in the performance of duties, as determined by the Corporation in good faith consistently, if applicable, with its existing personnel practices. For Plan purposes, "Competitive employment" shall include employment with any employer (firm, business, or individual) engaged in selling or furnishing any product similar to that available from the Corporation at the time of termination of employment with the Corporation. Section 8. Employment. This Plan shall not constitute a contract of employment. Section 9. 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 in full force and effect. Section 10. Governing Law. The provisions of the Plan shall be construed and enforced in accordance with the laws of the State of Ohio. Section 11. Effective Date. The Plan is effective as of June 1, 1990. 3 THE LUBRIZOL CORPORATION EXECUTIVE DEATH BENEFIT PLAN APPENDIX A February 24, 2003 PARTICIPANT COVERED PAY ----------- ----------- 1. W. G. Bares February 26, 2001 Covered Pay 2. J. L. Hambrick January 17, 2003 Covered Pay 3. G. R. Hill February 26, 2001 Covered Pay 4. J. E. Hodge February 26, 2001 Covered Pay 5. R. A. Andreas January 1, 1996 Covered Pay 6. R. Y. K. Hsu January 1, 1993 Covered Pay 7. W. D. Manning January 1, 1993 Covered Pay 8. R. J. Senz January 1, 1993 Covered Pay 9. W. T. Beargie June 1, 1990 Covered Pay 10. P. L. Krug June 1, 1990 Covered Pay 11. J. A. Studebaker June 1, 1990 Covered Pay 4 EX-10.J 4 l00403aexv10wj.txt EX-10(J) Exhibit (10)(j) THE LUBRIZOL CORPORATION OFFICERS' SUPPLEMENTAL RETIREMENT PLAN (As Amended 2/24/03) 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. (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." (j) Change in Control. Effective February 26, 2001, the term "Change in Control" shall mean the occurrence of any of the following events: (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 holder of the 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; (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 ("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 percent 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 Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) that a change of 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 two consecutive years, individuals who at the beginning of the 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 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(j)(iii) or 1(j)(iv) hereof, unless otherwise determined in a specific case by majority vote of the Board of Directors of the Company, a "Change in Control" shall not be deemed to have occurred for purposes of this Trust Agreement solely because (i) the Company , (ii) an entity in which the Company directly or indirectly beneficially owns 50 percent or more of the voting securities, 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 percent or otherwise, or because the Company reports that a change in control of the Company has or may have occurred or will or may occur in the future by reason of such beneficial ownership. Section 2. Vesting. Effective February 24, 2003, a Participant who is the Chief Executive Officer, Chief Operating Officer or President of the Company shall be 100 percent vested in his accrued supplemental retirement benefit hereunder. All other Participants shall become 100 percent vested in his accrued supplemental retirement benefit upon the earliest of the following events: his reaching age 60; his death; his becoming disabled and receiving benefits pursuant to the Company's long-term disability plan; or a Change of Control. 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. Such offsets shall be determined using the actuarial factors provided in the Lubrizol Pension Plan. Section 4. Early Retirement Eligibility and Determination of Benefit. Effective February 26, 2001, 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 vested 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. Effective February 26, 2001, if a Participant terminates employment prior to age 55, he shall receive the actuarial equivalent of his vested 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 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. Effective February 26, 2001, 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 was 100 percent vested in his accrued supplemental retirement benefit, 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 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-10.K 5 l00403aexv10wk.txt EX-10(K) Exhibit (10)(k) THE LUBRIZOL CORPORATION Deferred Compensation Plan For Officers (Amended as of February 24, 2003) 1. Purpose. The purpose of this Deferred Compensation Plan For Officers (the "Plan") is to permit an officer (as identified by the Company for Section 16 purposes under the Securities Exchange Act of 1934) (sometimes hereinafter referred to as "officer" or as the "Participant") of The Lubrizol Corporation (the "Company"), who wishes, to defer a portion of such officer's compensation as provided in the Plan. 2. Administration. The Plan shall be administered by the Organization and Compensation Committee of the Board of Directors of the Company (the "Committee"). The Committee's interpretation and construction of all provisions of the Plan shall be binding and conclusive upon all Participants and their heirs and/or successors. 3. Right to Defer Compensation. (a) An officer of the Company may, at any time prior to January 1 of a given calendar year, elect, for one or more future successive calendar years, to defer under the Plan a pre-selected amount of such officer's cash compensation, including bonus, which such officer may thereafter be entitled to receive for services performed during such elected calendar year or years. (b) The election under this Section 3 shall take effect on the first day of the calendar year following the date on which the election is made and such election shall be irrevocable for any elected calendar year after such elected calendar year shall have commenced. (c) The pre-selected amount that an officer may elect to defer shall be one or more of the following: (i) a fixed dollar amount or percentage of the officer's bi-weekly base salary; (ii) a fixed dollar amount or percentage of the officer's quarterly pay; (iii) a fixed dollar amount or percentage of the officer's participation in the performance pay plan, if any. (iv) a fixed dollar amount or percentage of the officer's participation in the long term incentive plan, if any. 1 (v) a fixed number of shares or percentage of the officer's stock compensation in the performance share program. (vi) a fixed number of shares or percentage of the officer's stock compensation in the long term incentive program, if any. (vii) a fixed number of shares or percentage of the officer's stock compensation pursuant to an employment agreement dated as of January 1, 2003. (d) Notwithstanding paragraphs (a), (b) and (c), where an officer first becomes eligible to participate in the Plan, the newly eligible officer may make the election under this Section 3 to defer the specified compensation for services to be performed subsequent to the election and for the remainder of the calendar year in which the election under this Section 3 is made provided such election is made within 30 days after the date the officer first becomes eligible. (e) Within such periods of time as the Committee shall designate, and in addition to the provisions of paragraphs (a) through (d), an officer may elect to defer that portion or all of the officer's cash and/or stock compensation (i) described in paragraph (c) and/or (ii) any other plan or program that provides for cash or stock compensation, to the extent that such amounts would otherwise be nondeductible by the Company pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended. For purposes of the preceding sentence, the amount to be deferred with respect to any compensation plans payable in Company shares shall be determined by taking into consideration any fixed cash compensation (including biweekly and quarterly pay) to be received subsequent to the date on which shares are distributable under such program. Notwithstanding any other provision of this Plan, deferrals under this paragraph (e) shall be distributable only upon termination of employment in accordance with Section 6. (f) All elections under this Plan shall be made by written notice delivered to the Vice President, Human Resources, of the Company specifying (i) the number of calendar years, one or more, during which the election shall apply, (ii) the portion, if any, determined under paragraph (c), of each category of the Participant's compensation to be deferred for such year or years, as described above, (iii) the time of distribution, and (iv) if, applicable, the payment option as provided in Section 6 for distributions upon termination of employment. (g) A Participant may designate that the deferral election under this Section 3 shall remain in effect until the Participant, on a prospective basis, withdraws the election or changes the amount to be deferred. Any notice of the withdrawal of the deferral election or change of amount to be deferred shall be effective on the first day of the calendar year following the date on which such notice is given to the Company's Vice President, Human Resources; provided that, such notice shall not change, alter or terminate the deferral of the officer's participation in the performance pay plan for the year in which such notice of 2 withdrawal is given which, except for the deferral, would be payable in the calendar year following the date on which such notice of withdrawal is given. (h) Notwithstanding paragraph (f) and the first sentence of paragraph (g), any compensation earned after the end of the first month in which a Participant under this Plan no longer is an officer of the Company, as defined in Section 1, but continues to be employed by the Company, shall not be deferred, provided however, the balance in the Participant's Deferral Accounts shall continue to be held and administered pursuant to the Plan. 4. Deferral of Cash Compensation. (a) On the date the cash compensation deferred under the Plan would have become payable to the Participant in the absence of an election under the Plan to defer payment thereof, the amount of such deferred compensation shall be credited to a Stock Deferral Account and/or any of the Cash Deferral Account investment portfolios designated as available by the Committee from time to time. All Deferral Accounts shall be established and maintained for each Participant in the Company's accounting books and records and the Company shall be under no obligation to purchase any investments designated by the Participant. To the extent that, at the time amounts are credited to a Participant's Deferral Accounts, any federal, state or local payroll withholding tax applies (e.g., Medicare withholding tax), the Participant shall be responsible for the payment of such amount to the Company and the Company shall promptly remit such amount to the proper taxing authority. Notwithstanding the foregoing, any cash compensation deferred under Section 3(c)(iv) shall be credited to the fixed income fund in the Cash Deferral Account and shall not be eligible for transfer to any other investments. (b) Participant's Cash Deferral Accounts shall be credited with any gains or losses equal to those generated as if the Participant's Cash Deferral Account balances had been invested in the applicable investment portfolio(s) selected by the Participant (c) A Participant's deferred cash compensation credited to a Participant's Stock Deferral Account shall be used to determine the number of full and fractional units ("Units") representing Company Common Shares ("Shares") which the deferred amount would purchase at the closing price for the Shares on the New York Stock Exchange ("NYSE") composite transactions reporting system on the date that the deferred amount is credited pursuant to paragraph (a) and if Shares were not traded on that date on the NYSE, then such computation shall be made as of the first preceding day on which Shares were so traded. The Company shall credit the Participant's Stock Deferral Account with the number of full and fractional Units so determined. A Participant's Stock Deferral Account shall be administered in accordance with Section 5(b) through (e). 3 (d) A Participant may elect pursuant to rules established by the Committee to transfer a portion or all of the balance of any Deferral Account established under this Section 4 to any other such Deferral Account. (e) Notwithstanding the foregoing, and other than cash deferrals under Section 3(c)(iv), a Participant may elect to have any portion or all of the Participant's cash deferrals credited to any of the Deferral Accounts listed in paragraph (a) and may transfer balances in accordance with paragraph (d) provided that the Participant is considered, in the judgment of the Chief Executive Officer of the Company, to be on plan to meet the Participant's Company Share ownership guideline. Otherwise, a Participant must elect that at least 50% of any cash deferral hereunder (other than cash deferred under Section 3(c)(iv)) be credited to a Stock Deferral Account and may not transfer any portion of the balance of the Stock Deferral Account to another Deferral Account. 5. Deferral of Stock Compensation. (a) At the time that Shares are distributable to a Participant, who has elected to defer the receipt thereof under Section 3(c) or (e), in lieu of Shares being issued, there shall be credited to a separate Stock Deferral Account for the Participant, full stock equivalent units ("Units') which shall be established and maintained on the Company's records. One Unit shall be allocated to the Stock Deferral Account for each such Share. The balance of a Stock Deferral Account established under this Section 5(a) pursuant to deferrals under Section 3(c)(v), (vi) or (vii) may not be transferred to any other Deferral Account. (b) As of each dividend payment date established by the Company for the payment of cash dividends with respect to its Shares, the Company shall credit each separate Stock Deferral Account of a Participant with an additional number of whole and/or fractional Units equal to: (i) the product of (x) the dividend per Share which is payable with respect to such dividend payment date, multiplied by (y) the number of whole and fractional Units credited to the separate Stock Deferral Account of a Participant as of such payment date; divided by (ii) The closing price of a Share on the dividend payment date (or if Shares were not traded on that date, on the next preceding day on which Shares were so traded), as reported on the NYSE-composite tape. (c) At no time prior to actual delivery of Shares pursuant to the Plan, shall the Company be obligated to purchase or reserve Shares for delivery of a Participant and the Participant shall not be a shareholder nor have any of the 4 rights of a shareholder with respect to the Units credited to the Participant's Stock Deferral Accounts. (d) To the extent that, at the time Units are credited to a Stock Deferral Account of a Participant, any federal, state or local payroll withholding tax applies (e.g., Medicare withholding tax), the Participant shall be responsible for the payment of such amount to the Company and the Company shall promptly remit such amount to the proper taxing authority. (e) In the event of any change in the number of outstanding Shares by reason of any stock dividend, stock split up, recapitalization, merger, consolidation, exchange of shares or other similar corporate change, the number of Units in each separate Stock Deferral Account of a Participant shall be appropriately adjusted to take into account any such event. 6. Payment of Deferred Compensation upon Termination. (a) The total amount standing as a credit in a Participant's Cash Deferral Accounts shall, upon termination of employment, be payable to the Participant either in a lump sum or in periodic installments over such period, not exceeding ten years, as the Participant shall have selected pursuant to Section 3(f)(iv). Such periodic payments shall begin or the lump sum payment shall be made, as the case may be, from the Participant's Cash Deferral Accounts, at such time, not more than twelve (12) months after the Participant ceases to be an employee of the Company, as the Participant shall have selected pursuant to Section 3 (f)(iv). All amounts payable in accordance with this Section 6(a) shall be subject to applicable federal, state and/or local payroll withholding taxes then in effect. Notwithstanding the foregoing, a Participant may elect no later than thirty (30) days prior to the Participant's termination of employment, nor earlier than ninety (90) days prior thereto, to change the form of distribution of the Participant's Cash Deferral Accounts. (b) The amount of each installment payable to a Participant shall be determined by dividing the aggregate balance of such Participant's Cash Deferral Accounts by the number of periodic installments (including the current installment) remaining to be paid. Until a Participant's Cash Deferral Accounts has been completely distributed, the balance thereof remaining, from time to time, shall be credited with gains and losses on a monthly basis as provided in Section 4(b). (c) The total number of Units credited to the Participant's Stock Deferral Accounts shall upon termination of employment be payable to the Participant either in a lump sum or in periodic installments, over such period, not exceeding ten years, as the Participant shall have selected pursuant to Section 3(f)(iv). Such periodic payments shall begin or the lump sum payment shall be made, as the case may be, at such time, not more than twelve (12) months after the Participant ceased to be an employee of the Company, as the Participant shall have selected pursuant to Section 3(f)(iv). All amounts payable in 5 accordance with this Section 6(c) shall be subject to applicable federal, state and/or local payroll withholding taxes then in effect. Notwithstanding the foregoing, a Participant may elect no later than thirty (30) days prior to the Participant's termination of employment, no earlier than ninety (90) days prior thereto, to change the form of distribution of the Participant's Stock Deferral Accounts. (d) The amount of any installment payable from the Stock Deferral Accounts to a Participant shall be determined by dividing the balance of the aggregate number of Units in the Participant's Stock Deferral Accounts by the number of periodic installments (including the current installment) remaining to be paid and the quotient shall be the number of Shares that are payable. If the determination of the installment payable from the Participant's Stock Deferral Accounts results in a fractional Share being payable, the installment payment shall exclude any such fractional Share payment except that, in the final installment payment, any such fractional Share shall be paid in cash in an amount as determined by the Committee. Until the Participant's Stock Deferral Accounts have been completely distributed, the balance in the Stock Deferral Accounts shall continue to be credited with the dividend equivalents on such balances as provided in Section 5(b). (e) If the Participant elects to satisfy tax withholding under paragraph (c) with Shares, then such withholding shall be from those Shares otherwise issuable pursuant to paragraph (c) above, and shall be such number of Shares that will provide for the federal, state and/or local income tax at the rates then applicable for supplemental wages, unless otherwise requested by the Participant, but in no event less than the statutory minimums for tax withholding. (f) For purposes under paragraph (e) of determining the number of Shares that are to be withheld to provide for the tax withholding, Shares shall be valued at the closing price on the New York Stock Exchange of a Share on the date the Shares are distributable (or if the Shares were not traded on that date, on the next preceding day on which the Shares were so traded). If the determination of the tax withholding would require the withholding of a fractional Share, the Participant shall remit cash to the Company in lieu of such fractional Share. (g) In the event a Participant dies prior to receiving payment of the entire amount in that Participant's Cash Deferral Accounts and/or Stock Deferral Accounts, as the case may be, the unpaid balance shall be paid to such beneficiary as the Participant may have designated in writing to the Vice President, Human Resources, of the Company as the beneficiary to receive any such post-death distribution under the Plan or, in the absence of such written designation, to the Participant's legal representative or to the beneficiary designated in the Participant's last will as the one to receive such distributions. Distributions subsequent to the death of a Participant may be made either in a lump sum or in periodic installments in such amounts and over such period, not exceeding ten years from the date of death, as the Committee may direct and 6 the amount of each installment shall be computed as provided in Section 6(b), and (d) as the case may be. (h) Payments from the Cash Deferral Accounts shall be made in cash and payments from the Stock Deferral Accounts shall be made in Shares. The amount of any distribution pursuant to Sections 6 through 9 shall reduce the balance held in the Participant's corresponding Deferral Accounts as of the date of such distribution. Installment payments shall be made pro-rata from a Participant's Deferral Accounts. 7. In-Service Distributions. Pursuant to Section 3 and other than for deferrals pursuant to Sections 3(c)(v), (vi), (vii) and 3(e), a Participant may elect to receive an in-service distribution of all or any specified percentage of the Participant's deferral for any calendar year commencing not earlier than the first calendar year following the year that such compensation would have been payable. In-service distributions shall be made in a lump sum payment. A Participant may elect once for any calendar year of deferral for which the Participant has elected an in-service distribution, to change the date of distribution to another in-service year or upon termination; provided, however, that any such modification must be made in writing at least twelve (12) months prior to the date originally elected for the in-service distribution. Notwithstanding the foregoing, any distribution hereunder shall be subject to further deferral pursuant to an election under Section 3(e). 8. Special Distributions. Notwithstanding any other provision of this Plan, a Participant may elect to receive distribution of part or all of the total of Participant's eligible Deferral Accounts, other than from deferrals pursuant to Sections 3(c)(v), (vi), (vii) and 3(e), in one or more distributions if (and only if) the amount of the distribution is reduced by ten (10) percent. The ten (10) percent reduction shall be forfeited. Distributions shall be made pro-rata among Participant's eligible Deferral Accounts. Any distribution made pursuant to such an election shall be made within sixty (60) days of the date such election is submitted to Vice President - Human Resources. Notwithstanding the foregoing, any distribution hereunder shall be limited to an amount that would not be subject to further deferral pursuant to an election under Section 3(e). 9. Hardship Distributions. The Committee may accelerate the distribution of part or all, in any or all, of a Participant's Deferral Accounts for reasons of severe financial hardship. For purposes of the Plan, severe financial hardship shall be deemed to exist in the event the Committee determines that a Participant needs a distribution to meet immediate and heavy financial needs resulting from a sudden or unexpected illness or accident of the Participant or a member of the Participant's family, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstance arising as a result of events beyond the control of the Participant. A distribution based on financial hardship shall not exceed the amount required to meet the immediate financial need created by the hardship. 7 10. Non-assignability. None of the rights or interests in any of the Participant's Deferral Accounts shall, at any time prior to actual payment or distribution pursuant to the Plan, be assignable or transferable in whole or in part, either voluntarily or by operation of law or otherwise, and such rights and interest shall not be subject to payment of debts by execution, levy, garnishment, attachment, pledge, bankruptcy or in any other manner; provided that, upon the occurrence of any such assignment or transfer or the attempted assignment or transfer, all payments hereunder shall be payable in the sole and unrestricted judgment and discretion of the Committee, as to time and amount (including a lump sum amount), and shall be distributable to the person who would have received the payment but for this Section 10 only at such time or times and in such amounts as the Committee, from time to time, and in its sole and unrestricted judgment and discretion, shall determine. Should an event covered by this Section 10 occur prior to the death of a Participant, the balance, if any, in the Participant's accounts shall, after such death, be thereafter distributed as provided in Section 6 subject to the provisions of this Section 10. 11. Interest of Participant. The Company shall be under no obligation to segregate or reserve any funds or other assets for purposes relating to the Plan and, except as set forth in this Plan, no Participant shall have any rights whatsoever in or with respect to any funds or other assets held by the Company for purposes of the Plan or otherwise. Each Participant's accounts maintained for purposes of the Plan merely constitute bookkeeping entries on records of the Company, constitute the unsecured promise and obligation of the Company to make payments as provided herein, and shall not constitute any allocation whatsoever of any cash, shares or other assets of the Company or be deemed to create any trust or special deposit with respect to any of the Company's assets. Notwithstanding the foregoing provisions, nothing in this Plan shall preclude the Company from setting aside Shares or funds in trust pursuant to one or more trust agreements between a trustee and the Company. However, no Participant shall have any secured interest or claim in any assets or property of the Company or any such trust and all Shares or funds contained in such trust shall remain subject to the claims of the Company's general creditors. 12. Amendment. The Board of Directors of the Company, or the Organization and Compensation Committee may, from time to time, amend or terminate the Plan, provided that no such amendment or termination of the Plan shall adversely affect a Participant's accounts as they existed immediately before such amendment or termination or the manner of distribution thereof, unless such Participant shall have consented thereto in writing. Notice of any amendment or termination of the Plan shall be given promptly to all Participants. 13. Plan Implementation. This Plan is adopted and effective on the 25th day of July, 1994, as amended on June 17, 1995, as further amended September 25, 1995, effective as of January 1, 1995, further amended on September 22, 1997 and further amended on September 27, 1999, effective as of January 1, 2000; provided, however that any deferrals made hereunder into a Stock Deferral Account prior to January 1, 2000, shall be governed by the provisions of the Plan in effect prior to January 1, 2000, further amended on February 28, 2000, 8 effective as of January 1, 2000, further amended on March 11, 2000, further amended on November 12, 2001, further amended on November 11, 2002 and further amended on February 24, 2003. 9 EX-10.O 6 l00403aexv10wo.txt EX-10(O) Exhibit (10)(o) EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (this "Agreement"), dated as of January 1, 2003, by and between The Lubrizol Corporation, an Ohio corporation (the "Company"), and Charles P. Cooley (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 desires to encourage Executive to remain with the Company for a number of years. WHEREAS, this Agreement is not intended to alter materially the compensation and benefits which the Executive could reasonably expect to receive from the Company that are not addressed within this Agreement; 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. If the Executive remains in the employ of the Company until January 1, 2008, he will receive 15,000 Lubrizol Common Shares 2. Executive will not have voting or dividend rights in number of shares listed in 1. above, unless and until the Shares are issued. 3. The number of Shares listed in 1. above will be issued before January 1, 2008 if the Employee is employed by the Company upon the occurrence of any of the following events: A. At the discretion of the Organization and Compensation Committee of the Board of Directors, upon the death of the Executive. B. If there is a Change of Control of the Company and Executive's employment terminates prior to the earlier of January 1, 2008 or the third anniversary of the Change of Control, by the Company for other than Good Cause or by the Executive for Good Reason, or if there is a Change of Control and the Executive terminates his employment for any reason during the 90 day period commencing on the first anniversary of the Change in Control. i. For purposes of this Agreement, there will be a "Change in Control" if any of the following events occurs: (a) The Company is merged, consolidated or reorganized into or with another corporation or other legal person, and immediately after such merger, consolidation or reorganization less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such transaction are held in the aggregate by the holders of Voting Stock (as that term is hereafter defined) of the Company immediately prior to such transaction; (b) The Company sells all or substantially all of its assets to any other corporation or other legal person, less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such sale are held in the aggregate by the holders of Voting Stock of the Company immediately prior to such sale; (c) There is a report filed on Schedule 13D or Schedule 14D-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"); (d) The Company files a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) that a change in control of the Company has or may have occurred or will or may occur in the future pursuant to any then existing contract or transaction; or (e) If during any period of two consecutive years, individuals who at the beginning of any such period constitute the Directors of the Company cease for any reason to constitute at least a majority thereof, provided, however, that for purposes of this clause (e), each Director who is first elected, or first nominated for election by the Company's stockholders by a vote of at least two-thirds of the Directors of the Company (or a committee thereof) then still in office who were Directors of the Company at the beginning of any such period will be deemed to have been a Director of the Company at the beginning of such period. Notwithstanding the foregoing provisions of Section 3(B)(i)(c) or 3(B)(i)(d) 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 2 "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. ii. Good Cause means the Executive 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 of its subsidiaries; (b) intentional wrongful damage to property of the Company and/or any of its subsidiaries; (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; and any such act was harmful to the Company. For purposes of this Agreement, no act, or failure to act, on the part of the Executive will be deemed "intentional" if it was due primarily to an error in judgment or negligence, but will 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 will not be deemed to have been terminated for "Good Cause" hereunder unless and until there is 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 3(B)(ii) and specifying the particulars thereof in detail. Nothing herein limits the right of the Executive or his beneficiaries to contest the validity or propriety of any such determination. iii. Good Reason means within three 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 3 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 was 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 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 4 hereof; (e) The Company relocates its principal executive offices, or requires the Executive to have his principal location of work changed, to any location which is over 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 4 (f) Without limiting the generality or effect of the foregoing, any material breach of this Agreement by the Company or any successor thereto. 4. Successors and Assigns to the Company A. The Company will 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 will 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 will thereafter be deemed the "Company" for the purposes of this Agreement), but will not otherwise be assignable, transferable or delegable by the Company. B. This Agreement inures to the benefit of and is 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 will, without the consent of the other, assign, transfer or delegate this Agreement or any rights or obligations hereunder except as expressly provided in Sections 4(A) and (B) above. Without limiting the generality of the foregoing, the Executive's right to receive the benefits hereunder is not 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 4(C), the Company has no liability to pay any amount so attempted to be assigned, transferred or delegated. 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. 5. For all purposes of this Agreement, all communications including without limitation notices, consents, requests or approvals, provided for herein must be in writing and will be deemed to have been duly given when delivered or five 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. 5 6. The validity, interpretation, construction and performance of this Agreement is governed by the laws of the State of Ohio, without giving effect to the principles of conflict of laws of such State. 7. 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. 8. 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, other than the Employment Agreement between Executive and the Company dated July 24, 2000, which remains in full force and effect. 9. 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. 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: - ----------------------------- ---------------------------------- Chief Executive Officer 6 EX-10.P 7 l00403aexv10wp.txt EX-10(P) Exhibit (10)(p) EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (this "Agreement"), dated as of January 1, 2003, by and between The Lubrizol Corporation, an Ohio corporation (the "Company"), and Stephen F. Kirk (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 desires to encourage Executive to remain with the Company for a number of years. WHEREAS, this Agreement is not intended to alter materially the compensation and benefits which the Executive could reasonably expect to receive from the Company that are not addressed within this Agreement; 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. If the Executive remains in the employ of the Company until January 1, 2008, he will receive the following: A. 15,000 Lubrizol Common Shares B. Coverage under The Lubrizol Corporation Executive Death Benefit Plan at the later of January 1, 2008 or age 60, provided he is still employed with the Company at such time. C. Coverage under The Lubrizol Corporation Officers' Supplemental Retirement Plan at the later of January 1, 2008 or age 60, provided he is still employed with the Company at such time. 2. Executive will not have voting or dividend rights in number of shares listed in 1.A above, unless and until the Shares are issued. 3. The number of Shares listed in 1.A. above will be issued before January 1, 2008 if the Employee is employed by the Company upon the occurrence of any of the following events: A. At the discretion of the Organization and Compensation Committee of the Board of Directors, upon the death of the Executive. B. If there is a Change of Control of the Company and Executive's employment terminates prior to the earlier of January 1, 2008 or the third anniversary of the Change of Control, by the Company for other than Good Cause or by the Executive for Good Reason, or if there is a Change of Control and the Executive terminates his employment for any reason during the 90 day period commencing on the first anniversary of the Change in Control. i. For purposes of this Agreement, there will be a "Change in Control" if any of the following events occurs: (a) The Company is merged, consolidated or reorganized into or with another corporation or other legal person, and immediately after such merger, consolidation or reorganization less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such transaction are held in the aggregate by the holders of Voting Stock (as that term is hereafter defined) of the Company immediately prior to such transaction; (b) The Company sells all or substantially all of its assets to any other corporation or other legal person, less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such sale are held in the aggregate by the holders of Voting Stock of the Company immediately prior to such sale; (c) There is a report filed on Schedule 13D or Schedule 14D-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"); (d) The Company files a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) that a change in control of the Company has or may have occurred or will or may occur in the future pursuant to any then existing contract or transaction; or (e) If during any period of two consecutive years, individuals who at the beginning of any such period constitute the Directors of the Company cease for any reason to constitute at least a majority thereof, provided, however, that for purposes of this clause (e), each Director who is first elected, or first nominated for election by the Company's stockholders by a vote of at least two-thirds of the Directors of the Company (or a committee thereof) then still in office who were Directors of the Company at the beginning of any such period will be deemed to have been a Director of the Company at the beginning of such period. 2 Notwithstanding the foregoing provisions of Section 3(B)(i)(c) or 3(B)(i)(d) 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. ii. Good Cause means the Executive 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 of its subsidiaries; (b) intentional wrongful damage to property of the Company and/or any of its subsidiaries; (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; and any such act was harmful to the Company. For purposes of this Agreement, no act, or failure to act, on the part of the Executive will be deemed "intentional" if it was due primarily to an error in judgment or negligence, but will 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 will not be deemed to have been terminated for "Good Cause" hereunder unless and until there is 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 3(B)(ii) and specifying the particulars thereof in detail. Nothing herein limits the right of the Executive or his beneficiaries to contest the validity or propriety of any such determination. 3 iii. Good Reason means within three 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 was 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 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 4 hereof; (e) The Company relocates its principal executive offices, or requires the Executive to have his principal location of work changed, to any location which is over 25 miles from 4 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. 4. Successors and Assigns to the Company A. The Company will 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 will 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 will thereafter be deemed the "Company" for the purposes of this Agreement), but will not otherwise be assignable, transferable or delegable by the Company. B. This Agreement inures to the benefit of and is 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 will, without the consent of the other, assign, transfer or delegate this Agreement or any rights or obligations hereunder except as expressly provided in Sections 4(A) and (B) above. Without limiting the generality of the foregoing, the Executive's right to receive the benefits hereunder is not 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 4(C), the Company has no liability to pay any amount so attempted to be assigned, transferred or delegated. 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. 5. For all purposes of this Agreement, all communications including without limitation notices, consents, requests or approvals, provided for herein must be in writing and will be deemed to have been duly given when delivered or five business 5 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. 6. The validity, interpretation, construction and performance of this Agreement is governed by the laws of the State of Ohio, without giving effect to the principles of conflict of laws of such State. 7. 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. 8. 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, other than the Employment Agreement between Executive and the Company dated July 24, 2000, which remains in full force and effect. 9. 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. 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: - --------------------------- ----------------------------- Chief Executive Officer 6 EX-10.Q 8 l00403aexv10wq.txt EX-10(Q) Exhibit (10)(q) EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (this "Agreement"), dated as of January 1, 2003, by and between The Lubrizol Corporation, an Ohio corporation (the "Company"), and Stephen A. Di Biase (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 desires to encourage Executive to remain with the Company for a number of years. WHEREAS, this Agreement is not intended to alter materially the compensation and benefits which the Executive could reasonably expect to receive from the Company that are not addressed within this Agreement; 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. If the Executive remains in the employ of the Company until January 1, 2008, he will receive 5,000 Lubrizol Common Shares 2. Executive will not have voting or dividend rights in number of shares listed in 1. above, unless and until the Shares are issued. 3. The number of Shares listed in 1. above will be issued before January 1, 2008 if the Employee is employed by the Company upon the occurrence of any of the following events: A. At the discretion of the Organization and Compensation Committee of the Board of Directors, upon the death of the Executive. B. If there is a Change of Control of the Company and Executive's employment terminates prior to the earlier of January 1, 2008 or the third anniversary of the Change of Control, by the Company for other than Good Cause or by the Executive for Good Reason, or if there is a Change of Control and the Executive terminates his employment for any reason during the 90 day period commencing on the first anniversary of the Change in Control. i. For purposes of this Agreement, there will be a "Change in Control" if any of the following events occurs: (a) The Company is merged, consolidated or reorganized into or with another corporation or other legal person, and immediately after such merger, consolidation or reorganization less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such transaction are held in the aggregate by the holders of Voting Stock (as that term is hereafter defined) of the Company immediately prior to such transaction; (b) The Company sells all or substantially all of its assets to any other corporation or other legal person, less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such sale are held in the aggregate by the holders of Voting Stock of the Company immediately prior to such sale; (c) There is a report filed on Schedule 13D or Schedule 14D-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"); (d) The Company files a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) that a change in control of the Company has or may have occurred or will or may occur in the future pursuant to any then existing contract or transaction; or (e) If during any period of two consecutive years, individuals who at the beginning of any such period constitute the Directors of the Company cease for any reason to constitute at least a majority thereof, provided, however, that for purposes of this clause (e), each Director who is first elected, or first nominated for election by the Company's stockholders by a vote of at least two-thirds of the Directors of the Company (or a committee thereof) then still in office who were Directors of the Company at the beginning of any such period will be deemed to have been a Director of the Company at the beginning of such period. Notwithstanding the foregoing provisions of Section 3(B)(i)(c) or 3(B)(i)(d) 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 2 "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. ii. Good Cause means the Executive 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 of its subsidiaries; (b) intentional wrongful damage to property of the Company and/or any of its subsidiaries; (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; and any such act was harmful to the Company. For purposes of this Agreement, no act, or failure to act, on the part of the Executive will be deemed "intentional" if it was due primarily to an error in judgment or negligence, but will 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 will not be deemed to have been terminated for "Good Cause" hereunder unless and until there is 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 3(B)(ii) and specifying the particulars thereof in detail. Nothing herein limits the right of the Executive or his beneficiaries to contest the validity or propriety of any such determination. iii. Good Reason means within three 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 3 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 was 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 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 4 hereof; (e) The Company relocates its principal executive offices, or requires the Executive to have his principal location of work changed, to any location which is over 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 4 (f) Without limiting the generality or effect of the foregoing, any material breach of this Agreement by the Company or any successor thereto. 4. Successors and Assigns to the Company A. The Company will 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 will 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 will thereafter be deemed the "Company" for the purposes of this Agreement), but will not otherwise be assignable, transferable or delegable by the Company. B. This Agreement inures to the benefit of and is 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 will, without the consent of the other, assign, transfer or delegate this Agreement or any rights or obligations hereunder except as expressly provided in Sections 4(A) and (B) above. Without limiting the generality of the foregoing, the Executive's right to receive the benefits hereunder is not 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 4(C), the Company has no liability to pay any amount so attempted to be assigned, transferred or delegated. 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. 5. For all purposes of this Agreement, all communications including without limitation notices, consents, requests or approvals, provided for herein must be in writing and will be deemed to have been duly given when delivered or five 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. 5 6. The validity, interpretation, construction and performance of this Agreement is governed by the laws of the State of Ohio, without giving effect to the principles of conflict of laws of such State. 7. 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. 8. 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, other than the Employment Agreement between Executive and the Company dated July 24, 2000, which remains in full force and effect. 9. 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. 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: - -------------------------- ------------------------------ Chief Executive Officer 6 EX-10.R 9 l00403aexv10wr.txt EX-10(R) Exhibit (10)(r) EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (this "Agreement"), dated as of January 1, 2003, by and between The Lubrizol Corporation, an Ohio corporation (the "Company"), and Donald W. Bogus (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 desires to encourage Executive to remain with the Company for a number of years. WHEREAS, this Agreement is not intended to alter materially the compensation and benefits which the Executive could reasonably expect to receive from the Company that are not addressed within this Agreement; 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. If the Executive remains in the employ of the Company until January 1, 2008, he will receive the following: A. 15,000 Lubrizol Common Shares B. Coverage under The Lubrizol Corporation Executive Death Benefit Plan at the later of January 1, 2008 or age 60, provided he is still employed with the Company at such time. C. Coverage under The Lubrizol Corporation Officers' Supplemental Retirement Plan at the later of January 1, 2008 or age 60, provided he is still employed with the Company at such time. At age 61, the amount provided will be at least $50,000; at age 62, at least $100,000; at age 63, at least $150,000; at age 64, at least $200,000; and at age 65, at least $250,000, with such amounts comprised of the amount calculated under the SORP, and if lesser than the amounts previously cited, through additional payments made by the Company to the Executive. 2. Executive will not have voting or dividend rights in number of shares listed in 1.A above, unless and until the Shares are issued. 3. The number of Shares listed in 1.A. above will be issued before January 1, 2008 if the Employee is employed by the Company upon the occurrence of any of the following events: A. At the discretion of the Organization and Compensation Committee of the Board of Directors, upon the death of the Executive. B. If there is a Change of Control of the Company and Executive's employment terminates prior to the earlier of January 1, 2008 or the third anniversary of the Change of Control, by the Company for other than Good Cause or by the Executive for Good Reason, or if there is a Change of Control and the Executive terminates his employment for any reason during the 90 day period commencing on the first anniversary of the Change in Control. i. For purposes of this Agreement, there will be a "Change in Control" if any of the following events occurs: (a) The Company is merged, consolidated or reorganized into or with another corporation or other legal person, and immediately after such merger, consolidation or reorganization less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such transaction are held in the aggregate by the holders of Voting Stock (as that term is hereafter defined) of the Company immediately prior to such transaction; (b) The Company sells all or substantially all of its assets to any other corporation or other legal person, less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such sale are held in the aggregate by the holders of Voting Stock of the Company immediately prior to such sale; (c) There is a report filed on Schedule 13D or Schedule 14D-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"); (d) The Company files a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) that a change in control of the Company has or may have occurred or will or may occur in the future pursuant to any then existing contract or transaction; or (e) If during any period of two consecutive years, individuals who at the beginning of any such period constitute the Directors of the Company cease for any reason to constitute at least a majority thereof, provided, however, that for purposes of this clause (e), each Director who is first elected, or first nominated for election by the Company's stockholders by a vote of at least two-thirds of 2 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 3(B)(i)(c) or 3(B)(i)(d) 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. ii. Good Cause means the Executive 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 of its subsidiaries; (b) intentional wrongful damage to property of the Company and/or any of its subsidiaries; (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; and any such act was harmful to the Company. For purposes of this Agreement, no act, or failure to act, on the part of the Executive will be deemed "intentional" if it was due primarily to an error in judgment or negligence, but will 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 will not be deemed to have been terminated for "Good Cause" hereunder unless and until there is 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 3 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 3(B)(ii) and specifying the particulars thereof in detail. Nothing herein limits the right of the Executive or his beneficiaries to contest the validity or propriety of any such determination. iii. Good Reason means within three 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 was 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 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 4 been transferred (directly or by operation of law) shall have assumed all duties and obligations of the Company under this Agreement pursuant to Section 4 hereof; (e) The Company relocates its principal executive offices, or requires the Executive to have his principal location of work changed, to any location which is over 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. 4. Successors and Assigns to the Company A. The Company will 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 will 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 will thereafter be deemed the "Company" for the purposes of this Agreement), but will not otherwise be assignable, transferable or delegable by the Company. B. This Agreement inures to the benefit of and is 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 will, without the consent of the other, assign, transfer or delegate this Agreement or any rights or obligations hereunder except as expressly provided in Sections 4(A) and (B) above. Without limiting the generality of the foregoing, the Executive's right to receive the benefits hereunder is not 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 4(C), the Company has no liability to pay any amount so attempted to be assigned, transferred or delegated. 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 5 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. 5. For all purposes of this Agreement, all communications including without limitation notices, consents, requests or approvals, provided for herein must be in writing and will be deemed to have been duly given when delivered or five 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. 6. The validity, interpretation, construction and performance of this Agreement is governed by the laws of the State of Ohio, without giving effect to the principles of conflict of laws of such State. 7. 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. 8. 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, other than the Employment Agreement between Executive and the Company dated July 24, 2000, which remains in full force and effect. 9. 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. 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: - ----------------------- -------------------------- Chief Executive Officer 6 -----END PRIVACY-ENHANCED MESSAGE-----