-----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, QSpV4vNLXVJYlILs3OvWFK9MMYPjS3+UC+05UqLAGWqjpR1Rj5OhSj4wLEmbrMTs W2REwgj1yxSWy9dV+eyKYw== 0000084748-03-000005.txt : 20030331 0000084748-03-000005.hdr.sgml : 20030331 20030331134822 ACCESSION NUMBER: 0000084748-03-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 20021229 FILED AS OF DATE: 20030331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROGERS CORP CENTRAL INDEX KEY: 0000084748 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS, MATERIALS, SYNTH RESINS & NONVULCAN ELASTOMERS [2821] IRS NUMBER: 060513860 STATE OF INCORPORATION: MA FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04347 FILM NUMBER: 03629079 BUSINESS ADDRESS: STREET 1: P.O. BOX 188 STREET 2: ONE TECHNOLOGY DRIVE CITY: ROGERS STATE: CT ZIP: 06263-0188 BUSINESS PHONE: 8607749605 10-K 1 edgar10k2002.txt 2002 ANNUAL REPORT ON FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 29, 2002 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 1-4347 ROGERS CORPORATION [Exact name of Registrant as specified in its charter] Massachusetts 06-0513860 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Technology Drive P.O. Box 188 Rogers, Connecticut 06263-0188 (Address of principal executive offices) (Zip Code) (860) 774-9605 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered Capital Stock, $1 Par Value New York Stock Exchange, Inc. Rights to Purchase Capital Stock New York Stock Exchange, Inc. Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ________ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the Capital Stock, $1 par value, held by non-affiliates of the Registrant as of March 5, 2003 was $444,639,478. The number of shares of Capital Stock, $1 par value, outstanding as of March 5, 2003 was 15,364,184. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's annual report to shareholders for the fiscal year ended December 29, 2002 are incorporated by reference into Parts I and II. Portions of the proxy statement for the Registrant's 2003 annual meeting of stockholders to be held April 24, 2003, are incorporated by reference into Part III. TABLE OF CONTENTS PART I Item Page 1. Business 1 2. Properties 6 3. Legal Proceedings 6 4. Submission of Matters to a Vote of Security Holders 8 PART II 5. Market for Registrant's Common Equity and Related Stockholder Matters 8 6. Selected Financial Data 8 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 7A. Quantitative and Qualitative Disclosures About Market Risk 8 8. Financial Statements and Supplementary Data 8 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 8 PART III 10. Directors and Executive Officers of the Registrant 9 11. Executive Compensation 9 12. Security Ownership of Certain Beneficial Owners and Management 9 13. Certain Relationships and Related Transactions 9 14. Controls and Procedures 9 PART IV 15. Exhibits and Reports on Form 8-K 10 SIGNATURES Signatures 14 Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 15 PART I Item 1. BUSINESS GENERAL Rogers Corporation ("the Company"), founded in 1832, is one of the oldest publicly traded U.S. companies in continuous operation. The Company has adapted its products over the years to meet changing market needs, moving from specialty paperboard to transformer boards for electrical insulation, and now predominantly to a range of specialty polymer composite materials for communications, imaging, computer, transportation, and consumer applications. New leadership in 1992 restructured the Company to focus on its materials based businesses, which include printed circuit materials, high performance foams, and other polymer materials and components. The Company's management, operations, sales and marketing, and technology development activities were redirected to efforts intended to grow the materials based businesses. In so doing, the Company takes advantage of its core competencies in polymers, fillers, and adhesion, and applies its related materials technologies to identified market needs. Materials based businesses were the core businesses responsible for the Company's strong growth in the 1960's and 1970's, and provided most of the Company's profits in the 1980's. During that time, the profits from the materials based businesses were often offset by substantial losses in the Company's former electronic components businesses, which are now divested. The materials based businesses are guided by clearly developed strategic business plans for profitable growth. The current focus is on worldwide markets for printed circuit materials, high performance foams; and the electroluminescent lamp joint venture with 3M. An increasingly large percentage of these materials are going into growing high technology applications, such as cell telephone base stations and antennas, handheld wireless devices and satellite television receivers. BUSINESS SEGMENT FINANCIAL AND GEOGRAPHIC INFORMATION "Business Segment and Geographic Information" on pages 48-50 of the annual report to shareholders for the year ended December 29, 2002, is incorporated herein by reference. PRODUCTS Rogers Corporation manufactures and sells specialty polymer composite materials and components which it develops for growing markets and applications around the world. The Company has three business segments: High Performance Foams, Printed Circuit Materials, and Polymer Materials and Components. The Company's products are based on its core technologies in polymers, fillers, and adhesion. Most products are proprietary, or incorporate proprietary technology in their development and processing, and are sold under the Company's valuable brand names. HIGH PERFORMANCE FOAMS High Performance Foams include urethane foams, silicone foams, and polyolefin foams. The Company's High Performance Foams have characteristics that offer functional advantages in many market applications, and serve to differentiate the Company's products from competitors' materials and from other commonly available materials. High Performance Foams are sold to fabricators, printers and original equipment manufacturers for applications in imaging, communications, computer, transportation, consumer and other markets. Trade names for the Company's High Performance Foams include: PORON(R) urethane foams used for making high performance gaskets and seals in vehicles, communications devices, computers and peripherals; PORON cushion insole materials for footwear and related products; PORON healthcare and medical materials for body cushioning, orthotic appliances; BISCO(R) silicone foams used for making flame 1 retardant gaskets and seals in aircraft, trains, cars and trucks, and for shielding extreme temperature or flame; and R/bak(R) compressible printing plate backing and mounting products for cushioning flexographic printing on packaging materials. The Company's polyolefin foams are used in a range of industrial and consumer applications. One of the Company's joint ventures extends and complements the Company's worldwide business in High Performance Foams. Rogers Inoac Corporation ("RIC"), a 50% owned joint venture with Japan-based Inoac Corporation, manufactures high performance PORON urethane foam materials in Mie and Nagoya, Japan. PRINTED CIRCUIT MATERIALS Printed Circuit Materials include printed circuit board laminates for high frequency circuits, flexible printed circuit board laminates for high performance flexible circuits, and polyester based industrial laminates. The Company's Printed Circuit Materials have characteristics that offer performance and other advantages in many market applications, and serve to differentiate the Company's products from competitors' products and from other commonly available materials. Printed Circuit Materials are sold principally to independent and captive printed circuit board manufacturers who convert the Company's laminates to custom printed circuits. The polymer based dielectric layers of the Company's high frequency circuit board laminates are proprietary materials that provide highly specialized electrical and mechanical properties. Trade names for the Company's high frequency printed circuit board materials include RO3000(R), RO4000(R), DUROID(R), RT/duroid(R), ULTRALAM(R), and TMM(R) laminates. All of these laminates are used for making circuitry that receive, transmit, and process high frequency communications signals. Each laminate addresses specific needs and applications within the communications market. High frequency circuits are used throughout the equipment and devices that comprise wireless communications systems, including cellular communications, digital cellular communications, paging, direct broadcast television, global positioning, mobile radio communications, and radar. The flexible circuit materials that the Company manufactures are called R/flex(R) materials. They are mainly used to make interconnections for handheld and laptop computers, portable electronic devices, and hard disk drives. The performance characteristics of R/flex materials differentiate these laminates from commonly available flexible circuit materials. The adhesiveless flexible circuit materials that the Company sold to Hutchinson Technology Incorporated ("HTI"), for making trace suspension assemblies in magneto resistive hard disk drives, are called SSLAM materials. SSLAM materials are manufactured by Mitsui Chemicals, Inc. of Japan, under a technology license from Rogers Corporation. Effective January 3, 2000 the Company started a joint venture with Mitsui Chemicals, Inc. to eventually manufacture this flexible circuit board laminate in Chandler, Arizona. Beginning in 2000, this joint venture, Polyimide Laminate Systems, LLC ("PLS") made these sales to HTI rather than having the resale go through the Company. Eventually PLS will provide HTI with a second source of supply. Rogers Chang Chun Technology Co., Ltd. ("RCCT"), the Company's joint venture with Chang Chun Plastics Co., Ltd., which was established in late 2001 to manufacture flexible circuit material for customers in Taiwan, saw its first sales in 2002. While the sales were slightly lower than the Company's expectations, progress was definitely made in establishing a foothold in this market and the Company looks to the future for this positive trend to continue. Industrial laminates are manufactured by the Company under the Induflex(R) trade name. These polyester based laminates, with thin aluminum and copper cladding, are sold to telecommunications and data communication cable manufacturers for shielding electromagnetic and radio frequency interference, and to automotive component manufacturers for making flat, etched-foil heaters. 2 POLYMER MATERIALS AND COMPONENTS Polymer Materials and Components include high performance elastomer components, composite materials, and power distribution bus bars. The Company's Polymer Materials and Components have characteristics that offer functional advantages in many market applications, and serve to differentiate the Company's products from competitors' materials and from other commonly available materials. Polymer Materials and Components are sold to printers and original equipment manufacturers for applications in transportation, communications, imaging, computer, consumer and other markets. Trade names for the Company's Polymer Materials and Components include: NITROPHYL(R) floats for fill level sensing in fuel tanks, motors, and storage tanks; and ENDUR(R) elastomer rollers and belts for document handling in copiers, computer printers, mail sorting machines and automated teller machines. Power distribution bus bars are manufactured by the Company under the MEKTRON(R) trade name. Bus bars are sold to manufacturers of high voltage electrical traction systems for use in mass transit and industrial applications, and to manufacturers of communication and computer equipment. The Company's nonwoven composite materials are manufactured for medical padding, industrial pre-filtration applications, and as consumable supplies in the lithographic printing industry. One of the Company's joint ventures complements the Company's worldwide business in Polymer Materials and Components. This is Durel Corporation, a 50% owned venture with 3M, which manufactures DUREL(R) electroluminescent lamps ("EL Lamps") and phosphor, in Chandler, Arizona. The Company also designs and sells inverters that power EL lamps. BACKLOG Excluding joint venture activity, the backlog of firm orders for High Performance Foams was $5,841,000 at December 29, 2002 and $3,611,000 at December 30, 2001. The backlog of firm orders for Printed Circuit Materials was $7,210,000 at December 29, 2002 and $7,384,000 at December 30, 2001. The backlog of firm orders for Polymer Materials and Components was $8,629,000 at December 29, 2002 and $12,273,000 at December 30, 2001. The amount of unfilled orders is reasonably stable throughout the year. RAW MATERIALS The manufacture of High Performance Foams, Printed Circuit Materials and Polymer Materials and Components requires a wide variety of purchased raw materials. Some of these raw materials are available only from limited sources of supply that, if discontinued, could interrupt production. When this has occurred in the past, the Company has purchased sufficient quantities of the particular raw material to sustain production until alternative materials and production processes could be qualified with customers. Management believes that similar responses would mitigate any raw material availability issues in the future. EMPLOYEES The Company employed an average of 210 people in the High Performance Foams operations, 430 people in the Printed Circuit Materials operations, and 611 people in the Polymer and Materials operations during 2002. SEASONALITY In the Company's opinion, there is no material concentration of products or markets within the business which are seasonal in nature. 3 CUSTOMERS & MARKETING The Company's products were sold to approximately 2,400 customers worldwide in 2002. Although the loss of all the sales made to any one of the Company's major customers would require a period of adjustment during which the business of a segment would be adversely affected, the Company believes that such adjustment could be made over a period of time. The Company also believes that its business relationships with the major customers within all of its segments are generally favorable, and that it is in a good position to respond promptly to variations in customer requirements. However, the possibility exists of losing all the business of any major customer as to any product line. Likewise, the possibility exists of losing all the business of any single customer. The Company markets its full range of products throughout the United States and in most foreign markets. Over 90% of the Company's sales are sold through the Company's own domestic and foreign sales force, with the balance sold through independent agents and distributors. COMPETITION There are no firms that compete with the Company across its full range of product lines. However, each of the Company's products faces competition in each business segment in domestic and foreign markets. Competition comes from firms of all sizes and types, including those with substantially more resources than the Company. The Company's strategy is to offer technically advanced products that are price competitive in their markets, and to link the offerings with market knowledge and customer service. The Company believes this serves to differentiate the Company's products in many markets. RESEARCH & DEVELOPMENT The Company has many domestic and foreign patents and licenses and has additional patent applications on file related to all business segments. In some cases, the patents result in license royalties. The patents are of varying duration and provide some protection. Although the Company vigorously defends its patents, the Company believes that its patents have most value in combination with its equipment, technology, skills, and market position. The Company also owns a number of registered and unregistered trademarks that it believes to be of importance. ENVIRONMENTAL REGULATION The nature and scope of the Company's business bring it in regular contact with the general public and a variety of businesses and government agencies. Such activities inherently subject the Company to the possibility of litigation, including environmental matters that are defended and handled in the ordinary course of business. The Company has established accruals for matters for which management considers a loss to be probable and reasonably estimable. The Company does not believe that the outcome of any of these matters will have a material adverse effect on its financial position nor has the Company had any material recurring costs or capital expenditures relating to environmental matters, except as disclosed in Item 3 of this report. However, there can be no assurances that the ultimate liability concerning these matters will not have a material adverse effect on the Company. 4 EXECUTIVE OFFICERS OF THE REGISTRANT All officers hold office until the first meeting of the Board of Directors following the annual meeting of stockholders or until successors are elected. There are no family relationships between or among executive officers and directors of the Company. Name, Age Prior Business Experience Served in Present and Present Position in Past Five Years Position Since - ------------------------------------------------------------------------------ Walter E. Boomer, 64 President and Chief Executive Officer April 2002 Chairman of the Board from March 1997 to April 2002 of Directors and Chief Executive Officer Robert D. Wachob, 55 Executive Vice President from January April 2002 President and Chief 2000 to April 2002; Senior Operating Officer Vice President, Sales and Marketing from May 1997 to January 2000. James M. Rutledge, 50 Vice President, Finance and Chief December 2002 Vice President, Financial Officer from June 2002 to Finance and Chief December 2002; Vice President, Finance Financial Officer and Chief Financial Officer and Secretary and Treasurer from January 2002 to June 2002; Chief Financial Officer of Baldwin Technology Company Inc. from January 2000 to July 2001; Vice President Finances and Taxes of Rayonier, Inc. from March 1999 to January 2000; Vice President and Treasurer of Witco Corporation October 1990 to March 1999. Bruce G. Kosa, 63 October 1994 Vice President, Technology John A. Richie, 55 October 1994 Vice President, Human Resources Robert M. Soffer, 55 Vice President, Secretary and Treasurer December 2002 Vice President and and Clerk from June 2002 to December Secretary and Clerk 2002; Vice President, Assistant Secretary and Treasurer and Clerk from April 2000 to June 2002; Treasurer and Assistant Secretary and Clerk from February 1992 to April 2000. Paul B. Middleton, 35 Division Controller for Cooper December 2001 Corporate Controller Industries from November 1999 to December 2001; Internal Audit Manager of Cooper Industries from December 1997 to November 1999; Audit Manager for KPMG Peat Marwick from April 1996 to December 1997. 5 Item 2. PROPERTIES The Company owns its properties, except as noted below. The Company considers that its properties are well maintained, in good operating condition, and suitable for its current and anticipated business. Floor Space (Square Feet) Type of Facility Leased/Owned ------------- ---------------- ------------ High Performance Foams - ---------------------- Woodstock, Connecticut 152,000 Manufacturing Owned Carol Stream, Illinois 215,000 Manufacturing Owned Printed Circuit Materials - ------------------------- Chandler, Arizona 156,000 Manufacturing Owned 4,000 Warehouse Owned 11,000 Rental Property Owned Chandler, Arizona 142,000 Manufacturing Owned Evergem, Belgium 80,000 Manufacturing Owned Ghent, Belgium Rogers NV 17,000 Manufacturing Owned Rogers Induflex NV 96,000 Manufacturing Owned Polymer Materials and Components - -------------------------------- South Windham, Connecticut 88,000 Manufacturing Owned Rogers, Connecticut 290,000 Manufacturing Owned Ghent, Belgium Rogers NV 96,000 Manufacturing Owned Other - ----- Rogers, Connecticut 116,000 Corporate Headquarters/ Research & Development Owned Chandler, Arizona 160,000 Manufacturing Owned Suzhou, China 93,000 Manufacturing Leased through 6/05 Suzhou, China 93,000 Manufacturing Leased through 6/05 Tokyo, Japan 2,000 Sales Office Leased through 9/04 Wanchai, Hong Kong 1,000 Sales Office Leased through 3/04 Guangzhou, China 1,000 Sales Office Leased through 3/04 Taipei, Taiwan, R.O.C. 1,000 Sales Office Leased through 7/04 Seoul, Korea 1,000 Sales Office Leased through 2/04 50 Warehouse Leased through 5/04 Singapore 1,000 Sales Office Leased through 6/04 Item 3. LEGAL PROCEEDINGS The Company is subject to federal, state, and local laws and regulations concerning the environment and is currently engaged in proceedings related to such matters. The Company is currently involved as a potentially responsible party ("PRP") . in two cases involving waste disposal sites, both of which are Superfund sites. These proceedings are at a stage where it is still not possible to estimate the cost of remediation, the timing and extent of remedial action which may be required by governmental authorities, and the amount of liability, if any, of the Company alone or in relation to that of any other PRPs. Where it has been possible to make a reasonable estimate of the Company's liability, a provision has been established. Insurance proceeds have only been taken into account when they have been confirmed by or received from the insurance company. Actual costs to be incurred in future periods 6 may vary from these estimates. Based on facts presently known to it, the Company does not believe that the outcome of these proceedings will have a material adverse effect on its financial position. In addition to the above proceedings, the Company worked with the Connecticut Department of Environmental Protection ("CT DEP") related to certain polychlorinated biphenyl ("PCB") contamination in the soil beneath a section of cement flooring at its Woodstock, Connecticut facility. The Company completed clean-up efforts in 2000, monitored the site in 2001 and 2002, and will continue to monitor the site for the next two years. On the basis of estimates prepared by environmental engineers and consultants, the Company recorded a provision of $2,200,000 prior to 1999 and based on updated estimates provided an additional $400,000 in 1999 for costs related to this matter. Prior to 2000, $1,300,000 was charged against this provision. In 2000, 2001, and 2002 expenses of $900,000, $100,000, and $200,000 were charged, respectively, against the provision. The remaining reserve is primarily for testing, monitoring, sampling and any minor residual treatment activity. Management believes, based on facts currently available, that the balance of this provision is adequate to complete the project. In this same matter the United States Environmental Protection Agency ("EPA") alleged that the Company improperly disposed of PCBs. An administrative law judge found the Company liable for this alleged disposal and assessed a penalty of approximately $300,000. The Company reflected this fine in expense in 1998 but disputed the EPA allegations and appealed the administrative law judge's findings and penalty assessment. The original findings were upheld internally by the EPA's Environmental Appeals Board, and the Company placed that decision on appeal with the District of Columbia Federal Court of Appeals in 2000. In early January of 2002, the Company was informed that the Court of Appeals reversed the decision. As a result of this favorable decision, the $300,000 reserve for the fine was taken into income in 2001. However, subsequent to the favorable decision by the Court of Appeals, the EPA continued to pursue this issue and settlement discussions with the EPA were more protracted and difficult than originally anticipated. As such, the Company recorded $325,000 for legal and other costs associated with this matter in 2002. On January 16, 2003, a settlement agreement was signed with the EPA. The costs associated with the settlement will not exceed the provision recorded, which included a cash settlement payment to the government of $45,000 plus a commitment to undertake some energy-related environmental improvements at its facilities, as well as assistance to a local Woodstock, Connecticut Fire Department for emergency preparedness. Management believes, based on the facts currently available, that the provision recorded in 2002 is adequate to cover the requirement of the settlement. On February 7, 2001, the Company entered into a definitive agreement to purchase the Advanced Dielectric Division ("ADD") of Tonoga, Inc. (commonly known as Taconic), which operates facilities in Petersburgh, New York and Mullingar, Ireland. On May 11, 2001, the Company announced that active discussions with Taconic to acquire the ADD business had been suspended and it was not anticipated that the acquisition would occur. Accordingly, $1,500,000 in costs associated with this potential acquisition were written off during the second quarter of 2001. On October 23, 2001, the Company terminated the acquisition agreement. On October 24, 2001, Taconic filed a breach of contract lawsuit against the Company in the United States District Court for the District of Connecticut seeking damages in the amount of $25,000,000 or more, as well as specific performance and attorneys' fees. In September 2002, a confidential settlement agreement concerning all matters raised in this litigation was negotiated and entered into. The settlement had no material impact on the 2002 results. There recently has been a significant increase in certain U.S. states in asbestos-related product liability claims against numerous industrial companies. The Company has been named, along with hundreds of other industrial companies, as a defendant in some of these cases. The Company strongly believes it has valid defenses to these claims and intends to defend itself vigorously. In addition, the Company believes that it has sufficient insurance to cover all costs associated with these claims. Based upon past claims experience and available insurance coverage, management believes these matters will not have a material adverse effect on the financial position, results of operations, or cash flows of the Company. In addition to the above issues, the nature and scope of the Company's business bring it in regular contact with the general public and a variety of businesses and government agencies. Such activities inherently 7 subject the Company to the possibility of litigation, including environmental and product liability matters that are defended and handled in the ordinary course of business. The Company has established accruals for matters for which management considers a loss to be probable and reasonably estimable. It is the opinion of management that facts known at the present time do not indicate that such litigation, after taking into account insurance coverage and the aforementioned accruals, will have a material adverse effect on the financial position of the Company. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Pursuant to General Instruction G to Form 10-K, there is hereby incorporated by this reference the information set forth under the caption "Capital Stock Market Prices" on page 53, under the caption "Restriction on Payment of Dividends" in Note G on page 42, and under the caption "Dividend Policy" in the "Management's Discussion and Analysis" on page 20-21 of the 2002 annual report to shareholders. At March 5, 2003, there were 927 shareholders of record. Item 6. SELECTED FINANCIAL DATA Pursuant to General Instruction G to Form 10-K, there is hereby incorporated by this reference the information set forth under the caption "Selected Financial Data" on page 15 of the 2002 annual report to shareholders. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Pursuant to General Instruction G to Form 10-K, there is hereby incorporated by this reference the information set forth under the caption "Management's Discussion and Analysis" on pages 16 through 25 of the 2002 annual report to shareholders. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Pursuant to General Instruction G to Form 10-K, there is hereby incorporated by this reference the information set forth under the caption "Market Risk" in the "Management's Discussion and Analysis" on page 23 of the 2002 annual report to shareholders. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Pursuant to General Instruction G to Form 10-K, there is hereby incorporated by this reference the information set forth on pages 26 through 51 and under the caption "Quarterly Results of Operations" on the back inside cover of the 2002 annual report to shareholders. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 8 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Pursuant to General Instruction G to Form 10-K, there is hereby incorporated by this reference the information with respect to the Directors of the Registrant set forth under the caption "Nominees for Director" on page 2 of the Registrant's definitive proxy statement dated March 20, 2003, for its 2003 annual meeting of stockholders filed pursuant to Section 14(a) of the Act. Information with respect to Executive Officers of the Registrant is presented in Part I, Item 1 of this report. Item 11. EXECUTIVE COMPENSATION Pursuant to General Instruction G to Form 10-K, there is hereby incorporated by this reference the information set forth under the captions "Directors' Compensation" on pages 6 and 7 and "Executive Compensation" on pages 8 through 16 of the Registrant's definitive proxy statement, dated March 20, 2003, for its 2003 annual meeting of stockholders filed pursuant to Section 14(a) of the Act. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Pursuant to General Instruction G to Form 10-K, there is hereby incorporated by this reference the information with respect to Security Ownership of Certain Beneficial Owners and Management set forth under the captions "Stock Ownership of Management" on page 3 and "Beneficial Ownership of More Than Five Percent of Rogers Stock" on page 4 of the Registrant's definitive proxy statement, dated March 20, 2003, for its 2003 annual meeting of stockholders filed pursuant to Section 14(a) of the Act. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Pursuant to General Instruction G to form 10-K, there is hereby incorporated by reference the iformation with respect to certain relationships and related transactions set forth in Note D under the caption "Summarzied Financial Information of Unconsolidated Joint Ventures and Related Party Transactions" on page 38 of the 2002 annual report to shareholders. Item 14. CONTROLS AND PROCEDURES a. Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the "Exchange Act"), as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in alerting our management on a timely basis to material information required to be disclosed in our reports filed under the Exchange Act. b. There have been no significant changes in our internal controls or in other factors that could significantly affect such controls since the Evaluation Date. 9 PART IV Item 15. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) and (2)- The following consolidated financial statements of Rogers Corporation and Subsidiaries, included in the Annual Report of the Registrant to its shareholders for the fiscal year ended December 29, 2002, are incorporated by reference in Item 8: Consolidated Balance Sheets - December 29, 2002 and December 30, 2001 Consolidated Statements of Income - Fiscal Years Ended December 29, 2002, December 30, 2001, and December 31, 2000 Consolidated Statement of Shareholders' Equity - Fiscal Years Ended December 29, 2002, December 30, 2001, and December 31, 2000 Consolidated Statements of Cash Flows - Fiscal Years Ended December 29, 2002, December 30, 2001, and December 31, 2000 Notes to Consolidated Financial Statements - December 29, 2002 The following consolidated financial statement schedule of Rogers Corporation and Subsidiaries is included in Item 15 (d): Schedule II Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. (3) Exhibits (numbered in accordance with Item 601 of Regulation S-K): 2a Asset Purchase Agreement, dated September 19, 2002, between Rogers Corporation, Perstorp Composites Holding B.V., and Vyncolit North America Inc. for the divestiture of the Moldable Composites Division is file herewith. 3a Restated Articles of Organization, filed with the Secretary of State of the Commonwealth of Massachusetts on April 6, 1966, were filed as Exhibit 3a to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 1, 1989 (the 1988 Form 10-K)*. 3b Articles of Amendment to the Articles of Organization, filed with the Secretary of State of the Commonwealth of Massachusetts on August 10, 1966, were filed as Exhibit 3b to the 1988 Form 10-K*. 3c Articles of Merger of Parent and Subsidiary Corporations, filed with the Secretary of State of the Commonwealth of Massachusetts on December 29, 1975, were filed as Exhibit 3c to the 1988 Form 10-K*. 3d Articles of Amendment, filed with the Secretary of State of the Commonwealth of Massachusetts on March 29, 1979, were filed as Exhibit 3d to the 1988 Form 10-K*. 3e Articles of Amendment, filed with the Secretary of State of the Commonwealth of Massachusetts on March 29, 1979, were filed as Exhibit 3e to the 1988 Form 10-K*. 3f Articles of Amendment, filed with the Secretary of State of the Commonwealth of Massachusetts on April 2, 1982, were filed as Exhibit 3f to the 1988 Form 10-K*. 3g Articles of Merger of Parent and Subsidiary Corporations, filed with the Secretary of State of the Commonwealth of Massachusetts on December 31, 1984, were filed as Exhibit 3g to the 1988 Form 10-K*. 10 3h Articles of Amendment, filed with the Secretary of State of the Commonwealth of Massachusetts on April 6, 1988, were filed as Exhibit 3h to the 1988 Form 10-K*. 3i By-Laws of the Company as amended on March 28, 1991, September 10, 1991, June 22, 1995, April 25, 2002 and June 19, 2002. The March 28, 1991, September 10, 1991 and June 22, 1995, amendments were filed as Exhibit 3i to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 (the 1995 Form 10-K)*. The April 25, and June 19, 2002 amendments are filed herewith. 3j Articles of Amendment, as filed with the Secretary of State of the Commonwealth of Massachusetts on May 24, 1994, were filed as Exhibit 3j to the 1995 Form 10-K*. 3k Articles of Amendment, as filed with the Secretary of State of the Commonwealth of Massachusetts on May 8, 1998 were filed as Exhibit 3k to the 1998 Form 10-K*. 4a 1997 Shareholder Rights Plan was filed on Form 8-A dated March 24, 1997. The June 19, 1997 and July 7, 1997 amendments were filed on Form 8-A/A dated July 21, 1997*. 4b Certain Long-Term Debt Instruments, each representing indebtedness in an amount equal to less than 10 percent of the Registrant's total consolidated assets, have not been filed as exhibits to this Annual Report on Form 10-K. The Registrant hereby undertakes to file these instruments with the Commission upon request. 10a Rogers Corporation Incentive Stock Option Plan** (1979, as amended July 9, 1987 and October 23, 1996). The 1979 plan and the July 9, 1987 amendment were filed as Exhibit 10c to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 3, 1988 (the 1987 Form 10-K). The October 23, 1996 amendment was filed as Exhibit 10a to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 29, 1996 (the 1996 Form 10-K)*. 10b Description of the Company's Life Insurance Program**, was filed as Exhibit K to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 28, 1980*. 10c Rogers Corporation Annual Incentive Compensation Plan** (as restated and amended on December 18, 1996) was filed as Exhibit 10c to the 1996 Form 10-K*. 10d Rogers Corporation 1988 Stock Option Plan** (as amended December 17, 1988, September 14, 1989, and October 23, 1996). The 1988 plan, the 1988 amendment, and the 1989 amendment were filed as Exhibit 10d to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 1, 1995 (the 1994 Form 10-K)*. The 1996 amendment was filed as Exhibit 10d to the 1996 Form 10-K*. 10e Rogers Corporation 1990 Stock Option Plan** (as restated and amended on October 18, 1996, December 21, 1999 and October 7, 2002). The October 18, 1996 restatement and amendment was filed as Registration Statement No. 333-14419 on Form S-8 dated October 18, 1996*. The December 21, 1999 amendment was filed as Exhibit 10e to the 1999 Form 10-K*. The October 7, 2002 amendment is filed herewith. 10f Rogers Corporation Deferred Compensation Plan** (1983) was filed as Exhibit O to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 1, 1984*. 10g Rogers Corporation Deferred Compensation Plan** (1986) was filed as Exhibit 10e to the 1987 Form 10-K*. 10h Rogers Corporation 1994 Stock Compensation Plan** (as restated and amended on October 17, 1996 and amended on December 18, 1997). The 1994 plan, as amended and restated on October 17, 1996, was filed as Exhibit 10h to the 1996 Form 10-K. The 1997 amendment was filed as Exhibit 10h to the 1997 Form 10-K*. 10i Rogers Corporation Voluntary Deferred Compensation Plan for Non-Employee Directors** (1994, as amended December 26, 1995, December 27, 1996 and as restated and amended December 21, 1999 and October 7, 2002). The 1994 plan, the December 26, 1995 and December 27, 1996 amendments were filed as Exhibit 10i to the 1994 Form 10-K, 1995 Form 10-K, and 1996 Form 10-K, respectively. The December 21, 1999 restatement and amendment were filed as Exhibit 10i to the 1999 Form 10-K*. The October 7, 2002 amendment is filed herewith. 11 10j Rogers Corporation Voluntary Deferred Compensation Plan for Key Employees** (1993, as amended on December 22, 1994, December 21, 1995, December 22, 1995, April 17, 1996 and as restated and amended on December 21, 1999 and October 7, 2002). The 1993 plan and the 1994 amendments were filed as Exhibit 10j to the 1994 Form 10-K. The 1995 and 1996 amendments were filed as Exhibit 10j to the 1995 Form 10-K and 1996 Form 10-K, respectively. The December 21, 1999 restatement and amendment were filed as Exhibit 10j to the 1999 Form 10-K*. The October 7, 2002 amendment is filed herewith. 10k Rogers Corporation Long-Term Enhancement Plan for Senior Executives of Rogers Corporation** (December 18, 1997*, as amended April 4, 2000 and October 7, 2002) . The April 4, 2000 amendment was file as Exhibit 10k to the 2000 Form 10-K*. The October 7, 2002 amendment is filed herewith. 10l Rogers Corporation 1998 Stock Incentive Plan (1998, as amended September 9, 1999, December 21, 1999, October 10, 2001 and November 7, 2002 ).** The 1998 Plan was filed as Registration Statement No. 333-50901 on April 24, 1998*. The September 9, 1999 and December 21, 1999 amendments were filed as Exhibit 10l to the 1999 Form 10-K*. The October 10, 2001 and November 7, 2002 amendments are file herewith. 10m Multicurrency Revolving Credit Agreement dated December 8, 2000 was filed as Exhibit 10m to the 2000 Form 10-K*. 10n Rogers Corporation Excecutive Supplemental Agreement** for the Chairman of the Board and Chief Executive Officer dated December 5, 2002, is filed herewith. 14 Portions of the Rogers Corporation 2002 Annual Report to Shareholders which are specifically incorporated by reference in this Annual Report on Form 10-K. 21 Subsidiaries of the Registrant. 23 Consent of Independent Auditors. 23.1 Consent of Independent Auditors. 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.3 Financial Statements for the Company's joint venture with 3M, Durel Corporation * In accordance with Rule 12b-23 and Rule 12b-32 under the Securities Exchange Act of 1934, as amended, reference is made to the documents previously filed with the Securities and Exchange Commission, which documents are hereby incorporated by reference. ** Management Contract. (b) No reports on Form 8-K were filed during the three months ended December 29, 2002. (c) Exhibits - The response to this portion of Item 15 is submitted within Item 15(a)(3) of this report. (d) Financial Statement Schedule 12 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS ROGERS CORPORATION AND CONSOLIDATED SUBSIDIARIES (Dollars in Thousands) Balance Balance at Charged to at End Beginning Costs and Other of Description of Period Expenses Deductions Period - -------------------------------------------------------------------------- December 29, 2002: Allowance for doubtful accounts $ 1,363 $ -- $ (261) $ 1,102 December 30, 2001: Allowance for doubtful accounts $ 1,804 $ -- $ (441) $ 1,363 December 31, 2000: Allowance for doubtful accounts $ 794 $ 987 $ (23) $ 1,804 13 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ROGERS CORPORATION (Registrant) Date: March 31, 2003 By /s/James M. Rutledge James M. Rutledge Vice President, Finance and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 31, 2003, by the following persons on behalf of the Registrant and in the capacities indicated. By /s/Walter E. Boomer Chairman of the Board of Directors ------------------- and Chief Executive Officer Walter E. Boomer By /s/Leonard M. Baker Director ------------------- Leonard M. Baker By /s/Harry H. Birkenruth Director ---------------------- Harry H. Birkenruth By /s/Edward L. Diefenthal Director ----------------------- Edward L. Diefenthal By /s/Gregory B. Howey Director ------------------- Gregory B. Howey By /s/Leonard R. Jaskol Director -------------------- Leonard R. Jaskol By /s/Eileen S. Kraus Director ------------------ Eileen S. Kraus By /s/William E. Mitchell Director ---------------------- William E. Mitchell By /s/Robert G. Paul Director ----------------- Robert G. Paul 14 - ---------------------------------------------------------------------- ROGERS CORPORATION CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION I, Walter E. Boomer, certify that: 1. I have reviewed this annual report on Form 10-K of Rogers Corporation; 2. Based on my knowledge, this annual 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 annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual 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 annual 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 annual report (the "Evaluation Date"); and c. presented in this annual 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 the registrant's board of directors (or persons performing the equivalent functions): 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 annual 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/ Walter E. Boomer - -------------------------------- Walter E. Boomer Chairman of the Board and Chief Executive Officer March 31, 2003 15 - ---------------------------------------------------------- CERTIFICATION I, James M. Rutledge, certify that: 1. I have reviewed this annual report on Form 10-K of Rogers Corporation; 2. Based on my knowledge, this annual 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 annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual 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 annual 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 annual report (the "Evaluation Date"); and c. presented in this annual 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 the registrant's board of directors (or persons performing the equivalent functions): 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 annual 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/ James M. Rutledge - --------------------- James M. Rutledge Vice President, Finance and Chief Financial Officer March 31, 2003 16 EXHIBIT 21 - SUBSIDIARIES OF THE REGISTRANT Percentage of Voting Jurisdiction Securities of Incorporation Company Owned or Organization Rogers L-K Corp. 100% Delaware Rogers Japan Inc. 100% Delaware Rogers Southeast Asia, Inc. 100% Delaware Rogers Taiwan, Inc. 100% Delaware Rogers Korea, Inc. 100% Delaware Rogers China, Inc. 100% Delaware Rogers Technologies Singapore, Inc. 100% Delaware Rogers Specialty Materials Corporation 100% Delaware Rogers Circuit Materials, Incorporated 100% Delaware Rogers Technologies (Suzhou) Co., Ltd. 100% China TL Properties, Inc. 100% Arizona World Properties, Inc. 100% Illinois Rogers Technologies (Barbados) SRL 100% Barbados Rogers Induflex N.V. 100% Belgium Rogers N.V. 100% Belgium Rogers GmbH 100% Germany Rogers (UK) LTD 100% England Rogers S.A. 100% France * Rogers Inoac Corporation 50% Japan * Durel Corporation 50% Delaware * Polyimide Laminate Systems, LLC 50% Delaware * Rogers Chang Chun Technology Co., LTD 50% Taiwan, R.O.C. * These entities are unconsolidated joint ventures and accordingly are not consolidated in the consolidated financial statements of Rogers Corporation. F-1 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of Rogers Corporation of our report dated February 4, 2003, included in the 2002 Annual Report to Shareholders of Rogers Corporation. Our audits also included the financial statement schedule of Rogers Corporation listed in Item 15(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in Registration Statements (Form S-8 Nos. 2-84992, 33-21121, 33-38219, 33-38920, 33-64314, 33-44087, 33-53353, 333-14419, 333-42545, 333-50901, and 333-59634 and Form S-3 No. 33-53369) pertaining to various stock option plans, employee savings plans, employee stock ownership plans, and stock grants, of Rogers Corporation of our report dated February 4, 2003, with respect to the consolidated financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedule included in this Annual Report (Form 10-K) for the year ended December 29, 2002. ERNST & YOUNG LLP Providence, Rhode Island March 25, 2003 F-2 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in Registration Statements (Form S-8 Nos. 2-84992, 33-21121, 33-38219, 33-38920, 33-64314, 33-44087, 33-53353, 333- 14419, 333-42545, 333-50901, and 333-59634 and Form S-3 No. 33-53369) pertaining to various stock option plans, employee savings plans, employee stock ownership plans, and stock grants, of Rogers Corporation of our report dated March 14, 2003, with respect to the financial statements of Durel Corporation, included in this Annual Report (Form 10-K) of Rogers Corporation for the year ended December 29, 2002. /s/ Ernst & Young LLP Phoenix, Arizona March 25, 2003 F-3 EX-1 3 edgmda2002.txt MANAGEMENT'S DISCUSSION AND ANALYSIS SELECTED FINANCIAL DATA (Dollars in Thousands, Except per Share Amounts) - ---------- 2002 2001 2000 1999 1998 -------- -------- -------- -------- -------- SALES AND INCOME - ---------- Net Sales $219,438 $216,037 $248,215 $247,839 $216,574 Income Before Income Taxes 24,809 20,979 37,634 25,877 19,126 Net Income 18,607 15,734 26,720 18,631 13,771 PER SHARE DATA - ---------- Basic 1.20 1.03 1.79 1.24 .91 Diluted 1.16 .98 1.69 1.19 .87 Book Value 11.81 10.62 9.65 7.94 7.24 FINANCIAL POSITION (YEAR-END) - ---------- Current Assets 87,675 84,916 92,849 72,547 69,164 Current Liabilities 34,780 29,692 38,745 36,741 32,305 Ratio of Current Assets to Current Liabilities 2.5 to 1 2.9 to 1 2.4 to 1 2.0 to 1 2.1 to 1 Cash, Cash Equivalents, and Short-Term Investments 28,928 20,891 10,100 9,955 9,849 Working Capital 52,895 55,224 54,104 35,806 36,859 Property, Plant and Equipment - Net 99,883 98,454 94,199 84,652 79,969 Total Assets 257,701 223,809 221,514 183,406 176,174 Long-Term Debt less Current Maturities -- 1,315 9,116 9,740 13,687 Shareholders' Equity 183,038 163,062 145,813 116,417 110,231 Long-Term Debt as a Percentage of Shareholders' Equity 0% 1% 6% 8% 12% OTHER DATA - ---------- Depreciation and Amortization 13,571 13,712 12,507 10,375 8,439 Research and Development Expenses 13,596 12,570 12,493 10,791 10,352 Capital Expenditures 22,682 18,032 22,744 13,621 28,965 Number of Employees (Average) 1,251 1,376 1,358 1,197 1,122 Net Sales per Employee 175 157 183 207 193 Number of Shares Outstanding at Year-End 15,496,261 15,356,284 15,102,670 14,664,652 15,235,332 15 MANAGEMENT'S DISCUSSION AND ANALYSIS Overview For the year 2002, net sales were $219.4 million, up 2% from $216.0 million in 2001. Combined Sales for 2002, which include half of the sales of Rogers' four unconsolidated 50% owned joint ventures, totaled $286.7 million, up 4% from $276.2 million from 2001. Both income before income taxes and net income increased 18% to $24.8 million and $18.6 million, respectively. Diluted earnings per share for the year were $1.16, up from $0.98 in 2001 and basic earnings per share were $1.20 in 2002, up from $1.03 in 2001. The Company maintained the 25% effective income tax rate for 2002 and 2001. The increase in earnings resulted primarily from improved manufacturing operations yielding increased margins, containment of commercial support costs, and increased joint venture income. Sales and Operating Profits Sales - 2002 over 2001 Net sales were $219.4 million in 2002, up from $216.0 million in 2001. Combined Sales, which include half of the sales of Rogers' four unconsolidated 50% owned joint ventures, totaled $286.7 million in 2002, compared to $276.2 million in 2001. The major cause of the increase in revenue was due to the increase in sales in the High Performance Foam segment mitigated by overall decreases in the Company's other two business segments. The increase in sales in High Performance Foams stemmed from increased sales of urethane foam products in the industrial and printing markets and the polyolefin foam acquisition. The decreases in the other two segments were due, in part, to the continued softness in the wireless infrastructure markets and the divestiture of the Company's Moldable Composites Division ("MCD") in November 2002. Sales - 2001 over 2000 Net sales were $216.0 million in 2001, down from $248.2 million in 2000. Combined Sales, which include half of the sales of Rogers' four unconsolidated 50% owned joint ventures, totaled $276.2 million, compared to $316.8 million in 2000. The major causes of the decrease in revenue were the widespread slowdown in the wireless communications industry and the general downturn in the overall global economy. Operating Income - 2002 over 2001 Manufacturing margins increased from 31% in 2001 to almost 32% in 2002. This is due primarily to the continued cost saving initiatives implemented in 2001 and 2002. Some of these cost saving measures included: Six Sigma, lean manufacturing, raw material cost reductions, business unit consolidations, plant rationalizations, outsourcing low value production and/or moving it to lower production cost environments, and workforce reductions. Selling and administrative expenses remained approximately the same in both total dollars and as a percentage of sales, at 18%. In 2002 the Company incurred restructuring charges of $2.2 million. These charges were associated solely with the severance benefits for 62 employees of which 48 had been terminated prior to year-end. The remaining employees were notified prior to year- end. The separation date of these residual employees will occur on varied dates in 2003. These workforce reductions were initiated in order to appropriately align resources with the Company's business requirements, given varied ongoing operational initiatives, including non-strategic business unit consolidations, plant rationalizations, outsourcing low value production and/or moving it to lower production cost environments, and support function reorganizations to streamline administrative activities. As of December 29, 2002 the balance in the accrual for these charges was $1.6 million. Research and development ("R&D") expenses were $13.6 million in 2002 compared to $12.6 million for 2001. This increase is due to the cost of additional technical personnel commensurate with the continuing increased focus on new product and market development. 16 Operating Income - 2001 over 2000 Manufacturing margins declined from 33% in 2000 to 31% in 2001. The Company was able to sustain good manufacturing margins, even with significantly lower revenues, due to implementation of a number of cost saving initiatives. Some of these measures included: production furloughs, receiving discounts for early payment of payables, reduced raw material pricing and the closing of most facilities during the last week of 2001. Selling and administrative expenses decreased slightly in total dollars, but increased as a percentage of sales from 16% in 2000 to 18% in 2001. The increase in percentage of sales is primarily due to the decreased sales volume experienced by the Company. Acquisition/Restructuring costs for 2001 totaled $2.0 million, which included $1.5 million for acquisition costs and $500,000 for restructuring. With respect to the $1.5 million in acquisition costs, in early 2001, the Company had entered into a definitive agreement to purchase the Advanced Dielectric Division ("ADD") of Tonoga, Inc. (commonly known as Taconic). In May 2001, the Company announced that active discussions with Taconic to acquire the ADD business had been suspended and it was not anticipated that the acquisition would occur. Accordingly, $1.5 million in costs associated with this potential acquisition were written off during the second quarter. In October 2001, the Company formally terminated the acquisition agreement. The restructuring charge of $500,000 in 2001 primarily related to severance benefits for employees terminated within the Printed Circuit Materials segment, which stemmed from the merging of two business units within the segment. The balance in the accrual at December 30, 2001 was $25,000. Research and development expenses were $12.6 million in 2001 compared to $12.5 million for 2000. This increase is due to the cost of technical employees added in 2000. Such spending was being maintained so as to preserve the R&D infrastructure to keep the Company well positioned for growth in the future. Other Income and Expense - 2002 over 2001 Net interest income for 2002 was lower than 2001 due to lower rates earned on excess available cash. There was no capitalized interest in 2002. Other income less other charges increased to $10.9 million in 2002 from $8.0 million in 2001. This increase was largely due to a significant increase in joint venture income, primarily from Durel Corporation, offset somewhat by lower royalty income. The operations and the performance of the joint ventures are described further in the joint venture section below. Other Income and Expense - 2001 over 2000 Net interest income for 2001 was lower than 2000 due to lower rates earned on excess available cash and less interest being capitalized. The amount of capitalized interest of $457,000 for 2000 was approximately $400,000 higher than in 2001. Other income less other charges increased slightly from 2000 to 2001. Commission income from Polyimide Laminate Systems, LLC ("PLS") and joint venture income earned was $2.5 million less in 2001. This decrease was primarily offset by an increase in royalty income and a one-time licensing fee. Income Taxes The effective tax rate was 25% in both 2002 and 2001, a decrease from the effective tax rate in 2000 of 29%. In 2002, as in 2001, the effective tax rate continued to benefit from foreign tax credits, research and development credits, and nontaxable foreign sales income. In December 2002, the Belgian government enacted a tax rate decrease effective for years ending in 2003 or later. All ending deferred tax balances attributable to Belgian operations were restated from the 40.17% tax rate to the new 33.99% tax rate for U.S. GAAP purposes to reflect this change. The 2002 international tax rate differential includes this reduction to the deferred international tax expense of $813,000, net of the current international tax expense in excess of the U.S. statutory tax rate of $194,000. The Company recognized a U.S. deferred tax asset in 2002 and 2001 of $2.1 million and $1.3 million, respectively. The recognition was determined to be more likely than not based on the availability and amount of recoverable taxes paid in the Federal carry-back period. Backlog The Company's backlog of firm orders was $21.7 million at December 29, 2002, $23.3 million at 17 December 30, 2001 and $31.8 million at December 31, 2000. The decrease in 2002 versus 2001 is due primarily to the divestiture of MCD, partially offset by increased orders in the majority of the Company's ongoing businesses. Segment Sales and Operations HIGH PERFORMANCE FOAMS: Sales of High Performance Foams increased 31% in 2002 as compared to 2001. The Company's urethane foams realized increased sales due to better penetration in the electronic handheld device and printing markets. The new polyolefin foam business, which was acquired in early 2002, also contributed to the year's improved sales. Despite the severe downturn in the aircraft industry, silicone foam sales only experienced a moderate decrease. High Performance Foam revenues were lower in 2001 by 16%, as compared to 2000, due in part to the cell phone inventory overhang that was present throughout the first half of 2001. Sales of these materials into cellular phone handsets began to rebound in the second half of 2001. Operating income from High Performance Foams was $8.1 million in 2002 and $4.6 million in 2001. The increase in operating income in 2002 was primarily due to the higher level of urethane product sales, the incremental sales for the polyolefin acquisition, and improvement in manufacturing operations. Operating profit was lower in 2001 by $6.6 million as compared to 2000 due to a decrease in sales. PRINTED CIRCUIT MATERIALS: Sales of Printed Circuit Materials decreased 7% in 2002 and 12% in 2001. Sales of high frequency materials were negatively impacted by the continued softness in the wireless infrastructure market in 2002 and 2001. While overall 2002 sales in Printed Circuit Materials were down from 2001, sales were only slightly off from the Company's overall expectations, due to increased market share for high frequency materials in satellite television receivers, design wins in flexible laminates for cell phone applications and sales to a major U.S. customer who is seeing increased flexible circuit sales into the hard disk drive industry. Wireless communication base stations, satellite television receivers, and wireless communication antennas are major uses for these high frequency materials. Printed Circuit Materials operating income was $4.8 million in 2002 and $6.2 million in 2001. The lower level of sales was the major factor leading to the decrease in 2002. In 2001, operating income was also lower by $6.0 million than in the prior year. This decrease was also due to lower sales in addition to the 2001 restructuring charge of $500,000 that was applicable to this segment, as described above. POLYMER MATERIALS AND COMPONENTS: Sales of Polymer Materials and Components decreased 8% in 2002 and 12% in 2001. The major reason for the sales decrease in 2002 was the divestiture of MCD that occurred in the last quarter of the year. The sales decrease in 2001 was primarily due to the general economic climate. Polymer Materials and Components operating income was $1.3 million and $2.3 million for 2002 and 2001, respectively, a decrease of $1.0 million and $3.8 million in 2002 and 2001. Lower sales were the primary cause of the decrease in operating income in both years. However, the businesses in this segment continue to improve their manufacturing operations and in some cases, have initiated moving some of the production to Suzhou, China, a lower operating cost environment. Joint Ventures Durel Corporation: Durel Corporation, the Company's 50% owned joint venture with 3M which manufactures electroluminescent lamps and designs and sells semiconductor inverters, recorded sales in 2002 which were 41% higher than in 2001. Both sales and profits at the joint venture set new yearly records. The record year was the result of new automotive adoptions and well-timed design wins in new cell phone models. Durel experienced a decrease in sales of 20% from 2000 to 2001. New cell phone models featuring Durel products, whose introduction had been delayed during the first nine months of 2001 due to an inventory glut, started to ramp into production in the fourth quarter of 2001. Durel's profits for 2001 were also lower than 2000 but were higher in the fourth quarter of 2001 than in all of the previous three quarters of 2001 combined. On June 28, 2001, Durel was informed that the patent infringement lawsuit it filed against Osram Sylvania Inc., which had been decided in 18 Durel's favor in February 2000, had been reversed by the U.S. Court of Appeals. In December 2001, Durel and Osram Sylvania agreed to a worldwide cross-licensing of the disputed patents and an agreement not to assert future patents against either company's existing products. Rogers Inoac Corporation ("RIC"): In January 2002, RIC sold its elastomer components product line to the Company's joint venture partner, Inoac Corporation. The sale has allowed the joint venture to focus on its high performance foams business, which is consistent with the Company's Japanese strategic focus. This transaction had no significant impact on earnings. Sales of RIC decreased by 38% from 2001 to 2002. This decrease is attributed to RIC selling its elastomer components product line to Inoac Corporation. Comparing 2002 to 2001, without the elastomer components product line, sales would have increased by 20%. RIC's high performance foam sales benefited in 2002 from increased activity in Asia in the industrial side of its business. Sales of RIC decreased 14% from 2000 to 2001 due to general economic conditions. Polyimide Laminate Systems, LLC ("PLS"): Sales of PLS, the Company's joint venture with Mitsui Chemicals, Inc., which sells adhesiveless laminates for trace suspension assemblies ("TSA's"), were 1% higher in 2002 and 17% higher in 2001. In the fourth quarter of 2002, PLS had its best quarter ever. The increase in sales is due to increased demand at its customer, which saw a spike in demand in the fourth quarter of 2002 for its TSA's. This spike was due to lower yields at some of its respective customers who are transitioning to higher density disk drive recording heads. Rogers Chang Chun Technology Co., Ltd. ("RCCT"): RCCT, the Company's joint venture with Chang Chun Plastics Co., Ltd. ("CCP"), which was established in late 2001 to manufacture flexible circuit material for customers in Taiwan, saw its first sales in 2002. While the sales were slightly lower than the Company's expectations, progress was definitely made in establishing a foothold in this market and the Company looks to the future for this positive trend to continue. Product and Market Development R&D as a percentage of sales was approximately 6% in 2002 and 2001 and 5% in 2000. While there were no major product platform launches in R&D during 2002, progress was made on a broad front. For example, R/bak(R) 2000 cushion mounting material, an improved polyurethane printing product, is receiving good reviews in the marketplace. The Company also expects excellent reception of its new soft, thin BISCO(R) EC-2000 conductive silicone material. In addition, a number of new versions of the Company's very successful RO4000(R) family of high frequency materials were introduced. The R&D department is dedicated to the objective that the Company's long-term success rests upon its ability to bring new materials solutions to customers. Acquisitions/Divestitures In early 2002, the Company acquired much of the intellectual property and most of the polyolefin foam product lines of Cellect LLC. This polyolefin foam business is being integrated into Rogers High Performance Foams operations in Illinois. This new business was modestly accretive to earnings in 2002. Continued market response to this purchase has been very positive. On November 18, 2002, the Company completed the divestiture of MCD, located in Manchester, Connecticut. MCD was sold to Vyncolit North America Inc., a subsidiary of the Perstorp Group, Sweden. Under the terms of the agreement, the Company will receive a total of approximately $21.0 million for the business assets excluding the intellectual property and a five-year royalty stream from the intellectual property license. Half of the $21.0 million was paid in cash upon consummation of the transaction. A note receivable was provided for the remainder of the proceeds and will be paid over a five-year period. There was effectively no gain or loss on the sale transaction. Sources of Liquidity and Capital Net cash provided by operating activities amounted to $26.0 million in 2002, $39.0 million in 2001 and $23.7 million in 2000, respectively. The positive cash flow in 2002 was due primarily to continued strength in cash flow from operations, strong cash flows from the joint ventures which enabled Durel Corporation to pay down its working capital loan from the Com- 19 pany, and positive results from the continuation of the company-wide initiative to reduce inventory levels. The positive cash flow in 2001 was due primarily to the continued strength in cash flow from operations, lower level of accounts receivable at year end commensurate with lower sales in the fourth quarter comparisons, and a company-wide initiative to reduce inventory levels. Capital expenditures totaled $22.7 million in 2002 and $18.0 million in 2001. Despite the economic climate in both years, the Company continued to invest in its long-term future. In 2002, the Company completed the purchase of a new building in Carol Stream, Illinois to house the newly acquired polyolefin product lines and the existing silicone foam business in Illinois. The Company also invested in a new manufacturing campus in Suzhou, China. In 2001, the Company completed the construction of a building addition in Arizona that was started in 2000. Additional press capacity for high frequency materials was installed late in 2001 and came on line early in 2002. During 2001 and 2002, the Company established a new manufacturing facility for high frequency laminates in Ghent, Belgium. This facility was brought on line in January 2003. Cash generated from the Company's operating activities exceeded capital spending in both years, and spending was financed through these internally generated funds. The Company has an unsecured multi-currency revolving credit agreement with two domestic banks and can borrow up to $50.0 million, or the equivalent in certain other foreign currencies. Amounts borrowed under this agreement are to be paid in full by December 8, 2005. The rate of interest charged on outstanding loans can, at the Company's option and subject to certain restrictions, be based on the prime rate or at rates from 50.0 to 112.5 basis points over a Eurocurrency loan rate. The spreads over the Eurocurrency rate are based on the Company's leverage ratio. Under the arrangement, the ongoing commitment fee varies from 30.0 to 37.5 basis points of the maximum amount that can be borrowed, net of any outstanding borrowings and the maximum amount that beneficiaries may draw under outstanding letters of credit. There were no borrowings pursuant to this arrangement at December 29, 2002. The loan agreement contains restrictive covenants primarily related to total indebtedness, interest expense, capital expenditures and net worth. The Company is in compliance with these covenants. The Company had designated 390.2 million Belgian francs as a hedge of its net investment in a foreign subsidiary in Belgium ($9.1 million at December 31, 2000). On July 6, 2001, the Company repaid the debt at the then current Belgian franc rate, amounting to $8.2 million. During the year 2001, the Company recorded $900,000 of net pretax gains related to the hedge in other comprehensive income in shareholders' equity. In September 2001, Rogers N.V., a Belgian subsidiary of the Company, signed an unsecured revolving credit agreement with a European bank. Under this arrangement Rogers N.V. now can borrow up to 6.2 million Euro. Amounts borrowed under this agreement are to be repaid in full by May 1, 2005. The rate of interest charged on outstanding loans is based on the Euribor plus 25.0 basis points. At December 29, 2002, Rogers N.V. had no borrowings under this agreement. As of December 29, 2002, Durel Corporation had repaid its working capital loan of $5.0 million to the Company. Under this arrangement, borrowings had to be made in increments of $250,000, could not exceed $8.0 million in the aggregate, would be at the prime rate of interest and any amounts that were repaid by Durel could subsequently be reborrowed during the term of the loan arrangement. The arrangement expired in September 2002 and was not extended. At December 29, 2002, Durel had met its obligations under the financing arrangement of a third party loan in which the Company had an indirect 50% loan guarantee. No payments were required and no losses were incurred by the Company under this guarantee as Durel paid the loan off in full. Capital expenditures in 2003 are forecasted to approximate $25.0 million. Management believes that over the next twelve months, internally generated funds plus available lines of credit will be sufficient to meet the capital expenditure and ongoing needs of the business. However, the Company continually reviews and evaluates the adequacy of its lending facilities and relationships. Dividend Policy In 1992, the Board of Directors voted to discontinue cash dividends. The Company evaluates 20 from time-to-time the desirability of paying a dividend; however, at present, the Company expects to maintain a policy of emphasizing longer-term growth of capital rather than immediate dividend income. Environmental Activities and General Litigation On October 24, 2001, a breach of contract lawsuit was filed against the Company in the United States District Court for the District of Connecticut seeking damages in the amount of $25.0 million or more, as well as specific performance and attorneys' fees (Tonoga, Ltd., d/b/a Taconic Plastics Ltd., Tonoga, Inc., Andrew G. Russell, and James M. Russell v. Rogers Corporation). As discussed below and in the footnotes to the financial statements, the lawsuit was associated with the Company's termination, in October 2001, of an acquisition agreement for the purchase of ADD of Taconic. In September 2002, a confidential settlement agreement concerning all matters raised in this litigation was negotiated and entered into. The settlement had no material impact on the current year results. The Company is subject to federal, state, and local laws and regulations concerning the environment and is involved in the following matters: 1) the Company is currently involved as a potentially responsible party ("PRP") in two Superfund sites; 2) the Company is working with consultants and the Connecticut Department of Environmental Protection to monitor the area where remediation work was completed to address historic polychlorinated biphenyl ("PCB") contamination at its Woodstock, Connecticut facility; and 3) the Company and the United States Environmental Protection Agency settled a dispute, in January 2003, regarding the alleged improper disposal of PCB's by the Company. The Company had accrued $325,000 in 2002 for this dispute and the provision recorded will be sufficient to cover the requirements of this settlement. There recently has been a significant increase in certain U.S. states in asbestos-related product liability claims against numerous industrial companies. The Company has been named, along with hundreds of other industrial companies, as a defendant in some of these cases. The Company strongly believes it has valid defenses to these claims and intends to defend itself vigorously. In addition, the Company believes that it has sufficient insurance to cover all costs associated with these claims. Based upon past claims experience and available insurance coverage, management believes that these matters will not have a material adverse effect on the Company's consolidated financial position, results of operations, or cash flows. In addition to the above issues, the nature and scope of the Company's business bring it in regular contact with the general public and a variety of businesses and government agencies. Such activities inherently subject the Company to the possibility of litigation, including environmental and product liability matters that are defended and handled in the ordinary course of business. The Company has established accruals for matters for which management considers a loss to be probable and reasonably estimable. It is the opinion of management that facts known at the present time do not indicate that such litigation, after taking into account insurance coverage and the aforementioned accruals, will have a material adverse effect on the financial position of the Company. The Company does not believe that the outcome of any of the above matters will have a material adverse effect on its financial position nor has the Company had any material recurring costs or capital expenditures relating to environmental matters, except as disclosed in the Notes to Consolidated Financial Statements. Refer to Note J of the Notes to Consolidated Financial Statements for a discussion of the above matters and the related costs. New Accounting Standards In July 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 146, "Accounting for Costs Associated with Exit or Disposal Activities", which addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred ina Restructuring)." The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002, with earlier application encouraged. The Company will adopt SFAS No. 146 for exit or disposal activities that are initiated after December 31, 2002, and it does not expect that the adoption of this Statement will have a significant impact on the Company's financial position or results of operations. On December 31, 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure", 21 which amends the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" and Accounting Principles Board ("APB") Opinion No. 28, "Interim Financial Reporting". SFAS No. 148 requires expanded disclosures within the Company's Summary of Significant Accounting Policies and within the Company's condensed consolidated interim financial information filed on Form 10-Q. SFAS No. 148's annual disclosure requirements are effective for the fiscal year ending December 29, 2002. SFAS No. 148's amendment of the disclosure requirements of APB Opinion No. 28 is effective for financial reports containing condensed consolidated financial statements for interim periods beginning after December 15, 2002. In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others," ("FIN 45"). FIN 45 requires that each guarantee meeting the characteristics described in the Interpretation be recognized and initially measured at fair value and requires additional disclosures. FIN 45's disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002 and the initial recognition and measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 15, 2002. In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin ("ARB") No. 51," ("FIN 46"). FIN 46 clarifies the application of ARB No. 51, "Consolidated Financial Statements," to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003, and to existing variable interest entities in the interim period beginning after June 15, 2003. The Company is reviewing FIN 46 to determine its impact, if any, on future reporting periods. Critical Accounting Policies Management is required to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These estimates and assumptions are based on accounting policies that have been consistently applied and are in accordance with accounting principles generally accepted in the United States. The policies that are deemed critical are those that could have different valuations if another methodology was used. The Company deems, however, that appropriate reserves have been established and other methodologies would not yield results that are materially different. These critical accounting policies are listed below. Allowance for Doubtful Accounts: In circumstances where the Company is made aware of a specific customer's inability to meet its financial obligations, a reserve is established. The majority of accounts are individually evaluated on a regular basis and appropriate reserves are established as deemed appropriate. The remainder of the reserve is based upon historical trends and current market assessments. Inventories: The Company maintains an obsolescence and slow- moving reserve. Products and materials that are specifically identified as obsolete are fully reserved. Most products that have been held in inventory greater than one year are fully reserved unless there are mitigating circumstances. The remainder of the reserve is general in nature and fluctuates with market conditions, design cycles and other economic factors. In addition, the Company values certain inventories using the last-in, first-out ("LIFO") method. Accordingly, a LIFO valuation reserve is calculated using the link chain index method and is maintained to properly value these inventories. Investments in Unconsolidated Joint Ventures: The Company accounts for its investments in and advances to unconsolidated joint ventures, all of which are 50% owned, using the equity method. This method was chosen due to the level of investment and because the Company has the ability to exercise significant influence, but not control, over the joint ventures' operating and financial policies. Environmental and Product Liability: The Company accrues for its environmental investigatory, remediation, operating and maintenance costs when it is probable that a liability has been incurred and the amount can be reasonably estimated. The most likely cost to be incurred is accrued based on an evaluation of currently available facts with respect to each individual site, including existing technology, current laws 22 and regulations and prior remediation experience. Where no amount within a range of estimates is more likely, the minimum is accrued. For sites with multiple responsible parties, the Company considers its likely proportionate share of the anticipated remediation costs and the ability of the other parties to fulfill their obligations in establishing a provision for those costs. Liabilities with fixed or reliably determinable future cash payments are discounted. Accrued environmental liabilities are only reduced by potential insurance reimbursements when they have been confirmed or received from the insurance company. Product liability claims are accrued on the occurrence method based on insurance coverage and deductibles in effect at the date of the incident and management's assessment of the probability of loss when reasonably estimable. Goodwill: Goodwill is considered to be impaired when the net book value of a reporting unit exceeds its estimated fair value. Fair values are primarily established using a discounted cash flow methodology. The determination of discounted cash flows is based on the businesses' strategic plans and long-range planning forecasts. The revenue growth rates included in the plans are management's best estimates based on current and forecasted market conditions, and the profit margin assumptions are projected by each segment based on the current cost structure and anticipated cost reductions. If different assumptions were used in these plans, the related undiscounted cash flows used in measuring impairment could be different and additional impairment of assets might be required to be recorded. Fair Value of Financial Instruments: The Company believes that the carrying values of financial instruments, including cash and cash equivalents, short-term investments, accounts receivable, accounts payable, and accrued liabilities approximate fair value as a result of the short-term maturities of these instruments. Market Risk The Company is exposed to market risk from changes in interest rates and foreign exchange rates. The Company does not use derivative instruments for trading and speculative purposes. The Company monitors foreign exchange and interest rate risks and manages such risks on specific transactions. The risk management process primarily uses analytical techniques and sensitivity analysis. The Company has various borrowing facilities where the interest rates, although not fixed, are relatively low. Currently, an increase in the associated interest rates would not significantly impact interest expense on these facilities as the Company has paid them off in full, thus the Company has no debt. The fair value of the Company's investment portfolio or the related interest income would not be significantly impacted by either a 100.0 basis point increase or decrease in interest rates due mainly to the size and short-term nature of the Company's investment portfolio and the relative insignificance of interest income to consolidated pretax income. The Company's largest foreign currency exposure is against the Euro, primarily because of its investments in its ongoing operations in Belgium. In addition to the Euro exposure, commensurate with the Company's growth and expansion in Asia, particularly China, the Company is experiencing an escalation of foreign currency exposure against the currencies in countries such as China, Japan, Taiwan, Korea, and Singapore. Exposure to variability in currency exchange rates is mitigated, when possible, through the use of natural hedges, whereby purchases and sales in the same foreign currency and with similar maturity dates offset one another. The Company can initiate hedging activities by entering into foreign exchange forward contracts with third parties when the use of natural hedges is not possible or desirable. Forward-Looking Information Certain statements in this Management's Discussion and Analysis section and in other parts of this annual report may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results or performance of the Company to be materially different from any future results or performance expressed or implied by such forward-looking statements. Such factors include changing business, economic, and political conditions both in the United States and in foreign countries; increasing competition; changes in product mix; 23 the development of new products and manufacturing processes and the inherent risks associated with such efforts; changes in the availability and cost of raw materials; fluctuations in foreign currency exchange rates; and any difficulties in integrating acquired businesses into the Company's operations. Such factors also apply to the Company's joint ventures. Additional information about certain factors that could cause actual results to differ from such forward-looking statements include, but are not limited to, the following: Technology and Product Development The Company's future results depend upon its ability to continue to develop new products and improve its product and process technologies. The Company's success in this effort will depend upon the Company's ability to anticipate market requirements in its product development efforts, the acceptance and continued commercial success of the end user products for which the Company's products have been designed, and the Company's ability to adapt to technological changes and to support established and emerging industry standards. In particular, the wireless communications market is characterized by frequent new product introductions, evolving industry standards, rapid changes in product and process technologies, price competition and many new potential applications. The products that the Company manufactures and sells to the wireless communications market are relatively new. To continue to be successful in this area, the Company must be able to consistently manufacture and supply materials that meet the demanding expectations of customers for quality, performance and reliability at competitive prices. The timely introduction by the Company of such new products could be affected by engineering or other development program slippages and problems in effectively and efficiently increasing production to meet customer needs. In addition, the markets for computers and related equipment, such as printers and electronic hand held devices, are characterized by rapid technological change, significant pricing pressures and short lead times. Because the Company manufactures and sells its own materials to meet the needs of these markets, the Company's results may be affected by these factors. Volatility of Demand The computer and related equipment industry and the wireless communications industry have historically been characterized by wide fluctuations in product supply and demand. From time-to- time, the industries have experienced significant downturns, often in connection with, or in anticipation of, maturing product cycles and declines in general economic conditions. These downturns have been characterized by diminished product demand, production over-capacity and accelerated price erosion. The Company's business may in the future be materially and adversely affected by such downturns. Environmental Litigation The Company is currently engaged in proceedings involving two Superfund sites, as a participant in a group of potentially responsible parties. The Company's estimation of environmental liabilities is based on an evaluation of currently available information with respect to each individual situation, including existing technology, presently enacted laws and regulations, and the Company's past experience in the addressing of environmental matters. Although current regulations impose potential joint and several liability upon each named party at any Superfund site, the Company expects its contribution for cleanup to be limited due to the number of other potentially responsible parties, and the Company's share of the contributions of alleged waste to the sites, which the Company believes is de minimis. However, there can be no assurances that the Company's estimates will not be disputed or that any ultimate liability concerning these sites will not have a material adverse effect on the Company. Capital Expenditures The level of anticipated 2003 capital expenditures and the anticipated benefits to be derived from such expenditures could differ significantly from the forecasted amounts due to a number of factors including, but not limited to: changes in design, differences between the anticipated and actual delivery dates for new machinery and equipment, problems with the installation and start-up of such machinery and equipment, delays in the construction or modifications of buildings and delays caused by the need to address other business priorities, as well as 24 changes in customer demand for the products the Company manufactures. Raw Materials The Company from time to time must procure certain raw materials from single or limited sources that expose the Company to vulnerability to price increases and the varying quality of the material. In addition, the inability of the Company to obtain these materials in required quantities could result in significant delays or reductions in its own product shipments. In the past, the Company has been able to purchase sufficient quantities of the particular raw material to sustain production until alternative materials and production processes could be requalified with customers. However, any inability of the Company to obtain timely deliveries of materials of acceptable quantity or quality, or a significant increase in the prices of materials, could materially and adversely affect the Company's operating results. Foreign Manufacturing and Sales The Company's international manufacturing and sales involve risks, including imposition of governmental controls, currency exchange fluctuation, potential insolvency of international customers, reduced protection for intellectual property rights, the impact of recessions in foreign countries, political instability, employee selection and retention and generally longer receivables collection periods, as well as tariffs and other trade barriers. There can be no assurance that these factors will not have an adverse effect on the Company's future international manufacturing and sales, and consequently, on the Company's business, operating results and financial condition. Acquisitions and Divestitures Acquisitions are an important component of the Company's growth strategy. Accordingly, the Company's future performance will depend on its ability to correctly identify appropriate businesses to acquire, negotiate favorable terms for such acquisitions and then effectively and efficiently integrate such acquisitions into the Company's existing businesses. There is no certainty that the Company will succeed in such endeavors. In relation to acquisitions and divestitures undertaken, it is common for the Company to structure the transactions to include earn-out and/or intellectual property royalty agreements which generally are tied to the performance of the underlying products or business acquired or divested. Accordingly, the Company's future performance will be impacted by respective performance of the products and/or businesses divested and the successful utilization of products and/or businesses acquired. In addition, there is no guarantee that these underlying products and/or businesses will perform as expected at the time the associated transactions were consummated. Defined Benefit Plan Funding and Expense The Company provides various defined benefit pension plans for its U.S. employees and sponsors three defined benefit healthcare and life insurance plans for its U.S. retirees. As a result of the overall decline in market interest rates, the Company used a lower discount rate to measure the projected benefit obligation on the plans as of the 2002 measurement date. This resulted in an increase to the projected benefit obligation for all plans. Stock market declines experienced since the 2001 measurement date have reduced the fair value of plan assets, for the qualified plans that are funded. As a result, these combined factors had a negative financial reporting effect in 2002 in terms of reported obligations and funding status for the funded plans. In addition, given the sensitivity of the projected benefit obligation to changes in the discount rate and of the fair value of assets for funded plans based on the market's actual performance, future changes in market rates and actual market performance may significantly impact, positively or negatively, the funding status and funding requirements of the funded plans and the expense reported on all of the plans in the future. Other Information The foregoing list of important factors does not include all such factors that could cause actual results to differ from forward- looking statements contained in this report, nor are such factors necessarily presented in order of importance. 25 EX-2 4 edgnotes2002.txt NOTES TO THE 2002 ANNUAL REPORT CONSOLIDATED BALANCE SHEETS December 29, December 30, (Dollars in Thousands) 2002 2001 ------------ ---------- ASSETS Current Assets: Cash and Cash Equivalents $ 22,300 $ 20,891 Short-Term Investments 6,628 -- Accounts Receivable, Less Allowance for Doubtful Accounts of $1,102 and $1,363 32,959 27,460 Accounts Receivable, Joint Ventures 1,414 5,123 Inventories: Raw Materials 5,525 10,003 In-Process and Finished 14,218 16,805 Less LIFO Reserve (1,674) (1,433) ---------- ---------- Total Inventories 18,069 25,375 Current Deferred Income Taxes 4,985 5,041 Other Current Assets 1,320 1,026 ---------- ---------- Total Current Assets 87,675 84,916 ---------- ---------- Notes Receivable (Note M) 12,000 -- Property, Plant and Equipment, Net of Accumulated Depreciation of $90,285 and $90,015 99,883 98,454 Investments in Unconsolidated Joint Ventures (Note D) 21,860 16,116 Penison Assets 8,951 6,308 Goodwill and Other Intangible Assets (Note C) 22,204 13,588 Other Assets 5,128 4,427 ----------- ---------- Total Assets $ 257,701 $ 223,809 =========== ========== 26 December 29, December 30, (Dollars in Thousands) 2002 2001 ----------- ---------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts Payable $ 10,125 $ 12,009 Accrued Employee Benefits and Compensation 10,414 6,974 Accrued Income Taxes Payable 8,249 6,337 Taxes, Other than Federal and Foreign Income 542 441 Other Accrued Liabilities 5,450 3,931 ---------- --------- Total Current Liabilities 34,780 29,692 ---------- --------- Long-Term Debt -- 1,315 Noncurrent Deferred Income Taxes 8,308 8,152 Noncurrent Pension Liability 22,658 12,371 Noncurrent Retiree Health Care and Life Insurance Benefits 6,197 6,052 Other Long-Term Liabilities 2,720 3,165 Commitments and contingencies (Note J) -- -- Shareholders' Equity: Capital Stock, $1 Par Value (Notes A & I): Authorized Shares 50,000,000; Issued Shares 15,856,748 and 15,739,184 15,857 15,739 Additional Paid-In Capital 36,600 35,351 Retained Earnings 148,045 129,438 Accumulated Other Comprehensive Loss, Net of Tax (Note I) (4,693) (4,030) Treasury Stock (360,487 and 382,900) (Note A) (12,771) (13,436) ---------- --------- Total Shareholders' Equity 183,038 163,062 ---------- --------- Total Liabilities and Shareholders' Equity $ 257,701 $ 223,809 ========= ========= The accompanying notes are an integral part of the consolidated financial statements. 27 CONSOLIDATED STATEMENTS OF INCOME (Dollars in Thousands, Except Per Share Amounts) 2002 2001 2000 ---------- ---------- ---------- Net Sales $ 219,438 $ 216,037 $ 248,215 Cost of Sales 150,183 149,179 165,710 Selling and Administrative Expenses 39,335 39,247 40,529 Acquistion/Restructuring Costs (Notes J & M) 2,150 1,995 -- Research and Development Expenses 13,596 12,570 12,493 ---------- -------- -------- Total Costs and Expenses 205,264 202,991 218,732 ---------- -------- -------- Operating Income 14,174 13,046 29,483 Other Income less Other Charges (Note D) 10,861 7,953 7,838 Interest Income (Expense), Net (226) (20) 313 ---------- --------- -------- Income Before Income Taxes 24,809 20,979 37,634 Income Taxes 6,202 5,245 10,914 ---------- --------- -------- Net Income $ 18,607 $ 15,734 $ 26,720 ========== ========= ======== Net Income Per Share (Notes A & I): Basic $ 1.20 $ 1.03 $ 1.79 ---------- --------- -------- Diluted $ 1.16 $ .98 $ 1.69 ---------- --------- -------- Shares Used in Computing (Notes A & I): Basic 15,470,697 15,274,479 14,896,227 ---------- ---------- ---------- Diluted 16,023,273 16,001,965 15,848,736 ---------- ---------- ---------- The accompanying notes are an integral part of the consolidated financial statements. 28 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Dollars in Thousands, Accumulated Except Other Com- Capital Additional prehensive Share- Stock Capital Paid-In Retained Income Treasury holders' Amounts) Stock Capital Earnings (Loss) Stock Equity ---------------------------------------------------------- Balance at January 2, 2000 $15,047,552 $ 27,383 $ 86,984 $ 438 $(13,436) $116,417 ---------------------------------------------------------- Comprehensive Income: Net Income for 2000 26,720 26,720 Other Comprehensive Loss (2,641) (2,641) ----------- Total Comprehensive Income 24,079 Stock Options Exercised 513,511 3,120 3,633 Stock Issued to Directors 12,993 1,000 1,013 Shares Reacquired and Cancelled (88,486) (2,848) (2,936) Tax Benefit on Stock Options Exercised 3,607 3,607 ---------------------------------------------------------- Balance at December 31, 2000 $15,485,570 $ 32,262 $113,704 $(2,203) $(13,436) $145,813 ---------------------------------------------------------- Comprehensive Income: Net Income for 2001 15,734 15,734 Other Comprehensive Loss (1,827) (1,827) -------- Total Comprehensive Income 13,907 Stock Options Exercised 307,051 2,519 2,826 Stock Issued to Directors 11,571 459 470 Shares Reacquired and Cancelled (65,008) (2,032) (2,097) Tax Benefit on Stock Options Exercised 2,143 2,143 ---------------------------------------------------------- Balance at December 30, 2001 $15,739,184 $35,351 $129,438 $(4,030) $(13,436) $163,062 ---------------------------------------------------------- Comprehensive Income: Net Income for 2002 18,607 18,607 Other Comprehensive Loss (633) (633) ------- Total Comprehensive Income 17,944 Stock Options Exercised 152,177 1,697 1,849 Stock Issued to Directors 6,908 319 326 Shares Reacquired and Cancelled (41,521) (1,262) (1,303) Treasury Stock Issuance (139) 665 526 Tax Benefit on Stock Options Exercised 634 634 ---------------------------------------------------------- Balance at December 29, 2002 $15,856,748 $ 36,600 $148,045 $(4,693) $(12,771) $183,038 ========================================================== The number of shares is equal to the dollar amount of the capital stock ($1 par value). - ---------- The accompanying notes are an integral part of the consolidated financial statements. 29 CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES: 2002 2001 2000 ------------------------------------------- Net Income $ 18,607 $ 15,734 $ 26,720 Adjustments to Reconcile Net Income to Cash Provided by Operating Activities: Depreciation and Amortization 13,571 13,712 12,507 Expense (Benefit) for Deferred Income Taxes 2,561 (395) 3,299 Equity in Undistributed Income of Unconsolidated Joint Ventures, Net (8,705) (3,123) (5,945) Loss (Gain) on Disposition of Assets 860 (103) 546 Noncurrent Pension and Postretirement Benefits 2,954 1,489 1,215 Other, Net (274) (584) 376 Changes in Operating Assets and Liabilities Excluding Effects of Acquisition and Disposition of Assets: Accounts Receivable (10,207) 13,158 (11,946) Inventories 3,627 4,771 (7,465) Prepaid Expenses (170) 14 (436) Accounts Payable and Accrued Expenses 3,203 (5,658) 4,843 ------------------------------------------ Net Cash Provided by Operating Activities 26,027 39,015 23,714 CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES: Capital Expenditures (22,682) (18,032) (22,744) Acquisition of Business (8,060) (2,000) (252) Disposition of Business 10,300 -- -- Proceeds from Repayments of Loans to Joint Ventures 5,000 -- -- Investment in Notes Receivable (1,500) -- -- Purchase of Short-Term Investments (6,628) -- -- Proceeds from Sale of Property, Plant and Equipment -- 225 83 Investment in Unconsolidated Joint Ventures and Affiliates 2,962 (1,417) (1,592) ------------------------------------------ Net Cash Used in Investing Activities (20,608) (21,224) (24,505) CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES: Proceeds from Short- and Long-Term Borrowings 4,463 1,830 296 Repayments of Debt Principal (6,522) (9,733) -- Repayment of Life Insurance Loans (3,087) -- -- Proceeds from Disposition of Treasury Stock 526 -- -- Proceeds from Sale of Capital Stock - Net 673 729 697 ----------------------------------------- Net Cash (Used in)Provided by Financing Activities (3,947) (7,174) 993 Effect of Exchange Rate Changes on Cash (63) 174 (57) ----------------------------------------- Net Increase in Cash and Cash Equivalents 1,409 10,791 145 Cash and Cash Equivalents at Beginning of Year 20,891 10,100 9,955 ----------------------------------------- Cash and Cash Equivalents at End of Year $ 22,300 $ 20,891 $ 10,100 ========================================= Supplemental Disclosure of Noncash Investing Activities: Note received from sale of business $ 10,500 Escrow associated with divestiture of business $ 200 Receivable for closing balance sheet adjustment $ 509 The accompanying notes are an integral part of the consolidated financial statements. 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ---------- NOTE A-ACCOUNTING POLICIES - ---------- ORGANIZATION: - ---------- Rogers Corporation manufactures specialty materials, which are sold to targeted markets around the world. These specialty materials are grouped into three distinct business segments (see Note K). High Performance Foams include urethane foams, silicone materials, and polyolefin foams. These foams are sold principally to manufacturers in the communications, computer, imaging, transportation, and consumer markets. Printed Circuit Materials include circuit board laminates for high frequency printed circuits, flexible circuit board laminates for flexible interconnections, and industrial laminates for shielding of radio and electromagnetic interference. Printed Circuit Materials are sold principally to printed circuit board manufacturers and equipment manufacturers for applications in the computer, communications, and consumer markets. Polymer Materials and Components are composed of elastomer components, nitrophyl floats, electroluminescent lamps, nonwoven materials, and bus bars for power distribution. Polymer Materials and Components are sold principally to the imaging, transportation, consumer, and communications markets. PRINCIPLES OF CONSOLIDATION: - ---------- The consolidated financial statements include the accounts of Rogers Corporation and its wholly-owned subsidiaries ("the Company"), after elimination of significant intercompany accounts and transactions. CASH EQUIVALENTS: - ---------- Highly liquid investments with original maturities of three months or less are considered cash equivalents. These investments are stated at cost, which approximates market value. SHORT-TERM INVESTMENTS: - ---------- Short-term investments represent investments in fixed and floating rate financial instruments with maturities of twelve months or less from time of purchase. They are classified as held-to-maturity as the Company has the ability and intent to hold these investments to the maturity date and they are recorded at amortized cost. The fair market value of held-to-maturity securities approximates amortized cost at December 29, 2002. INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES: - ---------- The Company accounts for its investments in and advances to unconsolidated joint ventures, all of which are 50% owned, using the equity method. FOREIGN CURRENCY TRANSLATION: - ---------- All balance sheet accounts of foreign subsidiaries are translated at rates of exchange in effect at each year-end, and income statement items are translated at the average exchange rates for the year. Resulting translation adjustments are made directly to a separate component of shareholders' equity. Currency transaction adjustments are reported as income or expense. 31 ALLOWANCE FOR DOUBTFUL ACCOUNTS: - ---------- In circumstances where the Company is made aware of a specific customer's inability to meet its financial obligations, a reserve is established. The majority of accounts are individually evaluated on a regular basis and appropriate reserves are established as deemed appropriate. The remainder of the reserve is based upon historical trends and current market assessments. INVENTORIES: - ---------- Inventories are valued at the lower of cost or market. Certain inventories, amounting to $3,302,000 at December 29, 2002, and $8,720,000 at December 30, 2001, or 18% and 34% of total Company inventories in the respective periods, are valued by the last-in, first-out ("LIFO") method. The decrease in 2002 resulted primarily from the divestiture of the Moldable Composites Division ("MCD"). The cost of the remaining portion of the inventories was determined principally on the basis of standard costs, which approximate actual first-in, first-out ("FIFO") costs. PROPERTY, PLANT AND EQUIPMENT: - ---------- Property, plant and equipment is stated on the basis of cost, including capitalized interest. For financial reporting purposes, provisions for depreciation are calculated on a straight-line basis over the following estimated useful lives of the assets: Years -------------------------------------------- Buildings 20 -- 45 Building improvements 10 -- 25 Machinery and equipment 5 -- 15 Office equipment 3 -- 10 GOODWILL AND INTANGIBLE ASSETS: - ---------- Goodwill, representing the excess of the cost over the net tangible and identifiable assets of acquired businesses, is stated at cost. Prior to 2002, goodwill was being amortized on a straight-line method over periods ranging from 10-40 years. Beginning with the first quarter of 2002 the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 prohibits the amortization of goodwill and intangible assets with indefinite useful lives. The statement requires that these assets be reviewed for impairment at least annually. All other intangible assets are amortized over their estimated useful lives. Upon the adoption of SFAS No. 142, the Company reviewed the assets for impairment during the second quarter of 2002 and at year-end. Based on the assessments, management has deemed that there has been no impairment. Goodwill is considered to be impaired when the net book value of a reporting unit exceeds its estimated fair value. Fair values are primarily established using a discounted cash flow methodology. The determination of discounted cash flows is based on the businesses' strategic plans and long- range planning forecasts. The revenue growth rates included in the plans are management's best estimates based on current and forecasted market conditions, and the profit margin assumptions are projected by each segment based on the current cost structure and anticipated cost reductions. If different assumptions were used in these plans, the related undiscounted cash flows used in measuring impairment could be different and additional impairment of assets might be required to be recorded. Purchased patents and licensed technology are capitalized and amortized on a straight-line basis over their estimated useful lives, generally from 2 to 17 years. 32 The following table presents the Company's results of operations to exclude amounts no longer being amortized under SFAS No. 142: (Dollars in Thousands, except per share amounts) 2002 2001 2000 ------------------------------ Reported net income $18,607 $15,734 $26,720 Adjustment: Goodwill amortization - 765 851 ------------------------------ Adjusted net income $18,607 $16,499 $27,571 Basic net income per share Reported $ 1.20 $ 1.03 $ 1.79 Adjusted 1.20 1.08 1.85 Diluted net income per share Reported $ 1.16 $ .98 $ 1.69 Adjusted 1.16 1.03 1.74 ENVIRONMENTAL AND PRODUCT LIABILITY: - --------- Environmental investigatory, remediation, operating, and maintenance costs are accrued when it is probable that a liability has been incurred and the amount can be reasonably estimated. The most likely cost to be incurred is accrued based on an evaluation of currently available facts with respect to each individual site, including existing technology, current laws and regulations, and prior remediation experience. Where no amount within a range of estimates is more likely, the minimum is accrued. For sites with multiple potential responsible parties, the Company considers its likely proportionate share of the anticipated remediation costs and the ability of the other parties to fulfill their obligations in establishing a provision for those costs. Liabilities with fixed or reliably determinable future cash payments are discounted. Accrued environmental liabilities are only reduced by potential insurance reimbursements when they have been confirmed or received from the insurance company. Product liability claims are accrued on the occurrence method based on insurance coverage and deductibles in effect at the date of the incident and management's assessment of the probability of loss when reasonably estimable. FAIR VALUE OF FINANCIAL INSTRUMENTS: - ---------- Management believes that the carrying values of financial instruments, including cash and cash equivalents, short-term investments, accounts receivable, accounts payable, and accrued liabilities approximate fair value as a result of the short-term maturities of these instruments. CONCENTRATION OF CREDIT RISK: - ---------- The Company extends credit on an uncollateralized basis to almost all customers. Concentration of credit and geographic risk with respect to accounts receivable is limited due to the large number and general dispersion of accounts which constitute the Company's customer base. The Company periodically performs credit evaluations of its customers. At December 29, 2002 and December 30, 2001, there were no customers accounting for greater than ten percent of the Company's accounts receivable. The Company has not experienced significant credit losses on customer's accounts. The Company invests its excess cash principally in investment grade government and corporate debt securities. The Company has established guidelines relative to diversification and maturities that maintain safety and liquidity. These guidelines are periodically reviewed and modified 33 to reflect changes in market conditions. The Company has not experienced any significant losses on its cash equivalents or short-term investments. INCOME TAXES: - ---------- The Company recognizes income taxes under the liability method. No provision is made for U.S. income taxes on the undistributed earnings of consolidated foreign subsidiaries because such earnings are substantially reinvested in those companies for an indefinite period. Provision for the tax consequences of distributions, if any, from consolidated foreign subsidiaries is recorded in the year the distribution is declared. REVENUE RECOGNITION: - ---------- Revenue is recognized upon delivery of goods to customers, when persuasive evidence of an arrangement exists, the price is fixed or determinable, and collection is reasonably assured. NET INCOME PER SHARE: - ---------- The following table sets forth the computation of basic and diluted earnings per share: (Dollars in Thousands, Except Per Share Amounts) 2002 2001 2000 -------------------------------------------- Numerator: Net income $ 18,607 $ 15,734 $ 26,720 Denominator: Denominator for basic earnings per share - weighted-average shares 15,470,697 15,274,479 14,896,227 Effect of stock options 552,576 727,486 952,509 -------------------------------------------- Denominator for diluted earnings per share - adjusted weighted-average shares and assumed conversions 16,023,273 16,001,965 15,848,736 ============================================ Basic earnings per share $ 1.20 $ 1.03 $ 1.79 ============================================ Diluted earnings per share $ 1.16 $ .98 $ 1.69 ============================================ STOCK SPLIT: - ------------ To help widen the distribution and enhance the marketability of the Company's capital stock, the Board of Directors effected a two-for-one stock split in the form of a 100% stock dividend on May 12, 2000. Treasury Stock was not doubled. All references in the financial statements to the number of shares and per share amounts have been restated to reflect the increased number of capital shares outstanding. USE OF ESTIMATES: - ---------- The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. HEDGING ACTIVITY: - ---------- The Company, on occasion, uses derivative instruments, including swaps, forward contracts, and options, to manage certain foreign currency and interest rate exposures. Derivative instruments are viewed as risk management tools by the Company and are not used for trading or speculative purposes. Derivatives used for hedging purposes must be designated and effective as a hedge of the identified risk exposure at the inception of the contract. Accordingly, changes in fair value 34 of the derivative contract must be highly correlated with changes in the fair value of the underlying hedged item at inception of the hedge and over the life of the hedge contract. Effective January 1, 2001, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended. The standard requires that all derivative instruments be recorded on the balance sheet at fair value. Derivatives used to hedge foreign currency denominated balance sheet items are reported directly in earnings along with offsetting transaction gains and losses on the items being hedged. Derivatives used to hedge forecasted cash flows associated with foreign currency commitments or forecasted commodity purchases are accounted for as cash flow hedges. Gains and losses on derivatives designated as cash flow hedges are recorded in other comprehensive income and reclassified to earnings in a manner that matches the timing of the earnings impact of the hedged transactions. The ineffective portion of all hedges, if any, is recognized currently in earnings. The adoption of SFAS No. 133 did not have a material impact on the Company's consolidated results of operations, financial position, or cash flows. ADVERTISING COSTS: - ---------- Advertising is expensed as incurred and amounted to $1,303,000, $1,694,000, and $2,128,000 for 2002, 2001, and 2000, respectively. TREASURY STOCK: - ---------- From time to time the Company's Board of Directors authorizes the repurchase, at management's discretion, of shares of the Company's capital stock. The most recent regular authorization was approved on August 17, 2000 and provided for the repurchase of up to an aggregate of $2,000,000 in market value of such stock. On October 24, 2001, the Company's Board of Directors authorized, at management's discretion, the repurchase of shares of the Company's capital stock in order to provide participants in the Rogers Corporation Global Stock Ownership Plan For Employees (see Note I), an employee stock purchase plan, with shares of such stock. This is just one of the ways shares can be provided to plan participants. In 2002, 22,413 shares of Treasury Stock were used to fund the Company's obligation for the Rogers Corporation Global Stock Ownership Plan For Employees. At December 29, 2002 and December 30, 2001, Treasury Stock totaled 360,487 and 382,900 shares, respectively, and is shown at cost on the balance sheet as a reduction of Shareholders' Equity. STOCK-BASED COMPENSATION: - ------------------------ Under various plans, the Company may grant stock and stock options to directors, officers, and other key employees. Stock-based compensation awards are accounted for using the intrinsic value method prescribed in APB 25 "Accounting for Stock Issued to Employees" and related interpretations. Stock-based compensation costs for stock options are not reflected in net income as all options granted under the plans had an exercise price equal to market value of the underlying common stock on the date of the grant. Stock-based compensation costs for stock awards are reflected in net income over the awards' vesting period. The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Accordingly, no compensation cost has been recognized in the financial statements for the stock option plans. Had compensation cost for the Company's stock option plans been determined based on the fair value at the grant date for awards in 2002, 2001, and 2000, consistent with the provisions of SFAS No. 123, the Company's net earnings and earnings per share would have been reduced to the pro forma amounts indicated below: 35 (Dollars in Thousands, Except Per Share Amounts) 2002 2001 2000 Net income, as reported $ 18,607 $ 15,734 $ 26,720 Less: Total stock-based compensation expense determined under Black-Scholes option pricing model, net of related tax effect 2,283 2,965 2,486 -------------------------------- Pro forma net income $ 16,324 $ 12,769 $ 24,234 -------------------------------- Basic earnings per share: As Reported $ 1.20 $ 1.03 $ 1.79 Pro Forma 1.06 .84 1.63 -------------------------------- Diluted earnings per share: As Reported $ 1.16 $ .98 $ 1.69 Pro Forma 1.01 .80 1.62 -------------------------------- The effects on pro forma net income and earnings per share of expensing the estimated fair value of stock options are not necessarily representative of the effects on reported net income for future years, due to such things as the vesting period of the stock options, and the potential for issuance of additional stock options in future years. An average vesting period of three years was used for the assumption regarding stock options issued in 2002, 2001, and 2000. Regular options granted to officers and other key U.S. employees usually become exercisable in one-third increments beginning on the second anniversary of the grant date. RECENT ACCOUNTING STANDARDS: - ----------- In July 2002, the Financial Accounting Standards Board issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities", which addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002, with earlier application encouraged. The Company will adopt SFAS No. 146 for exit or disposal activities that are initiated after December 31, 2002, and it does not expect that the adoption of the Statement will have a significant impact on the Company's financial position or results of operations. On December 31, 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure", which amends the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" and Accounting Principles Board ("APB") Opinion No. 28, "Interim Financial Reporting". SFAS No. 148 requires expanded disclosures within the Company's Summary of Significant Accounting Policies and within the Company's condensed consolidated interim financial information filed on Form 10-Q. SFAS No. 148's annual disclosure requirements are effective for the fiscal year ending December 29, 2002. SFAS No. 148's amendment of the disclosure requirements of APB Opinion No. 28 is effective for financial reports containing condensed consolidated financial statements for interim periods beginning after December 15, 2002. In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others," ("FIN 45"). FIN 45 requires that each guarantee meeting the characteristics described in the Interpretation be recognized and initially measured at fair value and requires additional disclosures. FIN 45's disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002 and the initial recognition and measure- 36 ment provisions are applicable on a prospective basis to guarantees issued or modified after December 15, 2002. In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin ("ARB") No. 51", ("FIN 46"). FIN 46 clarifies the application ARB No. 51, "Consolidated Financial Statements," to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003, and to existing variable interest entities in the interim period beginning after June 15, 2003. The Company is reviewing FIN 46 to determine its impact, if any, on future reporting periods. NOTE B-PROPERTY, PLANT AND EQUIPMENT - ------------- (Dollars in Thousands) December 29, December 30, 2002 2001 ------------ ------------ Land $ 5,433 $ 5,265 Buildings and improvements 61,905 60,839 Machinery and equipment 83,357 94,484 Office equipment 17,242 16,209 Installations in process 22,231 11,672 ------------ ------------ 190,168 188,469 Accumulated depreciation (90,285) (90,015) ------------ ------------ $ 99,883 $ 98,454 ============ ============ Depreciation expense was $13,521,000 in 2002, $12,947,000 in 2001, and $11,656,000 in 2000. Interest costs incurred during the years 2002, 2001, and 2000 were $695,000, $1,070,000, and $1,080,000, respectively, of which $0 in 2002, $57,000 in 2001, and $457,000 in 2000 were capitalized as part of the cost of plant and equipment additions. NOTE C-GOODWILL AND OTHER INTANGIBLE ASSETS - ------------- Identifiable intangible assets and goodwill are comprised of the following: (Dollars in Thousands) December 29, December 30, 2002 2001 ------------ ------------ Goodwill $17,990 $15,364 Trademarks and patents 1,579 339 Technology 4,200 -- Covenant not to compete 600 -- ------------ ------------ 24,369 15,703 Accumulated amortization (2,165) (2,115) ------------ ------------ Goodwill and other intangible assets $22,204 $13,588 ============ ============ Amortization expense for 2002, 2001, and 2000 amounted to $50,000, $765,000, and $851,000, respectively. Estimated amortization expense during each of the next 5 years is expected to be between $50,000 and $100,000. 37 The changes in the carrying amount of goodwill for the year ended December 29, 2002, by segment, is as follows: (Dollars in Thousands) Polymer High Printed Materials Performance Circuit and Foams Materials Components Total ---------------------------------------------- Balance as of December 30, 2001 $ 8,500 $ 6,100 $ 764 $15,364 Polyolefin foam acquisition (Note M) 2,626 -- -- 2,626 ---------------------------------------------- Balance as of December 29, 2002 $11,126 $ 6,100 $ 764 $17,990 ============================================== NOTE D-SUMMARIZED FINANCIAL INFORMATION OF UNCONSOLIDATED JOINT VENTURES AND RELATED PARTY TRANSACTIONS - ---------- The Company has four joint ventures, each 50% owned, which are accounted for by the equity method. Equity income of $8,705,000, $3,123,000, and $5,945,000 for 2002, 2001 and 2000, respectively, is included in other income less other charges on the consolidated statements of income. Each of the joint ventures is described below: Fiscal Joint Venture Location Business Segment Year-End Durel Corporation U.S. Polymer Materials and Components December 31 Rogers Inoac Corporation ("RIC") Japan High Performance Foams October 31 Polyimide Laminate Systems, LLC ("PLS") U.S. Printed Circuit Materials December 31 Rogers Chang Chun Technology Co., LTD. ("RCCT") Taiwan Printed Circuit Materials December 31 The summarized financial information for these joint ventures is included in the following tables. Note that there is a difference between the Company's investment in unconsolidated joint ventures and its one-half interest in the underlying shareholders' equity of the joint ventures due primarily to three factors. First, the Company's major initial contribution to two joint ventures was technology that was valued differently by the joint ventures than it was on the Company's books. Secondly, one of the joint ventures had a negative retained earnings balance for a period of time. Lastly, the translation of foreign currency at current rates differs from that at historical rates. Correspondingly, there is a difference between the Company's recorded income from unconsolidated joint ventures and a 50% share of the income of those joint ventures. 38 SUMMARIZED INFORMATION FOR JOINT VENTJURES (Dollars in Thousands) December 29, December 30, 2002 2001 ------------ ------------ Current Assets $ 44,386 $ 39,843 Noncurrent Assets 30,218 33,213 Current Liabilities 24,412 25,309 Noncurrent Liabilities 668 11,344 Shareholders' Equity 49,524 36,403 (Dollars in Thousands) Year Ended ----------------------------------------------- December 29, December 30, December 31, 2002 2001 2000 ------------ ------------ ------------ Net Sales $136,861 $121,763 $138,006 Gross Profit 50,836 33,050 39,809 Net Income 17,790 5,928 11,608 Other Information: (Dollars in Thousands) 2002 2001 2000 ------------ ------------ ------------ Commission Income from PLS $ 3,601 $ 3,811 $ 3,430 50% Loan Guarantee for Durel Corporation -- 3,877 4,286 Loan to Durel Corporation -- 5,000 6,500 Durel Corporation, which had a 50% loan guarantee from the Company, met its obligations under the financing arrangement during the second half of 2002. No payments were required and no losses were incurred under this guarantee by the Company. Durel repaid its loan in full to the Company during 2002. The arrangement expired in September of 2002 and was not extended. This guarantee was terminated with the repayment of this debt. Sales made to unconsolidated joint ventures were immaterial in all years presented above. 39 NOTE E-PENSIONS AND OTHER POSTRETIREMENT BENEFIT PLANS - ---------- PENSIONS: - ---------- The Company has two qualified noncontributory defined benefit pension plans covering substantially all U.S. employees. The Company also has established a nonqualified unfunded noncontributory defined benefit pension plan to restore certain retirement benefits that might otherwise be lost due to limitations imposed by federal law on qualified pension plans. In addition, the Company sponsors three unfunded defined benefit health care and life insurance plans for retirees. The following provides a reconciliation of benefit obligations, plan assets, and funded status of the plans: Other Pension Benefits Postretirement Benefits (Dollars -------------------------------------------------------- in Thousands) 2002 2001 2000 2002 2001 2000 -------------------------------------------------------- Components of net periodic benefits cost: Service cost $ 2,518 $ 2,120 $ 1,641 $ 389 $ 282 $ 228 Interest cost 5,571 4,897 4,643 407 359 331 Expected return on plan assets (6,191) (5,819) (5,644) -- -- -- Amortizations and deferrals 969 509 485 (5) (92) (117) Amortization of transition asset (137) (199) (352) -- -- -- Curtailment (Gain) /Loss 613 -- -- (213) -- -- --------------------------------------------------------- Net periodic benefit costs $ 3,343 $ 1,508 $ 773 $ 578 $ 549 $ 442 ========================================================= Change in plan assets: Fair value of plan assets at beginning of year $65,160 $63,304 $61,383 $ -- $ -- $ -- Actual return on plan assets (4,474) 4,943 4,724 -- -- -- Employer contributions 3,449 381 356 433 486 518 Benefit payments (3,593) (3,468) (3,160) (433) (486) (518) --------------------------------------------------------- Fair value of plan assets at end of year $60,542 $65,160 $63,303 $ -- $ -- $ -- ========================================================= Change in benefit obligation: Benefit obligation at beginning of year $74,090 $66,867 $56,555 $ 5,654 $ 4,332 $ 3,395 Service cost 2,518 2,120 1,641 389 282 228 Interest cost 5,571 4,897 4,643 407 359 332 Actuarial losses 9,571 2,483 5,271 524 1,167 895 Benefit payments (3,644) (3,468) (3,160) (433) (486) (518) Curtailment (1,742) -- -- (213) -- -- Plan amendments 2,468 1,189 1,917 -- -- -- ---------------------------------------------------------- Benefit obligation at at end of year $88,832 $74,088 $66,867 $ 6,328 $ 5,654 $ 4,332 ========================================================== Reconciliation of funded status: Funded status $(28,291) $(8,929) $(3,564) $(6,328) $(5,654) $(4,332) Unrecognized net gain/(loss) 22,783 4,506 1,304 (369) (899) (2,158) Unrecognized prior service cost 4,734 3,848 3,168 -- -- -- Unrecognized transition asset (314) (670) (1,025) -- -- -- ---------------------------------------------------------- Accrued Benefit cost at end of year $(1,088) $(1,245) $ (117) $(6,697) $(6,553) $(6,490) =========================================================== Amounts recognized in the Balance Sheet consist of: Prepaid benefit cost $ 4,294 $ 2,752 $ 3,638 $ -- $ -- $ -- Accrued benefit liability (22,521) (12,235) (9,538) (6,697) (6,553) (6,490) Intangible asset 4,657 3,556 2,769 -- -- -- Deferred tax asset 4,744 1,779 1,145 -- -- -- Accumulated other comprehensive loss 7,738 2,903 1,869 -- -- -- ----------------------------------------------------------- Net amount recognized at end of year $(1,088) $(1,245) $ (117) $(6,697) $(6,553) $(6,490) =========================================================== 40 In accordance with FASB Statement No. 87, the Company has recorded an additional minimum pension liability for underfunded plans of $17,138,000 and $8,238,000 for 2002 and 2001, respectively, representing the excess of unfunded accumulated benefit obligations over previously recorded pension liabilities. A corresponding amount is recognized as an intangible asset except to the extent that these additional liabilities exceed related unrecognized prior service cost and net transition obligation, in which case the increase in liabilities is charged directly to shareholders' equity, net of taxes. Other Pension Benefits Postretirement Benefits - ------------------------------------------------------------------------------ Assumptions as of year-end: 2002 2001 2002 2001 - ------------------------------------------------------------------------------ Discount rate 6.75% 7.25% 6.75% 7.25% Rate of compensation increase 4.00% 4.00% -- -- The expected long-term rates of investment return were assumed to be 9.00% for the pension plan covering unionized hourly employees for both years. The expected rate is 9.00% in 2002 and 9.50% in 2001 for the other pension plan in each year presented. The Company has two pension plans with accumulated benefit obligations in excess of plan assets in 2002 and only one plan in 2001. Amounts applicable are: 2002 2001 - ---------------------------------------------------------------------------- Projected benefit obligation $88,319 $18,240 Accumulated benefit obligation 78,435 17,831 Fair value of plan assets 60,542 11,888 OTHER POSTRETIREMENT BENEFITS: - ---------- The assumed health care cost trend rate of increase was 5.0% for 2001 - 2002 and it was increased to 8.5% for 2003. The rate was assumed to decrease gradually to 5.0% for 2008 and remain at that level thereafter. The health care cost trend rate assumption has the following effect on the amounts reported: increasing the assumed health care cost trend rates by one percentage point for each future year would increase the accumulated postretirement benefit obligation as of the beginning of 2003 by $373,000 and the aggregate of service cost and interest cost components of net periodic postretirement benefit cost for fiscal 2002 by $84,000; decreasing the assumed rates by one percentage point would decrease the accumulated postretirement benefit obligation at the beginning of 2003 by $350,000 and the aggregate of service cost and interest cost components of net periodic postretirement benefit cost for fiscal 2002 by $73,000. NOTE F-EMPLOYEE SAVINGS AND INVESTMENT PLAN - ---------- The Company sponsors the Rogers Employee Savings and Investment Plan ("RESIP") for domestic employees. Prior to 2003, the plan allowed such employees to contribute up to 18% of their compensation through payroll deductions. Effective January 1, 2003, the plan limitation of 18% on employee pretax contributions has been eliminated. Employees are now able to defer a percentage or flat amount they choose, up to the yearly IRS limit, which is $12,000 in 2003. Currently up to 5% of an eligible employee's annual pre-tax contribution is matched at a rate of 50% by the Company. In 2002 and 2001, 100% of the Company's matching contribution was invested in Company stock. RESIP related expense amounted to $813,000 in 2002, $934,000 in 2001, and $859,000 in 2000, including Company matching contributions of $813,000, $903,000, and $813,000, respectively. 41 Also effective January 1, 2003, the Company has implemented the Economic Growth and Tax Relief Reconciliation Act ("EGTRRA") Age 50 Catch Up provision. Participants that will reach age 50 (or older) by December 31, 2003 are eligible to contribute an additional $2,000 in 2003. For those employees participating in the EGTRRA, the maximum amount that can be contributed to the RESIP in 2003 will be $14,000. There is no company match for the EGTRRA. NOTE G-DEBT - ---------- LONG-TERM DEBT: - ---------- The Company has an unsecured multi-currency revolving credit agreement with two domestic banks and can borrow up to $50,000,000, or the equivalent in certain other foreign currencies. Amounts borrowed under this agreement are to be paid in full by December 8, 2005. The rate of interest charged on outstanding loans can, at the Company's option and subject to certain restrictions, be based on the prime rate or at rates from 50 to 112.5 basis points over a Eurocurrency loan rate. The spreads over the Eurocurrency rate are based on the Company's leverage ratio. Under the arrangement, the ongoing commitment fee varies from 30.0 to 37.5 basis points of the maximum amount that can be borrowed, net of any outstanding borrowings and the maximum amount that beneficiaries may draw under outstanding letters of credit. There were no borrowings pursuant to this arrangement at December 29, 2002 and December 30, 2001. The loan agreement contains restrictive covenants primarily related to total indebtedness, interest expense, capital expenditures and net worth. The Company is in compliance with these covenants. The Company had designated a 390,200,000 Belgian franc loan as a hedge of its net investment in its foreign subsidiaries in Belgium (US$9,100,000 at December 31, 2000). On July 6, 2001, the Company repaid the debt at the then current Belgian franc rate, amounting to US$8,200,000. During the years 2001 and 2000, the Company recorded US$900,000 and US$600,000, respectively, of net gains related to the hedge in other comprehensive income. In September 2001, Rogers N.V., a Belgian subsidiary of the Company, signed an unsecured revolving credit agreement with a European bank. Under this arrangement Rogers N.V. now can borrow up to 6,200,000 Euro. Amounts borrowed under this agreement are to be repaid in full by May 1, 2005. The rate of interest charged on outstanding loans is based on the Euribor plus 25 basis points. At December 29, 2002, Rogers N.V. had no borrowings under this agreement. At December 30, 2001, Rogers N.V. had borrowings of 1,487,361 Euro (US$1,315,000) under this agreement. INTEREST PAID: - ---------- Interest paid during the years 2002, 2001, and 2000, was $698,000, $1,050,000, and $1,132,000, respectively. RESTRICTION ON PAYMENT OF DIVIDENDS: - ---------- Pursuant to the multi-currency revolving credit loan agreement, the Company cannot make a cash dividend payment if a default or event of default has occurred and is continuing or shall result from the cash dividend payment. NOTE H-INCOME TAXES - ---------- Consolidated income before income taxes consists of: (Dollars in Thousands) 2002 2001 2000 - --------------------------------------------------------------------- Domestic $ 20,488 $ 13,144 $ 30,263 International 4,321 7,835 7,371 - --------------------------------------------------------------------- $ 24,809 $ 20,979 $ 37,634 ==================================== 42 The income tax expense (benefit) in the consolidated statements of income consists of: (Dollars in Thousands) Current Deferred Total ------------------------------------- 2002: Federal $ 2,946 $ 1,844 $ 4,790 International 615 621 1,236 State 80 961 76 ------------------------------------- $ 3,641 $ 2,561 $ 6,202 ===================================== 2001: Federal $ 3,029 $(1,093) $ 1,936 International 1,951 1,533 3,484 State 26 (201) (175) -------------------------------------- $ 5,006 $ 239 $ 5,245 ====================================== 2000: Federal $ 5,050 $ 2,507 $ 7,557 International 2,665 299 2,964 State (100) 493 393 -------------------------------------- $ 7,615 $ 3,299 $10,914 ====================================== Deferred tax assets and liabilities as of December 29, 2002 and December 30, 2001, respectively, are comprised of the following: (Dollars in Thousands) December 29, December 30, 2002 2001 ------------ ------------ Deferred tax assets: Accruals not currently deductible for tax purposes: Accrued employee benefits and compensation $ 7,211 $ 4,655 Accrued postretirement benefits 2,105 2,021 Other accrued liabilities and reserves 2,807 2,699 Tax credit carry-forwards 2,531 3,232 -------------------------------- Total deferred tax assets 14,654 12,607 Less deferred tax asset valuation allowance 506 384 -------------------------------- Net deferred tax assets 14,148 12,223 -------------------------------- Deferred tax liabilities: Depreciation and amortization 13,711 14,141 Investments in joint ventures, net 3,713 1,064 Other 47 129 -------------------------------- Total deferred tax liabilities 17,471 15,334 -------------------------------- Net deferred tax liability $(3,323) $(3,111) ================================ Deferred taxes are classified on the consolidated balance sheet at December 29, 2002 and December 30, 2001 as a net short-term deferred tax asset of $4,985,000 and $5,041,000, respectively, and a net long-term deferred tax liability of $8,308,000 and $8,152,000, respectively. Income tax expense differs from the amount computed by applying the United States Federal statutory income tax rate to income before income tax expense. The reasons for this difference are as follows: 43 (Dollars in Thousands) 2002 2001 2000 -------------------------------- Tax expense at Federal statutory income tax rate $ 8,683 $ 7,342 $13,172 International tax rate differential (619) 409 334 Net U.S. tax (foreign tax credit) on foreign earnings (926) (1,058) (799) General business credits (582) (400) (537) Nontaxable foreign sales income (1,120) (1,213) (861) State income taxes, net of Federal benefit 114 102 256 Valuation allowance change 122 (375) (294) Other 530 438 (357) --------------------------------- Income tax expense $ 6,202 $ 5,245 $10,914 ================================= In December 2002, the Belgian government enacted a tax rate decrease effective for years ending in 2003 and later. All ending deferred tax balances attributable to Belgian operations were restated from the 40.17% tax rate to the new 33.99% tax rate for U.S. GAAP purposes to reflect this change. The 2002 international tax rate differential includes this reduction to the deferred international tax expense of $813,000, net of the current international tax expense in excess of the U.S. statutory tax rate of $194,000. The tax credit carry-forwards consist of general business credits of $990,000 that begin to expire in 2017 and alternative minimum tax credits of $1,541,000 that have no expiration date. The deferred tax asset valuation allowance increased by $122,000 and decreased by $375,000 during 2002 and 2001, respectively. The increase in 2002 resulted primarily from operating losses in China that did not generate a tax benefit and the decrease in 2001 resulted primarily from the Company's utilization of foreign tax credits on undistributed profits from its Japanese joint venture. The Company recognized a U.S. deferred tax asset in 2002 and 2001 of $2,080,000 and $1,319,000, respectively. The recognition was determined to be more likely than not based on the availability and amount of recoverable taxes paid in the Federal carry-back period. Undistributed international earnings, on which United States income tax had not been provided, before available tax credits and deductions, amounted to $22,864,000 at December 29, 2002, $19,569,000 at December 30, 2001, and $15,429,000 at December 31, 2000. Tax has not been provided on these undistributed earnings as it is the Company's practice and intention to continue to reinvest these earnings. Income taxes paid were $1,471,000, $2,918,000, and $3,598,000, in 2002, 2001, and 2000, respectively. NOTE I-SHAREHOLDERS' EQUITY AND STOCK OPTIONS - ---------- Components of Other Comprehensive Loss consist of the following: (Dollars in Thousands) 2002 2001 2000 ----------------------------------- Foreign currency translation adjustments $ 4,172 $ (793) $ (923) Change in minimum pension liability, net of $2,963 and $634 in taxes in 2002 and 2001 (4,835) (1,034) (1,718) ------------------------------------ Other comprehensive loss $ (663) $(1,827) $(2,641) ==================================== 44 Accumulated balances related to each component of Accumulated Other Comprehensive Loss are as follows: (Dollars in Thousands) December 29, December 30, 2002 2001 --------------------------------- Foreign currency translation adjustments $ 3,045 $(1,127) Minimum pension liability, net of $4,742 and $1,779 in taxes in 2002 and 2001 (7,738) (2,903) --------------------------------- Accumulated balance $(4,693) $(4,030) ================================= Under various plans the Company may grant stock options to officers and other key employees at exercise prices that range as low as 50% of the fair market value of the Company's stock as of the date of grant. To date virtually all such options have been granted at an exercise price equal to the fair market value of the Company's stock as of the date of grant. In general, regular employee options become exercisable over a four-year period from the grant date and expire ten years after the date of grant. Stock option grants are also made to non-employee directors, generally on a semi-annual basis. For such stock options, the exercise price is equal to the fair market value of the Company's stock and they are immediately exercisable and expire ten years after the date of grant. Stock grants in lieu of cash compensation are also made to non-employee directors. Shares of capital stock reserved for possible future issuance are as follows: December 29, December 30, 2002 2001 ----------------------------------- Shareholder Rights Plan 20,323,964 20,385,363 Stock options 3,663,642 3,824,145 Rogers Employee Savings and Investment Plan 169,044 169,044 Rogers Corporation Global Stock Ownership Plan For Employees 477,587 500,000 Long-Term Enhancement Plan 115,308 115,308 Stock to be issued in lieu of deferred compensation 41,635 37,682 ----------------------------------- Total 24,791,180 25,031,542 =================================== The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants: 2002 2001 2000 ------------------------------ Risk-free interest rate 1.83% 4.67% 5.14% Dividend yield 0% 0% 0% Volatility factor 36.3% 33.6% 33.2% Weighted-average expected life 6.1 years 6.1 years 6.1 years A summary of the status of the Company's stock option program at year-end 2002, 2001, and 2000, and changes during the years ended on those dates is presented below: 45 2002 2001 2000 ------------------------------------------------------------- Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Stock Options Shares Price Shares Price Shares Price ------------------------------------------------------------ Outstanding at beginning of year 2,314,821 $20.04 2,357,214 $17.12 2,518,850 $12.00 Granted 528,560 26.07 270,809 33.24 429,479 32.56 Exercised (152,177) 12.15 (307,051) 9.19 (513,511) 6.94 Cancelled (3,167) 30.44 (6,151) 22.84 (77,604) 5.12 ------------------------------------------------------------ Outstanding at end of year 2,688,037 $21.66 2,314,821 $20.04 2,357,214 $17.12 ============================================================ Options exercisable at end of year 1,807,673 1,668,843 1,496,710 ============================================================ Weighted-average fair value of options granted during year $ 9.38 $13.97 $13.97 ============================================================ The following table summarizes information about stock options outstanding at December 29, 2002: Options Outstanding Options Exercisable Weighted- Average Weighted- Weighted- Number Remaining Average Number Average Range of Exercise Outstanding Contractual Exercise Exercisable Exercise Prices at 12/29/02 Life in Years Price at 12/29/02 Price - ----------------------------------------------------------------------------- $3 to $11 206,370 1.6 $ 8.28 206,370 $ 8.28 $12 to $28 1,829,229 6.4 $18.79 1,301,781 $16.42 $29 to $43 652,438 8.2 $33.95 299,522 $34.01 ----------------------------------------------------------- $3 to $43 2,688,037 6.5 $21.66 1,807,673 $18.40 =========================================================== In 2001, shareholders approved the Rogers Corporation Global Stock Ownership Plan For Employees, an employee stock purchase plan. The plan provides for the issuance of up to 500,000 shares of Company stock. Shares may be purchased by participating employees through payroll deductions that are made during prescribed offering periods with the actual purchases made at the end of each offering period. Currently, shares may be purchased at 85% of the stock's closing price at the beginning or end of each offering period, whichever is lower and other rules have been established for participation in the plan. NOTE J-COMMITMENTS AND CONTINGENCIES - ---------- LEASES: - ---------- The Company's principal noncancellable operating lease obligations are for building space and vehicles. The leases generally provide that the Company pay maintenance costs. The lease periods range from one to five years and include purchase or renewal provisions at the Company's option. The Company also has leases that are cancellable with minimal notice. Lease expense was $1,481,000 in 2002, $1,320,000 in 2001, and $1,084,000 in 2000. Future minimum lease payments under noncancellable operating leases at December 29, 2002, aggregate $1,800,000. Of this amount, annual minimum payments are $880,000, $462,000, $257,000, $64,000, and $48,000 for years 2003 through 2007, respectively. CONTINGENCIES: - ---------- The Company is subject to federal, state, and local laws and regulations concerning the environment and is currently engaged in proceedings related to such matters. 46 The Company is currently involved as a potentially responsible party ("PRP") in two cases involving waste disposal sites, both of which are Superfund sites. These proceedings are at a stage where it is still not possible to estimate the cost of remediation, the timing and extent of remedial action which may be required by governmental authorities, and the amount of liability, if any, of the Company alone or in relation to that of any other PRPs. Where it has been possible to make a reasonable estimate of the Company's liability, a provision has been established. Insurance proceeds have only been taken into account when they have been confirmed by or received from the insurance company. Actual costs to be incurred in future periods may vary from these estimates. Based on facts presently known to it, the Company does not believe that the outcome of these proceedings will have a material adverse effect on its financial position. In addition to the above proceedings, the Company has worked with the Connecticut Department of Environmental Protection ("CT DEP") related to certain polychlorinated biphenyl ("PCB") contamination in the soil beneath a section of cement flooring at its Woodstock, Connecticut facility. The Company completed clean-up efforts in 2000, monitored the site in 2001, and will continue to monitor the site for the next two years. On the basis of estimates prepared by environmental engineers and consultants, the Company recorded a provision of $2,200,000 prior to 1999 and based on updated estimates provided an additional $400,000 in 1999 for costs related to this matter. Prior to 2000, $1,300,000 was charged against this provision. In 2000, 2001, and 2002 expenses of $900,000, $100,000, and $200,000 were charged, respectively, against the provision. The remaining amount in the reserve is primarily for testing, monitoring, sampling and any minor residual treatment activity. Management believes, based on facts currently available, that the balance of this provision is adequate to complete the project. In this same matter the United States Environmental Protection Agency ("EPA") alleged that the Company improperly disposed of PCBs. An administrative law judge found the Company liable for this alleged disposal and assessed a penalty of approximately $300,000. The Company reflected this fine in expense in 1998 but disputed the EPA allegations and appealed the administrative law judge's findings and penalty assessment. The original findings were upheld internally by the EPA's Environmental Appeals Board, and the Company placed that decision on appeal with the District of Columbia Federal Court of Appeals in 2000. In early January of 2002, the Company was informed that the Court of Appeals reversed the decision. As a result of this favorable decision, the $300,000 reserve for the fine was taken into income in 2001. However, subsequent to the favorable decision by the Court of Appeals, the EPA continued to pursue this issue and settlement discussions with the EPA were more protracted and difficult than originally anticipated. As such, the Company recorded $325,000 for legal and other costs associated with this matter in 2002. On January 16, 2003, a settlement agreement was signed with the EPA. The costs associated with the settlement will not exceed the provision recorded, which included a cash settlement payment to the government of $45,000 plus a commitment to undertake some energy-related environmental improvements at its facilities, as well as assistance to the Woodstock, Connecticut Fire Department for emergency preparedness. Management believes, based on the facts currently available, that the provision recorded in 2002 is adequate to cover the requirement of the settlement. On February 7, 2001, the Company entered into a definitive agreement to purchase the Advanced Dielectric Division ("ADD") of Tonoga, Inc. (commonly known as Taconic), which operates facilities in Petersburgh, New York and Mullingar, Ireland. On May 11, 2001, the Company announced that active discussions with Taconic to acquire the ADD business had been suspended and it was not anticipated that the acquisition would occur. Accordingly, $1,500,000 in costs associated with this potential acquisition were written off during the second quarter. On October 23, 2001, the Company terminated the acquisition agreement. On October 24, 2001, Taconic filed a breach of contract lawsuit against the Company in the United States District Court for the District of Connecticut seeking damages in the amount of 47 $25,000,000 or more, as well as specific performance and attorneys' fees. In September 2002, a confidential settlement agreement concerning all matters raised in this litigation was negotiated and entered into. The settlement had no material impact on the current period results. There recently has been a significant increase in certain U.S. states in asbestos-related product liability claims against numerous industrial companies. The Company has been named, along with hundreds of other industrial companies, as a defendant in some of these cases. The Company strongly believes it has valid defenses to these claims and intends to defend itself vigorously. In addition, the Company believes that it has sufficient insurance to cover all costs associated with these claims. Based upon past claims experience and available insurance coverage, management believes that these matters will not have a material adverse effect on the Company's consolidated financial position, results of operations, or cash flows. In addition to the above issues, the nature and scope of the Company's business bring it in regular contact with the general public and a variety of businesses and government agencies. Such activities inherently subject the Company to the possibility of litigation, including environmental and product liability matters that are defended and handled in the ordinary course of business. The Company has established accruals for matters for which management considers a loss to be probable and reasonably estimable. It is the opinion of management that facts known at the present time do not indicate that such litigation, after taking into account insurance coverage and the aforementioned accruals, will have a material adverse effect on the financial position of the Company. NOTE K-BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION - ---------- The Company has nine business units and four joint ventures. The business units and joint ventures have been aggregated into three reportable segments: High Performance Foams, Printed Circuit Materials, and Polymer Materials and Components. Each segment has common management oversight, share common infrastructures, and each offers different products and services. High Performance Foams: This segment consists of three business units and one joint venture. The products produced by these operations consist primarily of high-performance urethane, silicone and polyolefin foams that are designed to perform to predetermined specifications where combinations of properties are needed to satisfy rigorous mechanical and environmental requirements. These materials are sold worldwide and for the most part are sold to fabricators and original equipment manufacturers. Printed Circuit Materials: There are three business units and two joint ventures in this segment. Laminate materials, that are primarily fabricated by others into circuits which are then used in electronics equipment for transmitting, receiving, and controlling electrical signals, are the products produced by these operations. These products tend to be proprietary materials which provide highly specialized electrical and mechanical properties to meet the demands imposed by increasing speed, complexity, and power in analog, digital, and microwave equipment. These materials are fabricated, coated and/or customized as necessary to meet customer demands and are sold worldwide. Polymer Materials and Components: This segment is comprised of three business units and one joint venture. The products produced by these operations consist primarily of molded elastomer components, power distribution components, electroluminescent lamps and nonwoven materials. These products have been engineered to provide special performance characteristics to suit a wide range of markets and applications. These products are sold worldwide to a varied customer base. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on operating income of the respective business units. 48 The principal manufacturing operations of the Company are located in the United States, Europe and Asia. The Company markets its products throughout the United States and sells in foreign markets directly, through distributors and agents, and through its 50% owned joint ventures in Asia. Approximately 55%, 57%, and 54% of total sales were to the electronics industry in 2002, 2001, and 2000, respectively. Approximately 33%, 34%, and 27% of the Company's sales of products manufactured by U.S. divisions were made to customers located in foreign countries in 2002, 2001, and 2000, respectively. This includes sales to Europe of 12%, 17%, and 12%, sales to Asia of 18%, 15%, and 12%, and sales to Canada of 2%, 1%, and 1% in 2002, 2001, and 2000, respectively. The electronics industry accounted for approximately 62%, 63%, and 67% at December 29, 2002, December 30, 2001 and December 31, 2000, respectively, of the total accounts receivable due from customers. Accounts receivable due from customers located within the United States accounted for 45%, 71%, and 74% of the total accounts receivable owed to the Company at the end of 2002, 2001 and 2000, respectively. The Company performs periodic credit evaluations of its customers' financial condition and generally does not require collateral. Receivables are generally due within 30 days. Credit losses relating to customers have been minimal and have been within management's expectations. Inter-segment and inter-area sales, which are generally priced with reference to costs or prevailing market prices, are not material in relation to consolidated net sales and have been eliminated from the sales data reported in the following tables. BUSINESS SEGMENT INFORMATION (Dollars in Thousands) High Printed Polymer Performance Circuit Materials and Foams Materials Components Total -------------------------------------------------------- 2002: Net sales $ 65,084 $ 82,419 $ 71,935 $ 219,438 Operating income 8,052 4,802 1,320 14,174 Total assets 59,520 135,062 63,119 257,701 Capital expenditures 13,877 7,072 1,733 22,682 Depreciation 1,996 6,700 4,825 13,521 Joint venture equity income (loss) 1,778 (351) 7,278 8,705 ======================================================== 2001: Net sales $ 49,745 $ 88,342 $ 77,950 $ 216,037 Operating income 4,583 6,170 2,293 13,046 Total assets 44,908 101,539 77,362 223,809 Capital expenditures 955 15,242 1,835 18,032 Depreciation 2,165 6,152 4,630 12,947 Joint venture equity income (loss) 1,557 (428) 1,994 3,123 ======================================================== 2000: Net sales $ 58,877 $ 100,701 $ 88,637 $ 248,215 Operating income 11,191 12,189 6,103 29,483 Total assets 44,171 93,809 83,534 221,514 Capital expenditures 1,185 15,122 6,437 22,744 Depreciation 2,106 5,306 4,244 11,656 Joint venture equity income 994 -- 4,951 5,945 ======================================================== 49 Information relating to the Company's operations by geographic area is as follows: Europe United (primarily (Dollars in Thousands) States Belgium) Asia Total ---------------------------------------------- 2002: Net sales $ 163,127 $ 41,834 $ 14,477 $ 219,438 Long-lived assets 91,274 34,707 1,234 127,215 ============================================== 2001: Net sales $ 165,321 $ 45,913 $ 4,803 $ 216,037 Long-lived assets 90,129 26,340 -- 116,469 ============================================== 2000: Net sales $ 192,885 $ 50,261 $ 5,069 $ 248,215 Long-lived assets 91,333 19,347 -- 110,680 ============================================== Net sales are attributed to the business unit making the sale. Long-lived assets are attributed to the location of the asset. The net assets of wholly-owned foreign subsidiaries were $30,268,000 at December 29, 2002, $23,691,000 at December 30, 2001, and $9,698,000 at December 31, 2000. Net income of these foreign subsidiaries was $2,744,000 in 2002, $4,819,000 in 2001, and $4,399,000 in 2000, including net currency transaction gains (losses) of $2,000 in 2002, $117,000 in 2001, and $61,000 in 2000. NOTE L-RESTRUCTURING COSTS - ---------- In 2002, the Company incurred restructuring charges of $2,150,000. These charges were associated solely with the severance benefits for 62 employees of which 48 had been terminated prior to year-end. The remaining employees were notified prior to year-end. The separation date of these residual employees will occur on varied dates in 2003. These workforce reductions were initiated in order to appropriately align resources with the Company's business requirements, given varied ongoing operational initiatives, including non-strategic business unit consolidations, plant rationalizations, outsourcing low value production and/or moving it to lower production cost environments, and support function reorganizations to streamline administrative activities. As of December 29, 2002, the balance in the accrual for these charges was $1,600,000. Management believes based on current estimates the provision recorded in 2002 will be adequate to cover the future costs of these restructuring activities. In 2001 the Company incurred a restructuring charge in the amount of $500,000. This amount was primarily related to severance benefits for the termination of 19 employees in the Printed Circuit Materials segment which was associated with the merging of two business units within that segment. All employees had been terminated prior to year-end and the balance of the accrual was $25,000 as of December 30, 2001. NOTE M-ACQUISITIONS/DIVESTITURES - ---------- As of December 31, 2001 (the beginning of fiscal year 2002), the Company acquired certain assets of the high performance foam business of Cellect LLC ("Cellect")for approximately $10,000,000 in cash, plus a potential earn-out in five years based upon performance. While there is no contractual limitation on the earn-out, the actual earn-out will be determined and effected by the sales and profitability growth through 2006 as compared to the base year of 2001. These assets included intellectual property rights, machinery and equipment, inventory, and customer lists for 50 portions of the Cellect plastomeric and elastomeric high performance polyolefin foam business. The acquisition was accounted for as a purchase pursuant to SFAS No. 141, "Business Combinations." As such, the purchase price has been allocated to property, plant and equipment and intangible assets based on their respective fair values at the date of acquisition. The following table summarizes the estimated fair values of the acquired assets on the date of acquisition: Purchase price $10,000,000 Acquisition costs 226,000 ----------- 10,226,000 Less identified tangible/intangible assets: Property, plant and equipment 1,600,000 Trademarks 1,200,000 Technology 4,200,000 Covenant not-to-compete 600,000 ------------ 7,600,000 ------------ Goodwill $ 2,626,000 ============ Of the intangible assets acquired, only the covenant not-to-compete is considered to not have an indefinite life. Accordingly, the remaining intangibles will not be amortized, but will be reviewed for impairment on an annual basis. The amortization period for the covenant not-to-compete is 3 years and amortization commences in 2007, subsequent to the completion of the earn-out period. On November 18, 2002, the Company completed the divestiture of its Moldable Composites Division ("MCD"), located in Manchester, Connecticut. MCD, which was included in the Company's Polymer Materials and Components segment, was sold to Vyncolit North America Inc., a subsidiary of the Perstorp Group, Sweden. Under the terms of the agreement, the Company will receive a total of approximately $21,000,000 for the business assets (excluding the intellectual property) and a five-year royalty stream from the intellectual property license. Half of the $21,000,000 was paid in cash upon consummation of the transaction. A Note Receivable, which bears interest at the rate of LIBOR plus 1%, was provided for the remainder of the sales price which will be paid over a five-year period. There was no material gain or loss on the sale transaction. 51 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS - ---------- Board of Directors and Shareholders Rogers Corporation - ---------- We have audited the accompanying consolidated balance sheets of Rogers Corporation and subsidiaries as of December 29, 2002 and December 30, 2001, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three fiscal years in the period ended December 29, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Rogers Corporation and subsidiaries at December 29, 2002 and December 30, 2001, and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended December 29, 2002, in conformity with accounting principles generally accepted in the United States. As discussed in Note A to the consolidated financial statements, effective December 31, 2001, the Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets." ERNST & YOUNG LLP 52 Providence, Rhode Island February 4, 2003 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) - ---------- (Dollars in Thousands, Except Per Share Amounts) Basic Diluted Net Manufacturing Net Net Income Net Income Quarter Sales Profit Income Per Share Per Share - --------------------------------------------------------------------------- 2002 Fourth $ 51,516 $ 17,853 $ 5,422 $ .35 $ .34 Third 56,034 17,463 4,770 .31 .30 Second 57,330 17,696 4,531 .29 .28 First 54,558 16,243 3,884 .25 .24 - --------------------------------------------------------------------------- 2001 Fourth $ 48,094 $ 14,611 $ 3,900 $ .25 $ .24 Third 51,031 15,792 3,219 .21 .20 Second 53,162 15,801 1,894 .12 .12 First 63,750 20,654 6,721 .44 .42 - --------------------------------------------------------------------------- CAPITAL STOCK MARKET PRICES - ---------- The Company's capital stock is traded on the New York Stock Exchange. The following table sets forth the composite high and low closing prices during each quarter of the last two years on a per share basis. 2002 2001 - -------------------------------------------------------------------- Quarter High Low High Low - -------------------------------------------------------------------- Fourth $ 26.39 $ 20.65 $ 35.80 $ 27.80 Third 28.85 23.35 31.30 24.95 Second 35.80 26.25 35.60 23.90 First 34.00 27.20 42.00 31.75 - -------------------------------------------------------------------- EX-3 5 edgweb10kcert2002.txt CERTIFICATION Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Rogers Corporation (the "Company") on Form 10K for the period ending December 29, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Walter E. Boomer, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report 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 Company. /s/ Walter E. Boomer - -------------------- Walter E. Boomer Chairman of the Board and Chief Executive Officer March 31, 2003 EX-4 6 edgjmr10kcert2002.txt CERTIFICATION Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Rogers Corporation (the "Company") on Form 10-K for the period ending December 29, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, James M. Rutledge, Vice President, Finance, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (1) The Report 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 Company. /s/ James M. Rutledge - --------------------- James M. Rutledge Vice President, Finance and Chief Financial Officer March 31, 2003 EX-5 7 edgdurelfinancials.txt DUREL CORPORATION FINANCIALS FINANCIAL STATEMENTS Durel Corporation December 29, 2002 Durel Corporation Index to Financial Statements Financial Statements: Report of Independent Auditors.............................................1 Balance Sheets at December 29, 2002 and December 30, 2001..................2 Statements of Income for the Years Ended December 29, 2002, December 30, 2001 and December 31, 2000........................3 Statements of Shareholders' Equity for the Years Ended December 29, 2002, December 30, 2001 and December 31, 2000........................................................4 Statements of Cash Flows for the Years Ended December 29, 2002, December 30, 2001 and December 31, 2000........................................................5 Notes to Financial Statements..............................................6 Report of Independent Auditors Board of Directors Durel Corporation We have audited the accompanying balance sheets of Durel Corporation as of December 29, 2002, and December 30, 2001, and the related statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 29, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Durel Corporation at December 29, 2002, and December 30, 2001, and the results of its operations and its cash flows for each of the three years in the period ended December 29, 2002, in conformity with accounting principles generally accepted in the United States. /s/ Ernst and Young LLP Phoenix, Arizona March 14, 2003 1 Durel Corporation Balance Sheets December 29 December 30 2002 2001 Assets Current assets: Cash and cash equivalents $ 3,613,570 $ 1,833,355 Accounts receivable, less allowance for doubtful accounts of $500,000 and $400,000 at December 29, 2002 and December 30, 2001, respectively 11,544,627 8,193,511 Inventories, net 6,382,929 6,237,553 Deferred tax assets 1,863,000 1,724,949 Prepaid expenses and other 14,149 215,080 ------------ ------------ Total current assets 23,418,275 18,204,448 Noncurrent pension asset 563,036 236,676 Property, plant, and equipment, net 21,228,037 24,897,772 ------------ ------------ Total assets $45,209,348 $43,338,896 ============ ============ Liabilities and shareholders' equity Current liabilities: Accounts payable $ 6,224,782 $ 3,884,204 Accrued payroll and related expenses 3,608,899 2,014,100 Accrued liabilities 1,078,448 799,341 Payable to shareholders 309,495 464,412 Income taxes payable 1,630,531 1,770,126 Payable to shareholders 656,557 -- Notes Payable to shareholders -- 5,000,000 Current portion of long-term debt -- 1,102,982 ------------ ------------ Total current liabilities 13,508,712 15,035,165 Noncurrent pension liability 121,168 201,254 Deferred tax liability 1,370,576 1,012,303 Payable to shareholders, noncurrent -- 656,557 Long-term debt -- 10,650,572 Contingencies Shareholders' equity: Common shares, par value $.01 per share Authorized shares-150,000 Issued and outstanding shares-2,000 20 20 Additional paid-in capital 7,040,294 7,040,294 Accumulated other comprehensive loss (114,637) -- Retained earnings 23,283,215 8,742,731 ------------ ------------ Total shareholders' equity 30,208,892 15,783,045 ------------ ------------ Total liabilities and shareholders' equity $45,209,348 $43,338,896 ============ ============ See accompanying notes. 2 Durel Corporation Statements of Income Years Ended ----------------------------------------- December 29 December 30 December 31 2002 2001 2000 ----------------------------------------- Net sales $84,061,876 $59,231,061 $73,811,266 Cost of goods sold 47,168,975 40,044,666 47,586,633 ----------------------------------------- Gross profit 36,892,901 19,186,395 26,224,633 Costs and expenses: Selling and administrative 10,987,745 10,080,889 12,858,030 Research and development 2,990,504 2,494,819 2,681,629 ----------------------------------------- Income from operations 22,914,652 6,610,687 10,684,974 Other (expense) income: Interest income 45,059 62,646 108,567 Interest expense (958,579) (1,301,443) (985,770) Other 29,352 127,737 470,282 ----------------------------------------- Income before income taxes 22,030,484 5,499,627 10,278,053 Provision for income taxes 7,490,000 1,924,000 2,363,952 ----------------------------------------- Net income $14,540,484 $ 3,575,627 $ 7,914,101 ========================================= See accompanying notes. 3 Durel Corporation Statements of Shareholders' Equity Accumulated Common Shares Additional Other --------------- Paid-In Comprehensive Retained Shares Amount Capital Income(Loss) Earnings Total ------ -------------------------------------------------------- Balance at January 2, 2000 2,000 $20 $7,040,294 $ -- $(2,746,997) $ 4,293,317 Comprehensive Income: Net income -- -- -- -- 7,914,101 7,914,101 Comprehensive ----------- Income 7,914,101 --------------------------------------------------------------- Balance at December 31, 2000 2,000 20 7,040,294 -- 5,167,104 12,207,418 Comprehensive Income: Net income -- -- -- -- 3,575,627 3,575,627 Comprehensive ----------- Income 3,575,627 --------------------------------------------------------------- Balance at December 30, 2001 2,000 20 7,040,294 -- 8,742,731 15,783,045 Comprehensive Income: Net income -- -- -- -- 14,540,484 14,540,484 Pension plan additional minimum liability, net of taxes -- -- -- (114,637) -- (114,637) Comprehensive ----------- Income 14,425,847 --------------------------------------------------------------- Balance at December 29, 2002 2,000 $20 $7,040,294 $(114,637) $23,283,215 $30,208,892 =============================================================== See accompanying notes. 4 Durel Corporation Statements of Cash Flows Years Ended ------------------------------------------- December 29 December 30 December 31 2002 2001 2000 ------------------------------------------- Operating activities Net income $ 14,540,484 $ 3,575,627 $ 7,914,101 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,171,165 2,920,263 1,807,891 Noncash property, plant and equipment charges 785,260 -- (58,062) Provision for doubtful accounts 100,000 50,000 175,000 Provision for inventory allowances -- 640,000 1,360,000 Deferred income tax provision (benefit) 296,646 295,953 (812,599) Deferred pension benefits (597,507) (225,422) (10,000) Changes in operating assets and liabilities: Accounts receivable (3,451,116) 6,171,823 (7,557,464) Inventories (145,376) 1,197,506 (5,372,107) Prepaid expenses and other 200,931 (117,080) (92,000) Accounts payable 2,366,395 (1,241,160) 1,334,496 Accrued payroll and related expenses 1,594,799 (2,794,136) 3,192,021 Accrued liabilities 279,107 (400,725) 197,841 Income taxes payable (139,595) 872,387 689,549 Payable to shareholders (154,917) (1,756,580) 1,851,190 ------------------------------------------ Net cash provided by operating activities 18,846,276 9,188,456 4,619,857 Investing activities Purchase of property, plant, and equipment (286,690) (3,965,344) (14,521,383) Decrease in accounts payable relating to purchases of property, plant and equipment (25,817) (267,395) (105,621) Proceeds from disposal of property, plant and equipment -- -- 248,413 Net cash used in investing ------------------------------------------ activities (312,507) (4,232,739) (14,378,591) Financing activities Repayments of long-term debt (15,327,740) (2,318,539) (763,553) Proceeds from long-term debt 3,574,186 1,000,000 4,500,000 (Repayments to) borrowings from shareholders (5,000,000) (1,500,000) 6,000,000 Repayments of payable to shareholders -- (1,700,000) (43,996) Net cash (used in) provided by financing -------------------------------------------- activities (16,753,554) (4,518,539) 9,692,451 Net increase (decrease) in -------------------------------------------- cash and cash equivalents 1,780,215 437,178 (66,283) Cash and cash equivalents at beginning of year 1,833,355 1,396,177 1,462,460 Cash and cash equivalents at -------------------------------------------- end of year $ 3,613,570 $ 1,833,355 $ 1,396,177 ============================================ See accompanying notes. 5 Durel Corporation Notes to Financial Statements December 29, 2002 1. Accounting Policies Description of Business Durel Corporation (the "Company") was incorporated on June 1, 1988, in the state of Delaware. The Company operates in one operating segment and engages primarily in the research, development, manufacture and sale of electroluminescent products. The Company is a joint venture of Rogers Corporation and Minnesota Mining and Manufacturing Company (the "Shareholders"), with each owning 50 percent of the outstanding common stock. The Company's fiscal year is comprised of 52 or 53 weeks, ending on the Sunday nearest December 31. Fiscal year 2002 ended on December 29, 2002, fiscal year 2001 ended on December 30, 2001, and fiscal year 2000 ended on December 31, 2000. All were 52 week years. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Fair Value of Financial Instruments The Company's cash and cash equivalents, accounts receivable, accounts payable and long-term debt represent financial instruments as defined by statement of Financial Accounting Standards No. 107, Disclosures About Fair Value of Financial Instruments. The carrying value of these financial instruments is a reasonable approximation of fair value, due to their current maturities. Cash and Cash Equivalents Cash and cash equivalents consist of checking accounts and funds invested in overnight repurchase agreements and are stated at cost, which approximates market value. The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Allowance for Doubtful Accounts In circumstances where the Company is made aware of a specific customer's inability to meet its financial obligations, a reserve is established. The majority of accounts are individually evaluated on a regular basis and appropriate reserves are established as deemed appropriate. The remainder of the reserve is general in nature and is based upon historical trends and current market assessments. 6 Durel Corporation Notes to Financial Statements (continued) 1. Accounting Policies (continued) Inventories Inventories are carried at the lower of cost or market using the first-in, first-out (FIFO) method. Revenue Recognition Revenue is recognized upon delivery of goods to customers, when persuasive evidence of an arrangement exists, the price is fixed or determinable, and collection is reasonably assured. Property, Plant, and Equipment Property, plant, and equipment is stated at cost. Depreciation and amortization is computed using the straight-line method over the estimated useful lives ranging generally from two to 35 years. Impairment of Long-Lived Assets The Company periodically evaluates its long-lived assets used in operations for impairment. Impairment losses would be recorded when events and circumstances indicate that an asset might be impaired and the undiscounted cash flows to be generated by that asset are less than the carrying amounts of the asset. Shipping Costs Costs of shipping products to customers are included in costs of goods sold. Income Taxes The Company utilizes the liability method of accounting for income taxes as set forth in SFAS No. 109, Accounting for Income Taxes. Under the liability method, deferred taxes are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Recognition of deferred tax assets is limited to amounts considered by management to be more likely than not of realization in future periods. 7 Durel Corporation Notes to Financial Statements (continued) 1. Accounting Policies (continued) Reclassifications Certain amounts in the prior year financial statements have been reclassified to conform with the current year presentation. Recently Issued Accounting Standards In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144 (SFAS No. 144), Accounting for the Impairment or Disposal of Long-Lived Assets, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes Statement of Financial Accounting Standards No. 121 (SFAS No. 121), Accounting for the Impairment or Disposal of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations for a Disposal of a Segment of a Business. SFAS No. 144 was effective for fiscal years beginning after December 15, 2001, with earlier application encouraged. The Company's adoption of SFAS No. 144 had no effect on the Company's financial position or results of operations. In June 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 146 (SFAS No. 146), Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 supersedes Emerging Issues Task Force No. 94-3 (EITF 9403), Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring). SFAS 146 eliminates the provisions of EITF 94-3 that required a liability to be recognized for certain exit or disposal activities at the date an entity committed to an exit plan. SFAS No. 146 requires a liability for costs associated with an exit or disposal activity to be recognized when the liability is incurred. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. The Company does not expect the adoption of this statement to have a material impact on its results of operations or financial position. 2. Capitalization The Company believes current and future cash flows will be sufficient to fund the operations and growth of the business. Should the need arise for additional funding, the Company's Board of Directors will evaluate the Company's liquidity and determine the timing and form for obtaining such funds. Accordingly, the Company is restricted from issuing capital shares or securities convertible into capital shares without the consent of the Shareholders. 8 Durel Corporation Notes to Financial Statements (continued) 3. Inventories Inventories consist of the following: December 29 December 30 2002 2001 -------------------------------- Raw materials $ 4,159,303 $ 4,240,203 Work in process 3,728,035 3,764,640 Finished goods 995,591 732,710 -------------------------------- 8,882,929 8,737,553 Less allowance for obsolescence and net realizable value 2,500,000 2,500,000 -------------------------------- $ 6,382,929 $ 6,237,553 ================================ 4. Property, Plant, and Equipment Property, plant, and equipment consist of the following: December 29 December 30 2002 2001 ------------------------------- Land $ 658,506 $ 658,506 Building and improvements 16,566,863 16,767,353 Machinery and equipment 17,541,213 17,992,724 Office equipment and furniture 1,369,795 1,216,364 ------------------------------- 36,136,377 36,634,947 Less accumulated depreciation 14,908,340 11,737,175 ------------------------------- $21,228,037 $24,897,772 =============================== The Company wrote down certain of its fixed assets that were no longer needed in its operations. This resulted in a charge of approximately $785,000 in 2002, which is included in cost of goods sold in the the statement of income. 9 Durel Corporation Notes to Financial Statements (continued) 5. Transactions with Shareholders In connection with the sale of the Company's products, the Company reimburses one of the Shareholders for selling costs and pays no commission. Selling costs reimbursed to this Shareholder were approximately $3,400, $237,000 and $252,000 for the years ended December 29, 2002, December 30, 2001, and December 31, 2000, respectively. The other Shareholder bears a large portion of all selling costs and receives a commission ranging from 4 to 11 percent. Commissions earned by this Shareholder were approximately $3,115,000, $2,365,000 and $2,864,000 for the years ended December 29, 2002, December 30, 2001, and December 31, 2000, respectively. The financial statements of the Company include allocations from the Shareholders for direct expenditures made on its behalf. In addition, the Shareholders have charged the Company costs for research and development, marketing, and general corporate overhead based upon estimates of expenses incurred for the benefit of the Company. Total allocations and charges from the Shareholders aggregated approximately $4,067,000, $3,320,000 and $3,331,000 for the years ended December 29, 2002, December 30, 2001, and December 31, 2000, respectively. The Company's long-term payable to the Shareholders in the amount of $656,557 at December 29, 2002, and December 30, 2001, represents charges for past services provided to the Company by the Shareholders. The amount is noninterest-bearing and has no definitive repayment terms. The amount has been classified as current at December 31, 2002 since the Company repaid the amount in February 2003. On September 24, 1999, the Company executed a promissory note with one of its Shareholders under which the Shareholder will make funds available to the Company from time to time. This promissory note was amended on September 22, 2000, and September 2001, to ultimately increase the borrowing amount under the note to $8.0 million and extend the maturity date through September 21, 2002. The amended and restated note accrued interest at prime. The Company had $5.0 million outstanding under this note on December 30, 2001, and has repaid all principal and accrued interest prior to the maturity date in 2002. Interest paid during the years ended December 29, 2002, December 30, 2001, and December 31, 2000, was $51,000, $477,000 and $19,444, respectively. 10 Durel Corporation Notes to Financial Statements (continued) 6. Long-Term Debt On January 4, 1999, the Company converted a $10 million unsecured revolving line of credit agreement with a bank into a term loan. The loan was guaranteed by one of the Shareholders, bearing interest at a fixed rate of LIBOR plus 1.05 percent. On January 2, 2002, the Company amended this term loan and merged the outstanding balance of the term loan in the amounts of $7,753,554 and $2,246,446 outstanding under the Company's unsecured revolving line of credit into a new term loan in the amount of $10 million. Principal and interest were payable in monthly installments beginning February 1, 2002 through January 2, 2005, when all remaining principal and unpaid interest was due and payable. On January 3, 2002, the Company also entered into an interest rate swap agreement to fix the effective interest rate on the term loan at 5.44 percent. On December 11, 2002, the company paid all principal and accrued interest on the term loan. In addition, the Company paid $390,600 to settle its interest rate swap agreement with the bank, which is included in interest expense in 2002. The Company's $5.4 million line of credit was also terminated in connection with the pay-off of the debt. Interest paid during the years ended December 29, 2002, December 30, 2001, and December 31, 2000 was $655,861, $856,502 and $778,883, respectively. 7. Income Taxes The provision for income taxes is as follows: Years Ended --------------------------------------------- December 29 December 30 December 31 2002 2001 2000 --------------------------------------------- Current expense: Federal $ 6,825,000 $ 1,603,380 $ 2,724,451 State 368,354 24,667 452,100 Deferred expense (benefit): Federal 259,565 358,953 (743,815) State 37,081 (63,000) (68,784) --------------------------------------------- $ 7,490,000 $ 1,924,000 $ 2,363,952 ============================================= 11 Durel Corporation Notes to Financial Statements (continued) 7. Income Taxes (continued) The reconciliation of the provision for income taxes with expected income taxes based on statutory income tax rates is as follows: Years Ended ------------------------------------------- December 29 December 30 December 31 2002 2001 2000 ------------------------------------------- Expected income tax provision at statutory rates $ 7,711,000 $ 1,869,873 $ 3,494,538 State income taxes, net of federal benefit (excluding state credits) 742,000 193,874 536,683 Nondeductible expenses 16,000 28,575 -- Research and development credits (189,000) (168,322) -- Extraterritorial income exclusion (790,000) -- -- Decrease in valuation allowance -- -- (1,569,000) Other -- -- (98,269) ------------------------------------------ $ 7,490,000 $ 1,924,000 $ 2,363,952 ========================================== The valuation allowance decreased by $1,569,000 to $0 during the year ended December 31, 2000, due to operating income sustained during the year. For financial reporting purposes, no valuation allowance has been recognized to offset the deferred tax assets as management believes that it is more likely than not that all tax assets will be recovered. 12 Durel Corporation Notes to Financial Statements (continued) 7. Income Taxes (continued) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets are as follows: Years Ended ----------------------------------------- December 29 December 30 December 31 2002 2001 2000 ----------------------------------------- Deferred tax assets: Asset valuation allowances $ 1,320,000 $ 1,160,000 $ 884,000 Nondeductible accruals 543,000 516,791 706,324 Alternative minimum tax credit -- -- 388,331 Research and development credits -- -- 70,000 State tax credits -- 48,158 -- ----------------------------------------- 1,863,000 1,724,949 2,048,655 Deferred tax liabilities: Basis in fixed assets 1,235,000 1,012,303 1,040,056 Other 135,576 -- -- ----------------------------------------- 1,370,576 1,012,303 1,040,056 ----------------------------------------- Net deferred taxes $ 492,424 $ 712,646 $ 1,008,599 ========================================= The Company paid income taxes of approximately $6,310,000, $1,068,000 and $2,494,000 during the years ended December 29, 2002, December 30, 2001, and December 31, 2000, respectively. 13 Durel Corporation Notes to Financial Statements (continued) 8. Concentrations of Credit Risk The Company's revenue is derived from customers primarily in North America, the Pacific Rim and Europe. The amount of total export sales by geographic area was as follows: Years Ended ----------------------------------------- December 29 December 30 December 31 2002 2001 2000 ----------------------------------------- Pacific Rim $70,705,000 $44,924,000 $60,599,000 Europe 801,000 1,292,000 1,184,000 Other 152,000 209,000 549,000 ----------------------------------------- Total export sales $71,658,000 $46,425,000 $62,332,000 ========================================= The Company performs ongoing credit evaluations of its customers' financial condition and generally requires no collateral from its customers. The following individual customers comprised more than 10 percent of net sales and accounts receivable: Years Ended ----------------------------------------- December 29 December 30 December 31 2002 2001 2000 ----------------------------------------- Net sales: Customer: A 23% 25% 13% B 14 3 7 C 8 11 5 ----------------------------------------- 45% 39% 25% ========================================= Net accounts receivable: Customer: A 37% 32% 24% B 15 13 10 C 3 11 3 ----------------------------------------- 55% 56% 37% ========================================= 14 Durel Corporation Notes to Financial Statements (continued) 9. Retirement Plan The Company sponsors a noncontributory defined benefit pension plan (the "Plan") covering all employees meeting eligibility requirements. The Company intends to make contribution to fund this Plan at such times and in amounts to at least meet the Employment Retirement Income Security Act's minimum funding requirements. The following sets forth the Plan's funded status and amounts recognized in the Company's balance sheets and statements of operations at December 29, 2002, December 30, 2001, and December 31, 2000: 2002 2001 2000 --------------------------------- Components of net periodic benefit cost: Service cost $ 243,934 $ 329,256 $ 269,425 Interest cost 208,817 184,817 165,864 Expected return on plan assets (202,984) (136,079) (94,659) Amortizations and deferrals 2,386 12,716 26,466 Amortization of transition asset 45,188 45,188 45,188 ---------------------------------- Net periodic benefit cost $ 297,341 $ 435,898 $ 412,284 ================================== Change in plan assets: Fair value of plan assets at beginning of year $1,993,520 $1,275,249 $ 962,099 Actual return on plan assets (293,855) 88,785 79,258 Employer contributions 894,848 661,320 241,637 Benefit payments (42,778) (31,834) (7,745) ---------------------------------- Fair value of plan assets at end of year $2,551,735 $1,993,520 $1,275,249 ================================== Change in benefit obligation: Benefit obligation at beginning of year $3,060,210 $2,682,281 $2,373,407 Service cost 243,934 329,256 269,425 Interest cost 208,817 184,817 165,864 Actuarial gains 20,135 (104,310) (118,670) Benefit payments (42,778) (31,834) (7,745) ---------------------------------- Benefit obligation at end of year $3,490,318 $3,060,210 $2,682,281 ================================== 15 Durel Corporation Notes to Financial Statements (continued) 9. Retirement Plan (continued) 2002 2001 2000 ------------------------------------- Reconciliation of funded status: Funded status $ (938,583) $(1,066,690) $(1,407,032) Unrecognized net gain 1,008,476 493,888 563,620 Unrecognized prior service cost -- -- -- Unrecognized transition asset 563,036 608,224 653,412 -------------------------------------- Prepaid (accrued) benefit cost at end of year $ 632,929 $ 35,422 $ (190,000) ====================================== Amounts recognized in the balance sheet consist of: Prepaid (accrued) benefit cost $ 632,929 $ 35,422 $ (190,000) Accrued benefit liability (754,097) (236,676) (460,046) Intangible asset 563,036 236,676 460,046 Accumulated other comprehensive income 191,061 -- -- -------------------------------------- Net amount recognized at end of year $ 632,929 $ 35,422 $ (190,000) ====================================== In accordance with SFAS No. 87, the Company has recorded an additional minimum pension liability for underfunded plans of $191,061 for 2002, representing the excess of unfunded accumulated benefit obligations over previously recorded pension liabilities. A corresponding amount is recognized as an intangible asset except to the extent that these additional liabilities exceed related unrecognized prior service cost and net transition obligation, in which case the increase in liabilities is charged directly to shareholders' equity, net of tax. There were no additional minimum liabilities recorded in 2001 or 2000. 2002 2001 2000 ------------------------- Assumptions as of year-end: Discount rate 7.00% 7.25% 7.00% Expected rate of return on plan assets 8.50% 8.50% 8.50% Rate of compensation increase 4.00% 4.00% 4.00% 16 Durel Corporation Notes to Financial Statements (continued) 10. Employee Benefit Plans The Company maintains a 401(k) Retirement Plan (the "401(k) Plan") covering all employees effective upon hire. Under the terms of the 401(k) Plan, employees may contribute up to 18 percent of their annual compensation, subject to Internal Revenue Service limitations. During the years ended December 29, 2002, December 30, 2001, and December 31, 2000, the Company matched 50 percent of employee contributions up to 6 percent of the employee's compensation for the pay period for which such contribution was made. Contribution expense during the years ended December 29, 2002, December 30, 2001, and December 31, 2000, was approximately $194,000, $215,000 and $228,000, respectively. The Company has also accrued a two percent profit sharing contribution to the 401(k) Plan of $240,000 and $197,000 at December 29, 2002 and December 30, 2001, respectively. Payment of these discretionary contributions is made within nine months after year-end in accordance with IRS regulations. Certain employees also participate in short-term and long-term incentive plans (Incentive Plans). Under the terms of the Incentive Plans, eligible employees are compensated based on profits, as defined, and the cumulative return on investment of the Company, as defined, as well as an additional compensation component based on the appreciation in the prices of the Shareholders' stock. The Company recognized expense of $3,113,000, $15,000 and $3,197,000 for the years ended December 29, 2002, December 30, 2001, and December 31, 2000, respectively, related to the Incentive Plans. 11. Contingencies The Company was party to a legal proceeding, which arose out of the ordinary course of business. On February 17, 2000, this lawsuit resulted in a judgment of $49,882,000 for the Company in damages for patent infringement. The other party in the suit immediately filed a notice of appeal and countersuits, which resulted in overturning the judgment in 2001. On November 30, 2001, the Company entered into a settlement agreement to settle all outstanding patent litigation. The Company paid $1.7 million in 2001 related to this settlement and has agreed to enter into a supply agreement with the other party within 18 months from the date of settlement. Should negotiations to enter the supply agreement fail, the Company will be obligated to pay the other party a final payment of $300,000. This amount has been accrued at December 31, 2002, as the Company expects to make this payment in May 2003. Selling and administrative expenses include legal and settlement fees of $307,000, $3,043,000, and $2,090,000 in the years ended December 29, 2002, December 30, 2001, and December 31, 2000, respectively, incurred in defense of the Company's patents and settlement of the lawsuits above. 17 EX-6 8 edgassetpurchagree.txt ASSET PURCHASE AGREEMENT EXECUTIVE VERSION ASSET PURCHASE AGREEMENT This ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into as of this 19th day of September, 2002 by and between Vyncolit North America Inc., a Delaware corporation ("Buyer"), Perstorp Composites Holding B.V., a company organized under the laws of the Netherlands ("Parent") and Rogers Corporation, a Massachusetts corporation ("Seller"). Each of Buyer, Parent and Seller is sometimes referred to individually herein as a "Party" and collectively as the "Parties". WHEREAS, Seller desires to sell or license to Buyer, and Buyer desires to purchase or license from Seller, certain of the assets, properties, rights and business of Seller for the consideration and upon the terms and conditions, set forth in this Agreement. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending, to be legally bound, hereby agree as follows: ARTICLE I DEFINITIONS For purposes of this Agreement, the terms listed in Exhibit I shall have the meanings specified or referred to therein. ARTICLE II THE ASSETS AND LIABILITIES 2.1 Purchase and Sale of Assets. At the Closing, Seller shall (a) sell, transfer, convey, assign and deliver (and in the case of certain Accounts Receivable and Inventories, will cause Rogers N.V. and Rogers Singapore to sell, transfer, convey, assign and deliver) to Buyer, and Parent shall cause Buyer to purchase from Seller or such Affiliates, all of Seller's or such Affiliates' right, title and interest in and to the Business as a going concern, including all of the Assets, free and clear of all Encumbrances, except for Permitted Encumbrances and (b) guarantee that WPI will grant Buyer (i) an exclusive, worldwide, royalty-bearing license to use the Licensed Intellectual Property pursuant to the Intellectual Property Agreement and (ii) a worldwide and royalty-free license to use the Shared Know-How pursuant to the Shared Know-How Agreement. "Assets" shall mean all the assets, tangible and intangible, of Seller and its Affiliates, wherever located, used by Seller or its Affiliates in the Business, but shall not include the Excluded Assets, the Licensed Intellectual Property or the Shared Know-How. "Business" shall have the meaning set forth in the Intellectual Property Agreement. Without limiting the generality of the foregoing, the Assets shall include the following: (a) all real property owned by Seller and used primarily in connection with the Business (collectively, the "Real Estate"), as more particularly described in Schedule 2.1(a), and all buildings, improvements, other constructions, construction- in-progress and fixtures now or hereafter located on the Real Estate (collectively, the "Improvements"), together with, as they 1 relate to the Real Estate, all right, title and interest of Seller or its Affiliates in and to (i) all options, easements, servitudes, rights-of-way, privileges, appurtenances and other rights associated therewith, (ii) any land lying in the bed of any street, open or proposed, public or private, in front of or adjoining the Real Estate, (iii) any award made or to be made in lieu thereof and in and to any unpaid award for damage to the Real Estate by reason of any change of grade of any street, and the buildings and improvements located thereon, and (iv) any transferable Governmental Authorization, license or certificate of occupancy used in or relating to the ownership, occupancy or operation of the Real Estate; (b) all Tangible Personal Property of every kind and nature used primarily in connection with the Business, including, without limitation, the Tangible Personal Property listed on Schedule 2.1(b); (c) all Inventories that are existing as of the Effective Time (including, without limitation, Inventory purchased from Affiliates of Seller), the current categories, locations and amounts of which, as of July 28, 2002, are set forth on Schedule 2.1(c); (d) all Accounts Receivable that are existing as of the Effective Time (other than any Accounts Receivable from Affiliates of Seller), including, without limitation, all those Accounts Receivable listed on Schedule 2.1(d) as of July 28, 2002 which have not been collected in the Ordinary Course of Business; (e) all intangible property of every kind and nature used in connection with the Business (collectively, the "Intangible Property") other than the Licensed Intellectual Property and the Shared Know-How, including, without limitation, the following: (i) all Copyrights and all other proprietary rights and all applications and registrations therefor and licenses or other rights thereof that are used by Seller primarily in connection with the Business; (ii) all transferable Government Authorizations relating to the operation of the Business as presently conducted by Seller, which transferable Governmental Authorizations are listed in Schedule 2.1(e)(ii); (iii) all benefits, proceeds or any other amounts payable under any policy of insurance maintained by Seller with respect to destruction of or damage to any of the Assets (but only to the extent that such destruction or damage does not reduce the book value of the Asset or Assets in question for purposes of determining Net Asset Value); and (iv) all deposits held by Seller in connection with future services to be rendered by Seller in connection with the Business, provided the service obligation in question has been assumed by Buyer. (f) all of the Business Contracts, including those listed on Schedule 4.19(a) but excluding any such Business Contract that also appears on Schedule 4.15(a)); and 2 (g) all the books, Records, forms and files relating to the operations of the Business or reflecting the operations thereof which are presently located at the Real Estate, including copies of all Records, books, forms and files relating to human resource and other matters as to which Seller is required to retain the originals under applicable Legal Requirements, but excluding therefrom Records, books, forms and files reflecting the operations of Seller as a whole, and further excluding Records, books, forms and files which Seller is required to maintain private under applicable Legal Requirements. 2.2 Excluded Assets. Notwithstanding anything to the contrary contained in Section 2.1 or elsewhere in this Agreement, the following assets of Seller (collectively, the "Excluded Assets") are not part of the sale and purchase contemplated hereunder, are excluded from the Assets and shall remain the property of Seller after the Closing: (a) all cash and cash equivalents; (b) all claims for refund of Taxes and other governmental charges of whatever nature; (c) the assets identified on Schedule 2.2(c) hereto, which assets relate to the Excluded Products (as defined in the Intellectual Property Agreement); (d) the Excluded Technology (as defined in the Intellectual Property Agreement); (e) all benefits, proceeds or any other amounts payable under any policy of insurance maintained by Seller, except as may otherwise be provided in Section 2.1(e)(iii) above; (f) all rights of Seller arising under this Agreement and any other document relating to the Contemplated Transactions; (g) rights under product warranty Contracts against vendors to the extent needed to reimburse Seller for expenses incurred by Seller in connection with product warranty and product liability claims for goods manufactured or sold prior to the Effective Time; (h) all rights to and with respect to the assets associated with Seller's Pension Plans; (i) all books, Records, forms and files relating to human resource and other matters as to which Seller is required to retain originals or is required to maintain private under applicable Legal Requirements; (j) all Contracts with employees of the Business regarding terms of employment and confidentiality obligations of such employees and all rights to enforce such Contracts; provided, however, that other than in connection with the Excluded Products, Seller shall have no right to enforce such confidentiality obligations against Hired Active Employees in connection with the disclosure to Buyer or its Representatives of confidential information relating to the Business or the use of such confidential information in connection with the conduct of the Business by Buyer after Closing; 3 (k) the Shared Know-How (which is the subject of the Shared Know-How Agreement); (l) assets located at Seller's offices in Rogers, Connecticut which may be used in connection with the Business, but are used primarily otherwise than in connection with the Business, and which are generally described on Schedule 2.2(1); (m) Accounts Receivable which have been written off for accounting purposes and which are not reflected on the Closing Balance Sheet; and (n) the names "Rogers" or "Rogers Corporation," or any logos or designs incorporating the names Rogers or Rogers Corporation. 2.3 Assumed Liabilities. On the Closing Date, Buyer shall assume and agree to discharge as and when due only the following Liabilities of Seller (the "Assumed Liabilities"): (a) any trade account payables arising out of or relating to the Business (other than any payable to any Affiliate of Seller) (the "Payables"), including, without limitation, all those categories and classes of Payables listed on Schedule 2.3(a); (b) subject to Section 2.4(b), any Liability arising after the Effective Time under the Business Contracts and the Governmental Authorizations set forth on Schedule 2.1(e)(ii); (c) the accrual for employee benefit matters set forth and described in reasonable detail on Schedule 2.3(c) and accruals relating thereto arising after the date hereof in the Ordinary Course of Business consistent with past practice (the "Benefits Accrual"); and (d) the accruals for matters set forth and described in reasonable on Schedule 2.3(d) and accruals relating thereto arising after the date hereof in the Ordinary Course of Business consistent with past practice (the "Other Accruals"). 2.4 Retained Liabilities. Buyer shall not assume or in any way be liable for the payment, performance and discharge of any Liabilities of Seller except as specifically provided in Section 2.3. Without limiting the generality of the foregoing, Buyer shall not assume and Seller shall retain and shall punctually pay, perform and discharge when due, the following Liabilities of Seller (collectively, the "Retained Liabilities"): (a) any and all Liabilities arising out of or relating to products of the Business to the extent manufactured (i.e., carried in finished goods inventory) or sold prior to the Effective Time, including without limitation any and all Liabilities arising from the use by Seller of asbestos or other Hazardous Materials in such products; (b) any and all Liabilities under any Business Contract assumed by Buyer pursuant to Section 2.3(b) that arises after the Effective Time to the extent that such Liability arises out of or relates to any Breach that occurred prior to the Effective Time; 4 (c) except to the extent taken into account in determining Net Asset Value, any and all Liabilities for Taxes, including (i) any Taxes arising as a result of Seller's operation of the Business or ownership of the Assets prior to the Effective Time, and (ii) any deferred Taxes of any nature; (d) any and all Liabilities to the extent arising out of or relating to any violation of Occupational Safety and Health Laws by Seller in connection with the conduct of the Business prior to the Effective Time; (e) any and all Environmental Liabilities to the extent arising out of or relating to the operation of the Business prior to the Effective Time or the leasing, ownership or operation of real property used in connection with the Business prior to the Effective Time; (f) any and all Liabilities under the Employee Plans or relating to payroll, vacation, sick leave, workers' compensation, unemployment benefits, pension benefits, employee stock option or profit-sharing plans, health care plans or benefits, severance or any other employee plans or benefits of any kind for Seller's employees of the Business or former employees of the Business or both, which is not taken into account in determining Net Asset Value; (g) any and all Liabilities of Seller to any Affiliate of Seller; (h) any and all Liabilities incurred by or on behalf of Seller or its Affiliates arising from the transactions contemplated by this Agreement, including, without limitation, all legal fees, costs and disbursements payable in connection therewith; and (i) any and all Liabilities of Seller other than the Assumed Liabilities. ARTICLE III CONSIDERATION; CLOSING 3.1 Consideration. (a) The purchase price for the Assets (as adjusted, the "Purchase Price") shall equal the Closing Net Asset Value, subject to the adjustments provided in this Article III, and shall be payable as provided in this Article III. In no event shall the sum of the Purchase Price and the Royalty Payments exceed the Consideration Cap. The "Consideration Cap" shall be determined as follows: (a) if the Closing Net Asset Value equals $21,000,000, the Consideration Cap shall equal $39,500,000; (b) if the Closing Net Asset Value is less than $21,000,000, the Consideration Cap shall be reduced, dollar for dollar, by the amount that the Closing Net Asset Value is less than $21,000,000; and (c) if the Closing Net Asset Value is greater than $21,000,000, the Consideration Cap shall be increased, dollar for dollar, by the amount that the Closing Net Asset Value is greater than $21,000,000. (b) The Purchase Price shall be payable as follows: 5 (i) At the Closing, Buyer shall deliver to Seller, as Seller may direct, by wire transfer of immediately available funds to an account or accounts designated by Seller, an amount equal to $10,500,000 (the "Closing Payment"); (ii) At the Closing, Buyer shall deliver to Seller a promissory note substantially in the form of Exhibit 3.1(b)(ii) (the "Note") with an aggregate principal amount equal to $10,500,000; and (iii) The Adjustment Amount shall be paid in accordance with Section 3.6. 3.2 Royalty Payments. Buyer shall make royalty payments to WPI, in the amounts and at such times as set forth in the Intellectual Property Agreement (the aggregate amount of such payments, the "Royalty Payments"), by wire transfer of immediately available funds to an account or accounts designated by WPI; provided, however, that in no event shall the Royalty Payments exceed $18,500,000. 3.3 Closing. The purchase and sale provided for in this Agreement (the "Closing") will take place at the offices of Wiggin & Dana, One City Place, 185 Asylum Street, Hartford, Connecticut, commencing at 9:00 a.m. (local time) on the first Monday following both (i) the satisfaction or waiver of all conditions to the obligations of the Parties to consummate the Contemplated Transactions (other than conditions with respect to actions the Parties will take at the Closing itself) and (ii) the end of a bi-weekly payroll period of Seller, unless Buyer and Seller otherwise agree (such date, the "Closing Date"). For the purposes of passage of title and risk of loss, allocation of expenses, adjustments and other economic or financial effects of the transactions contemplated hereby, the Closing when completed shall be deemed to have occurred at 10:00 p.m. local time (the "Effective Time") on the Sunday prior to the Closing. 3.4 Closing Obligations. In addition to any other documents to be delivered under other provisions of this Agreement, at the Closing: (a) Seller shall deliver to Buyer, or shall cause its appropriate Affiliates to deliver to Buyer: (i) bills of sale for all of the Assets in form and substance reasonably acceptable to Buyer and its counsel (the "Bills of Sale"), executed by Seller, and Rogers N.V. or Rogers Singapore, as appropriate; (ii) an assignment of all of the Assets that are intangible personal property in form and substance reasonably acceptable to Buyer and its counsel, which assignment shall also contain Buyer's undertaking and assumption of the Assumed Liabilities (the "Assignment and Assumption Agreement"), executed by Seller; (iii) for each interest in Real Estate: (A) a recordable, special warranty deed, an Assignment and Assumption of Lease or such other appropriate document or instrument of transfer, as the case may require, each in form and substance reasonably satisfactory 6 to Buyer and its counsel and executed by Seller; and (B) any and all plans and specifications pertaining to, and required permanent certificates of occupancy for, the Improvements; (iv) the Intellectual Property Agreement substantially in the form of Exhibit 3.4(a)(iv) (the "Intellectual Property Agreement"), executed by Seller and WPI, pursuant to which WPI grants Buyer an exclusive, worldwide, royalty-bearing license to use the Patent Rights and Inventions, Know-How and Trademarks (all as defined in the Intellectual Property Agreement, and together as the "Licensed Intellectual Property"); (v) the Shared Know-How Agreement substantially in the form of Exhibit 3.4(a)(v) (the "Shared Know-How Agreement"), executed by WPI and Seller; (vi) a security agreement substantially in the form of Exhibit 3.4(a)(vi) (the "Security Agreement"), executed by Seller; (vii) the remediation side agreement substantially in the form of Exhibit 3.4(a)(vii) (the "RSA"), and a side agreement relating to VOC RACT consent order in form and substance reasonably acceptable to the Parties (the "Side Agreement")executed by Seller; (viii) all forms required under the Connecticut Transfer Act, executed by Seller; (ix) such other deeds, bills of sale, assignments, certificates of title, transfer tax documents and other instruments of transfer and conveyance as may reasonably be requested by Buyer, each in form and substance reasonably satisfactory to Buyer and its counsel and executed by Seller or its appropriate Affiliate; (x) a supplement to the Disclosure Schedule, to update the Disclosure Schedule through the Effective Time; (xi) a certificate executed by Seller as to the accuracy of its representations and warranties as of the date of this Agreement and as of the Closing, in accordance with Section 8.1, and as to its compliance with and performance of their covenants and obligations to be performed or complied with at or before the Closing, in accordance with Section 8.2; and (xii) a certificate of the corporate secretary of Seller certifying and attaching all requisite resolutions or actions of Seller's board of directors approving the execution and delivery of this Agreement, any other document relating to the Contemplated Transactions, and the consummation of the Contemplated Transactions and certifying the incumbency and signatures of the officers of Seller executing this Agreement and any other document relating to the Contemplated Transactions. (b) Buyer shall deliver to Seller and/or WPI, as applicable: (i) the Closing Payment; 7 (ii) the Note, executed by Buyer; (iii) the Assignment and Assumption Agreement, executed by Buyer; (iv) the Intellectual Property Agreement, executed by Buyer; (v) the Shared Know-How Agreement, executed by Buyer; (vi) the Security Agreement, executed by Buyer; (vii) a mortgage on the Real Estate substantially in the form of Exhibit 3.4(b)(vii)(the "Mortgage"), executed by Buyer; (viii) the RSA and Side Agreement, executed by Buyer; (ix) a certificate executed by Buyer as to the accuracy of its representations and warranties as of the date of this Agreement and as of the Closing, in accordance with Section 9.1, and as to its compliance with and performance of its covenants and obligation to be performed or complied with at or before the Closing, in accordance with Section 9.2; and (x) a certificate of the corporate secretary of Buyer certifying and attaching all requisite resolutions or actions of such Party's board of directors approving the execution and delivery of this Agreement, any other document relating to the Contemplated Transactions and the consummation of the Contemplated Transaction, and certifying the incumbency and signatures of the officers of such Party executing this Agreement and any other document relating to the Contemplated Transactions. (c) Parent shall deliver to Seller and/or WPI, as applicable: (i) a guarantee of Buyer's obligations to make the Royalty Payments and the payments required under the Note substantially in the form of Exhibit 3.4(c)(i) (the "Guarantee"); (ii) a certificate executed by Parent as to the accuracy of its representations and warranties as of the date of this Agreement and as of the Closing, in accordance with Section 9.1, and as to its compliance with and performance of its covenants and obligation to be performed or complied with at or before the Closing, in accordance with Section 9.2; and (iii) a certificate of the corporate officer of Parent certifying and attaching all requisite resolutions or actions of such Party's board of directors approving the execution and delivery of this Agreement, any other document relating to the Contemplated Transactions and the consummation of the Contemplated Transaction, and certifying the 8 incumbency and signatures of the officers of such Party executing this Agreement and any other document relating to the Contemplated Transactions. 3.5 Adjustment Procedure. (a) "Net Asset Value" as of a given date shall mean an amount determined in accordance with this Section 3.5 and equal to the difference between (x) the book value of the Assets calculated in accordance with GAAP; provided, however, that Inventory will be valued in accordance with the definition thereof in Exhibit I to this Agreement, minus (y) the sum of (A) the amount of Payables included in the Assumed Liabilities, (B) the amount of the Benefit Accruals included in the Assumed Liabilities and (C) the amount of Other Accruals included in the Assumed Liabilities. (b) Within thirty (30) days after Closing, Seller shall prepare, with the assistance of Buyer, and deliver to Buyer a balance sheet (the "Closing Balance Sheet") identifying the Net Asset Value as of the Effective Time (the "Closing Net Asset Value") and any work papers and other documents and information used by Seller in preparing the Closing Balance Sheet. A physical inventory shall be conducted by Seller, with the assistance of Buyer, on or shortly before the Closing Date, and such physical inventory, together with the Records of the Business, shall form the basis for Seller's determination of quantities of Inventory on the Closing Balance Sheet. (c) Buyer shall have the right to conduct an audit of the Closing Balance Sheet. If within forty-five (45) days following delivery of the Closing Balance Sheet, Buyer has not given Seller written notice of its objection as to the calculation of Closing Net Asset Value (which notice shall state the basis of its objection), then such Closing Net Asset Value shall be binding and conclusive on the Parties and be used in computing the Adjustment Amount. (d) If Buyer duly gives Seller such notice of objection, and if Seller and Buyer fail to resolve the issues outstanding with respect to the Closing Balance Sheet within thirty (30) days of Seller's receipt of Buyer's objection notice, Seller and Buyer shall submit the issues remaining in dispute to the Hartford, Connecticut office of Deloitte & Touche, or such other firm of independent public accountants as the Parties mutually agree (the "Independent Accountants"). If issues are submitted to the Independent Accountants for resolution, (i) Seller and Buyer shall furnish or cause to be furnished to the Independent Accountants such work papers and other documents and information relating to the disputed issues as the Independent Accountants may request and are available to that party or its agents and shall be afforded the opportunity to present to the Independent Accountants any material relating to the disputed issues and to discuss the issues with the Independent Accountants; (ii) the determination by the Independent Accountants, as set forth in a notice to be delivered to both Seller and Buyer within sixty (60) days of the submission to the Independent Accountants of the issues remaining in dispute, shall be final, binding and conclusive on the Parties and shall be used in the calculation of the Closing Net Asset Value; and (iii) Buyer will bear the fees and costs of the Independent Accountants for such determination, unless such determination differs by more than ten percent (10%) of the Closing Net Asset Value calculated in accordance with Section 3.5(b), in which case Seller shall bear such fees and costs. 9 3.6 Adjustment Amount and Payment. The "Adjustment Amount" (which may be a positive or negative number) will be equal to the amount determined by subtracting $21,000,000 from the Closing Net Asset Value. Within fifteen (15) days of the determination of the Closing Net Asset Value pursuant to Section 3.5(c) or 3.5(d), as the case may be: (a) if the Adjustment Amount is positive, Parent shall cause Buyer to pay the Adjustment Amount to Seller, by wire transfer of immediately available funds to an account designated by Seller; or (b) if the Adjustment Amount is negative, Seller shall pay the Adjustment Amount to Buyer by wire transfer of immediately available funds to an account designated by Buyer. 3.7 Accounts Receivable Adjustment. (a) "Uncollected Accounts Receivable" shall mean any Accounts Receivable included in the Assets that have not been paid to Buyer within 150 days of the Closing Date. Commencing ten (10) days after the first full calendar month following the Closing Date, Buyer shall deliver monthly reports to Seller showing the aging of Accounts Receivables included in the Assets. Buyer shall also deliver a notice to Seller identifying the Uncollected Accounts Receivable in reasonable detail within 165 days of the Closing Date. Provided Buyer has complied with the provisions of Section 3.7(b) below, Seller shall pay an amount equal to the aggregate amount of the Uncollected Accounts Receivable submitted by Buyer to Seller for payment to Buyer within fifteen (15) days of receiving the Buyer's notice relating thereto by wire transfer of immediately available funds to an account designated by Buyer, and Buyer shall thereupon assign all of its right, title and interest in such Uncollected Accounts Receivables. For the avoidance of doubt, if Buyer does not submit a particular Uncollected Account Receivable for payment by Seller within such 165 day period, Buyer shall not have any right to, and shall not be obligated to, assign it to Seller in accordance with the foregoing sentence and Seller shall have no obligation to make any payment to Buyer relating thereto. (b) Buyer shall use its Best Efforts to collect the Accounts Receivable included in the Assets, prior to the assignment of Uncollected Accounts Receivable to Seller described above, although Buyer shall not be required to institute litigation in connection therewith. If Buyer settles any Account Receivable for less than its full face amounts without Seller's prior written consent, Buyer may not submit such Account Receivable for reimbursement pursuant to Section 3.7(a). Collections by Buyer of Accounts Receivable from any customer after the Effective Time (including collections of Accounts Receivable created after the Effective Time) shall be credited to the oldest outstanding Accounts Receivable of such customer unless otherwise specified by the customer (so long as the customer is, to Buyer's Knowledge, acting in good faith and on the basis of a bonafide dispute concerning the older Account Receivable). 10 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER Seller represents and warrants to Buyer as follows: 4.1 Organization And Good Standing. Each of Seller, WPI, Rogers N.V. and Rogers Singapore is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, with full corporate power and authority to conduct the Business as it is now being conducted, to own or use the properties and assets that it purports to own or use to conduct the Business, and to perform all its obligations under the Business Contracts to which it is a party. Seller is duly qualified to do business as a foreign corporation and is in good standing under the laws of the State of Connecticut. 4.2 Enforceability; Authority; No Conflict. (a) This Agreement constitutes the legal, valid and binding obligation of Seller and is enforceable against it in accordance with its terms. Upon the execution and delivery by Seller of each other agreement to be executed or delivered by Seller at the Closing (collectively, "Seller's Closing Documents"), each of Seller's Closing Documents will constitute the legal, valid and binding obligation of Seller, enforceable against Seller in accordance with its terms. Seller has the power and authority to execute and deliver this Agreement and Seller's Closing Documents and to perform its obligations under this Agreement and Seller's Closing Documents, and such action has been duly authorized by all necessary action by Seller's shareholders, if necessary, and board of directors. Seller has the power and authority to cause each of Rogers N.V. and Rogers Singapore to, and guarantees that WPI will, perform its obligations under this Agreement and Seller's Closing Documents and such action has been duly authorized by all necessary action by Seller and its Affiliates. (b) Except as set forth in Schedule 4.2(b), neither the execution and delivery of this Agreement nor any of Seller's Closing Documents, nor the consummation or performance of any of the Contemplated Transactions will, directly or indirectly (with or without notice or lapse of time): (i) Breach any provision of any of the Governing Documents of Seller, WPI, Rogers N.V. or Rogers Singapore; (ii) Breach any Legal Requirement or any Order to which Seller, WPI, Rogers N.V. or Rogers Singapore, or any of the Assets, Licensed Intellectual Property or Shared Know-How, may be subject; (iii) contravene, conflict with or result in a violation or breach of any of the terms or requirements of, or give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate or modify, any Governmental Authorization that is held by Seller, WPI, Rogers N.V. or Rogers Singapore with respect to the Business or that 11 otherwise relates to the Assets, Licensed Intellectual Property or Shared Know-How or to the Business, and that is material to the operation of the Business; or (iv) Except as noted on Schedule 4.19(a), Breach any provision of, or give any Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or payment under, or to cancel, terminate or modify, any Business Contract identified or required to be identified on Schedule 4.19(a); (v) result in the imposition or creation of any Encumbrance upon or with respect to any of the Assets, Licensed Intellectual Property or Shared Know-How, other than any Encumbrance created by Buyer. (c) Except as set forth in Schedule 4.2(c), and other than as may be required under certain Business Contracts not required to be identified on Schedule 4.19(a), none of Seller, WPI, Rogers N.V. or Rogers Singapore is required to give any notice to or obtain any Consent from any Person in connection with the execution and delivery of this Agreement or the consummation or performance of any of the Contemplated Transactions. 4.3 Financial Statements. Attached hereto as Schedule 4.3 is a pro forma balance sheet in respect of the Business as at July 28, 2002 (the "Balance Sheet"). The Balance Sheet fairly presents the financial condition of the Business as of July 28, 2002 and was prepared from and is in accordance with GAAP and the accounting Records of Seller, except that the accruals and reserves described on Schedule 4.3 are maintained on Seller's consolidated financial statements and except as otherwise noted on Schedule 4.3 have been treated as expenses of the Business and reflected as such on the pro forma income statements of the Business. Seller has also delivered to Buyer the portions of all management letters from Seller's auditors discussing the Business to Seller's board of directors or the audit committee thereof during the thirty-six (36) months preceding the execution of this Agreement, together with copies of all responses thereto. 4.4 Books And Records. The books of account and other financial Records of Seller used in the conduct of the Business, all of which have been made available to Buyer, are complete and correct in all material respects. 4.5 Title to and Sufficiency of Assets. Seller (or, in the case of certain Intangible Property, the Licensed Intellectual Property and the Shared Know-How, WPI, and in the case of certain Accounts Receivable and Inventories, Rogers N.V. and Rogers Singapore) owns good title to all of the Assets, Licensed Intellectual Property and Shared Know-How, free and clear of all Encumbrances, other than the Permitted Encumbrances. The Assets, Licensed Intellectual Property and Shared Know-How constitute all of the assets, tangible and intangible, of any nature whatsoever, required to conduct the Business. Except for certain de minimis share holdings required by local statutes and disclosed in Schedule 4.5, each of WPI, Rogers N.V. and Rogers Singapore is a wholly-owned subsidiary of the Seller. 12 4.6 Real Estate. With respect to the Real Estate: (a) Seller owns good and marketable, legal and beneficial, fee simple title to the Real Estate, free and clear of any Encumbrances other than the Encumbrances described on Schedule 4.6(a)(i) (the "Permitted Encumbrances"). Seller has not granted to any Person any option or other right to purchase the Real Estate or Improvements and to the Knowledge of Seller, no Person has any such option or right. (b) Seller has not received any notice from any Governmental Body of any taking of the Real Estate, or any portion thereof, by eminent domain or similar proceeding, and, to Seller's Knowledge, no such taking or other condemnation of the Real Estate, or any portion thereof, is threatened or contemplated by any Governmental Body. (c) Seller has not retained any Person to file notices of protest against, or to commence actions to review, real property tax assessments against the Real Estate, and is not aware that any such action has been taken by or on behalf of any lessees under any Real Estate Lease. Schedule 4.6(c) contains a list and brief description of all actions taken by Seller to file notices of protest against, or to commence actions to review, real property tax assessments against the Real Estate, and the status of all such proceedings. (d) All leases, easements, rights of way, licenses, and other non-ownership interests granted to or by Seller in any of the Real Estate (the "Realty Use Rights") are valid and effective in accordance with their terms. Seller has furnished or made available to Buyer copies of all written Realty Use Rights of which it has Knowledge, all of which are identified on Schedule 4.6. Seller and, to Seller's Knowledge, the other party to each Realty Use Right have fully and completely performed and satisfied their respective duties and obligations under such Realty Use Right, and Seller has no claims, Proceedings or causes of action against any such other party for failure of such party fully and completely to perform and satisfy its duties and obligations under such Realty Use Right. (e) The Real Estate and all Improvements are in compliance in all material respects with all applicable Legal Requirements and Orders, including building, fire and other regulatory laws, ordinances and regulations, other than Environmental Law (as to which specific representations and warranties are made in Section 4.21 of this Agreement) and Seller has not received any notice of any violation or alleged violation thereof since June 1, 1999. The present use and condition of the Real Estate and Improvements is in conformity in all material respects with all applicable zoning laws, ordinances and regulations and with all deed restrictions of record or other covenants, restrictions or agreements, site plan approvals, zoning or subdivision regulations or urban redevelopment plans, and Seller has no Knowledge of any proposed changes therein that would affect the Real Estate or its use; and all Improvements on any of the Real Estate are located within the lot lines (and within the mandatory set-backs from such lot lines established by zoning ordinances or otherwise) and not over any areas subject to easements or rights of way. (f) All material requisite certificates of occupancy and other material permits or approvals legally required with respect to the Improvements, and the occupancy and use thereof, have been obtained and are currently in effect. 13 (g) There is lawfully available to the Real Estate water, gas, sewerage and electricity, all of which are now being utilized by Seller; and, ingress and egress to and from all of the Real Estate and all abutting roads is not limited in any material way. Except as set forth in Schedule 4.6, to Seller's Knowledge, there is no change or proposed change in the route, grade or width of, or otherwise affecting, any street or road adjacent to or serving the Real Estate. (h) To the Knowledge of Seller, and except for future repairs or improvements which, if completed prior to Closing would have been required to be capitalized under GAAP, all of the Improvements are in good operating condition and repair, and are adequate and suitable for the purpose for which they are presently being used and are not in need of maintenance or repairs except for ordinary, routine maintenance and repairs that are not material in nature or cost. Seller has maintained the Improvements consistent with its past practices. (i) There are no Consents of any Third Party or Governmental Authority that are required in connection with the conveyance of the Real Estate. 4.7 Tangible Personal Property. Except as set forth in Schedule 4.7, each item of Tangible Personal Property is in good operating order and condition, ordinary wear and tear excepted, is suitable for immediate use in the Ordinary Course of Business, and to the Knowledge of Seller, is not in need of maintenance or repairs except for ordinary, routine maintenance and repairs that are not material in nature or cost. Seller has maintained the Tangible Personal Property consistent with its past practices. 4.8 Relationships with Affiliates. Except as set forth in Schedule 4.8, neither Seller nor to the Knowledge of Seller any of its Affiliates owns, or since January 1, 2000, has owned, of record or as a beneficial owner, a material interest or any other material financial or material profit interest in any Person that has (a) had business dealings or a material financial interest in any transaction involving the Business or (b) engaged in competition with the Business in any market presently served by the Business. 4.9 Brokers or Finders. Neither Seller nor any of its Representatives have incurred any obligation or liability, contingent or otherwise, for brokerage or finders' fees or agents' commissions or other similar payments in connection with the sale of the Business or the Assets or the Contemplated Transactions. 4.10 Accounts Receivable. All Accounts Receivable that are reflected on the Balance Sheet or on the accounting Records of Seller in connection with the conduct of the Business as of the Closing Date, represent or will represent valid obligations arising from sales made or services performed by Seller in the Ordinary Course of Business. There is no contest, claim, defense or right of setoff, other than returns in the Ordinary Course of Business of Seller, under any Business Contract with any account debtor of an Account Receivable relating to the amount or validity of such Account Receivable. 4.11 Inventories. Except as set forth in Schedule 4.11, in connection with the conduct of the Business, Seller is not in possession of any inventory not owned by the Business, including goods already sold. Inventories now on hand that were purchased after the date of the 14 Balance Sheet were purchased in the Ordinary Course of Business of Seller at a cost not exceeding market prices prevailing at the time of purchase. 4.12 No Undisclosed Liabilities. In connection with the conduct of the Business, Seller has no Liability required to be accrued on the face of a balance sheet prepared in accordance with GAAP except for (i) Liabilities accrued on Seller's consolidated balance sheet and described on Schedule 4.3 (which Liabilities are Retained Liabilities); (ii) Liabilities reflected or reserved against in the Balance Sheet, and (iii) current liabilities incurred in the Ordinary Course of Business of Seller since the date of the Balance Sheet. 4.13 Taxes. Except as set forth in Schedule 4.13, (i) Seller has properly completed, duly and timely filed in correct form with the appropriate Governmental Body, all Tax Returns required to be filed before the date of this Agreement; (ii) all Tax Returns are accurate, complete and correct as filed, in all material respects, and Seller has paid in full or made adequate provision in its financial statements for all amounts shown to be due thereon; and (iii) all Taxes due from or claimed to be due by each Governmental Body in respect of Seller, the Assets, the Licensed Intellectual Property or the Shared Know-How or the Business, for all periods through the date of this Agreement, have been, and for all periods through the Effective Time will be, fully paid. Seller has timely made and will timely make all withholdings of Taxes required to be made under all applicable Legal Requirements, and such withholdings have either been paid or will be paid to the respective Governmental Body or set aside in accounts for such purpose or accrued, reserved against and entered upon the books of Seller. There are no Tax liens (other than liens for Taxes for current and subsequent years that are not yet due and payable) upon any of the Assets, the Licensed Intellectual Property or the Shared Know-How. 4.14 No Material Adverse Change. Since the date of the Balance Sheet, there has not been any material adverse change that is unique to the Business (as distinguished from such adverse changes in the economy generally, or in the markets served by the Business) in the business, operations, assets, results of operations or condition (financial or other) of the Business, and to Seller's knowledge, except as may arise as a result of the announcement or consummation of the transactions contemplated by this Agreement, no event has occurred or circumstance exists that is reasonably likely to result in such a material adverse change. In determining material adverse change, a loss of orders from customers of the Business will not be taken into account to the extent that such customers subsequently made orders from Buyer or one of its Affiliates. 4.15 Employee Benefits. (a) Set forth in Schedule 4.15(a) is a complete and correct list of all "employee benefit plans" as defined by Section 3(3) of ERISA, all specified fringe benefit plans as defined in Section 6039D of the Code, and all other bonus, incentive compensation, deferred compensation, profit-sharing, stock option, stock appreciation right, stock bonus, stock purchase, employee stock ownership, savings, severance, change- in-control, supplemental unemployment, layoff, salary continuation, retirement, pension, health, life insurance, disability, accident, group insurance, vacation, holiday, sick leave, fringe benefit or welfare plan, and any other employee compensation or benefit plan, agreement, policy, practice, commitment, contract or 15 understanding (whether qualified or nonqualified), that (i) is currently effective or was terminated after January 1, 2002 and is in connection with the conduct of the Business, (ii) is maintained or contributed to by Seller or any other corporation or trade or business controlled by, controlling or under common control with Seller (within the meaning of Section 414 of the Code or Section 4001(a)(14) or 4001(b) of ERISA) ("ERISA Affiliate") or has been maintained or contributed to since January 1, 2002 by Seller or any ERISA Affiliate, or with respect to which Seller or any ERISA Affiliate has or may have any liability, and (iii) provides benefits, or describes policies or procedures applicable, to any current employee of Seller or any ERISA Affiliate or any such person terminated since January 1, 2002, or the dependents of any thereof, regardless of how (or whether) liabilities for the provision of benefits are accrued or assets are acquired or dedicated with respect to the funding thereof (collectively the "Employee Plans"). (b) Seller has delivered or made available to Buyer true, accurate and complete copies of (i) the documents comprising each Employee Plan; and (ii) the most recent summary plan descriptions, summaries of material modifications, employee handbooks and other material written communications to employees regarding the Employee Plans. (c) Full payment has been made of all amounts which Seller is required to pay under the terms of each of the Employee Plans as of the last day of the most recent fiscal year of each of the Employee Plans ending prior to the date of this Agreement, and no "accumulated funding deficiencies" or liquidity shortfalls (as those terms are defined in Section 302 of ERISA and Section 412 of the Code) exist as of the date of this Agreement, whether or not waived. (d) Except as disclosed in Schedule 4.15(d), Seller's Union Pension Plan has not been partially terminated, nor has any event occurred nor does any circumstance exist that could result in the termination or partial termination of such Plan. The Pension Benefit Guaranty Corporation ("PBGC") has not instituted or threatened a Proceeding to terminate or to appoint a trustee to administer such Plan pursuant to Title IV of ERISA, and no condition or set of circumstances exists that presents a material risk of termination of such Plan by the PBGC. Such Plan has not been the subject of, and no event has occurred or condition exists that could be deemed with respect to such Plan, a reportable event (as defined in Section 4043 of ERISA) as to which a notice would be required (without regard to regulatory monetary thresholds) to be filed with the PBGC. Seller has paid in full all insurance premiums due to the PBGC with regard to such Plan for all applicable periods ending on or before the Closing Date. (e) Except as disclosed in Schedule 4.15(e), a favorable determination letter has been issued by the IRS with respect to the tax-qualified status under Code Section 401(a) of each Employee Plan which is an "employee pension plan" under ERISA Section 3(2), and where relevant, with respect to the tax-exempt status under Code Section 501(a) of any trust or trusts through which such Employee Plan(s) are funded, and to the Knowledge of Seller, there are no circumstances that will or could result in revocation of any such favorable determination letter. Seller and the "administrator" (as described in ERISA Section 3(16)(A)) of each of the Employee Plans described in ERISA Section 3(3) have complied in all material respects with all reporting and disclosure requirements of Title I of ERISA and the Code in a timely manner, and neither are liable for any reporting and/or disclosure penalties, or for any accrued or contingent liabilities imposed under either ERISA or the Code. The Employee Plans have been and are 16 currently operating in compliance in all material respects with any and all applicable laws, including all applicable provisions of ERISA and the Code including, but not limited to, the funding and prohibited transaction provisions thereof, and with the written Employee Plan documents. There is no pending or threatened Proceeding relating to any Employee Plan, nor is there any basis for any such Proceeding. (f) With respect to the Employee Plans, Seller does not currently have any direct or indirect liability to the PBGC in respect to any such Employee Plan or other employee pension benefit plan, nor any potential withdrawal liability or other obligation to contribute to any "multiemployer plan" as defined in ERISA Section 4001(a)(3). (g) With respect to any Employee Plans which qualify as "group health plans" under Code Section 4980B and ERISA Section 607(1) and related regulations, Seller has complied in all material respects with all reporting, disclosure, notice, election and other benefit continuation requirements imposed thereunder, as and when applicable to such Plans, and Seller has no direct or indirect liability, and is not subject to any loss, assessment, excise tax penalty or other sanction arising on account of or in respect of any direct or indirect failure by Seller at any time to comply with any such benefit continuation requirement. (h) In connection with the conduct of the Business, Seller has maintained workers' compensation coverage as required by applicable state law. (i) Except as required by Legal Requirements and as provided in Section 11.1, the consummation of the Contemplated Transactions will not accelerate the time of vesting or the time of payment, or increase the amount, of compensation due to any employee or officer of Seller. Except as provided in Section 11.1, none of the Contemplated Transactions will result in an amendment, modification or termination of, or additional or accelerated payments under, any of the Employee Plans. No written or oral representations have been made by Seller to any employee or former employee of Seller concerning the employee benefits of Buyer. 4.16 Compliance With Legal Requirements; Governmental Authorizations. (a) Except as set forth in Schedule 4.16(a), in connection with the conduct of the Business, Seller is, and at all times since June 1, 1999 has been in compliance with each Legal Requirement, including Occupational Safety and Health Laws, that is or was applicable to it or to the conduct or operation of the Business or the ownership or use of any of the Assets, Licensed Intellectual Property or Shared Know-How, except where the failure to be in such compliance would not reasonably be likely to have a material adverse effect upon the Business, and other than Legal Requirements in connection with (i) Real Estate and Improvements, as to which specific representations and warranties are made in Section 4.6 of this Agreement, (ii) Taxes, as to which specific representations and warranties are made in Section 4.13 of this Agreement, (iii) Employee Plans, as to which specific representations and warranties are made in Section 4.15 of this Agreement, (iv) Environmental Law, as to which specific representations and warranties are made in Section 4.21 of this Agreement, (v) employment practices, as to which specific representations and warranties are made in Section 4.23 of this Agreement, and (vi) Intellectual Property, as to which specific representations and warranties are made in Section 4.24 of this 17 Agreement. To the Knowledge of Seller, no event has occurred or circumstance exists that (with or without notice or lapse of time) constitutes or would be reasonably likely to result in a violation by Seller of, or a failure on the part of Seller to comply with, any Legal Requirement in connection with the conduct of the Business. Seller has not received, at any time since June 1, 1999, any notice or other communication (whether written or to the Knowledge of Seller, oral) from any Governmental Body or any other Person regarding any actual, alleged, possible or potential violation of, or failure to comply with, any Legal Requirement in connection with the conduct of the Business. (b) Schedule 4.16(b) contains a complete and accurate list of each Governmental Authorization that is held by Seller in connection with the conduct of the Business or that otherwise relates directly to the Business or the Assets, the Licensed Intellectual Property or the Shared Know-How, whether or not transferable. Each Governmental Authorization listed or required to be listed in Schedule 4.16(b) is valid and in full force and effect. Except as set forth in Schedule 4.16(b), in connection with the conduct of the Business: (i) Seller is, and at all times since June 1, 1999, has been, in material compliance with all of the terms and requirements of each Governmental Authorization identified or required to be identified in Schedule 4.16(b); (ii) to the Knowledge of Seller, no event has occurred or circumstance exists that may (with or without notice or lapse of time) (A) constitute or result in a material violation of or a material failure to comply with any term or requirement of any Governmental Authorization listed or required to be listed in Schedule 4.16(b) or (B) result in the revocation, withdrawal, suspension, cancellation or termination of, or any modification to, any Governmental Authorization listed or required to be listed in Schedule 4.16(b); (iii) Seller has not received, at any time since June 1, 1999, any notice or other communication (whether written or to the Knowledge of Seller, oral) from any Governmental Body or any other Person regarding (A) any actual, alleged, possible or potential violation of or failure to comply with any term or requirement of any Governmental Authorization or (B) any actual, proposed, possible or potential revocation, withdrawal, suspension, cancellation, termination of or modification to any Governmental Authorization; and (iv) all applications required to have been filed for the renewal of the Governmental Authorizations listed or required to be listed in Schedule 4.16(b) have been duly filed on a timely basis with the appropriate Governmental Bodies, and all other filings required to have been made by Seller with respect to such Governmental Authorizations have been duly made on a timely basis with the appropriate Governmental Bodies, except where the failure to have so filed would not have a material adverse effect upon the Business. The Governmental Authorizations listed in Schedule 4.16(b) collectively constitute all of the material Governmental Authorizations necessary to permit Seller to lawfully conduct and 18 and operate the Business in the manner in which it currently conducts and operates such business and to permit Seller to own and use its Assets, Licensed Intellectual Property or Shared Know-How in the manner in which it currently owns and uses such assets. 4.17 Legal Proceedings; Orders. (a) There is no pending or, to the Knowledge of Seller, threatened Proceeding: (i) by or against Seller in connection with the conduct of the Business or that otherwise relates to or is reasonably likely to affect the Business, or any of the Assets, Licensed Intellectual Property or Shared Know-How; or (ii) that challenges, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, any of the Contemplated Transactions. To the Knowledge of Seller, no event has occurred or circumstance exists that is reasonably likely to give rise to or serve as a basis for the commencement of any such Proceeding. Seller has delivered or made available to Buyer copies of all pleadings, correspondence and other documents relating to each Proceeding listed in Schedule 4.17(a). There are no Proceedings listed or required to be listed in Schedule 4.17(a) that could have a material adverse effect on the Business, its operations, assets, condition or prospects or upon the Assets, Licensed Intellectual Property or Shared Know-How. (b) There is no Order specifically applicable to Seller in connection with its conduct of the Business, or any of the Assets, Licensed Intellectual Property or Shared Know-How. To the Knowledge of Seller, no officer, agent or employee of Seller is subject to any Order that prohibits such officer, agent or employee from engaging in or continuing any conduct, activity or practice relating to the Business. 4.18 Absence Of Certain Changes And Events. Except as set forth in Schedule 4.18, since the date of the Balance Sheet, Seller has conducted the Business only in the Ordinary Course of Business and, in connection with the conduct of the Business, there has not been any: (a) payment (except in the Ordinary Course of Business) or increase by Seller, of any bonuses, salaries or other compensation to any officer or employee of the Business or entry into any employment, severance or similar Contract with any officer or employee of the Business; (b) adoption of, amendment to or increase in the payments to or benefits under, any Employee Plan applicable to employees of the Business; (c) event, in connection with which there was damage to or destruction or loss of Assets, whether or not covered by insurance, resulting in repair or replacement costs of at least fifty thousand dollars ($50,000); (d) entry into, termination of or receipt of notice of termination of (i) any license, distributorship, dealer, sales representative, joint venture, credit or similar Contract to which Seller, with respect to the Business is a party, or (ii) any Business Contract or transaction involving a total commitment by Seller of at least $50,000; (e) sale (other than sales of Inventories in the Ordinary Course of Business), lease or other disposition of any Asset or property of Seller used in connection with the conduct of the 19 Business (including the Intellectual Property) with a replacement value in excess of $50,000, or the creation of any Encumbrance (other than a Permitted Encumbrance) on any Asset, Licensed Intellectual Property or Shared Know-How; (f) cancellation or waiver of any claims or rights with a value to Seller in excess of $50,000; (g) written notice from (i) any significant customer of an intention to cease or materially reduce its level of business with Seller, or (ii) any supplier of an intention to discontinue or significantly change the terms of its business relationship with Seller; (h) change in the accounting methods used by Seller with respect to the Business; or (i) entry into a Contract by Seller to do any of the foregoing. 4.19 Contracts; No Defaults. (a) Schedule 4.19(a) contains an accurate and complete list, and Seller has delivered or made available to Buyer accurate and complete copies, of, with respect to the Business: (i) each Business Contract that involves performance of services or delivery of goods or materials by or to Seller of an amount or value in excess of $50,000; (ii) each Business Contract affecting the ownership of, leasing of, title to, use of or any leasehold or other interest in any real or personal property, including any licenses, sublicenses or other agreements involving Intellectual Property of an amount or value in excess of $50,000; (iii) each Business Contract with any labor union or other employee representative of a group of employees relating to wages, hours and other conditions of employment; (iv) each Business Contract (however named) involving a sharing of profits, losses, costs or liabilities by Seller with any other Person; (v) each Business Contract containing covenants that in any way purport to restrict Seller's activity or limit the freedom of Seller to engage in any line of business or to compete with any Person; (vi) each power of attorney of Seller granted in connection with the conduct of the Business that is currently effective and outstanding; (vii) each written warranty, or performance guaranty extended by Seller other than in the Ordinary Course of Business; and 20 (viii) each amendment, supplement and modification (whether oral or written) in respect of any of the foregoing. (b) Each Business Contract identified or required to be identified in Schedule 4.19(a), which is to be assigned to or assumed by Buyer under this Agreement: (i) is in full force and effect and is valid and enforceable in accordance with its terms; (ii) except as noted on Schedule 4.19(a), is assignable by Seller to Buyer without the Consent of any other Person; and (iii) except as noted on Schedule 4.19(a), will continue to be legal, valid, binding, enforceable, and in full force and effect on identical terms following the Closing; (c) Seller is, and at all times since June 1, 1999, has been, in compliance in all material respects with all applicable terms and requirements of each Business Contract that is being assumed by Buyer. To the Knowledge of Seller, each other Person that has or had any obligation or liability under any Business Contract that is being assigned to Buyer is and at all times since June 1, 1999, has been in compliance in all material respects with all applicable terms and requirements of such Business Contract. To the Knowledge of Seller, and without regard to the consummation of the Contemplated Transactions, no event has occurred or circumstance exists that (with or without notice or lapse of time) may contravene, conflict with or result in a Breach of, or give Seller or another Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or payment under, or to cancel, terminate or modify, any Business Contract that is being assigned to or assumed by Buyer. To the Knowledge of Seller, no event has occurred or circumstance exists under or by virtue of any Business Contract that (with or without notice or lapse of time) would cause the creation of any Encumbrance affecting any of the Assets, Licensed Intellectual Property or Shared Know- How. Seller has not given to or received from any other Person, at any time since June 1, 1999, any notice or other communication (whether written or to the Knowledge of Seller, oral) regarding any actual, alleged, possible or potential violation or Breach of, or default under, any Business Contract identified or required to be identified in Schedule 4.19(a) and which is being assigned to or assumed by Buyer. (d) There are no renegotiations of, attempts to renegotiate or outstanding rights to renegotiate any material amounts paid or payable to Seller under current or completed Business Contracts identified or required to be identified in Schedule 4.19(a) and which are being assigned to or assumed by Buyer with any Person having the contractual or statutory right to demand or require such renegotiation and no such Person has made written demand for such renegotiation at any time since June 1, 1999. (e) Each Business Contract which is being assigned to or assumed by Buyer relating to the sale, design, manufacture or provision of products or services by Seller has been entered into in the Ordinary Course of Business of Seller. 4.20 Insurance. Schedule 4.20 describes by year, for the current policy year and the five immediately preceding policy years, with respect to the Assets or the Business: (i) all property, casualty, liability and workman's compensation insurance policies maintained by Seller; (ii) a summary of the loss experience under each such policy; (iii) a statement describing 21 each claim under each such insurance policy for an amount in excess of $5,000, that sets forth: (A) the name of the claimant; (B) a description of the policy by insurer, type of insurance, and period of coverage; and (C) the amount and a brief description of the claim; and (iv) a statement describing the loss experience for all property, casualty, liability and workman's compensation claims that were self-insured, including the number and aggregate cost of such claims. Except as set forth on Schedule 4.20, all such policies were provided on an "occurrence" basis. Such policies are valid, binding and enforceable in accordance with their terms, are in full force and effect, and all premiums due thereon have been paid and will be paid through the Effective Time. With respect to the Assets or the Business, Seller has not been refused any insurance by any insurance carrier during the past three years. 4.21 Environmental Matters. In connection with the conduct of the Business and except as disclosed in Schedule 4.21: (a) To the Knowledge of Seller, Seller is, and at all times since January 1, 1997 has been, in full compliance with, and has not been and is not in violation of or liable under, any Environmental Law. Seller has not received, nor to the Knowledge of Seller has any other Person for whose conduct it may be held to be responsible in connection with the conduct of the Business received, any actual or threatened citation, directive, inquiry, notice, summons, warning, Order, or other communication (whether written, or to the Knowledge of Seller, oral) from (i) any Governmental Body or private citizen acting in the public interest or (ii) the current or prior owner or operator of any Facilities, of any actual or potential violation or failure to comply with any Environmental Law, or of any actual or threatened obligation to undertake or bear the cost of any Environmental Liabilities with respect to any Facilities, or with respect to Hazardous Activity, Hazardous Material or any property or Facilities at or to which Hazardous Materials were generated, manufactured, refined, used or processed by Seller or any other Person for whose conduct it is or may be held responsible, or from which Hazardous Materials have been transported, treated, stored, handled, transferred, disposed, recycled or received. Without limiting the generality of the foregoing, and except with respect to the matters more particularly discussed in Section 4.21(b) below, Seller has obtained all material Governmental Authorizations that are required pursuant to Environmental Laws for the occupation of the Facilities and the operation of the Business. (b) Seller is, and at all times has been, in full compliance with R.C.S.A. Section 22a-174-32 ("VOC RACT") as based upon the current manufacturing operations and procedures of the Facilities, assuming 2001 production levels, mixture of product grades, length of production runs per product grade and raw material constituents utilized per product grade. Schedule 4.21(b) sets forth both Seller's calculation of VOC emissions for 2001 based upon these assumptions and the related recommended reasonably available control technology measures to control VOC emissions from the Facilities, as presented in the report to the Connecticut Department of Environmental Protection ("CTDEP") dated August 12, 2002 (the "VOC Report"), or as such VOC Report is amended before closing. In connection with the information set forth on Schedule 4.21(b), Seller represents and warrants that: (i) to Seller's Knowledge, the information regarding its operation of the Facilities is true and correct; and (ii) the assumptions underlying the calculations in respect of the operation of the Facilities at 2001 production levels associated with current manufacturing operations and procedures, are reasonable in light of Seller's 22 operational experience. In connection with the information set forth on Schedule 4.21(b), Seller represents and warrants that the assumptions underlying the calculations in respect of the operation of the Facilities at maximum production levels (e.g., twenty-one, eight hour shifts per week), are reasonable in light of Seller's operational experience. (c) There are no Claims nor, to the Knowledge of Seller, threatened Claims arising under or pursuant to any Environmental Law with respect to or affecting the Facilities or any other property or asset (whether real, personal or mixed) which is part of the Assets. (d) Except as set forth on Schedule 4.20 or 4.21(d), there are no pending or, to the Knowledge of Seller, threatened Claims arising from the use by Seller of asbestos or other Hazardous Materials in products manufactured or sold by Seller in the conduct of the Business prior to the Effective Time (the "Asbestos Claims"). All closed Asbestos Claims have been settled in the amounts set forth on Schedule 4.21 (d). (e) Seller has delivered or made available to Buyer true and complete copies and results of any reports, studies, analyses, tests, or monitoring prepared by or at the request of Seller after January 1, 1997, in connection with the conduct of the Business pertaining to Hazardous Materials or Hazardous Activities in, on, or under the Facilities, or concerning compliance by Seller or any other Person for whose conduct it is or may be held responsible with Environmental Laws. (f) To the Knowledge of Seller, except as disclosed in Schedule 4.21, none of the following exists at any Facilities: (1) underground storage tanks, (2) asbestos-containing material in any form or condition, (3) materials or equipment containing polychlorinated biphenyls, or (4) landfills, surface impoundments, or disposal areas. (g) Seller has not, either expressly or by operation of law, assumed or undertaken any Liability of any Third Party relating to the Facilities or Business, including without limitation any obligation for corrective or remedial action, of any other Person relating to Environmental Laws. 4.22 Employees. (a) Schedule 4.22(a) contains a complete and accurate list of the following information for each employee of the Business as of July 31, 2002, including each employee on leave of absence or layoff status: name; job title; date of commencement of employment; current compensation paid or payable; sick and vacation leave that is accrued but unused and service credited for purposes of benefit accrual, vesting and eligibility to participate under any Employee Plan. (b) In connection with the conduct of the Business, prior to the date hereof and through the Effective Time, Seller has not (and will not have) violated, and has (and will have) fully complied with, the Worker Adjustment and Retraining Notification Act (the "WARN Act") or any similar state or local Legal Requirement. 23 (c) Except as disclosed in Schedule 4.22(a), to the Knowledge of Seller, no officer or employee of the Business is bound by any Contract that purports to limit the ability of such officer or employee (i) to engage in or continue or perform any conduct, activity, duties or practice relating to the Business or (ii) to assign to Seller or to WPI any rights to any invention, improvement, or discovery. No former or current employee of the Business is a party to, or is otherwise bound by, any Contract that in any way adversely affected, affects, or will affect the ability of Seller or Buyer to conduct the Business as heretofore carried on by Seller. 4.23 Labor Disputes; Compliance. (a) In connection with the conduct of the Business, the execution of this Agreement and the consummation of the Contemplated Transactions, Seller has complied in all material respects with all Legal Requirements relating to employment practices, terms and conditions of employment, equal employment opportunity, nondiscrimination, immigration, wages, hours, benefits, collective bargaining, the payment of social security and similar Taxes. Seller is not liable for the payment of any Taxes, fines, penalties, or other amounts, however designated, for failure to comply with any of the foregoing Legal Requirements. (b) In connection with the conduct of the Business, except as disclosed in Schedule 4.23(b), (i) the CBA is the only collective bargaining agreement or other labor contract relating to the Business to which the Seller is a party; (ii) since June 1, 1999 , there has not been any arbitration in connection with, and there is not presently pending or existing, and to the Knowledge of Seller, there is not threatened, any strike, slowdown, picketing, work stoppage or employee grievances involving Seller; (iii) to the Knowledge of Seller, no event has occurred or circumstance exists that could provide the basis for any work stoppage or other labor dispute; (iv) there is not pending or, to the Knowledge of Seller, threatened against or affecting Seller any Proceeding relating to the alleged violation of any Legal Requirement pertaining to labor relations or employment matters, including any charge or complaint filed with the National Labor Relations Board or any comparable Governmental Body, and there is no organizational activity or other labor dispute against or affecting Seller or the Facilities; (v) no application or petition for an election of or for certification of a collective bargaining agent is pending; (vi) no grievance or arbitration Proceeding exists that might have a material adverse effect upon Seller or the conduct of the Business; (vii) there is no lockout of any employees by Seller, and no such action is contemplated by Seller; and (viii) to the Knowledge of Seller, there has been no charge of discrimination filed against or threatened against Seller with the Equal Employment Opportunity Commission or similar Governmental Body since June 1, 1999. 4.24 Intellectual Property. (a) Seller (or, in the case of the Intellectual Property identified on Schedule 4.24(a), WPI) owns and possesses or has the right to use pursuant to a valid and enforceable, written license, sublicense, agreement, or permission, all Intellectual Property necessary for the operation of the Business as presently conducted. Each item of Intellectual Property owned or used by Seller or WPI in the Business immediately prior to the Closing hereunder will be owned or available for use by Buyer. Each of Seller and WPI has taken all reasonably necessary action to maintain and protect each item of Intellectual Property that each owns or uses. 24 (b) To Sellers' Knowledge, with respect to the Business, neither Seller nor WPI has infringed upon, or misappropriated any intellectual property rights of Third Parties, nor has either Seller or WPI received any claim alleging any such infringement or misappropriation (including any claim that Seller or WPI must license or refrain from using any intellectual property rights of any Third Party). To the Knowledge of Seller, no Third Party is infringing upon, or misappropriating any Intellectual Property rights of Seller or WPI. (c) Schedule 4.24(c) identifies each Patent, Mark and Copyright that has been issued to Seller or WPI that is used in the Business, each pending application for registration that Seller or WPI has made with respect to Intellectual Property, and each license, sublicense, agreement, or other permission that either of Seller or WPI has granted to any Third Party with respect to any of their Intellectual Property. Seller has delivered to or made available to Buyer correct and complete copies of all such Patents, Marks, Copyrights and licenses, sublicenses, agreements, and permissions (as amended to date). With respect to each item of Intellectual Property required to be identified in Schedule 4.24(c): (i) each item is currently enforceable and in full force and effect; (ii) Seller or WPI owns and possesses all right, title, and interest in and to the item, free and clear of any Encumbrance, license, or other restriction or limitation regarding use or disclosure, unless otherwise set forth in Schedule 4.24(c); (iii) the item is not subject to any outstanding injunction, judgment, order, decree, ruling, or charge; (iv) no claim is pending or, to the Knowledge of Seller, is threatened which challenges the legality, validity, enforceability, use, or ownership of the item; (v) neither Seller nor WPI has agreed to indemnify any Person for or against any interference, infringement, misappropriation, or other conflict with respect to the item; and (vi) no loss or expiration of the item is threatened, pending, or reasonably foreseeable, except for patents expiring at the end of their statutory terms (and not as a result of any act or omission by Seller or WPI, including without limitation, a failure by Seller or WPI to pay any required maintenance fees). (d) Seller and WPI are presently in compliance with all foreign, federal, state, local, governmental, administrative or regulatory laws, regulations, guidelines and rules applicable to any Intellectual Property and Seller and WPI shall use Best Efforts to ensure such compliance until Closing. 4.25 Securities Law Matters. Seller is acquiring the Note for its own account and not with a view to its distribution within the meaning of the Securities Act. Seller confirms that Buyer has made available to Seller and its Representatives the opportunity to ask questions of the officers and management employees of Buyer and to acquire such additional information about the financial condition of Buyer as Seller has requested, and all such information has been received. 25 4.26 Disclosure. No representation or warranty made by Seller in this Agreement, or the Disclosure Schedule contains any untrue statement or omits to state a material fact necessary to make any of them, in light of the circumstances in which it was made, not misleading. ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT Each of Buyer and Parent represents and warrants to Seller, jointly and severally, as follows: 5.1 Organization and Good Standing. Each of Buyer and Parent is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, with full corporate power and authority to conduct its business as it is now conducted. 5.2 Authority; No Conflict. (a) This Agreement constitutes the legal, valid and binding obligation of each of Parent and Buyer, enforceable against such Party in accordance with its terms. Upon the execution and delivery by each of Buyer and Parent of each agreement to be executed or delivered by such Party at Closing (collectively, "Buyer's Closing Documents"), each of Buyer's and Parent's Closing Documents will constitute the legal, valid and binding obligation of such Party, enforceable against such Party in accordance with its respective terms. Each of Buyer and Parent has the right, power and authority to execute and deliver this Agreement and each of Buyer's Closing Documents to which it is a party and to perform its obligations under this Agreement and Buyer's Closing Documents, and such action has been duly authorized by all necessary corporate action. (b) Neither the execution and delivery of this Agreement or any of Buyer's Closing Documents by Parent or Buyer nor the consummation or performance of any of the Contemplated Transactions by Parent or Buyer will breach or give any Person the right to prevent, delay or otherwise interfere with any of the Contemplated Transactions pursuant to any provision of the Governing Documents of Parent or Buyer, any resolution adopted by the board of directors or the shareholders of Parent or Buyer, any Legal Requirement or Order to which Parent or Buyer may be subject, or any Contract to which Parent or Buyer is a party or by which Parent or Buyer may be bound. Neither Parent nor Buyer is required to obtain any Consent from any Person in connection with the execution and delivery of this Agreement or the consummation or performance of any of the Contemplated Transactions. 5.3 Certain Proceedings. There is no pending Proceeding that has been commenced against Parent or Buyer and that challenges, or may have the effect of preventing, delaying, making illegal or otherwise interfering with, any of the Contemplated Transactions. To the Knowledge of Parent or Buyer, no such Proceeding has been threatened. 26 5.4 Brokers or Finders. Neither Parent nor Buyer nor any of their Representatives have incurred any obligation or liability, contingent or otherwise, for brokerage or finders' fees or agents' commissions or other similar payment in connection with the Contemplated Transactions. 5.5 Financial Statements. (a) Attached hereto as Schedule 5.5(a) are (i) unaudited pro forma balance sheets and income statements for each of Buyer and Parent (as constituted as of the date hereof) as of and for the six months ended June 30, 2002 and (ii) unaudited, pro forma balance sheets and income statements for Parent (as constituted as of the date hereof) as of and for the twelve months ended December 31, 2001. The financial statements provided in accordance with this Section 5.5(a) were prepared in accordance with GAAP in the case of Buyer, and generally accepted accounting principles for financial reporting in Sweden in the case of Parent, except in each case that such financial statements lack footnotes. The financial statements provided in accordance with this Section 5.5(a) present fairly the financial condition of Buyer or Parent (as constituted as of the date hereof), as the case may be, as of such dates and the results of operation of Buyer or Parent (as constituted as of the date hereof), as the case may be, for such periods. (b) Attached hereto as Schedule 5.5(b) are (i) unaudited pro forma balance sheets and income statements for Parent (as proposed to be constituted as of Closing) as of and for the six months ended June 30, 2002 and (ii) unaudited, pro forma balance sheets and income statements for Parent (as proposed to be constituted as of Closing) as of and for the twelve months ended December 31, 2001. The financial statements provided in accordance with this Section 5.5(b) were prepared in accordance with generally accepted accounting principles for financial reporting in Sweden, except that such financial statements lack footnotes. The financial statements provided in accordance with this Section 5.5(b) present fairly the financial condition of Parent (as proposed to be constituted as of Closing) as of such dates and the results of operation of Parent (as proposed to be constituted as of Closing for such periods. 5.6 Encumbrances. Upon consummation of the Contemplated Transactions, and assuming for this purpose that Seller's representations and warranties in Section 4.5 above are true in all respects, Buyer will own good title to all of the Assets free and clear of all Encumbrances, other than Permitted Encumbrances. ARTICLE VI COVENANTS OF SELLER 6.1 Access and Investigation. Between the date of this Agreement and the Closing Date, upon reasonable advance notice received from Buyer, and subject to applicable Legal Requirements, Seller shall (a) afford Buyer and its Representatives (collectively, "Buyer Group") full and free access, during regular business hours, to the Business's personnel, properties, Business Contracts, Governmental Authorizations, books and Records and other documents and data in respect of the Business, such rights of access to be exercised in a manner that does not unreasonably interfere with the operations of the Business; (b) furnish Buyer Group with copies of all such Business Contracts, Governmental Authorizations, books and Records and other 27 existing documents and data in respect of the Business as Buyer may reasonably request; (c) furnish Buyer Group with such additional financial, operating and other relevant data and information in respect of the Business as Buyer may reasonably request; and (d) otherwise cooperate and assist, to the extent reasonably requested by Buyer, with Buyer's investigation of the properties, assets and financial condition in respect of the Business. In addition, Buyer shall have the right to have the Real Estate and Tangible Personal Property inspected by Buyer Group, at Buyer's sole cost and expense, for purposes of determining the physical condition and legal characteristics of the Real Estate and Tangible Personal Property. No subsurface or other destructive testing shall be permitted without Seller's prior written consent, which may be withheld or conditioned in Seller's sole discretion. Any information Buyer receives in the course of its investigations pursuant to this Section 6.1 shall be considered Confidential Information for purposes of the Confidentiality Agreement dated February 26, 2002 between Seller and Perstorp Composites Holding AB and subject to the terms and conditions thereof. 6.2 Operation of the Business. Between the date of this Agreement and the Closing, Seller shall, in connection with the conduct of the Business: (a) conduct the Business only in the Ordinary Course of Business; (b) except as otherwise directed by Buyer in writing, and without making any commitment on Buyer's behalf, use its Best Efforts to preserve intact its current business organization, keep available the services of its officers, employees and agents and maintain its relations and good will with suppliers, customers, landlords, creditors, employees, agents and others having business relationships with it; (c) make no material changes in management personnel without prior consultation with Buyer; (d) maintain the Assets in substantially the same condition as of the date of this Agreement, ordinary wear and tear excepted, in a manner consistent with the requirements and normal conduct of the Business; (e) use its Best Efforts to keep in full force and effect, without amendment, all material rights relating to the Business; (f) use its Best Efforts to comply with all Legal Requirements and contractual obligations applicable to the operations of the Business; (g) use its Best Efforts to continue in full force and effect the insurance coverage under the policies set forth in Schedule 4.20 or substantially equivalent policies; (h) except as required to comply with ERISA or to maintain qualification under Section 401(a) of the Code, not amend, modify or terminate any Employee Plan insofar as it relates to employees of the Business without the express written Consent of Buyer; 28 (i) cooperate with Buyer and assist Buyer in identifying the Governmental Authorizations required by Buyer to operate the Business from and after the Closing Date and in transferring existing Governmental Authorizations of Seller to Buyer, where permissible; (j) maintain all books and Records of Seller relating to the Business in the Ordinary Course of Business; and (k) remove all of the Excluded Assets from the Real Estate. 6.3 Negative Covenant. Except as otherwise expressly permitted herein, between the date of this Agreement and the Closing Date, Seller shall not, without the prior written Consent of Buyer, (a) take any affirmative action, or fail to take any reasonable action within its control, as a result of which any of the changes or events listed in Sections 4.14 or 4.18 would be likely to occur; (b) make any modification to any material Business Contract or Governmental Authorization; (c) allow the levels of raw materials, supplies or other materials included in the Inventories to vary materially from the levels customarily maintained; or (d) enter into any compromise or settlement of any litigation, proceeding or governmental investigation relating to the Business, Assets, Licensed Intellectual Property or Shared Know-How or the Assumed Liabilities. 6.4 Required Approvals. As promptly as practicable after the date of this Agreement, Seller shall make all filings required by Legal Requirements to be made by it in order to consummate the Contemplated Transactions. Seller also shall cooperate with Buyer and its Representatives with respect to all filings that Buyer elects to make or, pursuant to Legal Requirements, shall be required to make in connection with the Contemplated Transactions. Seller also shall cooperate with Buyer and its Representatives in obtaining all Material Consents. 6.5 Notification. Between the date of this Agreement and the Closing, Seller shall promptly notify Buyer in writing if it becomes aware of (a) any fact or condition that causes or constitutes a Breach of any of Seller's representations and warranties made as of the date of this Agreement or (b) the occurrence after the date of this Agreement of any fact or condition that would or be reasonably likely to (except as expressly contemplated by this Agreement) cause or constitute a material Breach of any such representation or warranty had that representation or warranty been made as of the time of the occurrence of, or Seller's discovery of, such fact or condition. During the same period, Seller shall promptly notify Buyer of the occurrence of any Breach of any covenant of Seller in this Article 6 or of the occurrence of any event that is reasonably likely to prevent the satisfaction of the conditions of Article 8. 6.6 No Negotiation. Until such time as this Agreement shall be terminated pursuant to Section 10.1, neither Seller nor any of its Affiliates or Representatives shall directly or indirectly solicit, initiate, encourage or entertain any inquiries or proposals from, discuss or negotiate with, provide any nonpublic information to or consider the merits of any inquiries or proposals from any Person (other than Buyer) relating to any business combination transaction involving the Business, including the sale of any of the Assets (other than in the Ordinary Course of Business) or Licensed Intellectual Property. Seller shall notify Buyer of any such inquiry or proposal within twenty-four (24) hours of receipt or awareness of the same by Seller. 29 6.7 Landlord Estoppel Certificate. Seller shall use its Best Efforts to obtain a current estoppel certificate from the landlord under each Real Estate Lease stating (i) that such Real Estate Lease is in full force and effect and has not been amended, modified or supplemented since the date of execution thereof; (ii) that all rent and other sums and charges payable under such Real Estate Lease are current and setting forth the date through which such payments have been made; (iii) the amount of any tenant security or other similar deposit held by or on behalf of such landlord under the Real Estate Lease; (iv) that no notice of default on the part of Seller or termination notice has been served under such Real Estate Lease which remains outstanding; (v) that to the knowledge of such landlord, no uncured default or termination event or condition exists under such Real Estate Lease, and that no event has occurred or condition exists which, with the giving of notice or the lapse of time or both, would constitute such a default or termination event or condition; and (vi) that the consummation of the Contemplated Transactions will not constitute a default under such Real Estate Lease or grounds for termination thereof or for the exercise of any other right or remedy adverse to the interests of the tenant thereunder. 6.8 Conversion of Seller's Accounting Systems. Seller shall use its Best Efforts to provide to Buyer at Closing computer hardware and software (collectively, "Systems") sufficient to allow Buyer to operate the Business in the manner in which Seller operated the Business prior to Closing in all material respects, provided that the Systems will not have any functionality relating to payroll matters. As of the Closing Date, Seller will have trained certain Hired Active Employees designated by Buyer to use the Systems. The Seller will use its Best Efforts to ensure that the Systems will be substantially free of program defects and for a period of 60 days after Closing, Seller will make required corrections. 6.9 Best Efforts. Seller shall use its Best Efforts to cause the conditions in Article 8 (other than Sections 8.7 and 8.9(a)) to be satisfied. 6.10 Transition Services Agreement. Each of the Parties shall use its Best Efforts to negotiate a Transition Services Agreement in a mutually acceptable form which shall include, without limitation, provisions relating to the Seller's delivery of services in Singapore. ARTICLE VII COVENANTS OF BUYER AND PARENT 7.1 Required Approvals. As promptly as practicable after the date of this Agreement, each of Buyer and Parent covenant, jointly and severally, to make, or cause to be made, all filings required by Legal Requirements to be made by it to consummate the Contemplated Transactions. Buyer and Parent also shall cooperate, and cause its Affiliates to cooperate, with Seller (a) with respect to all filings Seller shall be required by Legal Requirements to make and (b) in obtaining all Consents identified in Schedule 4.2(c); provided, however, that neither Buyer nor Parent shall be required to dispose of or make any change to its business or expend any material funds to comply with this Section 7.1. 7.2 Notification. Between the date of this Agreement and the Closing, Buyer or Parent shall promptly notify Seller in writing if either such Party becomes aware of (a) any fact 30 or condition that causes or constitutes a Breach of any of the representations and warranties made by Parent or Buyer as of the date of this Agreement or (b) the occurrence after the date of this Agreement of any fact or condition that would or be reasonably likely to (except as expressly contemplated by this Agreement) cause or constitute a material Breach of any such representation or warranty had that representation or warranty been made as of the time of the occurrence of, or such Party's discovery of, such fact or condition. During the same period, Buyer or Parent shall promptly notify Seller of the occurrence of any Breach of any covenant of Buyer or Parent in this Article 7 or of the occurrence of any event that is reasonably likely to prevent the satisfaction of the conditions in Article 9. 7.3 Best Efforts. Each of Parent and Buyer shall use its Best Efforts to facilitate the conversions described in Section 6.8 above, and to cause the conditions in Sections 8.6, 8.7, 8.8 and 8.9(a) and Article 9 to be satisfied. 7.4 Reorganization. Parent shall complete the proposed reorganization of Parent as contemplated by Section 5.5(b) prior to November 4, 2002. ARTICLE VIII CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE Buyer's obligation to purchase the Assets and to take the other actions required to be taken by Buyer at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Buyer, in whole or in part): 8.1 Accuracy of Representations. (a) All of Seller's representations and warranties in this Agreement shall have been accurate in all material respects as of the date of this Agreement, and shall be accurate in all material respects as of the Effective Time as if then made, without giving effect to any supplement to the Disclosure Schedule, except where any such failure would not result in a material adverse change in the business, operations, assets, results of operations or condition (financial or otherwise) of the Business. (b) Each of the representations and warranties in Section 4.2(a) and each of the representations and warranties in this Agreement that contains an express materiality qualification, shall have been accurate in all respects as of the date of this Agreement, and shall be accurate in all respects as of the Effective Time as if then made, without giving effect to any supplement to the Disclosure Schedule, except where any such failure would not result in a material adverse change in the business, operations, assets, results of operations or condition (financial or otherwise) of the Business. 8.2 Seller's Performance. All of the covenants and obligations that Seller is required to perform or to comply with pursuant to this Agreement at or prior to the Closing, shall have been duly performed and complied with in all material respects. 31 8.3 Consents. Each of the Consents identified in Schedule 8.3 (the "Material Consents") shall have been obtained and shall be in full force and effect. 8.4 Additional Documents. Seller shall have caused the documents and instruments required by Section 3.4(a) and the following documents to be delivered (or tendered subject only to Closing) to Buyer: (a) an opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P., dated the Closing Date, in the form of Exhibit 8.4(a); (b) Releases of all Encumbrances on the Assets and Licensed Intellectual Property, other than Permitted Encumbrances, including releases of each mortgage of record and reconveyances of each deed of trust with respect to each parcel of real property included in the Assets; (c) Certificates dated as of a date not earlier than the third Business Day prior to the Closing as to the good standing of Seller, executed by the appropriate officials of the Commonwealth of Massachusetts and the State of Connecticut; and (d) such other documents as Buyer may reasonably request. 8.5 No Proceedings. Since the date of this Agreement, there shall not have been commenced or threatened against Buyer, or against any Affiliate of Buyer, any Proceeding (a) involving any challenge to, or seeking a material amount of Damages or other relief in connection with, any of the Contemplated Transactions or (b) that may have the effect of preventing, delaying, making illegal, imposing limitations or conditions on or otherwise interfering with any of the Contemplated Transactions. 8.6 Governmental Authorizations. Buyer shall have received the Governmental Authorizations required under the competition laws of Germany, and any waiting periods applicable to the Contemplated Transactions under any such laws, including the waiting periods required following the required submission with the German Federal Cartel Office, shall have expired or been terminated. 8.7 Employees. Two or more of those key employees of Seller identified on Schedule 8.7, or substitutes therefor who shall be acceptable to Buyer, in its sole discretion, shall have accepted employment with Buyer with such employment to commence on and as of the Closing Date, provided however, that the employment offered by Buyer to each such key employee contains terms substantially equivalent in the aggregate to the terms of each such key employee's current employment with Seller relating to benefits, salaries and length of severance and provided, however, further that Buyer shall assert or waive its right under this Section 8.7 within fifteen (15) days of the date hereof. 8.8 Collective Bargaining Agreement. The Bargaining Representative shall have executed a letter agreement in respect of Buyer's assumption of the CBA substantially in the form of Exhibit 8.8 (the "CBA Assumption"). 32 8.9 Title Insurance and Survey. (a) Buyer shall have obtained, at its expense, a binding commitment to issue an ALTA Owner's Policy of Title Insurance Form B-1992 issued by a title insurer reasonably satisfactory to Buyer, in such amount as Buyer reasonably may determine to be the fair market value of the Real Estate (including all Improvements thereon), insuring title to such Real Estate to be in Seller as of the Closing (subject only to the permitted encumbrances listed on Schedule 4.6(a)(ii) and only to the extent that such permitted encumbrances do not have a material adverse effect on the Business or the Real Estate). The title insurance policy shall (i) insure title to the Real Estate and all recorded easements benefiting the Real Estate, (ii) contain an "extended coverage endorsement" insuring over the general exceptions contained customarily in such policies, (iii) contain an ALTA Zoning Endorsement 3.1 (or equivalent), (iv) contain an endorsement insuring that the Real Estate described in the title insurance policy is the same real estate as shown on the Survey delivered with respect thereto, (v) contain an endorsement insuring that each street adjacent to the Real Estate is a public street and that there is direct and unencumbered pedestrian and vehicular access to such street from the Real Estate, (vi) contain a contiguity endorsement insuring that all of the parcels compromising the Real Estate when taken together form one contiguous parcel of real estate without any gaps or gores (if applicable); (vii) contain one or more encroachment endorsements, as applicable; and (viii) contain an endorsement insuring over any bankruptcy and/or creditors' rights exceptions. (b) Seller shall have procured, at its expense, a current survey of the Real Estate certified to Buyer and the title insurance company, prepared by a licensed surveyor and conforming to current ALTA Minimum Detail Requirements for Land Title Surveys, disclosing the location of all improvements, easements, party walls, sidewalks, roadways, utility lines, and other matters shown customarily on such surveys, and showing access affirmatively to public streets and roads (the "Survey"). The Survey shall not disclose any survey defect or encroachment from or onto the Real Estate that has not been cured or insured over prior to the Closing. 8.10 Environmental Study. (a) Seller shall have obtained, at its own expense, a Phase II Environmental Site Assessment (the "Phase II Report") of the Facilities located in Manchester, Connecticut (the "Manchester Facilities") by Fuss & O'Neill Inc. ("Seller's Consultant"). The scope of the work, the testing and analysis to be undertaken and the nature of the report to be issued by Seller's Consultant are detailed in Schedule 8.10; provided, however, that Seller's Consultant must include a conclusion, based on the results of the test outlined in Schedule 8.10, as to the remediation activities that are reasonably likely to be required by the CTDEP in response to Seller's filing under the Connecticut Transfer Act (the "Required Remediation"). (b) Buyer may retain, at its own expense, an environmental consultant to review the Phase II Report ("Buyer's Consultant"). Seller shall instruct Seller's Consultant to cooperate with Buyer's Consultant in order to facilitate such review. If Buyer determines that the Required Remediation will likely result in a material interruption of the Business at the Manchester Facility following the Closing for a period of time in excess of two weeks in any three-month period (a "Material Remediation Event") then Buyer shall not be obligated to consummate the Contemplated Transactions and may terminate this Agreement pursuant to Section 10.1(a). 33 (c) If Buyer determines that the Required Remediation is likely to result in a Material Remediation Event and Seller disagrees with Buyer's determination, then Seller shall submit its objections to Buyer and the Parties shall attempt in good faith to resolve the disagreement. (d) If the Parties are not able to resolve the disagreement within fifteen (15) Business Days, then either Buyer or Seller may submit the issue to binding arbitration as described in this Section 8.10(d). Buyer and Seller shall mutually agree upon a Connecticut licensed environmental professional to arbitrate the dispute (the "Phase II Arbitrator"), whose expenses shall be borne 50% by Buyer and 50% by Seller. The Phase II Arbitrator shall review the Phase II Report and each Party's determination with respect to the probability of a Material Remediation Event and conduct such hearings as he/she shall deem necessary. The Phase II Arbitrator shall issue a written decision within twenty (20) days of the date of his/her retention by the Parties, which decision shall conclude whether there is likely to be a Material Remediation Event and his/her reasons for such determination. If the Phase II Arbitrator determines that there is likely to be a Material Remediation Event, then Buyer shall not be obligated to consummate the Contemplated Transactions and may terminate this Agreement pursuant to Section 10.1(a). 8.11 Systems Conversions. The Systems work described in Section 6.8 shall have been completed in a manner reasonably satisfactory to Buyer. ARTICLE IX CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE Seller's obligation to sell the Assets and to take the other actions required to be taken by Seller at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Seller in whole or in part): 9.1 Accuracy of Representations. All of the representations and warranties of Buyer or Parent in this Agreement shall have been accurate in all material respects as of the date of this Agreement and shall be accurate in all material respects as of the Effective Time as if then made, except where any such failure would not result in a material adverse change in the business, operations, assets, results of operations, condition (financial or otherwise) of the Buyer or the Parent, as applicable. 9.2 Buyer's Performance. All of the covenants and obligations that Buyer or Parent is required to perform or to comply with pursuant to this Agreement at or prior to the Closing shall have been performed and complied with in all material respects. 9.3 Financial Information of Buyer and Parent. Prior to the Closing, Buyer and Parent shall have provided Seller with unaudited balance sheets and income statement for each of Buyer and Parent as of and for the period ending on the last day of the month immediately preceding the Closing Date, none of which will show the existence of a material adverse change when compared with the financial statements attached hereto as Schedule 5.5(a) with respect to 34 Buyer, and Schedule 5.5(b) with respect to Parent. Such updated financial statements shall be accurate in all material respects as of the Closing Date; provided, however, that if Seller waives its right under this Section 9.3, the Note shall bear interest at a rate equal to 6% above the one-year Libor rate until such time as the proposed reorganization of Parent is complete as contemplated by Section 5.5(b). 9.4 No Proceedings. Since the date of this Agreement, there shall not have been commenced or threatened against Seller, or against any Affiliate of Seller, any Proceeding (a) involving any challenge to, or seeking a material amount of Damages or other relief in connection with, any of the Contemplated Transactions or (b) that may have the effect of preventing, delaying, making illegal, imposing limitations or conditions on or otherwise interfering with any of the Contemplated Transactions. 9.5 Additional Documents. Buyer or Parent shall each have caused the documents, instruments and payments required by Section 3.4(b) or Section 3.4(c) and the following documents to be delivered (or tendered subject only to Closing) to Seller. (a) an opinion of Wiggin & Dana LLP, dated the Closing Date, in the form of Exhibit 9.5(a); (b) an opinion of NautaDutilh N.V., dated the Closing Date, in form and substance reasonably acceptable to Seller; (c) a certificate dated as of a date not earlier than the third Business Day prior to the Closing as to the good standing of Buyer, executed by the appropriate officials of the State of Connecticut; (d) a document of the jurisdiction of incorporation of Parent in respect of the existence of Parent; and (e) such other documents as Seller may reasonably request. 9.6 Collective Bargaining Agreement. The Bargaining Representative shall have executed the CBA Assumption. 9.7 WARN Period. Any required notification period under the WARN Act shall have expired. 9.8 Consent. Seller shall have received the consents required under its credit facility as more fully described in Schedule 4.2(c). ARTICLE X TERMINATION 10.1 Termination Events. By notice given prior to or at the Closing, subject to Section 10.2, this Agreement may be terminated as follows: 35 (a) by Buyer if a material Breach of any provision of this Agreement has been committed by Seller and such Breach has neither been waived by Buyer nor cured by Seller within thirty (30) days of Seller's receipt of notice from Buyer of such Breach; (b) by Seller if a material Breach of any provision of this Agreement has been committed by Buyer or Parent and such Breach has neither been waived by Seller nor cured by Buyer or Parent within thirty (30) days of Buyer's receipt of notice from Seller of such Breach; (c) by mutual consent of Buyer and Seller; (d) by any Party if the Closing has not occurred on or before December 29, 2002, or such later date as the Parties may agree upon; or (e) by any Party if there shall have been commenced or threatened against any Party, or against any Affiliate of any Party, any Proceeding (a) involving any challenge to, or seeking any material amount of Damages or other relief in connection with, any of the Contemplated Transactions or (b) that may have the effect of preventing, delaying, making illegal, imposing limitations or conditions on or otherwise interfering with any of the Contemplated Transactions. 10.2 Effect of Termination. Each Party's right of termination under Section 10.1 is in addition to any other rights it may have under this Agreement or otherwise, and the exercise of such right of termination will not be an election of remedies. If this Agreement is terminated pursuant to Section 10.1, all obligations of the Parties will terminate, except that the obligations of the Parties in this Section 10.2 and Articles 12, 13 and 14 (except for those in Section 14.4) will survive; provided, however, that, if this Agreement is terminated because of a Breach of this Agreement or because one or more of the conditions to the terminating Party's obligations under this Agreement is not satisfied as a result of the other Party's failure to comply with its obligations under this Agreement, the terminating Party's right to pursue all legal remedies will survive such termination unimpaired. ARTICLE XI ADDITIONAL COVENANTS 11.1 Employees and Employee Benefits. (a) For the purpose of this Agreement, the term "Active Employees" shall mean all employees employed exclusively by Seller on the Closing Date in the Business, including bargaining unit employees currently covered by Seller's collective bargaining agreement with the Paper, Allied-Industrial, Chemical and Energy Workers International Union, AFL-CIO, CLC through its PACE Local 1-1554 (the "Bargaining Representative"), and including employees on temporary leave of absence (including family and/or medical leave, military leave, temporary disability or sick leave), but excluding employees on an indefinite leave or an approved leave in excess of one month and excluding employees on long term disability. 36 (b) (i) Prior to the Closing Date, Buyer shall offer employment to all Active Employees who are covered by the CBA, subject to and in accordance with the provisions of Section 11.1(f) below, to be effective on the Closing Date. (ii) Prior to the Closing Date, Buyer may interview all Active Employees who are not bargaining unit employees, and shall have no obligation to hire any such Active Employee. Subject to applicable Legal Requirements, Buyer will have reasonable access to the Facilities and personnel Records (including performance appraisals, disciplinary actions, and grievance records) of Seller for the purpose of preparing for and conducting employment interviews with such Active Employees and will conduct the interviews as expeditiously as possible prior to the Closing Date. Access will be provided by Seller upon reasonable prior notice during normal business hours. Seller will use Best Efforts to obtain any consents required by applicable Legal Requirements to grant Buyer access to personnel Records. (iii) Buyer will provide Seller with a list of Active Employees who are not bargaining unit employees to whom Buyer has made an offer of employment that has been accepted to be effective on the Closing Date (such Active Employees, along with bargaining unit employees who accept employment with the Buyer upon the Closing, being the "Hired Active Employees"). Buyer will provide such list to Seller in a manner which will permit Seller to comply with any applicable notice requirements under the WARN Act. Effective upon the Closing, Seller will terminate the employment of all of the Hired Active Employees. Notwithstanding the foregoing, an Active Employee who is not actually at work on the Closing Date, such as an employee who is then absent due to illness, shall only become a Hired Active Employee, and be terminated from employment by Seller, upon his commencing active work with the Buyer. (iv) Neither Seller nor its Affiliates shall (A) prior to Closing, solicit the continued employment of or (B) for the two (2)year period after Closing, employ any Active Employee not hired by Buyer at Closing other than those Active Employees listed on Schedule 11.1(b)(iv) (unless and until Buyer has informed Seller in writing that the particular Active Employee will not receive any employment offer from Buyer). Prior to Closing and for the two (2) year period after Closing, neither Buyer nor Parent shall solicit the employment of or employ any Active Employee listed on Schedule 11.1(b)(iv). (v) It is understood and agreed that (A) Buyer's expressed intention to extend offers of employment as set forth in this section shall not constitute any Contract or understanding or any obligation on the part of Buyer to a post-Closing employment relationship of any fixed term or duration or upon any terms or conditions other than those that Buyer may establish pursuant to individual offers of employment (or, with respect to bargaining unit employees, pursuant to collective bargaining) and (B) employment offered by Buyer is "at will" and may be terminated by Buyer or by an employee at any time for any reason (subject to any written commitments to the contrary made by Buyer or an employee, any collective bargaining agreement entered into by Buyer, and applicable Legal Requirements). Nothing in this Agreement shall be deemed to prevent or restrict in any way the right of Buyer to terminate, reassign, promote or 37 demote any of the Hired Active Employees after the Closing or to change adversely or favorably the title, powers, duties, responsibilities, functions, locations, salaries, other compensation or terms or conditions of employment of such employees. (c) (i) Seller shall be responsible for (A) the payment of all wages and other remuneration due to Active Employees with respect to their services as employees of Seller through the Effective Time (or such later time as such employees become Hired Active Employees), except to the extent such payment constitutes an Assumed Liability and except as contemplated by Section 11.1(e)(ii), (B) the payment of any termination or severance payments and the provision of health plan continuation coverage in accordance with the requirements of COBRA and Sections 601 through 608 of ERISA; and (C) any and all payments to employees required under the WARN Act. Seller will pay Hired Active Employees for all pro-rated unused vacation time under Seller's vacation policies as of the Closing Date and Buyer will pay Seller for all vacation time used by Hired Active Employees (who are not bargaining unit employees) prior to the Closing Date in excess of their pro-rated vacation time. (ii) Seller shall be liable for any claims made or incurred by Hired Active Employees and their beneficiaries through the Closing Date (or such later date as such employees become Hired Active Employees) under the Employee Plans. For purposes of the immediately preceding sentence, a claim will be deemed incurred not later than, in the case of hospital, medical or dental benefits, when the services that are the subject of the charge are performed and, in the case of other benefits (such as disability in the case of disability insurance or death in the case of life insurance), when an event has occurred that entitles the employee to the benefit. (d) (i) All Hired Active Employees who are participants in Seller's Defined Benefit Pension Plan ("Seller's Nonunion Pension Plan") or Seller's Employees' Pension Plan ("Seller's Union Pension Plan" and together with Seller's Nonunion Pension Plan, "Seller's Pension Plans") shall retain their accrued benefits under Seller's Pension Plans as of the Closing Date, and Seller (or Seller's Pension Plans) shall retain sole liability for the payment of such benefits as and when such Hired Active Employees become eligible therefor under such Plans. All Hired Active Employees shall become fully vested in their accrued benefits under Seller's Pension Plans as of the Closing Date, and Seller will so amend such Plans if necessary to achieve this result. Employment by Buyer shall not cause Hired Active Employees to be ineligible to commence their benefits under Seller's Pension Plans, such that (A) Hired Active Employees who have attained age 55 as of the Closing Date, and Hired Active Employees who attain age 55 subsequent to the Closing Date, shall be eligible to commence distribution of their benefits under Seller's Nonunion Pension Plan notwithstanding their continued employment with Buyer and (B) Hired Active Employees, regardless of their age or number of completed years of service, will be able to commence distribution of their benefits under Seller's Union Pension Plan notwithstanding their continued employment with Buyer. Seller agrees that accrued benefits under Seller's Union Pension Plan will be calculated based on the $35.75 monthly benefit level effective under such Plan as of October 1, 2002 for those Hired Active Employees employed on or after October 1, 2002 by Buyer or an affiliated entity. 38 (ii) Seller will offer retiree medical benefits, effective as of the Closing Date, to those Hired Active Employees who, as of the Closing Date, are nonunion employees who have completed 10 years of service after attaining age 45, in accordance with its normal practices for the provision of retiree medical benefits, notwithstanding such employees' continued employment with Buyer. (e) (i) Neither Seller nor its Affiliates will make any transfer of pension or other employee benefit plan assets to Buyer or retirement plans maintained by Buyer. Buyer agrees to provide, as of the Closing Date (1) defined benefit pension plan coverage with respect to Hired Active Employees who are not bargaining unit employees that recognizes prior service for benefit accrual purposes with Seller only to the extent credited under Seller's Nonunion Pension Plan, and that offsets the benefit accrued under Seller's Nonunion Pension Plan for service with Seller prior to the Closing Date; (2) unless otherwise agreed to with the Bargaining Representative, defined benefit pension plan coverage with respect to Hired Active Employees who are bargaining unit employees, that recognizes service with both Seller and Buyer and that, together with the benefit provided by Seller's Union Pension Plan, provides a benefit of equal value to the benefit which would have been provided with respect to the employee had the employee been covered for all years of service under Seller's Union Pension Plan; and (3) savings plan coverage, with respect to Hired Active Employees, that recognizes service with Seller for purposes of eligibility and vesting and that affords Hired Active Employees the opportunity, at their discretion, to elect to roll over to such plan distributions they may receive from Seller's 401k Employees Savings and Investment Plan ("Seller's Savings Plan"). Nothing contained herein shall prevent Buyer from amending in any way or terminating any or all of such plans at any time after the Closing Date. (ii) By March 2003, Seller will calculate the amount due under each bonus plan, pro-rated to the Closing Date, for each Annual Incentive Compensation Plan participant and each Rogers Performance Sharing ("RPS") participant based on the final Earnings Per Share results of the Seller for 2002, plus any payroll taxes due in connection with such amount. Seller shall pay Buyer this amount and deliver a calculation (which calculation shall specify the amount of payroll taxes to be withheld in connection therewith) of the amount due to Buyer, by March 1, 2003, and Buyer shall pay each Hired Active Employee, within two weeks of receipt of this payment, an amount at least equal to such amount as a bonus for calendar year 2002. (f) Collective Bargaining Matters. Buyer shall, subject to the requirements of applicable federal labor laws, (i) recognize the Bargaining Representative as the exclusive representative of the Hired Active Employees who are bargaining unit employees and (ii) assume the CBA in accordance with and subject to such changes as are set forth in (or on an attachment to) Exhibit 8.8. Buyer, rather than Seller, will provide retiree medical benefits with respect to Hired Active Employees who are bargaining unit employees and retire from service with Buyer following the Closing Date. Seller shall retain all Liability for any pension, medical, life insurance or other benefits with respect to any retiree, former employee or other employee who is not a Hired Active Employee. Seller will use Best Efforts to resolve any outstanding 39 grievances and arbitrations with respect to bargaining unit employees prior to Closing. Seller will retain responsibility for unresolved grievances and arbitrations as of the Closing Date, including the costs of resolving those grievances and arbitrations, provided that Seller shall not resolve a grievance or arbitration which might negatively impact Buyer without Buyer's consent, which consent shall not be unreasonably withheld. (g) General Employee Provisions. (i) Seller and Buyer shall give any notices required by Legal Requirements and take whatever other actions with respect to the plans, programs and policies described in this Section 11.1 as may be necessary to carry out the arrangements described in this Section 11.1, and agree to cooperate with each other as appropriate with respect to communications to affected employees. (ii) Seller and Buyer shall, both before and after Closing, provide each other with such plan documents and summary plan descriptions, employee data or other information as may be reasonably required to carry out the arrangements described in this Section 11.1 or otherwise facilitate the administration of their respective employee plans and arrangements. (iii) If any of the arrangements described in this Section 11.1 are determined by the IRS or other Governmental Body to be prohibited by law, Seller and Buyer shall modify such arrangements to as closely as possible reflect their expressed intent and retain the allocation of economic benefits and burdens to the parties contemplated herein in a manner that is not prohibited by law. (iv) Seller agrees to use Best Efforts to obtain signed, written authorizations from all Hired Active Employees stating that Seller is authorized to release their personnel files to Buyer. Seller further agrees that any noncompete or confidentiality provisions of Seller's Contracts with employees who become Hired Active Employees of Buyer shall not apply to such employees' work for Buyer, other than in connection with Excluded Products. At Buyer's request and expense, Seller shall take all such actions as may be appropriate to cause, to the extent possible, Buyer to benefit from the provisions of Seller's Contracts with Active Employees who are not retained by Seller or hired by Buyer, which provide that such employees shall keep information regarding the Business confidential and not compete with the Business. (v) Buyer shall not have any responsibility, liability or obligation, whether to Active Employees, former employees, their beneficiaries or to any other Person, with respect to any Employee Plans (including the establishment, operation or termination thereof and the notification and provision of COBRA coverage extension) maintained by Seller, including any responsibility, liability or obligation with respect to any retiree medical or life insurance benefits with respect to individuals who retired from employment with Seller or were otherwise terminated either on or prior to the Closing Date. 40 11.2 Transfer Taxes. All stamp, transfer, documentary sales, use, registration and other such Taxes incurred in connection with this Agreement or the Contemplated Transactions shall be paid by the Party primarily liable therefore under applicable law and such Party shall, at its own expense, prepare and properly file accurate Tax Returns and other documentation with respect to such Taxes on a timely basis. 11.3 Payment of Other Retained Liabilities. Seller shall pay or discharge in full all of the Retained Liabilities. If any such Retained Liabilities are not so paid or discharged, and if Buyer reasonably determines that failure to make any payments will impair Buyer's use or enjoyment of the Assets, Licensed Intellectual Property or Shared Know-How or conduct of the Business, Buyer may, at any time after the Closing Date, elect to make all such payments directly (but shall have no obligation to do so) and set off and deduct the full amount of all such payments from any amounts due under the Note, provided however that such failure to pay continues for ten (10) days after Buyer shall have notified Seller of such failure to make payments. If, after exercising its right to set off and deduct any payment against the Note as provided in the preceding sentence, any amount remains, Buyer may set off and deduct such remaining amount from any Royalty Payments due under the Intellectual Property Agreement. Unless the Buyer and Seller agree otherwise or a court of competent jurisdiction determines otherwise, Buyer shall receive full credit under the Note, this Agreement and the Intellectual Property Agreement for all payments so made. 11.4 Retention of and Access to Records. (a) After the Closing Date, Buyer shall retain for a period consistent with Buyer's record-retention policies and practices those Records of Seller delivered to Buyer. Buyer also shall provide Seller and their Representatives reasonable access thereto, during normal business hours and upon reasonable prior notice, to enable them to prepare financial statements or Tax Returns, deal with Tax audits, administer product liability, product warranty, and workmen's compensation claims, perform the RSA, and to perform similar tasks and responsibilities. Prior to removal or destruction of any such Records, Buyer shall notify Seller and shall afford Seller the opportunity to take possession of such Records as are proposed to be so removed or destroyed. (b) After the Closing Date, Seller shall retain for a period consistent with Seller's record-retention policies and practices those Records of Seller relating to the Business which are not part of the Assets. Seller shall provide Buyer and their Representatives reasonable access thereto, during normal business hours and upon reasonable prior notice, to enable them to conduct the Business. Prior to removal or destruction of any such Records, Seller shall notify Buyer and shall afford Buyer the opportunity to take possession of such Records as are proposed to be so removed or destroyed. Buyer's obligations pursuant to Section 13.3 hereof shall apply to any Records of Seller to which Buyer gains access pursuant to this Section 11.4(b). 11.5 Reports and Returns. Seller shall promptly after the Closing prepare and file all reports and returns required by Legal Requirements relating to the Business as conducted using the Assets, to and including the Effective Time. 41 11.6 Assistance in Proceedings. In the event and for so long as any Party actively is contesting or defending against any action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand in connection with (a) any Contemplated Transaction or (b) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction on or prior to the Effective Time involving the Business, each of the other Parties will cooperate with the contesting or defending Party and his or its counsel in the contest or defense, make available his or its personnel, and provide such testimony and access to his or its books and records as shall be necessary in connection with the contest or defense, all at the sole cost and expense of the contesting or defending Party (unless the contesting or defending Party is entitled to indemnification therefore under Article 12 below). 11.7 Noncompetition, Nonsolicitation, and Nondisparagement. (a) For a period of five (5) years after the Closing Date, Seller shall not, anywhere in North America, directly or indirectly invest in, own, manage, operate, finance, control, advise, render services to or guarantee the obligations of any Person engaged in or planning to become engaged in the Business, provided, however, that Seller may purchase or otherwise acquire up to (but not more than) five percent (5%) of any class of the securities of any Person engaged in the Business (but may not otherwise participate in the activities of such Person) if such securities are listed on any national or regional securities exchange or have been registered under Section 12(g) of the Exchange Act. (b) For a period of five (5) years after the Closing Date, (i) Seller shall not, directly or indirectly solicit any employee of Buyer employed at the Business, and (ii) Buyer shall not, directly or indirectly solicit any employee of Seller (other than the Active Employees). (c) If a final judgment of a court or tribunal of competent jurisdiction determines that any term or provision contained in Section 11.7 is invalid or unenforceable, then the Parties agree that the court or tribunal will have the power to reduce the scope, duration or geographic area of the term or provision, to delete specific words or phrases or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision. This Section 11.7 will be enforceable as so modified after the expiration of the time within which the judgment may be appealed. This Section 11.7 is reasonable and necessary to protect and preserve Buyer's legitimate business interests and the value of the Business and the Assets, Licensed Intellectual Property and Shared Know-How and to prevent any unfair advantage conferred on Seller. (d) This Section 11.7 shall not apply to the Business of the Seller as it relates to Excluded Products or Excluded Technology, as defined in the Intellectual Property Agreement. 11.8 Further Assurances. Subject to the proviso in Section 7.1, the Parties shall cooperate reasonably with each other and with their respective Representatives in connection with any steps required to be taken as part of their respective obligations under this Agreement, and shall (a) furnish upon request to each other such further information; (b) execute and deliver to each other such other documents; and (c) do such other acts and things, all as the other Parties 42 may reasonably request for the purpose of carrying out the intent of this Agreement and the Contemplated Transactions. 11.9 Investigation; Remediation. Buyer and Seller will cooperate in the efforts outlined in the RSA. 11.10 WARN Act. If Buyer terminates any employees of the Business after the Closing Date, and such termination creates an obligation under the WARN Act or any similar state or local Legal Requirement on the part of a Party to provide notices or take any other action, then Buyer shall be deemed the employer under the WARN Act and such other Legal Requirements for all purposes and shall provide such notices, assume such Liabilities and take such other action as may be required thereby. 11.11 Collection of Accounts Receivable. After the Closing Date, Seller will collect any payments remitted to Seller in respect of any Accounts Receivable, whether arising in connection with products shipped before or after the Effective Time, and remit such payments to Buyer by ACH Credit no later than the Tuesday of the week next following the week in which Seller receives such payments. ARTICLE XII INDEMNIFICATION; REMEDIES 12.1 Survival. All representations, warranties, covenants and obligations in this Agreement and any certificate or document delivered pursuant to this Agreement shall survive the Closing and the consummation of the Contemplated Transactions, subject to Section 12.6. The right to indemnification, reimbursement or other remedy based upon such representations, warranties, covenants and obligations shall not be affected by any investigation (including any environmental investigation or assessment) conducted with respect to, or any Knowledge acquired (or capable of being acquired) at any time, whether before or after the execution and delivery of this Agreement or the Closing Date, with respect to the accuracy or inaccuracy of or compliance with any such representation, warranty, covenant or obligation. The waiver of any condition based upon the accuracy of any representation or warranty, or on the performance of or compliance with any covenant or obligation, will not affect the right to indemnification, reimbursement or other remedy based upon such representations, warranties, covenants and obligations. 12.2 Indemnification and Reimbursement by Seller. Seller will indemnify, hold harmless and defend Buyer, and its Representatives, shareholders, subsidiaries and Affiliates (collectively, the "Buyer Indemnified Persons) for any loss, liability, claim, damage, expense (including costs of investigation and defense and reasonable attorneys' fees and expenses) or diminution of value, whether or not involving a Third-Party Claim (collectively, "Damages"), arising from or in connection with: (a) any Breach of any representation or warranty made by Seller in this Agreement; 43 (b) any Breach of any covenant or obligation of Seller in this Agreement or in any certificate, document, writing or instrument delivered by Seller pursuant to this Agreement; (c) any Retained Liabilities; or (d) any brokerage or finder's fees or commissions or similar payments based upon any agreement or understanding made, or alleged to have been made, by any Person with Seller (or any Person acting on its behalf) in connection with any of the Contemplated Transactions. 12.3 Indemnification and Reimbursement by Seller - Environmental Matters. (a) In addition to the other indemnification provisions in Article 12, Seller will indemnify and hold harmless Buyer and the other Buyer Indemnified Persons for any Damages (including costs of cleanup, containment or other remediation and net of any proceeds in connection therewith from Buyer's business interruption insurance carrier) arising from or in connection with: (i) any Environmental Liabilities arising out of or relating to: (A) the ownership or operation by any Person at any time on or prior to the Closing Date of any of the Facilities, Assets or the Business, or (B) any Hazardous Materials or other contaminants that were present on the Facilities or Assets at any time on or prior to the Closing Date; or (ii) any bodily injury (including illness, disability and death, regardless of when any such bodily injury occurred, was incurred or manifested itself), personal injury, property damage (including trespass, nuisance, wrongful eviction and deprivation of the use of real property) or other damage of or to any Person or any Assets in any way arising from any Hazardous Activity conducted by any Person with respect to the Business or the Assets prior to the Closing Date or from any Hazardous Material that was (A) present on or before the Closing Date on or at the Facilities (or present or suspected to be present on any other property, if such Hazardous Material emanated or allegedly emanated from any Facility and was present on any Facility, on or prior to the Closing Date) or (B) Released by any Person on or at any Facilities or Assets at any time on or prior to the Closing Date. (b) Notwithstanding any Legal Requirement to the contrary, the Parties agree that the burden of proof with respect to the extent of Seller's indemnity obligations under this Section 12.3 will be determined as follows: (i) in respect of any claim commenced prior to the third anniversary of the Closing Date, Seller will have the burden of proving that an Environmental Liability arose out of or relates to (in whole or in part) an event or omission occurring after the Closing Date; and (ii) in respect of any Claim commenced after the third anniversary of the Closing Date, Buyer will have the burden of proving that an Environmental Liability arose out of or relates to (in whole or in part) an event or omission occurring before the Closing Date. 44 (c) Notwithstanding any provision of this Agreement to the contrary, the Parties agree that in respect of any Claim commenced after the date which is five (5) years after the date upon which all Approvals (as defined in the RSA) are obtained, to the extent that it is determined that the Environmental Liability arose out of or relates to (in whole or in part) an event or omission occurring before Closing, Seller shall bear the legal fees incurred by or on behalf of Buyer with regard to such Claim, and to the extent that it is determined that the Environmental Liabilities arose out of or relates to (in whole or in part) an event or omission occurring after Closing, Buyer shall bear the legal fees incurred by or on behalf of Seller with regard to such Claim. (d) In addition, notwithstanding any Legal Requirement or provision in this Agreement to the contrary, in the event of a Material Remediation Event, Seller shall, at Seller's option, either: (1) indemnify Buyer for Buyer's Damages, including Buyer's lost profits, incurred as a result of the Material Remediation Event; or (2) reimburse Buyer for its costs to relocate the Business, as conducted at such time at the Facilities. If Seller elects option (2), Seller shall also purchase certain of the Assets from Buyer on the following basis: (a) with respect to the Improvements, Seller will pay the book value calculated in accordance with GAAP at the time of Closing, as set forth in the Closing Balance Sheet and (b) with respect to the Real Estate, Seller will pay the current market value as of the date hereof. Buyer agrees to use Best Efforts to cooperate with Seller and to mitigate the possible effect of any Required Remediation so as to avoid a Material Remediation Event. 12.4 Indemnification and Reimbursement by Parent and Buyer. (a) Parent and Buyer will jointly and severally indemnify, hold harmless and defend Seller and its Representatives, shareholders, subsidiaries and Affiliates (the "Seller Indemnified Persons") for Damages arising from or in connection with: (i) any Breach of any representation or warranty made by Buyer or Parent in this Agreement; (ii) any Breach of any covenant or obligation of Buyer or Parent in this Agreement or in any other certificate, document, writing or instrument delivered by Buyer or Parent pursuant to this Agreement; or (iii) any claim by any Person for brokerage or finder's fees or commissions or similar payments based upon any agreement or understanding alleged to have been made by such Person with Buyer or Parent (or any Person acting on Buyer's or Parent's behalf) in connection with any of the Contemplated Transactions. (b) Buyer will indemnify, hold harmless and defend the Seller Indemnified Parties for Damages arising from or in connection with: (i) any Assumed Liabilities; or 45 (ii) any and all Liabilities arising out of or related to products of the Business to the extent manufactured and sold after the Effective Time. 12.5 Limitations on Amount. Seller shall have no liability (for indemnification or otherwise) with respect to claims under Section 12.2(a) until the total of all Damages with respect to such matters exceeds three hundred and eighty thousand dollars ($380,000) (the "Basket Amount"); provided, however, that after the total of all such damages exceeds the Basket Amount, Seller shall be liable for all such Damages, including the Basket Amount. Seller shall have no liability (for indemnification or otherwise) with respect to claims under Section 12.2(a) for Damages with respect to such matters, in the aggregate in excess of the Purchase Price. This Section 12.5 will not apply to claims under Section 12.2(b) through (d) or to matters arising in respect of Sections 4.1, 4.2(a) or 4.2(b)(iv) or to any Breach of any of Seller's representations and warranties of which Seller had Knowledge at any time prior to the date on which such representation and warranty is made or any intentional Breach by Seller of any covenant or obligation, and Seller will be liable for all Damages with respect to such Breaches. 12.6 Time Limitations. Seller will have liability (for indemnification or otherwise) with respect to any Breach of a representation or warranty (other than those in Sections 4.1, 4.2(a), 4.5, 4.13, 4.15, or 4.21) only if on or before the date which is two years following the Closing Date, Buyer notifies Seller of a claim specifying the factual basis of the claim in reasonable detail to the extent then known by Buyer. Any claims arising under the Sections identified in the preceding sentence or the remaining provisions of this Article 12 shall be governed by the applicable statute of limitations. 12.7 Right of Setoff. Buyer may set off against (i) Royalty Payments otherwise payable under the Intellectual Property Agreement and (ii) amounts otherwise payable under the Note, any amount to which it is entitled under this Agreement as determined by mutual agreement of the Parties (including for this purpose, WPI) or pursuant to an Order. 12.8 Third-Party Claims. (a) Promptly after receipt by a Person entitled to indemnity under this Article 12 (an "Indemnified Person") of notice of the assertion of a Third-Party Claim against it, such Indemnified Person shall give notice to the Person obligated to indemnify under such Section (an "Indemnifying Person") of the assertion of such Third-Party Claim, provided that the failure to notify the Indemnifying Person will not relieve the Indemnifying Person of any liability that it may have to any Indemnified Person, except to the extent that the Indemnifying Person demonstrates that the defense of such Third-Party Claim is prejudiced by the Indemnified Person's failure to give such notice. (b) If an Indemnified Person gives notice to the Indemnifying Person pursuant to Section 12.8(a) of the assertion of a Third-Party Claim, the Indemnifying Person shall assume the defense of such Third-Party Claim with counsel reasonably satisfactory to the Indemnified Person (unless the Indemnifying Person is also a Person against whom the Third-Party Claim is made and the Indemnified Person determines in good faith that joint representation would be inappropriate). If the Indemnifying Person assumes the defense of a Third-Party Claim, (i) no 46 compromise or settlement of such Third-Party Claims may be effected by the Indemnified Person without the Indemnifying Person's Consent, and (ii) no compromise or settlement of such Third-Party Claims may be effected by the Indemnifying Person without the Indemnified Person's Consent unless (A) there is no finding or admission of any violation of Legal Requirement or any violation of the rights of any Person; (B) the sole relief provided is monetary damages that are paid in full by the Indemnifying Person; and (C) the Indemnified Person shall have no liability with respect to any compromise or settlement of such Third-Party Claims effected without its Consent. Notwithstanding the foregoing, if notice is given to an Indemnifying Person of the assertion of any Third-Party Claim and the Indemnifying Person does not, within twenty (20) days after the Indemnified Person's notice is given, give notice to the Indemnified Person of its assumption of the defense of such Third-Party Claim as provided for herein, the Indemnifying Person will be bound by any determination made in such Third- Party Claim or any compromise or settlement effected by the Indemnified Person. (c) Notwithstanding the foregoing, if an Indemnified Person determines in good faith that there is a reasonable probability that a Third-Party Claim may materially and adversely affect it or its Affiliates other than as a result of monetary damages for which it would be entitled to indemnification under this Agreement, the Indemnified Person may, by notice to the Indemnifying Person, assume the exclusive right to defend, compromise or settle such Third-Party Claim, but the Indemnifying Person will not be bound by any determination of any Third-Party Claim so defended for the purposes of this Agreement or any compromise or settlement effected without its Consent (which may not be unreasonably withheld or delayed). (d) With respect to any Third-Party Claim subject to indemnification under this Article 12: (i) both the Indemnified Person and the Indemnifying Person, as the case may be, shall keep the other Person fully informed of the status of such Third-Party Claim and any related Proceedings at all stages thereof where such Person is not represented by its own counsel, and (ii) the Parties agree (each at its own expense) to render to each other such assistance as they may reasonably require of each other and to cooperate in good faith with each other in order to ensure the proper and adequate defense of any Third- Party Claim. (e) With respect to any Third-Party Claim subject to indemnification under this Article 12, the Parties agree to cooperate in such a manner as to preserve in full (to the extent possible) the confidentiality of all Confidential Information and the attorney-client and work-product privileges. In connection therewith, each Party agrees that: (i) it will use its Best Efforts, in respect of any Third-Party Claim in which it has assumed or participated in the defense, to avoid production of Confidential Information (consistent with applicable law and rules of procedure), and (ii) all communications between any Party hereto and counsel responsible for or participating in the defense of any Third-Party Claim shall, to the extent possible, be made so as to preserve any applicable attorney-client or work-product privilege. 12.9 Exclusive Remedy. The indemnification provided in this Article 12 shall be sole and exclusive remedy for any Breach of representation or warranty made by any Party in this Agreement; provided, however, that the foregoing shall not apply to any Breach of which a Party had Knowledge at any time prior to the date on which such representation or warranty is made. 47 12.10 Service of Customer Returns and Product Warranties. Notwithstanding the provisions of Section 12.8, and in no way to derogate from the indemnification obligations of Seller in this Article XII, the Parties agree that, solely as an accommodation to Seller, Buyer shall service customer warranty work for products of the Business manufactured or sold by Seller prior to the Effective Time, and Seller shall reimburse Buyer for such service, in accordance the procedures set forth in Schedule 12.10. ARTICLE XIII CONFIDENTIALITY 13.1 Confidential Information. "Confidential Information" shall mean any information or technology that is not generally available to the public and that is treated as confidential or proprietary by a Party or any of its Affiliates. Confidential Information shall not include, and the provisions set forth in this Article 13 regarding Confidential Information shall not apply (or will cease to apply), with respect to Confidential Information that (i) is or hereafter becomes generally available to the public other than through an unauthorized act or omission or breach by a Party of this Agreement, the Intellectual Property Agreement or the Shared Know-How Agreement, or (ii) becomes available to Seller or Buyer, provided that the source is not known (after due inquiry) by Seller or Buyer, as applicable, to be bound by a confidentiality agreement with or other obligation as to confidentiality, non-disclosure or non- use to, Seller or Buyer (or its Affiliates), as applicable, or (iii) is independently developed or acquired by a Party. Notwithstanding the foregoing, a combination of features shall not be deemed to be in the public domain or in the possession of the Party subject to confidentiality obligations hereunder merely because the individual features are separately found to be in the public domain or in such possession; the combination itself must be in the public domain or in such possession. 13.2 Seller's Confidentiality Obligations. Seller covenants and agrees on behalf of itself, its Affiliates, and all employees of the foregoing, that neither it nor they will disclose to any Person not employed by Buyer or not engaged to render services to Buyer, and that neither it nor they will use for the benefit of Seller or others, any Confidential Information of Buyer or Parent obtained by Seller prior to the Closing or any Confidential Information of the Business transferred (or exclusively licensed) to Buyer at Closing; provided, however, that this provision shall not preclude Seller, its Affiliates, and their employees from use or disclosure of information if (i) use or disclosure of such information shall be required by applicable Legal Requirement or Order of any Governmental Body (but only after notice to Buyer and affording Buyer a reasonable opportunity to obtain confidentiality or protective arrangements to the extent reasonably available), (ii) use or disclosure of such information is reasonably required in connection with any Proceeding against or involving Seller or its Affiliates or (iii) such information is included within the Shared Know-How Agreement. 13.3 Buyer's Confidentiality Obligations. Buyer acknowledges that (as a result of the transactions contemplated by this Agreement and the performance of its obligations under this Agreement and its access to, and the cooperation of, employees of Seller prior to the Closing, as well as its employment of employees of the Business after the Effective Time) Buyer may acquire or have access to Confidential Information belonging to Seller. Buyer 48 acknowledges that any such Confidential Information that does not relate to the Business is and will remain proprietary to Seller and its Affiliates. Buyer, on behalf of each of itself, its Affiliates, and all employees of the foregoing, covenants and agrees that it will not disclose to any Person, and that it will not use for the benefit of itself or others any Confidential Information of Seller that does not relate to the Business. This provision shall not preclude Buyer or its Affiliates and employees from disclosure of such Confidential Information if disclosure of such information shall be required by applicable Legal Requirement or Order of any Governmental Body (but only after notice to Seller and affording Seller a reasonable opportunity to obtain confidentiality or protective arrangements to the extent reasonably available). Buyer's obligations under this Section 13.3 are in addition to its confidentiality obligations under the Shared Know-How Agreement. ARTICLE XIV GENERAL PROVISIONS 14.1 Expenses. Except as otherwise provided in this Agreement, each Party to this Agreement will bear its respective fees and expenses incurred in connection with the preparation, negotiation, execution and performance of this Agreement and the Contemplated Transactions, including all fees and expense of its Representatives; provided, however, that if Seller terminates this Agreement pursuant to Section 10.1(b) or Buyer terminates this Agreement pursuant to Section 10.1(d), Buyer shall reimburse Seller for the actual amounts incurred by Seller in connection with the matters set forth on Schedule 14.1, such amounts not to exceed the maximum amount for each such item set forth on Schedule 14.1 (and upon such payment, Seller shall transfer, convey, assign and deliver to Buyer any tangible asset or intangible rights in respect of the systems work described in Schedule 14.1). If this Agreement is terminated, the obligation of each party to pay its own fees and expenses will be subject to any rights of such Party arising from a Breach of this Agreement by another Party. 14.2 Public Announcements. Prior to Closing, neither Seller nor Buyer shall make any public statements, including, without limitation, any press releases, with regard to this Agreement and the Contemplated Transactions without the prior written consent of the other Party (which consent may not be unreasonably withheld or delayed), except as may be required by Legal Requirement. The Parties will jointly discuss and agree upon a statement to the public regarding this Agreement and Contemplated Transactions, and promptly following the Closing, Seller and Buyer may issue such mutually acceptable public statements. 14.3 Notices. All notices, Consents, waivers and other communications required or permitted by this Agreement shall be in writing and shall be given as follows: (a) by delivery to the appropriate address by hand or by nationally recognized overnight courier service (costs prepaid); (b) by facsimile or e-mail with confirmation of transmission by the transmitting equipment; or (c) sent by certified mail, return receipt requested, in each case to the following addresses, facsimile numbers or e-mail addresses and marked to the attention of the person (by name or title) designated below (or to such other address, facsimile number, e-mail address or person as a Party may designate by notice to the other Parties): 49 if to Seller, to: Rogers Corporation One Technology Drive P.O. Box 188 Rogers, Connecticut 06263-0188 Attention: Office of the Corporate Secretary Fax no.: 860-779-5585 E-mail address: bob.soffer@rogers-corp.com with a mandatory copy to: LeBoeuf, Lamb, Greene & MacRae, L.L.P. 260 Franklin Street Boston, MA 02110-3173 Attn: Terrence Mahoney, Esq. Fax no.: 617-439-0341 E-mail address: tmahoney@llgm.com If to Buyer, to: Vyncolit North America Inc. c/o Perstorp Inc. 238 Nonotuck Street Florence, MA 01062 Attention: David Tracy Fax no.: 413-587-3040 E-mail address: david.tracy@perstorp.com with mandatory copies to: Mannheimer Swartling Advokatbyra Sodra Storgatan 7 Box 1384 251 13 Helsingborg SWEDEN Attention: Ragnar Lindqvist Fax: 46 42 489 22 01 E-mail address: rli@msa.se Wiggin & Dana LLP 400 Atlantic Street Stamford, CT 06911 Attention: Patricia Melick, Esq. Fax: 203-363-7676 E-mail address: pmelick@wiggin.com 50 If to Parent, to: Perstorp Composites Holding AB 28480 Perstorp Sweden Attention: Anders Lundin Fax no.: +46 435 38820 E-mail address: anders.lundin@perstorp.com with mandatory copies to: Mannheimer Swartling Advokatbyra Sodra Storgatan 7 Box 1384 251 13 Helsingborg SWEDEN Attention: Ragnar Lindqvist Fax: 46 42 489 22 01 E-mail address: rli@msa.se Wiggin & Dana LLP 400 Atlantic Street Stamford, CT 06911 Attention: Patricia Melick, Esq. Fax: 203-363-7676 E-mail address: pmelick@wiggin.com 14.4 Enforcement of Agreement. Each Party acknowledges and agrees that the other Parties may be irreparably damaged if any of the provisions of this Agreement are not performed in accordance with their specific terms and that any Breach of this Agreement might not be adequately compensated in all cases by monetary damages alone. Accordingly, in addition to any other right or remedy to which a Party may be entitled, at law or in equity, it shall be entitled to seek to enforce any provision of this Agreement by a decree of specific performance and to temporary, preliminary and permanent injunctive relief to prevent Breaches or threatened Breaches of any of the provisions of this Agreement, without posting any bond or other undertaking. 14.5 Waiver; Remedies Cumulative. Except as set forth in Section 12.8 above, the rights and remedies of the Parties are cumulative and not alternative. Neither any failure nor any delay by any Party in exercising any right, power or privilege under this Agreement or any of the documents referred to in this Agreement will operate as a waiver of such right, power or privilege, and no single or partial exercise of any such right, power or privilege will preclude any other or further exercise of such right, power or privilege or the exercise of any other right, power or privilege. To the maximum extent permitted by applicable law, (a) no claim or right arising out of this Agreement or any of the documents referred to in this Agreement can be 51 discharged by one Party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other Parties; (b) no waiver that may be given by a Party will be applicable except in the specific instance for which it is given; and (c) no notice to or demand on one Party will be deemed to be a waiver of any obligation of that Party or of the right of the Party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement. 14.6 Entire Agreement and Modification. This Agreement supersedes all prior understandings, agreements, representations, or warranties, whether written or oral, express or implied, between the Parties with respect to its subject matter (including any letter of intent and any confidentiality agreement between Buyer and Seller) and constitutes (along with the Disclosure Schedule, Exhibits and other documents delivered pursuant to this Agreement) a complete and exclusive statement of the terms of the agreement between the Parties with respect to its subject matter. Notwithstanding the forgoing, the Existing Confidentiality Agreement shall remain in full force and effect in accordance with its terms until the Closing, at which time the foregoing shall apply thereto. For the avoidance of doubt, the Existing Confidentiality Agreement shall remain in full force and effect in accordance with its terms in the event that this Agreement is terminated in accordance with Article X hereof. This Agreement may not be amended, supplemented, or otherwise modified except by a written agreement executed by the party to be charged with the amendment. 14.7 Disclosure Schedule. The information in the Disclosure Schedule constitutes (i) exceptions to particular representations, warranties, covenants and obligations of Seller as set forth in this Agreement or (ii) descriptions or lists of assets and liabilities and other items referred to in this Agreement. If there is any inconsistency between the statements in this Agreement and those in the Disclosure Schedule (other than an exception expressly set forth as such in the Disclosure Schedule with respect to a specifically identified representation or warranty), the statements in this Agreement will control. The statements in the Disclosure Schedule, and those in any supplement thereto, relate only to the provisions in the Section of this Agreement to which they expressly relate and not to any other provision in this Agreement. 14.8 Assignments, Successors, and No Third-Party Rights. No Party may assign any of its rights or delegate any of its obligations under this Agreement without the prior written consent of the other Parties, except that Buyer may assign any of its rights under this Agreement to any Affiliate of Buyer at any time, provided that such Affiliate agrees in writing to be bound by the provisions of this Section 14.8, and may collaterally assign its rights hereunder to any financial institution providing financing to Buyer at any time after Buyer has satisfied all of its payment obligations under the Note and Intellectual Property Agreement. Subject to the preceding sentence, this Agreement will apply to, be binding in all respects upon and inure to the benefit of the successors and permitted assigns of the parties. Nothing expressed or referred to in this Agreement will be construed to give any Person other than the Parties to this Agreement any legal or equitable right, remedy or claim under or with respect to this Agreement or any provision of this Agreement, except such rights as shall inure to a successor or permitted assignee pursuant to this Section 14.8. 52 14.9 Severability. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable. 14.10 Construction. The headings of Articles and Sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. All references to "Articles," "Sections" and "Schedules" refer to the corresponding Articles, Sections and Schedules of this Agreement and the Disclosure Schedule. 14.11 Governing Law. This Agreement will be governed by and construed under the laws of the State of Connecticut without regard to conflicts-of-laws principles that would require the application of any other law. 14.12 Execution of Agreement. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. The exchange of copies of this Agreement and of signature pages by facsimile transmission shall constitute effective execution and delivery of this Agreement as to the parties and may be used in lieu of the original Agreement for all purposes. Signatures of the parties transmitted by facsimile shall be deemed to be their original signatures for all purposes. [Signature Page Follows] 53 IN WITNESS WHEREOF, the parties have caused this Agreement executed in multiple original counterparts as of the date first set forth above. VYNCOLIT NORTH AMERICA INC. By: /s/ Henny Van Dijk ---------------------- Name: Henny Van Dijk Title: President PERSTORP COMPOSITES HOLDING B.V. By: /s/ Anders Lundin ------------------------------- Name: Anders Lundin Title: Attorney-in-fact ROGERS CORPORATION By: /s/ Robert D. Wachob -------------------------- Name: Robert D. Wachob Title: President and Chief Operating Officer 54 EXHIBIT I DEFINITIONS For purposes of this Agreement, the following terms and variations thereof have the meanings specified or referred to in this Exhibit I: "Accounts Receivable" shall mean (a) all trade accounts receivable and other rights to payment from customers of the Business and the full benefit of all security for such accounts or rights to payment, including all trade accounts receivable representing amounts receivable in respect of goods shipped or products sold or services rendered to customers of the Business, (b) all other accounts or notes receivable of Seller arising out of or relating to the Business and the full benefit of all security for such accounts or notes and (c) any claim, remedy or other right related to any of the foregoing. For purposes of determining Net Asset Value, there will be no bad debt reserve established for the Accounts Receivable, notwithstanding the requirements of GAAP. "Active Employees" shall have the meaning as set forth in Section 11.1(a). "Adjustment Amount" shall have the meaning set forth in Section 3.6. "Affiliate" shall mean any Person that directly or indirectly controls, is directly or indirectly controlled by or is directly or indirectly under common control with such specified Person and each Person that serves as a director, officer, partner, executor or trustee of such specified Person (or in a similar capacity). For purposes of this definition "control" (including "controlling," "controlled by," and "under common control with") means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise, and shall be construed as such term is used in the rules promulgated under the Securities Act. "Agreement" shall have the meaning set forth in the first paragraph of this Agreement. "Assets" shall have the meaning set forth in Section 2.1. "Assignment and Assumption Agreement" shall have the meaning set forth in Section 3.4(a)(ii). "Assumed Liabilities" shall have the meaning set forth in Section 2.3. "Balance Sheet" shall have the meaning set forth in Section 4.3. "Bargaining Representative" shall have the meaning set forth in Section 11.1(a). "Basket Amount" shall have the meaning set forth in Section 12.5. "Benefits Accrual" shall have the meaning set forth in Section 2.3(c). "Best Efforts" shall mean the commercially reasonable efforts that a prudent Person desirous of achieving a result would use in similar circumstances to achieve that result as expeditiously as possible, provided, however, that a Person required to use Best Efforts under this Agreement will not be thereby required to take actions that would result in a material adverse change in the benefits to such Person of this Agreement and the Contemplated Transactions or to dispose of or make any change to its business, expend any material funds or incur any other material burden. "Bills of Sale" shall have the meaning set forth in Section 3.4(a)(i). "Breach" shall mean any breach of, or any inaccuracy in, any representation or warranty or any breach of, or failure to perform or comply with, any covenant or obligation, in or of this Agreement or any other Contract, or any event which with the passing of time or the giving of notice, or both, would constitute such a breach, inaccuracy or failure. "Business" shall have the meaning set forth in Section 2.1. "Business Contract" shall mean any Contract entered into in the Ordinary Course of Business under which Seller in connection with its conduct of the Business has or may acquire any rights or benefits, or has or may become subject to any obligation or liability, or by which any of the Assets or Licensed Intellectual Property owned or used by Seller is or may become bound. "Business Day" shall mean any day other than (a) Saturday or Sunday or (b) any other day on which banks in New York, NY are permitted or required to be closed. "Buyer" shall have the meaning set forth in the first paragraph of this Agreement. "Buyer Group" shall have the meaning set forth in Section 6.1. "Buyer Indemnified Persons" shall have the meaning set forth in Section 12.2. "Buyer's Closing Documents" shall have the meaning set forth in Section 5.2(a). "Buyer's Consultant" shall have the meaning set forth in Section 8.10(b). "CBA" shall mean the Labor Agreement by and between the Seller, PACE Local 1-1554, and the Bargaining Representative (1999- 2004). "CBA Assumption" shall have the meaning set forth in Section 8.8. "Claim" shall mean any action, suit, litigation, proceeding, hearing, investigation, charge, complaint, claim, demand or notice. "Closing" shall have the meaning set forth in Section 3.3. "Closing Balance Sheet" shall have the meaning set forth in Section 3.5(b). "Closing Date" shall have the meaning set forth in Section 3.3. "Closing Net Asset Value" shall have the meaning set forth in Section 3.5(b). "Closing Payment" shall have the meaning set forth in Section 3.1(b)(i). "Code" shall mean the Internal Revenue Code of 1986, as amended. "Confidential Information" shall have the meaning set forth in Section 13.1. "Connecticut Transfer Act" shall mean the Connecticut Transfer Act, Conn. Gen. Stat. 22a-134 et seq. "Consent" shall mean any written approval, consent, ratification, waiver or other authorization. "Consideration Cap" shall have the meaning set forth in Section 3.1(a). "Contemplated Transactions" shall mean all of the transactions contemplated by this Agreement. "Contract" shall mean any agreement, contract, Lease, consensual obligation, promise or undertaking (whether written or oral and whether express or implied). "Copyright" shall mean any registered and unregistered copyrights in both published works and unpublished works. "CTDEP" shall have the meaning set forth in Section 4.21(b)(i). "Damages" shall have the meaning set forth in Section 12.2. "Disclosure Schedule" shall mean the schedules delivered by Seller to Buyer concurrently with the execution and delivery of this Agreement and to which reference is made in this Agreement, together with any supplements thereto provided as of the Closing Date. "Dollars" or "$" shall mean United States currency. "Effective Time" shall have the meaning set forth in Section 3.3 "Employee Plans" shall have the meaning set forth in Section 4.15(a). "Encumbrance" shall mean any charge, claim, community or other marital property interest, lien, option, pledge, security interest, mortgage, right of way, easement, encroachment, servitude, right of first option, right of first refusal or similar restriction. "Environment" shall mean soil, land surface or subsurface strata, surface waters (including navigable waters and ocean waters), groundwaters, drinking water supply, stream sediments, ambient air (including indoor air), plant and animal life and any other environmental medium or natural resource. "Environmental Liabilities" shall mean any cost, damages, expense, liability, obligation or other responsibility arising from or under any Environmental Law, including, without limitation, those consisting of or relating to: (a) any other compliance, corrective or remedial measure required under any Environmental Law (including on-site or off- site contamination and regulation of any chemical substance or product); (b) any fine, penalty, judgment, award, settlement, legal or administrative proceeding, damages, loss, claim, demand or response, remedial or inspection cost or expense arising under any Environmental Law; or (c) financial responsibility under any Environmental Law for cleanup costs or corrective action, including any cleanup, removal, containment or other remediation or response actions ("Cleanup") required by any Environmental Law and for any natural resource damages. Notwithstanding anything in this Agreement to the contrary, Environmental Liabilities shall not include any cost, damages, expense, liability, obligation or other responsibility arising from or related to Buyer's post-Closing operations to the extent that they deviate from Seller's pre-Closing manufacturing operation and procedures at the Facilities, as described more particularly in Schedule 4.21(b) attached hereto, including production levels, mixture of product grades, length of production runs per product grade, and raw material constituents per product grade. The terms "removal," "remedial" and "response action" include the types of activities covered by the United States Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA), as amended. Notwithstanding the foregoing, responsibility for any Environmental Liabilities that are within the coverage of the RSA shall be governed exclusively by the RSA and not by this Agreement. "Environmental Law" shall mean any Legal Requirement in effect on or before the date hereof that is not an Occupational Safety and Health Law that requires or relates to: (a) advising appropriate authorities, employees or the public of intended or actual Releases of pollutants or hazardous substances or materials, violations of discharge limits or other prohibitions and the commencement of activities, such as resource extraction or construction, that could have a significant impact on the Environment; (b) preventing or reducing to acceptable levels the Release of pollutants or hazardous substances or materials into the Environment; (c) reducing the quantities, preventing the Release or minimizing the hazardous characteristics of wastes that are generated; (d) assuring that products are packaged and used so that they do not present unreasonable risks to human health or the Environment when used or disposed of; (e) protecting resources, species or ecological amenities; (f) reducing to acceptable levels the risks inherent in the transportation of hazardous substances, pollutants, oil or other potentially harmful substances; (g) cleaning up pollutants that have been Released, preventing the Threat of Release or paying the costs of such clean up or prevention; or (h) making responsible parties pay private parties, or groups of them, for damages done to their health or the Environment or permitting self-appointed representatives of the public interest to recover for injuries done to public assets. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "ERISA Affiliate" shall have the meaning set forth in Section 4.15(a). "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Excluded Assets" shall have the meaning set forth in Section 2.2. "Existing Confidentiality Agreement" shall mean the Confidentiality Agreement by and between Seller and Perstorp Composites Holding AB dated as of February 26, 2002. "Facilities" shall mean any real property, leasehold or other interest in real property currently owned or operated by Seller in connection with the Business. Notwithstanding the foregoing, for purposes of the definitions of "Hazardous Activity" and "Remedial Action" and Sections 4.21 and 12.3, "Facilities" shall mean any real property, leasehold or other interest in real property currently or formerly owned or operated by Seller in connection with the Business. "GAAP" shall mean generally accepted accounting principles for financial reporting in the United States, applied on a consistent basis. "Governing Documents" shall mean with respect to any particular entity, (a) any charter or similar document adopted or filed in connection with the creation, formation or organization of the Person; (b) all equityholders' agreements, voting agreements, voting trust agreements, joint venture agreements, registration rights agreements or other agreements or documents relating to the organization, management or operation of any Person or relating to the rights, duties and obligations of the equityholders of any Person; and (c) any amendment or supplement to any of the foregoing. "Governmental Authorization" shall mean any Consent, license, registration or permit issued, granted, given or otherwise made available by or under the authority of any Governmental Body or pursuant to any Legal Requirement. "Governmental Body" shall mean any: (a) nation, state, county, city, town, borough, village, district or other jurisdiction; (b) federal, state, local, municipal, foreign or other government; (c) governmental or quasi-governmental authority of any nature (including any agency, branch, department, board, commission, court, tribunal or other entity exercising governmental or quasi-governmental powers); (d) multinational organization or body; (e) body entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power; or (f) official of any of the foregoing. "Guarantee" shall have the meaning set forth in Section 3.4(c)(i). "Hazardous Activity" shall mean the distribution, generation, handling, importing, management, manufacturing, processing, production, refinement, storage, transfer, transportation, treatment or use (including any withdrawal or other use of groundwater) of Hazardous Material in, on, under, about or from any of the Facilities or any part thereof into the Environment. "Hazardous Material" shall mean any substance, material or waste which is regulated by any Governmental Body, including any material, substance or waste which is defined as a "hazardous waste," "hazardous material," "hazardous substance," "extremely hazardous waste," "restricted hazardous waste," "contaminant," "toxic waste" or "toxic substance" under any provision of Environmental Law, and including petroleum, petroleum products, asbestos, presumed asbestos-containing material or asbestos- containing material, urea formaldehyde and polychlorinated biphenyls. "Hired Active Employees" shall have the meaning set forth in Section 11.1(b)(iii). "Improvements" shall have the meaning set forth in Section 2.1(a). "Indemnified Person" shall have the meaning set forth in Section 12.8(a). "Indemnifying Person" shall have the meaning set forth in Section 12.8(a). "Independent Accountants" shall have the meaning set forth in Section 3.5(d). "Intangible Property" shall have the meaning set forth in Section 2.1(e). "Intellectual Property" shall mean collectively, the Intangible Property described in Section 2.1(e)(i), together with the Licensed Intellectual Property and the Shared Know-How. "Intellectual Property Agreement" shall have the meaning set forth in Section 3.4(a)(iv). "Inventories" shall mean all inventories of the Business, wherever located, including all finished goods, work in process, raw materials, spare parts and all other materials and supplies to be used or consumed by Seller in the production of finished goods of the Business. For purposes of determining Net Asset Value. Inventories will be valued at the lower of cost and fair market value on a first-in, first-out basis in accordance with the following obsolescence guidelines: (i) in connection with raw materials, value will be determined with respect to age as follows: Less than 6 months usage 100% More than 6 months usage(but less than 9 months anticipated usage) 75% More than 9 months usage(but less than 12 months anticipated usage) 50% More than 12 months usage 0% To determine usage of various categories of raw materials inventories for purposes of the foregoing table, the Parties will calculate the actual usage (or its equivalent) of the raw materials in question over the six months immediately preceding the Effective Time and divide that amount by six to determine the average monthly usage of such inventory. The total dollar amount of raw material inventory in question will then be divided by the average monthly usage to determine the usage of the raw material inventory in question for purposes of the foregoing table. Furthermore, raw material inventory for which there is no current formulation will be deemed to have a usage of more than twelve months for purposes of the foregoing table, regardless of the average monthly usage of such inventory, exclusive of materials used for experimental purposes (which materials will be deemed to have a usage of less than 6 months for purposes of the foregoing table). (ii) in connection with work-in-process and finished goods, value will be determined with respect to age as follows: Manufactured within previous 9 months 100% Manufactured more than 9 months ago 0% "IRS" shall mean the United States Internal Revenue Service and, to the extent relevant, the United States Department of the Treasury. "Knowledge" with respect to a Party shall mean the actual knowledge of its senior officers and employees who report directly to a senior officer and have responsibility for the relevant matter, without any express or implied obligation of due inquiry. "Lease" shall mean any lease or rental agreement, license, right to use or installment and conditional sale agreement to which Seller is a party and any other Business Contract pertaining to the leasing or use of any Tangible Personal Property. "Legal Requirement" shall mean any federal, state, local, municipal, foreign, international, multinational or other constitution, law, ordinance, principle of common law, code, regulation, statute or treaty. "Liability" shall mean with respect to any Person, any liability or obligation of such Person of any kind, character or description, whether known or unknown, absolute or contingent, accrued or unaccrued, disputed or undisputed, liquidated or unliquidated, secured or unsecured, joint or several, due or to become due, vested or unvested, executory, determined, determinable or otherwise, and whether or not the same is required to be accrued on the financial statements of such Person. "Licensed Intellectual Property" shall have the meaning set forth in Section 3.4(a)(iv). "Manchester Facility" shall have the meaning set forth in Section 8.10(a). "Marks" shall mean all trademarks, service marks, trade dress, logos, slogans, trade names, corporate names, Internet domain names, and rights in telephone numbers, together with all translations, adaptations, derivations, and combinations thereof and including all goodwill associated therewith, and all applications, registrations, and renewals in connection therewith "Material Consents" shall have the meaning set forth in Section 8.3. "Material Remediation Event" shall have the meaning set forth in Section 8.10(b). "Mortgage" shall have the meaning set forth in Section 3.4(b)(vii). "Net Asset Value" shall have the meaning set forth in Section 3.5(a). "Note" shall have the meaning set forth in Section 3.1(b)(ii). "Occupational Safety and Health Law" shall mean any Legal Requirement designed to provide safe and healthful working conditions and to reduce occupational safety and health hazards, including the Occupational Safety and Health Act, and any program, whether governmental or private (such as those promulgated or sponsored by industry associations and insurance companies), designed to provide safe and healthful working conditions. "Order" shall mean any order, injunction, judgment, decree, ruling or arbitration award of any Governmental Body or arbitrator. "Ordinary Course of Business" shall mean an action taken by a Person will be deemed to have been taken in the Ordinary Course of Business only if that action is consistent in nature, scope and magnitude with the past practices of such Person and is taken in the ordinary course of the normal, day-to-day operations of such Person. "Other Accruals" shall have the meaning set forth in Section 2.3(d). "Parent" shall have the meaning set forth in the first paragraph of this Agreement. "Party" or "Parties" shall have the meaning set forth in the first paragraph of this Agreement. "Patents" shall mean all patents, patent applications and patent disclosures, together with all reissuances, continuations, continuations in part revision, extensions, and reexamination. "Payables" shall have the meaning set forth in Section 2.3(a). "PBGC" shall have the meaning set forth in Section 4.15(d). "Permitted Encumbrances" shall have the meaning set forth in Section 4.6(a). "Person" shall mean an individual, partnership, corporation, business trust, limited liability company, limited liability partnership, joint stock company, trust, unincorporated association, joint venture or other entity or a Governmental Body. "Phase II Report" shall have the meaning set forth in Section 8.10(a). "Phase II Arbitrator" shall have the meaning set forth in Section 8.10(d). "Proceeding" shall mean any action, arbitration, audit, hearing, investigation, litigation or suit (whether civil, criminal, administrative, judicial or investigative, whether formal or informal, whether public or private) commenced, brought, conducted or heard by or before, or otherwise involving, any Governmental Body or arbitrator, or a demand or claim for any of the foregoing. "Purchase Price" shall have the meaning set forth in Section 3.1(a). "Real Estate" shall have the meaning set forth in Section 2.1(a). "Real Estate Lease" shall mean any lease in respect of any Facility used in the conduct of the Business. "Realty Use Rights" shall have the meaning set forth in Section 4.6(d). "Record" shall mean information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form. "Release" shall mean any release, spill, emission, leaking, pumping, pouring, dumping, emptying, injection, deposit, disposal, discharge, dispersal, leaching or migration on or into the Environment or into or out of any property. "Remedial Action" shall mean all actions, including any capital expenditures, required or voluntarily undertaken (a) to clean up, remove, treat or in any other way address any Hazardous Material or other substance; (b) to prevent the Release or Threat of Release or to minimize the further Release of any Hazardous Material or other substance so it does not migrate or endanger or threaten to endanger public health or welfare or the Environment; (c) to perform pre-remedial studies and investigations or post-remedial monitoring and care; or (d) to bring all Facilities and the operations conducted thereon into compliance with Environmental Laws and environmental Governmental Authorizations. "Representative" shall mean with respect to a particular Person, any director, officer, manager, employee, agent, consultant, advisor, accountant, financial advisor, legal counsel or other representative of that Person. "Required Remediation" shall have the meaning set forth in Section 8.10(a). "Retained Liabilities" shall have the meaning set forth in Section 2.4. "Rogers N.V." shall mean Rogers N.V., a corporation organized under the laws of Belgium. "Rogers Singapore" shall mean Rogers Technologies Singapore, Inc., a corporation organized under the laws of Delaware. "Royalty Payments" shall have the meaning set forth in Section 3.2. "RPS" shall have the meaning set forth in Section 11.1(e)(ii). "RSA" shall have the meaning set forth in Section 3.4(a)(vii). "Schedule" shall mean a part or section of the Disclosure Schedule. "SEC" shall mean the United States Securities and Exchange Commission. "Securities Act" shall mean the Securities and Exchange Act of 1933, as amended. "Security Agreement" shall have the meaning set forth in Section 3.4(a)(vi). "Seller" shall have the meaning set forth in the first paragraph of this Agreement. "Seller's Closing Documents" shall have the meaning set forth in Section 4.2(a). "Seller's Consultant" shall have the meaning set forth in Section 8.10(a). "Seller Indemnified Persons" shall have the meaning set forth in Section 12.4(a). "Seller's Nonunion Pension Plan" shall have the meaning set forth in Section 11.1(d)(i). "Seller's Savings Plan" shall have the meaning set forth in Section 11.1(e)(i). "Sellers Pension Plans" shall have the meaning set forth in Section 11.1(d)(i). "Sellers Union Pension Plan" shall have the meaning set forth in Section 11.1(d)(i). "Shared Know-How" shall have the meaning set forth in the Intellectual Property Agreement. "Shared Know-How Agreement" shall have the meaning set forth in Section 3.4(a)(v). "Side Agreement" shall have the meaning set forth in Section 3.4(a)(vii). "Survey" shall have the meaning set forth in Section 8.9(b). "Systems" shall have the meaning set forth in Section 6.8. "Tangible Personal Property" shall mean all machinery, equipment, tools, furniture, office equipment, computer hardware, supplies, materials, vehicles and other items of tangible personal property (other than Inventories) of every kind owned by Seller (wherever located and whether or not carried on Seller's books), together with any express or implied warranty by the manufacturers or sellers or lessors of any item or component part thereof and all maintenance records and other documents relating thereto. "Tax" shall mean any income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, property, environmental, windfall profit, customs, vehicle, airplane, boat, vessel or other title or registration, capital stock, franchise, employees' income withholding, foreign or domestic withholding, social security, unemployment, disability, real property, personal property, sales, use, transfer, value added, alternative, add-on minimum and other tax, fee, assessment, levy, tariff, charge or duty of any kind whatsoever and any interest, penalty, addition or additional amount thereon imposed, assessed or collected by or under the authority of any Governmental Body or payable under any tax-sharing agreement or any other Contract. "Tax Return" shall mean any return (including any information return), report, statement, schedule, notice, form, declaration, claim for refund or other document or information filed with or submitted to, or required to be filed with or submitted to, any Governmental Body in connection with the determination, assessment, collection or payment of any Tax or in connection with the administration, implementation or enforcement of or compliance with any Legal Requirement relating to any Tax. "Third Party" shall mean a Person that is not a party to this Agreement. "Third-Party Claim" shall mean any claim against any Indemnified Person by a Third Party, whether or not involving a Proceeding. "Threat of Release" shall mean a reasonable likelihood of a Release that may require action in order to prevent or mitigate damage to the Environment that may result from such Release. "Uncollected Accounts Receivable" shall have the meaning set forth in Section 3.7. "Union" shall mean Paper Allied-Industrial, Chemical and Energy Workers International Union AFL-CIO, CLC, PACE, Local 1-1554 of Manchester. "VOC RACT" shall have the meaning set forth in Section 4.21(b). "VOC Report" shall have the meaning set forth in Section 4.21(b). "WARN Act" shall have the meaning set forth in Section 4.22(b). "WPI" shall mean World Properties, Inc., an Illinois corporation. EX-7 9 edgvoldefcompkey.txt VOL DEF COMP KEY EMPLOYEES ROGERS CORPORATION VOLUNTARY DEFERRED COMPENSATION PLAN FOR KEY EMPLOYEES AMENDED AND RESTATED EFFECTIVE AS OF DECEMBER 21, 1999 Second Amendment Pursuant to the powers and procedures for amendment of the Rogers Corporation Voluntary Deferred Compensation Plan For Key Employees, as amended and restated effective as of December 21, 1999, as amended, (the "Plan"), described in Section 11(a) of the Plan, the Compensation and Organization Committee of the Board of Directors of Rogers Corporation (the "Committee") hereby amends the Plan, subject to any necessary consent of the affected Participants with respect thereto: 1. Section 1 is amended by deleting the second sentence thereof in its entirety and substituting therefor the following sentence: "The purpose of the Plan is to permit each key employee of Rogers Corporation (the "Company") or any subsidiary thereof ("a Subsidiary") who is designated by the Chief Executive Officer of the Company and each elected corporate officer of the Company (in either case, a "Participant") to elect to defer a portion of his or her compensation from the Company or Subsidiary." 2. Section 5(b) is amended by deleting Subsection (ii) thereof in its entirety and substituting therefor the following Subsection (ii): "(ii) Interest Credits. As of the last day of each calendar month, each sub-account within a Participant's Deferred Compensation Account which is being maintained in terms of dollars shall be credited with interest on the amount credited to such sub-account as of the last day of the preceding calendar month. The rate of interest to be used for this purpose during any calendar year shall be (A) for calendar years before 2003, the 30-year U.S. Treasury bond rate in effect as of January 1 of such year, and (B) for calendar years after 2002, the sum of the 10-year U.S. Treasury note rate in effect as of January 1 of such year, plus twenty basis points (i.e., 0.20 of 1%). For calendar years before 2003, the foregoing rate shall be determined by reference to the first January issue of Barron's for such calendar year, or such other comparable publication as may be selected by the Company if Barron's is no longer published or no longer provides such information. For calendar years after 2002, the foregoing rate shall be determined by reference to any reliable source selected by the Company from time to time." 3. Section 8(b) is amended by deleting the last sentence thereof in its entirety and substituting therefor the following sentence: 1 of 2 "The Chief Executive Officer, the President, the Vice President, Finance or the Vice President and Treasurer of the Company may act to establish a trust or other arrangement(s) pursuant to this Section 8(b)." Except as so amended, the Plan in all other respects is hereby confirmed. IN WITNESS WHEREOF, the Committee has caused this Second Amendment to the Plan to be duly executed on this 7th day of October, 2002. ROGERS CORPORATION By: /s/ Robert M. Soffer Robert M. Soffer Vice President and Treasurer 2 of 2 EX-8 10 edgaamend98sipa.txt AMENDMENT 98 STOCK INCENTIVE PLAN SIXTH AMENDMENT TO THE ROGERS CORPORATION 1998 STOCK INCENTIVE PLAN A. Pursuant to the power reserved to it in Section 9 of the Rogers Corporation 1998 Stock Incentive Plan, as subsequently amended (the "Plan"), the Board of Directors of Rogers Corporation hereby further amends the Plan as follows: 1. Effective as of October 24, 2002, Section 5(b)(i) of the Plan is amended by adding the following sentence immediately after the first sentence thereof: "Notwithstanding the foregoing, the Non-Qualified Stock Option to be granted in December of 2002 will be for 4,500 shares of Stock for each Non- Employee Director rather than for 2,250 shares of Stock." B. Except as so amended, the Plan in all other respects is hereby confirmed. IN WITNESS WHEREOF, Rogers Corporation has caused this Sixth Amendment to the Plan to be duly executed by a duly authorized officer on this 7th day of November, 2002. ROGERS CORPORATION By:/s/ Robert M. Soffer Its: Vice President and Treasurer EX-9 11 edgamend90sop.txt AMENDMENT 90 STOCK OPTION PLAN SECOND AMENDMENT TO THE ROGERS CORPORATION 1990 STOCK OPTION PLAN (Restatement No. 3) Pursuant to the powers reserved to it in Section 12 of the Rogers Corporation 1990 Stock Option Plan (Restatement No. 3) (the "Plan"), the Board of Directors of Rogers Corporation (the "Board") hereby amends the Plan, effective as of August 22, 2002, by: (i) Deleting the first sentence of Section 5 of the Plan and replacing it with the following sentence: "Options may be granted to and Stock may be purchased by those Key Employees who are recommended by the Chief Executive Officer of the Company and approved by the Committee.", and (ii) Adding the following sentence to the end of Section 5: "Options may also be granted, under such terms and conditions as the Committee deems appropriate, to former employees of the Company or any Subsidiary of the Company, if such employment ends after August 31, 2002." Except as herein amended, the provisions of the Plan shall remain in full force and effect. IN WITNESS WHEREOF, the Board has caused this Second Amendment to the Plan to be duly executed on this 7th day of October, 2002. ROGERS CORPORATION By: /s/ Robert M. Soffer Robert M. Soffer Vice President and Treasurer EX-10 12 edgbylaws.txt AMENDMENT BYLAWS BY-LAWS OF ROGERS CORPORATION ARTICLE I STOCKHOLDERS 1. Annual Meeting. The annual meeting of stockholders shall be held within six months of the end of the corporation's fiscal year on a date and at a time to be determined by a majority of the Directors then in office. The purposes for which the annual meeting is to be held, in addition to those prescribed by law, by the Articles of Organization or by these By-Laws, may be specified by the Directors, Chief Executive Officer (if any), or the President. If no annual meeting is held in accordance with the foregoing provisions, a special meeting may be held in lieu thereof, and any action taken at such meeting shall have the same effect as if taken at the annual meeting. 2. Special Meetings. Special meetings of stockholders may be called by the President or by the Directors. Upon written application of one or more stockholders who hold at least 40% in interest of the capital stock entitled to vote at the meeting, special meetings shall be called by the Clerk, or in the case of the death, absence, incapacity or refusal of the Clerk, by any other officer. 3. Place of Meetings. All meetings of stockholders shall be held at such place in the United States as is stated in the notice of the meeting, and such place shall be in Connecticut unless a different place is fixed by the Directors. 4. Notice of Meetings. A written notice of every meeting of stockholders, stating the place, date and hour thereof, and the purposes for which the meeting is to be held, shall be given by the Clerk or by the person calling the meeting at least ten days before the meeting to each stockholder entitled to vote thereat and to each stockholder, who by law, by the Articles of Organization or by these By-Laws is entitled to such notice, by leaving such notice with him or at his residence or usual place of business, or by mailing it postage prepaid and addressed to such stockholder at his address as it 1 of 14 appears upon the books of the corporation. No notice need be given to any stockholder if a written waiver of notice, executed before or after the meeting by the stockholder or his attorney thereunto authorized, is filed with the records of the meeting. 5. Quorum. The holders of a majority in interest of all stock issued, outstanding and entitled to vote at a meeting shall constitute a quorum, but a lesser number may adjourn any meeting from time to time without further notice. 6. Voting and Proxies. Each stockholder shall have one vote for each share of stock entitled to vote held by him of record according to the records of the corporation. Stockholders may vote either in person or by written proxy dated not more than six months before the meeting named therein. Proxies shall be filed with the Clerk of the meeting, or of any adjournment thereof, before being voted. Except as otherwise limited therein, proxies shall entitle the persons named therein to vote at any adjournment of such meeting but shall not be valid after final adjournment of such meeting. A proxy with respect to stock held in the name of two or more persons shall be valid if executed by one of them unless at or prior to exercise of the proxy the corporation receives a specific written notice to the contrary from any one of them. A proxy purporting to be executed by or on behalf of a stockholder shall be deemed valid unless challenged at or prior to its exercise. 7. Action at Meeting. When a quorum is present, the holders of a majority of the stock present or represented and voting on a matter, except where a larger vote is required by law, the Articles of Organization or these By-Laws, shall decide any matter to be voted on by the stockholders. Any election by stockholders shall be determined by a plurality of the votes cast by the stockholders entitled to vote at the election. No ballot shall be required for such election unless requested by a stockholder present or represented at the meeting and entitled to vote in the election. The corporation shall not directly or indirectly vote any share of its stock. 2 of 14 ARTICLE II DIRECTORS 1. Powers. The business of the corporation shall be managed by a Board of Directors who may exercise all the powers of the corporation except as otherwise provided by law, by the Articles of Organization or by these By-Laws. In the event of a vacancy in the Board of Directors, the remaining Directors, except as otherwise provided by law, may exercise the powers of the full Board until the vacancy is filled. 2. Election. A Board of Directors of such number, not less than seven, nor more than fifteen, as shall be fixed by the stockholders, shall be elected by the stockholders at the annual meeting. No person serving as a Director on September 10, 1991 shall be elected or re-elected as a Director on a date which is on or after his or her seventy- second birthday; no other person shall be elected or re- elected as a Director on a date which is on or after his or her seventieth birthday. 3. Vacancies. Any vacancy in the Board of Directors, other than a vacancy resulting from the enlargement of the Board by the Directors, may be filled by the stockholders or, in the absence of stockholder action, by a majority of the Directors then in office. 4. Enlargement of the Board. The number of the Board of Directors may be increased and one or more additional Directors elected at any special meeting of the stockholders or by the Directors by vote of two-thirds of the Directors then in office. 5. Tenure. Except as otherwise provided by law, by the Articles of Organization or by these By-Laws, Directors shall hold office until the next annual meeting of stockholders and thereafter until their successors are chosen and qualified. Any Director may resign by delivering his written resignation to the Chairman of the Board of Directors (if any), President, Clerk or Secretary. Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event. 6. Removal. A Director may be removed from office (a) with or without cause by vote of a majority of the stockholders or (b) for cause by vote of two- 3 of 14 thirds of the Directors then in office. A removal for cause shall state the cause. A Director may be removed for cause only after reasonable notice and opportunity to be heard before the body proposing to remove him. 7. Meetings. Regular meetings of the Directors may be held without call or notice at such places and at such times as the Directors may from time to time determine, provided that any Director who is absent when such determination is made shall be given notice of the determination. A regular meeting of the Directors may be held without a call or notice at the same place as the annual meeting of stockholders, or the special meeting held in lieu thereof, following such meeting of stockholders. Special meetings of the Directors may be held at any time and place designated by the Chairman of the Board of Directors (if any), President, Treasurer or two or more Directors. Unless otherwise provided by law or the Articles of Organization, members of the Board of Directors may participate in a meeting of such Directors by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time, and participation by such means shall constitute presence in person at such meeting. 8. Notice of Meetings. Notice of all special meetings of the Directors shall be given to each Director by the Secretary, or if there be no Secretary, by the Clerk, or Assistant Clerk, or in case of the death, absence, incapacity or refusal of such persons, by the officer or one of the Directors calling the meeting. Notice shall be given to each Director in person or by telephone, or by telegram, telecopy or other electronic means sent to his business or home address, at least forty-eight hours in advance of the meeting, or by written notice mailed to his business or home address at least one week in advance of the meeting. Notice need not be given to any Director if a written waiver of notice, executed by him before or after the meeting, is filed with the records of the meeting, or to any Director who attends the meeting without protesting prior thereto or at its commencement the lack of notice to him. A notice or waiver of notice of a Director's meeting need not specify the purposes of the meeting. 4 of 14 9. Quorum. At any meeting of the Directors, a majority of the Directors then in office shall constitute a quorum. Less than a quorum may adjourn any meeting from time to time without further notice. 10. Action at Meeting. At any meeting of the Directors at which a quorum is present, the vote of a majority of those present, unless a different vote is specified by law, by the Articles of Organization, or by these By-Laws, shall be sufficient to decide any matter. 11. Action by Consent. Any action by the Directors may be taken without a meeting if a written consent thereto is signed by all the Directors and filed with the records of the Directors' meetings. Such consent shall be treated as a vote of the Directors for all purposes. 12. Committees. The Directors may elect from their number an executive or other committees and may delegate thereto some or all of their powers except those which by law, the Articles of Organization or these By-Laws they are prohibited from delegating. Except as the Directors may otherwise determine, any such committee may make rules for the conduct of its business, but unless otherwise provided by the Directors or in such rules, its business shall be conducted as nearly as may be in the same manner as is provided by these By-Laws for the Directors. If power to bind the corporation is delegated to such a committee, such election, removal, delegation and/or determination shall be by a majority of the Directors then in office. 13. Issuance of Stock. The Directors are authorized, at any time, to provide for the issuance of unissued capital stock from time to time authorized under the Articles of Organization of the corporation. 5 of 14 ARTICLE III OFFICERS 1. Enumeration. The officers of the corporation shall consist of a President, a Treasurer, a Clerk, and such other officers, including a Chairman of the Board of Directors, a Chief Executive Officer, a Chief Operating Officer, one or more Vice Presidents, Assistant Treasurers, Assistant Clerks, Secretary and Assistant Secretaries as the Directors may determine. 2. Election. The President, Treasurer and Clerk shall be elected annually by the Directors at their first meeting following the annual meeting of stockholders, provided that the Directors may fill vacancies in such offices at any time. Other officers may be chosen by the Directors at such meeting or at any other meeting. 3. Qualification. The President need not be a Director but, if any is elected, the Chairman of the Board of Directors shall be a Director. Other officers may be Directors but need not be. No officer need be a stockholder. Any two or more offices may be held by the same person, provided that the President and Clerk shall not be the same person. The Clerk shall be a resident of Massachusetts unless the corporation has a resident agent appointed for the purpose of service of process. Any officer may be required by the Directors to give bond for the faithful performance of his duties to the corporation in such amount and with such sureties as the Directors may determine. 4. Tenure. Except as otherwise provided by law, by the Articles of Organization or by these By-Laws, the President, Treasurer and Clerk shall each hold office until the first meeting of the Directors following the annual meeting of stockholders and thereafter until his successor is chosen and qualified; and all other officers shall hold office until the first meeting of the Directors following the annual meeting of stockholders, unless a shorter term is specified in the vote choosing or appointing them. Any officer may resign by delivering his written resignation to the Chairman of the Board of Directors (if any), President, Clerk or Secretary, and such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event. 6 of 14 5. Removal. The Directors may remove any elected officer with or without cause by a vote of a majority of the entire number of Directors then in office, provided that a removal for cause shall state the cause and an elected officer may be removed for cause only after reasonable notice and opportunity to be heard by the Board of Directors prior to action thereon. 6. Chief Executive Officer, Chairman of the Board of Directors, President and Vice Presidents. The Chief Executive Officer or, if there is no Chief Executive Officer, the President of the corporation shall, subject to the direction of the Directors, have general supervision and control of its business. Unless otherwise provided by the Directors he shall preside, when present, at all meetings of stockholders and (unless a Chairman of the Board of Directors has been elected and is present) of the Directors. If a Chairman of the Board of Directors is elected he shall preside at all meetings of the Board of Directors at which he is present. Any Vice President shall have such powers (a) as the Directors may from time to time designate, or (b) in the absence of specific delegation by the Directors, then as the Chief Executive Officer (if any) or the President may from time to time designate. 7. Treasurer and Assistant Treasurers. Except as the Directors shall otherwise determine, the Treasurer shall have general charge of the financial affairs of the corporation and shall cause to be kept accurate books of account. He shall have custody of all funds, securities, and valuable documents of the corporation, except as the Directors may otherwise provide. Any Assistant Treasurer shall have such powers (a) as the Directors may from time to time designate, or (b) in the absence of specific delegation by the Directors, then as the Chief Executive Officer (if any) or the President may from time to time designate. 8. Clerk and Assistant Clerks. The Clerk shall keep a record of the meetings of stockholders. Any Assistant Clerk shall have such powers (a) as the Directors may from time to time designate, or (b) in the absence of specific delegation by the Directors, then as the Chief Executive Officer (if any) or the President may from time to time designate. In the absence of the Clerk from any meeting of stockholders, an Assistant Clerk, if one be elected, 7 of 14 otherwise a Temporary Clerk designated by the person presiding at the meeting, shall perform the duties of the Clerk. 9. Secretary and Assistant Secretaries. If a Secretary is elected, he shall keep a record of the meetings of the Directors and in his absence, an Assistant Secretary, if one be elected, otherwise a Temporary Secretary designated by the person presiding at the meeting, shall keep a record of the meetings of the Directors. 10. Other Powers and Duties. Each officer shall, subject to these By-Laws, have in addition to the duties and powers specifically set forth in these By-Laws, such duties and powers as are customarily incident to his office and such duties and powers (a) as the Directors may from time to time designate, or (b) in the absence of specific delegation by the Directors, then as the Chief Executive Officer (if any) or the President may from time to time designate. ARTICLE IV CAPITAL STOCK 1. Certificates of Stock. Each stockholder shall be entitled to a certificate of the capital stock of the corporation in such form as may be prescribed from time to time by the Directors. The certificate shall be signed by the Chairman of the Board of Directors (if any), President or a Vice President, and by the Treasurer or an Assistant Treasurer, but when a certificate is countersigned by a transfer agent or a registrar, other than a Director, officer or employee of the corporation, such signatures may be facsimiles. In case any officer who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer at the time of its issue. 2. Transfers. Subject to the restrictions, if any, stated or noted on the stock certificates, shares of stock may be transferred on the books of the corporation by the surrender to the corporation or its transfer agent of the certificate therefor properly endorsed or accompanied by a written assignment and power of attorney properly executed, with necessary transfer stamps affixed, and with such proof of the authenticity of signature as the corporation or its transfer agent may reasonably require. Except as may be 8 of 14 otherwise required by law, or by these By-Laws, the corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect thereto, regardless of any transfer, pledge or other disposition of such stock, until the shares have been transferred on the books of the corporation in accordance with the requirements of these By-Laws. It shall be the duty of each stockholder to notify the corporation of his post office address. 3. Record Date. The Directors may fix in advance a time which shall be not more than sixty days preceding the date of any meeting of stockholders, or the date for the payment of any dividend or the making of any distribution of stockholders, or the last day on which the consent or dissent of stockholders may be effectively expressed for any purpose, and which in the case of such a dividend or distribution shall be at least ten days after the meeting at which such dividend or distribution is declared, as the record date for determining the stockholders having the right to notice of and to vote at such meeting, and any adjournment thereof, or the right to receive such dividend or distribution or the right to give such consent or dissent. In such case only stockholders of record on such record date shall have such right, notwithstanding any transfer of stock on the books of the corporation after the record date. Without fixing such record date the Directors may for any of such purposes except the payment of a dividend or the making of a distribution to stockholders close the transfer books for all or any part of such period. 4. Replacement of Certificates. In case of the alleged loss or destruction or the mutilation of a certificate of stock, a duplicate certificate may be issued in place thereof, upon such terms as the Directors may prescribe. 9 of 14 ARTICLE V MISCELLANEOUS PROVISIONS 1. Fiscal Year. The fiscal year of the corporation shall begin on the Monday nearest January 1 and end on the Sunday nearest December 31. 2. Seal. The seal of the corporation shall, subject to alteration by the Directors, bear its name, the word "Massachusetts", and the year of its incorporation. 3. Execution of Instruments. All deeds, leases, transfers, contracts, bonds, notes and other obligations authorized to be executed by an officer of the corporation in its behalf shall be signed by the President or the Treasurer except as the Directors may generally or in particular cases otherwise determine. 4. Voting Upon Securities of Other Corporations. Unless otherwise ordered by the Board of Directors, the Chief Executive Officer (if any), the President, any Vice President, or the Treasurer, acting singly, shall have full power and authority on behalf of the corporation to attend any meetings of security holders of any corporation in which this corporation may hold securities, and to vote or give any consent on behalf of the corporation as such security holder at any such meeting or otherwise, and in connection therewith he shall possess and exercise any and all rights and powers incident to the ownership of securities which, as the owner thereof, this corporation might possess and exercise, and he may delegate such powers of the corporation to a proxy or proxies. The Board of Directors may confer like powers upon any other person or persons from time to time, and may revoke any such power so granted at its pleasure. 5. Corporate Records. The original, or attested copies, of the Articles of Organization, By-Laws and records of all meetings of the incorporators and stockholders, and the stock and transfer records, which shall contain the names of all stockholders and the record address and the amount of stock held by each, shall be kept in Massachusetts at the principal office of the corporation, or at an office of its transfer agent or of the Clerk. Said copies and records need not all be kept in the same office. They shall be available at all reasonable times to the inspection of any stockholder for any proper purpose but not to secure a list of stockholders for the purpose of selling said list or copies thereof or of using the same for a purpose other than in the interest of the applicant, as a stockholder, relative to the affairs of the corporation. 6. Articles of Organization. All references in these By-Laws to the Articles of Organization shall be deemed to refer to the Articles of Organization of the corporation, as restated and/or amended and in effect from time to time. 7. Power to Act Notwithstanding Interest in Transaction. In the absence of fraud or bad faith, no contract or transaction by the corporation shall be void, voidable or in any way affected by reason of the fact that the contract or transaction is (a) with one or more of its officers, Directors, stockholders or employees, (b) with a person who is in any way interested in the corporation or (c) with a corporation, organization or other concern in which an officer, Director, stockholder or employee of this corporation is an officer, Director, stockholder, employee or in any way interested. The provisions of this section shall apply notwithstanding the fact that the presence of a Director or stockholder, with whom a contract or transaction is made or entered into or who is an officer, director, stockholder or employee of a corporation, organization or other concern with which a contract or transaction is made or entered into or who is in any way interested in such contract or transaction, was necessary to constitute a quorum at the meeting of Directors (or any authorized committee thereof) or stockholders at which such contract or transaction was authorized and/or that the vote of such Director or stockholder was necessary for the adoption of such contract or transaction, provided that if said interest was material, it shall have been known or disclosed to the Directors or stockholders participating in the vote on said contract or transaction. A general notice to any person voting on said contract or transaction that an officer, Director, stockholder or employee has a material interest in any corporation, organization or other concern shall be sufficient disclosure as to such officer, Director, stockholder or employee with respect to all contracts and transactions with such corporations, organization or other concern. 8. Indemnification of Directors, Officers and Employees. This corporation shall indemnify each Director, officer and employee and each former Director, officer and employee against, and each such Director, officer and employee shall be entitled without further act on his part to indemnity from this corporation for, any cost, expenses (including attorneys' fees), judgments, fines, penalties and/or liabilities (including amounts paid in 11 of 14 settlements, other than amounts paid to this corporation itself, made with a view to curtailment of the costs of litigation) reasonably incurred by or imposed upon him in connection with or arising out of any action; suit or other proceeding (whether civil or criminal, and including any proceeding before any administrative or legislative body or agency), in which he may be involved or with which he may be threatened (i) by reason of his being or having been such Director, officer or employee of this corporation or of any other corporation or organization which he served as Director, officer or employee at the request of this corporation, or (ii) by reason of his serving or having served any capacity with respect to any employee benefit plan within the meaning of Title I of the Employee Retirement Income Security Act of 1974, as amended from time to time, or successor provision of law, which plan has been established or maintained by this corporation or a subsidiary thereof or for which this corporation or such subsidiary has been declared responsible by a court of law or agency of government, whether or not he continues to be such Director, officer or employee at the time such action, suit or proceeding is brought or threatened; provided, however, that no such Director, officer or employee shall be so indemnified with respect to any matter (a) as to which he shall have been adjudicated in any proceeding not to have acted in good faith in the reasonable belief that his action was in the best interests of the corporation, or (b) as to which he shall have been adjudicated in any proceeding to have been derelict in the performance of his duty as such Director, officer or employee or (c) arising out of his wilful malfeasance, bad faith, gross negligence or reckless disregard of such duty; and provided further that, in respect of any matter in which any settlement is effected, such indemnification shall be limited to matters covered by the settlement as to which this corporation is advised by independent legal counsel that such Director, officer or employee, in the opinion of such counsel, acted in good faith in the reasonable belief that his action was in the best interests of this corporation; and provided further that in any criminal matter such indemnification shall be limited to matters as to which this corporation is advised by independent legal counsel that such Director, officer or employee, in the opinion of such counsel, acted in the reasonable belief that his conduct was lawful. All questions arising under 12 of 14 this section shall be determined by or in the manner designated by a vote of a majority of those Directors who are not parties to such proceeding, which may include the designation of legal counsel to make such determination, and shall include such designation as called for above in the case of any matter in which any settlement is effected and in any criminal matter. Advances may be made by this corporation against costs, expenses and fees at the discretion of, and upon such terms and conditions as may be determined by, the Board of Directors. The foregoing right of indemnification shall inure to the benefit of the executors or administrators of each such Director, officer and employee and shall not be exclusive of other rights to which any such Director, officer or employee may otherwise be entitled, including rights under insurance purchased or maintained by the corporation, provided that the corporation's obligation hereunder shall be offset to the extent of any actual payment to or on behalf of such Director, officer or employee pursuant to another source of indemnification or to any insurance coverage. 9. Charitable Contributions. The Corporation may make contributions to corporations, trusts, funds or foundations, organized and operated exclusively for charitable, scientific or educational purposes, no part of the net earnings of which inures to the benefit of any private stockholder or individual; provided that in any fiscal year the aggregate of all such contributions shall not exceed one-half of one per cent of the capital and surplus of the corporation determined as of the end of the preceding fiscal year, unless contributions in excess of such aggregate shall be authorized by vote of the holders of a majority of the shares of stock of the corporation outstanding and entitled to vote taken at a regular or special meeting duly called and held in the fiscal year during which contributions in excess of such limit shall be made. 10. Amendments. These By-Laws may at any time be amended by vote of the stockholders, provided that notice of the substance of the proposed amendment is stated in the notice of the meeting. In addition they may be amended by vote of a majority of the Directors then in office, except with respect to removal of Directors, the election of committees by Directors and delegation of powers thereto, or amendment of these By-Laws, and except with respect to any provision which by law, the Articles of Organization as heretofore or from time to time amended, or other provisions of these By- 13 of 14 Laws, requires action by the stockholders. Not later than the time of giving notice of the meeting of stockholders next following the making, amending or repealing by the Directors of any By-Law, notice thereof stating the substance of such change shall be given to all stockholders entitled to vote on amending the By-Laws. Any By-Law adopted by the Directors may be amended or repealed by the stockholders. June 19, 2002 14 of 14 EX-11 13 edgdefcompnonem.txt AMENDMENT DEF COMP NON EMPLOYEES ROGERS CORPORATION VOLUNTARY DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS AMENDED AND RESTATED EFFECTIVE AS OF DECEMBER 21, 1999 First Amendment Pursuant to the powers and procedures for amendment of the Rogers Corporation Voluntary Deferred Compensation Plan For Non-Employee Directors, as amended and restated effective as of December 21, 1999, (the "Plan"), described in Section 10(a) of the Plan, the Compensation and Organization Committee of the Board of Directors of Rogers Corporation (the "Committee") hereby amends the Plan, subject to any necessary consent of the affected Directors with respect thereto: Section 4 is amended by deleting Subsection (c) thereof in its entirety and substituting therefor the following Subsection (c): "(c) As of the last day of each calendar month, the Company shall credit each sub-account within a Director's Deferred Compensation Account which is being maintained in terms of dollars with interest on the amount credited to such sub-account as of the sixteenth (16th) day of such calendar month. The rate of interest to be used for this purpose during any calendar year shall be (A) for calendar years before 2003, the 30-year U.S. Treasury bond rate in effect as of January 1 of such year, and (B) for calendar years after 2002, the sum of the 10- year U.S. Treasury note rate in effect as of January 1 of such year, plus twenty basis points (i.e., 0.20 of 1%). For calendar years before 2003, the foregoing rate shall be determined by reference to the first January issue of Barron's for such calendar year, or such other comparable publication as may be selected by the Company if Barron's is no longer published or no longer provides such information. For calendar years after 2002, the foregoing rate shall be determined by reference to any reliable source selected by the Company from time to time. Notwithstanding the foregoing, the Company may increase (but not decrease, unless the decrease is de minimis) the rate of interest to be used under the Plan by written notice to each Director (including former Directors who then have a Deferred Compensation Account which would be affected by such change), which notice shall specify the new rate of interest to be used, the effective date of such change and the Deferred Compensation Accounts to which such new rate of interest shall apply." Except as so amended, the Plan in all other respects is hereby confirmed. IN WITNESS WHEREOF, the Committee has caused this First Amendment to the Plan to be duly executed on this 7th day of October, 2002. ROGERS CORPORATION By: /s/ Robert M. Soffer Robert M. Soffer Vice President and Treasurer EX-12 14 edgltenhance.txt AMENDMENT LT ENHANCEMENT LONG-TERM ENHANCEMENT PLAN FOR SENIOR EXECUTIVES OF ROGERS CORPORATION Second Amendment Pursuant to the powers and procedures for amendment of the Long- Term Enhancement Plan for Senior Executives of Rogers Corporation, effective as of December 17, 1997 (the "Plan"), described in Section 10 of the Plan, the Compensation and Organization Committee of the Board of Directors of Rogers Corporation (the "Committee") hereby amends the Plan effective as of August 21, 2002: Section 4 is amended by deleting the first sentence thereof in its entirety and substituting therefor the following sentence: "Participants in the Plan shall be those Employees who are recommended for participation in the Plan by the Chief Executive Officer of the Company and who receive the Committee's approval for participation in the Plan." Except as so amended, the Plan in all other respects is hereby confirmed. IN WITNESS WHEREOF, the Committee has caused this Second Amendment to the Plan to be duly executed on this 7th day of October, 2002. ROGERS CORPORATION By: /s/ Robert M. Soffer Robert M. Soffer Vice President and Treasurer EX-13 15 edgaamend98sip.txt AMENDMENT 98 STOCK INCENTIVE PLAN FIFTH AMENDMENT TO THE ROGERS CORPORATION 1998 STOCK INCENTIVE PLAN A. Pursuant to the power reserved to it in Section 9 of the Rogers Corporation 1998 Stock Incentive Plan, as subsequently amended (the "Plan"), the Board of Directors of Rogers Corporation hereby further amends the Plan as follows: 1. Effective as of January 1, 2002, Section 5(b)(i) of the Plan is amended by deleting the first sentence thereof and substituting the following in lieu thereof: "Each Non-Employee Director shall automatically be granted, as of each Retainer Payment Date, beginning with the Retainer Payment Date of June, 2002, a Non-Qualified Stock Option to purchase 2,250 shares of Stock (or, with respect to any individual who has become or ceased to be a Non- Employee Director since the later of December 31, 2001 or the next preceding Retainer Payment Date, an amount equal to a prorated portion of 2,250 shares as determined on an equitable basis by the Company (the `Partial Retainer'))." B. Except as so amended, the Plan in all other respects is hereby confirmed. IN WITNESS WHEREOF, Rogers Corporation has caused this Fifth Amendment to the Plan to be duly executed by a duly authorized officer on this 10th day of October, 2001. ROGERS CORPORATION By:/s/ Robert M. Soffer Its: Vice President and Treasurer -----END PRIVACY-ENHANCED MESSAGE-----