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EXHIBIT 99.3
RPM, INC. AND SUBSIDIARIES 11
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PART II - OTHER INFORMATION
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ITEM 1 -- LEGAL PROCEEDINGS
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With the addition of six newly filed asbestos-related bodily injury
lawsuits filed against Bondex International, Inc., a wholly-owned subsidiary of
the Company ("Bondex"), there are currently pending against Bondex a total of
300 asbestos-related bodily injury suits filed on behalf of various individuals
in various jurisdictions in the United States. All of these lawsuits name
numerous other corporate defendants and all allege bodily injury as a result of
the exposure to or use of asbestos-containing products. Bondex has denied
liability in all pending lawsuits and continues to vigorously defend them.
As previously reported in the Company's Annual Report on Form 10-K for
the fiscal year ended May 31, 1993, the Company has been notified by the U.S.
Environmental Protection Agency ("EPA") that it may have liability as a
potentially responsible party ("PRP") under the Comprehensive Environmental
Response, Compensation and Liability Act, as amended ("CERCLA"), in connection
with the Springfield Township Dump Site, Davisburg, Michigan (the "Springfield
Site"). The Company is alleged to be associated with the Springfield Site as
well as the Rose Township Site, Rose Township, Michigan (the "Rose Township
Site") as a consequence of the disposal of waste originating at Mac-O-Lac
Paints, Inc., a former subsidiary of the Company whose assets were sold in
February, 1982. The EPA issued a Record of Decision ("ROD") setting forth the
preferred remedial action for the Springfield Site which includes removal of
volatile organic compond contaminants from soils and groundwater as well as
removal of PCB contaminated soils. The Company and other PRPs have organized a
steering committee which has engaged in negotiations with the EPA with respect
to a proposed Interim Remedial Action Phase involving removal of volatile
organic contaminants from soils and groundwater and reimbursement of the EPA
for past response costs. The committee has strongly disputed the ROD's
requirement for PCB removal and this issue is being reevaluated by the EPA.
The Company and other PRPs have entered into a Consent Order to perform a
portion of the remedial design work for a cleanup and to reimburse the EPA for
a portion of costs the EPA incurred at the site. The Steering Committee is
presently negotiating with EPA regarding the performance of a groundwater
cleanup response action. The EPA is expected to issue a Section 106
Administrative Order to the Company and eleven other parties requiring the
performance of the groundwater cleanup in accordance with the negotiated work
plan. The remaining settlement issues are still under discussion with the EPA.
The Company is pursuing the issue of coverage for this matter with its
insurance carriers. The Company believes that the ultimate resolution of this
matter will not materially affect the Company's finincial position or results
of operations.
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PART II - OTHER INFORMATION
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ITEM 1. -- LEGAL PROCEEDINGS - Continued
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Carboline Company, a wholly-owned subsidiary of the Company
("Carboline") has been named by the EPA together with 36 other entities
as a PRP under CERCLA in connection with the Powell Road Landfill Site, Huber
Heights, Ohio (the "Site"). Carboline is alleged to be associated with the
Site as a consequence of disposal of waste originating at its Xenia, Ohio
plant. Carboline has joined with other PRPs in a "PRP Organization Agreement"
for the purpose of conducting a common response to any claim for removal or
response action asserted by the EPA or the State of Ohio or conducting a common
defense to any such claim. A remedial investigation ("RI") to evaluate the
nature and extent of contamination at the Site and a feasibility study ("FS")
of recommended cleanup remedy, prepared by Waste Management, Inc., owner of the
Site, have been submitted to the EPA. Following its review of the RI/FS, the
EPA has tentatively proposed a more expensive remedy, which will be the subject
of future negotiations. The Company believes that the ultimate resolution of
this matter will not materially affect the Company's financial position or
results of operations.
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PART II - OTHER INFORMATION
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ITEM 1 -- LEGAL PROCEEDINGS
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Two asbestos-related bodily injury lawsuits which had previously been
filed against Bondex International, Inc., a wholly-owned subsidiary of the
Company ("Bondex") were dismissed with prejudice as a result of plaintiffs'
inability to produce evidence of exposure to or use of any Bondex
asbestos-containing product. Further, thirty additional lawsuits which had been
filed in IN RE: ASBESTOS PRODUCTS LIABILITY LITIGATION (NO. VI); U.S. District
Court, Eastern District of Pennsylvania, Civil Action No. MDL 875, were
dismissed without prejudice by Order entered October 15, 1993. All involved
allegations of asbestos-related diseases not compensable under current
Pennsylvania case law. All of the dismissed cases are subject to reinstatement
should the diseases alleged by plaintiffs progress to a compensable status.
There are currently pending against Bondex a total of 284 asbestos-related
bodily injury suits filed on behalf of various individuals in various
jurisdictions in the United States. All of these lawsuits name numerous other
corporate defendants and all allege bodily injury as a result of the exposure
to or use of asbestos-containing products. Bondex has denied liability in all
pending lawsuits and continues to vigorously defend them.
As previously reported in the Company's Quarterly Report on Form 10-Q
for the quarter ended August 31, 1993, Carboline Company, a wholly-owned
subsidiary of the Company ("Carboline") has been named by the U.S.
Environmental Protection Agency ("EPA") together with 36 other entities as a
potentially responsible party ("PRP") under the Comprehensive Environmental
Response, Compensation and Liability Act, as amended ("CERLCA") in connection
with the Powell Road Landfill Site, Huber Heights, Ohio (the "Site"). Carboline
is alleged to be associated with the Site as a consequence of disposal of waste
originating at its Xenia, Ohio plant. Carboline has joined with other PRPs in
a "PRP Organization Agreement" for the purpose of conducting a common response
to any claim for removal or response action asserted by the EPA or the State of
Ohio or conducting a common defense to any such claim. A remedial investigation
("RI") to evaluate the nature and extent of contamination at the Site and a
feasibility study ("FS") of recommended cleanup remedy, prepared by Waste
Management, Inc., owner of the Site, have been submitted to the EPA. Following
its review of the RI/FS, the EPA has tentatively proposed a more expensive
remedy, which will be the subject of future negotiations. The PRP group, now
totalling 45, has advised the EPA of the PRPs' interest in negotiating an
Administrative Order on Consent which would obligate the PRPs to perform a
Remedial Design at the Site. Initial discussions with the EPA are scheduled for
January, 1994. Based upon Carboline's estimated allocated share of total waste
volume at the Site (approximately 0.50 percent) the Company believes that
ultimate resolution of this matter will not have a material adverse effect on
the Company's financial position or results of operations.
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PART II - OTHER INFORMATION
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ITEM 1 -- LEGAL PROCEEDINGS - Continued
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As previously reported in the Company's Annual Report on Form 10-K for
the fiscal year ended May 31, 1993, agreement was reached to settle two
adversary proceedings pending against the Company in the bankruptcy proceedings
of GEC Industries, Inc. (formerly Gates Engineering Company), a former
subsidiary of the Company ("GEC"), Case No. 89-44 in the United States
Bankruptcy Court for the District of Delaware. The first proceeding, GEC AND
THE WARRANTY CLAIMANTS COMMITTEE V. AMERICAN INTERNATIONAL GROUP, INC., ET AL.,
Adversary No. 90-64, is a declaratory judgment action against the Company,
certain of its subsidiaries and certain of their primary and excess insurers
seeking judicial determination of, among other things, the obligations of the
insurance carriers and scope of coverage under the insuring agreements with
respect to claims asserted against GEC for alleged defective roofing materials
manufactured by GEC. The second proceeding, GEC AND THE WARRANTY CLAIMANTS
COMMITTEE V. RPM, INC., Adversary No. 90-65, seeks to hold the Company liable
for all warranty claims of GEC, based upon allegations that GEC was the alter
ego, instrumentality and actual or apparent agent of the Company. The
settlement agreement, which involves an aggregate payment of $3 million by the
Company and the insurance carriers, was approved by the U.S. Bankruptcy Court
by Order entered May 14, 1993. On May 20, 1993, Notice of Appeal from the Order
was filed in the U.S. District Court for the District of Delaware; Civil Action
No. 93-338 (Bankruptcy No. 89-44), by Jack E. Brown, Trustee in Bankruptcy for
Gentges Roofing and Sheet Metal, Inc., a GEC warranty claimant. Appellant Jack
E. Brown subsequently withdrew the appeal which was then dismissed by the U.S.
District Court per Order entered September 30, 1993. Stipulations of Dismissal
of both adversary proceedings (Adversary Nos. 90-64 and 90-65) were
subsequently executed by all parties and filed with the U.S. Bankruptcy Court.
Per Order entered January 11, 1994, both adversary proceedings were dismissed
with prejudice by the U.S. Bankruptcy Court. This litigation is now ended.
As previously reported in the Company's Annual Report on Form 10-K for
the fiscal year ended May 31, 1993, the Company was named a defendant in a
lawsuit captioned GATES ENGINEERING COMPANY, INC., ET AL. V. NOMA INDUSTRIES,
LTD., JACK E. BROWN, TRUSTEE IN BANKRUPTCY FOR GENTGES ROOFING & SHEET METAL,
INC. V. GATES ENGINEERING COMPANY, INC., ET AL. (including RPM, Inc.) filed
August 26, 1987 in the United States District Court for the Western District of
Missouri, Central Division, Case No. 86-4053-CV-C-5. In a Third Amended
Complaint, Plaintiff Brown included derivative claims against the Company,
claims for tortious interference with contract and violation by the Company of
the federal RICO statute. The Third Amended Complaint sought $1,394,561.44 in
actual damages, $10 million in punitive damages, treble compensatory damages
under RICO and further relief. Per Order entered May 26, 1993, the U.S.
District Court granted the Company's Motions for
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PART II - OTHER INFORMATION
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ITEM 1 -- LEGAL PROCEEDINGS - Continued
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Summary Judgment and dismissed all counts alleging civil conspiracy and
violation of the RICO statute. At the commencement of trial on June 7, 1993,
all alter-ego claims against the Company, including counts of fraud, negligence
and breach of contract, were voluntarily dismissed with prejudice by the
plaintiff. On June 9, 1993, the U.S. District Court directed a verdict in favor
of the Company on the sole remaining count of tortious interference with
contract, and judgment was entered per Order entered June 11, 1993. On July 9,
1993, a Notice of Appeal from the Order entered May 26, 1993 (granting the
Company's Motion for Summary Judgment), as well as from the Order entered June
11, 1993 (entering judgment on the directed verdict for the Company), was filed
by plaintiff Brown in the U.S. Court of Appeals, Eighth Circuit; Appeal No.
93.2810. In November, 1993, the Company and plaintiff Brown entered into a
settlement agreement, (subject to approval of the U.S. Bankruptcy Court for the
Western District of Missouri, Central Division), pursuant to which the Company
agreed to pay Brown an amount the Company considers insignificant in exchange
for Brown's complete dismissal of his appeal pending before the U.S. Eighth
Circuit Court of Appeals. On December 27, 1993, the Bankruptcy Court in the
GENTGES bankruptcy proceedings entered an Order approving the settlement;
however, on December 28, 1993 John D. Gentges, a creditor in the GENTGES
bankruptcy proceedings, filed a Notice of Appeal to the U.S. District Court
from the Order of the Bankruptcy Court. The Company and plaintiff Brown
subsequently filed a Stipulation of Dismissal With Prejudice of plaintiff
Brown's appeal pending before the U.S. Eighth Circuit Court of Appeals. Per
Order entered January 7, 1994, the stipulation was granted and plaintiff
Brown's appeal was dismissed with prejudice. Consequently, the GENTGES appeal
to the U.S. District Court is now moot and this litigation is ended.
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PART II - OTHER INFORMATION
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purpose of conducting a common response to any claim for removal or response
action asserted by the EPA or the State of Ohio or conducting a common defense
to any such claim. Between 1987 and 1991, the owner of the Site, Waste
Management, Inc., conducted a remedial investigation ("RI") and feasibility
study ("FS") and, in 1991, submitted the RI/FS to EPA. EPA approved the RI in
March, 1992 and approved the FS in March, 1993. Based on the RI/FS, EPA issued
its Record of Decision in September, 1993, in which it selected the remedy for
the cleanup of the Site. The remedy is estimated to cost $20.5 million and
take six years to implement. Some of the PRPs, including Carboline, have
entered into negotiations with EPA concerning the terms of an Administrative
Order on Consent under which the PRPs would prepare the Remedial Design for the
selected remedy at the Site. These negotiations are proceeding. Based upon
Carboline's estimated allocated share of total waste volume at the Site
(approximately 0.50 percent) the Company believes that ultimate resolution of
this matter will not have a material adverse effect on the Company's financial
position or results of operations.
In September, 1991, a Petition captioned OUR LADY OF THE LAKE
HOSPITAL, INC. VS. CARBOLINE COMPANY, ET AL.; No. 373,498, Division "J",
Nineteenth Judicial District Court, Parish of East Baton Rouge, Louisiana, was
filed by plaintiff Our Lady of the Lake Hospital, Inc. ("OLOL") against
Carboline alleging damages to the structural steel of the hospital it owns and
operates in Baton Rouge, Louisiana. The Petition alleged that the damages
result from its use of a fireproofing product known as Pyrocrete manufactured
and supplied by Carboline and that Pyrocrete is extremely corrosive when
applied to structural steel, contains a latent defect, and is defective. The
Petition further alleged that Carboline knew of the defects in Pyrocrete and
intentionally withheld, concealed, and suppressed this information from OLOL.
In October, 1991, OLOL filed a First Amending and Supplemental Petition joining
as party defendants Henningson, Durham & Richardson, Inc. ("HDR") (the original
architects), Southern Builders, Inc. ("SBI") (the original general contractor)
and The Bolton Company ("Bolton") (the original fireproofing subcontractor).
In July, 1992, OLOL dismissed without prejudice HDR and Bolton, and SBI is out
of business. Carboline contested liability in the case vigorously, and on July
21, 1992, the trial court signed Judgment sustaining an Exception of
Prescription filed on Carboline's behalf and dismissed the suit with prejudice.
OLOL appealed the dismissal and also filed in the appellate court a Motion to
Remand seeking to have the matter remanded to the trial court on the basis that
the July 21, 1992 judgment was allegedly obtained through fraud and
concealment. On December 29, 1993, the appellate court vacated the July 21,
1992 judgment and remanded to the trial court for the introduction of further
evidence and further proceedings. Carboline's Application for Writs to the
Louisiana Supreme Court was denied. OLOL's Application to the Louisiana Supreme
Court is presently being briefed. The Petition does not set forth the amount of
damages being claimed, and there has been no discovery of the issue of damages.
However, in a brief filed in the appellate court, OLOL claimed in it would cost
in excess of $20,000,000 to repair the damages.
In August, 1992, OLOL filed suit against Sun Company, Inc. ("Sun") in
OUR LADY OF THE LAKE HOSPITAL, INC. VS. SUN COMPANY, INC.; No. 384,867,
Division "I", Nineteenth Judicial District Court, Parish of East Baton Rouge,
Louisiana, asserting allegations similar to the allegations in No. 373,498,
described above, and seeking to recover alleged damages
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PART II - OTHER INFORMATION
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to the structural steel of the OLOL hospital. The suit alleges that the former
Carboline Company, a Missouri corporation, ("Carboline Missouri") manufactured
and supplied the Pyrocrete to OLOL and thereafter merged with Sun in 1980, with
Sun remaining as the surviving corporation responsible for the obligations of
Carboline Missouri. On June 29, 1993 OLOL filed a First Supplemental and
Amending Petition ("Amended Petition") which added Carboline Missouri and
Carboline as additional defendents. The Amended Petition generally alleges that
Carboline damaged OLOL through fraud and also breached a contractual obligation
of service after the sale. The Amended Petition alleges that OLOL will incur
expenses and costs in excess of $20,000,000 to repair the damages.
Carboline has denied the allegations of both lawsuits and is
vigorously contesting them. Carboline's defense has been assumed by First
Colonial Insurance Company ("First Colonial"), a wholly-owned insurance
subsidiary of the Company. First Colonial is in the process of negotiating a
cost-sharing agreement with a group of Carboline's insurers to cover both
defense and indemnity relating to the OLOL lawsuits.