RPM International Inc. DE Form DEF 14A

ADOPTION OF RPM, INC. 1997 RESTRICTED STOCK PLAN

Background

The shareholders will be asked at the meeting to vote on a proposal to approve the adoption of the RPM, Inc. 1997 Restricted Stock Plan (the "1997 Plan"). The 1997 Plan was approved and adopted by the Compensation Committee and the Board of Directors on April 24, 1997, effective as of June 1, 1997, subject to shareholder approval.

The following is a summary of the material features of the 1997 Plan and is qualified in its entirety by reference to it. A copy of the 1997 Plan is attached hereto as Appendix A to this Proxy Statement.

Purpose

The purpose of the 1997 Plan is to promote the interests of the Company and its shareholders by replacing, over a period of time, the Company's existing cash based Benefit Restoration Plan with a stock based plan, which provides a means to encourage stock ownership and a proprietary interest in the Company to selected executives and subsidiary presidents upon whose judgment, initiative, and efforts the financial success and growth of the Company largely depend.

The 1997 Plan aligns the interests of shareholders and plan participants by awarding Common Shares subject to certain vesting and forfeiture restrictions (the "Restricted Shares") at fair market value thereby providing additional incentive for the participants to increase the value of the Company's Common Shares. Furthermore, since the Company will be able to take a tax deduction for the value of the Restricted Shares awarded under the 1997 Plan upon the vesting of such shares, the Company will also benefit from increases in value of RPM, Inc. Common Shares. Conversely, the Company will realize reduced tax deductions if the Company's Common Shares depreciate in value. Restricted Shares granted under the 1997 Plan will directly reduce and replace the cash amount of supplemental retirement restoration benefits and supplemental death restoration benefits owed to participants under the RPM, Inc. Benefit Restoration Plan.

Administration and Duration

The 1997 Plan is administered by the Compensation Committee of the Board of Directors. Each member of the Compensation Committee is a "non-employee director" within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934. The Compensation Committee has the exclusive right in its sole discretion to authorize the granting of Restricted Shares. The 1997 Plan will expire on May 31, 2007 or such earlier date as may be determined by the Board of Directors.

Securities Subject to the 1997 Plan

The Company will award authorized but unissued Common Shares under the 1997 Plan. The maximum aggregate number of Common Shares to be issued under the 1997 Plan shall not exceed Common Shares, except that in the event of share splits or combinations, recapitalization or reorganizations, or shares dividends, the Compensation Committee may make an appropriate adjustment in the Common Shares subject to the 1997 Plan.

Eligibility

The Compensation Committee will, from time to time, determine those employees of the Company and its subsidiaries who are eligible to receive awards of Restricted Shares. Only employees of the Company, including employee Directors who are not members of the Compensation Committee, are eligible to participate in the 1997 Plan.

Participation and Grants of Restricted Shares

The 1997 Plan provides for the granting of Restricted Shares to eligible employees. The Restricted Shares are Common Shares of the Company which are forfeitable and nontransferable for a specified period of time. The transfer restrictions remain in place until the earliest of (a) the later of either the employee's termination of employment or the lapse of forfeiture restrictions, (b) a "Change in control" with respect to the Company, as such is defined in the 1997 Plan, or (c) the termination of the 1997 Plan.

The Restricted Shares are subject to complete forfeiture until the earliest to occur of (a) the later of either the employee's attainment of age 55 or the fifth anniversary of the May 31st immediately preceding the date on which the Restricted Shares were awarded, (b) the retirement of the employee on or after the attainment of age 65, or (c) a "change in control" with respect to the Company, as such is defined in the 1997 Plan. Notwithstanding the above, if the employees' service to the Company and its subsidiaries is terminated on account of death or total disability prior to the lapsing of restrictions, such restrictions shall lapse.

Shareholder Rights

The Compensation Committee may require that the Company or an escrow agent retain possession of the certificates representing the Restricted Shares with respect to which all of the restrictions have not lapsed. Notwithstanding retention of the certificates by the Company or an escrow agent, the employee in whose name certificates are issued shall have all rights of a shareholder of the Company, including dividend and voting rights.

Amendments

The Board may amend the 1997 Plan as it shall deem advisable, except that no amendment may impair the rights of participants who have been awarded, or have been granted the right to an award of Restricted Shares. In addition, no amendment to increase the 1,250,000 shares that may be issued pursuant to the 1997 Plan may be made without shareholder approval.

Federal Tax Consequences

There will be no tax consequences as a result of the grant of Restricted Shares until the Restricted Shares are no longer subject to forfeiture. Generally, when the forfeiture restrictions expire, the holder will recognize ordinary income, and the Company will be entitled to a deduction, in an amount equal to the fair market value of the Common Shares at that time. Subsequently realized changes in the value of the shares generally will be treated as long-term or short-term capital gain or loss, depending on the length of time the Common Shares are held prior to disposition of such shares.

New Plan Benefits

An award of shares has been made under the 1997 Plan. Decisions regarding future awards have not been made. Subject to shareholder approval of the 1997 Plan, the following table sets forth the amount and dollar value of the initial awards to be received under the 1997 Plan:

RPM, Inc. 1997 Restricted Stock Plan

(1) On April 24, 1997, the Board of Directors and Compensation Committee adopted and approved the 1997 Plan, subject to shareholder approval. The initial award of shares was subsequently made on July 18, 1997.

(2) The dollar value of the awards is based on the closing price of the Company's Common Shares on April 24, 1997 ($16.125). The projected dollar value at retirement of the initial award of Restricted Shares to those individuals who were participants in the RPM, Inc. Benefit Restoration Plan is designed to be equivalent to the projected dollar value at retirement of the cancelled cash benefits.

(3) The dollar amounts under this column represent the projected dollar value at retirement of the cash benefit payments the Company estimates that each of the above individuals would have received under the terms of the RPM, Inc. Benefit Restoration Plan. The 1997 Plan, however, cancels these cash benefit payments and replaces them with awards of Restricted Shares.

(4) Both Richard E. Klar and Paul A. Granzier, Vice President, Secretary and General Counsel, have reached age 65. As a result, their benefits are frozen under the all cash Benefit Restoration Plan.

(5) The individuals in this group are not participants in the RPM, Inc. Benefit Restoration Plan.

The affirmative vote of the holders of a majority of the Common Shares present, either in person or by proxy, at the meeting is required for the approval and adoption of the 1997 Plan. Thus, shareholders who vote to abstain will in effect be voting against the proposal. Broker non-votes, however, are not counted as present for determining whether this proposal has been approved and have no effect on its outcome.

The Board recommends a vote FOR the adoption of the RPM, Inc. 1997 Restricted Stock Plan.