RPM International Inc. 10-K

-----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, G5nu8j1eTOT4zaPlz1m7yWFdWvXxqrHcQ4cmB3kLY3JBVMpBmnvwLVVR6OIoFnDI Z6cgooUiEcbgcCjzJzo21g== 0000950152-06-006828.txt : 20060810 0000950152-06-006828.hdr.sgml : 20060810 20060810172953 ACCESSION NUMBER: 0000950152-06-006828 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 20060531 FILED AS OF DATE: 20060810 DATE AS OF CHANGE: 20060810 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RPM INTERNATIONAL INC/DE/ CENTRAL INDEX KEY: 0000110621 STANDARD INDUSTRIAL CLASSIFICATION: PAINTS, VARNISHES, LACQUERS, ENAMELS & ALLIED PRODUCTS [2851] IRS NUMBER: 020642224 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-14187 FILM NUMBER: 061022380 BUSINESS ADDRESS: STREET 1: 2628 PEARL RD STREET 2: P O BOX 777 CITY: MEDINA STATE: OH ZIP: 44258 BUSINESS PHONE: 3302735090 MAIL ADDRESS: STREET 1: 2628 PEARL RD STREET 2: P O BOX 777 CITY: MEDINA STATE: OH ZIP: 44258 FORMER COMPANY: FORMER CONFORMED NAME: RPM INTERNATIONAL INC/OH/ DATE OF NAME CHANGE: 20021015 FORMER COMPANY: FORMER CONFORMED NAME: RPM INC/OH/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: REPUBLIC POWDERED METALS INC DATE OF NAME CHANGE: 19711027 10-K 1 l21773ae10vk.htm RPM INTERNATIONAL INC. 10-K/5-31-06 RPM International Inc. 10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-K


þ		Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended May 31, 2006


o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File No. 1-14187

RPM INTERNATIONAL INC.

(Exact Name of Registrant as Specified in its Charter)


Delaware		02-0642224

(State or Other Jurisdiction of		(IRS Employer Identification No.)
Incorporation or Organization)


P.O. Box 777, 2628 Pearl Road, Medina, Ohio		44258

(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code: (330) 273-5090

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class		Name of Each Exchange on Which Registered

Common Stock, par value $0.01		New York Stock Exchange

Rights to Purchase Shares of Common Stock		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

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 period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

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. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

(Check one):

Large accelerated filer þ Accelerated filer o Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The aggregate market value of the Common Stock of the Registrant held by non-affiliates (based upon the closing price of the Common Stock as reported on the New York Stock Exchange on November 30, 2005, the last business day of the Registrant’s most recently completed second fiscal quarter) was approximately $2,175,775,938. For purposes of this information, the 1,280,073 outstanding shares of Common Stock which were owned beneficially as of November 30, 2005 by executive officers and Directors of the Registrant were deemed to be the shares of Common Stock held by affiliates.

As of August 1, 2006, 118,833,124 shares of Common Stock were outstanding.

Documents Incorporated by Reference

Portions of the following documents are incorporated by reference into Parts I, II and III of this Annual Report on Form 10-K: (i) the definitive Proxy Statement to be used in connection with the Registrant’s Annual Meeting of Stockholders to be held on October 5, 2006 (the “2006 Proxy Statement”) and (ii) the Registrant’s 2006 Annual Report to Stockholders for the fiscal year ended May 31, 2006 (the “2006 Annual Report to Stockholders”).

Except as otherwise stated, the information contained in this Annual Report on Form 10-K is as of May 31, 2006.

TABLE OF CONTENTS


PART I
	Item 1. Business
	Item 1A. Risk Factors
	Item 1B. Unresolved Staff Comments
	Item 2. Properties
	Item 3. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 4A. Executive Officers of the Registrant*
PART II
	Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
	Item 6. Selected Financial Data
	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 7A. Quantitative and Qualitative Disclosures About Market Risk
	Item 8. Financial Statements and Supplementary Data
	Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
	Item 9A. Controls and Procedures
	Item 9B. Other Information
PART III
	Item 10. Directors and Executive Officers of the Registrant
	Item 11. Executive Compensation
	Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
	Item 13. Certain Relationships and Related Transactions
	Item 14. Principal Accountant Fees and Services
PART IV
	Item 15. Exhibits and Financial Statement Schedules
SIGNATURES
Exhibit Index
EX-10.1.1
EX-10.3
EX-10.3.1
EX-10.3.2
EX-13.1
EX-18.1
EX-21.1
EX-23.1
EX-23.2
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I

Item 1. Business.

THE COMPANY

RPM International Inc. (“RPM” or the “Company”) is the successor to the reporting obligations of RPM, Inc., an Ohio corporation, following a statutory merger effective as of October 15, 2002, for the purpose of changing RPM, Inc.’s state of incorporation to Delaware. RPM, Inc. was organized in 1947 as an Ohio corporation under the name Republic Powdered Metals, Inc., and, on November 9, 1971, its name was changed to RPM, Inc.

In connection with the 2002 reincorporation, RPM International Inc. realigned its various operating companies according to their product offerings, served end markets, customer base and operating philosophy. Those operating companies that tend to be entrepreneurial and serve niche markets continue to be owned by RPM, Inc. Operating companies that primarily serve the consumer markets were transferred to RPM Consumer Holding Company, which is wholly owned by RPM International Inc. Ownership of operating companies that primarily serve the industrial markets was transferred to another wholly owned subsidiary of RPM International Inc., RPM Industrial Holding Company. As a result of the reincorporation, RPM International Inc. became the successor issuer to RPM, Inc. under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and succeeded to RPM, Inc.’s reporting obligations thereunder.

As used herein, the terms “RPM” and the “Company” refer to RPM International Inc. and its subsidiaries, unless the context indicates otherwise. The Company has its principal executive offices at 2628 Pearl Road, P.O. Box 777, Medina, Ohio 44258, and its telephone number is (330) 273-5090.

BUSINESS

RPM subsidiaries manufacture, market and sell high quality specialty paints, protective coatings and roofing systems, sealants and adhesives, focusing on the maintenance and improvement needs of both the industrial and consumer markets. The Company’s family of products includes those marketed under brand names such as CARBOLINE, DAP, DAY-GLO, DRYVIT, EUCO, FLECTO, ILLBRUCK, RUST-OLEUM, STONHARD, TREMCO and ZINSSER. As of May 31, 2006, RPM subsidiaries marketed products in 151 countries and territories and operated manufacturing facilities in 84 locations in the United States, Argentina, Belgium, Canada, China, Colombia, Germany, Italy, Mexico, South Africa, The Netherlands, New Zealand, Poland, the United Arab Emirates and the United Kingdom. Approximately 28% of the Company’s sales are generated in international markets through a combination of exports and direct sales by affiliates in foreign countries. For the fiscal year ended May 31, 2006, the Company recorded sales of $3.0 billion.

Available Information

The Company’s Internet website address is www.rpminc.com. The Company makes available free of charge on or through its website its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the Securities and Exchange Commission.

Segment Information

The Company has determined that it has two reportable operating segments: industrial and consumer, based on the nature of its business activities, products and services, the structure of management and the structure of information as presented to the Board of Directors. Within each segment, individual operating companies or groups of companies generally address common markets, utilize similar technologies and are able to share manufacturing or distribution capabilities. The industrial segment constitutes approximately 60% of sales and includes maintenance and protection products for roofing and waterproofing systems, flooring, corrosion control and other specialty applications. The consumer segment constitutes approximately 40% of sales and includes rust-preventative, special purpose and decorative paints, caulks, sealants, primers and other branded consumer products. See Note I (Segment Information) of the Notes to Consolidated Financial Statements which appear in the 2006 Annual Report to Stockholders, incorporated herein by reference, for financial information relating to the Company’s two reportable operating segments and financial information by geographic area.

Industrial Segment

Industrial segment products are sold throughout North America and account for most of the Company’s sales in Europe, South America, Asia, Africa, Australia and the Middle East. The Company’s industrial businesses, which account for the majority of its international sales, sell directly to contractors, distributors and end-users, such as industrial manufacturing facilities, educational and governmental institutions and commercial establishments. The industrial segment generated $1.8 billion in net sales for the fiscal year ended May 31, 2006 and is comprised of the following major product lines:

	•		sealants and institutional roofing systems used in building protection, maintenance and weatherproofing applications marketed under the Company’s TREMCO, REPUBLIC, VULKEM and DYMERIC brand names. Other products include basement waterproofing sealants marketed under the TUFF-N-DRI and WATCHDOG WATERPROOFING brand names, and specialized roofing maintenance and related services marketed under the WEATHERPROOFING TECHNOLOGIES brand name. Illbruck Sealants Systems (“illbruck”) and their brands were added to our European offerings in fiscal 2006 when Tremco, Inc., a wholly owned subsidiary of the Company, completed its previously announced acquisition of illbruck;

	•		high-performance polymer flooring systems for industrial, institutional and commercial facility floor surfaces marketed under the STONHARD brand name, including flooring systems marketed as part of the STONBLEND RTZ product line. The Company also manufactures and supplies molded and pultruded fiberglass reinforced plastic gratings and shapes used for industrial platforms, staircases and walkways marketed under the FIBERGRATE, CHEMGRATE and CORGRATE brand names;

	•		high-performance, heavy-duty corrosion control coatings, structural and architectural fireproofing products, and primary and secondary containment linings for a wide variety of industrial infrastructure applications marketed under the CARBOLINE, NULLIFIRE, A/D FIRE and PLASITE brand names;

	•		exterior insulating finishing systems, including textured finish coats, sealers and variegated aggregate finishes marketed under the DRYVIT brand name; and

	•		a variety of products for specialized applications, including powder coatings for exterior and interior applications marketed under the TCI brand name, fluorescent colorants and pigments marketed under the DAY-GLO brand name, concrete and masonry additives and related construction chemicals marketed under the EUCO brand name, commercial carpet and floor cleaning solutions marketed under the CHEMSPEC brand name, industrial and commercial floor systems marketed under the LOCK-TILE and ECOLOC brand names, specialty adhesives and sealants marketed under the COMPACTA and PACTAN brand names, fuel additives marketed under the VALVTECT brand name, wood and lumber treatments marketed under the KOP-COAT brand name, pleasure marine coatings marketed under the PETTIT, WOOLSEY and Z-SPAR brand names, and waterproofing and concrete repair products marketed under the VANDEX brand name.

Consumer Segment

The consumer segment manufactures and markets professional use and do-it-yourself (“DIY”) products for home maintenance and improvement, automotive and boat repair and maintenance, and hobby and leisure applications. The consumer segment’s major manufacturing and distribution operations are located in North America. Consumer segment products are sold throughout North America to mass merchandisers, home improvement centers, hardware stores, paint stores, automotive supply stores, craft shops and through distributors. The consumer segment generated $1.2 billion in sales in the fiscal year ended May 31, 2006 and is comprised of the following major product lines:

	•		a broad line of coating products sold under various RUST-OLEUM brands to protect and beautify metal, wood, and concrete surfaces for the DIY and professional markets. Leading brands within the RUST-OLEUM portfolio include STOPS RUST, AMERICAN ACCENTS, PAINTER’S TOUCH, SPECIALTY, PROFESSIONAL, TREMCLAD, VARATHANE, WATCO, EPOXY SHIELD, INDUSTRIAL CHOICE, LABOR SAVER, ROAD WARRIOR, SIERRA PERFORMANCE, HARD HAT, MATHYS, COMBI COLOR and NOXYDE;

	•		a complete line of caulks and sealants, patch and repair products and adhesives for the markets for home improvement, repair and construction and the autobody aftermarket, marketed through a wide assortment of DAP and BONDO branded products including ALEX PLUS, KWIK SEAL, SIDEWINDER ADVANCED SIDING and WINDOW SEALANT, WELDWOOD, ‘33’, PLASTIC WOOD, MONO, DRYDEX, EASY SOLUTIONS, CRACKSHOT, PHENOSEAL, BONDO and DYNATRON;

	•		a broad line of specialty products targeted to solve problems for the paint contractor and the DIYer for applications that include surface preparation, primers and sealers, mold and mildew prevention and maintenance, wallpaper removal and application, and waterproofing. Leading brand names include ZINSSER, B-I-N, BULLS EYE 1-2-3, COVER-STAIN, DIF, FAST PRIME,

			SEALCOAT, JOMAX, GARDZ, PERMA WHITE, SHIELDZ, WATERTITE, OKON, PARKS, PAPERTIGER and WALWORKS; and

	•		an assortment of other products, including hobby paints and cements marketed under the TESTORS brand name, wood furniture finishes and touch-up products marketed under the CCI, MOHAWK, CHEMICAL COATINGS, BEHLEN and WESTFIELD COATINGS brand names, deck and fence restoration products marketed under the WOLMAN brand name, metallic and faux finish coatings marketed under the MODERN MASTERS brand name and shellac-based specialty coatings for industrial and pharmaceutical uses, edible glazes and food coatings by MANTROSE-HAEUSER, and NATURE SEAL brand coatings that preserve sliced fruit and vegetables.

Foreign Operations

The Company’s foreign manufacturing operations for the fiscal year ended May 31, 2006 accounted for approximately 25% of its total sales (which does not include exports directly from the United States). The Company also receives license fees and royalty income from numerous license agreements and also has joint ventures accounted for under the equity method in various foreign countries. The Company has manufacturing facilities in Africa, Argentina, Belgium, Canada, China, Colombia, Germany, Italy, Mexico, New Zealand, The Netherlands, Poland, the United Arab Emirates and the United Kingdom, and sales offices or public warehouse facilities in Australia, Belgium, Czech Republic, Canada, Finland, France, Germany, Hong Kong, Italy, Japan, Mexico, Poland, South Africa, Singapore, Sweden, the United Kingdom and several other countries. Information concerning the Company’s foreign operations is set forth in Management’s Discussion and Analysis of Results of Operations and Financial Condition, which appears in the 2006 Annual Report to Stockholders, incorporated herein by reference.

Competition

The Company is engaged in a highly competitive industry and, with respect to all of its major products, faces competition from local, regional and national firms. The industry is fragmented, and the Company does not face competition from any one company in particular. However, several of the Company’s competitors have greater financial resources and sales organizations than the Company. While third-party figures are not necessarily available with respect to the size of the Company’s position in the market for each of its products, the Company believes that it is a major producer of roofing systems, urethane sealants and waterproofing materials, aluminum coatings, cement-based paints, hobby paints, pleasure marine coatings, furniture finishing repair products, automotive repair products, industrial corrosion control products, consumer rust-preventative coatings, polymer floorings, fluorescent coatings and pigments, exterior insulating finish systems, molded and pultruded fiberglass reinforced plastic gratings and shellac-based coatings. However, the Company does not believe that it has a significant share of the total protective coatings market. The following is a summary of the competition faced by the Company in various markets.

Paints, Coatings, Adhesives and Sealants Industry

The market for paints, coatings, adhesives and sealants has experienced significant consolidation over the past several decades, however, the market remains fragmented, which creates further consolidation opportunities. In addition to the Company, leading suppliers tend to focus on coatings while other companies focus on adhesives and sealants. Barriers to market entry are relatively high due to the lengthy interval between product development and market acceptance, the importance of brand identity, and the difficulty in establishing a reputation as a reliable supplier in this sector. Like the

Company, most of the suppliers in this industry have a portfolio of products that span across the various markets.

Consumer Home Improvement. Within the consumer segment, the Company generally serves the home improvement market with products designed for niche architectural, rust-preventative, decorative, special purpose, caulking and sealing applications. Products sold by the Company in this market include, but are not limited to, those sold under the BONDO, DAP, RUST-OLEUM and ZINSSER brand names. Leading manufacturers of home improvement-related coatings, adhesives and sealants market their products to DIY users and contractors through a wide range of distribution channels including direct sales to home improvement centers, mass merchandisers, hardware, paint and automotive supply stores, as well as sales through distributors and sales representative organizations. Competitors in this market generally compete for market share by marketing and building upon brand recognition, providing customer service and developing new products based on customer needs.

Special Purpose Industrial Maintenance Protective Coatings. Anti-corrosion protective coatings must withstand the destructive elements of nature, and operating processes under harsh environments and conditions. Some of the larger consumers of high-performance protective and corrosion control coatings are the oil and gas, pulp and paper, petrochemical, shipbuilding and public utility industries. In the public sector, corrosion control coatings are used on structures such as bridges and in water and wastewater treatment plants. These markets are highly fragmented. The Company and its competitors gain market share in this industry by supplying a variety of high quality products and offering customized solutions. The Company sells products marketed primarily under the CARBOLINE, PLASITE, NULLIFIRE, A/D FIRE and TCI brand names to these markets.

Roofing Systems Industry

In the roofing industry, reroofing applications have historically accounted for three-quarters of U.S. demand, with the remaining quarter comprised of new roofing applications. The largest manufacturers focus primarily on residential roofing as well as single-ply systems for low-end commercial and institutional applications, competing mainly on price and minimally on service. In contrast, the Company competes primarily in the higher-end, multi-ply and modified bitumen segments of the built-up and low-slope roofing industry. This niche within the larger market tends to exhibit less commodity-market characteristics, with customers valuing the greater protection and longer life provided by these roofing systems, as well as ongoing maintenance, inspection and technical services. Typical customers demanding higher-performance roofing systems include governmental facilities, universities, schools, hospitals, museums and certain manufacturing facilities. The Company markets to this industry primarily under its TREMCO line of products.

Construction Chemicals Industry

Flooring Systems. Polymer flooring systems are used in industrial, commercial and, to a lesser extent, residential applications to provide a smooth, seamless surface that is impervious to penetration by water and other substances and is easy to clean and maintain. These materials are particularly well-suited for clean environments such as pharmaceutical, food and beverage, and healthcare facilities. In addition, the fast installation time and long-term durability of these products make them ideal for industrial floor repair and restoration. Polymer flooring systems are based primarily on epoxy resins, although urethane products have experienced significant growth in recent years. Most flooring is applied during new construction, but there is also a significant repair and renovation market. Key performance attributes in polymer flooring systems that distinguish competitors in this fragmented industry include static control, chemical resistance, contamination control, durability and aesthetics. The Company primarily markets under the STONHARD brand name in the flooring systems part of this industry.

FRP Grating and Structural Composites. Fiberglass reinforced plastic grating, or FRP, is used primarily in industrial and to a lesser extent commercial applications. FRP grating exhibits many features making it a beneficial alternative to traditional steel or aluminum grating. These include high strength to weight ratio, high corrosion resistance, electrical and thermal non-conductivity and molded in color (which eliminates repainting). FRP grating is used for platforms, walkways, stairs and structures for a variety of applications including those in the food and beverage, chemical processing, water-wastewater, pulp and paper and offshore oil and gas industries. Key attributes that differentiate competitors in these markets include quality assurance, depth of product line and value added design and fabrication services. The Company markets to this part of the construction chemicals industry under the FIBERGRATE, CHEMGRATE, CORGRATE and SAFE-T-SPAN brand names.

Sealants, Concrete and Masonry Products. Sealants used in a variety of construction applications include urethane and silicone-based products designed for sealing windows and commercial buildings, and for waterproofing, fireproofing and concrete sealing, among other uses. In the concrete and masonry additives market, a variety of chemicals can be added to cement, concrete and other masonry to improve the processability, performance, or appearance of these products. Chemical concrete admixtures are typically grouped according to functional characteristics, such as water-reducers, set controllers, superplasticizers and air-entraining agents. Key attributes that differentiate competitors in these markets include quality assurance, on-the-job consultation and the provision of value-added engineered products. The Company primarily offers products marketed under the TREMCO, EUCO, ILLBRUCK, TAMMS, REPUBLIC, VULKEM, DYMERIC, TUFF-N-DRI and WATCHDOG WATERPROOFING brand names in this part of the construction chemicals industry.

Intellectual Property

The intellectual property portfolios of the subsidiaries of the Company include numerous valuable patents, trade secrets and know-how, domain names, trademarks and trade names. Significant research and technology development continues to be conducted by the subsidiaries. However, no single patent, trademark, name or license, or group of these rights, other than the marks DAY-GLO^{^®}, RUST-OLEUM^{^®}, CARBOLINE^{^®}, DAP^{^®} and TREMCO^{^®}, are material to the Company’s business.

Day-Glo Color Corp., a subsidiary of the Company, is the owner of more than 50 trademark registrations or applications for the mark “DAY-GLO^{^®}” in the United States and numerous other countries for a variety of fluorescent products. There are also many other foreign and domestic registrations or applications for other trademarks of the Day-Glo Color Corp., bringing the total number of registrations or applications to more than 120. These existing registrations or the registrations maturing from pending applications are valid for a variety of terms ranging from one year to 20 years, which terms are renewable as long as the marks continue to be used. Registrations are maintained and renewed on a regular basis where appropriate.

Rust-Oleum Brands Company and other subsidiaries of the Company own more than 500 trademark registrations or applications in the United States and numerous other countries for the mark “RUST-OLEUM^{^®}” and other trademarks covering a variety of rust-preventative, decorative, general purpose, specialty, industrial and professional coatings sold by Rust-Oleum Corporation and related companies. These existing registrations or the registrations maturing from pending applications are valid for a variety of terms ranging from one year to 20 years, which terms are renewable as long as the marks continue to be used. Registrations are maintained and renewed on a regular basis where appropriate.

Carboline Company, a subsidiary of the Company, is the owner of two United States trademark registrations for the mark “CARBOLINE^{^®}.” Carboline Company is also the owner of dozens of other trademark registrations or applications in the United States and numerous other countries covering the products sold by the Carboline Company. These existing registrations or the registrations maturing from pending applications are valid for a variety of terms ranging from one year to 20 years, which terms are renewable as long as the marks continue to be used. Registrations are maintained and renewed on a regular basis where appropriate.

DAP Brands Company and other subsidiaries of the Company own more than 400 trademark registrations or applications in the United States and numerous other countries for the “DAP^{^®},” the “PUTTY KNIFEdesign” mark and other trademarks covering products sold under the DAP brand and related brands. These existing registrations or the registrations maturing from pending applications are valid for a variety of terms ranging from one year to 20 years, which terms are renewable as long as the marks continue to be used. Registrations are maintained and renewed on a regular basis where appropriate.

Tremco Incorporated and other subsidiaries of the Company own nearly 100 registrations for the mark “TREMCO^{^®}” in the United States and numerous countries covering a variety of roofing, sealants and coating products. There are also many other trademarks of Tremco Incorporated that are the subject of registrations or application in the United States and numerous other countries, bringing the total number of registrations and applications to more than 500. These existing registrations or the registrations maturing from pending applications are valid for a variety of terms ranging from one year to 20 years, which terms are renewable as long as the marks continue to be used. Registrations are maintained and renewed on a regular basis where appropriate.

The Company’s other principal product trademarks include: ALUMANATION^{^®}, B-I-N^{^®}, BITUMASTIC^{^®}, BONDO^{^®}, BULLS EYE 1-2-3^{^®}, CHEMGRATE^{^®}, DRYVIT^{^®}, DYMERIC^{^®}, DYNALITE^{^®}, DYNATRON^{^®}, EASY FINISH^{^®}, EUCO^{^®}, FLECTO^{^®}, EPOXSTEEL^{^®}, FIBERGRATE^{^®}, FLOQUIL^{^®}, GEOFLEX^{^®}, ILLBRUCK^{^®}, MAR-HYDE^{^®}, MOHAWK and Design^{^®}, OUTSULATION^{^®}, PARASEAL^{^®}, PERMAROOF^{^®}, PETTIT™, PLASITE^{^®}, SANITILE^{^®}, STONBLEND^{^®}, STONCLAD^{^®}, STONHARD^{^®}, STONLUX^{^®}, TCI^{^®}, TESTORS^{^®}, ULTRALITE™, VARATHANE^{^®}, VULKEM^{^®}, WOOLSEY^{^®}, ZINSSER^{^®} and Z-SPAR^{^®}; and, in Europe, NULLIFIRE^{^®}, RADGLO^{^®} and MARTIN MATHYS™.

Raw Materials

The Company does not have any single source suppliers of raw materials that are material to its business, and the Company believes that alternate sources of supply of raw materials are available to the Company for most of its raw materials. Where shortages of raw materials have occurred, the Company has been able to reformulate products to use more readily available raw materials. Although the Company has been able to reformulate products to use more readily available raw materials in the past, the Company cannot guaranty that it will have the ability to do so in the future.

Seasonal Factors

The Company’s business is dependent on external weather factors. The Company historically experiences strong sales and net income in its first, second and fourth fiscal quarters comprised of the three month periods ending August 31, November 30 and May 31, respectively, with weaker performance in its third fiscal quarter (December through February).

Customers

Ten large consumer segment accounts, such as DIY home centers, represented approximately 22% of the Company’s total sales for the fiscal year ended May 31, 2006, compared to approximately 25% for the prior fiscal year. Sales to The Home Depot represented 10% of the Company’s total sales for fiscal 2006. Except for sales to these customers, the Company’s business is not dependent upon any one customer or small group of customers but is rather dispersed over a substantial number of customers.

Backlog

The Company historically has not had a significant backlog of orders, nor was there a significant backlog during the last fiscal year.

Research

The Company’s research and development work is performed in various laboratory locations throughout the United States. During fiscal years 2006, 2005 and 2004, the Company invested approximately $32.3 million, $28.9 million and $26.2 million, respectively, on research and development activities. In addition to this laboratory work, the Company views its field technical service as being integral to the success of its research activities. The research and development activities and the field technical service costs are both included as part of selling, general and administrative expenses.

Environmental Matters

The Company and its subsidiaries are subject to numerous foreign, federal, state and local environmental protection and health and safety laws and regulations governing, among other things:

	•		the sale, export, generation, storage, handling, use and transportation of hazardous materials;

	•		the emission and discharge of hazardous materials into the soil, water and air; and

	•		the health and safety of the Company’s employees.

The Company is also required to obtain permits from various governmental authorities for certain operations. The Company cannot guarantee that its subsidiaries or their plants have been or will be at all times in complete compliance with such laws, regulations and permits. If the Company or its subsidiaries violate or fail to comply with these laws, regulations or permits, they could be fined or otherwise sanctioned by regulators.

Certain environmental laws assess liability on current or previous owners or operators of real property for the cost of removal or remediation of hazardous substances. Persons who arrange

for the disposal or treatment of hazardous substances also may be responsible for the cost of removal or remediation of these substances, even if such persons never owned or operated any disposal or treatment facility. Certain of the Company’s subsidiaries are involved in various environmental claims, proceedings and/or remedial activities relating to facilities currently or previously owned, operated or used by these subsidiaries, or their predecessors. In addition, the Company or its subsidiaries, together with other parties, have been designated as potentially responsible parties, or PRPs, under federal and state environmental laws for the remediation of hazardous waste at certain disposal sites. In addition to clean-up actions brought by federal, state and local agencies, plaintiffs could raise personal injury, natural resource damage or other private claims due to the presence of hazardous substances on a property. Environmental laws often impose liability even if the owner or operator did not know of, or was not responsible for, the release of hazardous substances.

The Company has in the past, and will in the future, incur costs to comply with environmental laws. Environmental laws and regulations are complex, change frequently and have tended to become stringent over time. In addition, costs may vary depending on the particular facts and development of new information. As a result, the Company’s operating expenses and continuing capital expenditures may increase, and more stringent standards may limit the Company’s operating flexibility. In addition, to the extent hazardous materials exist on or under real property, the value and future use of that real property may be adversely affected. Because the Company’s competitors will have similar restrictions, the Company’s management believes that compliance with more stringent environmental laws and regulations is not likely to affect the Company’s competitive position. However, a significant increase in these costs could adversely affect the Company’s business, results of operations, financial condition or cash flows. For information regarding environmental accruals, see Note H (Contingencies and Loss Reserves) of the Notes to Consolidated Financial Statements which appear in the 2006 Annual Report to Stockholders, incorporated herein by reference.

Employees

As of May 31, 2006, the Company employed 9,213 persons, of whom 667 were represented by unions under contracts which expire at varying times in the future. The Company believes that its relations with its employees are good.

Item 1A. Risk Factors.

You should carefully consider the following risks, as well as the other information contained or incorporated by reference in this Annual Report on Form 10-K, in evaluating us, our business and your investment in us. If any of the following risks actually occur, our business, financial condition, operating results or cash flows could be harmed. Additional risks, uncertainties and other factors that are not currently known to us or that we believe are not currently material may also adversely affect our business, financial condition, operating results or cash flows.

The industries in which we operate are highly competitive and some of our competitors may be larger and may have greater financial resources than we do.

The industries in which we operate are fragmented and we do not face competition from any one company across our product lines. Any increase in competition may cause us to lose market share or compel us to reduce prices to remain competitive, which could result in reduced gross margins. This may impair our ability to grow or even to maintain our current levels of revenues and earnings. Companies that operate in our industry include Carlisle,

Degussa, GE Plastics, ICI, Masco, PPG, Rohm and Haas, Sika Finanz, Sherwin-Williams and Valspar. Several of these companies are larger than us and may have greater financial resources than we do. Increased competition with these companies could prevent the institution of price increases or could require price reductions or increased spending on research and development and marketing and sales, any of which could adversely affect our results of operations.

Changes to the Company’s asbestos liability could impact our results of operations.

In the fourth quarter of 2006, we recorded a liability on our balance sheet for estimated pending and unasserted potential future asbestos claims, including defense costs, through fiscal 2016. The amount that we recorded for asbestos-related liability relied on assumptions that are based on currently known facts and the input of an independent third party expert. The process and methodology used to develop this long-term asbestos liability reserve are set forth in Note H of the Notes to Consolidated Financial Statements which appear in the 2006 Annual Report to Stockholders. Our actual expenses could be significantly higher or lower than those recorded if the assumptions that we used or relied upon vary significantly from actual results or if federal trust fund legislation governing asbestos claims is enacted. We review these assumptions on a periodic basis to determine whether adjustments are required to our recorded asbestos-related liability. Adjustments, if any, to the estimate of our recorded asbestos-related liability could negatively impact the results of operations for the period or periods in which such adjustments are made. See Note H of the Notes to Consolidated Financial Statements which appear in the 2006 Annual Report to Stockholders for additional information regarding asbestos claims.

The chemical and construction products industries in which we serve expose us to inherent risks of legal claims and other litigation-related costs, which could adversely impact our business.

As a participant in the chemical and construction products industries, we face an inherent risk of exposure to legal claims in the event that the failure, use or misuse of our products results, or is alleged to result, in bodily injury and/or property damage. For example, one of our subsidiaries, Dryvit Systems, Inc. (“Dryvit”), a manufacturer of coatings for exterior insulating finishing systems, or EIFS, is a defendant or co-defendant in numerous ongoing property damage claims related to the alleged defects of EIFS. Some of the EIFS claims also stem from alleged personal injuries from exposure to mold. Dryvit’s and our insurers, which include First Colonial Insurance Company, one of our wholly owned captive insurance companies, have in the past paid for a substantial portion of Dryvit’s defense and/or settlement costs in the EIFS-related litigation. Dryvit has recently sued certain of our third party insurers to cover certain of its EIFS claims. If we are unable to secure payments from these insurers in an amount sufficient to cover the insurance receivable, our business, cash flows and results of operations may be materially and adversely impacted. For further information regarding our EIFS litigation, please refer to Note H of the Notes to Consolidated Financial Statements included in the 2006 Annual Report to Stockholders.

We depend on a number of large customers for a significant portion of our net sales and, therefore, significant declines in the level of purchases by any of these key customers could harm our business.

Some of our operating companies, particularly in the consumer segment, face a substantial amount of customer concentration. Our key customers include Ace Hardware Stores, Canadian Tire, Cotter & Company, Do It Best, The Home Depot, Lowe’s Home Centers, Menards, Orgill, W.W. Grainger and Wal-Mart. Sales to our ten largest customers accounted for approximately 22%, 25% and 25% of our consolidated net sales for the fiscal years ended May 31, 2006, 2005 and 2004, respectively, and 55%, 57% and 55% of the consumer segment’s net sales for the same years. Sales to The Home Depot accounted for approximately 10%, 11% and 11% of our consolidated net sales and 25%, 26% and 25% of our consumer segment net sales for the fiscal years ended May 31, 2006, 2005 and 2004, respectively. If we lose one or more of our key customers or experience a delay or cancellation of a significant order or a decrease in the level of purchases from any of our key customers, our net revenues could decline and our operating results and business could be harmed. In addition, our net revenues could decline and our operating results and business could be harmed if we experience any difficulty in collecting amounts due from one or more of our key customers.

Many of our customers operate in cyclical industries, and downward economic cycles may reduce our business.

Many of our customers, especially in our industrial segment, are in businesses and industries that are cyclical in nature and sensitive to changes in general economic conditions and other factors, including consumer spending and preferences. As a result, the demand for our products by these customers depends, in part, upon general economic conditions. Downward economic cycles affecting the industries of our customers may reduce sales of our products resulting in reductions to our revenues and net earnings.

If our efforts in acquiring and integrating other companies or product lines fail, our business may not grow.

As part of our growth strategy, we have pursued, and intend to continue pursuing, acquisitions of complementary businesses or products and joint ventures. Our ability to grow through acquisitions or joint ventures depends upon our ability to identify, negotiate and complete suitable acquisitions or joint venture arrangements. In addition, acquisitions and integration of those acquisitions involve a number of risks, including:

	•		inaccurate assessments of disclosed liabilities and the potentially adverse effects of undisclosed liabilities;

	•		difficulties in assimilating acquired companies and products into our existing business;

	•		delays in realizing the benefits from acquired companies or products, including projected efficiencies, cost savings, revenue synergies and profit margins;

	•		diversion of our management’s time and attention from other business concerns;

	•		difficulties resulting from our lack of or limited prior experience in any new markets we may enter;

	•		difficulties in retaining key employees and customers of the acquired businesses; and

•

increases in our indebtedness and contingent liabilities, which could in turn restrict our ability to access additional capital when needed or to pursue other important elements of our business strategy.

Our acquisition strategy with respect to some companies or product lines could fail or could result in unanticipated costs to us that are not readily apparent, any of which could hinder our growth or adversely impact our results of operations.

Our significant amount of indebtedness could have an adverse impact on our operations.

We have a significant amount of indebtedness. Our total debt increased from $719.9 million at May 31, 2004 to approximately $876.6 million at May 31, 2006, largely as a result of acquisition activities during that time period. This compares with approximately $925.9 million in stockholders’ equity at May 31, 2006. Nevertheless, our level of indebtedness could have important consequences to you. For example, it:

	•		may require us to dedicate a material portion of our cash flow from operations to make payments on our indebtedness, thereby reducing the cash flow available to fund working capital, capital expenditures, acquisitions, dividend payments or other general corporate purposes;

	•		could result in a downgrading of our credit rating, which would increase our borrowing costs and subsequently diminish our financial results and also would likely require us to pay a higher interest rate in future financings which could cause our potential pool of investors and funding sources to decrease;

	•		may restrict our operations since our credit facility contains certain financial and operating covenants; or

	•		may limit our flexibility to adjust to changing business and market conditions and make us more vulnerable to a downturn in general economic conditions as compared to a competitor that may have less debt.

We derive a significant amount of our revenues from foreign markets, which subjects us to additional business risks that could adversely affect our results of operations.

Our foreign manufacturing operations accounted for approximately 25% of our net sales for the fiscal year ended May 31, 2006, not including exports directly from the United States which accounted for 3% of our net sales for fiscal 2006. Our international operations could be adversely affected by changes in political and economic conditions, trade protection measures, restrictions on repatriation of earnings, differing intellectual property rights and changes in regulatory requirements that restrict the sales of our products or increase our costs. Also, changes in exchange rates between the U.S. dollar and other currencies could potentially result in increases or decreases in our costs and earnings and may adversely affect the value of our assets outside the United States.

Fluctuations in the supply and prices of raw materials may negatively impact our financial results.

We obtain the raw materials needed to manufacture our products from a number of suppliers. Many of our raw materials are petroleum-based derivatives, minerals and metals. Under normal market conditions, these materials are generally available on the open market and from a variety of producers. From time to time, however, the prices and availability of these raw materials fluctuate, which could impair our ability to procure necessary materials, or increase the cost of manufacturing our products. If the prices of raw materials increase, and we are unable to pass these increases on to our customers, we could experience reduced profit margins.

Costs of certain raw materials, particularly resins and petroleum-based feedstocks, have continued to increase over the last 30 months. For the fiscal year ended May 31, 2006, increased raw material costs negatively impacted our consolidated gross profit margin by approximately 210 basis points. The costs of raw materials have further increased due to the broad impact of Hurricanes Katrina and Rita on the petrochemical industry. If such cost increases continue, our results of operations could be significantly adversely impacted.

A loss in the actual or perceived value of our brands could limit or reduce the demand for our products.

Our family of products includes a number of well-known brand names that are used in a variety of industrial maintenance, consumer do-it-yourself and professional applications. We believe that continuing to maintain the strength of our brands is critical to increasing demand for and maintaining widespread acceptance of our products. The reputation of our branded products depend on numerous factors, including the successful advertising and marketing of our brand names, consumer acceptance, the availability of similar products from our competitors and our ability to maintain our product quality through research and product development. A loss in the actual or perceived value of our brands could limit or reduce the demand for our products.

Environmental laws and regulations could subject us to significant future expenditures or liabilities, which could have an adverse impact on our business.

We are subject to numerous environmental laws and regulations that impose various environmental controls on us or otherwise relate to environmental protection, the sale and export of certain chemicals or hazardous materials, and various health and safety matters, including the discharge of pollutants into the air and water, the handling, use, treatment, storage and clean-up of solid and hazardous wastes, and the investigation and remediation of soil and groundwater affected by hazardous substances. These laws and regulations often impose strict, retroactive and joint and several liability for the costs of, and damages resulting from, cleaning up our, or our predecessors’, past or present facilities, and at third party disposal sites. We are currently undertaking remedial activities at a number of facilities and properties, and have received notices under the federal Comprehensive Environmental Response, Compensation and Liability Act or analogous state laws of liability or potential liability in connection with the disposal of material from our current or former operations. Further, we also could be subject to future liability resulting from conditions that are currently unknown to us that could be discovered in the future.

Our expenditures related to environmental matters have not had, and are not currently expected to have, a material adverse effect on our business, financial condition, results of operations or cash flows. However, the environmental laws under which we operate are

numerous, complicated and often increasingly stringent, and may be applied retroactively. In addition, if we violate or fail to comply with environmental laws, we could be fined or otherwise sanctioned by regulators. We also could be liable for consequences arising out of human exposure to hazardous substances relating to our products or operations. Accordingly, we cannot guarantee that we will not be required to make additional expenditures to remain in or to achieve compliance with environmental laws in the future or that any such additional expenditures will not have a material adverse effect on our business, financial condition, results of operations or cash flows.

Our business and financial condition could be adversely affected if we are unable to protect our material trademarks and other proprietary information.

We have numerous valuable patents, trade secrets and know-how, domain names, trademarks and trade names, including certain marks that are material to our business, which are identified under Item 1 of this Report. Despite our efforts to protect our trademarks and other proprietary rights from unauthorized use or disclosure, other parties, including our former employees or consultants, may attempt to disclose, obtain or use our proprietary information or marks without our authorization. Unauthorized use of our trademarks, or unauthorized use or disclosure of our other intellectual property, could negatively impact our business and financial condition.

Item 1B. Unresolved Staff Comments.

Not Applicable.

Item 2. Properties.

The Company’s corporate headquarters and a plant and offices for one subsidiary are located on an 119-acre site in Medina, Ohio, which is owned by the Company. As of May 31, 2006, the Company’s operations occupied a total of approximately 9.1 million square feet, with the majority, approximately 7.6 million square feet, devoted to manufacturing, assembly and storage. Of the approximately 9.1 million square feet occupied, 6.0 million square feet are owned and 3.1 million square feet are occupied under operating leases.

Set forth below is a description, as of May 31, 2006, of the Company’s principal manufacturing facilities which management believes are material to the Company’s operations:


		Approximate
		Square Feet
	Business/	of
Location	Segment	Floor Space	Leased or Owned
Pleasant Prairie, Wisconsin	Rust-Oleum (Consumer)	303,200	Owned

Toronto, Ontario, Canada	Tremco (Industrial)	207,200	Owned

Newark, New Jersey	Zinsser (Consumer)	182,418	Owned

Cleveland, Ohio	Euclid Chemical (Industrial)	173,000	Owned


		Approximate
		Square Feet
	Business/	of
Location	Segment	Floor Space	Leased or Owned
Cleveland, Ohio	Tremco (Industrial)	160,300	Owned

Bodenwoehr, Germany	illbruck (Industrial)	151,171	Owned

Cleveland, Ohio	Day-Glo (Industrial)	147,200	Owned

Baltimore, Maryland	DAP (Consumer)	144,200	Owned

Hagerstown, Maryland	Rust-Oleum (Consumer)	143,000	Owned

Arkel, Netherlands	illbruck (Industrial)	140,067	Owned

Tipp City, Ohio	DAP (Consumer)	140,000	Owned

Lake Charles, Louisiana	Carboline (Industrial)	114,300	Owned

LaSage, West Virginia	Zinsser (Consumer)	112,000	Owned

Somerset, New Jersey	Zinsser (Consumer)	110,000	Owned

Maple Shade, New Jersey	Stonhard (Industrial)	77,500	Owned

The Company leases certain of its properties under long-term leases. Some of the leases provide for increased rent based on an increase in the cost-of-living index. For information concerning the Company’s rental obligations, see Note E (Leases) of the Notes to Consolidated Financial Statements which appear in the 2006 Annual Report to Stockholders, incorporated herein by reference. Under all of its leases, the Company is obligated to pay certain varying insurance costs, utilities, real property taxes and other costs and expenses.

The Company believes that its manufacturing plants and office facilities are well maintained and suitable for the operations of the Company.

Item 3. Legal Proceedings.

EIFS Litigation

As previously reported, Dryvit is a defendant or co-defendant in numerous exterior insulated finish systems (“EIFS”) related lawsuits. As of May 31, 2006, Dryvit was a defendant or co-defendant in various single family residential EIFS cases, the majority of which are pending in the southeastern region of the country. Dryvit is also defending EIFS lawsuits involving commercial structures, townhouses and condominiums. The vast majority of Dryvit’s

EIFS lawsuits seek monetary relief for water intrusion related property damages, although some claims in certain lawsuits allege personal injuries from exposure to mold.

As previously reported, Dryvit is a defendant in a class action lawsuit filed on November 14, 2000 in Jefferson County, Tennessee styled Bobby R. Posey, et al. v. Dryvit Systems, Inc. (formerly styled William J. Humphrey, et al. v. Dryvit Systems, Inc.) (Case No. 17,715-IV) (“Posey”). A preliminary approval order was entered on April 8, 2002 in the Posey case for a proposed nationwide class action settlement which was subsequently approved after several appeals. The deadline for filing claims in the Posey class action expired on June 5, 2004 and claims have been processed during the pendency of the various appeals. On September 15, 2005, a final, non-appealable order was entered finally approving the nationwide class. As of June 30, 2006, approximately 7,196 total claims had been filed as of the June 5, 2004 claim filing deadline. Of these 7,196 claims, approximately 4,410 claims have been rejected or closed for various reasons under the terms of the settlement. Approximately 1,391 of the remaining claims are at various stages of review and processing under the terms of the settlement and it is possible that some of these claims will be rejected or closed without payment. As of June 30, 2006, a total of 1,394 claims have been paid for a total of approximately $12.6 million. Additional payments have and will continue to be made under the terms of the settlement agreement which include inspection costs, third party warranties and class counsel attorneys’ fees.

Based upon the final court order approving the Posey national class action settlement and Dryvit’s claims experience to date, Dryvit determined that a $11.9 million increase to its existing reserves was necessary and appropriate to fully cover the anticipated costs of the Posey settlement. It is anticipated that $5.0 million of this reserve increase will be recovered from third party insurance carriers and accordingly, insurance receivables were increased by that amount, which was recorded in the third quarter of fiscal year 2006. Third party excess insurers have historically paid varying shares of Dryvit’s defense and settlement costs in the individual commercial and residential EIFS lawsuits under various cost-sharing agreements. Dryvit has increasingly assumed a greater share of the costs associated with its EIFS litigation as it seeks funding commitments from the Company’s third party excess insurers and will likely continue to do so pending the outcome of coverage litigation involving these same third party insurers. One of the Company’s excess insurers filed suit in the Northern District of Ohio (Case No. 1:05CV1903) seeking a declaration with respect to its rights and obligations for EIFS related claims under its applicable policies. During the third quarter, the court granted Dryvit’s motion to stay the federal filing based on a more complete state court complaint filed on November 23, 2005 against these same insurers and the Company’s insurance broker in Cuyahoga County Ohio Common Pleas Court (Case No. CV05 578004). The coverage case will now proceed in state court and has been set for trial on September 24, 2007. The trial date could change as discovery in the case progresses. For additional information on our Dryvit EIFS litigation, including a discussion of additional amounts added to the existing reserves, see Note H to the Consolidated Financial Statements included in the 2006 Annual Report to Stockholders.

Asbestos Litigation

Certain of the Company’s wholly owned subsidiaries, principally Bondex International, Inc. (collectively referred to as the subsidiaries), are defendants in various asbestos-related bodily injury lawsuits filed in various state courts with the vast majority of current claims pending in five states — Illinois, Ohio, Mississippi, Texas and Florida. These

cases generally seek unspecified damages for asbestos-related diseases based on alleged exposures to asbestos-containing products previously manufactured by the Company’s subsidiaries.

The Company’s subsidiaries vigorously defend these asbestos-related lawsuits and in many cases, the plaintiffs are unable to demonstrate that any injuries they have incurred, in fact, resulted from exposure to one of our subsidiaries’ products. In such cases, the subsidiaries are generally dismissed without payment. With respect to those cases where compensable disease, exposure and causation are established with respect to one of our subsidiaries’ products, the subsidiaries generally settle for amounts that reflect the confirmed disease, the particular jurisdiction, applicable law, the number and solvency of other parties in the case and various other factors which may influence the settlement value each party assigns to a particular case at the time.

As of May 31, 2006, the Company’s subsidiaries had a total of 10,580 active asbestos cases compared to a total of 8,646 cases as of May 31, 2005. For the fourth quarter ended May 31, 2006, the Company’s subsidiaries secured dismissals and/or settlements of 106 claims and made total payments of $12.9 million, which included defense costs paid during the current quarter of $7.1 million. For the comparable period ended May 31, 2005, dismissals and/or settlements covered 305 claims and total payments were $11.1 million, which included defense costs paid during the quarter of $8.1 million. For the year ended May 31, 2006, our subsidiaries secured dismissals and/or settlements of 945 claims and made total payments of $59.9 million, which included defense costs paid during the current year of $24.0 million. For the comparable period ended May 31, 2005, dismissals and/or settlements covered 982 claims and total payments were $67.4 million, which included defense costs paid during the year of $20.8 million. In some jurisdictions, cases may involve more than one individual claimant. As a result, settlement or dismissal statistics on a per case basis are not necessarily reflective of the payment amounts on a per claimant basis and the amounts and rates can vary widely depending on a variety of factors including the mix of malignancy and non-malignancy claims and the amount of defense costs incurred during the period.

For additional information on our asbestos litigation, including a discussion of additional amounts added to the asbestos reserve, see Note H of the Notes to Consolidated Financial Statements which appear in the 2006 Annual Report to Stockholders.

Environmental Proceedings

As previously reported, several of the Company’s subsidiaries are, from time to time, identified as a “potentially responsible party” under the federal Comprehensive Environmental Response, Compensation and Liability Act and similar state environmental statutes. In some cases, the Company’s subsidiaries are participating in the cost of certain clean-up efforts or other remedial actions. The Company’s share of such costs, however, has not been material and management believes that these environmental proceedings will not have a material adverse effect on the Company’s consolidated financial condition or results of operations. See “Item 1 - Business - Environmental Matters,” in this Annual Report on Form 10-K.

Item 4. Submission of Matters to a Vote of Security Holders.

Not Applicable.

Item 4A. Executive Officers of the Registrant*.

The name, age and positions of each Executive Officer of the Company as of August 1, 2006 are as follows:


Name	Age		Position and Offices with the Company
Frank C. Sullivan		45	President and Chief Executive Officer
Ronald A. Rice		43	Senior Vice President — Administration and Assistant Secretary
P. Kelly Tompkins		49	Senior Vice President, General Counsel and Secretary
Paul G. P. Hoogenboom		46	Vice President — Operations and Chief Information Officer
Stephen J. Knoop		41	Vice President — Corporate Development
Robert L. Matejka		63	Vice President, Chief Financial Officer and Controller


*		Included pursuant to Instruction 3 to Item 401(b) of Regulation S-K.

Frank C. Sullivan was elected Chief Executive Officer on October 11, 2002 and President on August 5, 1999. From October 2001 to October 2002, Mr. Sullivan served as the Company’s Chief Operating Officer. From October 1995 to August 1999 he served as Executive Vice President, and was Chief Financial Officer from October 1993 to August 1999. Mr. Sullivan served as a Vice President from October 1991 to October 1995. Prior thereto, he served as Director of Corporate Development of the Company from February 1989 to October 1991. Mr. Sullivan served as Regional Sales Manager, from February 1988 to February 1989, and as a Technical Service Representative, from February 1987 to February 1988, of AGR Company, an Ohio General Partnership formerly owned by the Company. Prior thereto, Mr. Sullivan was employed by First Union National Bank from 1985 to 1986 and Harris Bank from 1983 to 1985. Mr. Sullivan is the son of Thomas C. Sullivan, Chairman of the Board of Directors of the Company.

Ronald A. Rice was elected Senior Vice President-Administration on October 11, 2002 and Assistant Secretary on August 5, 1999. From October 2001 to October 2002, he served as Vice President-Administration. From August 1999 to October 2001, Mr. Rice served as the Company’s Vice President-Risk Management and Benefits. From 1997 to August 1999, he served as Director of Risk Management and Employee Benefits, and from 1995 to 1997 he served as Director of Benefits. From 1985 to 1995, Mr. Rice served in various capacities with the Wyatt Company, most recently he served as Senior Account Manager from 1992 to 1995. Mr. Rice is also an Assistant Secretary of the Company.

P. Kelly Tompkins was elected Senior Vice President of the Company on October 11, 2002. He has served as General Counsel and Secretary since June 1998, and served as Vice President from June 1998 to October 2002. From June 1996 to June 1998, Mr. Tompkins served as Assistant General Counsel. From 1987 to 1995, Mr. Tompkins was employed by Reliance Electric Company in various positions including Senior Corporate Counsel, Director of Corporate Development and Director of

Investor Relations. From 1985 to 1987, Mr. Tompkins was employed as a litigation attorney by Exxon Corporation.

Paul G. P. Hoogenboom was elected Vice President-Operations on August 1, 2000 and as Chief Information Officer on October 11, 2002. Mr. Hoogenboom served as Vice President and General Manager of the Company’s e-commerce subsidiary, RPM-e/c, Inc., in 1999. From 1998 to 1999, Mr. Hoogenboom was a Director of Cap Gemini, a computer systems and technology consulting firm. During 1997, Mr. Hoogenboom was employed as a strategic marketing consultant for Xylan Corporation, a network switch manufacturer. From 1994 to 1997, Mr. Hoogenboom was Director of Corporate I.T. and Communications for A.W. Chesterton Company, a manufacturer of fluid sealing systems.

Stephen J. Knoop was elected Vice President-Corporate Development on August 5, 1999. From June 1996 to August 1999, Mr. Knoop served as Director of Corporate Development of the Company. From 1990 to May 1996, Mr. Knoop was an attorney at Calfee, Halter & Griswold LLP, specializing in the federal securities law compliance and merger and acquisitions practice areas.

Robert L. Matejka was elected Chief Financial Officer on October 12, 2001 and Vice President-Controller on August 1, 2000. From 1995 to 1999, he served as Vice President-Finance of the motor and drive systems businesses of Rockwell International Corporation. From 1973 to 1995, Mr. Matejka served in various capacities with Reliance Electric Company, most recently as its Assistant Controller. From 1965 to 1973, he was an Audit Supervisor with Ernst & Young.

PART II


Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

The information required by this item is set forth at page 56 of the 2006 Annual Report to Stockholders under the heading “Quarterly Stock Price and Dividend Information,” which information is incorporated herein by reference.

Item 6. Selected Financial Data.

The following table sets forth selected consolidated financial data of the Company for each of the five years during the period ended May 31, 2006. The data was derived from the annual Consolidated Financial Statements of the Company which have been audited by Ernst & Young LLP, the Company’s independent accountants for the fiscal year ended May 31, 2006, and by Ciulla, Smith & Dale, LLP, the Company’s independent accountants for the fiscal years ended May 31, 2005, 2004, 2003 and 2002.


				Fiscal Years Ended May 31,
	2006¹			2005¹			2004			2003¹			2002²
	(Amounts in thousands, except per share and percentage date)
Net sales	$	3,008,338		$	2,555,735		$	2,307,553		$	2,053,482		$	1,960,738
Income (loss) before income taxes		(122,475	)		163,728			217,616			47,853			154,124
Net income (loss)		(76,205	)		105,032			141,886			35,327			101,554
Return on sales %		(2.5	)%		4.1	%		6.1	%		1.7	%		5.2	%
Basic earnings (loss) per share	$	(0.65	)	$	0.90		$	1.23		$	0.31		$	0.97
Diluted earnings (loss) per share		(0.65	)		0.86			1.16			0.30			0.97
Stockholders’ equity		925,941			1,037,739			970,402			871,752			858,106
Stockholders’ equity per share		7.93			8.88			8.38			7.56			8.22
Return on stockholders’ equity %		(7.8	)%		10.5	%		15.4	%		4.1	%		13.6	%
Average shares outstanding		116,837			116,899			115,777			115,294			104,418
Cash dividends paid	$	74,427		$	68,933		$	63,651		$	59,139		$	52,409
Cash dividends per share		0.630			0.590			0.550			0.515			0.500
Retained earnings		349,493			500,125			464,026			385,791			409,603
Working capital		655,718			693,656			516,542			499,838			479,041
Total assets		2,980,218			2,647,475			2,345,202			2,238,199			2,078,844
Long-term debt		870,415			837,948			718,929			724,846			707,921
Depreciation and amortization		74,299			65,992			63,277			58,674			56,859


Note:		Acquisitions made by the Company during the periods presented may impact comparability from year to year.

¹		Reflects the impact of asbestos charges of $380.0 million pre-tax ($244.3 million after-tax) in fiscal 2006, $78.0 million pre-tax ($49.5 million after-tax) in fiscal 2005 and $140 million pre-tax ($87.5 million after-tax) in fiscal 2003.

²		Reflects adoption of SFAS No. 142 regarding Goodwill (see Note A[11] of the Notes to Consolidated Financial Statements, which appear in the 2006 Annual Report to Stockholders, incorporated herein by reference).

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The information required by this item is set forth at pages 14 through 25 of the 2006 Annual Report to Stockholders, which information is incorporated herein by reference.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

The information required by this item is set forth at page 25 of the 2006 Annual Report to Stockholders, which information is incorporated herein by reference.

Item 8. Financial Statements and Supplementary Data.

The information required by this item is set forth at pages 26 through 55, 58 and 60 of the 2006 Annual Report to Stockholders, which information is incorporated herein by reference.


Item 9.		Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

(a) Evaluation of disclosure controls and procedures.

The Company’s management with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-14) as of May 31, 2006 (the “Evaluation Date”), have concluded that as of the Evaluation Date, the Company’s disclosure controls and procedures were effective in ensuring that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act (1) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosure.

(b) Management’s Report on Internal Control over Financial Reporting.

Management’s Report on Internal Control Over Financial Reporting and the attestation report of Ernst & Young LLP, the Company’s independent registered public accounting firm, are set forth at pages 57 and 59, respectively, of the 2006 Annual Report to Stockholders, which reports are incorporated herein by reference.

There were no changes in the Company’s internal control over financial reporting that occurred during the fourth fiscal quarter ended May 31, 2006 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B. Other Information.

None.

PART III

Item 10. Directors and Executive Officers of the Registrant.

Information required by this item as to the Directors of the Company appearing under the caption “Election of Directors” in the Company’s 2006 Proxy Statement is incorporated herein by reference. Information required by this item as to the Executive Officers of the Company is included as Item 4A of Part I of this Annual Report on Form 10-K as permitted by Instruction 3 to Item 401(b) of Regulation S-K. Information required by Item 405 of Regulation S-K is set forth in the 2006 Proxy Statement under the heading “Section 16(a) Beneficial Ownership Reporting Compliance,” which information is incorporated herein by reference. Information required by Item 406 of Regulation S-K is set forth in the 2006 Proxy Statement under the heading “Information Regarding Meetings and Committees of the Board of Directors,” which information is incorporated herein by reference.

The Charters of the Audit Committee, Compensation Committee and Governance and Nominating Committee and the Corporate Governance Guidelines and Code of Business Conduct and Ethics are available on the Company’s website at www.rpminc.com and in print to any stockholder who requests a copy. Requests for copies should be directed to Manager of Investor Relations, RPM International Inc., P.O. Box 777, Medina, Ohio 44258. The Company intends to disclose any amendments to the Code of Business Conduct and Ethics, and any waiver of the Code of Business Conduct and Ethics granted to any Director or Executive Officer of the Company, on the Company’s website.

Item 11. Executive Compensation.

The information required by this item is set forth in the 2006 Proxy Statement under the heading “Executive Compensation,” which information is incorporated herein by reference.


Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this item is set forth in the 2006 Proxy Statement under the headings “Stock Ownership of Principal Holders and Management” and “Equity Compensation Plan Information,” which information is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions.

The information required by this item is set forth in the 2006 Proxy Statement under the heading “Executive Compensation,” which information is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services.

The information required by this item is set forth in the 2006 Proxy Statement under the heading “Audit Fees,” which information is incorporated herein by reference.

PART IV

Item 15. Exhibits and Financial Statement Schedules.

(a) The following documents are filed as part of this 2006 Annual Report on Form 10-K:

1. Financial Statements. The following consolidated financial statements of the Company and its subsidiaries, the report of the Company’s independent registered public accounting firm thereon and the report of the Company’s former principal accounting firm thereon, included in the 2006 Annual Report to Stockholders on pages 26 through 55, 58 and 60, are incorporated by reference in Item 8:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets -
May 31, 2006 and 2005

Consolidated Statements of Income -
years ended May 31, 2006, 2005 and 2004

Consolidated Statements of Stockholders’ Equity -
years ended May 31, 2006, 2005 and 2004

Consolidated Statements of Cash Flows -
years ended May 31, 2006, 2005 and 2004

Notes to Consolidated Financial Statements (including Unaudited Quarterly
Financial Information)

2. Financial Statement Schedules. The following consolidated financial statement schedule of the Company and its subsidiaries and the reports of independent registered public accounting firms thereon are filed as part of this Annual Report on Form 10-K and should be read in conjunction with the consolidated financial statements of the Company and its subsidiaries included in the 2006 Annual Report to Stockholders:


Schedule		Page No.

Report of Independent Registered Public Accounting Firm		S-1

Report of Independent Registered Public Accounting Firm		S-2

Schedule II — Valuation and Qualifying		S-3
Accounts and Reserves

All other schedules have been omitted because they are not applicable or not required, or because the required information is included in the consolidated financial statements or notes thereto.

3. Exhibits. See the Index to Exhibits at page E-1 of this Annual Report on Form 10-K.

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.


		RPM INTERNATIONAL INC.
Date: August 10, 2006	By:	/s/ Frank C. Sullivan
		Frank C. Sullivan
		President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature and Title


/s/ Frank C. Sullivan Frank C. Sullivan		President and Chief Executive Officer and a Director (Principal Executive Officer)

/s/ Robert L. Matejka Robert L. Matejka		Vice President, Chief Financial Officer and Controller (Principal Financial and Accounting Officer)

/s/ Thomas C. Sullivan Thomas C. Sullivan		Chairman and a Director

/s/ Dr. Max D. Amstutz Dr. Max D. Amstutz		Director

/s/ Edward B. Brandon Edward B. Brandon		Director

/s/ Bruce A. Carbonari Bruce A. Carbonari		Director

/s/ James A. Karman James A. Karman		Director


/s/ Donald K. Miller Donald K. Miller		Director

/s/ William A. Papenbrock William A. Papenbrock		Director

/s/ Charles A. Ratner Charles A. Ratner		Director

/s/ William B. Summers, Jr. William B. Summers, Jr.		Director

/s/ Dr. Jerry Sue Thornton Dr. Jerry Sue Thornton		Director

/s/ Joseph P. Viviano Joseph P. Viviano		Director

Date: August 10, 2006

RPM INTERNATIONAL INC.

Exhibit Index


Exhibit No.		Description

3.1		Amended and Restated Certificate of Incorporation of the Company, which is incorporated herein by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-8 (File No. 333-101501), as filed with the Commission on November 27, 2002.

3.2		Amended and Restated By-Laws of the Company, which are incorporated herein by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-8 (File No. 333-101501), as filed with the Commission on November 27, 2002.

4.1		Specimen Certificate of common stock, par value $0.01 per share, of the Company, which is incorporated herein by reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-8 (File No. 333-101501), as filed with the Commission on November 27, 2002.

4.2		Rights Agreement by and between the Company (as successor to RPM, Inc.) and Harris Trust and Savings Bank dated as of April 28, 1999, which is incorporated herein by reference to Exhibit 4.1 to the Company’s Registration Statement on Form 8-A as filed with the Commission on May 11, 1999 (File No. 001-14187).

4.2.1		Amendment to Rights Agreement dated as of December 18, 2000 by and among the Company (as successor to RPM, Inc.), Computershare Investor Services (formerly Harris Trust and Savings Bank) and National City Bank, which is incorporated herein by reference to Exhibit 4.4.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2001 (File No. 001-14187).

4.2.2		Second Amendment to Rights Agreement, dated as of October 15, 2002, among RPM, Inc., National City Bank (as successor rights agent to Computershare Investor Services, formerly Harris Trust and Savings Bank) and the Company, which is incorporated herein by reference to Exhibit 4.4.2 to the Company’s Registration Statement on Form S-8 (File No. 333-101501), as filed with the Commission on November 27, 2002.

4.3		Indenture, dated as of June 1, 1995, between RPM, Inc. and The First National Bank of Chicago, as trustee, which is incorporated herein by reference to Exhibit 4.5 to the Company’s Registration Statement on Form S-4 as filed with the Commission on August 3, 1995 (File No. 033-61541).

4.3.1		First Supplemental Indenture, dated as of March 5, 1998 to the Indenture dated as of June 1, 1995, between RPM, Inc. and The First National Bank of Chicago, as trustee, with respect to the Liquid Asset Notes with Coupon Exchange (“LANCEs(SM)”) Due 2008, which is incorporated herein by reference to Exhibit 4.6 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 1998 (File No. 001-14187).

E-1


Exhibit No.		Description

4.3.2		Specimen Note Certificate of Liquid Asset Notes with Coupon Exchange (“LANCEs(SM)”) Due 2008, which is incorporated herein by reference to Exhibit 4.3 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 1998 (File No. 001-14187).

4.4		Second Supplemental Indenture, dated as of August 26, 2002, by and among the Company, RPM, Inc. and Bank One, N.A. (f/k/a The First National Bank of Chicago) as Trustee, relating to the Indenture, dated as of June 1, 1995, by and between the Company and the Trustee, which is incorporated herein by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the quarter ended August 31, 2002 (File No. 001-14187).

4.5		Indenture, dated as of May 13, 2003 between the Company, as issuer, and The Bank of New York, as trustee, with respect to the Senior Convertible Notes Due 2033, which is incorporated herein by reference to Exhibit 4.9 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2003 (File No. 001-14187).

4.5.1		Specimen Note Certificate for Senior Convertible Notes Due 2033, which is incorporated herein by reference to Exhibit 4.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2003 (File No. 001-14187).

4.6		Indenture, dated as of December 9, 2003 between the Company, as issuer, and The Bank of New York, as trustee, with respect to the 6.25% Senior Notes Due 2013, which is incorporated herein by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-4 (File No. 333-114259), as filed with the Commission on April 7, 2004.

4.6.1		Specimen Note Certificate of 6.25% Senior Notes Due 2013, which is incorporated herein by reference to Exhibit 4.5 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2004 (File No. 001-14187).

4.7		Indenture dated as of September 30, 2004 between the Company, as issuer, and The Bank of New York, as trustee, with respect to the 4.45% Senior Notes Due 2009, which is incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, as filed with the Commission on September 30, 2004 (File No. 001-14187).

4.7.1		Form of 4.45% Senior Notes Due 2009, which is incorporated herein by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K, as filed with the Commission on September 30, 2004 (File No. 001-14187).

4.8		Indenture, dated as of October 24, 2005, among RPM United Kingdom G.P., by its general partners, RPM Canada and RPM Canada Investment Company, the Company, as guarantor, and The Bank of New York Trust Company, N.A., as trustee, which is incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, as filed with the Commission on October 25, 2005 (File No. 001-14187).

4.8.1		Form of 6.70% Senior Note Due 2015, which is incorporated herein by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, as filed with the Commission on October 25, 2005 (File No. 001-14187).

E-2


Exhibit No.		Description

4.8.2		Form of Guarantee, which is incorporated herein by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K, as filed with the Commission on October 25, 2005 (File No. 001-14187).

10.1		Credit Agreement among RPM International Inc., the Borrowers party thereto, the Lenders party thereto and National City Bank, as Administrative Agent, dated as of November 19, 2004, which is incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed with the Commission on November 24, 2004 (File No. 001-14187).

10.1.1		Amendment No. 1 to Credit Agreement among RPM International Inc., the Borrowers party thereto, the Lenders party thereto and National City Bank, as Administrative Agent, dated as of July 18, 2006. (x)

10.2		Receivables Sale Agreement among certain subsidiaries of the Company, the Company and RPM Funding Corporation, dated June 6, 2002, which is incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended August 31, 2002 (File No. 001-14187).

10.2.1		Amendment No. 2 to Receivables Sale Agreement among certain subsidiaries of the Company, the Company and RPM Funding Corporation, dated January 28, 2003, which is incorporated herein by reference to Exhibit 10.17.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2004 (File No. 001-14187).

10.2.2		Amendment No. 3 to Receivables Sale Agreement among certain subsidiaries of the Company, the Company and RPM Funding Corporation, dated April 30, 2004, which is incorporated herein by reference to Exhibit 10.17.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2004 (File No. 001-14187).

10.2.3		Amendment No. 4 to Receivables Sale Agreement among certain subsidiaries of the Company, the Company and RPM Funding Corporation, dated March 8, 2005, which is incorporated herein by reference to Exhibit 10.15.3 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2005 (File No. 001-14187).

10.2.4		Omnibus Amendment No. 1 to the Receivables Sale Agreement and the Receivables Purchase Agreement, by and among RPM, Inc., the Company, certain subsidiaries of the Company, RPM Funding Corporation and Bank One, dated as of October 15, 2002, which is incorporated herein by reference to Exhibit 10.16 to the Company’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2002 (File No. 001-14187).

10.3		Amended and Restated Receivables Purchase Agreement, among RPM Funding Corporation, RPM International Inc., as Servicer, Wachovia Bank, National Association, as Administrative Agent and Co-Agent, and The Bank of Tokyo - - Mitsubishi UFJ, Ltd., New York Branch as Co-Agent, dated as of May 10, 2006. (x)

10.3.1		Amended and Restated Performance Undertaking executed by RPM International Inc., in favor of RPM Funding Corporation, dated May 10, 2006. (x)

E-3


Exhibit No.		Description

10.3.2		Amendment No. 1 to Amended and Restated Receivables Purchase Agreement among RPM Funding Corporation, RPM International Inc., as Servicer, Wachovia Bank, National Association, as Administrative Agent and Co-Agent, and The Bank of Tokyo — Mitsubishi UFJ, Ltd., New York Branch as Co-Agent, entered into July 18, 2006 effective as of May 31, 2006. (x)

10.4		Commercial Paper Dealer Agreement between the Company, as Issuer, and U.S. Bancorp Piper Jaffray Inc., as Dealer, dated as of April 21, 2003, which is incorporated herein by reference to Exhibit 10.21 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2003 (File No. 001-14187).

10.4.1		Issuing and Paying Agent Agreement between U.S. Bank Trust National Association and the Company, dated as of April 21, 2003, which is incorporated herein by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2003 (File No. 001-14187).

*10.5		Succession and Post-Retirement Consulting Letter Agreement, dated April 12, 2002, by and between RPM, Inc. and Thomas C. Sullivan, which is incorporated herein by reference to Exhibit 10.1 to the Company’s Annual Report on Form 10-K for the year ended May 31, 2002 (File No. 001-14187).

*10.5.1		Letter of Amendment to Employment Agreement and Consulting Letter Agreement, dated as of October 14, 2002, by and between RPM, Inc., the Company and Thomas C. Sullivan, which is incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2002 (File No. 001-14187).

*10.5.2		Extension to Post-Retirement Consulting Agreement, which is incorporated herein by reference to Exhibit 10.1.3 to the Company’s Current Report on Form 8-K, as filed with the Commission on June 29, 2005 (File No. 001-14187).

*10.6		Amended and Restated Employment Agreement between the Company and Frank C. Sullivan — Chief Executive Officer and President, which is incorporated herein by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2002 (File No. 001-14187).

*10.7		Form of Employment Agreement entered into by and between the Company and each of P. Kelly Tompkins, Senior Vice President, General Counsel and Secretary, Ronald A. Rice, Senior Vice President — Administration and Assistant Secretary, Paul G. Hoogenboom, Vice President — Operations and Chief Information Officer, Robert L. Matejka, Chief Financial Officer and Vice President — Controller, and Stephen J. Knoop, Vice President — Corporate Development, which is incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended February 28, 2001 (File No. 001-14187).

E-4


Exhibit No.		Description

*10.7.1		Form of Letter of Amendment to Employment Agreements entered into by and between RPM, Inc., the Company and each of P. Kelly Tompkins, Senior Vice President, General Counsel and Secretary, Ronald A. Rice, Senior Vice President — Administration and Assistant Secretary, Paul G. Hoogenboom, Vice President — Operations and Chief Information Officer, Robert L. Matejka, Chief Financial Officer and Vice President — Controller, and Stephen J. Knoop, Vice President — Corporate Development, which is incorporated herein by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2002 (File No. 001-14187).

*10.8		Form of Indemnification Agreement entered into by and between the Company and each of its Directors and Executive Officers, which is incorporated herein by reference to Exhibit 10.14 to the Company’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2002 (File No. 001-14187).

*10.9		RPM International Inc. 1989 Stock Option Plan, as amended, and form of Stock Option Agreements to be used in connection therewith, which is incorporated herein by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2001 (File No. 001-14187).

*10.9.1		Amendment No. 3 to RPM International Inc. 1989 Stock Option Plan, as amended, which is incorporated herein by reference to Exhibit 4.5.1 to the Company’s Registration Statement on Form S-8 (File No. 033-32794), as filed with the Commission on November 27, 2002.

*10.10		RPM International Inc. 1996 Stock Option Plan, which is incorporated herein by reference to Exhibit 4.5 to the Company’s Registration Statement on Form S-8 (File No. 333-60104), as filed with the Commission on November 27, 2002.

*10.10.1		Amendment No. 1 to RPM International Inc. 1996 Stock Option Plan, which is incorporated herein by reference to Exhibit 10.7.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 1998 (File No. 001-14187).

*10.10.2		Amendment to RPM International Inc. 1996 Stock Option Plan, which is incorporated herein by reference to Exhibit 4.3.1 to the Company’s Registration Statement on Form S-8 as filed with the Commission on May 3, 2001 (File No. 001-14187).

*10.10.3		Amendment No. 3 to RPM International Inc. 1996 Stock Option Plan, which is incorporated herein by reference to Exhibit 4.5.3 to the Company’s Registration Statement on Form S-8, as filed with the Commission on November 27, 2002 (File No. 333-60104).

*10.10.4		Form of Stock Option Agreement to be used in connection with the RPM International Inc. 1996 Stock Option Plan, as amended, which is incorporated herein by reference to Exhibit 10.6.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2002 (File No. 001-14187).

*10.11		RPM International Inc. Benefit Restoration Plan, which is incorporated herein by reference to Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2001 (File No. 001-14187).

E-5


Exhibit No.		Description

*10.11.1		Amendment No. 1 to the RPM International Inc. Benefit Restoration Plan, which is incorporated herein by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2003 (File No. 001-14187).

*10.11.2		Amendment No. 2 to RPM International Inc. Benefit Restoration Plan, which is incorporated herein by reference to Exhibit 10.9 to the Company’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2002 (File No. 001-14187).

*10.12		RPM International Inc. Deferred Compensation Plan, which is incorporated herein by reference to Exhibit 10.8.1 to the Company’s Annual Report on Form 10-K for the year ended May 31, 2002 (File No. 001-14187).

*10.12.1		Master Trust Agreement for RPM International Inc. Deferred Compensation Plan, which is incorporated herein by reference to Exhibit 10.8.1 to the Company’s Annual Report on Form 10-K for the year ended May 31, 2002 (File No. 001-14187).

*10.12.2		Amendment No. 1 to RPM International Inc. Deferred Compensation Plan, which is incorporated herein by reference to Exhibit 4.5.1 to the Company’s Registration Statement on Form S-8 (File No. 333-101512), as filed with the Commission on November 27, 2002.

*10.12.3		Amendment No. 3 to RPM International Inc. Deferred Compensation Plan, which is incorporated herein by reference to Exhibit 10.10.3 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2004 (File No. 001-14187).

*10.13		RPM International Inc. Incentive Compensation Plan, which is incorporated herein by reference to Exhibit 10.10 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2001 (File No. 001-14187).

*10.13.1		Amendment No. 1 to RPM International Inc. Incentive Compensation Plan, which is incorporated herein by reference to Exhibit 10.11 to the Company’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2002 (File No. 001-14187).

*10.13.2		Amendment No. 2 to RPM International Inc. Incentive Compensation Plan, which is incorporated herein by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2004 (File No. 001-14187).

*10.14		1997 RPM International Inc. Restricted Stock Plan, and Form of Acceptance and Escrow Agreement to be used in connection therewith, which is incorporated herein by reference to Exhibit 10.12 to the Company’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2002 (File No. 001-14187).

*10.14.1		First Amendment to the RPM, Inc. 1997 Restricted Stock Plan, effective as of October 1, 1998, which is incorporated herein by reference to Exhibit 10.10.1 to the Company’s Annual Report on Form 10-K for the year ended May 31, 2002 (File No. 001-14187).

E-6


Exhibit No.		Description

*10.14.2		Second Amendment to the RPM International Inc. 1997 Restricted Stock Plan, which is incorporated herein by reference to Exhibit 10.10.2 to the Company’s Annual Report on Form 10-K for the year ended May 31, 2002 (File No. 001-14187).

*10.14.3		Third Amendment to the 1997 RPM International Inc. Restricted Stock Plan, which is incorporated herein by reference to Exhibit 10.12.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2002 (File No. 001-14187).

*10.14.4		Fourth Amendment to the 1997 RPM International Inc. Restricted Stock Plan, which is incorporated herein by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2003 (File No. 001-14187).

*10.14.5		Fifth Amendment to the 1997 RPM International Inc. Restricted Stock Plan, which is incorporated herein by reference to Exhibit 10.12.5 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2004 (File No. 001-14187).

*10.15		2002 RPM International Inc. Performance Accelerated Restricted Stock Plan, which is incorporated herein by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2003 (File No. 001-14187).

*10.15.1		Amendment No. 1 to the RPM International Inc. Performance Accelerated Restricted Stock Plan, which is incorporated herein by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2003 (File No. 001-14187).

*10.15.2		Amendment No. 2 to the RPM International Inc. Performance Accelerated Restricted Stock Plan, which is incorporated herein by reference to Exhibit 10.13.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2004 (File No. 001-14187).

*10.16		RPM International Inc. 2003 Restricted Stock Plan for Directors, which is incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2003 (File No. 001-14187).

*10.17		RPM International Inc. Omnibus Equity and Incentive Plan, which is incorporated herein by reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-8 (File No. 333-120067), as filed with the Commission on October 29, 2004.

*10.17.1		Form of Performance-Earned Restricted Stock (PERS) and Escrow Agreement, which is incorporated herein by reference to Exhibit 10.26 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2005 (File No. 001-14187).

*10.17.2		Form of Stock Appreciation Rights Agreement, which is incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended August 31, 2005 (File No. 001-14187).

E-7


Exhibit No.		Description

10.18		Share Purchase Agreement between illbruck GmbH, Sabina Illbruck, Michael Illbruck and Tremco Germany GmbH, RPOW UK Ltd., RPM International Inc. dated as of July 25, 2005, which is incorporated herein by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended August 31, 2005 (File No. 001-14187).

13.1		Financial Information contained in 2006 Annual Report to Stockholders. (x)

18.1		Letter regarding Change in Accounting Principles. (x)

21.1		Subsidiaries of the Company. (x)

23.1		Consent of Independent Registered Public Accounting Firm. (x)

23.2		Consent of Independent Public Accounting Firm. (x)

31.1		Rule 13a-14(a) Certification of the Company’s Chief Financial Officer. (x)

31.2		Rule 13a-14(a) Certification of the Company’s Chief Executive Officer. (x)

32.1		Section 1350 Certification of the Company’s Chief Financial Officer. (xx)

32.2		Section 1350 Certification of the Company’s Chief Executive Officer. (xx)


(x)		Filed herewith.

(xx)		Furnished herewith.

*		Management contract or compensatory plan or arrangement.

E-8

Report of Independent Registered Public Accounting Firm
on Financial Statement Schedule

The report of Ernst & Young LLP with respect to the financial statement schedule is included
in the consent of Ernst & Young LLP, which is filed herewith as Exhibit 23.1.

S-1

Report of Independent Registered Public Accounting Firm
on Financial Statement Schedule

To The Board of Directors and Stockholders
RPM International Inc. and Subsidiaries
Medina, Ohio

The audits referred to in our report to the Board of Directors and Stockholders of RPM International Inc. and Subsidiaries dated July 7, 2005, relating to the consolidated financial statements of RPM International Inc. and Subsidiaries included the audit of the schedule listed under Item 15 of Form 10-K for each of the two years in the period ended May 31, 2005. This financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion on this financial statement schedule based upon our audits.

In our opinion such financial statement schedule presents fairly, in all material respects, the information set forth therein.

/s/ Ciulla, Smith & Dale, LLP

CIULLA, SMITH & DALE, LLP

S-2

Schedule II

RPM INTERNATIONAL INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

(In thousands)

Additions

Acquisitions

Charged to

(Disposals)

Balance at

Additions

Selling,

of Businesses

Insurance

Balance at

Beginning

Charged to

General and

and

Carrier

End

of Period

Cost of Sales

Administrative

Reclassifications

Funding

Deductions

of Period

Year Ended May 31, 2006

Allowance for doubtful accounts

18,565

3,786

960

3,059

(1)

20,252

Accrued product liability reserves

57,414

18,624

790

5,000

28,064

(2)

53,764

Accrued loss reserves — Current

8,038

6,171

370

1,665

(2)

12,914

Asbestos-related liabilities — Current

55,000

59,000

4,812

59,887

(2)

58,925

Accrued warranty and product liability reserves — Noncurrent

8,044

8,412

700

2,398

(2)

14,758

Asbestos-related liabilities — Noncurrent

46,172

321,000

(4,812

)

(2)

362,360

Year Ended May 31, 2005

Allowance for doubtful accounts

18,147

5,457

5,039

(1)

18,565

Accrued product liability reserves

47,402

17,371

12,850

20,209

(2)

57,414

Accrued loss reserves — Current

9,297

5,774

7,033

(2)

8,038

Asbestos-related liabilities — Current

47,500

74,935

67,435

(2)

55,000

Accrued warranty and product liability reserves — Noncurrent

5,579

(233

)

3,400

702

(2)

8,044

Asbestos-related liabilities — Noncurrent

43,107

3,065

(2)

46,172


				Additions			Acquisitions
				Charged to			(Disposals)
	Balance at		Additions	Selling,			of Businesses		Insurance				Balance at
	Beginning		Charged to	General and			and		Carrier				End
	of Period		Cost of Sales	Administrative			Reclassifications		Funding	Deductions			of Period
Year Ended May 31, 2004
Allowance for doubtful accounts	$	17,297	$	$	7,613		$	75	$	$	6,838	(1)	$	18,147


Accrued product liability reserves	$	53,207	$	$	18,921		$		$	$	24,726	(2)	$	47,402


Accrued loss reserves — Current	$	11,023	$	$	3,241		$		$	$	4,967	(2)	$	9,297

Asbestos-related liabilities —											53,976	(2)
Current	$	41,583	$	$			$		$	$	(59,893	)(3)	$	47,500

Accrued warranty and product liability reserves — Noncurrent	$	7,781	$	$	(1,816	)	$		$	$	386	(2)	$	5,579

Asbestos-related liabilities — Noncurrent	$	103,000	$	$			$		$	$	59,893	(3)	$	43,107


(1)		Uncollectible accounts written off, net of recoveries

(2)		Primarily claims paid during the year, net of insurance contributions

(3)		Transfers between current and noncurrent

EX-10.1.1 2 l21773aexv10w1w1.htm EX-10.1.1 EX-10.1.1

Exhibit 10.1.1

AMENDMENT NO. 1

CREDIT AGREEMENT

among

RPM INTERNATIONAL INC.,
as a Borrower,

THE LENDERS NAMED HEREIN,
as Lenders,

and

NATIONAL CITY BANK,
as the Administrative Agent

dated as of July 18, 2006

This AMENDMENT NO. 1 TO CREDIT AGREEMENT (this “Amendment”) is entered into as of July 18, 2006, by and among the following: (i) RPM INTERNATIONAL INC., a Delaware corporation (the “Company”); (ii) the Lenders, as defined in the Credit Agreement referred to below; and (iii) NATIONAL CITY BANK, as administrative agent for the Lenders (the “Administrative Agent”).

RECITALS:

A. The Company, the Foreign Borrowers from time to time party to the Credit Agreement, the Administrative Agent, the Lenders, NATIONAL CITY BANK, as a joint lead arranger, a joint book runner, an LC Issuer, and the Swing Line Lender, KEYBANK NATIONAL ASSOCIATION, as a joint lead arranger, a joint book runner and the syndication agent, WACHOVIA BANK, N.A., as co-documentation agent; and FLEET NATIONAL BANK, as co-documentation agent, are parties to a Credit Agreement dated as of November 19, 2004 (as the same may from time to time be amended, restated or otherwise modified, the “Credit Agreement”; capitalized terms used herein and not defined herein are used herein as defined in the Credit Agreement).

B. The Company has requested that Administrative Agent and the Lenders agree to amend certain provisions of the Credit Agreement, as set forth herein.

C. The Administrative Agent and the Lenders are willing to agree to such amendments pursuant to the terms and subject to the conditions set forth herein.

AGREEMENT:

In consideration of the premises and mutual covenants herein and for other valuable consideration, the Company, the Administrative Agent and the Lenders agree as follows:

Section 1. Amendment to Definitions. Section 1.01 of the Credit Agreement is hereby amended effective as of May 31, 2006, to delete the definition of “EDITDA” therefrom and insert in place thereof the following:

“EBITDA” shall mean, for any period, determined on a consolidated basis for the Company and its Subsidiaries, (i) net income of the Company and its Subsidiaries (calculated before provision for income taxes, interest expense, extraordinary items, non-recurring gains or losses in connection with asset dispositions, income attributable to equity in affiliates, all amounts attributable to depreciation and amortization and non-cash charges associated with asbestos liabilities) for such period, minus (ii) cash payments made by the Company or any of its Subsidiaries in respect of asbestos liabilities (which liabilities include, without limitation, defense costs and indemnification liabilities incurred in connection with asbestos liabilities) during such period.

Section 2. Conditions Precedent. The amendments set forth above shall become effective as of the date first written above if on or before such date the following conditions have been satisfied:

(i) this Amendment shall have been executed by the Company, the Administrative Agent and the Majority Lenders, and counterparts hereof as so executed shall have been delivered to the Administrative Agent; and

(ii) the Company shall have provided such other items and shall have satisfied such other conditions as may be reasonably required by the Administrative Agent.

Section 3. Miscellaneous.

3.1 Representations and Warranties. The Company, by signing below, hereby represents and warrants to the Administrative Agent and the Lenders that:

(i) the Company has the legal power and authority to execute and deliver this Amendment;

(ii) the officers executing this Amendment on behalf of the Company have been duly authorized to execute and deliver the same and bind the Company with respect to the provisions hereof;

(iii) the execution and delivery hereof by the Company and the performance and observance by the Company of the provisions hereof do not violate or conflict with the Organizational Documents of the Company or any law applicable to the Company or result in a breach of any provision of or constitute a default under any other agreement, instrument or document binding upon or enforceable against the Company;

(iv) no Default or Event of Default exists under the Credit Agreement, nor will any occur immediately after the execution and delivery of this Amendment or by the performance or observance of any provision hereof;

(v) upon the execution and delivery of this Amendment by the Company, this Amendment shall constitute a valid and binding obligation of the Company in every respect, enforceable in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency or other similar laws of general application affecting the enforcement of creditors’ rights or by general principles of equity limiting the availability of equitable remedies; and

(vi) each of the representations and warranties set forth in Article VIII of the Credit Agreement is true and correct in all material respects as of the date hereof, except to the extent that any thereof expressly relate to an earlier date.

3.2 Waiver of Claims. The Company hereby waives and releases the Administrative Agent and each of the Lenders and their respective directors, officers, employees, attorneys, affiliates and subsidiaries from any and all claims, offsets, defenses and counterclaims of which any of the undersigned is aware arising out of or relating to the Credit Agreement and the other Loan Documents, such waiver and release being with full knowledge and understanding of the circumstances and effect thereof and after having consulted legal counsel with respect thereto.

3.3 Expenses. As provided in the Credit Agreement, but without limiting any terms or provisions thereof, the Company agrees to pay on demand all reasonable costs and expenses incurred by the Administrative Agent in connection with the preparation, negotiation, and execution of this Amendment, including without limitation the reasonable costs and fees of the Administrative Agent’s special legal counsel, regardless of whether this Amendment becomes effective in accordance with the terms hereof, and all costs and expenses incurred by the Administrative Agent or any Lender in connection with the enforcement or preservation of any rights under the Credit Agreement, as amended hereby.

3.4 Credit Agreement Unaffected. Each reference to the Credit Agreement herein or in any other Loan Document shall hereafter be construed as a reference to the Credit Agreement as amended

hereby. Except as herein otherwise specifically provided, all provisions of the Credit Agreement shall remain in full force and effect and be unaffected hereby. This Amendment is a Loan Document.

3.5 Entire Agreement. This Amendment, together with the Credit Agreement and the other Loan Documents, integrates all the terms and conditions mentioned herein or incidental hereto and supersedes all oral representations and negotiations and prior writings with respect to the subject matter hereof.

3.6 Counterparts. This Amendment may be executed in any number of counterparts, by different parties hereto in separate counterparts and by facsimile signature, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement.

3.7 Governing Law. THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF OHIO, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES. TO THE FULLEST EXTENT PERMITTED BY LAW, THE COMPANY HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY JURISDICTION OTHER THAN THE STATE OF OHIO GOVERNS THIS AMENDMENT OR ANY OF THE OTHER LOAN DOCUMENTS.

3.8 JURY TRIAL WAIVER. EACH OF THE PARTIES TO THIS AMENDMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AMENDMENT OR ANY OF THE OTHER LOAN DOCUMENTS (INCLUDING, WITHOUT LIMITATION, ANY AMENDMENTS, WAIVERS OR OTHER MODIFICATIONS RELATING TO ANY OF THE FOREGOING), OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

[Signature pages follow.]

IN WITNESS WHEREOF, this Amendment has been duly executed and delivered as of the date first above written.


RPM INTERNATIONAL INC.

By:	/s/ Keith R. Smiley

	Name:	Keith R. Smiley
	Title:	Vice President, Treasurer and Assistant Secretary

NATIONAL CITY BANK, as the Administrative Agent, the Swing Line Lender, the LC Issuer and a Lender

By:	/s/ Robert S Coleman

	Name:	Robert S Coleman
	Title:	Senior Vice President

NATIONAL CITY BANK, CANADA BRANCH

By:	/s/ Caroline Stade		/s/ William Hines

	Name: Caroline Stade		William Hines
	Title: Senior Vice President		Senior Vice President

Signature page to
the Amendment No. 1 to Credit Agreement
among RPM International Inc., as Borrower,
National City Bank, as the Administrative Agent,
and the Lenders party thereto



Name of Institution:	KEYBANK NATIONAL ASSOCIATION


	By:	/s/ Thomas J. Purcell

		Name: Thomas J. Purcell Title: Senior Vice President

Signature page to
the Amendment No. 1 to Credit Agreement
among RPM International Inc., as Borrower,
National City Bank, as the Administrative Agent,
and the Lenders party thereto



Name of Institution:	Wachovia Bank, National Association


	By:	/s/ Barbara Van Meerten

		Name: Barbara Van Meerten Title: Director

Signature page to
the Amendment No. 1 to Credit Agreement
among RPM International Inc., as Borrower,
National City Bank, as the Administrative Agent,
and the Lenders party thereto



Name of Institution:	FIFTH THIRD BANK


	By:	/s/ Roy C. Lanctot

		Name: Roy C. Lanctot
		Title: Vice President

Signature page to
the Amendment No. 1 to Credit Agreement
among RPM International Inc., as Borrower,
National City Bank, as the Administrative Agent,
and the Lenders party thereto



Name of Institution:	LaSalle Bank National Association


	By:	/s/ Patrick F Dunphy

		Name: Patrick F. Dunphy
		Title: First Vice President

Signature page to
the Amendment No. 1 to Credit Agreement
among RPM International Inc., as Borrower,
National City Bank, as the Administrative Agent,
and the Lenders party thereto



Name of Institution:	The Bank of Tokyo — Mitsubishi UFJ, Ltd., Chicago Branch


	By:	/s/ Tsuguyuki Umene

		Name: Tsuguyuki Umene
		Title: Deputy General Manager

Signature page to
the Amendment No. 1 to Credit Agreement
among RPM International Inc., as Borrower,
National City Bank, as the Administrative Agent,
and the Lenders party thereto



Name of Institution:	The Bank of New York


	By:	/s/ Kenneth R. McDonnell

		Name: Kenneth R. McDonnell Title: Vice President

Signature page to
the Amendment No. 1 to Credit Agreement
among RPM International Inc., as Borrower,
National City Bank, as the Administrative Agent,
and the Lenders party thereto



Name of Institution:	US Bank National Association


	By:	/s/ Christine C. Gencer

		Name: Christine C. Gencer
		Title: Vice President

Signature page to
the Amendment No. 1 to Credit Agreement
among RPM International Inc., as Borrower,
National City Bank, as the Administrative Agent,
and the Lenders party thereto



Name of Institution:	Credit Suisse, Cayman Islands Branch


	By:	/s/ Tom Cantello

		Name: Tom Cantello
		Title: Vice President

	By:	/s/ Greg Richards

		Name: Greg Richards
		Title: Associate

Signature page to
the Amendment No. 1 to Credit Agreement
among RPM International Inc., as Borrower,
National City Bank, as the Administrative Agent,
and the Lenders party thereto



Name of Institution:	KBC BANK N.V.


	By:	/s/ Jean-Pierre Diels

		Name: Jean-Pierre Diels
		Title: First Vice President

	By:	/s/ William Cavanaugh

		Name: William Cavanaugh
		Title: Vice President

Signature page to
the Amendment No. 1 to Credit Agreement
among RPM International Inc., as Borrower,
National City Bank, as the Administrative Agent,
and the Lenders party thereto



Name of Institution:	Bank of America, N.A.


	By:	/s/ Irene Bertozzi Bartenstein

		Name: Irene Bertozzi Bartenstein
		Title: Principal

EX-10.3 3 l21773aexv10w3.htm EX-10.3 EX-10.3

Exhibit 10.3

AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT

Dated as of May 10, 2006

among

RPM FUNDING CORPORATION, as Seller,

RPM INTERNATIONAL INC., as Servicer,

VICTORY RECEIVABLES CORPORATION,

VARIABLE FUNDING CAPITAL COMPANY LLC,

THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., CHICAGO BRANCH,

THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., NEW YORK BRANCH, as Victory Agent,

and

WACHOVIA BANK, NATIONAL ASSOCIATION, individually, as VFCC Agent and as Administrative Agent

TABLE OF CONTENTS


		Page
ARTICLE I. PURCHASE ARRANGEMENTS		2

Section 1.1	Purchase Facility	2
Section 1.2	Increases	3
Section 1.3	Decreases	3
Section 1.4	Payment Requirements	3
Section 1.5	Extension of each Conduit's Liquidity Termination Date	4

ARTICLE II. PAYMENTS AND COLLECTIONS		5

Section 2.1	Payments	5
Section 2.2	Collections Prior to Amortization	5
Section 2.3	Collections Following Amortization	6
Section 2.4	Application of Collections	6
Section 2.5	Payment Rescission	7
Section 2.6	Maximum Purchaser Interests	7
Section 2.7	Clean Up Call	7

ARTICLE III. CONDUIT FUNDING		8

Section 3.1	CP Costs	8
Section 3.2	CP Costs Payments	8
Section 3.3	Calculation of CP Costs	8

ARTICLE IV. LIQUIDITY BANK FUNDING		8

Section 4.1	Liquidity Bank Funding	8
Section 4.2	Yield Payments	8
Section 4.3	Selection and Continuation of Tranche Periods	8
Section 4.4	Liquidity Bank Discount Rates	9
Section 4.5	Suspension of the LIBO Rate	9

ARTICLE V. REPRESENTATIONS AND WARRANTIES		10

Section 5.1	Representations and Warranties of Seller	10
Section 5.2	Liquidity Bank Representations and Warranties	13

ARTICLE VI. CONDITIONS OF PURCHASES		14

Section 6.1	Conditions Precedent to Initial Incremental Purchase	14
Section 6.2	Conditions Precedent to All Purchases and Reinvestments	14

ARTICLE VII. COVENANTS		15

Section 7.1	Affirmative Covenants of the Seller Parties	15
Section 7.2	Negative Covenants of the Seller Parties	23

ARTICLE VIII. ADMINISTRATION AND COLLECTION		24

Section 8.1	Designation of Servicer	24
Section 8.2	Duties of Servicer	25
Section 8.3	Collection Notices	26
Section 8.4	Responsibilities of Seller	27
Section 8.5	Reports	27
Section 8.6	Servicing Fees	27

ARTICLE IX. AMORTIZATION EVENTS		27

Section 9.1	Amortization Events	27


Section 9.2	Remedies	30

ARTICLE X. INDEMNIFICATION		30

Section 10.1	Indemnities by the Seller	30
Section 10.2	Indemnities by the Servicer	33
Section 10.3	Increased Cost and Reduced Return	34
Section 10.4	Other Costs and Expenses	35

ARTICLE XI. THE AGENTS		35

Section 11.1	Appointment	35
Section 11.2	Delegation of Duties	36
Section 11.3	Exculpatory Provisions	36
Section 11.4	Reliance by Agents	37
Section 11.5	Notice of Amortization Events	38
Section 11.6	Non-Reliance on Agents and Other Purchasers	38
Section 11.7	Indemnification of Agents	39
Section 11.8	Agents in their Individual Capacities	39
Section 11.9	Successor Administrative Agent	39
Section 11.10	Agents’ Conflict Waivers	40
Section 11.11	UCC Filings	40

ARTICLE XII. ASSIGNMENTS; PARTICIPATIONS		41

Section 12.1	Assignments	41
Section 12.2	Participations	42

ARTICLE XIII. [RESERVED]		42

ARTICLE XIV. MISCELLANEOUS		42

Section 14.1	Waivers and Amendments	42
Section 14.2	Notices	43
Section 14.3	Ratable Payments	44
Section 14.4	Protection of Purchaser Interests	44
Section 14.5	Confidentiality	45
Section 14.6	Bankruptcy Petition	45
Section 14.7	Limitation of Liability	45
Section 14.8	CHOICE OF LAW	46
Section 14.9	CONSENT TO JURISDICTION	46
Section 14.10	WAIVER OF JURY TRIAL	46
Section 14.11	Integration; Binding Effect; Survival of Terms	47
Section 14.12	Counterparts; Severability; Section References	47
Section 14.13	Characterization	47

Exhibits and Schedules


Exhibit I		Definitions

Exhibit II		Form of Purchase Notice

Exhibit III		Places of Business of the Seller Parties; Locations of Records; Federal Employer and Organizational Identification Numbers

Exhibit IV		Names of Collection Banks; Collection Accounts

Exhibit V		Form of Compliance Certificate

Exhibit VI		Form of Collection Account Agreement

Exhibit VII		Form of Assignment Agreement

Exhibit VIII		Credit and Collection Policy

Exhibit IX		Form of Contract(s)

Exhibit X		Form of Monthly Report

Exhibit XI		Form of Performance Undertaking

Schedule A		Commitments

Schedule B		Closing Documents

iii

AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT

THIS AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT dated as of May 10, 2006, is among:

(a) RPM Funding Corporation, a Delaware corporation (“Seller”),

(b) RPM International Inc., a Delaware corporation (“RPM-Delaware”), as initial Servicer,

(c) Victory Receivables Corporation, a Delaware corporation (“Victory” or a “Conduit”), and Variable Funding Capital Company LLC, a Delaware corporation (“VFCC” or a “Conduit”),

(d) The Bank of Tokyo-Mitsubishi UFJ, Ltd., Chicago Branch (“BTMU-Chicago”), and its assigns (collectively, the “Victory Liquidity Banks” and, together with Victory, the “Victory Group”), and Wachovia Bank, National Association (“Wachovia”), and its assigns (collectively, the “VFCC Liquidity Banks” and, together with VFCC, the “VFCC Group”),

(e) The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch (“BTMU-NY”), in its capacity as agent for the Victory Group (the “Victory Agent” or a “Co-Agent”), and Wachovia Bank, National Association, a national banking association, in its capacity as agent for the VFCC Group (the “VFCC Agent” or a “Co-Agent”), and

(f) Wachovia Bank, National Association, in its capacity as administrative agent for the Victory Group, the VFCC Group and each Co-Agent (in such capacity, together with its successors and assigns, the “Administrative Agent” and, together with each of the Co-Agents, the “Agents”).

Unless defined elsewhere herein, capitalized terms used in this Agreement shall have the meanings assigned to such terms in Exhibit I.

PRELIMINARY STATEMENTS

Seller, RPM-Delaware, VFCC and Wachovia are parties to a Receivables Purchase Agreement dated as of June 6, 2002, as heretofore amended from time to time (the “Existing Agreement”), and Victory, BTMU-Chicago and BTMU-NY wish to become parties thereto. Accordingly, the parties hereto agree to amend and restate the Existing Agreement on the terms and subject to the conditions hereinafter set forth.

Seller desires to transfer and assign Purchaser Interests to the Purchasers from time to time.

Each of the Conduits may, in its absolute and sole discretion, purchase its Percentage of each Purchaser Interest from Seller from time to time.

In the event that either Conduit declines to make any such purchase, its Liquidity Banks shall make such purchase.

The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch has been requested and is willing to act as Victory Agent on behalf of the Victory Group in accordance with the terms hereof.

Wachovia Bank, National Association has been requested and is willing to act as VFCC Agent on behalf of the VFCC Group and as Administrative Agent on behalf of the Purchasers in accordance with the terms hereof.

ARTICLE I.

PURCHASE ARRANGEMENTS

Section 1.1 Purchase Facility.

(a) On the terms and subject to the conditions set forth in this Agreement, Seller may from time to time prior to the Facility Termination Date, sell Purchaser Interests to the Purchasers by delivering (or causing Servicer to deliver, on Seller’s behalf) a Purchase Notice to the Co-Agents in accordance with Section 1.2. Upon receipt of a copy of each Purchase Notice from Seller or Servicer, each of the Co-Agents shall determine whether its Conduit will purchase its Percentage of such Purchaser Interest, and

(i) in the event that Victory elects not to make any such purchase of its Percentage, the Victory Agent shall promptly notify Seller and the Victory Liquidity Banks of such fact, whereupon each of the Victory Liquidity Banks severally agrees to purchase its Ratable Share of such Percentage, on the terms and subject to the conditions hereof, provided that at no time may the aggregate Capital of the Victory Group at any one time outstanding exceed the lesser of (A) the aggregate amount of the Victory Liquidity Banks’ Commitments hereunder, and (B) Victory’s Percentage of the Net Receivables Balance (such lesser amount, the “Victory Allocation Limit”) less Aggregate Reserves; and

(ii) in the event that VFCC elects not to make any such purchase of its Percentage, the VFCC Agent shall promptly notify Seller and each of the VFCC Liquidity Banks of such fact, whereupon each of the VFCC Liquidity Banks severally agrees to purchase its Ratable Share of such Percentage, on the terms and subject to the conditions hereof, provided that at no time may the aggregate Capital of the VFCC Group at any one time outstanding exceed the lesser of (A) the aggregate amount of the VFCC Liquidity Banks’ Commitments hereunder, and (B) VFCC’s Percentage of the Net Receivables Balance (such lesser amount, the “VFCC Allocation Limit”) less Aggregate Reserves.

In no event shall the Aggregate Capital outstanding hereunder exceed the lesser of (1) the Purchase Limit and (2) the Net Receivables Balance less Aggregate Reserves. All

Liquidity Banks’ Commitments to Seller under this Agreement shall terminate on the Facility Termination Date.

(b) Seller may, upon at least 10 Business Days’ notice to the Agents, terminate in whole or reduce in part, ratably between the VFCC Group and the Victory Group in accordance with their respective Percentages (and within each Group, ratably among the Liquidity Banks that are members thereof in accordance with their respective Ratable Shares), the unused portion of the Purchase Limit; provided that each partial reduction of the Purchase Limit shall be in an aggregate amount equal to $10,000,000 or a larger integral multiple of $1,000,000.

Section 1.2 Increases. Seller (or Servicer, on Seller’s behalf) shall provide each of the Co-Agents with at least two (2) Business Days’ prior notice in a form set forth as Exhibit II hereto of each Incremental Purchase (a “Purchase Notice”). Each Purchase Notice shall be subject to Section 6.2 hereof and, except as set forth below, shall be irrevocable and shall specify the requested Purchase Price (which shall not be less than $3,000,000) and date of purchase (which, in the case of any Incremental Purchase (after the initial Incremental Purchase hereunder), shall only be on a Settlement Date) and, in the case of an Incremental Purchase to be funded by either Conduit’s Liquidity Banks, the requested Discount Rate and Tranche Period. Following receipt of a Purchase Notice, each Co-Agent will determine whether its Conduit agrees to make its purchase. If either Conduit declines to make a proposed purchase, the Incremental Purchase of that Conduit’s Percentage of such Purchaser Interest will be made by such Conduit’s Liquidity Banks while the other Conduit’s Percentage of such Purchaser Interest will be purchased by such other Conduit. On the date of each Incremental Purchase, upon satisfaction of the applicable conditions precedent set forth in Article VI, each of the Conduits or its Liquidity Banks, as applicable, shall deposit to the Facility Account, in immediately available funds, no later than 2:00 p.m. (New York time), an amount equal to (i) in the case of a Conduit, its Percentage of the Purchase Price of the Purchaser Interest then being purchased or (ii) in the case of a Liquidity Bank, such Liquidity Bank’s Ratable Share of its Conduit’s Percentage of the Purchase Price of the Purchaser Interest then being purchased.

Section 1.3 Decreases. Seller (or Servicer, on Seller’s behalf) shall provide each of the Co-Agents with prior written notice in conformity with the Required Notice Period (each, a “Reduction Notice”) of any proposed reduction of Aggregate Capital. Such Reduction Notice shall designate (i) the date (the “Proposed Reduction Date”) upon which any such reduction of Aggregate Capital shall occur (which date shall give effect to the applicable Required Notice Period), (ii) the amount of Aggregate Capital to be reduced (the “Aggregate Reduction”), (iii) each Group’s Percentage of such Aggregate Reduction, which shall be applied ratably to the Purchaser Interests of the Conduit and Liquidity Banks in such Group in accordance with the amount of Capital (if any) owing to such Conduit, on the one hand, and the amount of Capital (if any) owing to such Liquidity Banks (ratably, based on their respective Ratable Shares), on the other hand. Only one (1) Reduction Notice shall be outstanding at any time.

Section 1.4 Payment Requirements. All amounts to be paid or deposited by any Seller Party pursuant to any provision of this Agreement shall be paid or deposited in accordance with the terms hereof no later than 12:00 noon (New York time) on the day when due in immediately available funds, and if not received before 12:00 noon (New York time) shall be deemed to be

received on the next succeeding Business Day. If such amounts are payable to the Victory Agent or to a member of the Victory Group, they shall be paid to Corporate Trust & Agency Services account no. ******** at Deutsche Bank Trust Company Americas in New York, New York, ABA No. ***-***-***, Reference: Victory Receivables/RPM Funding Corporation, until otherwise notified by the Victory Agent (the “Victory Group Account”). If such amounts are payable to the Administrative Agent, the VFCC Agent or to a member of the VFCC Group, they shall be paid to account no. #************* at Wachovia Bank, National Association, in Charlotte, NC, ABA No. #*** *** ***, Reference: VFCC/RPM Funding Corporation, until otherwise notified by the VFCC Agent (the “VFCC Group Account”). All computations of Yield, per annum fees calculated as part of any CP Costs, per annum fees hereunder and per annum fees under the Fee Letter shall be made on the basis of a year of 360 days for the actual number of days elapsed. If any amount hereunder shall be payable on a day which is not a Business Day, such amount shall be payable on the next succeeding Business Day.

Section 1.5 Extension of each Conduit’s Liquidity Termination Date. Provided that no Amortization Event or Potential Amortization Event has occurred, the Seller (or Servicer, on Seller’s behalf) may request an extension of each Conduit’s Liquidity Termination Date by submitting a request for an extension (each, an “Extension Request”) to the Co-Agents no more than 120 days and not less than 30 days prior to the Conduits’ then current Liquidity Termination Date. Upon receipt of such an Extension Request, the VFCC Agent shall notify the VFCC Group, and the Victory Agent shall notify the Victory Group, of the contents thereof and shall request each member of its respective Group to approve the Extension Request. Each Purchaser approving the Extension Request shall deliver its written approval to its Co-Agent no later than thirty (30) days after the request (the “Response Date”), whereupon such Co-Agent shall notify the Administrative Agent, the other Co-Agent and the Seller within one Business Day thereafter as to whether all members of such Co-Agent’s Group have approved the Extension Request. If all members of the VFCC Group and all members of the Victory Group have approved the Extension Request by the Response Date, each Conduit’s Liquidity Termination Date shall be extended to the date which is 364 days from the earlier to occur of the Response Date or the Administrative Agent’s receipt of notice from each of the Co-Agents that their respective Groups have unanimously approved the requested extension (such earlier date, the “Extension Date”). If the members of either Group do not unanimously agree to an Extension Request, the Seller (or Servicer, on Seller’s behalf) shall have the right to require the members of such Group to assign all, but not less than all, of their Commitments (as applicable) and all, but not less than all, of their outstanding Obligations (as applicable) by entering into written assignment(s) with one or more Eligible Assignees (who shall, unless an Amortization Event or Potential Amortization Event shall exist and be continuing, be acceptable to RPM-Delaware, which consent shall not be unreasonably withheld or delayed) not later than the 10th Business Day after such Eligible Assignee(s) are identified. Each such assignment to an Eligible Assignee (including, if agreed by the members of the other Group, to the members of the other Group) shall become effective on the Business Day following execution and delivery of the applicable written assignment; provided that the assigning Purchasers receive payment in full of their Obligations (it being understood that any breakage costs, expenses or other amounts which would be owing to such Purchaser pursuant to any indemnification provision hereof shall be payable by the Seller).

ARTICLE II.

PAYMENTS AND COLLECTIONS

Section 2.1 Payments. Notwithstanding any limitation on recourse contained in this Agreement, Seller (or Servicer, on Seller’s behalf) shall immediately remit to each of the Co-Agents when due, for the account of the relevant Purchaser or Purchasers in its Group, on a full recourse basis, all of the following (collectively, the “Obligations”):

(i) such fees as set forth in the Fee Letter (which fees shall be sufficient to pay all fees owing to the Liquidity Banks),

(ii) all CP Costs,

(iii) all amounts payable as Yield,

(iv) all amounts payable as Deemed Collections (which shall be immediately due and payable by Seller and applied to reduce outstanding Aggregate Capital hereunder in accordance with Sections 2.2 and 2.3 hereof),

(v) all amounts required pursuant to Section 2.6,

(vi) all amounts payable pursuant to Article X, if any,

(vii) all Servicer costs and expenses, including the Servicing Fee, in connection with servicing, administering and collecting the Receivables,

(viii) all Broken Funding Costs, and

(ix) all Default Fees.

If Seller fails to pay any of the Obligations when due, Seller agrees to pay, on demand, the Default Fee in respect thereof until paid. Notwithstanding the foregoing, no provision of this Agreement or the Fee Letter shall require the payment or permit the collection of any amounts hereunder in excess of the maximum permitted by applicable law. If at any time Seller receives any Collections or is deemed to receive any Collections, Seller (or Servicer, on Seller’s behalf) shall immediately pay such Collections or Deemed Collections to the Servicer for application in accordance with the terms and conditions hereof and, at all times prior to such payment, such Collections or Deemed Collections shall be held in trust by Seller for the exclusive benefit of the Purchasers and the Agents.

Section 2.2 Collections Prior to Amortization. Prior to the Amortization Date, any Collections and/or Deemed Collections received by the Servicer shall be set aside and held in trust by the Servicer for the payment of any accrued and unpaid Aggregate Unpaids or for a Reinvestment as provided in this Section 2.2. If on any Business Day prior to the Amortization Date, any Collections are received by the Servicer after payment of any Obligations that are then due and owing, Seller hereby requests and the Purchasers hereby agree to make, simultaneously with such receipt, a reinvestment (each, a “Reinvestment”) with that portion of the balance of

each and every Collection received by the Servicer that is part of any Purchaser Interest, such that after giving effect to such Reinvestment, the amount of Capital of such Purchaser Interest immediately after such receipt and corresponding Reinvestment shall be equal to the amount of Capital immediately prior to such receipt. On each Settlement Date prior to the occurrence of the Amortization Date, the Servicer shall remit to the VFCC Group’s Account and the Victory Group’s Account each Group’s respective Percentage of the amounts set aside during the preceding Settlement Period that have not been subject to a Reinvestment and apply such amounts (if not previously paid in accordance with Section 2.1) to reduce the Obligations. Once such Obligations shall be reduced to zero, any additional Collections received by the Servicer (i) if applicable, shall be remitted to the VFCC Group’s Account and the Victory Group’s Account no later than 12:00 noon (New York time) to the extent required to fund the Groups’ respective Percentages of any Aggregate Reduction on such Settlement Date and (ii) any balance remaining thereafter shall be remitted from the Servicer to Seller on such Settlement Date.

Section 2.3 Collections Following Amortization. On the Amortization Date and on each day thereafter, the Servicer shall set aside and hold in trust, for the holders of each Purchaser Interest, all Collections received on such day and an additional amount of the Seller’s funds for the payment of any accrued and unpaid Obligations owed by Seller and not previously paid by Seller in accordance with Section 2.1. On and after the Amortization Date, the Servicer shall, at any time upon the request from time to time by (or pursuant to standing instructions from) any Agent (i) remit to the VFCC Group’s Account and the Victory Group’s Account the Groups’ respective Percentages of the amounts set aside pursuant to the preceding sentence, and (ii) apply such amounts to reduce the applicable Group’s Capital associated with each such Purchaser Interest and any other Aggregate Unpaids.

Section 2.4 Application of Collections. If there shall be insufficient funds on deposit for the Servicer to distribute funds in payment in full of the aforementioned amounts pursuant to Section 2.2 or 2.3 (as applicable), the Servicer shall distribute funds:

first, to the payment of the Servicer’s reasonably and properly documented out-of-pocket costs and expenses in connection with servicing, administering and collecting the Receivables, including the Servicing Fee, if RPM-Delaware or one of its Affiliates is not then acting as the Servicer,

second, to the reimbursement of the Administrative Agent’s costs of collection and enforcement of this Agreement,

third, ratably to the payment of all accrued and unpaid fees under the Fee Letter, CP Costs and Yield,

fourth, for the ratable payment of all other unpaid Obligations, provided that to the extent such Obligations relate to the payment of Servicer costs and expenses, including the Servicing Fee, when RPM-Delaware or one of its Affiliates is acting as the Servicer, such costs and expenses will not be paid until after the payment in full of all other Obligations,

fifth, unless the Amortization Date has occurred or a Reduction Notice has been delivered, to the making of a Reinvestment,

sixth, to the ratable reduction of the Aggregate Capital, and

seventh, after the Aggregate Unpaids have been indefeasibly reduced to zero, to Seller.

Collections applied to the payment of Aggregate Unpaids shall be distributed in accordance with the aforementioned provisions, and, giving effect to each of the priorities set forth above in this Section 2.4, shall be shared ratably (within each priority) among the Agents and the Purchasers in accordance with the amount of such Aggregate Unpaids owing to each of them in respect of each such priority.

Section 2.5 Payment Rescission. No payment of any of the Aggregate Unpaids shall be considered paid or applied hereunder to the extent that, at any time, all or any portion of such payment or application is rescinded by application of law or judicial authority, or must otherwise be returned or refunded for any reason. Seller shall remain obligated for the amount of any payment or application so rescinded, returned or refunded, and shall promptly pay to the applicable Co-Agent (for application to the Person or Persons who suffered such rescission, return or refund) the full amount thereof, plus the Default Fee from the date of any such rescission, return or refunding.

Section 2.6 Maximum Purchaser Interests. Seller shall ensure that the Purchaser Interests of the Purchasers shall at no time exceed in the aggregate 100%. If the aggregate of the Purchaser Interests of the Purchasers exceeds 100%, Seller shall pay to each of the Co-Agents within two (2) Business Days its respective Percentage of an amount to be applied to reduce the aggregate Capital outstanding from the members of its Group (as allocated by such Co-Agent), such that after giving effect to such payment, the aggregate of the Purchaser Interests equals or is less than 100%.

Section 2.7 Clean Up Call. In addition to Seller’s rights pursuant to Section 1.3, Seller shall have the right (after providing written notice to the Agents in accordance with the Required Notice Period), at any time following the reduction of the Aggregate Capital to a level that is less than 20.0% of the original Purchase Limit, to repurchase from the Purchasers all, but not less than all, of the then outstanding Purchaser Interests. The purchase price in respect thereof shall be an amount equal to the Aggregate Unpaids through the date of such repurchase, payable in immediately available funds. Such repurchase shall be without representation, warranty or recourse of any kind by, on the part of, or against any Purchaser or any Agent except for a representation and warranty that the reconveyance to Seller is being made free and clear of any Adverse Claim created by any Agent or any Purchaser.

ARTICLE III.

CONDUIT FUNDING

Section 3.1 CP Costs. Seller shall pay CP Costs with respect to the Capital associated with each Purchaser Interest of a Conduit for each day that any Capital in respect of such Purchaser Interest is outstanding. Each Purchaser Interest funded substantially with Pooled Commercial Paper will accrue CP Costs each day on a pro rata basis, based upon the percentage share the Capital in respect of such Purchaser Interest represents in relation to all assets held by such Conduit and funded substantially with related Pooled Commercial Paper

Section 3.2 CP Costs Payments. On each Settlement Date, Seller shall pay to each of the Co-Agents (for the benefit of its Conduit) an aggregate amount equal to all accrued and unpaid CP Costs in respect of the Capital associated with all Purchaser Interests of such Conduit for the immediately preceding Accrual Period in accordance with Article II.

Section 3.3 Calculation of CP Costs. Not later than the 3rd Business Day immediately preceding each Settlement Date, each Conduit shall calculate the aggregate amount of CP Costs allocated to the Capital of its Purchaser Interests for the applicable Accrual Period and shall notify Seller in writing of such aggregate amount.

ARTICLE IV.

LIQUIDITY BANK FUNDING

Section 4.1 Liquidity Bank Funding. Each Purchaser Interest of either Conduit’s Liquidity Banks shall accrue Yield for each day during its Tranche Period at either the LIBO Rate or the Prime Rate in accordance with the terms and conditions hereof. Until Seller gives notice to the applicable Co-Agent of another Discount Rate in accordance with Section 4.4, the initial Discount Rate for any Purchaser Interest transferred by a Conduit to its Liquidity Banks pursuant to the terms and conditions of its Liquidity Agreement shall be the Prime Rate. If either Conduit’s Liquidity Banks acquire by assignment from such Conduit any Purchaser Interest pursuant to the applicable Liquidity Agreement, each Purchaser Interest so assigned shall each be deemed to have a new Tranche Period commencing on the date of any such assignment.

Section 4.2 Yield Payments. On the Settlement Date for each Purchaser Interest of a Conduit’s Liquidity Banks, Seller shall pay to the applicable Co-Agent (for the ratable benefit of the Liquidity Banks in its Group) an aggregate amount equal to the accrued and unpaid Yield for the entire Tranche Period of each such Purchaser Interest in accordance with Article II.

Section 4.3 Selection and Continuation of Tranche Periods.

(a) Seller (or Servicer, on Seller’s behalf) shall from time to time request Tranche Periods for the Purchaser Interests of the Liquidity Banks in such Co-Agent’s Group, provided that if at any time such Liquidity Banks shall have a Purchaser Interest, Seller shall always request Tranche Periods such that at least one Tranche Period shall end on the date specified in clause (A) of the definition of Settlement Date.

(b) Seller, Servicer (on Seller’s behalf) or the applicable Co-Agent, upon notice to and consent by the other received at least three (3) Business Days prior to the end of a Tranche Period (the “Terminating Tranche”) for any Purchaser Interest, may, effective on the last day of the Terminating Tranche: (i) divide any such Purchaser Interest into multiple Purchaser Interests, (ii) combine any such Purchaser Interest with one or more other Purchaser Interests that have a Terminating Tranche ending on the same day as such Terminating Tranche or (iii) combine any such Purchaser Interest with a new Purchaser Interest to be purchased on the day such Terminating Tranche ends, provided that in no event may a Purchaser Interest of a Conduit be combined with a Purchaser Interest of its Liquidity Banks.

Section 4.4 Liquidity Bank Discount Rates. Seller may select the LIBO Rate or the Prime Rate for each Purchaser Interest of either Conduit’s Liquidity Banks. Seller shall by 12:00 noon (New York time): (i) at least three (3) Business Days prior to the expiration of any Terminating Tranche with respect to which the LIBO Rate is being requested as a new Discount Rate and (ii) at least one (1) Business Day prior to the expiration of any Terminating Tranche with respect to which the Prime Rate is being requested as a new Discount Rate, give the applicable Co-Agent irrevocable notice of the new Discount Rate for the Purchaser Interest associated with such Terminating Tranche. Until Seller gives notice to the applicable Co-Agent of another Discount Rate, the initial Discount Rate for any Purchaser Interest transferred to the Liquidity Banks in its Group pursuant to the terms and conditions of the applicable Liquidity Agreement shall be the Prime Rate.

Section 4.5 Suspension of the LIBO Rate

(a) If any Liquidity Bank notifies the applicable Co-Agent that it has determined that funding its Ratable Share of the Purchaser Interests of the Liquidity Banks in its Group at a LIBO Rate would violate any applicable law, rule, regulation, or directive of any governmental or regulatory authority, whether or not having the force of law, or that (i) deposits of a type and maturity appropriate to match fund its Purchaser Interests at such LIBO Rate are not available or (ii) such LIBO Rate does not accurately reflect the cost of acquiring or maintaining a Purchaser Interest at such LIBO Rate, then such Co-Agent shall suspend the availability of such LIBO Rate for its Group and require Seller to select the Prime Rate for any Purchaser Interest of its Group accruing Yield at such LIBO Rate.

(b) If less than all of the Liquidity Banks in a Group give a notice to their applicable Co-Agent pursuant to Section 4.5(a), each Liquidity Bank which gave such a notice shall be obliged, at the request of Seller, the applicable Conduit or the applicable Co-Agent, to assign all of its rights and obligations hereunder to (i) another Liquidity Bank or (ii) another funding entity reasonably acceptable to the applicable Conduit and Seller and willing to participate in this Agreement through the Liquidity Termination Date in the place of such notifying Liquidity Bank; provided that (i) the notifying Liquidity Bank receives payment in full, pursuant to an Assignment Agreement, of an amount equal to such notifying Liquidity Bank’s Ratable Share of the Capital and Yield owing to all of the Liquidity Banks in its Group and all accrued but unpaid fees and other costs and expenses payable in respect of its Ratable Share of the Purchaser Interests of such Liquidity Banks, and (ii) the replacement Liquidity Bank otherwise satisfies the requirements of Section 12.1(b).

ARTICLE V.

REPRESENTATIONS AND WARRANTIES

Section 5.1 Representations and Warranties of Seller . Seller hereby represents and warrants to the Agents and the Purchasers, as to itself, as of the date hereof and as of the date of each Incremental Purchase and the date of each Reinvestment that:

(a) Existence and Power. Seller is duly organized, validly existing and in good standing under the laws of its state of organization. Seller is duly qualified to do business and is in good standing as a foreign corporation, and has and holds all corporate power and all governmental licenses, authorizations, consents and approvals required to carry on its business in each jurisdiction in which its business is conducted except where the failure to so qualify or so hold could not reasonably be expected to have a Material Adverse Effect.

(b) Power and Authority; Due Authorization, Execution and Delivery. The execution and delivery by Seller of this Agreement and each other Transaction Document to which it is a party, the performance of its obligations hereunder and thereunder and the use of the proceeds of purchases made hereunder, are within its corporate powers and authority and have been duly authorized by all necessary corporate action on its part. This Agreement and each other Transaction Document to which Seller Party is a party has been duly executed and delivered by Seller.

(c) No Conflict. The execution and delivery by Seller of this Agreement and each other Transaction Document to which it is a party, and the performance of its obligations hereunder and thereunder do not contravene or violate (i) its certificate or articles of incorporation or by-laws, (ii) any law, rule or regulation applicable to it, (iii) any restrictions under any agreement, contract or instrument to which it is a party or by which it or any of its property is bound, or (iv) any order, writ, judgment, award, injunction or decree binding on or affecting it or its property, and do not result in the creation or imposition of any Adverse Claim on assets of Seller (except as created hereunder) except, in any case, where such contravention or violation could not reasonably be expected to have a Material Adverse Effect; and no transaction contemplated hereby requires compliance with any bulk sales act or similar law.

(d) Governmental Authorization. Other than the filing of the financing statements required hereunder, no authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution and delivery by Seller of this Agreement and each other Transaction Document to which it is a party and the performance of its obligations hereunder and thereunder.

(e) Actions, Suits. Seller represents and warrants that (i) there are no actions, suits or proceedings pending, or to the best of Seller’s knowledge, threatened, against or affecting Seller, or any of its properties, in or before any court, arbitrator or other body, that could reasonably be expected to have a Material Adverse Effect, and (ii) Seller is not in default with respect to any order of any court, arbitrator or governmental body.

(f) Binding Effect. This Agreement and each other Transaction Document to which Seller is a party constitute the legal, valid and binding obligations of Seller enforceable against Seller in accordance with their respective terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws relating to or limiting creditors’ rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law).

(g) Accuracy of Information. Seller represents and warrants that all information heretofore furnished by Seller or by any Responsible Officer of an Originator to any of the Agents or Purchasers for purposes of or in connection with this Agreement, any of the other Transaction Documents or any transaction contemplated hereby or thereby is, and all such information hereafter furnished by Seller or any such Responsible Officer to any of the Agents or Purchasers will be, true and accurate in every material respect on the date such information is stated or certified and does not and will not contain any material misstatement of fact or omit to state a material fact or any fact necessary to make the statements contained therein not misleading. Servicer represents and warrants that each Monthly Report completed and compiled by it accurately aggregates the information received by it from the Originators and correctly computes the ratios and concentrations set forth therein based upon such aggregates.

(h) Use of Proceeds. Seller represents and warrants that it will not use the proceeds of any purchase hereunder (i) for a purpose that violates, or would be inconsistent with, Regulation T, U or X promulgated by the Board of Governors of the Federal Reserve System from time to time or (ii) to acquire any security in any transaction which is subject to Section 12, 13 or 14 of the Securities Exchange Act of 1934, as amended.

(i) Good Title. Seller represents and warrants that immediately prior to each purchase hereunder, Seller shall be the legal and beneficial owner of the Receivables and Related Security with respect thereto, free and clear of any Adverse Claim, except as created by the Transaction Documents. Seller represents and warrants that there have been duly filed all financing statements or other similar instruments or documents necessary under the UCC (or any comparable law) of all appropriate jurisdictions to perfect Seller’s ownership or security interest in each Receivable, its Collections and the Related Security.

(j) Perfection. Seller represents and warrants that this Agreement, together with the filing of the financing statements contemplated hereby, is effective to, and shall, upon each purchase hereunder, transfer to the Administrative Agent for the benefit of the relevant Purchaser or Purchasers (and the Administrative Agent for the benefit of such Purchaser or Purchasers shall acquire from Seller) a valid and perfected first priority undivided percentage ownership or security interest in each Receivable existing or hereafter arising and in the Related Security and Collections with respect thereto, free and clear of any Adverse Claim, except as created by the Transactions Documents. Seller represents and warrants that there have been duly filed all financing statements or other similar instruments or documents necessary under the UCC (or any comparable law) of

all appropriate jurisdictions to perfect the Administrative Agent’s (on behalf of the Purchasers) ownership or security interest in the Receivables, the Related Security and the Collections.

(k) Places of Business and Locations of Records. The principal places of business and chief executive office of Seller and the offices where it keeps all of its Records are located at the address(es) listed on Exhibit III or such other locations of which the Agents have been notified in accordance with Section 7.2(a) in jurisdictions where all action required by Section 14.4(a) has been taken and completed. Seller’s Federal Employer Identification Number and Organizational Identification Number are correctly set forth on Exhibit III.

(l) Collections. Each of the Seller Parties represents and warrants that the conditions and requirements set forth in Section 7.1(j) and Section 8.2 have at all times been satisfied and duly performed. Seller represents and warrants that the names and addresses of all Collection Banks, together with the account numbers of the Collection Accounts of Seller at each Collection Bank and the post office box number of each Lock-Box, are listed on Exhibit IV. Seller represents and warrants that Seller has not granted any Person, other than the Administrative Agent as contemplated by this Agreement, dominion and control of any Lock-Box or Collection Account, or the right to take dominion and control of any such Lock-Box or Collection Account at a future time or upon the occurrence of a future event. Notwithstanding the foregoing, Seller confirms that it has granted the Servicer a right of access to the Lock-Boxes and Collection Accounts to the extent permitted in the Collection Account Agreements.

(m) Material Adverse Effect. Seller represents and warrants that since May 31, 2005, no event has occurred that would have a Material Adverse Effect.

(n) Names. In the past five (5) years, Seller has not used any corporate names, trade names or assumed names other than the name in which it has executed this Agreement.

(o) Ownership of Seller. Seller represents and warrants that RPM-Delaware and the Originators, collectively, own, directly or indirectly, 100% of the issued and outstanding capital stock of all classes of Seller, free and clear of any Adverse Claim. Seller represents and warrants that such capital stock is validly issued, fully paid and nonassessable, and that there are no options, warrants or other rights to acquire securities of Seller.

(p) Not a Holding Company or an Investment Company. Seller is not a “holding company” or a “subsidiary holding company” of a “holding company” within the meaning of the Public Utility Holding Company Act of 1935, as amended, or any successor statute. Seller is not an “investment company” within the meaning of the Investment Company Act of 1940, as amended, or any successor statute.

(q) Compliance with Law. Seller has complied in all respects with all applicable laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which

it may be subject, except where the failure to so comply could not reasonably be expected to have a Material Adverse Effect. Each Receivable, together with the Contract related thereto, does not contravene any laws, rules or regulations applicable thereto (including, without limitation, laws, rules and regulations relating to truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy), and no part of such Contract is in violation of any such law, rule or regulation, except where such contravention or violation could not reasonably be expected to have a Material Adverse Effect.

(r) Compliance with Credit and Collection Policy. Seller has complied in all material respects with the Credit and Collection Policy with regard to each Receivable and the related Contract, and has not made any material change to such Credit and Collection Policy, except such material change as to which the Agents have been notified in accordance with Section 4.1(a)(vii) of the Receivables Sale Agreement.

(s) Payments to Applicable Originator. With respect to each Receivable transferred to Seller under the Receivables Sale Agreement, Seller has given reasonably equivalent value to the applicable Originator in consideration therefor and such transfer was not made for or on account of an antecedent debt. No transfer by any Originator of any Receivable under the Receivables Sale Agreement is or may be voidable under any section of the Bankruptcy Reform Act of 1978 (11 U.S.C. §§ 101 et seq.), as amended.

(t) Enforceability of Contracts. Seller represents and warrants that each Contract with respect to each Eligible Receivable is effective to create, and has created, a legal, valid and binding obligation of the related Obligor to pay the Outstanding Balance of the Eligible Receivable created thereunder and any accrued interest thereon, enforceable against the Obligor in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws relating to or limiting creditors’ rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law).

(u) Eligible Receivables. Seller represents and warrants that each Receivable included in the Net Receivables Balance as an Eligible Receivable was an Eligible Receivable on the date so included.

(v) Net Receivables Balance. Seller represents and warrants that Seller has determined that, immediately after giving effect to each purchase hereunder, the Net Receivables Balance is at least equal to the sum of (i) the Aggregate Capital, plus (ii) the Aggregate Reserves.

(w) Accounting. The manner in which Seller accounts for the transactions contemplated by this Agreement and the Receivables Sale Agreement does not jeopardize the true sale analysis.

Section 5.2 Liquidity Bank Representations and Warranties. Each Liquidity Bank hereby represents and warrants to the applicable Co-Agent and the applicable Conduit that:

(a) Existence and Power. Such Liquidity Bank is a corporation or a banking association duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization, and has all corporate power to perform its obligations hereunder.

(b) No Conflict. The execution and delivery by such Liquidity Bank of this Agreement and the performance of its obligations hereunder are within its corporate powers, have been duly authorized by all necessary corporate action, do not contravene or violate (i) its certificate or articles of incorporation or association or by-laws, (ii) any law, rule or regulation applicable to it, (iii) any restrictions under any agreement, contract or instrument to which it is a party or any of its property is bound, or (iv) any order, writ, judgment, award, injunction or decree binding on or affecting it or its property, and do not result in the creation or imposition of any Adverse Claim on its assets. This Agreement has been duly authorized, executed and delivered by such Liquidity Bank.

(c) Governmental Authorization. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution and delivery by such Liquidity Bank of this Agreement and the performance of its obligations hereunder.

(d) Binding Effect. This Agreement constitutes the legal, valid and binding obligation of such Liquidity Bank enforceable against such Liquidity Bank in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws relating to or limiting creditors’ rights generally and by general principles of equity (regardless of whether such enforcement is sought in a proceeding in equity or at law).

ARTICLE VI.

CONDITIONS OF PURCHASES

Section 6.1 Conditions Precedent to Initial Incremental Purchase. The initial Incremental Purchase of a Purchaser Interest under this Agreement is subject to the conditions precedent that (a) the Administrative Agent shall have received on or before the date of such purchase those documents listed on Schedule B, and (b) each of the Agents shall have received all fees and expenses required to be paid on such date pursuant to the terms of this Agreement and the applicable Fee Letter.

Section 6.2 Conditions Precedent to All Purchases and Reinvestments. Each purchase of a Purchaser Interest and each Reinvestment shall be subject to the further conditions precedent that (a) in the case of each such purchase or Reinvestment: (i) the Servicer shall have delivered to the Co-Agents on or prior to the date of such purchase, in form and substance satisfactory to each of the Co-Agents, all Monthly Reports as and when due under Section 8.5 and (ii) upon either Co-Agent’s reasonable request, the Servicer shall have delivered to the Co-Agents at least three (3) days prior to such purchase or Reinvestment an interim Monthly Report showing the amount of Eligible Receivables; (b) the Facility Termination Date shall not have occurred; (c) the Agents shall have received such other approvals, opinions or documents as it may reasonably

request and (d) on the date of each such Incremental Purchase or Reinvestment, the following statements shall be true (and acceptance of the proceeds of such Incremental Purchase or Reinvestment shall be deemed a representation and warranty by Seller that such statements are then true):

(i) the representations and warranties set forth in Section 5.1 are true and correct on and as of the date of such Incremental Purchase or Reinvestment as though made on and as of such date; provided, however, that so long as the RPM-Delaware Credit Agreement does not require the datedown as of each borrowing date of the absence of material adverse change representation thereunder, the representation contained in Section 5.1(m) of this Agreement need only be true as of the date of the initial Purchase hereunder;

(ii) no event has occurred and is continuing, or would result from such Incremental Purchase or Reinvestment, that will constitute an Amortization Event, and no event has occurred and is continuing, or would result from such Incremental Purchase or Reinvestment, that would constitute a Potential Amortization Event; and

(iii) the Aggregate Capital does not exceed the Purchase Limit and the aggregate Purchaser Interests do not exceed 100%.

It is expressly understood that each Reinvestment shall, unless otherwise directed by any Agent or Purchaser, occur automatically on each day that the Servicer shall receive any Collections without the requirement that any further action be taken on the part of any Person and notwithstanding the failure of Seller to satisfy any of the foregoing conditions precedent in respect of such Reinvestment. The failure of Seller to satisfy any of the foregoing conditions precedent in respect of any Reinvestment shall give rise to a right of each Co-Agent, which right may be exercised at any time on demand of such Co-Agent, to rescind the related purchase and direct Seller to pay to the Co-Agents for the benefit of the Purchasers in their respective Group’s their respective Percentages of the Collections prior to the Amortization Date that shall have been applied to the affected Reinvestment.

ARTICLE VII.

COVENANTS

Section 7.1 Affirmative Covenants of the Seller Parties. Until the date on which the Aggregate Unpaids have been indefeasibly paid in full and this Agreement terminates in accordance with its terms:

(a) Financial Reporting. Such Seller Party will maintain, for itself and each of its Subsidiaries, a system of accounting established and administered in accordance with GAAP, and furnish or cause to be furnished to the Agents:

(i) Annual Reporting. As soon as available and in any event within 90 days after the end of each fiscal year of RPM-Delaware, (A) the audited annual

financial statements of RPM-Delaware required to be delivered under Section 4.1(a)(i) of the Receivables Sale Agreement, together with (B) comparable unaudited annual financial statements of Seller.

(ii) Quarterly Reporting. As soon as available and in any event within 60 days after the end of each fiscal quarter of RPM-Delaware, (A) the quarterly financial statements of RPM-Delaware required to be delivered under Section 4.1(a)(ii) of the Receivables Sale Agreement, together with (B) comparable unaudited quarterly financial statements of Seller.

(iii) Compliance Certificate. Together with the financial statements required hereunder, a compliance certificate in substantially the form of Exhibit V signed by the applicable Seller Party’s Authorized Officer and dated the date of such annual financial statement or such quarterly financial statement, as the case may be.

(iv) Shareholders Statements and Reports. Promptly upon the furnishing thereof to the shareholders of RPM-Delaware, copies of all financial statements, reports and proxy statements so furnished.

(v) S.E.C. Filings. Promptly upon the filing thereof, copies of all registration statements (other than any registration statements on Form S-8 or its equivalent) and any reports which RPM-Delaware files with the Securities and Exchange Commission.

(vi) Copies of Notices. Promptly upon its receipt of any notice, request for consent, financial statements, certification, report or other communication under or in connection with any Transaction Document from any Originator, the Performance Guarantor or any Collection Bank, copies of the same.

(vii) Other Information. Promptly, from time to time, such other information, documents, records or reports relating to the Receivables or the financial condition, operations, prospects or business of such Seller Party as any of the Agents may from time to time reasonably request in order to protect the interests of the Agents and the Purchasers under or as contemplated by this Agreement.

(b) Notices. Such Seller Party will notify the Agents in writing of any of the following promptly upon learning of the occurrence thereof, describing the same and, if applicable, the steps being taken with respect thereto:

(i) Amortization Events or Potential Amortization Events. The occurrence of each Amortization Event and each Potential Amortization Event, by a statement of an Authorized Officer of such Seller Party.

(ii) Judgment and Proceedings. (A) (1) The entry of any judgment or decree against the Servicer or any of its respective Subsidiaries if the aggregate amount of all judgments and decrees then outstanding against the Servicer and its Subsidiaries exceeds $35,000,000 after deducting (a) the amount with respect to which the Servicer or any such Subsidiary is insured and with respect to which the insurer has acknowledged

responsibility, and (b) the amount for which the Servicer or any such Subsidiary is otherwise indemnified if the terms of such indemnification are satisfactory to the Agents, and (2) the institution of any litigation, arbitration proceeding or governmental proceeding against the Servicer which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect; and (B) the entry of any judgment or decree or the institution of any litigation, arbitration proceeding or governmental proceeding against Seller.

(iii) Material Adverse Effect. The occurrence of any event or condition that has had, or could reasonably be expected to have, a Material Adverse Effect.

(iv) Defaults Under Other Agreements. The occurrence of a default or an event of default under any other financing arrangement relating to a line of credit or Indebtedness in excess of $5 million in aggregate principal amount pursuant to which such Originator is a debtor or an obligor.

(v) Termination Date. The occurrence of the “Termination Date” under and as defined in the Receivables Sale Agreement.

(vi) Downgrade of Performance Guarantor. Any downgrade in the rating of any Indebtedness of Performance Guarantor by Standard & Poor’s, a division of The McGraw-Hill Companies, Inc., or by Moody’s Investors Service, Inc., setting forth the Indebtedness affected and the nature of such change.

(c) Compliance with Laws and Preservation of Corporate Existence. Such Seller Party will comply in all respects with all applicable laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject, except where the failure to so comply could not reasonably be expected to have a Material Adverse Effect. Such Seller Party will preserve and maintain its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified in good standing as a foreign corporation in each jurisdiction where its business is conducted, except where the failure to so preserve and maintain or qualify could not reasonably be expected to have a Material Adverse Effect.

(d) Audits. Such Seller Party will furnish to the Agents from time to time such information with respect to it and the Receivables as any of the Agents may reasonably request. Such Seller Party will, from time to time during regular business hours as requested by any of the Agents upon reasonable notice and at the sole cost of such Seller Party, permit each of the Agents, or its agents or representatives (and shall cause each Originator to permit each of the Agents or its agents or representatives): (i) to examine and make copies of and abstracts from all Records in the possession or under the control of such Person relating to the Receivables and the Related Security, including, without limitation, the related Contracts, and (ii) to visit the offices and properties of such Person for the purpose of examining such materials described in clause (i) above, and to discuss matters relating to such Person’s financial condition or the Receivables and the Related Security or any Person’s performance under any of the Transaction Documents or any Person’s performance under the Contracts and, in each case, with any of the officers or employees of Seller or the Servicer having knowledge of such matters (each of the foregoing

examinations and visits, a “Review”); provided, however, that, except in connection with an Extension Request, so long as no Amortization Event or Potential Amortization Event has occurred, the Seller Parties shall only be responsible for the costs and expenses of one (1) Review in any one calendar year.

(e) Keeping and Marking of Records and Books.

(i) The Servicer will (and will cause each Originator to) maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing Receivables in the event of the destruction of the originals thereof), and keep and maintain all documents, books, records and other information reasonably necessary or advisable for the collection of all Receivables (including, without limitation, records adequate to permit the immediate identification of each new Receivable and all Collections of and adjustments to each existing Receivable). The Servicer will (and will cause each Originator to) give the Agents notice of any material change in the administrative and operating procedures referred to in the previous sentence.

(ii) Servicer will (and will cause each Originator to) (A) on or prior to the date hereof, mark its master data processing records and other books and records relating to the Purchaser Interests with a legend, acceptable to the Agents, describing the Purchaser Interests and (B) upon the request of any of the Agents following the occurrence of an Amortization Event, deliver to the Administrative Agent all invoices included in the Contracts (including, without limitation, all multiple originals of any such invoice) relating to the Receivables.

(f) Compliance with Contracts and Credit and Collection Policy. Servicer will (and will cause each Originator to) timely and fully (i) perform and comply in all material respects with all provisions, covenants and other promises required to be observed by it under the Contracts related to the Receivables, and (ii) comply in all material respects with the Credit and Collection Policy in regard to each Receivable and the related Contract.

(g) Performance and Enforcement of Receivables Sale Agreement and Performance Undertaking. Seller will, and will require each of the Originators to, perform each of their respective obligations and undertakings under and pursuant to the Receivables Sale Agreement, will purchase Receivables thereunder in strict compliance with the terms thereof and will vigorously enforce the rights and remedies accorded to Seller under the Receivables Sale Agreement. Seller will take all actions to perfect and enforce its rights and interests (and the rights and interests of the Agents and the Purchasers as assignees of Seller) under the Receivables Sale Agreement as any Agent may from time to time reasonably request, including, without limitation, making claims to which it may be entitled under any indemnity, reimbursement or similar provision contained in the Receivables Sale Agreement. In addition, Seller will vigorously enforce the rights and remedies accorded to Seller under the Performance Undertaking.

(h) Ownership. Seller will (or will cause each Originator to) take all necessary action to (i) vest legal and equitable title to the Receivables, the Related Security and the

Collections purchased under the Receivables Sale Agreement irrevocably in Seller, free and clear of any Adverse Claims other than Adverse Claims in favor of the Administrative Agent and the Purchasers (including, without limitation, the filing of all financing statements or other similar instruments or documents necessary under the UCC (or any comparable law) of all appropriate jurisdictions to perfect Seller’s interest in such Receivables, Related Security and Collections and such other action to perfect, protect or more fully evidence the interest of Seller therein as any Agent may reasonably request), and (ii) establish and maintain, in favor of the Administrative Agent, for the benefit of the Purchasers, a valid and perfected first priority undivided percentage ownership interest (and/or a valid and perfected first priority security interest) in all Receivables, Related Security and Collections to the full extent contemplated herein, free and clear of any Adverse Claims other than Adverse Claims in favor of the Administrative Agent for the benefit of the Purchasers (including, without limitation, the filing of all financing statements or other similar instruments or documents necessary under the UCC (or any comparable law) of all appropriate jurisdictions to perfect the Administrative Agent’s (for the benefit of the Purchasers) interest in such Receivables, Related Security and Collections and such other action to perfect, protect or more fully evidence the interest of the Administrative Agent for the benefit of the Purchasers as any Agent may reasonably request).

(i) Purchasers’ Reliance. Seller acknowledges that the Agents and the Purchasers are entering into the transactions contemplated by this Agreement in reliance upon Seller’s identity as a legal entity that is separate from the Norwegian Company, each of the Originators, the Performance Guarantor and their respective other Affiliates (collectively, the “RPM Group”). Therefore, from and after the date of execution and delivery of this Agreement, Seller shall take all reasonable steps, including, without limitation, all steps that any Agent or Purchaser may from time to time reasonably request, to maintain Seller’s identity as a separate legal entity and to make it manifest to third parties that Seller is an entity with assets and liabilities distinct from those of the members of the RPM Group thereof and not just a division thereof. Without limiting the generality of the foregoing and in addition to the other covenants set forth herein, Seller will:

(A) conduct its own business in its own name and require that all full-time employees of Seller, if any, identify themselves as such and not as employees of any member of the RPM Group (including, without limitation, by means of providing appropriate employees with business or identification cards identifying such employees as Seller’s employees);

(B) compensate all employees, consultants and agents directly, from Seller’s own funds, for services provided to Seller by such employees, consultants and agents and, to the extent any employee, consultant or agent of Seller is also an employee, consultant or agent of a member of the RPM Group, allocate the compensation of such employee, consultant or agent between Seller and the members of the RPM Group on a basis that reflects the services rendered to Seller and the RPM Group;

(C) clearly identify its offices (by signage or otherwise) as its offices and, if such office is located in the offices of a member of the RPM Group, Seller shall lease such office at a fair market rent;

(D) have separate stationery, invoices and checks in its own name;

(E) conduct all transactions with the members of the RPM Group strictly on an arm’s-length basis, allocate all overhead expenses (including, without limitation, telephone and other utility charges) for items shared between Seller and the RPM Group on the basis of actual use to the extent practicable and, to the extent such allocation is not practicable, on a basis reasonably related to actual use;

(F) at all times have a Board of Directors consisting of not less than three members, at least one member of which is an Independent Director;

(G) observe all corporate formalities as a distinct entity, and ensure that all corporate actions relating to (A) the selection, maintenance or replacement of the Independent Director, (B) the dissolution or liquidation of Seller or (C) the initiation of, participation in, acquiescence in or consent to any bankruptcy, insolvency, reorganization or similar proceeding involving Seller, are duly authorized by unanimous vote of its Board of Directors (including the Independent Director);

(H) maintain Seller’s books and records separate from those of the members of the RPM Group and otherwise readily identifiable as its own assets rather than assets of a member of the RPM Group;

(I) prepare its financial statements separately from those of the RPM Group and insure that any consolidated financial statements of the RPM Group (or any member thereof) that include Seller and that are filed with the Securities and Exchange Commission or any other governmental agency have notes clearly stating that Seller is a separate legal entity and that its assets will be available first and foremost to satisfy the claims of the creditors of Seller;

(J) except as herein specifically otherwise provided, maintain the funds or other assets of Seller separate from, and not commingled with, those of the members of the RPM Group and only maintain bank accounts or other depository accounts to which Seller alone is the account party, into which Seller alone (or Servicer, on Seller’s behalf) makes deposits and from which Seller alone (or Servicer, on Seller’s behalf, or the Administrative Agent hereunder) has the power to make withdrawals;

(K) pay all of Seller’s operating expenses from Seller’s own assets (except for certain payments by a member of the RPM Group or other Persons pursuant to allocation arrangements that comply with the requirements of this Section 7.1(i));

(L) operate its business and activities such that: it does not engage in any business or activity of any kind, or enter into any transaction or indenture, mortgage, instrument, agreement, contract, lease or other undertaking, other than the transactions contemplated and authorized by this Agreement and the Receivables Sale Agreement; and does not create, incur, guarantee, assume or suffer to exist any indebtedness or other liabilities, whether direct or contingent, other than (1) as a result of the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business, (2) the incurrence of obligations under this Agreement, (3) the incurrence of obligations, as expressly contemplated in the Receivables Sale Agreement, to make payment to Originators thereunder for the purchase of Receivables from Originators under the Receivables Sale Agreement, and (4) the incurrence of operating expenses in the ordinary course of business of the type otherwise contemplated by this Agreement;

(M) maintain its Organic Documents in conformity with this Agreement, such that it does not amend, restate, supplement or otherwise modify its Organic Documents in any respect that would impair its ability to comply with the terms or provisions of any of the Transaction Documents, including, without limitation, this Section 7.1(i);

(N) maintain the effectiveness of, and continue to perform under the Receivables Sale Agreement and the Performance Undertaking, such that it does not amend, restate, supplement, cancel, terminate or otherwise modify the Receivables Sale Agreement or the Performance Undertaking, or give any consent, waiver, directive or approval thereunder or waive any default, action, omission or breach under the Receivables Sale Agreement or the Performance Undertaking or otherwise grant any indulgence thereunder, without (in each case) the prior written consent of each of the Agents;

(O) maintain its legal separateness such that it does not merge or consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions, and except as otherwise contemplated herein) all or substantially all of its assets (whether now owned or hereafter acquired) to, or acquire all or substantially all of the assets of, any Person, nor at any time create, have, acquire, maintain or hold any interest in any Subsidiary;

(P) maintain at all times the Required Capital Amount (as defined in the Receivables Sale Agreement) and refrain from making any dividend, distribution, redemption of capital stock or payment of any subordinated indebtedness which would cause the Required Capital Amount to cease to be so maintained;

(Q) maintain its investment in the Norwegian Company at a level not to exceed 5% of the Norwegian Company’s outstanding voting Equity Interests; and

(R) take such other actions as are necessary on its part to ensure that the facts and assumptions set forth in the opinion issued by Calfee, Halter & Griswold, LLP, as counsel for Seller, in connection with the closing or initial Incremental Purchase under this Agreement and relating to substantive consolidation issues, and in the certificates accompanying such opinion, remain true and correct in all material respects at all times.

(j) Collections. Such Seller Party will cause (1) all proceeds from all Lock-Boxes to be directly deposited by a Collection Bank into a Collection Account and (2) each Lock-Box and Collection Account to be subject at all times to a Collection Account Agreement that is in full force and effect. In the event any payments relating to Receivables are remitted directly to Seller or any Affiliate of Seller, Seller will remit (or will cause all such payments to be remitted) directly to a Collection Bank and deposited into a Collection Account within two (2) Business Days following receipt thereof, and, at all times prior to such remittance, Seller will itself hold or, if applicable, will cause such payments to be held in trust for the exclusive benefit of the Agents and the Purchasers. Seller will maintain exclusive ownership, dominion and control (subject to the terms of this Agreement) of each Lock-Box and Collection Account and shall not grant the right to take dominion and control of any Lock-Box or Collection Account at a future time or upon the occurrence of a future event to any Person, except to the Administrative Agent as contemplated by this Agreement and except that Seller may authorize the Servicer to make deposits to and withdrawals from the Collection Accounts prior to delivery of the Collection Notices.

(k) Taxes. Such Seller Party will file all tax returns and reports required by law to be filed by it and will promptly pay all taxes and governmental charges at any time owing, except any such taxes which are not yet delinquent or are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books. Seller will pay when due any taxes payable in connection with the Receivables, exclusive of taxes on or measured by income or gross receipts of any of the Agents or Purchasers.

(l) Insurance. Seller will maintain in effect, or cause to be maintained in effect, at Seller’s own expense, such casualty and liability insurance as Seller shall deem appropriate in its good faith business judgment.

(m) Payment to Originators. With respect to any Receivable purchased by Seller from an Originator, such sale shall be effected under, and in strict compliance with the terms of, the Receivables Sale Agreement, including, without limitation, the terms relating to the amount and timing of payments to be made to such Originator in respect of the purchase price for such Receivable.

Section 7.2 Negative Covenants of the Seller Parties. Until the date on which the Aggregate Unpaids have been indefeasibly paid in full and this Agreement terminates in accordance with its terms:

(a) Name Change, Offices and Records. Seller will not change its name, identity or legal structure (within the meaning of Section 9-507(c) of any applicable enactment of the UCC) or relocate its chief executive office or any office where Records are kept unless it shall have: (i) given the Agents at least forty-five (45) days’ prior written notice thereof and (ii) delivered to the Administrative Agent all financing statements, instruments and other documents reasonably requested by any of the Agents in connection with such change or relocation.

(b) Change in Payment Instructions to Obligors. Except as may be required by the Administrative Agent pursuant to Section 8.2(b), such Seller Party will not add or terminate any bank as a Collection Bank, or make any change in the instructions to Obligors regarding payments to be made to any Lock-Box or Collection Account, unless the Agents shall have received, at least ten (10) days before the proposed effective date therefor, (i) written notice of such addition, termination or change and (ii) with respect to the addition of a Collection Bank or a Collection Account or Lock-Box, an executed Collection Account Agreement with respect to the new Collection Account or Lock-Box; provided, however, that the Servicer may make changes in instructions to Obligors regarding payments if such new instructions require such Obligor to make payments to another existing Collection Account.

(c) Modifications to Contracts and Credit and Collection Policy. No Seller Party will, and will not permit any Originator to, make any change to the Credit and Collection Policy that could adversely affect the collectibility of the Receivables or decrease the credit quality of any newly created Receivables. Except as provided in Section 8.2(d), no Seller Party will, or will permit any Originator to, extend, amend or otherwise modify the terms of any Receivable or any Contract related thereto in any material respect other than in accordance with the Credit and Collection Policy.

(d) Sales, Liens. Seller will not sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, or create or suffer to exist any Adverse Claim upon (including, without limitation, the filing of any financing statement) or with respect to, any Receivable, Related Security or Collections, or upon or with respect to any Contract under which any Receivable arises, or any Lock-Box or Collection Account, or assign any right to receive income with respect thereto (other than, in each case, the creation of the interests therein in favor of the Administrative Agent and the Purchasers provided for herein), and Seller will defend the right, title and interest of the Agents and the Purchasers in, to and under any of the foregoing property, against all claims of third parties claiming through or under Seller or any Originator.

(e) Net Receivables Balance. At no time prior to the Amortization Date shall Seller permit the Net Receivables Balance to be less than an amount equal to the sum of (i) the Aggregate Capital plus (ii) the Aggregate Reserves.

(f) Termination Date Determination. Seller will not designate the Termination Date (as defined in the Receivables Sale Agreement), or send any written notice to any

Originator in respect thereof, without the prior written consent of the Agents, except with respect to the occurrence of such Termination Date arising pursuant to Section 5.1(d) of the Receivables Sale Agreement.

(g) Restricted Junior Payments. From and after the occurrence of any Amortization Event, Seller will not make any Restricted Junior Payment if, after giving effect thereto, Seller would fail to meet its obligations set forth in Section 7.2(e).

(h) Seller Indebtedness. Seller will not incur or permit to exist any Indebtedness or liability on account of deposits except: (i) the Obligations, (ii) the Subordinated Loans (as defined in the Receivables Sale Agreement), and (iii) other current accounts payable arising in the ordinary course of business and not overdue.

(i) Prohibition on Additional Negative Pledges. Seller will not (and will not authorize any Originator to) enter into or assume any agreement (other than this Agreement and the other Transaction Documents) prohibiting the creation or assumption of any Adverse Claim upon the Receivables, Collections or Related Security except as contemplated by the Transaction Documents, or otherwise prohibiting or restricting any transaction contemplated hereby or by the other Transaction Documents. Seller will not (and will not authorize any Originator to) enter into or assume any agreement creating any Adverse Claim upon the Subordinated Notes (as defined in the Receivables Sale Agreement).

ARTICLE VIII.

ADMINISTRATION AND COLLECTION

Section 8.1 Designation of Servicer.

(a) The servicing, administration and collection of the Receivables shall be conducted by such Person (the “Servicer”) so designated from time to time in accordance with this Section 8.1. RPM-Delaware is hereby designated as, and hereby agrees to perform the duties and obligations of, the Servicer pursuant to the terms of this Agreement. At any time after the occurrence of an Amortization Event, the Agents may at any time designate as Servicer any Person to succeed RPM-Delaware or any successor Servicer.

(b) RPM-Delaware may delegate, and RPM-Delaware hereby advises the Purchasers and the Agents that it has delegated, to the Originators, as sub-servicers of the Servicer, certain of its duties and responsibilities as Servicer hereunder in respect of the Receivables originated by such Originators. Without the prior written consent of the Co-Agents, the Servicer shall not be permitted to delegate any of its duties or responsibilities as Servicer to any Person other than (i) Seller, (ii) the Originators, and (iii) with respect to certain Charged-Off Receivables, outside collection agencies in accordance with its customary practices, except as permitted in Section 8.1(a). Seller shall not be permitted to further delegate to any other Person any of the duties or responsibilities of Servicer delegated to it by RPM-Delaware. If at any time following the occurrence of an Amortization Event, the Co-Agents shall designate as Servicer any Person other than

RPM-Delaware, all duties and responsibilities theretofore delegated by RPM-Delaware to Seller or any Originator may, at the discretion of any of the Agents, be terminated forthwith on notice given by any Agent to the other Agents, RPM-Delaware and to Seller.

(c) Notwithstanding the foregoing subsection (b), (i) Servicer shall be and remain primarily liable to the Agents and the Purchasers for the full and prompt performance of all duties and responsibilities of the Servicer hereunder and (ii) the Agents and the Purchasers shall be entitled to deal exclusively with Servicer in matters relating to the discharge by the Servicer of its duties and responsibilities hereunder. The Agents and the Purchasers shall not be required to give notice, demand or other communication to any Person other than Servicer in order for communication to the Servicer and its sub-servicer or other delegate with respect thereto to be accomplished. Servicer, at all times that it is the Servicer, shall be responsible for providing any sub-servicer or other delegate of the Servicer with any notice given to the Servicer under this Agreement.

Section 8.2 Duties of Servicer.

(a) The Servicer shall take or cause to be taken all such actions as may be necessary or advisable to collect each Receivable from time to time, all in accordance with applicable laws, rules and regulations, with reasonable care and diligence, and in accordance with the Credit and Collection Policy.

(b) The Servicer will instruct all Obligors to pay all Collections directly to a Lock-Box or Collection Account. The Servicer shall effect a Collection Account Agreement substantially in the form of Exhibit VI with each bank party to a Collection Account at any time. In the case of any remittances received in any Lock-Box or Collection Account that shall have been identified, to the satisfaction of the Servicer, to not constitute Collections or other proceeds of the Receivables or the Related Security, the Servicer shall promptly remit such items to the Person identified to it as being the owner of such remittances. From and after the date the Administrative Agent delivers to any Collection Bank a Collection Notice pursuant to Section 8.3, the Administrative Agent may request that the Servicer, and the Servicer thereupon promptly shall instruct all Obligors with respect to the Receivables, to remit all payments thereon to a new depositary account specified by the Administrative Agent and, at all times thereafter, Seller and the Servicer shall not deposit or otherwise credit, and shall not permit any other Person to deposit or otherwise credit to such new depositary account any cash or payment item other than Collections.

(c) The Servicer shall administer the Collections in accordance with the procedures described herein and in Article II. The Servicer shall set aside and hold in trust for the account of Seller and the Purchasers their respective shares of the Collections (or such funds or other assets arising therefrom) in accordance with Article II. The Servicer shall, upon the request of any Agent, segregate, in a manner acceptable to the Agents, all cash, checks and other instruments received by it from time to time constituting Collections from the general funds of the Servicer or Seller prior to the remittance thereof in accordance with Article II. If the Servicer shall be required to segregate Collections pursuant to the preceding sentence, the Servicer shall segregate and

deposit with a bank designated by the Administrative Agent such allocable share of Collections of Receivables set aside for the Purchasers on the first Business Day following receipt by the Servicer of such Collections, duly endorsed or with duly executed instruments of transfer.

(d) The Servicer may, in accordance with the Credit and Collection Policy, extend the maturity of any Receivable or adjust the Outstanding Balance of any Receivable as the Servicer determines to be appropriate to maximize Collections thereof; provided, however, that such extension or adjustment shall not alter the status of such Receivable as a Delinquent Receivable, Defaulted Receivable or Charged-Off Receivable or limit the rights of the Agents or the Purchasers under this Agreement. Notwithstanding anything to the contrary contained herein, the Administrative Agent shall have the absolute and unlimited right to direct the Servicer to commence or settle any legal action with respect to any Receivable or to foreclose upon or repossess any Related Security.

(e) The Servicer shall hold in trust for Seller and the Purchasers all Records that (i) evidence or relate to the Receivables, the related Contracts and Related Security or (ii) are otherwise necessary or desirable to collect the Receivables and shall, as soon as practicable upon demand of any Agent, deliver or make available to the Administrative Agent all such Records, at a place selected by the Administrative Agent. The Servicer shall, as soon as practicable following receipt thereof turn over to Seller any cash collections or other cash proceeds received with respect to Indebtedness not constituting Receivables. The Servicer shall, from time to time at the request of any Purchaser, furnish to the Purchasers (promptly after any such request) a calculation of the amounts set aside for the Purchasers pursuant to Article II.

(f) Any payment by an Obligor in respect of any indebtedness owed by it to an Originator or Seller shall, except as otherwise specified by such Obligor or otherwise required by contract or law and unless otherwise instructed by the Administrative Agent, be applied as a Collection of any Receivable of such Obligor (starting with the oldest such Receivable) to the extent of any amounts then due and payable thereunder before being applied to any other receivable or other obligation of such Obligor.

Section 8.3 Collection Notices. The Administrative Agent is authorized at any time to date and to deliver to the Collection Banks the Collection Notices. Seller hereby transfers to the Administrative Agent for the benefit of the Purchasers, effective when the Administrative Agent delivers such notice, the exclusive ownership and control of each Lock-Box and the Collection Accounts. In case any authorized signatory of Seller whose signature appears on a Collection Account Agreement shall cease to have such authority before the delivery of such notice, such Collection Notice shall nevertheless be valid as if such authority had remained in force. Seller hereby authorizes the Administrative Agent, and agrees that the Administrative Agent shall be entitled after the occurrence of an Amortization Event to (i) endorse Seller’s name on checks and other instruments representing Collections, (ii) enforce the Receivables, the related Contracts and the Related Security and (iii) take such action as shall be necessary or desirable to cause all cash, checks and other instruments constituting Collections of Receivables to come into the possession of the Administrative Agent rather than Seller.

Section 8.4 Responsibilities of Seller. Anything herein to the contrary notwithstanding, the exercise by the Agents and the Purchasers of their rights hereunder shall not release the Servicer, any Originator or Seller from any of their duties or obligations with respect to any Receivables or under the related Contracts. The Purchasers shall have no obligation or liability with respect to any Receivables or related Contracts, nor shall any of them be obligated to perform the obligations of Seller.

Section 8.5 Reports. The Servicer shall compile and complete the following reports based on information received by it from the Originators under the Receivables Sale Agreement and forward to the Agents (i) on the 15^th day of each month or if such date is not a Business Day, the next Business Day (the “Monthly Reporting Date”), and at such times as any Agent shall request, a Monthly Report and (ii) at such times as any Agent shall reasonably request, a listing by Obligor of all Receivables together with an aging of such Receivables.

Section 8.6 Servicing Fees. In consideration of RPM-Delaware’s agreement to act as Servicer hereunder, the Purchasers hereby agree that, so long as RPM-Delaware shall continue to perform as Servicer hereunder, Seller shall pay over to RPM-Delaware a fee (the “Servicing Fee”) on the first calendar day of each month, in arrears for the immediately preceding month, equal to 1% per annum of the average aggregate Outstanding Balance of all Receivables during such period, as compensation for its servicing activities.

ARTICLE IX.

AMORTIZATION EVENTS

Section 9.1 Amortization Events. The occurrence of any one or more of the following events shall constitute an Amortization Event:

(a) Any Seller Party shall fail to make any payment or deposit required under this Agreement or any other Transaction Document to which it is a party on or within one (1) Business Day after the date on which the same is required to be made.

(b) Any Seller Party shall fail to perform or observe any covenant contained in any provision of Section 7.2 (other than Section 7.2(c)) or Section 8.5.

(c) Any Seller Party shall fail to perform or observe any other covenant, agreement or other obligation hereunder (other than as referred to in another paragraph of this Section 9.1) or any other Transaction Document to which it is a party and such failure shall continue for three (3) consecutive Business Days following the earlier to occur of (i) notice from any Agent of such non-performance or non-observance, or (ii) the date on which a Responsible Officer of such Seller Party otherwise becomes aware of such non-performance or non-observance.

(d) Any representation, warranty, certification or statement made by any Seller Party in this Agreement, any other Transaction Document or in any other document required to be delivered pursuant hereto or thereto shall prove to have been incorrect when made or deemed made in any material respect and is not cured within five (5)

Business Days following the earlier to occur of (i) notice from any Agent of such inaccuracy or (ii) the date on which a Responsible Officer of such Seller Party otherwise becomes aware of such inaccuracy; provided that the materiality threshold in this subsection shall not be applicable with respect to any representation or warranty which itself contains a materiality threshold although the five (5) Business Day cure period shall continue to apply.

(e) (i) Seller shall default in the payment when due of any principal or of or interest on any Indebtedness, or any event or condition shall occur which results in the acceleration of the maturity of any such Indebtedness; or (ii) any Originator shall default, or the Performance Guarantor or any of its Subsidiaries (other than an Originator or Seller) shall default, in the payment when due of any principal or of or interest on any Material Indebtedness; or any event or condition shall occur which results in the acceleration of the maturity of any such Material Indebtedness.

(f) (i) Any Seller Party, any Originator or any Significant Subsidiary (as defined in the RPM Credit Agreement) shall generally not pay its debts as such debts become due or shall admit in writing its inability to pay its debts generally or shall make a general assignment for the benefit of creditors; or (ii) any proceeding shall be instituted by or against any Seller Party, any Originator or any Significant Subsidiary seeking to adjudicate it bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or any substantial part of its property or (iii) any Seller Party, any Originator or any Significant Subsidiary shall take any corporate action to authorize any of the actions set forth in clauses (i) or (ii) above in this subsection (f).

(g) Seller shall fail to comply with the terms of Section 2.6 hereof.

(h) As at the end of any calendar month:

(i) the average of the Dilution Ratios for the three months then most recently ended shall exceed 5.5%;

(ii) the average of the Delinquency Ratios for the three months then most recently ended shall exceed 2.75%; or

(iii) the average of the Past Due Ratios for the three months then most recently ended shall exceed 7.5%.

(i) A Change of Control shall occur.

(j) (i) One or more final judgments for the payment of money shall be entered against Seller or (ii) one or more final judgments for the payment of money in an amount in excess of $35,000,000, individually or in the aggregate, shall be entered against the Servicer on claims not covered by insurance or as to which the insurance carrier has

denied its responsibility, and such judgment shall continue unsatisfied and in effect for thirty (30) consecutive days without a stay of execution.

(k) Either (i) the “Termination Date” under and as defined in the Receivables Sale Agreement shall occur with respect to any Originator or (ii) any Originator shall for any reason cease to transfer, or cease to have the legal capacity to transfer, or otherwise be incapable of transferring Receivables to Seller under the Receivables Sale Agreement, provided, however, that upon 30 days’ prior written notice, an Originator may cease to sell or contribute Receivables to the Seller under the Receivables Sale Agreement without causing an Amortization Event under this Agreement if (1) such Originator has consolidated or merged with or into another Originator, or (2) to the extent that (a) Aggregate Capital plus Aggregate Reserves continue to be equal to or less than the Net Receivables Balance after such Originator ceases to sell or contribute, (b) RPM-Delaware and the remaining Originators agree to such modified transaction terms which may be requested by the Agents as being necessary to maintain an implied rating equivalent to the implied rating of the facility evidenced by this Agreement prior to such Originator ceasing to sell or contribute, as determined in the exercise of the Agents’ reasonable credit judgment, including to (I) establish the Dilution Ratio, Delinquency Ratio and Past Due Ratio for this Agreement after such Originator ceases to sell or contribute which shall be set and calculated consistent with the methodology used to set and calculate such ratios prior to such Originator ceasing to sell or contribute, (II) establish Concentration Limits and Aggregate Reserves (such Aggregate Reserves to be structured to an “A” level using Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. ‘s trade receivables securitization methodology) for the facility evidenced by this Agreement after such Originator ceases to sell or contribute which shall be set and calculated consistent with such methodology prior to such Originator’s ceasing to sell or contribute and (III) establish standards for items (ii)-(v) of the definition of “Eligible Receivable” which are consistent with those required for the Facility prior to such Originator’s ceasing to sell or contribute and are based on the Receivables of the remaining Originators, and (c) no Amortization Event or Potential Amortization Event shall exist after such Originator shall cease to sell or contribute.

(l) This Agreement shall terminate in whole or in part (except in accordance with its terms), or shall cease to be effective or to be the legally valid, binding and enforceable obligation of Seller, or any Obligor shall directly or indirectly contest in any manner such effectiveness, validity, binding nature or enforceability, or the Administrative Agent for the benefit of the Purchasers shall cease to have a valid and perfected first priority security interest in the Receivables, the Related Security and the Collections with respect thereto and the Collection Accounts.

(m) The Performance Guarantor shall fail to pay, upon demand, any amount required to be paid by it under the Performance Undertaking, or the Performance Undertaking shall cease to be effective or to be the legally valid, binding and enforceable obligation of RPM-Delaware, or RPM-Delaware shall directly or indirectly contest in any manner such effectiveness, validity, binding nature or enforceability.

(n) RPM-Delaware shall permit the Indebtedness of RPM-Delaware and its Subsidiaries, determined on a consolidated basis, on any date to exceed 65% of the sum of such Indebtedness and consolidated shareholders’ equity of RPM-Delaware and its consolidated Subsidiaries on such date.

(o) RPM-Delaware shall permit the ratio, calculated as at the end of each fiscal quarter ending after the date of this Agreement for the four fiscal quarters then ended, of EBITDA for such period to Interest Expense for such period to be less than 3.5:1.0.

Section 9.2 Remedies. Upon the occurrence and during the continuation of an Amortization Event, the Administrative Agent may, and upon the direction of either of the Co-Agents, shall, take any of the following actions: (i) replace the Person then acting as Servicer, (ii) declare the Amortization Date to have occurred, whereupon the Amortization Date shall forthwith occur, without demand, protest or further notice of any kind, all of which are hereby expressly waived by each Seller Party; provided, however, that upon the occurrence of an Amortization Event described in Section 9.1(f)(ii), or of an actual or deemed entry of an order for relief with respect to any Seller Party under the Federal Bankruptcy Code, the Amortization Date shall automatically occur, without demand, protest or any notice of any kind, all of which are hereby expressly waived by each Seller Party, (iii) to the fullest extent permitted by applicable law, declare that the Default Fee shall accrue with respect to any of the Aggregate Unpaids outstanding at such time, (iv) deliver the Collection Notices to the Collection Banks, and (v) notify Obligors of the Purchasers’ interest in the Receivables. The aforementioned rights and remedies shall be without limitation, and shall be in addition to all other rights and remedies of the Agents and the Purchasers otherwise available under any other provision of this Agreement, by operation of law, at equity or otherwise, all of which are hereby expressly preserved, including, without limitation, all rights and remedies provided under the UCC, all of which rights shall be cumulative.

ARTICLE X.

INDEMNIFICATION

Section 10.1 Indemnities by the Seller. Without limiting any other rights that any Agent or any Purchaser may have hereunder or under applicable law, Seller hereby agrees to indemnify (and pay upon demand to) each of the Agents, the Purchasers and their respective assigns, officers, directors, agents and employees (each an “Indemnified Party") from and against any and all damages, losses, claims, taxes, liabilities, costs, expenses and for all other amounts payable, including reasonable attorneys’ fees (which attorneys may be employees of such Agent or such Purchaser) and disbursements (all of the foregoing being collectively referred to as “Indemnified Amounts") awarded against or incurred by any of them arising out of or as a result of this Agreement or the acquisition, either directly or indirectly, by a Purchaser of an interest in the Receivables excluding, however, in all of the foregoing instances:

(a) Indemnified Amounts to the extent a final judgment of a court of competent jurisdiction holds that such Indemnified Amounts resulted from gross negligence or willful misconduct on the part of the Indemnified Party seeking indemnification;

(b) Indemnified Amounts to the extent the same includes losses in respect of Receivables that are uncollectible on account of the insolvency, bankruptcy or lack of creditworthiness of the related Obligor; or

(c) taxes imposed by the jurisdiction in which such Indemnified Party’s principal executive office is located, on or measured by the overall net income of such Indemnified Party to the extent that the computation of such taxes is consistent with the characterization for income tax purposes of the acquisition by the Purchasers of Purchaser Interests as a loan or loans by the Purchasers to Seller secured by the Receivables, the Related Security, the Collection Accounts and the Collections;

provided, however, that nothing contained in this sentence shall limit the liability of Seller or limit the recourse of the Purchasers to Seller for amounts otherwise specifically provided to be paid by Seller under the terms of this Agreement. Without limiting the generality of the foregoing indemnification, Seller shall indemnify the Indemnified Parties for Indemnified Amounts (including, without limitation, losses in respect of uncollectible receivables, regardless of whether reimbursement therefor would constitute recourse to Seller) relating to or resulting from:

(i) any representation or warranty made by any Seller Party or any Originator (or any officers of any such Person) under or in connection with this Agreement, any other Transaction Document or any other information or report required to be delivered by any such Person pursuant hereto or thereto, which shall have been false or incorrect when made or deemed made;

(ii) the failure by any Seller Party or any Originator to comply with any applicable law, rule or regulation with respect to any Receivable or Contract related thereto, or the nonconformity of any Receivable or Contract included therein with any such applicable law, rule or regulation or any failure of any Originator to keep or perform any of its obligations, express or implied, with respect to any Contract;

(iii) any failure of any Seller Party or any Originator to perform its duties, covenants or other obligations in accordance with the provisions of this Agreement or any other Transaction Document;

(iv) any products liability, personal injury or damage suit, or other similar claim arising out of or in connection with merchandise, insurance or services that are the subject of any Contract or any Receivable;

(v) any dispute, claim, offset or defense (other than discharge in bankruptcy of the Obligor) of the Obligor to the payment of any Receivable (including, without limitation, a defense based on such Receivable or the related Contract not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the sale of the merchandise or service related to such Receivable or the furnishing or failure to furnish such merchandise or services;

(vi) the commingling of Collections of Receivables at any time with other funds;

(vii) any investigation, litigation or proceeding related to or arising from this Agreement or any other Transaction Document, the transactions contemplated hereby, the use of the proceeds of an Incremental Purchase or a Reinvestment, the ownership of the Purchaser Interests or any other investigation, litigation or proceeding relating to any Seller Party or any Originator in which any Indemnified Party becomes involved as a result of any of the transactions contemplated hereby;

(viii) any inability to litigate any claim against any Obligor in respect of any Receivable as a result of such Obligor being immune from civil and commercial law and suit on the grounds of sovereignty or otherwise from any legal action, suit or proceeding;

(ix) any Amortization Event described in Section 9.1(f);

(x) any failure of Seller to acquire and maintain legal and equitable title to, and ownership of any Receivable and the Related Security and Collections with respect thereto from any Originator, free and clear of any Adverse Claim (other than as created hereunder); or any failure of Seller to give reasonably equivalent value to the applicable Originator under the Receivables Sale Agreement in consideration of the transfer by such Originator of any Receivable, or any attempt by any Person to void such transfer under statutory provisions or common law or equitable action;

(xi) any failure to vest and maintain vested in the Administrative Agent for the benefit of the Purchasers, or to transfer to the Administrative Agent for the benefit of the Purchasers, legal and equitable title to, and ownership of, a first priority perfected undivided percentage ownership interest (to the extent of the Purchaser Interests contemplated hereunder) or security interest in the Receivables, the Related Security and the Collections, free and clear of any Adverse Claim (except as created by the Transaction Documents);

(xii) the failure to have filed, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any Receivable, the Related Security and Collections with respect thereto, and the proceeds of any thereof, whether at the time of any Incremental Purchase or Reinvestment or at any subsequent time;

(xiii) any action or omission by any Seller Party which reduces or impairs the rights of the Agents or the Purchasers with respect to any Receivable or the value of any such Receivable;

(xiv) any attempt by any Person to void any Incremental Purchase or Reinvestment hereunder under statutory provisions or common law or equitable action; and

(xv) the failure of any Receivable included in the calculation of the Net Receivables Balance as an Eligible Receivable to be an Eligible Receivable at the time so included.

Section 10.2 Indemnities by the Servicer. Without limiting any other rights that any Agent or any Purchaser may have hereunder or under applicable law, Servicer hereby agrees to indemnify (and pay upon demand to) each Indemnified Party from and against any and all damages, losses, claims, taxes, liabilities, costs, expenses and for all other amounts payable, including reasonable attorneys’ fees (which attorneys may be employees of such Agent or such Purchaser) and disbursements (all of the foregoing being collectively referred to as “Servicer Indemnified Amounts") awarded against or incurred by any of them arising out of or as a result of Servicer’s failure to duly and punctually perform its obligations under this Agreement excluding, however, in all of the foregoing instances:

(a) Servicer Indemnified Amounts to the extent a final judgment of a court of competent jurisdiction holds that such Servicer Indemnified Amounts resulted from gross negligence or willful misconduct on the part of the Indemnified Party seeking indemnification; and

(b) Servicer Indemnified Amounts to the extent the same includes losses in respect of Receivables that are uncollectible on account of the insolvency, bankruptcy or lack of creditworthiness of the related Obligor;

provided, however, that nothing contained in this sentence shall limit the liability of Servicer or limit the recourse of the Purchasers to Servicer for Collections received by the Servicer and required to be remitted by it under the terms of this Agreement. Without limiting the generality of the foregoing indemnification, Servicer shall indemnify the Indemnified Parties for Servicer Indemnified Amounts (including, without limitation, losses in respect of uncollectible receivables, regardless of whether reimbursement therefor would constitute recourse to the Servicer) relating to or resulting from:

(i) any representation or warranty made by Servicer (or any officers of Servicer) under or in connection with this Agreement, any other Transaction Document or any other information or report delivered by any such Person pursuant hereto or thereto, which shall have been false or incorrect when made or deemed made;

(ii) the failure by Servicer to comply with any applicable law, rule or regulation with respect to the collection of any Receivable or Related Security;

(iii) any failure of Servicer to perform its duties, covenants or other obligations in accordance with the provisions of this Agreement or any other Transaction Document;

(iv) the commingling by the Servicer of Collections of Receivables or funds or other assets arising therefrom at any time with other funds;

(v) any investigation, litigation or proceeding relating to Servicer in which any Indemnified Party becomes involved as a result of any of the transactions contemplated hereby;

(vi) any Amortization Event of the described in Section 9.1(f) with respect to Servicer; and

(vii) any action or omission by Servicer relating to its obligations hereunder which reduces or impairs the rights of the Agents or the Purchasers with respect to any Receivable or the value of any such Receivable.

Section 10.3 Increased Cost and Reduced Return. If after the date hereof, any Funding Source shall be charged any fee, expense or increased cost on account of the adoption of any applicable law, rule or regulation (including any applicable law, rule or regulation regarding capital adequacy), any accounting principles or any change in any of the foregoing, or any change in the interpretation or administration thereof by the Financial Accounting Standards Board (“FASB”), any governmental authority, any central bank or any comparable agency charged with the interpretation or administration thereof, or compliance with any request or directive (whether or not having the force of law) of any such authority or agency (a “Regulatory Change”): (i) that subjects any Funding Source to any charge or withholding on or with respect to any Funding Agreement or a Funding Source’s obligations under a Funding Agreement, or on or with respect to the Receivables, or changes the basis of taxation of payments to any Funding Source of any amounts payable under any Funding Agreement (except for changes in the rate of tax on the overall net income of a Funding Source or taxes excluded by Section 10.1) or (ii) that imposes, modifies or deems applicable any reserve, assessment, insurance charge, special deposit or similar requirement against assets of, deposits with or for the account of a Funding Source, or credit extended by a Funding Source pursuant to a Funding Agreement or (iii) that imposes any other condition the result of which is to increase the cost to a Funding Source of performing its obligations under a Funding Agreement, or to reduce the rate of return on a Funding Source’s capital as a consequence of its obligations under a Funding Agreement, or to reduce the amount of any sum received or receivable by a Funding Source under a Funding Agreement or to require any payment calculated by reference to the amount of interests or loans held or interest received by it, then, upon demand by the applicable Co-Agent, Seller shall pay to such Co-Agent, for the benefit of the relevant Funding Source, such amounts charged to such Funding Source or such amounts to otherwise compensate such Funding Source for such increased cost or such reduction. Notwithstanding the foregoing, no Funding Source that is not organized under the laws of the United States of America, or a state thereof, shall be entitled to reimbursement or compensation hereunder unless and until it has delivered to the Seller two (2) duly completed and signed originals of United States Internal Revenue Service Form W-8BEN or W-8ECI, as applicable, certifying in either case that such Funding Source is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes. For the avoidance of doubt, if the issuance of FASB Interpretation No. 46, or any other change in accounting standards or the issuance of any other pronouncement, release or interpretation, causes or requires the consolidation of all or a portion of the assets and liabilities

of any Conduit or Seller with the assets and liabilities of any of the Agents, any Financial Institution or any other Funding Source, such event shall constitute a circumstance on which such Funding Source may base a claim for reimbursement under this Section.

Section 10.4 Other Costs and Expenses. Subject to the limitations set forth in the Fee Letter, Seller shall pay to the Agents and Conduits on demand all costs and out-of-pocket expenses in connection with the preparation, execution, delivery and administration of this Agreement, the transactions contemplated hereby and the other documents to be delivered hereunder, including without limitation, the cost of Conduit’s auditors auditing the books, records and procedures of Seller, reasonable fees and out-of-pocket expenses of legal counsel for Conduits and the Agents (which such counsel may be employees of a Conduit or an Agent) with respect thereto and with respect to advising Conduits and the Agents as to their respective rights and remedies under this Agreement. Seller shall pay to the Agents on demand any and all costs and expenses of the Agents and the Purchasers, if any, including reasonable counsel fees and expenses in connection with the enforcement of this Agreement and the other documents delivered hereunder and in connection with any restructuring or workout of this Agreement or such documents, or the administration of this Agreement following an Amortization Event.

ARTICLE XI.

THE AGENTS

Section 11.1 Appointment.

(a) Each Purchaser and Co-Agent hereby irrevocably designates and appoints Wachovia Bank, National Association, as Administrative Agent hereunder, and authorizes the Administrative Agent to take such action on its behalf under the provisions of the Transaction Documents and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent by the terms of the Transaction Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Purchaser or Co-Agent, and no implied covenants, functions, responsibilities, duties, obligations or liabilities on the part of the Administrative Agent shall be read into this Agreement or otherwise exist against the Administrative Agent.

(b) Each of VFCC and the VFCC Liquidity Banks hereby irrevocably designates and appoints Wachovia Bank, National Association as its Co-Agent hereunder, and authorizes such Co-Agent to take such action on its behalf under the provisions of this Agreement, the VFCC Fee Letter and the VFCC Liquidity Agreement and to exercise such powers and perform such duties as are expressly delegated to such Co-Agent by the terms of this Agreement, if any, together with such other powers as are reasonably incidental thereto. Each of Victory and the Victory Liquidity Banks hereby irrevocably designates and appoints The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as its Co-Agent hereunder, and authorizes such Co-Agent to take such action on its behalf under the provisions of this Agreement, the Victory Fee Letter and the Victory Liquidity Agreement and to exercise such powers and perform such duties as are expressly delegated to such Co-Agent by the terms of this Agreement, if any, together with

such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Fee Letter or the Liquidity Agreements, no Co-Agent shall have any duties or responsibilities, except those expressly set forth herein , or any fiduciary relationship with any Purchaser, Liquidity Bank or other Agent, and no implied covenants, functions, responsibilities, duties, obligations or liabilities on the part of such Co-Agent shall be read into this Agreement, the Fee Letter or the Liquidity Agreements or otherwise exist against such Co-Agent.

(c) The provisions of this Article XI are solely for the benefit of the Agents and the Purchasers, and neither of the Seller Parties shall have any rights as a third-party beneficiary or otherwise under any of the provisions of this Article XI, except that this Article XI shall not affect any obligations which any Agent or any Purchaser may have to either of the Seller Parties under the other provisions of this Agreement. Furthermore, no Purchaser or Liquidity Bank shall have any rights as a third-party beneficiary or otherwise under any of the provisions hereof in respect of a Co-Agent which is not the Co-Agent for such Person.

(d) In performing its functions and duties hereunder, the Administrative Agent shall act solely as the agent of the Purchasers and the Co-Agents and does not assume nor shall be deemed to have assumed any obligation or relationship of trust or agency with or for either of the Seller Parties or any of their respective successors and assigns. In performing its functions and duties hereunder, each Co-Agent shall act solely as the agent of its respective Conduit and its respective Liquidity Bank(s), and does not assume nor shall be deemed to have assumed any obligation or relationship of trust or agency with or for either of the Seller Parties, any other Purchaser, Liquidity Bank or Agent, or any of their respective successors and assigns.

Section 11.2 Delegation of Duties. Each Agent may execute any of its duties under the applicable Transaction Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. No Agent shall be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care.

Section 11.3 Exculpatory Provisions. No Agent nor any of its directors, officers, agents or employees shall be (i) liable for any action lawfully taken or omitted to be taken by it or them or any Person described in Section 11.2 under or in connection with the Transaction Documents (except for its, their or such Person’s own bad faith, gross negligence or willful misconduct), or (ii) responsible in any manner to any of the Purchasers or other agents for any recitals, statements, representations or warranties made by the Seller contained in any Transaction Document or in any certificate, report, statement or other document referred to or provided for in, or received under or in connection with, any Transaction Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other document furnished in connection herewith, or for any failure of either of the Seller Parties to perform its respective obligations hereunder, or for the satisfaction of any condition specified in Article VI, except receipt of items required to be delivered to such Agent. No Agent shall be under any obligation to any Purchaser, Liquidity Bank or other Agent to ascertain or to inquire as to the observance or performance of any of the agreements or covenants contained in, or conditions of, any Transaction Document, or to inspect the properties, books or records of the

Seller Parties. This Section 11.3 is intended solely to govern the relationship between each Agent, on the one hand, and the Purchasers and their respective Liquidity Banks, on the other.

Section 11.4 Reliance by Agents.

(a) Each Agent shall in all cases be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Seller Parties), independent accountants and other experts selected by such Agent. Each Agent shall in all cases be fully justified in failing or refusing to take any action under this Agreement or any other document furnished in connection herewith unless it shall first receive such advice or concurrence of (i) in the case of the Administrative Agent, each of the Co-Agents (except where another provision of this Agreement specifically authorizes the Administrative Agent to take action based on the instructions of either of the Co-Agents) or (ii) in the case of a Co-Agent, such of its Purchasers and Liquidity Banks, as it shall determine to be appropriate under the relevant circumstances, or it shall first be indemnified to its satisfaction by its Constituent Liquidity Banks against any and all liability, cost and expense which may be incurred by it by reason of taking or continuing to take any such action.

(b) Any action taken by the Administrative Agent in accordance with Section 11.4(a) shall be binding upon all Purchasers and Agents.

(c) Each Co-Agent shall determine with its Conduit and, as applicable, its Liquidity Banks, the number of such Persons which shall be required to request or direct such Co-Agent to take action, or refrain from taking action, under this Agreement on behalf of such Persons and whether any consent of the rating agencies who rate such Conduit’s Commercial Paper is required (such Persons and, if applicable, rating agencies, a “Voting Block”). Such Co-Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement in accordance with a request of its appropriate Voting Block, and such request and any action taken or failure to act pursuant thereto shall be binding upon all of such Co-Agent’s Constituents.

(d) Unless otherwise advised in writing by a Co-Agent or by any Purchaser or Liquidity Bank on whose behalf such Co-Agent is purportedly acting, each party to this Agreement may assume that (i) such Co-Agent is acting for the benefit of each of its Constituent Purchasers and, as applicable, Liquidity Banks, as well as for the benefit of each permitted assignee from any such Person, and (ii) each action taken by such Co-Agent has been duly authorized and approved by all necessary action on the part of its Voting Block. Each Conduit (or, with the consent of all other Purchasers then existing, any other Purchaser) shall have the right to designate a new Co-Agent (which may be itself) to act on its behalf and on behalf of its assignees and transferees for purposes of this Agreement by giving to the Agents and the Seller Parties written notice thereof signed by such Purchaser(s) and the newly designated Co-Agent. Such notice shall be effective when receipt thereof is acknowledged by the retiring Co-Agent and the Seller Parties, which acknowledgments shall not be withheld or unreasonably delayed, and thereafter the party named as such therein shall be Co-Agent for such Purchasers under this

Agreement. Each Co-Agent and its Purchasers and Liquidity Banks shall agree amongst themselves as to the circumstances and procedures for removal and resignation of such Co-Agent.

Section 11.5 Notice of Amortization Events. No Agent shall be deemed to have knowledge or notice of the occurrence of any Amortization Event or Potential Amortization Event unless such Agent has received notice from another Agent, a Purchaser, a Liquidity Bank or a Seller Party referring to this Agreement, stating that an Amortization Event or Potential Amortization Event has occurred hereunder and describing such Amortization Event or Potential Amortization Event. In the event that any of the Agents receives such a notice, it shall promptly give notice thereof to the other Agents for distribution, in the case of a Co-Agent, to the members of its Group. The Administrative Agent shall take such action with respect to such Amortization Event or Potential Amortization Event as shall be directed by either of the Co-Agents.

Section 11.6 Non-Reliance on Agents and Other Purchasers. Each of the Purchasers expressly acknowledges that no Agent, nor any of such Agent’s officers, directors, employees, agents, attorneys-in-fact or affiliates has made any representations or warranties to it and that no act by any Agent hereafter taken, including, without limitation, any review of the affairs of the Seller Parties, shall be deemed to constitute any representation or warranty by such Agent. Each of the Purchasers also represents and warrants to the Agents and the other Purchasers that it has, independently and without reliance upon any such Person (or any of their Affiliates) and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, prospects, financial and other conditions and creditworthiness of the Seller Parties and made its own decision to enter into this Agreement. Each of the Purchasers also represents that it will, independently and without reliance upon any Agent or any other Liquidity Bank or Purchaser, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, prospects, financial and other condition and creditworthiness of the Seller Parties. None of the Agents or the Purchasers, nor any of their respective Affiliates, shall have any duty or responsibility to provide any party to this Agreement with any credit or other information concerning the business, operations, property, prospects, financial and other condition or creditworthiness of the Seller Parties which may come into the possession of such Person or any of its respective officers, directors, employees, agents, attorneys-in-fact or affiliates, except that each of the Co-Agents shall promptly distribute to its related Conduit (and, as applicable, its Liquidity Banks), copies of financial and other information expressly provided to such Co-Agent by either of the Seller Parties pursuant to this Agreement for distribution to the Agents and/or Purchasers.

Section 11.7 Indemnification of Agents.

(a) Each Liquidity Bank agrees to indemnify the Administrative Agent and its officers, directors, employees, representatives and agents (to the extent not reimbursed by the Seller Parties and without limiting the obligation of the Seller Parties to do so), ratably in accordance with their respective Percentages or Capital, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (including, without limitation, the reasonable fees and disbursements of counsel for the Administrative Agent or such Person in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not the Administrative Agent in its capacity as Administrative Agent or such Person shall be designated a party thereto) that may at any time be imposed on, incurred by or asserted against the Administrative Agent or such Person as a result of, or arising out of, or in any way related to or by reason of, any of the transactions contemplated hereunder or the execution, delivery or performance of this Agreement or any other document furnished in connection herewith (but excluding any such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the bad faith, gross negligence or willful misconduct of the Administrative Agent or such Person as finally determined by a court of competent jurisdiction).

(b) Each Liquidity Bank agrees to indemnify its Co-Agent and such Co-Agent’s officers, directors, employees, representatives and agents (to the extent not reimbursed by the Seller and without limiting the obligation of the Seller to do so), ratably in accordance with their respective Percentages or Purchaser Interests, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (including, without limitation, the fees and disbursements of counsel for such Co-Agent or such Person in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not such Co-Agent in its capacity as Co-Agent or such Person shall be designated a party thereto) that may at any time be imposed on, incurred by or asserted against such Co-Agent or such Person as a result of, or arising out of, or in any way related to or by reason of, any of the transactions contemplated hereunder or the execution, delivery or performance of this Agreement or any other document furnished in connection herewith (but excluding any such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the bad faith, gross negligence or willful misconduct of such Co-Agent or such Person as finally determined by a court of competent jurisdiction).

Section 11.8 Agents in their Individual Capacities. Each of the Agents in its individual capacity and its affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Seller Parties and their Affiliates as though such Agent were not an Agent hereunder. With respect to its Purchaser Interests, if any, pursuant to this Agreement, each Agent shall have the same rights and powers under this Agreement as any Purchaser and may exercise the same as though it were not an Agent, and the terms “Purchaser” and “Purchasers” shall include each of the Agents in their individual capacities.

Section 11.9 Successor Administrative Agent. The Administrative Agent, upon five (5) days’ notice to the Seller Parties, the Purchasers and the Co-Agents, may voluntarily resign and

may be removed at any time, with or without cause, by both Co-Agents, whereupon BTMU-NY shall become the successor Administrative Agent; provided, however, that Wachovia shall not voluntarily resign as the Administrative Agent so long as any of the VFCC Liquidity Banks’ respective Commitments remain in effect or VFCC has any outstanding Purchaser Interests hereunder. Upon resignation or replacement of any Administrative Agent in accordance with this Section 11.9, the retiring Administrative Agent shall execute such UCC-3 assignments and amendments, and assignments and amendments of the Transaction Documents, as may be necessary to give effect to its replacement by a successor Administrative Agent. After any retiring Administrative Agent’s resignation hereunder as Administrative Agent, the provisions of Article X and this Article XI shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement.

Section 11.10 Agents’ Conflict Waivers.

(a) Wachovia or one of its Affiliates acts, or may in the future act, (i) as administrative agent for VFCC, (ii) as issuing and paying agent for VFCC’s Commercial Paper Notes, (iii) to provide credit or liquidity enhancement for the timely payment for VFCC’s Commercial Paper Notes and (iv) to provide other services from time to time for VFCC (collectively, the “Wachovia Roles”). Without limiting the generality of Sections 11.1 and 11.8, each Agent, Purchaser and Liquidity Bank hereby acknowledges and consents to any and all Wachovia Roles and agrees that in connection with any Wachovia Role, Wachovia or such Affiliate may take, or refrain from taking, any action which it, in its discretion, deems appropriate, including, without limitation, in its role as administrative agent for VFCC, the giving of notice to VFCC’s Liquidity Banks of a mandatory purchase pursuant to VFCC’s Liquidity Agreement, and hereby acknowledges that neither Wachovia nor any of its Affiliates has any fiduciary duties hereunder to any Purchaser (other than VFCC) or to any of VFCC’s Liquidity Banks arising out of any Wachovia Roles.

(b) BTMU-NY, BTMU-Chicago or one of their Affiliates acts, or may in the future act, (i) as administrative agent for Victory, (ii) as issuing and paying agent for Victory’s Commercial Paper, (iii) to provide credit or liquidity enhancement for the timely payment for Victory’s Commercial Paper and (iv) to provide other services from time to time for Victory (collectively, the “BTMU Roles”). Without limiting the generality of Sections 11.1 and 11.8, each of the Agents and the Purchasers hereby acknowledges and consents to any and all BTMU Roles and agrees that in connection with any BTMU Role, BTMU-NY, BTMU-Chicago, or such Affiliate may take, or refrain from taking, any action which it, in its discretion, deems appropriate, including, without limitation, in its role as administrative agent for Victory, the giving of notice to Victory’s Liquidity Banks of a mandatory purchase pursuant to Victory’s Liquidity Agreement, and hereby acknowledges that neither BTMU-NY, BTMU-Chicago nor any of their Affiliates has any fiduciary duties hereunder to any Purchaser (other than Victory) or to any of Victory’s Liquidity Banks arising out of any BTMU Roles.

Section 11.11 UCC Filings. Each of the Purchasers hereby expressly recognizes and agrees that the Administrative Agent may be designated as the secured party of record on the various UCC filings required to be made under this Agreement and the party entitled to amend, release and terminate the UCC filings under the Receivable Sale Agreement in order to perfect their respective interests in the Receivables, Collections and Related Security, that such

designation shall be for administrative convenience only in creating a record or nominee holder to take certain actions hereunder on behalf of the Purchasers and that such listing will not affect in any way the status of the Purchasers as the true parties in interest with respect to the Purchaser Interests. In addition, such listing shall impose no duties on the Administrative Agent other than those expressly and specifically undertaken in accordance with this Article XI.

ARTICLE XII.

ASSIGNMENTS; PARTICIPATIONS

Section 12.1 Assignments.

(a) Each of the parties hereto hereby agrees and consents to the complete or partial assignment by a Conduit of all or any portion of its rights under, interest in, title to and obligations under this Agreement to such Conduit’s Liquidity Banks pursuant to its Liquidity Agreement or to any other Person, and upon such assignment, such Conduit shall be released from its obligations so assigned. Further, each of the parties hereto hereby agrees that any assignee of a Conduit of this Agreement or all or any of the Purchaser Interests of such Conduit shall have all of the rights and benefits under this Agreement as if the term “Conduit” explicitly referred to such party, and no such assignment shall in any way impair the rights and benefits of such Conduit hereunder. Neither Seller nor the Servicer shall have the right to assign its rights or obligations under this Agreement.

(b) Any Liquidity Bank may at any time and from time to time assign to one or more Persons (“Purchasing Liquidity Banks”) all or any part of its rights and obligations under this Agreement and the applicable Liquidity Agreement pursuant to an assignment agreement, substantially in the form set forth in Exhibit VII hereto (the “Assignment Agreement”) executed by such Purchasing Liquidity Bank and such selling Liquidity Bank. The consent of the applicable Conduit shall be required prior to the effectiveness of any such assignment, and prior to the occurrence of an Amortization Event, the consent of the Seller (which consent shall not be unreasonably withheld or delayed) shall also be required prior to the effectiveness of any such assignment other than to an existing Liquidity Bank. Each assignee of a Liquidity Bank must (i) have a short-term debt rating of A-1 or better (or, solely for VFCC so long as its Commercial Paper shall have an A-1+ rating, A-1+) by Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. and P-1 by Moody’s Investor Service, Inc. and (ii) agree to deliver to the applicable Co-Agent, promptly following any request therefor by such Co-Agent or its Conduit, an enforceability opinion in form and substance satisfactory to such Co-Agent and Conduit. Upon delivery of the executed Assignment Agreement to such Co-Agent, such selling Liquidity Bank shall be released from its obligations hereunder and under the applicable Liquidity Agreement to the extent of such assignment. Thereafter the Purchasing Liquidity Bank shall for all purposes be a Liquidity Bank party to this Agreement and shall have all the rights and obligations of a Liquidity Bank under this Agreement and the applicable Liquidity Agreement to the same extent as if it were an original party hereto and thereto, and no further consent or action by Seller, the Purchasers or the Agents shall be required.

(c) Each of the Liquidity Banks agrees that in the event that it shall cease to have a short-term debt rating of A-1 (or, solely for VFCC so long as its Commercial Paper shall have an A-1+ rating, A-1+) or better by Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. and P-1 by Moody’s Investor Service, Inc. (an “Affected Liquidity Bank”), such Affected Liquidity Bank shall be obliged, at the request of the applicable Conduit or Co-Agent, to assign all of its rights and obligations hereunder and under the applicable Liquidity Agreement to (x) another Liquidity Bank or (y) another funding entity nominated by such Co-Agent and acceptable to such Conduit, and willing to participate in this Agreement and the applicable Liquidity Agreement through the applicable Liquidity Termination Date in the place of such Affected Liquidity Bank; provided that the Affected Liquidity Bank receives payment in full, pursuant to an Assignment Agreement, of an amount equal to such Liquidity Bank’s Pro Rata Share of the Aggregate Capital and Yield owing to the Liquidity Banks and all accrued but unpaid fees and other costs and expenses payable in respect of its Pro Rata Share of the Purchaser Interests of the Liquidity Banks.

Section 12.2 Participations. Any Liquidity Bank may, in the ordinary course of its business at any time sell to one or more Persons (each a “Participant”) participating interests in its Ratable Share of the Commitments and Purchaser Interests of the Liquidity Banks in its Group. Notwithstanding any such sale by a Liquidity Bank of a participating interest to a Participant, such Liquidity Bank’s rights and obligations under this Agreement shall remain unchanged, such Liquidity Bank shall remain solely responsible for the performance of its obligations hereunder, and each of the parties hereto shall continue to deal solely and directly with such Liquidity Bank in connection with such Liquidity Bank’s rights and obligations under this Agreement. Each Liquidity Bank agrees that any agreement between such Liquidity Bank and any such Participant in respect of such participating interest shall not restrict such Liquidity Bank’s right to agree to any amendment, supplement, waiver or modification to this Agreement, except for any amendment, supplement, waiver or modification described in Section 14.1(b)(i).

ARTICLE XIII.

[RESERVED].

ARTICLE XIV.

MISCELLANEOUS

Section 14.1 Waivers and Amendments.

(a) No failure or delay on the part of any Agent or any Purchaser in exercising any power, right or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or remedy preclude any other further exercise thereof or the exercise of any other power, right or remedy. The rights and remedies herein provided shall be cumulative and nonexclusive of any rights or

remedies provided by law. Any waiver of this Agreement shall be effective only in the specific instance and for the specific purpose for which given.

(b) No provision of this Agreement may be amended, supplemented, modified or waived except in writing in accordance with the provisions of this Section 14.1(b). Each of the Conduits, Seller and the Agents may enter into written modifications or waivers of any provisions of this Agreement, provided, however, that no such modification or waiver shall:

(i) without the consent of each affected Purchaser, (A) extend the Liquidity Termination Date or the date of any payment or deposit of Collections by Seller or the Servicer, (B) reduce the rate or extend the time of payment of Yield or any CP Costs (or any component of Yield or CP Costs), (C) reduce any fee payable to the Administrative Agent for the benefit of the Purchasers, (D) except pursuant to Article XII hereof, change the amount of the Capital of any Purchaser, any Liquidity Bank’s Pro Rata Share or any Liquidity Bank’s Commitment, (E) amend, modify or waive any provision of the definition of this Section 14.1(b), (F) consent to or permit the assignment or transfer by Seller of any of its rights and obligations under this Agreement, (G) change the definition of “Eligible Receivable,” “Loss Reserve,” “Default Ratio,” “Dilution Reserve,” “Dilution Ratio,” or “Yield Reserve” or (H) amend or modify any defined term (or any defined term used directly or indirectly in such defined term) used in clauses (A) through (G) above in a manner that would circumvent the intention of the restrictions set forth in such clauses; or

(ii) without the written consent of the then Agent, amend, modify or waive any provision of this Agreement if the effect thereof is to affect the rights or duties of such Agent.

Notwithstanding the foregoing, (i) without the consent of the Liquidity Banks, but with the consent of Seller, the Agents may amend this Agreement solely to add additional Persons as Liquidity Banks hereunder and (ii) the Agents and Conduits may enter into amendments to modify any of the terms or provisions of Article XI, Article XII, or Section 14.13 of this Agreement without the consent of Seller, provided that such amendment has no negative impact upon Seller. Any modification or waiver made in accordance with this Section 14.1 shall apply to each of the Purchasers equally and shall be binding upon Seller, the Purchasers and the Agents.

Section 14.2 Notices. Except as provided in this Section 14.2, all communications and notices provided for hereunder shall be in writing (including bank wire, telecopy or electronic facsimile transmission or similar writing) and shall be given to the other parties hereto at their respective addresses or telecopy numbers set forth on the signature pages hereof or at such other address or telecopy number as such Person may hereafter specify for the purpose of notice to each of the other parties hereto. Each such notice or other communication shall be effective (i) if given by telecopy, upon the receipt thereof, (ii) if given by mail, three (3) Business Days after the time such communication is deposited in the mail with first class postage prepaid or (iii) if given by any other means, when received at the address specified in this Section 14.2. Seller

hereby authorizes the Co-Agents to effect purchases and Tranche Period and Discount Rate selections based on telephonic notices made by any Person whom the Administrative Agent in good faith believes to be acting on behalf of Seller. Seller agrees to deliver promptly to the Administrative Agent a written confirmation of each telephonic notice signed by an authorized officer of Seller; provided, however, the absence of such confirmation shall not affect the validity of such notice. If the written confirmation differs from the action taken by the Administrative Agent, the records of the Administrative Agent shall govern absent manifest error.

Section 14.3 Ratable Payments. If any Purchaser, whether by setoff or otherwise, has payment made to it with respect to any portion of the Aggregate Unpaids owing to such Purchaser (other than payments received pursuant to Section 10.3 or 10.4) in a greater proportion than that received by any other Purchaser entitled to receive a ratable share of such Aggregate Unpaids, such Purchaser agrees, promptly upon demand, to purchase for cash without recourse or warranty a portion of such Aggregate Unpaids held by the other Purchasers so that after such purchase each Purchaser will hold its ratable proportion of such Aggregate Unpaids; provided that if all or any portion of such excess amount is thereafter recovered from such Purchaser, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest.

Section 14.4 Protection of Purchaser Interests.

(a) Seller agrees that from time to time, at its expense, it will promptly execute and deliver all instruments and documents, and take all actions, that may be necessary or desirable, or that the Administrative Agent may request, to perfect, protect or more fully evidence the Purchaser Interests, or to enable the Administrative Agent or the Purchasers to exercise and enforce their rights and remedies hereunder. At any time after the occurrence of an Amortization Event, the Administrative Agent may, or the Administrative Agent may direct Seller or the Servicer to, notify the Obligors of Receivables, at Seller’s expense, of the ownership or security interests of the Purchasers under this Agreement and may also direct that payments of all amounts due or that become due under any or all Receivables be made directly to the Administrative Agent or its designee. Seller or the Servicer (as applicable) shall, at any Purchaser’s request, withhold the identity of such Purchaser in any such notification.

(b) If any Seller Party fails to perform any of its obligations hereunder, the Administrative Agent or any Purchaser may (but shall not be required to) perform, or cause performance of, such obligations, and the Administrative Agent’s or such Purchaser’s costs and expenses incurred in connection therewith shall be payable by Seller as provided in Section 10.4. Each Seller Party irrevocably authorizes the Administrative Agent at any time and from time to time in the sole discretion of the Administrative Agent, and appoints the Administrative Agent as its attorney-in-fact, to act on behalf of such Seller Party (i) to execute on behalf of Seller as debtor and to file financing statements necessary or desirable in the Administrative Agent’s sole discretion to perfect and to maintain the perfection and priority of the interest of the Purchasers in the Receivables and (ii) to file a carbon, photographic or other reproduction of this Agreement or any financing statement with respect to the Receivables as a financing

statement in such offices as the Administrative Agent in its sole discretion deems necessary or desirable to perfect and to maintain the perfection and priority of the interests of the Purchasers in the Receivables. This appointment is coupled with an interest and is irrevocable.

Section 14.5 Confidentiality.

(a) Each of the parties hereto shall maintain and shall cause each of its employees and officers to maintain the confidentiality of the Fee Letter and the other confidential or proprietary information with respect to the Originators, the Agents, the Purchasers and their respective businesses obtained by it or them in connection with the structuring, negotiating and execution of the transactions contemplated herein, except that such party and its directors, officers and employees may disclose such information (i) to such party’s external accountants, attorneys, investors, potential investors and credit enhancers and the agents or advisors of such Persons and (ii) as required by any applicable law, regulation or order of any judicial or administrative proceeding provided that each party shall use commercially reasonable efforts to ensure, to the extent permitted given the circumstances, that any such information which is so disclosed is kept confidential.

(b) Anything herein to the contrary notwithstanding, each Originator hereby consents to the disclosure of any nonpublic information with respect to it (i) to each of the Agents and Purchasers, (ii) to any prospective or actual assignee or participant of any of the Agents or Purchasers, and (iii) to any rating agency, Commercial Paper dealer or provider of a surety, guaranty or credit or liquidity enhancement to a Conduit or any entity organized for the purpose of purchasing, or making loans secured by, financial assets for which either of the Co-Agents acts as the administrative agent or administrator and to any officers, directors, employees, outside accountants, advisors and attorneys of any of the foregoing, provided each such Person is advised of the confidential nature of such information and, in the case of a Person described in clause (ii) above, agrees to be bound by the provisions of this Section 14.5. In addition, the Agents and the Purchasers may disclose any such nonpublic information pursuant to any law, rule, regulation, direction, request or order of any judicial, administrative or regulatory authority or proceedings (whether or not having the force or effect of law) although each of them shall use commercially reasonable efforts to ensure, to the extent permitted given the circumstances, that any such information which is so disclosed is kept confidential.

Section 14.6 Bankruptcy Petition. Each of Seller, the Servicer, the Agents, the Liquidity Banks and the other Conduit hereby covenants and agrees that, prior to the date that is one year and one day after the payment in full of all outstanding senior indebtedness of a Conduit, it will not institute against, or join any other Person in instituting against, such Conduit any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceeding under the laws of the United States or any state of the United States.

Section 14.7 Limitation of Liability. Except with respect to any claim arising out of the willful misconduct or gross negligence of any Agent or any Purchaser, no claim may be made by any Seller Party or any other Person against any Agent or Purchaser or their respective Affiliates, directors, officers, employees, attorneys or agents for any special, indirect, consequential or

punitive damages in respect of any claim for breach of contract or any other theory of liability arising out of or related to the transactions contemplated by this Agreement, or any act, omission or event occurring in connection therewith; and each Seller Party hereby waives, releases, and agrees not to sue upon any claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor.

Section 14.8 CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW WHICH SHALL APPLY HERETO) EXCEPT TO THE EXTENT THAT THE PERFECTION OF THE ADMINISTRATIVE AGENT’S OR PURCHASERS’ OWNERSHIP OF OR SECURITY INTEREST IN THE RECEIVABLES AND RELATED SECURITY OR REMEDIES HEREUNDER IN RESPECT THEREOF ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK.

Section 14.9 CONSENT TO JURISDICTION. EACH SELLER PARTY HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR STATE COURT SITTING IN THE BOROUGH OF MANHATTAN, NEW YORK, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY DOCUMENT EXECUTED BY SUCH PERSON PURSUANT TO THIS AGREEMENT AND EACH SELLER PARTY HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF ANY AGENT OR ANY PURCHASER TO BRING PROCEEDINGS AGAINST ANY SELLER PARTY IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY ANY SELLER PARTY AGAINST ANY AGENT OR ANY PURCHASER OR ANY AFFILIATE OF ANY AGENT OR ANY PURCHASER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR ANY DOCUMENT EXECUTED BY SUCH SELLER PARTY PURSUANT TO THIS AGREEMENT SHALL BE BROUGHT ONLY IN A COURT IN THE BOROUGH OF MANHATTAN, NEW YORK.

Section 14.10 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT, ANY DOCUMENT EXECUTED BY ANY SELLER PARTY PURSUANT TO THIS AGREEMENT OR THE RELATIONSHIP ESTABLISHED HEREUNDER OR THEREUNDER.

Section 14.11 Integration; Binding Effect; Survival of Terms.

(a) This Agreement and each other Transaction Document contain the final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire agreement among the parties hereto with respect to the subject matter hereof superseding all prior oral or written understandings.

(b) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns (including any trustee in bankruptcy). This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms and shall remain in full force and effect until terminated in accordance with its terms; provided, however, that the rights and remedies with respect to (i) any breach of any representation and warranty made by any Seller Party pursuant to Article V, (ii) the indemnification and payment provisions of Article X, and Sections 14.5 and 14.6 shall be continuing and shall survive any termination of this Agreement.

Section 14.12 Counterparts; Severability; Section References. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same Agreement. Any provisions of this Agreement which are prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Unless otherwise expressly indicated, all references herein to “Article,” “Section,” “Schedule” or “Exhibit” shall mean articles and sections of, and schedules and exhibits to, this Agreement.

Section 14.13 Characterization.

(a) It is the intention of the parties hereto that each purchase hereunder shall constitute and be treated as an absolute and irrevocable sale, which purchase shall provide the applicable Purchaser with the full benefits of ownership of the applicable Purchaser Interest. Except as specifically provided in this Agreement, each sale of a Purchaser Interest hereunder is made without recourse to Seller; provided, however, that (i) Seller shall be liable to each of the Purchasers and Agents for all representations, warranties, covenants and indemnities made by Seller pursuant to the terms of this Agreement, and (ii) such sale does not constitute and is not intended to result in an assumption by any Purchaser or Agent or any assignee thereof of any obligation of Seller or any Originator or any other Person arising in connection with the Receivables, the Related Security, or the related Contracts, or any other obligations of Seller or any Originator.

(b) In addition to any ownership interest which the Administrative Agent may from time to time acquire pursuant hereto, Seller hereby grants to the Administrative Agent for the ratable benefit of the Purchasers a valid and perfected security interest in all

of Seller’s right, title and interest in, to and under all Receivables now existing or hereafter arising, the Collections, each Lock-Box, each Collection Account, all Related Security, all other rights and payments relating to such Receivables, and all proceeds of any thereof prior to all other liens on and security interests therein to secure the prompt and complete payment of the Aggregate Unpaids. The Administrative Agent and the Purchasers shall have, in addition to the rights and remedies that they may have under this Agreement, all other rights and remedies provided to a secured creditor under the UCC and other applicable law, which rights and remedies shall be cumulative.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their duly authorized officers as of the date hereof.


RPM FUNDING CORPORATION, as Seller

By:	/s/ P. Kelly Tompkins

Name:	P. Kelly Tompkins
Title:	Vice President and Secretary

*Address:*

	RPM Funding Corporation
	2628 Pearl Road, Suite 100
	Medina, Ohio 44258
	Attention: Treasurer
	Phone:	(330) 273-8837
	Fax:	(330) 225-6574


RPM INTERNATIONAL INC., as Servicer

By:	/s/ P. Kelly Tompkins

Name:	P. Kelly Tompkins
Title:	Senior Vice President, General Counsel and Secretary

*Address:*

	RPM International Inc.
	2628 Pearl Road
	P.O. Box 777
	Medina, Ohio 44258
	Attention: Treasurer
	Phone:	(330) 273-8837
	Fax:	(330) 225-6574


VICTORY RECEIVABLES CORPORATION

By:	/s/ R. Douglas Donaldson

Name:	R. Douglas Donaldson
Title:	Treasurer

*Address:*
	Victory Receivables Corporation
	c/o The Bank of Tokyo-Mitsubishi UFJ, Ltd.
	1251 Avenue of the Americas
	New York, NY 10020
	Attention: Kristy Yee	and	John Donoghue
	Phone: (212) 782-4913		Phone: (212) 782-4537
	Fax: (212) 782-6842		Fax: (212) 782-6448

THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., NEW YORK BRANCH, as Victory Agent

By:	/s/ Aditya Reddy

Name:	Aditya Reddy
Title:	VP

*Address:*
	The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch
	1251 Avenue of the Americas
	New York, NY 10020
	Attention: Kristy Yee	and	John Donoghue
	Phone: (212) 782-4913		Phone: (212) 782-4537
	Fax: (212) 782-6842		Fax: (212) 782-6448


THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., CHICAGO BRANCH

By:		/s/ Tsuguyuki Umene

Name:		Tsuguyuki Umene
Title:		Deputy General Manager

*Address:*

		Send all notices to BTMU-NY


VARIABLE FUNDING CAPITAL COMPANY LLC

By: Wachovia Capital Markets, LLC, attorney-in fact

By:	/s/ Douglas R. Wilson, Sr.

Name:	Douglas R. Wilson, Sr.
Title:	Vice President

*Address:*		Variable Funding Capital Company LLC
		c/o Wachovia Capital Markets, LLC
		301 S. College St.
		FLR TW 16 NC0171
		Charlotte, NC 28288
		Attention:	Douglas R. Wilson Sr.
		Phone:	(704) 374-2520
		Fax:	(704) 383-9579


WACHOVIA BANK, NATIONAL ASSOCIATION, individually, as VFCC Agent and as Administrative Agent

By:	/s/ Michael J. Landry

Name:	Michael J. Landry
Title:	Vice President

*Address:*		Wachovia Bank, National Association
		171 17th Street, N.W., 4th Floor
		Mail-stop GA4524
		Atlanta, GA 30363
		Attention:	Michael Landry
		Phone:	(404) 214-6388
		Fax:	(404) 214-5481

EXHIBIT I

DEFINITIONS

As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):

“Accrual Period” means each calendar month, provided that the initial Accrual Period hereunder means the period from (and including) the date of the initial purchase hereunder to (and including) the last day of the calendar month thereafter.

“Adjusted Dilution Ratio” means, at any time, the rolling average of the Dilution Ratio for the 12 Calculation Periods then most recently ended.

“Adjusted Eligible Receivables” means the aggregate Outstanding Balance of Eligible Receivables less (i) the Cash Discount Exposure Factor; (ii) the Contractual Rebate Accruals; (iii) the aggregate Outstanding Balance of all State Government Receivables in excess of 3% of the aggregate Outstanding Balance of all Receivables; (iv) the aggregate Outstanding Balance of all other Government Receivables in excess of 5% of the aggregate Outstanding Balance of all Receivables; (v) the aggregate Outstanding Balance of all Canadian Receivables in excess of 3% of the aggregate Outstanding Balance of all Receivables; (vi) the aggregate Outstanding Balance of all Foreign Receivables in excess of 3% of the aggregate Outstanding Balance of all Receivables; (vii) the aggregate Outstanding Balance of all Eligible Receivables which by their terms are due 62-91 days after the date of invoice in excess of 15% of the aggregate Outstanding Balance of all Receivables; and (viii) the aggregate Outstanding Balance of all Eligible Receivables which by their terms are due 92-121 days after the date of invoice in excess of 3% of the aggregate Outstanding Balance of all Receivables; provided, however, that either of the Co-Agents may, upon not less than five Business Days’ notice to Seller and the other Co-Agent, decrease or eliminate any of the percentages specified in clauses (iii)-(viii) of this definition.

“Administrative Agent” has the meaning set forth in the preamble to this Agreement.

“Adverse Claim” means a lien, security interest, charge or encumbrance, or other right or claim in, of or on any Person’s assets or properties in favor of any other Person.

“Affected Liquidity Bank” has the meaning specified in Section 12.1(c).

“Affiliate” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, such Person or any Subsidiary of such Person. A Person shall be deemed to control another Person if the controlling Person owns 10% or more of any class of voting securities of the controlled Person or possesses, directly or indirectly, the power to direct or cause the direction of the

management or policies of the controlled Person, whether through ownership of stock, by contract or otherwise.

“Agents” has the meaning set forth in the preamble to this Agreement.

“Aggregate Capital” means, on any date of determination, the aggregate amount of Capital of all Purchaser Interests outstanding on such date.

“Aggregate Reduction” has the meaning specified in Section 1.3.

“Aggregate Reserves” means the Aggregate Reserve Percentage multiplied by the Net Receivables Balance.

“Aggregate Reserve Percentage” means, on any date of determination, the sum of the Loss Reserve, the Yield Reserve and the Dilution Reserve.

“Aggregate Unpaids” means, at any time, an amount equal to the sum of all Aggregate Capital and unpaid Obligations (whether due or accrued) at such time.

“Agreement” means this Amended and Restated Receivables Purchase Agreement, as it may be amended or modified and in effect from time to time.

“Amortization Date” means the earliest to occur of (i) the day on which any of the conditions precedent set forth in Section 6.2 are not satisfied, (ii) the Business Day immediately prior to the occurrence of an Amortization Event set forth in Section 9.1(f)(ii), (iii) the Business Day specified in a written notice from any Agent following the occurrence of any other Amortization Event, and (iv) the date which is 30 days after the Co-Agents’ receipt of written notice from Seller that it wishes to terminate the facility evidenced by this Agreement.

“Amortization Event” has the meaning specified in Article IX.

“Applicable Margin” means the sum of (a) 0.25% per annum, plus (b) the “Applicable Margin” from time to time in effect for “Eurodollar Committed Loans” under the RPM Credit Agreement.

“Assignment Agreement” has the meaning set forth in Section 12.1(b).

“Authorized Officer” means, with respect to any Person, its president, corporate controller, treasurer, chief financial officer or secretary.

“BTMU-Chicago” has the meaning specified in the preamble to this Agreement.

“BTMU-NY” has the meaning specified in the preamble to this Agreement.

“Broken Funding Costs” means for any Purchaser Interest which: (i) has its Capital reduced without compliance by Seller with the notice requirements hereunder or (ii) does not become subject to an Aggregate Reduction following the delivery of any Reduction Notice or (iii) is assigned under a Liquidity Agreement or terminated prior to the date on which it was

originally scheduled to end; an amount equal to the excess, if any, of (A) the CP Costs or Yield (as applicable) that would have accrued during the remainder of the Tranche Periods or the tranche periods for Commercial Paper determined by the applicable Co-Agent to relate to such Purchaser Interest (as applicable) subsequent to the date of such reduction, assignment or termination (or in respect of clause (ii) above, the date such Aggregate Reduction was designated to occur pursuant to the Reduction Notice) of the Capital of such Purchaser Interest if such reduction, assignment or termination had not occurred or such Reduction Notice had not been delivered, over (B) the sum of (x) to the extent all or a portion of such Capital is allocated to another Purchaser Interest, the amount of CP Costs or Yield actually accrued during the remainder of such period on such Capital for the new Purchaser Interest, and (y) to the extent such Capital is not allocated to another Purchaser Interest, the income, if any, actually received during the remainder of such period by the holder of such Purchaser Interest from investing the portion of such Capital not so allocated. In the event that the amount referred to in clause (B) exceeds the amount referred to in clause (A), the relevant Purchaser or Purchasers agree to pay to Seller the amount of such excess. All Broken Funding Costs shall be due and payable hereunder upon written demand.

“Business Day” means any day on which banks are not authorized or required to close in New York, New York or Atlanta, Georgia and The Depository Trust Company of New York is open for business, and, if the applicable Business Day relates to any computation or payment to be made with respect to the LIBO Rate, any day on which dealings in dollar deposits are carried on in the London interbank market.

“Calculation Period” means a calendar month.

“Canadian Receivable” means a Receivable as to which the Obligor (a) if a natural person, is a resident of Canada, and (b) if a corporation or other business entity, is organized under the laws of and/or maintains its chief executive office in Canada.

“Capital” of any Purchaser Interest means, at any time, (A) the Purchase Price of such Purchaser Interest, minus (B) the sum of the aggregate amount of Collections and other payments received by the Administrative Agent which in each case are applied to reduce such Capital in accordance with the terms and conditions of this Agreement; provided that such Capital shall be restored (in accordance with Section 2.5) in the amount of any Collections or other payments so received and applied if at any time the distribution of such Collections or payments are rescinded, returned or refunded for any reason.

“Capital Lease Obligations” means, as to any Person, the obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) real and/or personal property to the extent such obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP (including Statement of Financial Accounting Standards No. 13 of the Financial Accounting Standards Board) and, for purposes of this Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP (including such Statement No. 13).

“Cash Discount Exposure Factor” means 1.5% multiplied by the aggregate Outstanding Balance of all Receivables less than 31 days past due.

“Change of Control” has the meaning set forth in the Receivables Sale Agreement.

“Charged-Off Receivable” means a Receivable: (i) as to which the Obligor thereof has taken any action, or suffered any event to occur, of the type described in Section 9.1(f) (as if references to Seller Party therein refer to such Obligor); (ii) as to which the Obligor thereof, if a natural person, is deceased, (iii) which, consistent with the Credit and Collection Policy, would be written off Seller’s books as uncollectible, or (iv) which has been identified by Seller as uncollectible.

“Collection Account” means each concentration account, depositary account, lock-box account or similar account in which any Collections are collected or deposited and which is listed on Exhibit IV.

“Collection Account Agreement” means an agreement among an Originator, Seller, the Administrative Agent and a Collection Bank perfecting the Administrative Agent’s security interest in one or more Collection Accounts.

“Collection Bank” means, at any time, any of the banks holding one or more Collection Accounts.

“Collection Notice” means a notice, in substantially the form attached to any Collection Account Agreement from the Administrative Agent to a Collection Bank, terminating the Seller Parties’ rights to access, or give instructions with respect to, any Collection Account.

“Collections” means, with respect to any Receivable, all cash collections and other cash proceeds in respect of such Receivable, including, without limitation, all yield, Finance Charges or other related amounts accruing in respect thereof and all cash proceeds of Related Security with respect to such Receivable.

“Commercial Paper” means promissory notes of Conduit issued by Conduit in the commercial paper market.

“Commitment” means, for each Liquidity Bank, the commitment of such Liquidity Bank to purchase Purchaser Interests from (i) Seller and (ii) Conduit, in an amount not to exceed (i) in the aggregate, the amount set forth opposite such Liquidity Bank’s name on Schedule A to this Agreement, as such amount may be modified in accordance with the terms hereof and (ii) with respect to any individual purchase hereunder, its Pro Rata Share of the Purchase Price therefor.

“Concentration Limit” means, at any time, for any Obligor and its Affiliates, considered as if they were one and the same Obligor, the percentage of Adjusted Eligible Receivables set forth in the table below opposite such Obligor’s applicable short-term unsecured debt ratings Moody’s (or in the absence thereof, the equivalent long term unsecured senior debt

ratings), or such other amount (a “Special Concentration Limit”) for such Obligor designated by the Co-Agents:


				Allowable % of
Short-Term	Long-Term S&P	Short-Term	Long-Term	Adjusted Eligible
S&P Rating	Rating	Moody’s Rating	Moody’s Rating	Receivables
A-1+	AAA	P-1	Aaa		12	%

A-1	AA+, AA, AA- or A+	P-1	Aa1, Aa2, Aa3 or A1		10	%

A-2	A, A- or BBB+	P-2	A2, A3 or Baa1		6	%

A-3	BBB or BBB-	P-3	Baa2 or Baa3		4.5	%

Below A-3 or Not Rated by either S&P or Moody’s	Below BBB- or Not Rated by either S&P or Moody’s	Below P-3 or Not Rated by either S&P or Moody’s	Below Baa3 or Not Rated by either S&P or Moody’s		3	%

; provided, however, that (a) if any Obligor has a split rating, the applicable rating will be the lower of the two, (b) if any Obligor is not rated by either S&P or Moody’s, the applicable Concentration Limit shall be the one set forth in the last line of the table above, and (c) either of the Co-Agents may, upon not less than five Business Days’ notice to Seller, cancel any Special Concentration Limit. As of the date hereof, (x) the Special Concentration Limit for The Home Depot, Inc. and its Affiliates is 30% of Adjusted Eligible Receivables; (y) the Special Concentration Limit for Ace Hardware and its Affiliates is 4% of Adjusted Eligible Receivables, and (z) the Special Concentration Limit for Lowe’s Companies, Inc. and its Affiliates is 12% of Adjusted Eligible Receivables.

“Conduit” has the meaning set forth in the preamble to this Agreement.

“Constituents” means, as to either Co-Agent, the Conduit represented by it as specified in the preamble to this Agreement, and each of such Conduit’s Liquidity Banks, and the term “Constituent” when used as an adjective shall have a correlative meaning.

“Contract” means, with respect to any Receivable, any and all instruments, agreements, invoices or other writings pursuant to which such Receivable arises or which evidences such Receivable.

“Contractual Rebate Accrual” means, with respect to any Receivable on any date of determination, the ending balance of all accounting accruals or reserves for potential volume rebates, seasonal and other promotional discounts, advertising and other cooperative subsidies, or similar contractual credits booked with respect to such Receivable.

“CP Costs” means, for each Conduit for each day, the sum of (i) discount or yield accrued on such Conduit’s Pooled Commercial Paper on such day, plus (ii) any and all accrued commissions in respect of placement agents and Commercial Paper dealers, and issuing and paying agent fees incurred, in respect of such Conduit’s Pooled Commercial Paper for such day, plus (iii) other costs associated with funding small or odd-lot amounts with respect to all receivable purchase facilities which are funded by such Conduit’s Pooled Commercial Paper for such day, minus (iv) any accrual of income net of expenses received on such day from investment of collections received under all receivable purchase facilities funded substantially with such Conduit’s Pooled Commercial Paper, minus (v) any payment received on such day by such Conduit net of expenses in respect of Broken Funding Costs related to the prepayment of any Purchaser Interest of such Conduit pursuant to the terms of any receivable purchase facilities funded substantially with its Pooled Commercial Paper. In addition to the foregoing costs, if Seller shall request any Incremental Purchase during any period of time determined by such Conduit’s Co-Agent in its sole discretion to result in incrementally higher CP Costs applicable to such Incremental Purchase, the Capital associated with any such Incremental Purchase shall, during such period, be deemed to be funded by such Conduit in a special pool (which may include capital associated with other receivable purchase facilities) for purposes of determining such additional CP Costs applicable only to such special pool and charged each day during such period against such Capital.

“Credit and Collection Policy” means the Originators’ credit and collection policies and practices relating to Contracts and Receivables existing on the date hereof and summarized in Exhibit VIII hereto, as modified from time to time in accordance with this Agreement.

“Cut-Off Date” means the last day of a Calculation Period.

“Days Sales Outstanding” means, as of any day, an amount equal to the product of (x) 91, multiplied by (y) the amount obtained by dividing (i) the aggregate Outstanding Balance of all Receivables as of the most recent Cut-Off Date, by (ii) the aggregate amount of Receivables created during the three (3) Calculation Periods including and immediately preceding such Cut-Off Date.

“Deemed Collections” means the aggregate of all amounts Seller shall have been deemed to have received as a Collection of a Receivable. Seller shall be deemed to have received a Collection in full of a Receivable if at any time any of the representations or warranties in Article V are no longer true with respect to any Receivable. If (i) the Outstanding Balance of any Receivable is either (x) reduced as a result of any defective or rejected goods or services, any discount or any adjustment or otherwise by Seller (other than cash Collections on account of the Receivables) or (y) reduced or canceled as a result of a setoff in respect of any claim by any Person (whether such claim arises out of the same or a related transaction or an unrelated transaction), Seller shall be deemed to have received a Collection of such Receivable to the extent of such reduction or cancellation.

“Default Fee” means with respect to any amount due and payable by Seller in respect of any Aggregate Unpaids, an amount equal to interest on any such unpaid Aggregate Unpaids at a rate per annum equal to 2% above the Prime Rate.

“Default Horizon Ratio” means, as of any Cut-Off Date, the ratio (expressed as a decimal) computed by dividing (a) the aggregate sales generated by the Originators during the five Calculation Periods ending on such Cut-Off Date, by (b) the Net Receivables Balance as of such Cut-Off Date.

“Default Ratio” means, as of any Cut-Off Date, the ratio (expressed as a percentage) computed by dividing (x) the total amount of Receivables which became Defaulted Receivables or which became Charged-Off Receivables before becoming Defaulted Receivables, in either case during the Calculation Period that includes such Cut-Off Date, by (y) the aggregate sales generated by the Originators during the Calculation Period occurring four months prior to the Calculation Period ending on such Cut-Off Date.

“Defaulted Receivable” means a Receivable as to which any payment, or part thereof, remains unpaid for 91 days or more from the original due date for such payment.

“Delinquency Ratio” means, at any time, a percentage equal to (i) the aggregate Outstanding Balance of all Receivables that were Delinquent Receivables at such time divided by (ii) the aggregate Outstanding Balance of all Receivables at such time.

“Delinquent Receivable” means a Receivable as to which any payment, or part thereof, remains unpaid for 61-90 days from the original due date for such payment.

“Designated Obligor” means an Obligor indicated by any of the Agents to Seller in writing.

“Dilution Horizon Ratio” means, as of any Cut-off Date, a ratio (expressed as a decimal), computed by dividing (a) the sum of (i) the aggregate sales generated by the Originators during the two Calculation Periods ending on such Cut-Off Date, plus 50% of the aggregate sales generated by the Originators during the Calculation Period ending three months prior to such Cut-Off Date by (b) the Net Receivables Balance as of such Cut-Off Date.

“Dilution Ratio” means, as of any Cut-Off Date, a ratio (expressed as a percentage), computed by dividing (a) the total amount of Dilutions during the Calculation Period ending on such Cut-Off Date, by (b) the aggregate sales generated by the Originators during the Calculation Period that ended two Cut-Off Dates prior to such Cut-Off Date.

“Dilution Reserve” means, for any Calculation Period, the greater of (i) 8% or (ii) the product (expressed as a percentage) of:

(a) the sum of (i) two (2) times the Adjusted Dilution Ratio as of the Cutoff Date for such Calculation Period, plus (ii) the Dilution Volatility Component as of the Cutoff Date for such Calculation Period, times

(b) the Dilution Horizon Ratio as of the Cutoff Date for such Calculation Period.

“Dilution Volatility Component” means the product (expressed as a percentage) of (i) the difference between (a) the highest three (3)-month rolling average Dilution Ratio over the past 12 Calculation Periods and (b) the Adjusted Dilution Ratio, and (ii) a fraction, the

numerator of which is equal to the amount calculated in (i)(a) of this definition and the denominator of which is equal to the amount calculated in (i)(b) of this definition.

“Dilutions” means, at any time, the aggregate amount of reductions or cancellations described in clause (i) of the definition of “Deemed Collections” other than those for which a Contractual Rebate Accrual has been booked.

“Discount Rate” means, the LIBO Rate or the Prime Rate, as applicable, with respect to each Purchaser Interest of the Liquidity Banks.

“Downgraded Liquidity Bank” means a Liquidity Bank which has been the subject of a Downgrading Event.

“Downgrading Event” with respect to any Person means the lowering of the rating with regard to the short-term securities of such Person to below (i) A-1 by S&P, or (ii) P-1 by Moody’s.

“EBITDA” means, for any period, determined on a consolidated basis for RPM-Delaware and its Subsidiaries, net operating income of RPM-Delaware and its Subsidiaries (calculated before provision for income taxes, interest expense, extraordinary items, income attributable to equity in Affiliates and all amounts attributable to depreciation and amortization) for such period.

“Eligible Assignee” means (a) any “bankruptcy remote” special purpose entity which is administered by Wachovia or BTMU-NY (or any Affiliate of the foregoing) that is in the business of acquiring or financing receivables, securities and/or other financial assets and which issues commercial paper notes that are rated at least A-1 by S&P and P-1 by Moody’s, (b) any Qualifying Liquidity Bank having a combined capital and surplus of at least $250,000,000, or (c) any Downgraded Liquidity Bank whose liquidity commitment has been fully drawn by the applicable Conduit or its Co-Agent and funded into a collateral account.

“Eligible Receivable” means, at any time, a Receivable:

(i) the Obligor of which (a) if a natural person, is a resident of the United States, Puerto Rico or Canada or, if a corporation or other business organization, is organized under the laws of the United States, Puerto Rico, Canada or any political subdivision of the foregoing and has its chief executive office in the United States, Puerto Rico or Canada; (b) is not an Affiliate of any of the parties hereto; and (c) is not a Designated Obligor;

(ii) the Obligor of which is not the Obligor of any Charged-Off Receivable,

(iii) which is not a Charged-Off Receivable or a Defaulted Receivable,

(iv) which is not owing from an Obligor as to which more than 25% of the aggregate Outstanding Balance of all Receivables owing from such Obligor are Delinquent Receivables or Defaulted Receivables,

(v) which by its terms is due and payable on or within 121 days of the original billing date therefor and has not had its payment terms extended,

(vi) which is an “account” within the meaning of Section 9-102 of the UCC of all applicable jurisdictions,

(vii) which is denominated and payable only in United States dollars in the United States,

(viii) which arises under a Contract in substantially the form of one of the form contracts set forth on Exhibit IX hereto or otherwise approved by the Co-Agents in writing, which, together with such Receivable, is in full force and effect and constitutes the legal, valid and binding obligation of the related Obligor enforceable against such Obligor in accordance with its terms subject to no offset, counterclaim or other defense,

(ix) which arises under a Contract which (A) does not require the Obligor under such Contract to consent to the transfer, sale or assignment of the rights and duties of the applicable Originator or any of its assignees under such Contract and (B) does not contain a confidentiality provision that purports to restrict the ability of any Purchaser to exercise its rights under this Agreement, including, without limitation, its right to review the Contract,

(x) which arises under a Contract that contains an obligation to pay a specified sum of money, contingent only upon the sale of goods or the provision of services by the applicable Originator,

(xi) which, together with the Contract related thereto, does not contravene any law, rule or regulation applicable thereto (including, without limitation, any law, rule and regulation relating to truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy) and with respect to which no part of the Contract related thereto is in violation of any such law, rule or regulation,

(xii) which satisfies in all material respects the applicable requirements of the Credit and Collection Policy,

(xiii) which was generated in the ordinary course of the applicable Originator’s business,

(xiv) which arises solely from the sale of goods or the provision of services to the related Obligor by an Originator, and not by any other Person (in whole or in part),

(xv) as to which a Co-Agent has not notified Seller that such Co-Agent has determined in the exercise of its commercially reasonable credit judgment that such Receivable or class of Receivables is not acceptable as an Eligible

Receivable, including, without limitation, because such Receivable arises under a Contract that is not acceptable to such Co-Agent,

(xvi) which is not subject to (A) any right of rescission or set-off, or (B) any currently asserted counterclaim or other defense (including defenses arising out of violations of usury laws) of the applicable Obligor against any Originator or any other Adverse Claim, and the Obligor thereon holds no right as against any Originator to cause any Originator to repurchase the goods or merchandise the sale of which shall have given rise to such Receivable (except with respect to sale discounts effected pursuant to the Contract, or defective goods returned in accordance with the terms of the Contract); provided, however, that if such dispute, offset, counterclaim or defense affects only a portion of the Outstanding Balance of such Receivable, then such Receivable may be deemed an Eligible Receivable to the extent of the portion of such Outstanding Balance which is not so affected, and provided, further, that Receivables of any Obligor which has any accounts payable by the applicable Originator or by a wholly-owned Subsidiary of such Originator (thus giving rise to a potential offset against such Receivables) may be treated as Eligible Receivables to the extent that the Obligor of such Receivables has agreed pursuant to a written agreement in form and substance satisfactory to the Agents, that such Receivables shall not be subject to such offset,

(xvii) as to which the applicable Originator has satisfied and fully performed all obligations on its part with respect to such Receivable required to be fulfilled by it, and no further action is required to be performed by any Person with respect thereto other than payment thereon by the applicable Obligor, and

(xviii) all right, title and interest to and in which has been validly transferred by the applicable Originator directly to Seller under and in accordance with the Receivables Sale Agreement, and Seller has good and marketable title thereto free and clear of any Adverse Claim.

“Equity Interests” means, with respect to any Person, any and all shares, interests, participations or other equivalents, including membership interests (however designated, whether voting or non-voting), of capital of such Person, including, if such Person is a partnership, partnership interests (whether general or limited) and any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, such partnership, whether outstanding on the date hereof or issued after the date of this Agreement.

“Existing Agreement” has the meaning set forth in the preliminary statements of this Agreement.

“Extension Request” has the meaning set forth in Section 1.5 of this Agreement.

“Facility Account” means RPM Funding Corporation Collection Account #********* at National City Bank, 1900 East Ninth St., Cleveland, Ohio 44114, ABA #*********.

“Facility Termination Date” means the earlier of (i) the Liquidity Termination Date, and (ii) the Amortization Date.

“Federal Bankruptcy Code” means Title 11 of the United States Code entitled “Bankruptcy,” as amended and any successor statute thereto.

“Fee Letter” means that certain Fee Letter dated as of May 10, 2006 by and between Seller and the Agents, as the same may be amended, restated or otherwise modified from time to time (which Fee Letter supersedes and replaces all fee letters referenced in the Existing Agreement).

“Finance Charges” means, with respect to a Contract, any finance, interest, late payment charges or similar charges owing by an Obligor pursuant to such Contract.

“Foreign Receivable” means a Receivable (other than a Canadian Receivable) as to which the Obligor (a) if a natural person, is not a resident of the United States of America, and (b) if a corporation or other business entity, is organized under the laws of and/or maintains its chief executive office in a jurisdiction other than the United States of America.

“Funding Agreement” means this Agreement and any agreement or instrument executed by any Funding Source with or for the benefit of Conduit.

“Funding Source” means (i) any Liquidity Bank or (ii) any insurance company, bank or other funding entity providing liquidity, credit enhancement or back-up purchase support or facilities to Conduit.

“GAAP” means generally accepted accounting principles in effect in the United States of America from time to time.

“Government Receivable” means a Receivable as to which the Obligor is a government or a governmental subdivision or agency.

“Group” means the VFCC Group or the Victory Group.

“Guaranteed” has the meaning ascribed thereto in the definition of “Guaranty” in the RPM Credit Agreement.

“Incremental Purchase” means a purchase of a Purchaser Interest which increases the total outstanding Aggregate Capital hereunder.

“Indebtedness” means, as to any Person (determined without duplication): (i) indebtedness of such Person for borrowed money (whether by loan or the issuance and sale of debt securities) or for the deferred purchase or acquisition price of property or services other than accounts payable (other than for borrowed money) incurred in the ordinary course of such

Person’s business, (ii) obligations of such Person in respect of letters of credit or similar instruments issued or accepted by banks and other financial institutions for the account of such Person (whether or not such obligations are contingent); (iii) Capital Lease Obligations of such Person; (iv) obligations of such Person to redeem or otherwise retire shares of capital stock of such Person; (v) indebtedness of others of the type described in clause (i), (ii), (iii) or (iv) above secured by a lien on the property of such Person, whether or not the respective obligation so secured has been assumed by such Person; and (vi) indebtedness of others of the type described in clause (i), (ii), (iii) or (iv) above Guaranteed by such Person.

“Independent Director” shall mean a member of the Board of Directors of Seller who is not at such time, and has not been at any time during the preceding five (5) years, (A) a director, officer, employee or affiliate of any Seller Party, any Originator, or any of their respective Subsidiaries or Affiliates, or (B) the beneficial owner (at the time of such individual’s appointment as an Independent Director or at any time thereafter while serving as an Independent Director) of any of the outstanding common shares of any Seller Party, any Originator, or any of their respective Subsidiaries or Affiliates, having general voting rights.

“Interest Expense” means, for any period, the sum (determined without duplication) of the aggregate amount of interest accruing during such period on Indebtedness of RPM-Delaware and its Subsidiaries (on a consolidated basis), including the interest portion of payments under Capital Lease Obligations and any capitalized interest, and excluding amortization of debt discount and expense.

“LIBO Rate” means the rate per annum equal to the sum of (i) (a) the applicable British Bankers’ Association Interest Settlement Rate for deposits in U.S. dollars appearing on Reuters Screen FRBD as of 11:00 a.m. (London time) two Business Days prior to the first day of the relevant Tranche Period, and having a maturity equal to such Tranche Period, provided that, (i) if Reuters Screen FRBD is not available to the Administrative Agent for any reason, the applicable LIBO Rate for the relevant Tranche Period shall instead be the applicable British Bankers’ Association Interest Settlement Rate for deposits in U.S. dollars as reported by any other generally recognized financial information service as of 11:00 a.m. (London time) two Business Days prior to the first day of such Tranche Period, and having a maturity equal to such Tranche Period, and (ii) if no such British Bankers’ Association Interest Settlement Rate is available to the Administrative Agent, the applicable LIBO Rate for the relevant Tranche Period shall instead be the rate determined by each Co-Agent to be the rate at which such Co-Agent offers to place deposits in U.S. dollars with first-class banks in the London interbank market at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Tranche Period, in the approximate amount to be funded at the LIBO Rate and having a maturity equal to such Tranche Period, divided by (b) one minus the maximum aggregate reserve requirement (including all basic, supplemental, marginal or other reserves) which is imposed against the Administrative Agent in respect of Eurocurrency liabilities, as defined in Regulation D of the Board of Governors of the Federal Reserve System as in effect from time to time (expressed as a decimal), applicable to such Tranche Period plus (ii) the Applicable Margin per annum. The LIBO Rate shall be rounded, if necessary, to the next higher 1/16 of 1%.

“Liquidity Agreements” means the Victory Liquidity Agreement and VFCC Liquidity Agreement.

“Liquidity Banks” means, collectively, the VFCC Liquidity Banks and the Victory Liquidity Banks.

“Liquidity Termination Date” means May 7, 2009.

“Lock-Box” means each locked postal box with respect to which a bank who has executed a Collection Account Agreement has been granted exclusive access for the purpose of retrieving and processing payments made on the Receivables and which is listed on Exhibit IV.

“Loss Reserve” means, for any Calculation Period, the greater of (i) 12% and (ii) the product (expressed as a percentage) of (a) 2.0, times (b) the highest three-month rolling average Default Ratio during the 12 Calculation Periods ending on the immediately preceding Cut-Off Date, times (c) the Default Horizon Ratio as of the immediately preceding Cut-Off Date.

“Material Adverse Effect” means a material adverse effect on (i) the financial condition or operations of Seller or RPM-Delaware and any of its subsidiaries, taken as a whole, (ii) the ability of Seller to perform its obligations under this Agreement or (at any time RPM-Delaware is acting as Servicer or Performance Guarantor), the ability of the Servicer or the Performance Guarantor to perform its obligations under this Agreement or the Performance Undertaking, as the case may be, (iii) the legality, validity or enforceability of this Agreement or any other Transaction Document, (iv) any Purchaser’s interest in the Receivables generally or in any significant portion of the Receivables, the Related Security or the Collections with respect thereto, or (v) the collectibility of the Receivables generally or of any material portion of the Receivables.

“Material Indebtedness” means (a) with respect to the Performance Guarantor and its Subsidiaries (other than the Originators), Indebtedness in excess of $20 million in aggregate principal amount and (b) with respect to any Originator, Indebtedness in excess of $10 million in aggregate principal amount.

“Monthly Report” means a report, in substantially the form of Exhibit X hereto (appropriately completed), furnished by the Servicer to the Co-Agents pursuant to Section 8.5.

“Monthly Reporting Date” shall have the meaning set forth in Section 8.5.

“Net Receivables Balance” means, at any time, Adjusted Eligible Receivables at such time reduced by the aggregate amount by which (a) the difference of (i) the Outstanding Balance of all Eligible Receivables of each Obligor and its Affiliates minus (ii) the Cash Discount Exposure Factor and Contractual Rebate Accrual attributable to such Obligor and its Affiliates exceeds (b) the Concentration Limit for such Obligor.

“Norwegian Company” means Carboline Norge A/S , a Norwegian corporation.

“Obligations” shall have the meaning set forth in Section 2.1.

“Obligor” means a Person obligated to make payments pursuant to a Contract.

“Organic Document” means, relative to any Person, its certificate of incorporation, its by-laws, its partnership agreement, its memorandum and articles of association, its limited liability company agreement and/or operating agreement, share designations or similar organization documents and all shareholder agreements, voting trusts and similar arrangements applicable to any of its authorized Equity Interests.

“Originator” has the meaning specified in the Receivables Sale Agreement.

“Outstanding Balance” of any Receivable at any time means the then outstanding principal balance thereof.

“Participant” has the meaning set forth in Section 12.2.

“Past Due Ratio” means, at any time, the following quotient (expressed as a percentage): (a) the sum (without duplication) of Defaulted Receivables and Charged-Off Receivables at such time, divided by (b) the aggregate Outstanding Balance of all Receivables.

“Percentage” means (a) 45% as to Victory, and (b) 55% as to VFCC.

“Performance Guarantor” means RPM-Delaware and its successors.

“Performance Undertaking” means that certain Amended and Restated Performance Undertaking, dated as of May 10, 2006, by Performance Guarantor in favor of Seller, substantially in the form of Exhibit XI, as the same may be amended, restated or otherwise modified from time to time.

“Person” means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof.

“Pooled Commercial Paper” means Commercial Paper notes of a Conduit subject to any particular pooling arrangement by such Conduit, but excluding Commercial Paper issued by such Conduit for a tenor and in an amount specifically requested by any Person in connection with any agreement effected by such Conduit.

“Potential Amortization Event” means an event which, with the passage of any applicable cure period or the giving of notice, or both, would constitute an Amortization Event.

“Prime Rate” means, as to either Group, a rate per annum equal to the prime rate of interest announced from time to time by the applicable Co-Agent or its parent (which is not necessarily the lowest rate charged to any customer), changing when and as said prime rate changes.

“Proposed Reduction Date” has the meaning set forth in Section 1.3.

“Purchase Limit” means $125,000,000.

“Purchase Notice” has the meaning set forth in Section 1.2.

“Purchase Price” means, with respect to any Incremental Purchase of a Purchaser Interest, the amount paid to Seller for such Purchaser Interest which shall not exceed the least of (i) the amount requested by Seller in the applicable Purchase Notice, (ii) the unused portion of the Purchase Limit on the applicable purchase date and (iii) the excess, if any, of the Net Receivables Balance (less the Aggregate Reserves) on the applicable purchase date over the aggregate outstanding amount of Aggregate Capital determined as of the date of the most recent Monthly Report, taking into account such proposed Incremental Purchase.

“Purchasers” means, collectively, the Conduits and the Liquidity Banks.

“Purchaser Interest” means, at any time, an undivided percentage interest (computed as set forth below) associated with a designated amount of Capital, selected pursuant to the terms and conditions hereof in (i) each Receivable arising prior to the time of the most recent computation or recomputation of such undivided interest, (ii) all Related Security with respect to each such Receivable, and (iii) all Collections with respect to, and other proceeds of, each such Receivable. Each such undivided percentage interest shall equal:


		C

		NRB — AR


*where:*

C		= the Capital of such Purchaser Interest.

AR		= the Aggregate Reserves.

NRB		= the Net Receivables Balance.

Such undivided percentage interest shall be initially computed on its date of purchase. Thereafter, until the Amortization Date, each Purchaser Interest shall be automatically recomputed (or deemed to be recomputed) on each day prior to the Amortization Date. The variable percentage represented by any Purchaser Interest as computed (or deemed recomputed) as of the close of the business day immediately preceding the Amortization Date shall remain constant at all times thereafter.

“Purchasing Liquidity Bank” has the meaning set forth in Section 12.1(b).

“Qualifying Liquidity Bank” means a Liquidity Bank with a rating of its short-term securities equal to or higher than (i) A-1 by S&P and (ii) P-1 by Moody’s.

“Ratable Share” means with respect to any Liquidity Bank, the ratio which its Commitment bears to the sum of the Commitments of all Liquidity Banks for the same Conduit.

“Receivable” means any “Receivable” under and as defined in the Receivables Sale Agreement in which Seller now has or hereafter acquires any right, title or interest. Indebtedness and other rights and obligations arising from any one transaction, including, without limitation, indebtedness and other rights and obligations represented by an individual invoice, shall constitute a Receivable separate from a Receivable consisting of the indebtedness

and other rights and obligations arising from any other transaction; provided that any indebtedness, rights or obligations referred to in the immediately preceding sentence shall be a Receivable regardless of whether the account debtor or Seller treats such indebtedness, rights or obligations as a separate payment obligation.

“Receivables Sale Agreement” means that certain Receivables Sale Agreement, dated as of June 6, 2002, between Originators and Seller, as the same may be amended, restated or otherwise modified from time to time.

“Records” means, with respect to any Receivable, all Contracts and other documents, books, records and other information (including, without limitation, computer programs, tapes, disks, punch cards, data processing software and related property and rights) relating to such Receivable, any Related Security therefor and the related Obligor.

“Reduction Notice” has the meaning set forth in Section 1.3.

“Regulatory Change” has the meaning set forth in Section 10.3.

“Reinvestment” has the meaning set forth in Section 2.2.

“Related Security” means, with respect to any Receivable:

(i) all “Related Security” under and as defined in the Receivables Sale Agreement in which Seller now has or hereafter acquires any right, title or interest,

(ii) all of Seller’s right, title and interest in, to and under the Receivables Sale Agreement in respect of such Receivable and all of Seller’s right, title and interest in, to and under the Performance Undertaking, and

(iii) all proceeds of any of the foregoing.

“Required Notice Period” means the number of days required notice set forth below applicable to the Aggregate Reduction indicated below:


Aggregate Reduction		Required Notice Period

< $100,000,000		two Business Days

$100,000,000 to $125,000,000		five Business Days

“Response Date” has the meaning set forth in Section 1.5 of this Agreement.

“Responsible Officer” means, with respect to any Person, each of the following officers (if applicable) of such Person (or anyone performing substantially the same functions as the following officers typically perform): any of such Person’s Senior Officers, or such Person’s assistant treasurer, credit manager or controller.

“Restricted Junior Payment” means (i) any dividend or other distribution, direct or indirect, on account of any shares of any class of capital stock of Seller now or hereafter outstanding, except a dividend payable solely in shares of that class of stock or in any junior class of stock of Seller, (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of capital stock of Seller now or hereafter outstanding, (iii) any payment or prepayment of principal of, premium, if any, or interest, fees or other charges on or with respect to, and any redemption, purchase, retirement, defeasance, sinking fund or similar payment and any claim for rescission with respect to the Subordinated Loans (as defined in the Receivables Sale Agreement), (iv) any payment made to redeem, purchase, repurchase or retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of capital stock of Seller now or hereafter outstanding, and (v) any payment of management fees by Seller (except for reasonable management fees to an Originator or its Affiliates in reimbursement of actual management services performed).

“RPM Credit Agreement” means that certain Credit Agreement dated as of November 19, 2004, as amended, restated or replaced from time to time, among RPM-Delaware and certain of its Affiliates, the lenders from time to time party thereto, Keybank National Association, as joint lead arranger, joint book runner and syndication agent, Wachovia, as co-documentation agent, and National City Bank, as swing-line lender, letter of credit issuer and administrative agent.

“Seller” has the meaning set forth in the preamble to this Agreement.

“Seller Parties” means, collectively, (a) Seller, and (b) at any time that RPM-Delaware is acting as Servicer or Performance Guarantor, RPM-Delaware.

“Senior Officer” shall mean the chief executive officer, president, chief financial officer or vice president-treasurer of the Performance Guarantor.

“Servicer” means at any time the Person (which may be the Administrative Agent) then authorized pursuant to Article VIII to service, administer and collect Receivables.

“Servicing Fee” has the meaning set forth in Section 8.6.

“Settlement Date” means (A) two (2) business days after each Monthly Reporting Date, and (B) the last day of the relevant Tranche Period in respect of each Purchaser Interest of the Liquidity Banks.

“Settlement Period” means (A) in respect of each Purchaser Interest of Conduit, the immediately preceding Accrual Period, and (B) in respect of each Purchaser Interest of the Liquidity Banks, the entire Tranche Period of such Purchaser Interest.

“State Government Receivable” means a Receivable as to which the Obligor is a state government or a state governmental subdivision or agency in the United States of America.

“Subsidiary” of a Person means (i) any corporation more than 50% of the outstanding securities having ordinary voting power of which shall at the time be owned or

controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries, or (ii) any partnership, association, limited liability company, joint venture or similar business organization more than 50% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. Unless otherwise expressly provided, all references herein to a “Subsidiary” shall mean a Subsidiary of Servicer.

“Terminating Tranche” has the meaning set forth in Section 4.3(b).

“Tranche Period” means, with respect to any Purchaser Interest held by a Liquidity Bank:

(a) if Yield for such Purchaser Interest is calculated on the basis of the LIBO Rate, a period of one, two, three or six months, or such other period as may be mutually agreeable to the applicable Co-Agent and Seller, commencing on a Business Day selected by Seller or such Co-Agent pursuant to this Agreement. Such Tranche Period shall end on the day in the applicable succeeding calendar month which corresponds numerically to the beginning day of such Tranche Period, provided, however, that if there is no such numerically corresponding day in such succeeding month, such Tranche Period shall end on the last Business Day of such succeeding month; or

(b) if Yield for such Purchaser Interest is calculated on the basis of the Prime Rate, a period commencing on a Business Day selected by Seller, provided that no such period shall exceed one month.

If any Tranche Period would end on a day which is not a Business Day, such Tranche Period shall end on the next succeeding Business Day, provided, however, that in the case of Tranche Periods corresponding to the LIBO Rate, if such next succeeding Business Day falls in a new month, such Tranche Period shall end on the immediately preceding Business Day. In the case of any Tranche Period for any Purchaser Interest which commences before the Amortization Date and would otherwise end on a date occurring after the Amortization Date, such Tranche Period shall end on the Amortization Date. The duration of each Tranche Period which commences after the Amortization Date shall be of such duration as selected by the applicable Co-Agent.

“Transaction Documents” means, collectively, this Agreement, each Purchase Notice, the Receivables Sale Agreement, each Collection Account Agreement, the Performance Undertaking, the Fee Letter, the Liquidity Agreements, the Subordinated Notes (as defined in the Receivables Sale Agreement) and all other instruments, documents and agreements required to be executed and delivered pursuant hereto.

“UCC” means the Uniform Commercial Code as from time to time in effect in the specified jurisdiction.

“VFCC” has the meaning specified in the preamble to this Agreement.

“VFCC Allocation Limit” has the meaning set forth in Section 1.1(a).

“VFCC Group” has the meaning set forth in the preamble to this Agreement.

“VFCC Group Account” has the meaning set forth in Section 1.4.

“VFCC Liquidity Agreement” means any liquidity purchase agreement or similar agreement now or hereafter entered into among VFCC, the VFCC Agent, and the VFCC Liquidity Banks for the purpose of directly or directly providing liquidity to VFCC in connection with this Agreement, as the same may be amended, restated, supplemented, replaced or otherwise modified from time to time.

“VFCC Liquidity Bank(s)” has the meaning set forth in the preamble to this Agreement.

“Victory” has the meaning provided in the preamble of this Agreement.

“Victory Agent” has the meaning provided in the preamble of this Agreement.

“Victory Allocation Limit” has the meaning set forth in Section 1.1(a).

“Victory Group” has the meaning set forth in the preamble to this Agreement.

“Victory Group Account” has the meaning set forth in Section 1.4.

“Victory Liquidity Agreement” means any liquidity purchase agreement or similar agreement now or hereafter entered into among Victory, the Victory Agent, and the Victory Liquidity Banks for the purpose of directly or directly providing liquidity to Victory in connection with this Agreement, as the same may be amended, restated, supplemented, replaced or otherwise modified from time to time.

“Victory Liquidity Bank(s)” has the meaning set forth in the preamble to this Agreement.

“Yield” means for each respective Tranche Period relating to Purchaser Interests of the Liquidity Banks, an amount equal to the product of the applicable Discount Rate for each Purchaser Interest multiplied by the Capital of such Purchaser Interest for each day elapsed during such Tranche Period, annualized on a 360 day basis.

“Yield Reserve” means for any Calculation Period, the greater of (A) 1.5% or (B) the product (expressed as a percentage) of (i) the sum of (a) 1.0% plus (b) the product of 1.5 times the Prime Rate as of the immediately preceding Cut-Off Date times (ii) a fraction, the numerator of which is the highest Days Sales Outstanding for the most recent 12 Calculation Periods and the denominator of which is 360.

All accounting terms not specifically defined herein shall be construed in accordance with GAAP. All terms used in Article 9 of the UCC in the State of New York, and not specifically defined herein, are used herein as defined in such Article 9.

EX-10.3.1 4 l21773aexv10w3w1.htm EX-10.3.1 EX-10.3.1

Exhibit 10.3.1

AMENDED AND RESTATED PERFORMANCE UNDERTAKING

THIS AMENDED AND RESTATED PERFORMANCE UNDERTAKING (this “Undertaking”), dated as of May 10, 2006, is executed by RPM International Inc., a Delaware corporation (“RPM-Delaware” or the “Performance Guarantor”) in favor of RPM Funding Corporation, a Delaware corporation (together with its successors and assigns, “Recipient”). This Undertaking amends and restates in its entirety that certain Performance Undertaking dated as of October 15, 2002 executed by the Performance Guarantor in favor of Recipient.

RECITALS

Weatherproofing Technologies, Inc., a Delaware corporation, DAP Products Inc., a Delaware corporation, The Testor Corporation, an Ohio corporation, Zinsser Co., Inc., a New Jersey corporation, Tremco Incorporated, an Ohio corporation, Tremco Barrier Solutions, Inc., a Delaware corporation, Rust-Oleum Corporation, an Illinois corporation, The Euclid Chemical Company, an Ohio corporation, Republic Powdered Metals, Inc., an Ohio corporation, individually and as successor by merger to Consolidated Coatings Corporation, an Ohio corporation (all of the foregoing, together with any other Subsidiary or RPM-Delaware that hereafter becomes a seller under the Sale Agreement hereinafter described, collectively, the “Originators”), and Recipient have entered into a Receivables Sale Agreement, dated as of June 6, 2002 (as amended, restated, supplemented, or otherwise modified from time to time, the “Sale Agreement”), pursuant to which the Originators are selling and contributing to Recipient their respective right, title and interest in their accounts receivable and certain related rights subject to the terms and conditions contained therein.

Recipient, RPM-Delaware, as Servicer, Victory Receivables Corporation, Variable Funding Capital Company LLC, The Bank of Tokyo-Mitsubishi UFJ, Ltd., Chicago Branch, The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as Victory Agent, and Wachovia Bank, National Association, individually, as VFCC Agent and as Administrative Agent, have entered into an Amended and Restated Receivables Purchase Agreement, dated as of May 10, 2006 (as amended, restated or otherwise modified from time to time, the “Purchase Agreement”), pursuant to which Recipient is selling undivided interests in its assets to the Administrative Agent for the benefit of the Purchasers subject to the terms and conditions contained therein.

Performance Guarantor owns, directly or indirectly, one hundred percent (100%) of the Equity Interests of each of the Originators, and Performance Guarantor and the Originators, collectively, own, directly or indirectly, 100% of the Equity Interests of Recipient. As a result, each of the Originators (and, accordingly, Performance Guarantor) is expected to receive substantial direct or indirect benefits from the Originators’ sale and contribution of accounts receivable to Recipient pursuant to the Sale Agreement (which benefits are hereby acknowledged).

As an inducement for Recipient to acquire and to continue to acquire the Originators’ accounts receivable pursuant to the Sale Agreement, Performance Guarantor

has agreed to guarantee the due and punctual performance by each of the Originators of its respective obligations under the Sale Agreement.

AGREEMENT

NOW, THEREFORE, Performance Guarantor hereby agrees as follows:

Section 1. Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings attributed thereto in the Sale Agreement or the Purchase Agreement, and “Guaranteed Obligations” means, collectively, all covenants, agreements, terms, conditions and indemnities to be performed and observed by any of the Originators under and pursuant to the Sale Agreement and each other document executed and delivered by any of them pursuant to the Sale Agreement, including, without limitation, the due and punctual payment of all sums which are or may become due and owing by any of the Originators under the Sale Agreement, whether for fees, expenses (including counsel fees), indemnified amounts or otherwise, whether upon any termination or for any other reason.

Section 2. Guaranty of Performance of Guaranteed Obligations. Performance Guarantor hereby guarantees to Recipient, the full and punctual payment and performance by each of the Originators of its Guaranteed Obligations. This Undertaking is an absolute, unconditional and continuing guaranty of the full and punctual performance of all Guaranteed Obligations under the Sale Agreement, and each other document executed and delivered by any of the Originators pursuant to the Sale Agreement and is in no way conditioned upon any requirement that Recipient first attempt to collect any amounts owing by the Originators to Recipient, any Agent or any Purchaser from any other Person or resort to any collateral security, any balance of any deposit account or credit on the books of Recipient, any Agent or any Purchaser in favor of any of the Originators or any other Person or other means of obtaining payment. Should any of the Originators default in the payment or performance of any of its Guaranteed Obligations, Recipient (or its assigns) may cause the immediate performance by Performance Guarantor of such Guaranteed Obligations and cause any payment of Guaranteed Obligations to become forthwith due and payable to Recipient (or its assigns) by Performance Guarantor, without demand or notice of any nature (other than as expressly provided herein), all of which are hereby expressly waived by Performance Guarantor.

Section 3. Performance Guarantor’s Further Agreements to Pay. Performance Guarantor further agrees, as the principal obligor and not as a guarantor only, to pay to Recipient (and its assigns), forthwith upon demand in funds immediately available to Recipient, all reasonable costs and expenses (including court costs and reasonable legal expenses) incurred or expended by Recipient in connection with the Guaranteed Obligations, this Undertaking and the enforcement thereof, together with interest on amounts recoverable under this Undertaking from the time when such amounts become due until payment, at a rate of interest (computed for the actual number of days elapsed based on a 360-day year) equal to the Prime Rate plus 2% per annum, such rate of interest changing when and as the Prime Rate changes.

Section 4. Waivers by Performance Guarantor. Performance Guarantor waives notice of acceptance of this Undertaking, notice of any action taken or omitted by Recipient (or its assigns) in reliance on this Undertaking, and any requirement that Recipient (or its assigns) be

diligent or prompt in making demands under this Undertaking, giving notice of any Termination Event, Amortization Event, other default or omission by any of the Originators or asserting any other rights of Recipient under this Undertaking. Performance Guarantor warrants that it has adequate means to obtain from the Originators, on a continuing basis, information concerning their financial condition, and that it is not relying on Recipient to provide such information, now or in the future. Performance Guarantor also irrevocably waives all defenses (i) that at any time may be available in respect of the Guaranteed Obligations by virtue of any statute of limitations, valuation, stay, moratorium law or other similar law now or hereafter in effect or (ii) that arise under the law of suretyship, including impairment of collateral. Recipient (and its assigns) shall be at liberty, without giving notice to or obtaining the assent of Performance Guarantor and without relieving Performance Guarantor of any liability under this Undertaking, to deal with each of the Originators and with each other party who now is or after the date hereof becomes liable in any manner for any of the Guaranteed Obligations, in such manner as Recipient in its sole discretion deems fit, and to this end Performance Guarantor agrees that the validity and enforceability of this Undertaking, including without limitation, the provisions of Section 7 hereof, shall not be impaired or affected by any of the following: (a) any extension, modification or renewal of, or indulgence with respect to, or substitutions for, the Guaranteed Obligations or any part thereof or any agreement relating thereto at any time; (b) any failure or omission to enforce any right, power or remedy with respect to the Guaranteed Obligations or any part thereof or any agreement relating thereto, or any collateral securing the Guaranteed Obligations or any part thereof; (c) any waiver of any right, power or remedy or of any Termination Event, Amortization Event, or default with respect to the Guaranteed Obligations or any part thereof or any agreement relating thereto; (d) any release, surrender, compromise, settlement, waiver, subordination or modification, with or without consideration, of any other obligation of any Person or entity with respect to the Guaranteed Obligations or any part thereof; (e) the enforceability or validity of the Guaranteed Obligations or any part thereof or the genuineness, enforceability or validity of any agreement relating thereto or with respect to the Guaranteed Obligations or any part thereof; (f) the application of payments received from any source to the payment of any payment obligations of any Originator or any part thereof or amounts which are not covered by this Undertaking even though Recipient (or its assigns) might lawfully have elected to apply such payments to any part or all of the payment obligations of Originators or to amounts which are not covered by this Undertaking; (g) the existence of any claim, setoff or other rights which Performance Guarantor may have at any time against Originators in connection herewith or any unrelated transaction; (h) any assignment or transfer of the Guaranteed Obligations or any part thereof; or (i) any failure on the part of Originators to perform or comply with any term of the Sale Agreement or any other document executed in connection therewith or delivered thereunder, all whether or not Performance Guarantor shall have had notice or knowledge of any act or omission referred to in the foregoing clauses (a) through (i) of this Section 4.

Section 5. Unenforceability of Guaranteed Obligations Against Originators. Notwithstanding (a) any change of ownership of Originators or the insolvency, bankruptcy or any other change in the legal status of Originators; (b) any change in or the imposition of any law, decree, regulation or other governmental act which does or might impair, delay or in any way affect the validity, enforceability or the payment when due of the Guaranteed Obligations; (c) the failure of any of the Originators or Performance Guarantor to maintain in full force, validity or effect or to obtain or renew when required all governmental and other approvals,

licenses or consents required in connection with the Guaranteed Obligations or this Undertaking, or to take any other action required in connection with the performance of all obligations pursuant to the Guaranteed Obligations or this Undertaking; or (d) if any of the moneys included in the Guaranteed Obligations have become irrecoverable from any of the Originators for any other reason other than final payment in full of the payment Guaranteed Obligations in accordance with their terms, this Undertaking shall nevertheless be binding on Performance Guarantor. This Undertaking shall be in addition to any other guaranty or other security for the Guaranteed Obligations, and it shall not be rendered unenforceable by the invalidity of any such other guaranty or security. In the event that acceleration of the time for payment of any of the Guaranteed Obligations is stayed upon the insolvency, bankruptcy or reorganization of any of the Originators or for any other reason with respect to any of the Originators, all such amounts then due and owing with respect to the Guaranteed Obligations under the terms of the Sale Agreement, or any other agreement evidencing, securing or otherwise executed in connection with the Guaranteed Obligations, shall be immediately due and payable by Performance Guarantor.

Section 6. Representations; Warranties and Covenants.

6.1. Representations and Warranties. Performance Guarantor hereby represents and warrants to Recipient that:

(a) Existence and Power. Performance Guarantor is duly organized, validly existing and in good standing under the laws of its state of organization. Performance Guarantor is duly qualified to do business and is in good standing as a foreign corporation, and has and holds all corporate power and all governmental licenses, authorizations, consents and approvals required to carry on its business in each jurisdiction in which its business is conducted except where the failure to so qualify or so hold could not reasonably be expected to have a Material Adverse Effect.

(b) Power and Authority; Due Authorization, Execution and Delivery. The execution and delivery by Performance Guarantor of this Undertaking, and the performance of its obligations hereunder, are within its corporate powers and authority and have been duly authorized by all necessary corporate action on its part. This Undertaking has been duly executed and delivered by Performance Guarantor.

(c) No Conflict. The execution and delivery by Performance Guarantor of this Undertaking, and the performance of its obligations hereunder do not contravene or violate (i) its certificate of incorporation or by-laws, (ii) any law, rule or regulation applicable to it, (iii) any restrictions under any agreement, contract or instrument to which it is a party or by which it or any of its property is bound, or (iv) any order, writ, judgment, award, injunction or decree binding on or affecting it or its property, and do not result in the creation or imposition of any Adverse Claim on assets of Performance Guarantor or its Subsidiaries (except as created under the Transaction Documents) except, in any case, where such contravention or violation could not reasonably be expected to have a Material Adverse Effect; and no transaction contemplated hereby requires compliance with any bulk sales act or similar law.

(d) Governmental Authorization. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution and delivery by Performance Guarantor of this Undertaking and the performance of its obligations hereunder.

(e) Binding Effect. This Undertaking constitutes the legal, valid and binding obligation of Performance Guarantor, enforceable against Performance Guarantor in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws relating to or limiting creditors’ rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law).

(f) No Actions; Suits. There are no actions, suits or proceedings pending, or to the best of Performance Guarantor’s knowledge, threatened, against or affecting Performance Guarantor, or any of its properties, in or before any court, arbitrator or other body, that could reasonably be expected to have a Material Adverse Effect. Performance Guarantor is not in default with respect to any order of any court, arbitrator or governmental body.

(g) Material Adverse Effect. Since May 31, 2005, no event has occurred that would have a Material Adverse Effect.

6.2. Financial Reporting Covenant. Performance Guarantor hereby covenants and agrees with Recipient that Performance Guarantor will maintain, for itself and each of its Subsidiaries, a system of accounting established and administered in accordance with GAAP, and furnish or cause to be furnished to the Recipient and the Agents:

(a) Annual Reporting. As soon as available and in any event within 90 days after the end of each fiscal year of the Performance Guarantor, consolidated statements of income, shareholders’ equity and cash flows of the Performance Guarantor and its Subsidiaries for such year and the related consolidated balance sheet as at the end of such year, setting forth in each case in comparative form the corresponding figures for the preceding fiscal year, and accompanied by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that said consolidated financial statements fairly present in all material respects the consolidated financial condition and results of operations of the Performance Guarantor and its Subsidiaries as at the end of, and for, such fiscal year;

(b) Quarterly Reporting. As soon as available and in any event within 60 days after the end of each fiscal quarter of the Performance Guarantor other than the last fiscal quarter in each fiscal year, consolidated statements of income, shareholders’ equity and cash flows of the Performance Guarantor and its Subsidiaries for such fiscal quarter and for the portion of the fiscal year ended at the end of such fiscal quarter, and the related consolidated balance sheet as at the end of such fiscal quarter.

(c) Compliance Certificate. Together with the financial statements required hereunder, a compliance certificate in substantially the form of Exhibit IV to the Sale Agreement (replacing references therein to “Originator” with references to “Performance Guarantor”) signed

by Performance Guarantor’s Authorized Officer and dated the date of such annual financial statement or such quarterly financial statement, as the case may be.

(d) Shareholders Statements and Reports. Promptly upon the mailing thereof to the shareholders of the Performance Guarantor generally, copies of all financial statements, reports and proxy statements so mailed.

Section 7. Subrogation; Subordination. Notwithstanding anything to the contrary contained herein, until the Guaranteed Obligations are paid in full, Performance Guarantor: (a) will not enforce or otherwise exercise any right of subrogation to any of the rights of Recipient, any Agent or any Purchaser against any of the Originators, (b) hereby waives all rights of subrogation (whether contractual, under Section 509 of the Federal Bankruptcy Code, at law or in equity or otherwise) to the claims of Recipient, the Agents and the Purchasers against any of the Originators and all contractual, statutory or legal or equitable rights of contribution, reimbursement, indemnification and similar rights and “claims” (as such term is defined in the Federal Bankruptcy Code) which Performance Guarantor might now have or hereafter acquire against any of the Originators that arise from the existence or performance of Performance Guarantor’s obligations hereunder, (c) will not claim any setoff, recoupment or counterclaim against any of the Originators in respect of any liability of Performance Guarantor to any of the Originators and (d) waives any benefit of and any right to participate in any collateral security which may be held by any Agent or any Purchaser. The payment of any amounts due with respect to any indebtedness of any of the Originators now or hereafter owed to Performance Guarantor is hereby subordinated to the prior payment in full of all of the Guaranteed Obligations. Performance Guarantor agrees that, after the occurrence of any default in the payment or performance of any of the Guaranteed Obligations, Performance Guarantor will not demand, sue for or otherwise attempt to collect any such indebtedness of any of the Originators to Performance Guarantor until all of the Guaranteed Obligations shall have been paid and performed in full. If, notwithstanding the foregoing sentence, Performance Guarantor shall collect, enforce or receive any amounts in respect of such indebtedness while any Guaranteed Obligations are still unperformed or outstanding, such amounts shall be collected, enforced and received by Performance Guarantor as trustee for Recipient (and its assigns) and be paid over to Recipient (or its assigns) on account of the Guaranteed Obligations without affecting in any manner the liability of Performance Guarantor under the other provisions of this Undertaking. The provisions of this Section 7 shall be supplemental to and not in derogation of any rights and remedies of Recipient under any separate subordination agreement which Recipient may at any time and from time to time enter into with Performance Guarantor.

Section 8. Termination of Performance Undertaking. Performance Guarantor’s obligations hereunder shall continue in full force and effect until all Aggregate Unpaids (as defined in the Purchase Agreement) are finally paid and satisfied in full and the Purchase Agreement is terminated, provided that this Undertaking shall continue to be effective or shall be reinstated, as the case may be, if at any time payment or other satisfaction of any of the Guaranteed Obligations is rescinded or must otherwise be restored or returned upon the bankruptcy, insolvency, or reorganization of any of the Originators or otherwise, as though such payment had not been made or other satisfaction occurred, whether or not Recipient (or its assigns) is in possession of this Undertaking. No invalidity, irregularity or unenforceability by reason of the federal bankruptcy code or any insolvency or other similar law, or any law or order

of any government or agency thereof purporting to reduce, amend or otherwise affect the Guaranteed Obligations shall impair, affect, be a defense to or claim against the obligations of Performance Guarantor under this Undertaking.

Section 9. Effect of Bankruptcy. This Performance Undertaking shall survive the insolvency of any of the Originators and the commencement of any case or proceeding by or against any of the Originators under the federal bankruptcy code or other federal, state or other applicable bankruptcy, insolvency or reorganization statutes. No automatic stay under the federal bankruptcy code with respect to any of the Originators or other federal, state or other applicable bankruptcy, insolvency or reorganization statutes to which any of the Originators is subject shall postpone the obligations of Performance Guarantor under this Undertaking.

Section 10. Setoff. Regardless of the other means of obtaining payment of any of the Guaranteed Obligations, Recipient is (and from and after the occurrence of an Amortization Event under and as defined in the Purchase Agreement which is not waived in writing by the Agents, the Administrative Agent is) hereby authorized at any time and from time to time, without notice to Performance Guarantor (any such notice being expressly waived by Performance Guarantor) and to the fullest extent permitted by law, to set off and apply any deposits and other sums against the obligations of Performance Guarantor under this Undertaking, whether or not Recipient (or, if applicable, the Administrative Agent) shall have made any demand under this Undertaking and although such obligations may be contingent or unmatured.

Section 11. Taxes. All payments to be made by Performance Guarantor hereunder shall be made free and clear of any deduction or withholding. If Performance Guarantor is required by law to make any deduction or withholding on account of tax or otherwise from any such payment, the sum due from it in respect of such payment shall be increased to the extent necessary to ensure that, after the making of such deduction or withholding, Recipient receive a net sum equal to the sum which they would have received had no deduction or withholding been made.

Section 12. Further Assurances. Performance Guarantor agrees that it will from time to time, at the request of Recipient (or its assigns), provide information relating to the business and affairs of Performance Guarantor as Recipient may reasonably request. Performance Guarantor also agrees to do all such things and execute all such documents as Recipient (or its assigns) may reasonably consider necessary or desirable to give full effect to this Undertaking and to perfect and preserve the rights and powers of Recipient hereunder.

Section 13. Successors and Assigns. This Performance Undertaking shall be binding upon Performance Guarantor, its successors and permitted assigns, and shall inure to the benefit of and be enforceable by Recipient and its successors and assigns. Performance Guarantor may not assign or transfer any of its obligations hereunder. Recipient may not assign or transfer any of its rights hereunder except that Recipient may pledge (and hereby notifies the Performance Guarantor that it has pledged) Recipient’s right, title and interest hereunder to the Administrative Agent, for the benefit of the Purchasers, under the Purchase Agreement.

Section 14. Amendments and Waivers. No amendment or waiver of any provision of this Undertaking nor consent to any departure by Performance Guarantor therefrom shall be effective unless the same shall be in writing and signed by Recipient, the Agents and Performance Guarantor. No failure on the part of Recipient to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right.

Section 15. Notices. All notices and other communications provided for hereunder shall be made in writing and shall be addressed as follows: if to Performance Guarantor, at the address set forth beneath its signature hereto, and if to Recipient, at the addresses set forth beneath its signature hereto, or at such other addresses as each of Performance Guarantor or any Recipient may designate in writing to the other. Each such notice or other communication shall be effective (a) if given by telecopy, upon the receipt thereof, (b) if given by mail, three (3) Business Days after the time such communication is deposited in the mail with first class postage prepaid or (c) if given by any other means, when received at the address specified in this Section 15.

Section 16. GOVERNING LAW. THIS UNDERTAKING SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW WHICH SHALL APPLY HERETO).

Section 17. CONSENT TO JURISDICTION. EACH OF PERFORMANCE GUARANTOR AND RECIPIENT HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN, NEW YORK, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS UNDERTAKING, THE AGREEMENTS OR ANY OTHER DOCUMENT EXECUTED IN CONNECTION THEREWITH OR DELIVERED THEREUNDER AND EACH OF PERFORMANCE GUARANTOR AND RECIPIENT HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM.

Section 18. Bankruptcy Petition. Performance Guarantor hereby covenants and agrees that, prior to the date that is one year and one day after the payment in full of all outstanding senior Indebtedness of Recipient, it will not institute against, or join any other Person in instituting against, Recipient any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceeding under the laws of the United States or any state of the United States.

Section 19. Miscellaneous. This Undertaking constitutes the entire agreement of Performance Guarantor with respect to the matters set forth herein. The rights and remedies

herein provided are cumulative and not exclusive of any remedies provided by law or any other agreement, and this Undertaking shall be in addition to any other guaranty of or collateral security for any of the Guaranteed Obligations. The provisions of this Undertaking are severable, and in any action or proceeding involving any state corporate law, or any state or federal bankruptcy, insolvency, reorganization or other law affecting the rights of creditors generally, if the obligations of Performance Guarantor hereunder would otherwise be held or determined to be avoidable, invalid or unenforceable on account of the amount of Performance Guarantor’s liability under this Undertaking, then, notwithstanding any other provision of this Undertaking to the contrary, the amount of such liability shall, without any further action by Performance Guarantor or Recipient, be automatically limited and reduced to the highest amount that is valid and enforceable as determined in such action or proceeding. Any provisions of this Undertaking which are prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Unless otherwise specified, references herein to “Section” shall mean a reference to sections of this Undertaking.

<signature page follows>

IN WITNESS WHEREOF, Performance Guarantor has caused this Undertaking to be executed and delivered as of the date first above written.


RPM INTERNATIONAL INC.

By:		/s/ P. Kelly Tompkins

Name:		P. Kelly Tompkins

Title:		Senior Vice President, General Counsel and Secretary

Address for Notices:
RPM International Inc.
2628 Pearl Road
P.O. Box 777
Medina, Ohio 44258

Attention: Treasurer
Phone: (330) 273-8837
Fax: (330) 225-6574

Acknowledged and agreed:

RPM FUNDING CORPORATION



By:		/s/ P. Kelly Tompkins

Name:		P. Kelly Tompkins

Title:		Vice President and Secretary

Acknowledged and agreed:

WACHOVIA BANK, NATIONAL ASSOCIATION, as Administrative Agent



By:		/s/ Michael J. Landry

Name:		Michael J. Landry

Title:		Vice President

EX-10.3.2 5 l21773aexv10w3w2.htm EX-10.3.2 EX-10.3.2

Exhibit 10.3.2

AMENDMENT NO. 1 TO AMENDED AND RESTATED RECEIVABLES PURCHASE
AGREEMENT

THIS AMENDMENT NO. 1 TO AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT, dated as of May 31, 2006 (this “Amendment”), is entered into by and among:

(a) RPM Funding Corporation, a Delaware corporation (“Seller”),

(b) RPM International Inc., a Delaware corporation (“RPM-Delaware”), as initial Servicer,

(c) Victory Receivables Corporation, a Delaware corporation (“Victory” or a “Conduit”), and Variable Funding Capital Company LLC, a Delaware limited liability company (“VFCC” or a “Conduit”),

(d) The Bank of Tokyo-Mitsubishi UFJ, Ltd., Chicago Branch (together with Victory, the “Victory Group”), and Wachovia Bank, National Association (together with VFCC, the “VFCC Group”),

(e) The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as agent for the Victory Group (in such capacity, a “Co-Agent”), and Wachovia Bank, National Association, as agent for the VFCC Group (in such capacity, a “Co-Agent”), and

(f) Wachovia Bank, National Association, as administrative agent for the Victory Group, the VFCC Group and each Co-Agent (in such capacity, together with its successors and assigns, the “Administrative Agent” and, together with each of the Co-Agents, the “Agents”),

and pertains to that certain Amended and Restated Receivables Purchase Agreement dated as of May 10, 2006 among the parties hereto (the “Agreement”). Unless defined elsewhere herein, capitalized terms used in this Amendment shall have the meanings assigned to such terms in the Agreement.

PRELIMINARY STATEMENT

Seller wishes to amend the Agreement has hereinafter set forth, and the Agents and the Purchasers are willing to agree to such amendments on the terms and subject to the conditions set forth in this Amendment.

Section 1. Amendment. The definition of “EBITDA” set forth in Exhibit I to the Agreement is hereby amended and restated in its entirety to read as follows:

“EBITDA” means, for any period, determined on a consolidated basis for RPM-Delaware and its Subsidiaries, (i) net income of RPM-Delaware and its Subsidiaries (calculated before provision for income taxes, interest expense, extraordinary items, non-recurring gains or losses in connection with asset dispositions, income attributable to equity in affiliates, all amounts attributable to

depreciation and amortization and non-cash charges associated with asbestos liabilities) for such period, minus (ii) cash payments made by RPM-Delaware or any of its Subsidiaries in respect of asbestos liabilities (which liabilities include, without limitation, defense costs and indemnification liabilities incurred in connection with asbestos liabilities) during such period.

Section 2. Representations and Warranties. In order to induce the Agents and the Purchasers to enter into this Amendment, Seller hereby represents and warrants to the Agents and the Purchasers, as of the date hereof, that (a) the execution and delivery by Seller of this Amendment are within its corporate powers and authority and have been duly authorized by all necessary corporate action on its part, (b) this Amendment has been duly executed and delivered by Seller, (c) no event has occurred and is continuing that will constitute an Amortization Event or a Potential Amortization Event, and (d) each of Seller’s representations and warranties set forth in Section 5.1 of the Agreement (other than Section 5.1(m) thereof) is true and correct on and as of the date hereof as though made on and as of the date hereof.

Section 3. Effectiveness. This Amendment shall become effective as of the date hereof upon receipt by the Administrative Agent of counterparts hereof, duly executed by each of the parties hereof, and of a copy of an amendment to the definition of “EBITDA” in the RPM-Delaware Credit Agreement that is consistent with the definition set forth in Section 1 hereof, duly executed by each of the parties to the RPM-Delaware Credit Agreement.

Section 4. Bankruptcy Petition. With respect to each Conduit, each of the other parties hereto hereby covenants and agrees that, prior to the date that is one year and one day after the payment in full of all outstanding senior indebtedness of such Conduit, it will not institute against, or join any other Person in instituting against, such Conduit any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceeding under the laws of the United States or any state of the United States.

Section 5. CHOICE OF LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW WHICH SHALL APPLY HERETO).

Section 6. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AMENDMENT OR THE OTHER TRANSACTION DOCUMENTS OR THE RELATIONSHIP ESTABLISHED HEREUNDER OR THEREUNDER.

Section 7. Binding Effect. This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns (including any trustee in bankruptcy).

Section 8. Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. Delivery of an executed counterpart hereof via facsimile or electronic mail of an executed .pdf copy thereof shall, to the fullest extent permitted by applicable law, have the same force and effect and delivery of an originally executed counterpart hereof.

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their duly authorized officers as of the date hereof.

RPM FUNDING CORPORATION, as Seller


By:		/s/ Keith R. Smiley
Name: Keith R. Smiley
Title: Vice President & Treasurer

RPM INTERNATIONAL INC., as Servicer


By:		/s/ P. Kelly Tompkins
Name: P. Kelly Tompkins
Title: Senior Vice President, General Counsel and Secretary

VICTORY RECEIVABLES CORPORATION



By:		/s/ R. Douglas Donaldson

Name:		R. Douglas Donaldson
Title:		Treasurer

THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., NEW YORK BRANCH, as Victory Agent



By:		/s/ Van Dusenbury

Name:		Van Dusenbury
Title:		Senior Vice President

THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., CHICAGO BRANCH



By:		/s/ Tsuguyuki Umene

Name:		Tsuguyuki Umene
Title:		Deputy General Manager

VARIABLE FUNDING CAPITAL COMPANY LLC

By: Wachovia Capital Markets, LLC, attorney-in fact



By:		/s/ Douglas R. Wilson, Sr.

Name:		Douglas R. Wilson, Sr.
Title:		Vice President

WACHOVIA BANK, NATIONAL ASSOCIATION, individually, as VFCC Agent and as Administrative Agent



By:		/s/ Michael J. Landry

Name:		Michael J. Landry
Title:		Vice President

EX-13.1 6 l21773aexv13w1.htm EX-13.1 EX-13.1

Exhibit 13.1

management’s discussion and analysis

MANAGEMENT’S DISCUSSION and ANALYSIS
of RESULTS of OPERATIONS and FINANCIAL CONDITION

SEGMENT INFORMATION

We operate a portfolio of businesses that manufacture and sell a variety of specialty paints, protective coatings and roofing systems, sealants and adhesives. We manage our portfolio by organizing our businesses into two reportable operating segments — industrial and consumer — based on the nature of business activities, products and services, the structure of management and the structure of information as presented to the Board of Directors. Within each segment, individual operating companies or groups of companies generally address common markets, utilize similar technologies, and can share manufacturing or distribution capabilities. We evaluate the profit performance of our segments based on income before income taxes, but also look to earnings before interest and taxes (“EBIT”) as a performance evaluation measure because interest expense is essentially related to corporate acquisitions, as opposed to segment operations.

Industrial segment products are sold throughout North America and account for most of our sales in Europe, South America, Asia, Africa, Australia and the Middle East. The industrial product line is sold primarily to distributors, contractors and to end users, such as industrial manufacturing facilities, educational and governmental institutions, and commercial establishments. Industrial segment products reach their markets through a combination of direct sales, sales representative organizations, distributor sales and sales of licensees and joint ventures.

Consumer segment products are sold throughout North America to mass merchandisers, home centers, hardware stores, paint stores, automotive supply stores and craft shops. Consumer segment products are sold to retailers through a combination of direct sales, sales representative organizations and distributor sales.

In addition to two reportable operating segments, there are certain business activities, referred to as corporate/other, that do not constitute an operating segment, including corporate headquarters and related administrative expenses, results of our captive insurance companies, gains or losses on the sales of certain assets and other expenses not directly associated with either operating segment. Related assets consist primarily of investments, prepaid expenses, deferred pension assets, and headquarters’ property and equipment. These corporate and other assets and expenses reconcile operating segment data to total consolidated net sales, income before income taxes, identifiable assets, capital expenditures, and depreciation and amortization.

The following table reflects the results of our reportable operating segments consistent with our management philosophy, and represents the information we utilize, in conjunction with various strategic, operational and other financial performance criteria, in evaluating the performance of our portfolio of businesses. For further information pertaining to our segments, refer to Note I, “Segment Information,” to our Consolidated Financial Statements.

RPM International Inc. and Subsidiaries

management’s discussion and analysis

SEGMENT INFORMATION

(In thousands)


Year Ended May 31	2006			2005			2004

Net Sales
Industrial Segment	$	1,811,590		$	1,441,548		$	1,272,781
Consumer Segment		1,196,748			1,114,187			1,034,772

Consolidated	$	3,008,338		$	2,555,735		$	2,307,553

Income (Loss) Before Income Taxes^(a)
Industrial Segment
Income Before Income Taxes^(a)	$	201,230		$	168,578		$	140,706
Interest (Expense), Net		(1,711	)		532			192

EBIT^(b)	$	202,941		$	168,046		$	140,514

Consumer Segment
Income Before Income Taxes^(a)	$	159,147		$	147,601		$	142,852
Interest (Expense), Net		(142	)		415			104

EBIT^(b)	$	159,289		$	147,186		$	142,748

Corporate/Other
(Loss) Before Income Taxes^(a)	$	(482,852	)^(c)	$	(152,451	)^(c)	$	(65,942	)
Interest (Expense), Net		(39,490	)		(36,325	)		(29,241	)

EBIT^(b)	$	(443,362	)	$	(116,126	)	$	(36,701	)

Consolidated
Income (Loss) Before Income Taxes^(a)	$	(122,475	)	$	163,728		$	217,616
Interest (Expense), Net		(41,343	)		(35,378	)		(28,945	)

EBIT^(b)	$	(81,132	)	$	199,106		$	246,561


(a)		The presentation includes a reconciliation of Income (Loss) Before Income Taxes, a measure defined by Generally Accepted Accounting Principles (GAAP) in the United States, to EBIT.

(b)		EBIT is defined as earnings (loss) before interest and taxes. We evaluate the profit performance of our segments based on income before income taxes, but also look to EBIT as a performance evaluation measure because interest expense is essentially related to corporate acquisitions, as opposed to segment operations. We believe EBIT is useful to investors for this purpose as well, using EBIT as a metric in their investment decisions. EBIT should not be considered an alternative to, or more meaningful than, operating income as determined in accordance with GAAP, since EBIT omits the impact of interest and taxes in determining operating performance, which represent items necessary to our continued operations, given our level of indebtedness and ongoing tax obligations. Nonetheless, EBIT is a key measure expected by and useful to our fixed income investors, rating agencies and the banking community all of whom believe, and we concur, that this measure is critical to the capital markets’ analysis of our segments’ core operating performance. We also evaluate EBIT because it is clear that movements in EBIT impact our ability to attract financing. Our underwriters and bankers consistently require inclusion of this measure in offering memoranda in conjunction with any debt underwriting or bank financing. EBIT may not be indicative of our historical operating results, nor is it meant to be predictive of potential future results.

(c)		The asbestos charges, totaling $380.0 million in fiscal 2006 and $78.0 million in fiscal 2005, reflected in Corporate/Other, relate to our Bondex International, Inc. subsidiary (See Note H to the Consolidated Financial Statements).

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our Consolidated Financial Statements include the accounts of RPM International Inc. and its majority-owned subsidiaries. Preparation of our financial statements requires the use of estimates and assumptions that affect the reported amounts of our assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We continually evaluate these estimates, including those related to allowances for doubtful accounts; inventories; allowances for recoverable taxes; useful lives of property, plant and equipment; goodwill; environmental and other contingent liabilities; income tax valuation allowances; pension plans; and the fair value of financial instruments. We base our estimates on historical experience and other assumptions, which we believe to be reasonable under the circumstances. These estimates form the basis for making judgments about the carrying value of our assets and liabilities. Actual results may differ from these estimates under different assumptions and conditions.

We have identified below the accounting policies that are critical to our financial statements.

Revenue Recognition

Revenues are recognized when realized or realizable, and when earned. In general, this is when title and risk of loss pass to the customer. Further, revenues are generally realizable when we have persuasive evidence of a sales arrangement, the product has been shipped or the services have been provided to the customer, the sales price is fixed or determinable, and collectibility is reasonably assured. We reduce our revenues for estimated customer returns and allowances, certain rebates, sales incentives and promotions in the same period the related sales are recorded.

RPM International Inc. and Subsidiaries

management’s discussion and analysis

In general, we account for long-term construction-type contracts under the percentage-of-completion method, and therefore record contract revenues and related costs as our contracts progress. This method recognizes the economic results of contract performance on a timelier basis than does the completed-contract method; however, application of this method requires reasonably dependable estimates of progress toward completion, as well as other dependable estimates. When reasonably dependable estimates cannot be made, or if other factors make estimates doubtful, the completed-contract method is applied. Under the completed-contract method, billings and costs are accumulated on the balance sheet as the contract progresses, but no revenue is recognized until the contract is complete or substantially complete.

Translation of Foreign Currency Financial Statements and Foreign Currency Transactions

Our reporting currency is the U.S. dollar. However, the functional currency of all of our foreign subsidiaries is their local currency. We translate the amounts included in our consolidated statements of income from our foreign subsidiaries into U.S. dollars at weighted average exchange rates, which we believe are fairly representative of the actual exchange rates on the dates of the transactions. Our foreign subsidiaries’ assets and liabilities are translated into U.S. dollars from local currency at the actual exchange rates as of the end of each reporting date, and we record the resulting foreign exchange translation adjustments in our consolidated balance sheets as a component of accumulated other comprehensive income (loss). Translation adjustments will be included in net earnings in the event of a sale or liquidation of any of our underlying foreign investments, or in the event that we distribute the accumulated earnings of consolidated foreign subsidiaries. If we determined that the functional currency of any of our foreign subsidiaries should be the U.S. dollar, our financial statements would be affected. Should this occur, we would adjust our reporting to appropriately account for such change(s).

As appropriate, we use permanently invested intercompany loans as a source of capital to reduce exposure to foreign currency fluctuations at our foreign subsidiaries. These loans are treated as analogous to equity for accounting purposes. Therefore, foreign exchange gains or losses on these intercompany loans are recorded in accumulated other comprehensive income (loss). If we were to determine that the functional currency of any of our subsidiaries should be the U.S. dollar, we would no longer record foreign exchange gains or losses on such intercompany loans.

Goodwill

We apply the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations,” which addresses the initial recognition and measurement of goodwill and intangible assets acquired in a business combination. We also apply the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets,” which requires that goodwill be tested on an annual basis, or more frequently as impairment indicators arise. We have elected to perform the required impairment tests, which involve the use of estimates related to the fair market values of the business operations with which goodwill is associated, during our fourth fiscal quarter. Calculating the fair market value of the reporting units requires significant estimates and assumptions by management. We estimate the fair value of our reporting units by applying third-party market value indicators to the respective reporting unit’s annual projected earnings before interest, taxes, depreciation and amortization. In applying this methodology, we rely on a number of factors, including future business plans, actual operating results and market data. In the event that our calculations indicate that goodwill is impaired, a fair value estimate of each tangible and intangible asset and liability would be established. This process would require the application of discounted cash flows expected to be generated by each asset in addition to independent asset appraisals, as appropriate. Cash flow estimates are based on our historical experience and our internal business plans, and appropriate discount rates are applied. Losses, if any, resulting from goodwill impairment tests would be reflected in operating income in our income statement.

Other Long-Lived Assets

We assess identifiable non-goodwill intangibles and other long-lived assets for impairment whenever events or changes in facts and circumstances indicate the possibility that the carrying value may not be recoverable. Factors considered important, which might trigger an impairment evaluation, include the following:

	•		significant under-performance relative to historical or projected future operating results;

	•		significant changes in the manner of our use of the acquired assets;

	•		significant changes in the strategy for our overall business; and

	•		significant negative industry or economic trends.

Additionally, we test all indefinitely-lived intangible assets for impairment annually. Measuring a potential impairment of non-goodwill intangibles and other long-lived assets requires various estimates and assumptions, including determining which cash flows are directly related to the asset being evaluated, the useful life over which those cash flows will occur, their amount and the asset’s residual value, if any. If we determine that the carrying value of these assets may not be recoverable based upon the existence of one or more of the above-described indicators, any impairment would be measured based on projected net cash flows expected from the asset(s), including eventual disposition. The determination of impairment loss would be based on the best information available, including internal discounted cash flows, quoted market prices when available and independent appraisals as appropriate to determine fair value. Cash flow estimates would be based on our historical

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management’s discussion and analysis

experience and our internal business plans, with appropriate discount rates applied. We have not incurred any such impairment loss to date.

Deferred Income Taxes

The provision for income taxes is calculated using the liability method. Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and certain changes in valuation allowances. We provide valuation allowances against deferred tax assets if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

In determining the adequacy of the valuation allowance, management considers cumulative and anticipated amounts of domestic and international earnings or losses, anticipated amounts of foreign source income, as well as the anticipated taxable income resulting from the reversal of future taxable temporary differences.

We intend to maintain the recorded valuation allowances until sufficient positive evidence (for example, cumulative positive foreign earnings or additional foreign source income) exists to support a reversal of the tax valuation allowances.

Contingencies

We are party to claims and lawsuits arising in the normal course of business, including the various asbestos-related suits discussed herein and in Note H to the Consolidated Financial Statements. Although we cannot precisely predict the amount of any liability that may ultimately arise with respect to any of these matters, we record provisions when we consider the liability probable and reasonably estimable. The provisions are based on historical experience and legal advice, are reviewed quarterly and are adjusted according to developments. Estimating probable losses requires analysis of multiple forecasted factors that often depend on judgments about potential actions by third parties such as regulators, courts, and state and federal legislatures. Changes in the amount of the provisions affect our consolidated statements of income. Due to the inherent uncertainties in the loss reserve estimation process, we are unable to estimate an additional range of loss in excess of our accruals. We may incur asbestos costs in addition to any amounts reserved, which may have a material adverse effect on our financial condition, results of operations or cash flows.

Our environmental-related accruals are similarly established and/or adjusted as information becomes available upon which costs can be reasonably estimated. Here again, actual costs may vary from these estimates because of the inherent uncertainties involved, including the identification of new sites and the development of new information about contamination. Certain sites are still being investigated and, therefore, we have been unable to fully evaluate the ultimate cost for those sites. As a result, reserves have not been taken for certain of these sites and costs may ultimately exceed existing reserves for other sites. We have received indemnities for potential environmental issues from purchasers of certain of our properties and businesses and from sellers of some of the properties or businesses we have acquired. We have also purchased insurance to cover potential environmental liabilities at certain sites. If the indemnifying or insuring party fails to, or becomes unable to, fulfill its obligations under those agreements or policies, we may incur environmental costs in addition to any amounts reserved, which may have a material adverse effect on our financial condition, results of operations or cash flows.

RESULTS OF OPERATIONS

Fiscal 2006 Compared with Fiscal 2005

Net Sales Consolidated net sales for the year ended May 31, 2006 of $3.008 billion improved 17.7%, or $452.6 million, over last year’s net sales of $2.556 billion. Contributing to this improvement over last year was primarily growth in organic sales of approximately $272.1 million, or 10.7%, including 3.3% pricing, plus nine acquisitions during the past two years, net of one small divestiture, resulting in another 6.9% growth in sales, or $176.9 million. Net favorable foreign exchange rates, relating primarily to the Canadian and Latin American currencies, partly offset by mainly the euro, provided the remaining 0.1%, or $3.6 million, of the growth in sales over last year.

Industrial segment net sales for fiscal 2006 grew 25.7% to $1.812 billion from last year’s $1.442 billion, comprising 60.2% of the current year’s consolidated net sales. This segment’s net sales growth comes primarily from organic sales growth of 13.1%, including 3.2% pricing, plus 12.4% from illbruck (refer to Note A [4]) and six smaller acquisitions, with the remaining 0.1% from net favorable foreign exchange differences. Within the segment, the most notable growth in organic sales occurred among molded composite structures, corrosion control coatings, construction sealants and admixtures, roofing, powder coatings and exterior insulating finishes. Much of this demand improvement relates to increased industrial sector maintenance and improvement activity across North America, but also in Europe, Latin America, Africa and the Middle East, as well as increased commercial and industrial construction. We continue to secure new business and grow market share among our industrial segment operations.

Consumer segment net sales for the year grew 7.4% to $1.197 billion from last year’s $1.114 billion, comprising 39.8% of the current year’s consolidated net sales. Growth in organic sales added 7.5% (3.4% from pricing) to the consumer segment sales total, plus 0.1% from favorable foreign exchange differences, offset by 0.2% from a small

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management’s discussion and analysis

divestiture, net of two small acquisitions. Beginning in February 2005, our retail merchandising services arrangements were changed with certain customers, resulting in a year-over-year reduction in net sales and gross profit, with a related reduction in selling expenses; otherwise, organic sales growth this year would have been 8.4%, or 0.9% stronger. There were notable organic sales increases in this segment among caulks and sealants; primer-sealers; confectionary, sliced fruit and pharmaceutical glazes; and small-project paints and coatings. Retail demand by the consumer remained fairly steady throughout the year, augmented by continuous product development among our businesses.

Gross Profit Margin Consolidated gross profit margin of 41.6% of net sales this year declined from 43.3% a year ago. This margin decline of 1.7%, or 170 basis points (“bps”), results from several factors, including the higher costs of a number of our raw and packaging materials, particularly petrochemical-based, net of higher pricing initiatives (50 bps), coupled with the inherently lower gross margin structures of several of our recent acquisitions, particularly illbruck (60 bps). Numerous price increases have been initiated throughout the operating segments to help compensate or recover these higher material costs, many of which have recently begun to moderate. The additional gross margin decline resulted from a comparatively lower-margin mix of sales, including increased services sales which characteristically carry lower gross margins, plus the change in merchandising services arrangements (20 bps).

Industrial segment gross profit margin for this year declined to 43.0% of net sales from 44.8% last year. This 180 bps margin decline mainly relates to the recent acquisitions, particularly illbruck (110 bps) and a primarily service-driven lower-margin mix of sales. The productivity gains from this segment’s 9.9% organic unit sales growth, combined with pricing initiatives, more than offset raw material cost increases this year.

Consumer segment gross profit margin for this fiscal year declined to 39.5% of net sales from 41.3% last year. The higher raw material costs, net of pricing initiatives, impacted this segment’s margin by approximately 100 bps, while the change in merchandising services arrangements had a negative impact of 50 bps. A partly service-driven lower-margin mix of sales accounted for the difference.

Selling, General and Administrative Expenses
(“SG&A”) Consolidated SG&A expense levels improved by 80 bps, declining to 31.7% of net sales compared with 32.5% a year ago. The 7.4% organic unit sales growth, higher pricing initiatives during the past year (90 bps), the favorable SG&A cost structure of illbruck and other acquisitions (30 bps), and the change in merchandising services arrangements (10 bps) primarily drove this expense-level improvement. This combination of favorable factors more than offset higher employment-related costs, including health care and other benefits, compensation and incentives, as well as higher fuel-related distribution costs; warranty claims; legal, audit and environmental, and other growth-related expenditures and investments, in addition to the $10.2 million of one-time costs incurred during this year’s second quarter, comprised primarily of additional costs associated with the finalization of the Dryvit national residential class action settlement ($5.0 million) and the loss on sale of a small non-core subsidiary ($2.7 million), along with uninsured hurricane-related losses and costs associated with a European pension plan.

Industrial segment SG&A improved by 140 bps to 31.8% of net sales this year from 33.2% a year ago, reflecting principally the leverage benefit from 9.9% organic unit sales growth, higher pricing (80 bps), the favorable SG&A cost structure of illbruck and other acquisitions (50 bps), and cost containment and savings programs collectively more than offsetting higher employment-related costs, fuel-related distribution costs, legal costs, and other growth-related expenditures and investments.

Consumer segment SG&A improved by 190 bps to 26.2% of net sales this year compared with 28.1% a year ago, reflecting principally higher pricing effect (90 bps), the leverage benefit from 5.0% organic unit sales growth, this segment’s change in merchandising servicing arrangements (40 bps), and cost containment and savings programs more than offsetting higher employment-related costs, warranty claims, certain environmental costs and other growth-related expenditures and investments.

Corporate/Other SG&A expenses increased during the year to $63.4 million from $38.1 million during last year, reflecting primarily the $10.2 million of one-time costs incurred during this year’s second quarter, outlined previously, plus $13.5 million toward increased employment-related costs, including $7.9 million in higher health care costs for covered U.S. and Canadian employees and $1.8 million for additional grants made under the October 2004 Omnibus Equity and Incentive Plan (“Omnibus Plan”).

License fee and joint venture income of approximately $2.2 million and $0.6 million for the years ended May 31, 2006 and 2005, respectively, are reflected as reductions of consolidated SG&A expenses.

We recorded total net periodic pension and postretirement benefit cost of $19.7 million and $16.0 million for the years ended May 31, 2006 and 2005, respectively. This combined expense increase of $3.7 million was essentially attributable to increased pension service and interest cost approximating $3.6 million, in combination with additional net actuarial losses incurred of $1.0 million, partly offset by improvement against the expected return on plan assets of $0.9 million. A change of 0.25% in the discount rate or expected rate of return on plan assets assumptions would result in $1.2 million and $0.5 million higher pension expense,

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management’s discussion and analysis

respectively. The assumptions and estimates used to determine the discount rate and expected return on plan assets are more fully described in Note F, “Pension Plans,” and Note G, “Postretirement Health Care Benefits,” to our Consolidated Finanical Statements. We expect that pension expense will continue to fluctuate on a year-to-year basis depending upon the investment performance of plan assets, but such changes are not expected to be material as a percentage of income before income taxes.

Asbestos Charges As described in Note H to the Consolidated Financial Statements, we recorded asbestos charges of $380.0 million and $78.0 million during the years ended May 31, 2006 and 2005, respectively. Please refer to our Consolidated Financial Statements for further information.

Net Interest Expense Net interest expense was $6.0 million higher this year than a year ago. Interest rates averaged 5.19% during this year, compared with 4.85% a year ago, accounting for nearly $3.1 million in increased interest expense. This average rate increase is largely related to the Federal Reserve Bank rate increases during the past year, which directly affects the interest rates on our variable-rate indebtedness. Additional borrowings associated with recent acquisitions added approximately $6.6 million more interest expense this year, while reductions of outstanding debt during the past year reduced interest cost by approximately $2.2 million and improved investment income performance provided approximately $1.5 million of additional income.

Income (Loss) Before Income Taxes (“IBT”)
Consolidated loss before taxes this year of $122.5 million represents a decline of $286.2 million, or 174.8%, from IBT of $163.7 million last year, with margin comparisons of (4.1)% of net sales versus 6.4% a year ago. Excluding both years’ asbestos charges, consolidated IBT this year would have amounted to $257.5 million, an improvement of $15.8 million, or 6.5%, from adjusted IBT of $241.7 million last year, with margin comparisons of 8.6% of net sales versus 9.5% a year ago. This decline in margin year-over-year reflects primarily the one-time costs incurred during this year’s second quarter, as previously discussed; the negative margin impact from higher material costs this year; and relatively low first-year IBT results, as expected, from the illbruck acquisition.

Industrial segment IBT grew by $32.6 million, or 19.4%, to $201.2 million from last year’s $168.6 million, mainly from the strength of this segment’s organic sales growth. Consumer segment IBT improved by $11.5 million, or 7.8%, to $159.1 million from $147.6 million last year, also reflecting mainly organic sales growth along with cost controls, partly offset by the negative margin impact from higher material costs in this segment. Combined operating IBT improved by $44.2 million, or 14.0%, over last year.

For a reconciliation of IBT to earnings before interest and taxes, see the Segment Information table located on page 15 of this Annual Report.

Income Tax Rate The effective income tax benefit rate was 37.8% for 2006 compared to an effective income tax expense rate of 35.8% for 2005.

In 2006, and to a lesser extent in 2005, the effective tax rate differed from the federal statutory rate principally as a result of an increase in valuation allowances associated with losses incurred by certain of our foreign businesses, valuation allowances related to U.S. federal foreign tax credit carryforwards, and other non-deductible business operating expenses. The increases in the effective tax rate were partially offset by the U.S. federal tax impact of foreign operations and reductions in state and local taxes, including an income tax benefit relating to changes in state tax laws and the effects of lower tax rates enacted during fiscal 2006.

As of May 31, 2006, we have determined, based on the available evidence, that it is uncertain whether we will be able to recognize certain deferred tax assets. Therefore, in accordance with the provisions of Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes,” we intend to maintain the tax valuation allowances recorded at May 31, 2006 for certain deferred tax assets until sufficient positive evidence (for example, cumulative positive foreign earnings or additional foreign source income) exists to support the reversal of the tax valuation allowances.

The valuation allowances relate to U.S. federal foreign tax credit carryforwards, certain foreign net operating losses and net foreign deferred tax assets. The most significant portion of the valuation allowance is associated with deferred tax assets recorded in purchase accounting. Any reversal of the valuation allowance that was recorded in purchase accounting would reduce goodwill.

The effective income tax benefit rate for 2006 reflects the impact of the $380.0 million asbestos liability charges. Excluding these asbestos charges, the effective income tax rate for this year would have been adjusted to a pro forma effective income tax expense rate of 34.7%. The effective income tax rate for 2005 reflects the impact of the $78.0 million asbestos liability charges that year. Excluding those asbestos charges, the effective income tax rate for 2005 would have been adjusted to a pro forma effective income tax rate of 36.1%.

Net Income (Loss) Net loss of $76.2 million for the year ended May 31, 2006 compares to net income of $105.0 million last year. This $181.2 million decline reflects the impact of the $244.3 million after-tax asbestos charges taken this year, versus $49.5 million last year, for a net difference of $194.8 million. Excluding the impact of these asbestos charges, this year’s net income would have been an adjusted $168.1 million, representing an increase of $13.6 million, or 8.8%, from last year’s $154.5 million.

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management’s discussion and analysis

Margin on sales would have been an adjusted 5.6% this year compared with 6.0% of sales during last year, with this 40 bps margin difference mainly the result of the higher year-over-year material costs and lower first-year earnings results, as expected, from the illbruck acquisition.

Diluted earnings (loss) per common share this year of ($0.65) compare with $0.86 last year. Excluding the asbestos charges, adjusted 2006 diluted earnings per common share would have increased by 8.0%, to $1.35 from an adjusted $1.25 a year ago.

Fiscal 2005 Compared with Fiscal 2004

Net Sales Net sales for the year ended May 31, 2005 of $2.556 billion increased 10.8%, or $248.2 million, over 2004’s net sales of $2.308 billion. Contributing to this improvement was the continued growth in organic sales of $187.6 million, or 8.1% (1.9% pricing), plus eight small acquisitions completed during fiscal 2005 and 2004, net of one small divestiture, resulting in another 1.3% growth in sales, or $28.4 million. Favorable foreign exchange rates, relating primarily to the euro ($16.3 million) and the Canadian dollar ($12.0 million), provided the remaining 1.4%, or $32.2 million, of the growth in sales over 2004.

Industrial segment net sales grew 13.3% to $1.442 billion from fiscal 2004’s $1.273 billion, comprising 56.0% of the 2005 consolidated net sales. This segment’s net sales growth came primarily from organic sales growth of 9.4% (1.3% pricing), another 1.9% from favorable foreign exchange differences, and six small acquisitions, net of the one small divestiture, added the remaining 2.0% of growth to industrial sales. There were notable organic sales improvements among powder coatings; corrosion control coatings; roofing, including services; and in construction sealants, admixtures and exterior insulating finishes, with much of this latter growth related to increased U.S. commercial construction activity. The demand for most of our industrial product lines increased in 2005 as the economy in general, and the industrial sector in particular, improved.

Consumer segment net sales grew 7.7% to $1.114 billion from 2004’s $1.035 billion, comprising 44.0% of consolidated net sales. Organic sales growth added 6.6% (2.6% pricing) to the consumer segment sales total, in addition to 0.8% from favorable foreign exchange differences. Two small bolt-on product line acquisitions provided the remaining 0.3% of sales growth. There were notable organic sales improvements among wood care products, primer-sealers, caulks and sealants, and small-project paints and coatings. This strong organic growth was the result of fairly steady retail demand by the consumer throughout fiscal 2005, coupled with continuous product development among our businesses.

Gross Profit Margin Consolidated gross profit margin of 43.3% of net sales for 2005 declined from 44.7% in 2004. Continued higher costs of raw materials, particularly petroleum-based, impacted this margin by approximately 260 bps, and, combined with a lower-margin mix of sales among product lines and services, more than offset margin benefits generated primarily from the leverage of higher organic sales volume and price increases (170 bps) implemented by our businesses.

Industrial segment gross profit margin declined to 44.8% of net sales from 45.7% in fiscal 2004. The principal factors contributing to the decline in gross margins in this segment were continued higher raw material costs, which impacted margins by approximately 170 bps, partly offset by price increases of approximately 120 bps, and a lower-margin mix of sales.

Consumer segment gross profit margin for 2005 declined to 41.3% of net sales from 43.4% in 2004. There were approximately 370 bps of negative margin impact from higher raw material and packaging costs in this segment, plus certain changes in the mix of sales, which exceeded the 240 bps benefit from price increases implemented during 2005, plus margin leverage from the higher organic sales volume.

Selling, General and Administrative Expenses (“SG&A”) Consolidated SG&A expense levels in 2005 improved 150 bps to 32.5% of net sales compared with 34.0% in 2004. The leverage of organic sales growth over 2004 was the primary contributing factor to the improvement in this category. The higher cost of fuel, which contributed to higher distribution costs (30 bps), the adoption of SFAS No. 123 (refer to Notes A and D), in combination with the expensing of initial grants under the 2004 Omnibus Equity and Incentive Plan (20 bps), increased compensation, and other growth-related investments partially offset these gains.

Industrial segment SG&A improved by 150 bps to 33.2% of net sales in 2005 from 34.7% in 2004. The main contributors to SG&A improvement were the leverage of organic sales growth along with cost containment and other savings programs. These improvements were partially offset by higher distribution costs (30 bps), increased compensation (50 bps) and other growth-related investments.

Consumer segment SG&A improved by 160 bps to 28.1% of net sales in 2005 compared with 29.7% in 2004. This segment’s organic growth in sales also provided leverage benefits along with continued cost containment and other savings programs. Partly offsetting these benefits were increased compensation and other growth-related investments made in this segment, in addition to increased fuel-related distribution costs (30 bps).

Corporate/Other costs increased to $38.1 million in 2005 from $36.7 million in 2004. Generally lower insurance costs (approximately $3.1 million) and certain other expense reductions partly offset higher costs related to the combination of the adoption of SFAS No. 123 and the

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management’s discussion and analysis

expensing of initial grants under the Omnibus Plan, approximating $3.8 million, as well as higher corporate governance costs, principally start-up costs related to Sarbanes-Oxley Section 404 compliance, approximating $2.0 million.

License fee and joint venture income of $0.6 million for 2005 and $0.7 million for 2004 are reflected as reductions of consolidated SG&A expenses.

We recorded total net periodic pension expense of $14.5 million and $15.9 million for the years ended May 31, 2005 and 2004, respectively. Additionally, we recorded net periodic postretirement expense of $1.5 million and $1.2 million for the years ended May 31, 2005 and 2004, respectively. The decreased pension expense of $1.4 million was largely attributable to a net improvement in the expected return on plan assets, approximating $3.3 million, combined with decreased net actuarial losses recognized, which positively impacted year-over-year expense by approximately $0.9 million. Offsetting those benefits were increased pension service and interest cost totaling approximately $2.8 million. A change of 0.25% in the discount rate or expected return on plan assets assumptions would result in $0.9 million and $0.4 million higher pension expense, respectively. The assumptions and estimates used to determine the discount rate and expected return on plan assets are more fully described in Note F, “Pension Plans,” and Note G, “Postretirement Health Care Benefits,” to our Consolidated Financial Statements. We expect that pension expense will fluctuate on a year-to-year basis depending upon the performance of plan assets, but such changes are not expected to be material as a percent of income before income taxes.

Asbestos Charges As described above and in Note H to the Consolidated Financial Statements, certain of our wholly owned subsidiaries, principally Bondex, along with many other U.S. companies, are and have been involved in a large number of asbestos-related suits filed primarily in state courts during the past two decades with a vast majority of current claims pending in five states — Illinois, Ohio, Mississippi, Texas and Florida. During the fiscal year ended May 31, 2003, we recorded an asbestos charge of $140.0 million for measurable and known claims, which included a $51.2 million provision for future claims estimable as of May 31, 2003. We believed that this reserve would be sufficient to cover asbestos-related cash flow requirements over the estimated three-year life of the reserve. The $140.0 million charge also included $15.0 million in total projected defense costs over the estimated three-year life of the reserve.

Additionally, Bondex’s share of costs (net of then-available third-party insurance) for asbestos-related product liability was $6.7 million for the year ended May 31, 2003. In fiscal 2004, Bondex’s asbestos-related cash payments, net of insurance contributions, amounted to $54.0 million and were charged against the balance sheet reserve established in 2003. Based on our review of our asbestos reserve for the second quarter ended November 30, 2004, we concluded that the $56.0 million balance of the $140.0 million reserve would not likely be sufficient to cover our asbestos-related cash flow requirements for the remainder of the full three-year period originally contemplated by the reserve. Accordingly, we concluded that an increase in our existing reserve was appropriate and took an asbestos reserve adjustment of $47.0 million for the quarter ended November 30, 2004, which we believed would be sufficient to cover any incremental cash flow requirements through fiscal 2006 not covered by the $140.0 million reserve, as well as the additional cash flow requirements for the balance of our then-pending known claims and anticipated higher defense costs. Approximately $32.0 million of the $47.0 million reserve adjustment was allocated to anticipated higher future defense costs.

During the third fiscal quarter ended February 28, 2005, based on a review of our then-pending known claims, coupled with a review of our defense costs, we concluded that an increase in our existing reserve was again appropriate. An asbestos reserve adjustment of $15.0 million was taken for the quarter ended February 28, 2005. With cash outlays of $21.9 million in the third quarter, our asbestos reserves aggregated $96.3 million at February 28, 2005, which we believed would be sufficient to cover the cash flow requirements for the balance of our then-pending known claims and defense costs. Our $15.0 million reserve increase assumed that approximately $6.1 million will be allocated to higher future defense costs, which we expected to continue. During the fourth quarter ended May 31, 2005, an additional $16.0 million was added to the asbestos reserve based on management’s quarterly review of pending claims and defense costs. With cash outlays of $11.1 million during the fourth quarter, our asbestos reserves totaled $101.2 million at May 31, 2005, which we believed would be sufficient to cover the cash flow requirements for the balance of our pending known claims, including defense costs. Of the $16.0 million reserve increase, approximately $15.8 million was expected to be allocated to anticipated higher future defense costs, which we expected to continue.

Net Interest Expense Net interest expense was $6.4 million higher in 2005 than 2004. Interest rates overall averaged 4.9% during 2005, compared with 4.2% in 2004, accounting for $6.8 million of the interest cost increase. Additional debt outstanding during 2005 cost approximately $1.6 million more as compared to the same cost during 2004. These increases are primarily due to our debt refinancings (refer to “Liquidity and Capital Resources” section), including the $200 million 6.25% Senior Notes issued in December 2003 and the $200 million 4.45% Senior Unsecured Notes issued in September 2004. Higher average net borrowings in 2005 of approximately $24.0 million, associated with recent acquisitions, added $0.8 million of interest cost, while investment income performance improved year-over-year, providing $2.8 million of additional income.

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management’s discussion and analysis

Income Before Income Taxes (“IBT”) Consolidated IBT for 2005 of $163.7 million compared with $217.6 million in 2004, with $78.0 million of this decline resulting from the asbestos charges taken during fiscal 2005. Excluding the charges, IBT in 2005 would have been an adjusted $241.7 million, or ahead by $24.1 million, or 11.1%, from 2004’s $217.6 million, resulting in margins at 9.5% and 9.4% of sales for 2005 and 2004, respectively. This reflects the combined positive impacts from the higher organic sales volume, cost controls, productivity improvements and pricing initiatives, offsetting the approximate 260 bps impact of higher material costs, plus higher fuel-related distribution costs, the continuation of growth-related investments during fiscal 2005 in both operating segments and higher interest expense.

Industrial segment IBT in 2005 grew by $27.9 million, or 19.8%, to $168.6 million, or 11.7% of sales, from 2004’s $140.7 million, or 11.1% of sales, mainly from the higher organic sales volume. Consumer segment IBT in 2005 grew by $4.7 million, or 3.3%, to $147.6 million, or 13.2% of sales, from 2004’s $142.9 million, or 13.8% of sales, with the margin decline mainly from higher material costs more than offsetting pricing increases and organic sales growth leverage in this segment. Combined, operating IBT in 2005 grew to $316.2 million, or 12.4% of sales, ahead $32.6 million, or 11.5%, over 2004’s $283.6 million, or 12.3% of sales.

For a reconciliation of IBT to earnings before interest and taxes, see the Segment Information table located on page 15 of this Annual Report.

Income Tax Rate The effective income tax rate was 35.8% for 2005 compared to an effective income tax rate of 34.8% for 2004. The effective income tax rate for 2005 reflects the impact of the $78.0 million asbestos liability charges taken during the year. Excluding the asbestos charges, the adjusted effective income tax rate for 2005 would have been a pro forma rate of 36.1%. This increase in the adjusted effective income tax rate, excluding the asbestos charges, is principally due to an increase in tax valuation allowances recorded in 2005, the reduction in the extraterritorial income exclusion benefit, changes in the jurisdictional mix of income and the impact of our foreign operations.

As of May 31, 2005, we determined, based on the available evidence, that it was uncertain whether we would be able to recognize certain deferred tax assets. Therefore, in accordance with the provisions of Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes,” we intend to maintain tax valuation allowances for certain deferred tax assets until sufficient positive evidence exists to support the reversal of the tax valuation allowances, such as cumulative positive foreign earnings or additional foreign source income.

The valuation allowances relate to U.S. federal foreign tax credit carryforwards, certain foreign net operating losses and net foreign deferred tax assets recorded in purchase accounting. The most significant portion of the valuation allowance is associated with deferred tax assets recorded in purchase accounting. Any reversal of the valuation allowance that was recorded in purchase accounting would reduce goodwill. A reduction of the valuation allowance of $0.5 million was accordingly allocated to goodwill during 2005.

Net Income Net income for fiscal 2005 of $105.0 million compared with 2004’s $141.9 million, reflecting the $49.5 million after-tax cost of the asbestos liability charges taken during the fiscal year. Excluding these charges, 2005’s adjusted net income would have been $154.5 million, ahead $12.6 million, or 8.9%, from 2004. The margin on sales would have been an adjusted 6.0% and 6.1% of sales for 2005 and 2004, respectively, despite the net impact from higher material costs. Similarly, 2005 diluted earnings per common share would have increased to an adjusted $1.25, or ahead by 7.8% from an adjusted $1.16 in 2004. As a result of our adoption of EITF 04-8, as outlined in Notes A and D, diluted earnings per share for the year ended May 31, 2005, 2004 and 2003 have been restated to include the 8,034,355 shares issuable upon conversion of our contingently convertible debt.

LIQUIDITY AND CAPITAL RESOURCES

Operating Activities

Operating activities generated positive cash flow of $185.5 million during fiscal 2006 compared with $157.4 million generated during 2005, a net increase of 17.9% or $28.1 million. Factoring out the after-tax asbestos-related cash payments of $37.7 million and $42.8 million, respectively, operating activities generated positive cash flow of $223.1 million in fiscal 2006 compared with $200.2 million during the prior year, up $22.9 million or 11.4%. During fiscal 2006, net income was affected by $380.0 million ($244.3 million after tax) in charges for asbestos-related liabilities, which had no effect on cash flow. Fiscal 2006 adjusted net income of $168.1 million, excluding the asbestos charges, represents a $13.6 million increase over 2005 adjusted net income of $154.5 million. Cash flow from operations during 2006 was positively impacted by additional depreciation and amortization of $8.3 million versus the prior year. Trade accounts receivable provided $3.9 million in cash flow year-over-year, principally associated with improved collections procedures, which resulted in a favorable reduction of 2.0 days sales outstanding (“DSO”) since May 31, 2005. Inventories provided $2.2 million in operating cash year-over-year as a result of improvements in our days outstanding in inventory, which improved by 1.5 days since May 31, 2005. Accounts payable required $26.7 million additional cash year-over-year, mainly as a result of a 9.1 day improvement in accounts payable days outstanding during last fiscal year versus a 1.3 day decline during the current fiscal year.

RPM International Inc. and Subsidiaries

management’s discussion and analysis

Prepaid expenses and other current assets provided a year-over-year favorable change of approximately $15.2 million, primarily from an insurance receivable recorded during fiscal 2005, and the timing of payments and receipts. Accrued compensation and benefits provided a change of $31.9 million, a large portion of which resulted from an increase in pension obligations associated with adjustments to our actuarial assumptions relating to our Canadian pension plans, along with positive year-over-year changes in bonus and employee benefit-related accruals. Accrued loss reserves resulted in an unfavorable year-over-year change of $7.5 million, primarily as a result of the recording of additional loss reserves related to product liability during 2005 versus 2006. Accrued other liabilities were a use of cash of $4.0 million, mainly as a result of year-over-year net reductions in interest accruals. Other long-term assets had an unfavorable year-over-year change of $13.2 million, mostly as a result of entering into multi-year contractual arrangements during this fiscal year.

Changes in long-term and short-term asbestos-related reserves, net of taxes, of approximately $37.7 million in fiscal 2006 and $42.8 million in fiscal 2005 were a year-over-year improvement in cash flow of $5.1 million. As disclosed in our “Critical Accounting Policies and Estimates” and our discussion on asbestos litigation (also refer to Note H), the significant increase in asbestos claims activity and costs relating to our Bondex subsidiary caused our related third-party insurance to be depleted during the first quarter of fiscal 2004. Accordingly, we are now funding costs previously covered by insurance with cash from operations. We anticipate that cash from operations and other sources will continue to be sufficient to meet all asbestos-related obligations on a short-term and long-term basis.

All other remaining balance sheet changes related to cash flows from operations had a net unfavorable impact of $0.7 million, mostly due to timing or exchange differences.

Cash provided from operations remains our primary source of financing internal growth, with limited use of short-term debt.

Investing Activities

Capital expenditures, other than for ordinary repairs and replacements, are made to accommodate our continued growth through improved production and distribution efficiencies and capacity, and to enhance administration. Capital expenditures during fiscal 2006 of $61.2 million compare with depreciation of $56.5 million. While we are not a capital intensive business and capital expenditures generally do not exceed depreciation in a given year, capital spending is expected to outpace our depreciation level in 2007, and possibly beyond, as additional capacity is brought on-line to support our continued growth. With these additional minor plant expansions, we believe there will be adequate production and distribution capacity to meet our needs at normal growth rates.

During fiscal 2006, we invested a total of $185.4 million for the acquisitions of illbruck (refer to Note A) and five smaller businesses or product lines. In addition, we divested one small business for gross proceeds of $10.6 million.

Our captive insurance companies invest in marketable securities in the ordinary course of conducting their operations, and this activity will continue. Differences in these activities between years are attributable to the timing and performance of their investments.

Financing Activities

On September 30, 2004, we issued and sold $200 million aggregated principal amount of 4.45% Senior Unsecured Notes due 2009 (“4.45% Senior Notes”), which we concurrently swapped back to floating interest debt (refer to interest rate risk below). The 4.45% Senior Notes were offered to qualified institutional buyers under Rule 144A. While the net proceeds were primarily earmarked to pre-fund the retirement of the 7% Senior Notes, which matured June 15, 2005, portions of the net proceeds had been used to retire the $15.0 million 6.12% Senior Notes, which matured November 15, 2004, and to repay our then-outstanding $68.0 million commercial paper. On April 26, 2005, pursuant to a Registration Rights Agreement between the Company and the initial purchasers of the 4.45% Notes, we completed an exchange offer to allow holders to exchange the 4.45% Senior Notes for the same principal amount of the Notes registered under the Securities Act of 1933.

During November 2004, we entered into a $330 million five-year revolving credit facility (“Credit Agreement”), due November 19, 2009. This facility will be used for general corporate purposes, including acquisitions and to provide back-up liquidity for the issuance of commercial paper. The facility provides for borrowings in U.S. dollars and several foreign currencies in an aggregate amount of up to $25.0 million and a swing-line up to $20.0 million for short-term borrowings of less than 15 days. In addition, the size of the facility may be expanded upon our request by up to an additional $100.0 million, thus potentially expanding the facility to $430.0 million, subject to lender approval. As of May 31, 2006, we had $10.0 million outstanding under this facility.

On October 19, 2005, we issued and sold $150 million aggregated principal amount of 6.7% Senior Unsecured Notes due 2015 (“6.7% Senior Unsecured Notes”) of our indirect wholly owned subsidiary, RPM United Kingdom G.P. RPM International Inc. will fully and unconditionally guarantee the payment obligations under the Senior Unsecured Notes. The net proceeds of the offering of the Senior Unsecured Notes were used by RPM United Kingdom G.P. for refinancing $138 million of revolving credit facility borrowings associated with the August 31, 2005 acquisition of illbruck and for other general corporate purposes. Concurrent with the issuance of the 6.7% Senior Unsecured Notes, RPM United Kingdom G.P. entered into a cross

RPM International Inc. and Subsidiaries

management’s discussion and analysis

currency swap, which fixed the interest and principal payments in euros for the life of Senior Unsecured Notes and results in an effective euro fixed-rate borrowing of 5.31%. The Senior Unsecured Notes were offered to qualified institutional buyers under Rule 144A of the Securities Act of 1933. The Notes have not been and will not be registered under the Securities Act of 1933 or any state securities laws.

On July 18, 2006, we prepaid our 6.61% Senior Notes, Series B, due November 15, 2006, and our 7.30% Senior Notes, Series C, due November 15, 2008 (collectively, the “Notes”). We paid all amounts due pursuant to the terms of the Purchase Agreement and did not incur any material early termination penalties in connection with our termination of the Notes.

We are exposed to market risk associated with interest rates. We do not use financial derivative instruments for trading purposes, nor do we engage in foreign currency, commodity or interest rate speculation. In addition to the hedge risk associated with our 6.7% Senior Unsecured Notes discussed above, our only other hedged risks are associated with certain fixed debt whereby we have a $200 million notional amount interest rate swap contract designated as a fair value hedge to pay floating rates of interest based on six-month LIBOR that matures in fiscal 2010. As of May 31, 2006 and 2005, the fair value of our hedges totaled $23.9 million and $2.4 million, respectively. Because critical terms of the debt and interest rate swap match, the hedge is considered perfectly effective against changes in fair value of debt, and therefore, there is no need to periodically reassess the effectiveness during the term of the hedge.

Our available committed liquidity beyond our cash balance at May 31, 2006 stood at $405.7 million (refer to Note B). Our debt-to-capital ratio was 48.6% at May 31, 2006 compared with 44.7% at May 31, 2005. Had we been able to reduce our total outstanding debt by all of our cash and short-term investments available as of May 31, 2006 and May 31, 2005, our adjusted net (of cash) debt-to-capital would have been 45.3% and 38.7%, respectively. This difference primarily reflects the additional indebtedness related to the August 31, 2005 illbruck acquisition (refer to Notes A and B).

We maintain excellent relations with our banks and other financial institutions to provide continual access to financing for future growth opportunities.

The following table summarizes our financial obligations and their expected maturities at May 31, 2006 and the effect such obligations are expected to have on our liquidity and cash flow in the periods indicated.

Contractual Obligations


			Payments Due In
	Total Contractual
(In thousands)	Payment Stream		2007		2008-09		2010-11		After 2011

Long-term debt obligations	$	876,556	$	6,141	$	277,096	$	240,771	$	352,548
Operating lease obligations		89,212		27,524		34,352		13,926		13,410
Other long-term liabilities¹		386,380		58,821		84,981		81,448		161,130

Total	$	1,352,148	$	92,486	$	396,429	$	336,145	$	527,088


	¹	These amounts represent our estimated cash contributions to be made in the periods indicated for our pension and postretirement plans, assuming no actuarial gains or losses, assumption changes or plan changes occur in any period. The projection results assume $11.9 million will be contributed to the U.S. plan in fiscal 2007; all other plans and years assume the required minimum contribution will be contributed. Also included are expected interest payments on long-term debt.

The condition of the U.S. dollar fluctuated throughout the year, and was moderately weaker against other major currencies where we conduct operations at the fiscal year end over the previous year end, causing a favorable change in the accumulated other comprehensive income (loss) (refer to Note A) component of stockholders’ equity of $28.2 million this year versus $15.0 million last year. This change was in addition to changes of $(9.3) million and $1.0 million related to adjustments required for minimum pension liabilities and unrealized gain (loss) on securities, respectively.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet financings, other than the minimum leasing commitments described in Note E. We have no subsidiaries that are not included in our financial statements, nor do we have any interests in or relationships with any special purpose entities that are not reflected in our financial statements.

RPM International Inc. and Subsidiaries

management’s discussion and analysis

QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk from changes in interest rates and foreign currency exchange rates because we fund our operations through long- and short-term borrowings and denominate our business transactions in a variety of foreign currencies. We utilize a sensitivity analysis to measure the potential loss in earnings based on a hypothetical 1% increase in interest rates and a 10% change in foreign currency rates. A summary of our primary market risk exposures follows.

Interest Rate Risk

Our primary interest rate risk exposure results from our floating rate debt, including various revolving and other lines of credit (refer to Note B). At May 31, 2006, approximately 37.9% of our debt was subject to floating interest rates. If interest rates were to increase 100 bps from May 31, 2006 and assuming no changes in debt from the May 31, 2006 levels, the additional annual interest expense would amount to approximately $3.3 million on a pre-tax basis. A similar increase in interest rates in fiscal 2005 would have resulted in approximately $3.0 million in additional interest expense.

Our hedged risks are associated with certain fixed-rate debt whereby we have a $200.0 million notional amount interest rate swap contract designated as a fair value hedge to pay floating rates of interest based on six-month LIBOR that matures in fiscal 2010. Because critical terms of the debt and interest rate swap match, the hedge is considered perfectly effective against changes in the fair value of debt, and therefore, there is no need to periodically reassess the effectiveness during the term of the hedge.

All derivative instruments are recognized on the balance sheet and measured at fair value. Changes in the fair values of derivative instruments that do not qualify as hedges and/or any ineffective portion of hedges are recognized as a gain or loss in our consolidated statement of income in the current period. Changes in the fair value of derivative instruments used effectively as fair value hedges are recognized in earnings (losses), along with the change in the value of the hedged item. Such derivative transactions are accounted for under SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities,” as amended and interpreted. The Company does not hold or issue derivative instruments for speculative purposes.

Foreign Currency Risk

Our foreign sales and results of operations are subject to the impact of foreign currency fluctuations (refer to Note A). As most of our foreign operations are in countries with fairly stable currencies, such as Belgium, Canada and the United Kingdom, this effect has not generally been material. In addition, foreign debt is denominated in the respective foreign currency, thereby eliminating any related translation impact on earnings.

If the U.S. dollar continues to weaken, our foreign results of operations will be positively impacted, but the effect is not expected to be material. A 10% change in foreign currency exchange rates would not have resulted in a material impact to net income for the years ended May 31, 2006 and 2005. We do not currently hedge against the risk of exchange rate fluctuations.

FORWARD-LOOKING STATEMENTS

The foregoing discussion includes forward-looking statements relating to our business. These forward-looking statements, or other statements made by us, are made based on our expectations and beliefs concerning future events impacting us and are subject to uncertainties and factors (including those specified below) that are difficult to predict and in many instances, are beyond our control. As a result, our actual results could differ materially from those expressed in or implied by any such forward-looking statements. These uncertainties and factors include: (a) general economic conditions; (b) the price and supply of raw materials, particularly petroleum-based, titanium dioxide, certain resins, aerosols and solvents; (c) continued growth in demand for our products; (d) legal, environmental and litigation risks inherent in our construction and chemicals businesses and risks related to the adequacy of our reserves and insurance coverage for such matters; (e) the effect of changes in interest rates; (f) the effect of fluctuations in currency exchange rates upon our foreign operations; (g) the effect of non-currency risks of investing in and conducting operations in foreign countries, including those relating to domestic and international political, social, economic and regulatory factors; (h) risks and uncertainties associated with our ongoing acquisition and divestiture activities; (i) risks inherent in our contingent liability reserves, including for the Company’s existing and future asbestos-related claims; and other risks detailed in our other reports and statements filed with the Securities and Exchange Commission, including the risk factors set forth in our prospectus and prospectus supplement included as part of our Registration Statement on Form S-3 (file No. 333-120536) and in our Annual Report on Form 10-K for the fiscal year ended May 31, 2006, as the same may be amended from time to time.

RPM International Inc. and Subsidiaries

consolidated balance sheets
(In thousands, except per share amounts)


May 31	2006		2005

Assets
Current Assets
Cash and short-term investments	$	108,616	$	184,140
Trade accounts receivable (less allowances of $20,252 in 2006 and $18,565 in 2005)		650,945		553,084
Inventories		399,014		334,404
Deferred income taxes		48,885		40,876
Prepaid expenses and other current assets		161,758		156,491

Total current assets		1,369,218		1,268,995

Property, Plant and Equipment, at Cost
Land		28,849		24,510
Buildings and leasehold improvements		267,899		236,576
Machinery and equipment		590,528		514,478

		887,276		775,564
Less allowance for depreciation and amortization		442,584		385,586

Property, plant and equipment, net		444,692		389,978

Other Assets
Goodwill		750,635		663,224
Other intangible assets, net of amortization		321,942		275,744
Deferred income taxes, non-current		20,248
Other		73,483		49,534

Total other assets		1,166,308		988,502

Total Assets	$	2,980,218	$	2,647,475

Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable	$	333,684	$	274,573
Current portion of long-term debt		6,141		97
Accrued compensation and benefits		136,384		95,667
Accrued loss reserves		66,678		65,452
Asbestos-related liabilities		58,925		55,000
Other accrued liabilities		111,688		84,550

Total current liabilities		713,500		575,339

Long-Term Liabilities
Long-term debt, less current maturities		870,415		837,948
Asbestos-related liabilities		362,360		46,172
Other long-term liabilities		108,002		71,363
Deferred income taxes				78,914

Total long-term liabilities		1,340,777		1,034,397

Total liabilities		2,054,277		1,609,736

Stockholders’ Equity
Preferred stock, par value $0.01; authorized 50,000 shares; none issued
Common stock, par value $0.01; authorized 300,000 shares; issued and outstanding 118,743 as of May 2006; issued and outstanding 117,554 as of May 2005		1,187		1,176
Paid-in capital		545,422		526,434
Treasury stock, at cost
Accumulated other comprehensive income		29,839		10,004
Retained earnings		349,493		500,125

Total stockholders’ equity		925,941		1,037,739

Total Liabilities and Stockholders’ Equity	$	2,980,218	$	2,647,475

The accompanying notes to consolidated financial statements are an integral part of these statements.

RPM International Inc. and Subsidiaries

consolidated statements of income
(In thousands, except per share amounts)


Year Ended May 31	2006			2005		2004

Net Sales	$	3,008,338		$	2,555,735	$	2,307,553
Cost of Sales		1,756,770			1,449,184		1,276,372

Gross Profit		1,251,568			1,106,551		1,031,181
Selling, General and Administrative Expenses		952,700			829,445		784,620
Asbestos Charges		380,000			78,000
Interest Expense, Net		41,343			35,378		28,945

Income (Loss) Before Income Taxes		(122,475	)		163,728		217,616
Provision (Benefit) for Income Taxes		(46,270	)		58,696		75,730

Net Income (Loss)	$	(76,205	)	$	105,032	$	141,886

Average Number of Shares of Common Stock Outstanding
Basic		116,837			116,899		115,777
Diluted		116,837			126,364		124,744
Earnings (Loss) per Common Share
Basic	$	(0.65	)	$	0.90	$	1.23
Diluted	$	(0.65	)	$	0.86	$	1.16
Cash Dividends per Share of Common Stock	$	0.63		$	0.59	$	0.55

The accompanying notes to consolidated financial statements are an integral part of these statements.

RPM International Inc. and Subsidiaries

consolidated statements of cash flows
(In thousands)


Year Ended May 31	2006			2005			2004

Cash Flows From Operating Activities:
Net income (loss)	$	(76,205	)	$	105,032		$	141,886
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation		56,463			49,841			47,840
Amortization		17,836			16,151			15,437
Increase (decrease) in asbestos-related liabilities		380,000			78,000
Increase (decrease) in deferred income taxes		(116,616	)		305			31,815
(Earnings) of unconsolidated affiliates		(890	)		(354	)		(314	)
Changes in assets and liabilities, net of effect from purchases and sales of businesses:
(Increase) decrease in receivables		(59,734	)		(63,611	)		(41,516	)
(Increase) decrease in inventory		(42,255	)		(44,429	)		(31,949	)
(Increase) decrease in prepaid expenses and other current and long-term assets		(18,227	)		(20,220	)		(109	)
Increase (decrease) in accounts payable		42,315			69,037			30,607
Increase (decrease) in accrued compensation and benefits		38,513			6,621			9,124
Increase (decrease) in accrued loss reserves		1,226			8,753			(7,531	)
Increase (decrease) in other accrued liabilities		25,700			16,822			7,908
Payments made for asbestos-related claims		(59,887	)		(67,435	)		(53,976	)
Other, including exchange rate changes		(2,750	)		2,839			4,813

Cash From Operating Activities		185,489			157,352			154,035

Cash Flows From Investing Activities:
Capital expenditures		(61,155	)		(55,609	)		(51,253	)
Acquisition of businesses, net of cash acquired		(174,625	)		(20,100	)		(37,703	)
Purchase of marketable securities		(59,416	)		(44,309	)		(36,955	)
Proceeds from sales of marketable securities		50,105			39,154			21,410
(Investments in) and distributions from unconsolidated affiliates		(895	)		136			(425	)
Proceeds from sale of assets and businesses		9,282			5,426			3,664
Other		2,323			(666	)		(1,284	)

Cash (Used For) Investing Activities		(234,381	)		(75,968	)		(102,546	)

Cash Flows From Financing Activities:
Additions to long-term and short-term debt		186,772			200,153			200,345
Reductions of long-term and short-term debt		(152,862	)		(79,665	)		(206,623	)
Cash dividends		(74,427	)		(68,933	)		(63,651	)
Exercise of stock options		10,636			12,543			5,796

Cash From (Used For) Financing Activities		(29,881	)		64,098			(64,133	)

Effect of Exchange Rate Changes on Cash and Short-Term Investments		3,249			4,099			234

Net Change in Cash and Short-Term Investments		(75,524	)		149,581			(12,410	)
Cash and Short-Term Investments at Beginning of Year		184,140			34,559			46,969

Cash and Short-Term Investments at End of Year	$	108,616		$	184,140		$	34,559

Supplemental Disclosures of Cash Flows Information:
Cash paid during the year for:
Interest	$	50,690		$	39,279		$	25,572
Income taxes	$	68,263		$	48,535		$	59,252
Supplemental Schedule of Non-Cash Investing and Financing Activities:
Shares issued for restricted stock plan	$	3,545		$	1,960		$	1,331
Debt from business combinations	$	10,259
Receivables from sale of assets							$	1,233

The accompanying notes to consolidated financial statements are an integral part of these statements.

RPM International Inc. and Subsidiaries

consolidated statements of stockholders’ equity
(In thousands)


										Accumulated
	Common Stock									Other
	Number		Par/							Comprehensive
	of		Stated		Paid-in		Treasury			Income			Retained
	Shares		Value		Capital		Stock			(Loss)			Earnings			Total

Balance at May 31, 2003		115,496	$	1,156	$	503,141	$	(1,167	)	$	(17,169	)	$	385,791		$	871,752

Comprehensive income
Net income														141,886			141,886
Translation gain and other											13,288						13,288

Comprehensive income																	155,174
Dividends paid														(63,651	)		(63,651	)
Stock option exercises, net		555		5		5,453		338									5,796
Restricted stock awards, net		71				502		829									1,331

Balance at May 31, 2004		116,122		1,161		509,096		-0-			(3,881	)		464,026			970,402

Comprehensive income Net income														105,032			105,032
Translation gain and other											13,885						13,885

Comprehensive income																	118,917
Dividends paid														(68,933	)		(68,933	)
Stock option exercises, net		1,109		11		12,532											12,543
Stock based compensation expense						2,850											2,850
Restricted stock awards, net		323		4		1,956											1,960

Balance at May 31, 2005		117,554		1,176		526,434		-0-			10,004			500,125			1,037,739

Comprehensive income Net (loss)														(76,205	)		(76,205	)
Translation gain and other											19,835						19,835

Comprehensive (loss)																	(56,370	)
Dividends paid														(74,427	)		(74,427	)
Stock option exercises, net		823		8		10,628											10,636
Stock based compensation expense						4,818											4,818
Restricted stock awards, net		366		3		3,542											3,545

Balance at May 31, 2006		118,743	$	1,187	$	545,422	$	-0-		$	29,839		$	349,493		$	925,941

The accompanying notes to consolidated financial statements are an integral part of these statements.

RPM International Inc. and Subsidiaries

notes to consolidated financial statements

NOTES to CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2006, 2005, 2004

NOTE A — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. Consolidation and Basis of Presentation

Our financial statements consolidate all of our affiliates — companies that we control and in which we hold a majority voting interest. We account for our investments in less than majority-owned joint ventures under the equity method. Effects of transactions between related companies are eliminated in consolidation.

Our business is dependent on external weather factors. Historically, we have experienced strong sales and net income in our first, second and fourth fiscal quarters comprised of the three-month periods ending August 31, November 30 and May 31, respectively, with weaker performance in our third fiscal quarter (December through February).

Certain reclassifications have been made to prior-year amounts to conform to this year’s presentation.

2. Accounting Change—Intangibles

We have performed our annual impairment testing of goodwill and intangibles not subject to amortization as of August 31 in each year since our adoption of Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” During the fourth quarter of fiscal 2006, we changed the timing of our annual impairment testing to March 1. We adopted this change in timing in order to assess the recorded values of goodwill and intangible assets not subject to amortization for potential impairment at a time closer to our fiscal year-end reporting date. We believe this change is preferable in reducing the risk that an undetected impairment indicator would occur in between the timing of our annual test and the preparation of our year-end financial statements. This change had no effect on reported earnings for any period presented.

3. Use of Estimates

The preparation of financial statements in conformity with Generally Accepted Accounting Principles (GAAP) in the United States requires us to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

4. Acquisitions/Divestitures

On August 31, 2005, Tremco, Inc., a wholly-owned subsidiary of RPM, completed its acquisition of privately-owned illbruck Sealant Systems, located in Cologne, Germany, for approximately $136.4 million, plus debt assumption of approximately $10.3 million, subject to certain post-closing adjustments. illbruck, a leading manufacturer of high-performance sealants and installation systems for prefabricated construction elements and for window and door applications, had sales of approximately $190.0 million for its fiscal year ended December 31, 2004. The acquisition extends our product line offerings to include joint sealing tapes, flashing tapes, cartridge sealants and adhesives, strips, foils and accessories marketed under brand names such as illbruck, Festix, Perennator and Coco.

RPM International Inc. and Subsidiaries

notes to consolidated financial statements

The purchase price has been allocated to the underlying assets acquired and liabilities assumed based upon their fair values at the date of acquisition. We have determined the preliminary estimated fair values based on independent appraisals, discounted cash flow analyses, quoted market prices and estimates made by management. Goodwill has been recorded to the extent the purchase price exceeded the preliminary fair values of the net identifiable tangible and intangible assets acquired. Prior to the date of acquisition, we began investigating the potential for synergies associated with restructuring the operations at certain locations, including possible involuntary termination or relocation of certain employees, along with possible closure of certain plants. At this time, restructuring plans have not been finalized, pending investigation of the costs and associated benefits of consolidating operations.

The allocation of the illbruck purchase price is preliminary and subject to adjustment following finalization of the purchase price settlement process. The preliminary goodwill figure of $52.3 million will be assigned to the various subsidiaries of the illbruck Sealant Systems group upon finalization of the allocation of purchase price and will not be deductible for tax purposes.

In addition to the illbruck acquisition, during the year ended May 31, 2006, we completed four other smaller acquisitions of product lines. The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the date of acquisition, with illbruck reflected separately due to its more significant purchase price.


	Amortization Life
(In thousands)	(In Years)		illbruck			Other			Total

Current assets			$	61,774		$	22,506		$	84,280
Property, plant and equipment				32,562			6,853			39,415
Goodwill		N/A		52,272			20,214			72,486
Tradenames — unamortized		N/A		27,190						27,190
Tradenames — other		12 - 15		1,639			4,751			6,390
Other intangible assets		4 - 12		21,805			4,275			26,080

Total Assets Acquired				197,242			58,599			255,841

Liabilities assumed				(60,888	)		(9,550	)		(70,438	)

Net Assets Acquired			$	136,354		$	49,049		$	185,403

Our Consolidated Financial Statements reflect the results of operations of these businesses as of their respective dates of acquisition. During the year ended May 31, 2006, we also divested one small product line.

Pro forma results of operations for the years ended May 31, 2006 and May 31, 2005 were not materially different from reported results and, consequently, are not presented.

5. Foreign Currency

The functional currency of our foreign subsidiaries is their local currency. Accordingly, for the periods presented, assets and liabilities have been translated using exchange rates at year end while income and expense for the periods have been translated using a weighted average exchange rate. The resulting translation adjustments have been recorded in accumulated other comprehensive income (loss), a component of stockholders’ equity, and will be included in net earnings only upon the sale or liquidation of the underlying foreign investment, neither of which is contemplated at this time. Transaction gains and losses have been immaterial during the past three fiscal years.

RPM International Inc. and Subsidiaries

notes to consolidated financial statements

6. Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss), which is shown net of taxes, consists of the following components:


	Foreign			Minimum			Unrealized
	Currency			Pension			Gain (Loss)
	Translation			Liability			on
(In thousands)	Adjustments			Adjustments			Securities			Total

Balance at May 31, 2003	$	(9,809	)	$	(6,191	)	$	(1,169	)	$	(17,169	)
Reclassification adjustments for losses included in net income								97			97
Other comprehensive income		9,686			1,603			2,645			13,934
Deferred taxes					(467	)		(276	)		(743	)

Balance at May 31, 2004		(123	)		(5,055	)		1,297			(3,881	)
Reclassification adjustments for (gains) included in net income								(73	)		(73	)
Other comprehensive income (loss)		15,008			(2,379	)		1,082			13,711
Deferred taxes					529			(282	)		247

Balance at May 31, 2005		14,885			(6,905	)		2,024			10,004
Reclassification adjustments for (gains) included in net (loss)								(17	)		(17	)
Other comprehensive income (loss)		28,161			(14,700	)		1,443			14,904
Deferred taxes					5,413			(465	)		4,948

Balance at May 31, 2006	$	43,046		$	(16,192	)	$	2,985		$	29,839

7. Cash and Short-Term Investments

For purposes of the statement of cash flows, we consider all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. We do not believe we are exposed to any significant credit risk on cash and short-term investments.

8. Marketable Securities

Marketable securities, included in other current assets, are considered available for sale and are reported at fair value, based on quoted market prices. Changes in unrealized gains and losses, net of applicable taxes, are recorded in accumulated other comprehensive income (loss) within Stockholders’ Equity. If we were to experience other-than-temporary declines in market value from original cost, those amounts would be reflected in operating income in the period in which the loss were to occur. In order to determine whether an other-than-temporary decline in market value has occurred, the duration of the decline in value and our ability to hold the investment to recovery are considered in conjunction with an evaluation of the strength of the underlying collateral and the extent to which the investment’s carrying value exceeds its related market value. Marketable securities, primarily comprised of equity securities, totaled $59.5 million and $49.1 million at May 31, 2006 and 2005, respectively.

9. Financial Instruments

Financial instruments recorded on the balance sheet include cash and short-term investments, accounts receivable, notes and accounts payable, and debt. The carrying amount of cash and short-term investments, accounts receivable and notes and accounts payable approximates fair value because of their short-term maturity.

An allowance for anticipated uncollectible trade receivable amounts is established using a combination of specifically identified accounts to be reserved, and a reserve covering trends in collectibility. These estimates are based on an analysis of trends in collectibility, past experience, and individual account balances identified as doubtful based on specific facts and conditions. Receivable losses are charged against the allowance when management confirms uncollectibility.

All derivative instruments are recognized on the balance sheet and measured at fair value. Changes in the fair values of derivative instruments that do not qualify as hedges and/or any ineffective portion of hedges are recognized as a gain or loss in our consolidated statement of income in the current period. Changes in the fair value of derivative instruments used effectively as fair value hedges are recognized in earnings (losses), along with the change in the value of the hedged item. Such derivative transactions are accounted for under SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities,” as amended and interpreted. We do not hold or issue derivative instruments for speculative purposes.

RPM International Inc. and Subsidiaries

notes to consolidated financial statements

The carrying amount of our other debt instruments approximates fair value based on quoted market prices, variable interest rates or borrowing rates for similar types of debt arrangements.

10. Inventories

Inventories are stated at the lower of cost or market, cost being determined on a first-in, first-out (FIFO) basis and market being determined on the basis of replacement cost or net realizable value. Inventory costs include raw material, labor and manufacturing overhead. Inventories were composed of the following major classes:


May 31	2006		2005

(In thousands)
Raw materials and supplies	$	124,573	$	105,060
Finished goods		274,441		229,344

Total Inventories	$	399,014	$	334,404

11. Goodwill and Other Intangible Assets

We adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” as of June 1, 2001, at which time we ceased the amortization of goodwill. During fiscal 2006, we elected to change the timing of performing the required annual impairment assessment from the first quarter of our fiscal year to our fourth quarter. If a loss were to result from the performance of the annual test, it would be reflected in operating income. The annual goodwill impairment assessment involves estimating the fair value of each reporting unit and comparing it with its carrying amount. If the carrying amount of the reporting unit exceeds its fair value, additional steps are followed to recognize a potential impairment loss. Calculating the fair value of the reporting units requires significant estimates and assumptions by management. We estimate the fair value of our reporting units by applying third-party market value indicators to each of our reporting unit’s projected earnings before interest, taxes, depreciation and amortization. In applying this methodology, we rely on a number of factors, including future business plans, actual operating results and market data. In the event that our calculations indicate that goodwill is impaired, a fair value estimate of each tangible and intangible asset and liability would be established. This process would require the application of discounted cash flows expected to be generated by each asset in addition to independent asset appraisals, as appropriate. Cash flow estimates are based on our historical experience and our internal business plans, and appropriate discount rates are applied. The results of our annual impairment tests for the fiscal years ended May 31, 2006, 2005 and 2004 did not require any adjustment to the carrying value of goodwill or other indefinite-lived intangible assets.

The changes in the carrying amounts of goodwill, by reporting segment, for the years ended May 31, 2006 and 2005, are as follows:


	Industrial			Consumer
(In thousands)	Segment			Segment		Total

Balance as of May 31, 2004	$	303,743		$	344,500	$	648,243
Acquisitions		8,657			1,729		10,386
Purchase accounting adjustments *		590					590
Divestitures		(2,114	)				(2,114	)
Translation adjustments		5,550			569		6,119

Balance as of May 31, 2005		316,426			346,798		663,224
Acquisitions		69,252			3,234		72,486
Purchase accounting adjustments *					2,204		2,204
Translation adjustments		11,134			1,587		12,721

Balance as of May 31, 2006	$	396,812		$	353,823	$	750,635

*Relates primarily to other accruals.

RPM International Inc. and Subsidiaries

notes to consolidated financial statements

Other intangible assets consist of the following major classes:


			Gross				Net Other
	Amortization		Carrying		Accumulated		Intangible
(In thousands)	Period (in Years)		Amount		Amortization		Assets

As of May 31, 2006
Amortized intangible assets
Formulae		10 to 33	$	190,665	$	74,551	$	116,114
Customer-related intangibles		7 to 33		82,739		23,799		58,940
Trademarks/names		5 to 40		18,607		5,593		13,014
Other		3 to 30		26,468		13,626		12,842

Total Amortized Intangibles				318,479		117,569		200,910
Unamortized intangible assets
Trade names				121,032				121,032

Total Other Intangible Assets			$	439,511	$	117,569	$	321,942

As of May 31, 2005
Amortized intangible assets
Formulae		10 to 33	$	176,884	$	65,628	$	111,256
Customer-related intangibles		7 to 33		69,152		19,346		49,806
Trademarks/names		5 to 40		9,812		3,270		6,542
Other		3 to 30		24,335		12,009		12,326

Total Amortized Intangibles				280,183		100,253		179,930
Unamortized intangible assets
Trade names				95,814				95,814

Total Other Intangible Assets			$	375,997	$	100,253	$	275,744

The aggregate other intangible asset amortization expense for the fiscal years ended May 31, 2006, 2005 and 2004, was $15.3 million, $13.0 million and $12.8 million, respectively. For each of the next five fiscal years through May 31, 2011, the estimated annual intangible asset amortization expense will approximate $15.2 million.

12. Depreciation

Depreciation is computed primarily using the straight-line method over the following ranges of useful lives:


Land improvements		5 to 42 years
Buildings and improvements		5 to 50 years
Machinery and equipment		2 to 20 years

Total depreciation expense for each fiscal period includes the charges to income that result from the amortization of assets recorded under capital leases.

13. Revenue Recognition

Revenues are recognized when realized or realizable, and when earned. In general, this is when title and risk of loss passes to the customer. Further, revenues are generally realizable when we have persuasive evidence of a sales arrangement, the product has been shipped or the services have been provided to the customer, the sales price is fixed or determinable, and collectibility is reasonably assured. We reduce our revenues for estimated customer returns and allowances, certain rebates, sales incentives, and promotions in the same period the related sales are recorded.

14. Shipping Costs

Shipping costs paid to third-party shippers for transporting products to customers are included in selling, general and administrative expenses. For the years ended May 31, 2006, 2005 and 2004, shipping costs were $117.5 million, $100.1 million and $86.0 million, respectively.

15. Advertising Costs

Advertising costs are charged to operations when incurred and are included in selling, general and administrative expenses. For the years ended May 31, 2006, 2005 and 2004, advertising costs were $33.9 million, $33.7 million and $37.1 million, respectively.

RPM International Inc. and Subsidiaries

notes to consolidated financial statements

16. Research and Development

Research and development costs are charged to operations when incurred and are included in selling, general and administrative expenses. The amounts charged for the years ended May 31, 2006, 2005 and 2004 were $32.3 million, $28.9 million and $26.2 million, respectively.

17. Stock-Based Compensation

Effective June 1, 2004, we voluntarily adopted the preferable fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” for our stock-based employee compensation plans. As outlined by SFAS No. 148, “Accounting for Stock-Based Compensation —Transition and Disclosure,” we chose to apply the modified prospective method in adopting this accounting change. Under this method, stock-based employee compensation expense recognized in fiscal 2006 and 2005 is the same as that which would have been recognized had the fair value recognition provisions of SFAS No. 123 been applied to account for all employee awards from its original effective date. Results of prior periods have not been restated.

The adoption of SFAS No. 123 impacted net income, basic earnings per share and diluted earnings per share for each of the years ended May 31, 2006 and 2005 by approximately $2.4 million, $0.02 per share and $0.02 per share, respectively. Prior to June 1, 2004 we accounted for stock-based compensation in accordance with APB opinion No. 25, “Accounting for Stock Issued to Employees.” The following table represents the effect on net income and earnings per share for the year ended May 31, 2004, as if compensation cost for stock options granted had been determined in accordance with the fair value method prescribed by SFAS No. 123:


	Year Ended
	May 31, 2004
(In thousands, except per share amounts)	Basic			Diluted

Net income, as reported	$	141,886		$	141,886
Add: Income effect of contingently convertible shares¹					3,142

Adjusted net income, as reported		141,886			145,028
Add: Stock-based employee compensation expense from restricted stock plans included in reported net income, net of related tax effects		825			825
Deduct: Total stock-based employee compensation determined under fair value-based method for all awards, net of related tax effects		(3,969	)		(3,969	)

Pro Forma Net Income	$	138,742		$	141,884

Earnings per Share:
As Reported	$	1.23		$	1.16

Pro Forma	$	1.20		$	1.14


¹		Refer to Note D, Common Stock, for additional information regarding the accounting treatment of contingently convertible securities.

We grant stock options and stock appreciation rights (“SARs”) to our employees (refer to Note D, “Common Stock” for further details). The fair value of stock options and SARs granted is estimated as of the date of grant using a Black-Scholes option-pricing model with the following weighted average assumptions:


	2006			2005			2004

Risk-free interest rate		4.2	%		3.7	%		3.7	%
Expected life of option	6.0 yrs			6.4 yrs			7.0 yrs
Expected dividend yield		3.6	%		3.4	%		3.5	%
Expected volatility rate		27.7	%		31.0	%		35.9	%

18. Interest Expense, Net

Interest expense is shown net of investment income, which consists of interest, dividends and capital gains (losses). Investment income for the years ended May 31, 2006, 2005 and 2004 was $6.5 million, $5.0 million and $2.3 million, respectively.

19. Income Taxes

The provision for income taxes is calculated using the liability method. Under the liability method, deferred income taxes are recognized for the tax effect of temporary differences between the financial statement carrying amount of assets and liabilities and the amounts used for income tax purposes and for certain changes in valuation allowances. Valuation allowances are recorded to reduce certain deferred tax assets when, in our estimation, it is more likely than not that a tax benefit will not be realized.

RPM International Inc. and Subsidiaries

notes to consolidated financial statements

We have not provided for U.S. income and foreign withholding taxes on approximately $551.0 million of foreign subsidiaries’ undistributed earnings as of May 31, 2006, because such earnings have been retained and reinvested by the subsidiaries. Accordingly, no provision has been made for U.S. or foreign withholding taxes, which may become payable if undistributed earnings of foreign subsidiaries were paid to us as dividends. The additional income taxes and applicable withholding taxes that would result had such earnings actually been repatriated are not practically determinable.

20. Earnings (Loss) Per Share of Common Stock

The following table sets forth the computation of basic and diluted earnings (loss) per share of common stock:


Year ended May 31	2006			2005		2004

(In thousands, except per share amounts)
Shares Outstanding
For computation of basic earnings per share of common stock Weighted average shares		116,837			116,899		115,777

Total shares for basic earnings per share		116,837			116,899		115,777
For computation of diluted earnings per share of common stock Net issuable common share equivalents¹					1,431		933
Additional shares issuable assuming conversion of convertible securities¹					8,034		8,034

Total shares for diluted earnings per share		116,837			126,364		124,744

Net Income
Net income (loss) applicable to shares of common stock for basic earnings per share	$	(76,205	)	$	105,032	$	141,886
Add: Income effect of contingently issuable shares¹					3,099		3,142

Net income (loss) applicable to shares of common stock for diluted earnings per share	$	(76,205	)	$	108,131	$	145,028

Basic Earnings (Loss) Per Share	$	(0.65	)	$	0.90	$	1.23

Diluted Earnings (Loss) Per Share	$	(0.65	)	$	0.86	$	1.16


¹		For the year ended May 31, 2006, net issuable common share equivalents totaling 2.8 million shares, and shares relating to our convertible securities and their related income effect, totaling 8.0 million shares and $3.7 million, respectively, were not assumed in our computation of fully diluted earnings per share, since the result would have been anti-dilutive.

21. Other Recent Accounting Pronouncements

On October 22, 2004 the American Jobs Creation Act of 2004 (“the Act”) was signed into law. Included in the Act is a provision allowing, in general, a new special tax deduction of up to 9% (once fully phased-in) of the lesser of 1) “qualified production activities income” as defined in the Act or 2) taxable income for the tax year, after deduction for the utilization of any net operating loss carryforwards.

As a result of the new special tax deduction provision included in the Act, the FASB issued FASB Staff Position No. FAS 109-1, “Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004” (FSP 109-1) in December 2004. FSP 109-1 provides that the new special tax deduction created in the Act should be accounted for as a special deduction in accordance with SFAS 109 and not as a tax rate reduction.

The effective date of the new special tax deduction included in the Act is for tax years beginning after December 31, 2004. Accordingly, the new provision is first available to us for our fiscal year ending May 31, 2006. The new special tax deduction associated with qualified production activities income has a slightly favorable effect on our annual effective tax rate for this year.

Also included in the Act is a provision allowing corporate taxpayers to claim a special one-time dividends received deduction of certain foreign earnings that are repatriated to the U.S. The new provision is applicable, given our fiscal year-end, for qualifying repatriations made prior to May 31, 2006.

We have not elected to repatriate funds and apply the onetime dividends received deduction. Accordingly, there is no tax impact of the new special one-time dividends received deduction in our results for this year.

RPM International Inc. and Subsidiaries

notes to consolidated financial statements

In December 2004, the FASB issued SFAS No. 123 (Revised 2004), “Share-Based Payment” (“Statement 123(R)”). Statement 123(R) requires that all share-based payments be recognized in the financial statements based on their fair values. The provisions of this statement are effective for reporting periods beginning after June 15, 2005. We expect to adopt Statement 123(R), utilizing the modified-prospective method of accounting, on June 1, 2006. We adopted the provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” on June 1, 2004, and began expensing stock-based compensation on that date. As such, our adoption of Statement 123(R) is not expected to have a material impact on the results of our operations or financial position, however, the total expense recorded in future periods will depend on several variables, including the number of share-based awards that vest and the fair values of those vested awards.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment to ARB No. 43, Chapter 4.” SFAS No. 151 requires that certain abnormal expenditures, including abnormal idle capacity expense and freight, be recognized as expenses in the current period, and that the amount of fixed production costs allocated to inventory be based on the normal capacity of the production facilities. The requirements of this statement are effective for fiscal years beginning after June 15, 2005. The adoption of Statement 151 is not expected to have a material impact on the results of our operations or financial position.

In June 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3.” SFAS No. 154 will become effective for accounting changes and corrections of errors made in fiscal 2007 and beyond. The impact of this statement on our Consolidated Financial Statements will depend on the nature and significance of future accounting changes which are subject to this statement.

NOTE B — BORROWINGS

A description of long-term debt follows:


May 31	2006		2005

(In thousands)
Unsecured 4.45% senior notes due October 15, 2009.⁽¹⁾	$	189,993	$	197,637
Unsecured 6.25% senior notes due December 15, 2013.		200,000		200,000
Unsecured $297,000 face value at maturity 2.75% senior convertible notes due May 13, 2033.		150,042		150,042
Unsecured 7.00% senior notes due June 15, 2005.⁽²⁾				150,000
Unsecured notes due March 1, 2008. Interest, which is tied to LIBOR, averaged 4.99% at May 31, 2006.		100,000		100,000
Unsecured 6.70% senior notes due November 1, 2015.⁽³⁾		150,000
Unsecured senior notes due insurance companies: 6.61% due November 15, 2006⁽⁴⁾ in the amount of $10,000 and 7.30% due November 15, 2008 in the amount of $30,000.		40,000		40,000
Revolving credit agreement for $330,000 with a syndicate of banks, through November 19, 2009. Interest, which is tied to LIBOR, averaged 5.91% at May 31, 2006.		10,000
Accounts receivable securitization program for $125,000 with two banks, through May 12, 2009. Interest averaged 5.05%.		25,000
Other obligations, including capital leases, and unsecured notes payable at various rates of interest due in installments through 2011.		11,521		366

		876,556		838,045
Less current portion		6,141		97

Total Long-Term Debt, Less Current Maturities	$	870,415	$	837,948


¹		We entered into an interest rate swap which has the effect of converting this fixed rate note to variable rates based on the six-month London Interbank Offered Rate (LIBOR). The weighted average effective rate was 5.83% as of May 31, 2006.

²		These obligations, which were refinanced on a long-term basis in June 2005, have been classified as long-term debt.

³		We entered into a cross-currency swap, which fixed the interest and principal payments in euros, resulting in an effective fixed rate borrowing of 5.31%.

⁴		These obligations, which were refinanced in July 2006, have been classified as long-term debt.

RPM International Inc. and Subsidiaries

notes to consolidated financial statements

The aggregate maturities of long-term debt for the five years subsequent to May 31, 2006 are as follows: 2007 — $6.1 million; 2008 — $251.3 million (including $150.0 million of 2.75% Senior Convertible Notes based on the date of the noteholders’ first put option); 2009 — $25.8 million; 2010 — $240.5 million; 2011 — $0.3 million; 2012 and thereafter — $352.6 million. Additionally, at May 31, 2006, we had unused lines of credit totaling $405.7 million.

In June 2002, we established an accounts receivable securitization program with several banks for certain of our subsidiaries, providing for a wholly-owned special purpose entity (“SPE”) to receive investments of up to $125.0 million. The securitized accounts receivable are owned in their entirety by RPM Funding Corporation, a wholly-owned consolidated subsidiary of RPM International Inc., and are not available to satisfy claims of our creditors until the participating banks’ obligations have been paid in full. This securitization is accomplished by having certain subsidiaries sell various of their accounts receivable to the SPE, and by having the SPE then transfer those receivables to a conduit administered by two banks. This transaction does not constitute a form of off-balance sheet financing, and is fully reflected in our financial statements. This transaction increased our liquidity and reduced our financing costs by replacing up to $125.0 million of existing borrowings at lower interest rates. The amounts available under the program are subject to changes in the credit ratings of our customers, customer concentration levels or certain characteristics of the underlying accounts receivable. In May 2006, we extended the program for an additional three years through May 2009. In July 2006, we amended this agreement, effective May 31, 2006, to redefine EBITDA. As of May 31, 2006 we had $25.0 million outstanding balance under this arrangement; there was no outstanding balance at May 31, 2005.

In May 2003, we issued $297.0 million face value at maturity unsecured 2.75% Senior Convertible Notes due May 13, 2033. The 2.75% Notes are convertible into 8,034,355 shares of RPM International Inc. common stock at a price of $18.68 per share, subject to adjustment, during any fiscal quarter for which the closing price of the common stock is greater than $22.41 per share for a defined duration of time. The Notes are also convertible during any period in which the credit rating of the Notes is below a specified level or if specified corporate transactions have occurred. We may redeem for cash all or a portion of the Notes at any time on or after May 31, 2008. The 2.75% Notes are redeemable by the holder for the issuance price plus accrued original issue discount in May 2008, 2013, 2018, 2023, 2028 and 2033. Interest on the 2.75% Notes is payable beginning November 13, 2003 until May 13, 2008. After that date, cash interest will not be paid prior to maturity subject to certain contingencies.

In December 2003, we issued and sold $200.0 million of 6.25% Senior Notes due 2013 as a means of refinancing. The entire net proceeds of $197.0 million from this offering were used to repay in full the $128.0 million of then-outstanding borrowings under our $500.0 million revolving credit facility and $69.0 million of the then-outstanding $72.0 million balance under our asset securitization program.

On September 30, 2004, we issued and sold $200.0 million of 4.45% Senior Unsecured Notes due 2009, which we concurrently swapped back to floating interest rate debt. We used a portion of the net proceeds to pay off our $15.0 million 6.12% Senior Notes due 2004, which matured on November 15, 2004 and also our then-outstanding $68.0 million of commercial paper. As of May 31, 2006 and 2005, the fair value of the interest-rate swap was $10.0 million and $2.4 million, respectively. These amounts are reflected in other long-term liabilities on the Consolidated Balance Sheets.

During November 2004, we entered into a $330.0 million five-year revolving credit facility, due November 19, 2009. This facility is used for general corporate purposes, including acquisitions and to provide back-up liquidity for the issuance of commercial paper. The facility provides for borrowings in U.S. dollars and several foreign currencies and provides sublimits for the issuance of letters of credit in an aggregate amount of up to $25.0 million and a swing-line of up to $20.0 million for short-term borrowings of less than 15 days. In addition, the size of the facility may be expanded upon our request by up to an additional $100.0 million, thus potentially expanding the facility to $430.0 million, subject to lender approval. In July 2006, we amended the credit facility, effective May 31, 2006, to modify the definition of EBITDA. As of May 31, 2006, we had $10.0 million outstanding under the agreement.

On October 19, 2005, RPM United Kingdom G.P., an indirect wholly-owned finance subsidiary of RPM International Inc., issued and sold $150 million of 6.70% Senior Unsecured Notes due 2015, which are fully and unconditionally guaranteed by RPM International Inc. The total net proceeds of the offering of the Senior Unsecured Notes were used to refinance $138 million of revolving credit facility borrowings in conjunction with the August 31, 2005 acquisition of illbruck Sealant Systems, and for other general corporate purposes. Concurrent with the issuance of the 6.70% Senior Unsecured Notes, RPM United Kingdom G.P. entered into a cross-currency swap, which fixed the interest and principal payments in euros for the life of the Senior Unsecured Notes and resulted in an effective euro fixed rate borrowing of 5.31%. As of May 31, 2006, the fair value of the cross-currency swap was $13.9 million, which is reflected in other long-term liabilities on the Consolidated Balance Sheets.

RPM International Inc. and Subsidiaries

notes to consolidated financial statements

NOTE C — INCOME TAXES

The provision for income taxes is calculated in accordance with SFAS No. 109, “Accounting for Income Taxes,” which requires the recognition of deferred income taxes using the liability method.

Income (loss) before income taxes as shown in the consolidated statements of income consisted of the following:


Year Ended May 31	2006			2005		2004

(In thousands)
United States	$	(181,282	)	$	115,192	$	182,032
Foreign		58,807			48,536		35,584

Income (Loss) Before Income Taxes	$	(122,475	)	$	163,728	$	217,616

Provision (benefit) for income taxes consists of the following:


Year Ended May 31	2006			2005			2004

(In thousands)
Current:
U.S. federal	$	35,035		$	31,313		$	30,579
State and local		7,232			8,098			7,138
Foreign		22,771			19,160			14,260

		65,038			58,571			51,977

Deferred:
U.S. federal		(108,373	)		(2,544	)		21,077
State and local		(3,798	)		(218	)		3,011
Foreign		863			2,887			(335	)

		(111,308	)		125			23,753

Provision (Benefit) for Income Taxes	$	(46,270	)	$	58,696		$	75,730

The significant components of deferred income tax assets and liabilities as of May 31, 2006 and 2005 were as follows:


	2006			2005

(In thousands)
Deferred income tax assets related to:
Inventories	$	4,322		$	2,983
Allowance for losses		5,511			7,077
Accrued compensation and benefits		14,560			7,892
Asbestos-related liabilities		151,478			36,964
Accrued other expenses		7,986			6,768
Other long-term liabilities		28,183			25,780
Net operating loss and credit carryforwards		33,647			33,131
Other		3,284			2,972

Total deferred income tax assets		248,971			123,567
Less: valuation allowance		(18,981	)		(13,946	)

Net deferred income tax assets		229,990			109,621

Deferred income tax (liabilities) related to:
Depreciation		(58,449	)		(52,846	)
Prepaid pension		(10,128	)		(10,188	)
Amortization of intangibles		(92,280	)		(84,625	)

Total deferred income tax (liabilities)		(160,857	)		(147,659	)

Deferred Income Tax Assets (Liabilities), Net	$	69,133		$	(38,038	)

RPM International Inc. and Subsidiaries

notes to consolidated financial statements

At May 31, 2006, we had U.S. federal foreign tax credit carryforwards of approximately $21.0 million which expire starting in 2010. Additionally, we had foreign net operating loss carryforwards of approximately $39.7 million at May 31, 2006 of which approximately $2.0 million expire at various dates beginning in 2007 and approximately $37.7 million which have an indefinite carryforward period. These net operating loss and foreign tax credit carryforwards may be used to offset a portion of future taxable income and thereby reduce or eliminate our U.S. federal or foreign income taxes otherwise payable.

Management has determined, based on the available evidence, that it is uncertain that future taxable income of certain of our foreign subsidiaries as well as anticipated foreign source income will be significant enough to recognize certain of these deferred tax assets. As a result, a valuation allowance of approximately $19.0 million has been recorded as of May 31, 2006.

The valuation allowance relates to U.S. federal foreign tax credit carryforwards, certain foreign net operating losses and net foreign deferred tax assets recorded in purchase accounting. A portion of the valuation allowance is associated with deferred tax assets recorded in purchase accounting. Any reversal of the valuation allowance that was recorded in purchase accounting would reduce goodwill. In the current year, there was no reversal of valuation allowance allocated to goodwill.

The following table reconciles income tax expense computed by applying the U.S. statutory federal income tax rate against income (loss) before income taxes to the provision (benefit) for income tax expense:


Year Ended May 31	2006			2005			2004

(In thousands)
Income tax expense (benefit) at the U.S. statutory federal income tax rate	$	(42,866	)	$	57,305		$	76,166
Impact of foreign operations		(7,859	)		(7,810	)		(2,930	)
State and local income taxes, net of federal income tax benefit		2,232			5,122			6,597
Tax benefits from the extraterritorial income exclusion		(783	)		(754	)		(2,870	)
Valuation allowance		4,760			4,287			278
Other		(1,754	)		546			(1,511	)

Provision (Benefit) for Income Tax Expense	$	(46,270	)	$	58,696		$	75,730

Effective Income Tax Rate		37.8	%		35.8	%		34.8	%

NOTE D — COMMON STOCK

There were 300,000,000 shares of common stock authorized at May 31, 2006 and 2005 with a par value of $0.01 per share. At May 31, 2006 and 2005, there were 118,743,000 and 117,554,000 shares outstanding, respectively, each of which is entitled to one vote.

Basic earnings per share are computed by dividing income available to common stockholders by the weighted average number of shares of common stock outstanding during each year. To compute diluted earnings per share, the weighted average number of shares of common stock outstanding during each year was increased by common stock options with exercisable prices lower than the average market prices of common stock during each year and reduced by the number of shares assumed to have been purchased with proceeds from the exercised options. Additionally, shares related to our convertible securities are also included in our computation of fully diluted earnings per share. However, for the year ended May 31, 2006, conversion of the net issuable common share equivalents and the shares related to our convertible securities were not included in our calculation of diluted earnings per share, since the result would have been anti-dilutive.

In October 2004, the Financial Accounting Standards Board ratified the consensus of the Emerging Issues Task Force (the “EITF”) with respect to EITF issue 04-8, “The Effect of Contingently Convertible Instruments on Diluted Earnings Per Share.” The consensus requires us to consider all instruments with contingent conversion features that include a market price trigger in our diluted earnings per share calculations, regardless of whether that market price trigger has been met. Therefore, our calculation of fully diluted earnings per share includes the 8,034,355 contingent shares of our common stock related to our convertible debt, which includes a market price trigger, by applying the “if-converted” method.

RPM International Inc. and Subsidiaries

notes to consolidated financial statements

Effective October 10, 2003, the RPM International Inc. 2003 Restricted Stock Plan for Directors (the “2003 Plan”) was approved by our stockholders. The plan was established primarily for the purpose of recruiting and retaining directors, and to align the interests of directors with the interests of our stockholders. Only directors who are not employees of RPM International Inc. are eligible to participate. Under the 2003 Plan, up to 500,000 shares of RPM International Inc. may be awarded. For the year ended May 31, 2006, 20,000 shares were granted at a weighted-average price of $17.65, with 438,400 shares available for future grant. Unamortized deferred compensation expense relating to restricted stock grants for directors of $0.4 million at May 31, 2006, is being amortized over a three-year vesting period.

On October 8, 2004, our stockholders approved the RPM International Inc. Omnibus Equity and Incentive Plan (the “Omnibus Plan”). The Omnibus Plan is intended to be the primary stock-based award program for covered employees. A wide variety of stock and stock-based awards, as well as dollar-denominated performance-based awards, may be granted under the Omnibus Plan. A total of 6,000,000 shares of our common stock may be subject to awards under the Omnibus Plan. Of the 6,000,000 shares of common stock issuable under the Omnibus Plan, up to 3,000,000 shares may be subject to “full-value” awards such as restricted stock, restricted stock unit, performance stock and performance stock unit awards. We also granted stock appreciation rights (“SARs”) to employees. The SARs are issued at fair value at the date of grant, have up to ten-year terms and vest over four years. Currently all SARs outstanding are to be settled with stock. For the year ended May 31, 2006, 560,000 shares of SARs were granted under the Omnibus Plan at a weighted-average grant price of $17.65. As of May 31, 2006, there were 555,000 SARs outstanding. In addition, we also granted 328,500 shares of restricted stock under the Omnibus Plan at a weighted-average grant price of $17.65. The restricted stock cliff vests over three years. The unamortized deferred compensation expense for the full-value awards as of May 31, 2006 was $7.8 million. As of May 31, 2006, 4,790,000 shares are available for future grant including 2,350,000 shares available for full-value awards.

In addition to the restricted shares outstanding under the Omnibus Plan, we have restricted shares outstanding under two equity compensation plans for employees — the Performance Accelerated Restricted Stock Plan (the “PARS Plan”) and the 1997 Restricted Stock Plan (“1997 Plan”). Under the terms of PARS Plan, up to 1,000,000 shares may be awarded to certain employees, generally subject to forfeiture until the completion of ten years of service or the attainment of certain performance goals. No shares were issued under the PARS Plan in 2006. Under the 1997 Plan, up to 1,562,500 shares may be awarded to certain employees, generally subject to forfeiture. The shares vest upon the latter of attainment of age 55 and the fifth anniversary of the May 31^stimmediately preceeding the date of the grant. For the year ended May 31, 2006, 37,778 shares were awarded under the 1997 Plan at a weighted average price of $18.79. At May 31, 2006, 68,400 shares were vested in this plan (59,500 at May 31, 2005) subject to certain resale restrictions. Unamortized deferred compensation expense at May 31, 2006 of $3.2 million relating to the PARS Plan is being amortized over a ten-year period, and $0.4 million relating to the 1997 Plan is being amortized over the applicable vesting periods.

Gross compensation expense relating to restricted stock awards for the years ended May 31, 2006, 2005 and 2004 was $3.6 million, $1.9 million and $1.3 million, respectively.

Our Shareholder Rights Plan provides existing stockholders the right to purchase stock of RPM International Inc. at a discount in certain circumstances as defined by the Plan. The rights are not exercisable at May 31, 2006 and expire in May 2009.

We have options outstanding under two stock option plans, the 1989 Stock Option Plan and the 1996 Key Employees Stock Option Plan, the latter of which provides for the granting of options for up to 9,000,000 shares. Stock options are granted to employees and directors at an exercise price equal to the fair market value of RPM International Inc. stock at the date of grant. These options are generally exercisable cumulatively in equal annual installments commencing one year from the grant date, and have expiration dates ranging from October 2006 to October 2014. At May 31, 2006 and 2005, 64,247 shares were available for future grant.

RPM International Inc. and Subsidiaries

notes to consolidated financial statements

The following table summarizes option activity under the Plans during the last three fiscal years:


	2006					2005					2004
	Weighted		Number			Weighted		Number			Weighted		Number
	Average		of Shares			Average		of Shares			Average		of Shares
	Exercise		Under			Exercise		Under			Exercise		Under
Shares Under Option	Price		Option			Price		Option			Price		Option

(In thousands, except per share amounts)
Outstanding, beginning of year
(Prices ranging from $8.69 to $17.63)	$	13.90		6,764		$	13.23		7,403		$	12.86		6,937
Options granted
(Prices ranging from $15.15 to $17.63)							17.60		584			14.10		1,254
Options canceled/expired
(Prices ranging from $9.26 to $17.63)		14.06		(77	)		13.57		(76	)		12.98		(206	)
Options exercised
(Prices ranging from $8.69 to $17.63)		12.93		(823	)		11.53		(1,147	)		10.73		(582	)

Outstanding, end of year
(Prices ranging from $8.69 to $17.63)	$	14.03		5,864		$	13.90		6,764		$	13.23		7,403

Exercisable, end of year
(Prices ranging from $8.69 to $17.63)	$	13.68		4,585		$	13.41		4,578		$	13.15		4,775


			Options Outstanding				Options Exercisable
			at May 31, 2006				at May 31, 2006
(Shares in thousands)			Wtd. Avg.		Weighted				Weighted
			Remaining		Average				Average
			Contractual		Exercise				Exercise
Exercise Price Range	Shares		Life (Years)		Price		Shares		Price

$8.69 to $9.99		798		4.3	$	9.33		798	$	9.33
$10.00 to $11.99		151		5.3	$	10.26		151	$	10.26
$12.00 to $14.99		2,682		6.1	$	14.03		1,829	$	14.00
$15.00 to $16.99		1,664		1.7	$	15.39		1,661	$	15.39
$17.00 to $17.63		569		8.3	$	17.62		146	$	17.62

		5,864		4.8	$	14.03		4,585	$	13.68

We apply Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” for our stock-based employee compensation plans. As outlined in SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure,” we chose to apply the modified prospective method in adopting this accounting change. Under this method, stock-based employee compensation expense in fiscal 2006 is the same as that which would have been recognized had the fair value recognition provisions of SFAS No. 123 been applied to account for all employee awards from its original effective date. Results of prior periods have not been restated. See Note A, “Summary of Significant Accounting Policies,” for the pro forma disclosures of net income and earnings per share required under SFAS No. 123 for fiscal year ended May 31, 2004.

RPM International Inc. and Subsidiaries

notes to consolidated financial statements

NOTE E — LEASES

We lease certain property, plant and equipment under long-term lease agreements, some of which provide for increased rental payments based upon increases in the cost-of-living index. The following table illustrates our future minimum lease commitments under all non-cancelable lease agreements, for each of the next five years and in the aggregate, as of May 31, 2006:


May 31

(In thousands)
2007	$	27,524
2008		21,276
2009		13,076
2010		8,622
2011		5,304
Thereafter		13,410

Total Minimum Lease Commitments	$	89,212

Total rental expense for all operating leases amounted to $26.8 million in 2006, $29.4 million in 2005, and $27.1 million in 2004.

NOTE F — PENSION PLANS

We sponsor several pension plans for our employees, including our principal plan (the “Retirement Plan”), which is a non-contributory defined benefit pension plan covering substantially all domestic non-union employees. Pension benefits are provided for certain domestic union employees through separate plans. Employees of our foreign subsidiaries receive pension coverage, to the extent deemed appropriate, through plans which are governed by local statutory requirements. The measurement date used to determine pension benefit measurements for both the U.S. and Non-U.S. plans was February 28, 2006.

The Retirement Plan provides benefits that are based upon years of service and average compensation with accrued benefits vesting after five years. Benefits for union employees are generally based upon years of service, or years of service and average compensation. Our funding policy is to contribute an amount on an annual basis that can be deducted for federal income tax purposes, using a different actuarial cost method and different assumptions from those used for financial reporting. For the fiscal year ending May 31, 2007, we expect to contribute approximately $11.9 million to the Retirement Plans in the U.S., in addition to the approximate $4.1 million that we expect to contribute to our foreign plans.

Net periodic pension cost (income) consisted of the following for the three years ended May 31, 2006:


	U.S. Plans									Non-U.S. Plans
(In thousands)	2006			2005			2004			2006			2005			2004

Service cost	$	13,270		$	11,231		$	9,879		$	2,475		$	2,154		$	1,695
Interest cost		8,245			7,481			7,228			4,741			4,359			3,612
Expected return on plan assets		(10,108	)		(9,759	)		(7,385	)		(4,599	)		(4,117	)		(3,188	)
Amortization of:
Prior service cost		194			294			294
Net gain on adoption of SFAS No. 87		(2	)		(3	)		(23	)
Net actuarial losses recognized		2,375			1,500			2,542			1,511			1,394			1,237

Net Pension Cost	$	13,974		$	10,744		$	12,535		$	4,128		$	3,790		$	3,356

RPM International Inc. and Subsidiaries

notes to consolidated financial statements

The changes in benefit obligations and plan assets, as well as the funded status of our pension plans at May 31, 2006 and 2005, were as follows:


	U.S. Plans						Non-U.S. Plans
(In thousands)	2006			2005			2006			2005

Benefit obligation at beginning of year	$	148,505		$	128,666		$	89,190		$	77,533
Service cost		13,270			11,231			2,475			2,154
Interest cost		8,245			7,481			4,741			4,359
Benefits paid		(9,627	)		(9,730	)		(3,067	)		(2,723	)
Participant contributions								773			681
Acquisitions and new plans								1,230
Plan amendments								258
Actuarial losses		1,276			10,857			9,997			2,487
Currency exchange rate changes								(1,884	)		4,699

Benefit Obligation at End of Year	$	161,669		$	148,505		$	103,713		$	89,190

Fair value of plan assets at beginning of year	$	118,091		$	109,920		$	65,923		$	56,377
Actual return on plan assets		13,591			5,031			8,015			4,316
Employer contributions		8,213			12,870			2,661			3,642
Participant contributions								773			681
Acquisitions and new plans								119
Benefits paid		(9,627	)		(9,730	)		(3,067	)		(2,723	)
Currency exchange rate changes								(1,442	)		3,630

Fair Value of Plan Assets at End of Year	$	130,268		$	118,091		$	72,982		$	65,923

Benefit obligations in excess of plan assets at end of year	$	(31,401	)	$	(30,414	)	$	(30,731	)	$	(23,267	)
Contributions after measurement date		1,941			4			1,268			183
Unrecognized actuarial losses		43,409			47,992			33,147			28,826
Unrecognized prior service cost		2,352			2,546			232
Unrecognized net transitional asset					(2	)

Net Amount Recognized	$	16,301		$	20,126		$	3,916		$	5,742

Amounts recognized in the consolidated balance sheets:
Prepaid benefit cost	$	16,672		$	20,369		$			$	8,676
Accrued benefit liability		(848	)		(755	)		(19,019	)		(11,260	)
Accumulated other comprehensive loss		468			481			22,935			8,326
Intangible asset		9			31

Net Amount Recognized	$	16,301		$	20,126		$	3,916		$	5,742

Accumulated Benefit Obligation	$	125,208		$	114,553		$	92,784		$	76,706

RPM International Inc. and Subsidiaries

notes to consolidated financial statements

The following table summarizes the relationship between our plans’ benefit obligations and assets.


	U.S. Plans
	2006				2005
	Benefit		Plan		Benefit		Plan
(In thousands)	Obligation		Assets		Obligation		Assets

Plans with projected benefit obligation in excess of plan assets	$	161,669	$	130,268	$	145,633	$	114,840
Plans with accumulated benefit obligation in excess of plan assets	$	1,866	$	987	$	1,757	$	998
Plans with assets in excess of projected benefit obligations	$	—	$	—	$	2,872	$	3,251
Plans with assets in excess of accumulated benefit obligations	$	123,342	$	129,281	$	112,796	$	117,093


	Non-U.S. Plans
	2006				2005
	Benefit		Plan		Benefit		Plan
(In thousands)	Obligation		Assets		Obligation		Assets

Plans with projected benefit obligation in excess of plan assets	$	103,713	$	72,982	$	89,190	$	65,923
Plans with accumulated benefit obligation in excess of plan assets	$	92,784	$	72,982	$	48,839	$	37,396
Plans with assets in excess of accumulated benefit obligations	$	—	$	—	$	27,867	$	28,527

To develop the expected long-term rate of return on pension plan assets assumption, we consider the current and expected target asset allocations of the pension portfolio, as well as historical returns and future expectations for returns on various categories of plan assets. The following weighted average assumptions were used to determine our year-end benefit obligations and net periodic pension cost under the plans:


	U.S. Plans									Non-U.S. Plans
Year-End Benefit Obligations	2006			2005			2004			2006			2005			2004

Discount rate		5.75	%		5.75	%		6.00	%		4.89	%		5.40	%		5.65	%
Rate of compensation increase		3.73	%		3.50	%		3.50	%		3.39	%		3.63	%		3.48	%


	U.S. Plans									Non-U.S. Plans
Net Periodic Pension Cost	2006			2005			2004			2006			2005			2004

Discount rate		5.75	%		6.00	%		6.70	%		5.40	%		5.68	%		6.43	%
Expected return on plan assets		8.75	%		8.75	%		8.75	%		6.93	%		7.31	%		7.25	%
Rate of compensation increase		3.50	%		3.50	%		4.00	%		3.63	%		3.66	%		3.95	%

The following tables illustrate the weighted average actual and target allocation of plan assets:


	U.S. Plans										Non-U.S. Plans
	Target			Actual Asset							Target			Actual Asset
	Allocation			Allocation							Allocation			Allocation
	as of February										as of February
	2006			2006			2005				2006			2006			2005

Equity securities		70	%		65	%		70	%	Equity securities		55	%		51	%		58	%
Fixed income securities		25	%		20	%		16	%	Fixed income securities		43	%		47	%		36	%
Cash					10	%		9	%	Cash								2	%
Other		5	%		5	%		5	%	Property and other		2	%		2	%		4	%

Total assets		100	%		100	%		100	%	Total assets		100	%		100	%		100	%

RPM International Inc. and Subsidiaries

notes to consolidated financial statements

The primary objective for the investments of the Retirement Plan is to provide for long-term growth of capital without undue exposure to risk. This is accomplished by utilizing a strategy of equities, fixed income securities and cash equivalents in a mix that is conducive to participation in a rising market while allowing for adequate protection in a falling market. The Plan Investment Committee oversees the investment allocation process, which includes the selection and evaluation of investment managers, the determination of investment objectives and risk guidelines, and the monitoring of actual investment performance. In order to properly manage investment risk, plan policy prohibits short selling, securities lending, financial futures, options and other specialized investments except for certain alternative investments specifically approved by the Investment Committee. The Investment Committee reviews, on a quarterly basis, reports of actual plan investment performance provided by independent third parties, in addition to their review of the plan investment policy on an annual basis.

The investment objectives are similar with regard to our plans outside the U.S., subject to local regulations. In general, investments are managed by private investment managers, reporting to our Investment Committee on a regular basis.

In addition to the defined benefit pension plans discussed above, we also sponsor employee savings plans under Section 401(k) of the Internal Revenue Code, which cover most employees in the United States. We record expense for defined contribution plans for any employer matching contributions made in conjunction with services rendered by employees. The majority of our plans provide for matching contributions based upon qualified employee contributions. Matching contributions are invested in the same manner that the participants invest their own contributions. Matching contributions charged to income were $8.6 million, $8.2 million and $7.8 million for years ending May 31, 2006, 2005 and 2004, respectively.

We expect to pay the following estimated pension benefit payments in the next five years (in millions): $10.9 in 2007; $12.4 in 2008; $13.8 in 2009; $14.3 in 2010; $15.6 in 2011. In the five years thereafter (2012-2016) we expect to pay $102.5 million.

NOTE G — POSTRETIREMENT HEALTH CARE BENEFITS

We sponsor several unfunded health care benefit plans for certain of our retired employees. Eligibility for these benefits is based upon minimum age and service requirements. The following table illustrates the effect on operations of these plans for the three years ended May 31, 2006:


	U.S. Plans							Non-U.S. Plans
(In thousands)	2006			2005		2004		2006		2005		2004

Service cost — Benefits earned during this period	$	—		$	11	$	11	$	365	$	265	$	205
Interest cost on the accumulated obligation		615			661		634		539		473		396
Amortization of prior service cost		(27	)
Amortization of unrecognized (gains) losses		59			27				47		28

Net Periodic Postretirement Expense	$	647		$	699	$	645	$	951	$	766	$	601

RPM International Inc. and Subsidiaries

notes to consolidated financial statements

The changes in the benefit obligations of the plans at May 31, 2006 and 2005 were as follows:


	U.S. Plans						Non-U.S. Plans
(In thousands)	2006			2005			2006			2005

Accumulated postretirement benefit obligation at beginning of year	$	11,169		$	11,465		$	8,331		$	6,815
Service cost					11			365			265
Interest cost		615			661			539			473
Benefit payments		(849	)		(1,013	)		(190	)		(122	)
Actuarial (gains) losses		(1,488	)		353			1,068			333
Amendments		(13	)		(308	)
Currency exchange rate changes								711			567

Accumulated postretirement benefit obligation at end of year		9,434			11,169			10,824			8,331
Unrecognized actuarial gains (losses)		(249	)		(1,796	)		(2,695	)		(1,542	)
Unrecognized prior service cost (benefit)		294			308

Accrued Postretirement Health Care Benefits	$	9,479		$	9,681		$	8,129		$	6,789

In determining the postretirement benefit amounts outlined above, measurement dates as of May 31 for each period were applied.

The following weighted average assumptions were used to determine our year-end benefit obligations and net periodic postretirement benefit costs under the plans:


	U.S. Plans									Non-U.S. Plans
Year-End Benefit Obligations	2006			2005			2004			2006			2005			2004

Discount rate		6.00	%		5.75	%		6.00	%		5.50	%		6.00	%		6.25	%
Current healthcare cost trend rate		9.50	%		10.00	%		10.00	%		7.00	%		8.00	%		9.00	%
Ultimate healthcare cost trend rate		5.00	%		5.00	%		5.00	%		5.00	%		5.00	%		5.00	%
Year ultimate healthcare cost trend rate will be realized		2015			2015			2014			2008			2008			2008


	U.S. Plans									Non-U.S. Plans
Net Periodic Postretirement Benefit Cost		2006		2005			2004			2006			2005			2004

Discount rate		5.75	%		6.00	%		6.70	%		6.00	%		6.25	%		7.00	%
Healthcare cost trend rate		10.00	%		10.00	%		9.00	%		8.00	%		9.00	%		9.00	%
Ultimate healthcare cost trend rate		5.00	%		5.00	%		5.00	%		5.00	%		5.00	%		5.00	%
Year ultimate healthcare cost trend rate will be realized		2015			2014			2007			2008			2008			2007

Increasing or decreasing current healthcare cost trend rates by 1% would affect accumulated postretirement benefit obligation and net postretirement expense by the following amounts for the years ended May 31, 2006 and 2005:


	U.S. Plans						Non-U.S. Plans
(In thousands)	2006			2005			2006			2005

1% Increase in trend rate
Accumulated Benefit Obligation	$	808		$	950		$	2,408		$	1,617
Postretirement Cost		55			60			211			163

1% Decrease in trend rate
Accumulated Benefit Obligation	$	(708	)	$	(830	)	$	(1,844	)	$	(1,262	)
Postretirement Cost		(49	)		(50	)		(151	)		(123	)

We expect to pay approximately $1.0 million in estimated postretirement benefits in each of the next five years. In the five years thereafter (2012-2016) we expect to pay $5.9 million.

RPM International Inc. and Subsidiaries

notes to consolidated financial statements

In connection with the Medicare Prescription Drug Improvement and Modernization Act of 2003, we are expected to receive a federal subsidy amounting to approximately $1.8 million to subsidize the prescription drug coverage provided by the U.S. nonpension postretirement benefit plan over a period of approximately 10 years beginning in 2006. We will utilize the subsidy for the purpose of reducing both employer and participant contributions for prescription drug related coverage. We expect to begin receiving this subsidy in calendar 2006.

In accordance with the provision of FASB Staff Position FSP FAS 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,” we have included the impact of our portion of the subsidy in the determination of accumulated postretirement benefit obligation for the U.S. nonpension postretirement benefit plan for the period ended May 31, 2006, the measurement date. The impact of the subsidy resulted in a reduction in the benefit obligation of approximately $2.2 million with a $0.3 million decrease in net periodic cost in fiscal 2006.

We reflected the impact of the Act for the first time in the fiscal year end 2005 accumulated postretirement benefit obligation (“APBO”) and the fiscal year end 2006 net periodic postretirement expense. We reflected the change in the APBO as an actuarial gain in accordance with FASB Staff Position No. FAS 106-2. As of May 31, 2006, we have not received any reimbursements from Medicare. We expect to begin recovering payments on a quarterly basis beginning in late 2006.

NOTE H — CONTINGENCIES AND LOSS RESERVES

Accrued loss reserves and asbestos-related liabilities consist of the following:


May 31	2006		2005

(In thousands)
Accrued product liability reserves	$	53,764	$	57,414
Accrued warranty reserves		7,524		5,822
Accrued environmental reserves		5,390		2,216

Accrued loss reserves — current		66,678		65,452
Asbestos-related liabilities — current		58,925		55,000

Total Reserves — Current	$	125,603	$	120,452

Accrued warranty and product liability reserves — noncurrent	$	14,758	$	8,044
Asbestos-related liabilities — noncurrent		362,360		46,172

Total Reserves — Noncurrent	$	377,118	$	54,216

We provide, through our wholly-owned insurance subsidiaries, certain insurance coverage, primarily product liability, to our other subsidiaries. Excess coverage is provided by third party insurers. Our reserves provide for these potential losses as well as other uninsured claims. Product warranty expense is recorded within selling, general and administrative expense. As of May 31, 2006, the current portion of these reserves amounted to $53.8 million as compared with $57.4 million at May 31, 2005, while the total long-term reserves increased to $13.3 million at May 31, 2006 from $6.8 million at May 31, 2005, primarily as a result of our continuing evaluation of our liability under a class action lawsuit settlement covering our Dryvit residential exterior insulated finish systems product line (“EIFS”). Based upon the final court order approving the national class action settlement and Dryvit’s claims experience to date, Dryvit determined that a $11.9 million increase to its existing reserves was necessary and appropriate to fully cover the anticipated costs of the settlement. It is anticipated that $5.0 million of this reserve increase will be recovered from third-party insurance carriers and accordingly, insurance receivables were increased by that amount. Third-party excess insurers have historically paid varying shares of Dryvit’s defense and settlement costs for individual commercial and residential EIFS lawsuits under various cost-sharing agreements. Dryvit has increasingly assumed a greater share of the costs associated with its EIFS litigation as it seeks funding commitments from our third-party excess insurers and will likely continue to do so pending the outcome of coverage litigation involving these same third-party insurers. One of our excess insurers filed suit seeking a declaration with respect to its rights and obligations for EIFS related claims under its applicable policies. During the third quarter, the court granted Dryvit’s motion to stay the federal filing based on a more complete state court complaint filed against these same insurers and our insurance broker. The coverage case will now proceed in state court.

Certain of our wholly-owned subsidiaries, principally Bondex International, Inc. (collectively referred to as the subsidiaries), are defendants in various asbestos-related bodily injury lawsuits filed in various state courts with the vast majority of current claims pending in five states —Illinois, Ohio, Mississippi, Texas and Florida. These cases generally seek unspecified damages for asbestos-related diseases based on alleged exposures to asbestos-containing products previously manufactured by our subsidiaries.

Our subsidiaries vigorously defend these asbestos-related lawsuits and in many cases, the plaintiffs are unable to demonstrate that any injuries they have incurred, in fact, resulted from exposure to one of our subsidiaries’ products. In such cases, the subsidiaries are generally dismissed

RPM International Inc. and Subsidiaries

notes to consolidated financial statements

without payment. With respect to those cases where compensable disease, exposure and causation are established with respect to one of our subsidiaries’ products, the subsidiaries generally settle for amounts that reflect the confirmed disease, the particular jurisdiction, applicable law, the number and solvency of other parties in the case and various other factors which may influence the settlement value each party assigns to a particular case at the time.

As of May 31, 2006, our subsidiaries had a total of 10,580 active asbestos cases compared to a total of 8,646 cases as of May 31, 2005. For the quarter ended May 31, 2006, our subsidiaries secured dismissals and/or settlements of 106 claims and made total payments of $12.9 million, which included defense costs paid during the current quarter of $7.1 million. For the comparable period ended May 31, 2005, dismissals and/or settlements covered 305 claims and total payments were $11.1 million, which included defense costs paid during the quarter of $8.1 million. For the year ended May 31, 2006, our subsidiaries secured dismissals and/or settlements of 945 claims and made total payments of $59.9 million, which included defense costs paid during the current year of $24.0 million. For the comparable period ended May 31, 2005, dismissals and/or settlements covered 982 claims and total payments were $67.4 million, which included defense costs paid during the year of $20.8 million. In some jurisdictions, cases may involve more than one individual claimant. As a result, settlement or dismissal statistics on a per case basis are not necessarily reflective of the payment amounts on a per claimant basis and the amounts and rates can vary widely depending on a variety of factors including the mix of malignancy and non-malignancy claims and the amount of defense costs incurred during the period.

The rate at which plaintiffs filed asbestos-related suits against our subsidiaries, particularly Bondex, increased since the fourth fiscal quarter of 2002, influenced by the bankruptcy filings of numerous other defendants in asbestos-related litigation. Based on the significant increase in asbestos claims activity, which in many cases disproportionately increased Bondex’s exposure in joint and several liability law states, our third-party insurance was depleted within the first fiscal quarter of 2004. Our third-party insurers historically had been responsible, under various cost-sharing arrangements, for the payment of approximately 90% of the indemnity and defense costs associated with our asbestos litigation. Prior to this sudden precipitous increase in loss rates, the combination of book loss reserves and insurance coverage was expected to adequately cover asbestos claims for the foreseeable future. We have reserved our rights with respect to several of our third-party insurers’ claims of exhaustion, and in late calendar 2002 commenced a review of our known insurance policies to determine whether other insurance limits may be available to cover our asbestos liabilities.

As a result of an examination of our subsidiaries’ historical insurance and as previously disclosed, certain of our subsidiaries filed a complaint in July 2003 for declaratory judgment, breach of contract and bad faith against various third-party insurers, challenging their assertion that their policies covering asbestos-related claims have been exhausted. The coverage litigation involves, among other matters, insurance coverage for claims arising out of alleged exposure to asbestos containing products manufactured by the previous owner of Bondex before March 1, 1966. On March 1, 1966, Republic Powdered Metals Inc. (as it was known then), purchased the assets and assumed the liabilities of the previous owner of Bondex, which subsequently dissolved and was never a subsidiary of Republic Powdered Metals, Bondex, RPM, Inc. or the Company. Because of the earlier assumption of liabilities, however, Bondex has historically and must continue to respond to lawsuits alleging exposure to these asbestos containing products. The Company discovered that the defendant insurance companies in the coverage litigation had wrongfully used cases alleging exposure to these pre-1966 products to erode their aggregate limits. This conduct, apparently known by the insurance industry based on discovery conducted to date, was in breach of the insurers’ policy language. While this pending litigation could, in the future, result in third party coverage for a substantial amount of these future asbestos claims, the Company has not considered any such future recovery in determining the scope and amount of its reserve for future unknown asbestos claims. Two of the defendant insurers have filed counterclaims seeking to recoup certain monies should the plaintiffs prevail on their claims. Pursuant to a revised case management order, the parties are to complete fact discovery by August 4, 2006 (fact discovery was substantially completed in accordance with a previous order by July 14, 2006), expert discovery by November 17, 2006, and dispositive motions by no later than December 29, 2006, with replies due no later than March 16, 2007. A trial date was previously set for January 29, 2007. Although the most recent case management order did not change the scheduled trial date, the changes to the discovery and dispositive motion deadlines will necessarily postpone the trial date, likely until the end of the fiscal year. It is possible that this and other dates may be modified as the case progresses.

We are unable at the present time to predict the timing or ultimate outcome of this insurance coverage litigation. Consequently, we are unable to predict whether, or to what extent, any additional insurance may be available to cover a portion of our subsidiaries’ asbestos liabilities. We have not included any potential benefits from this litigation either in our financial statements or in calculating our current asbestos reserve. Our wholly-owned captive insurance companies have not provided any insurance or reinsurance coverage for any of our subsidiaries’ asbestos-related claims.

RPM International Inc. and Subsidiaries

notes to consolidated financial statements

During the last seven months of 2003, new state liability laws were enacted in three states (Mississippi, Ohio and Texas) where at that time more than 80% of the claims against Bondex were pending. The changes generally provided for liability to be determined on a “proportional cause” basis, thereby limiting Bondex’s responsibility to only its share of the alleged asbestos exposure. During the third and fourth fiscal quarters of 2004, two of the three previously mentioned states that adopted “proportional cause” liability in 2003 passed additional legislation impacting medical criteria and product identification in asbestos-related litigation. While there have been some changes in the type of claims filed in certain of these states, the ultimate influence these law changes will have on future claims activity and settlement values is still developing. Claim filings in these three states at the quarter ended May 31, 2006, coupled with the non-malignancy filings in Florida, currently comprise approximately 73% of the total aggregate claims filed against Bondex.

At the end of 2002 and through the third fiscal quarter of 2003, Bondex had concluded it was not possible to estimate the cost of disposing all of the asbestos-related claims that might be filed against Bondex in the future due to a number of reasons, including its lack of sufficient comparable loss history from which to assess either the number or value of any future asbestos-related claims. As previously disclosed, during the fourth fiscal quarter of 2003, Bondex retained a consulting firm to assist in analyzing its loss history data, to evaluate whether it would be possible to estimate the cost of disposing pending claims in light of both past and recent loss history, and to assist in determining whether future asbestos-related claims reasonably expected to be filed against Bondex were measurable, given recent changes in various state laws and the prospect of potential federal asbestos-related legislation. Bondex provided these consultants with all relevant data regarding asbestos-related claims filed against Bondex through May 31, 2003. At the time, management concluded, with the consultants’ input, that it was not possible to estimate the full range of the cost of resolving all future asbestos-related claims against Bondex because of the uncertainties associated with the litigation of those claims.

Estimating the future cost of asbestos related claims was and continues to be subject to many uncertainties, including (i) the ultimate number of claims filed; (ii) the cost of resolving both current known and future unknown claims; (iii) the amount of insurance, if any, available to cover such claims, including the outcome of coverage litigation against the subsidiaries’ third party insurers; (iv) future earnings and cash flow of our subsidiaries; (v) the impact of bankruptcies of other companies whose share of liability may be imposed on our subsidiaries under certain state liability laws; (vi) the unpredictable aspects of the litigation process including a changing trial docket and the jurisdictions in which trials are scheduled; (vii) the outcome of any such trials including judgments or jury verdicts, as a result of our more aggressive defense posture which includes taking selective cases to verdict; (viii) the lack of specific information in many cases concerning exposure to the subsidiaries’ products and the claimants’ diseases; (ix) potential changes in applicable federal and/or state law; and (x) the potential impact of various proposed structured settlement transactions or subsidiary bankruptcies by other companies, some of which are the subject of federal appellate court review, the outcome of which could materially affect any future asbestos-related liability estimates. In addition to the foregoing, ongoing debate in the Senate concerning the establishment of a trust fund to pay future asbestos related claims and remove such cases from federal and state courts with industry and insurers funding the trust continues to be a significant variable that makes it increasingly difficult to predict with certainty the full exposure of future, unknown asbestos-related claims.

Based on the foregoing considerations, at May 31, 2003, we concluded that we could not fully estimate the liability that would result from all future asbestos claims. We established a reserve for those pending cases that had progressed to a stage where the cost to dispose of these cases could, at the time, reasonably be estimated, as well as a $51.2 million provision for future unasserted claims that were estimable at May 31, 2003. The estimation of even pending cases was and is always difficult due to the dynamic nature of asbestos litigation including the variables discussed above. As described below, the estimated range of potential loss covering measurable known asbestos claims and this provision for future claims that were estimable at May 31, 2003 was $140.0 million to $145.0 million. Accordingly, we established a reserve equal to the lower end of this range of potential loss by taking an asbestos charge to fiscal 2003 operations of $140.0 million. At the time of the reserve, we believed that this asbestos reserve would be sufficient to cover asbestos-related cash flow requirements over the estimated three-year life of the reserve. The $140.0 million charge also included $15.0 million in total projected defense costs over the estimated three-year life of the reserve. By comparison, Bondex’s share of costs (net of then-available third-party insurance) for asbestos-related product liability was $6.7 million and $2.8 million for the years ended May 31, 2003 and 2002, respectively.

RPM International Inc. and Subsidiaries

notes to consolidated financial statements

Since May 31, 2003, we have reviewed and evaluated on a quarterly basis the adequacy of our asbestos reserve. The range of loss calculation for the $140 million reserve was based on an extensive analysis of the most critical factors that influence our asbestos-related costs including: (i) the gross number of open malignancy claims (principally mesothelioma claims) as these claims have the most significant impact on our asbestos settlement costs; (ii) historical and current settlement costs and dismissal rates by various categories; (iii) analysis of the jurisdiction and governing law of the states in which these claims are pending; and (iv) outside defense counsel’s opinions and recommendations with respect to the merits of such claims. Although the number of open malignancy claims has since increased, our average settlement costs for these claims have declined and dismissal rates have increased. Several favorable verdicts during the past two fiscal years have further contributed to lower settlement values and higher dismissal rates. Our defense costs, however, have increased significantly as a result of this more aggressive defense strategy.

Based on our review of our asbestos reserve for the second quarter ending November 30, 2004, we concluded that an increase in our reserve was appropriate and recorded an asbestos reserve adjustment of $47.0 million for the quarter ended November 30, 2004, which we believed would be sufficient to cover any incremental cash flow requirements through fiscal 2006 not covered by the $140.0 million reserve, as well as the additional cash flow requirements for the balance of our then pending known claims and anticipated higher defense costs. Approximately $32.0 million of the $47.0 million reserve adjustment was allocated to anticipated higher future defense costs. Consistent with this methodology, additional asbestos reserves were taken for the third and fourth quarters of fiscal 2005 and in each of the first three quarters of fiscal 2006.

For the third quarter ended February 28, 2006, the additional asbestos reserve amounted to $15.0 million based on management’s quarterly review of pending claims and defense costs. This reserve adjustment put our total asbestos reserves at approximately $99.2 million, which we believed would be sufficient to cover the cash flow requirements for the balance of our pending known claims and defense costs. Our $15.0 million reserve increase was based on our experience for the third quarter and our valuation of our known existing claims. Approximately $7.7 million of the $15.0 million reserve adjustment was allocated to anticipated higher future defense costs.

As part of our ongoing assessment of our asbestos liability exposure, during the third quarter we also considered whether (i) our recent verdict experience, (ii) venue reforms, (iii) medical criteria requirements, (iv) proportionate share liability and other known tort reforms provided sufficient relevant and reliable information to reasonably estimate our future liability for asbestos-related claims. Accordingly, as previously disclosed, in the third quarter, we retained Crawford & Winiarski (“C&W”), an independent, third-party consulting firm with expertise in the area of asbestos valuation work, to assist us in calculating an estimate of our liability for unasserted potential future asbestos-related claims.

The methodology used by C&W to project our liability for unasserted potential future asbestos-related claims included C&W doing an analysis of (a) widely accepted forecast of the population likely to have been exposed to asbestos; (b) epidemiological studies estimating the number of people likely to develop asbestos-related diseases; (c) historical rate at which mesothelioma incidences resulted in the payment of claims by us; (d) historical settlement averages to value the projected number of future compensable mesothelioma claims; (e) historical ratio of mesothelioma related indemnity payments to non-mesothelioma indemnity payments; and (f) historical defense costs and their relationship with total indemnity payments.

As a result, at the end of the fiscal 2006 fourth quarter, we increased our reserve for asbestos claims by approximately $335.0 million, while paying out the $12.9 million for dismissals and/or settlements resulting in our reserve moving from $99.2 million at February 28, 2006 to $421.3 million at May 31, 2006. This reserve increase is based upon C&W’s analysis of our total estimated liability for pending and unasserted potential future claims through May 31, 2016. This amount was calculated on a pre-tax basis and was not discounted for the time value of money. In light of the uncertainties inherent in making long-term projections, we have determined that the ten-year period through 2016 is the most reasonable time period over which reasonably accurate estimates might still be made for projecting asbestos liabilities and defense costs and, accordingly, the reserve does not include asbestos liabilities for any period past 2016.

In determining the amount of our asbestos reserves, we relied on assumptions that are based on currently known facts and projection models. Our actual expenses could be significantly higher or lower than those recorded if assumptions used in our or C&W’s calculations vary

RPM International Inc. and Subsidiaries

notes to consolidated financial statements

significantly from actual results. Key variables in these assumptions include the period of exposure to asbestos claims, the number and type of new claims to be filed each year, the rate at which mesothelioma incidences result in compensable claims against us, the average cost of disposing of each such new claim, the dismissal rates each year and the related annual defense costs. Furthermore, predictions with respect to these variables are subject to greater uncertainty as the projection period lengthens. A significant upward or downward trend in the number of claims filed, depending on the nature of the alleged injury; the jurisdiction where filed; the average cost of resolving each such claim and the quality of the product identification, could change our estimated liability, as could any substantial adverse verdict at trial. A federal legislative solution, further state tort reform or structured settlement transaction could also change the estimated liability.

Subject to the foregoing variables, based on currently available data and upon the analysis of C&W, we believe that our current asbestos reserves are sufficient to cover asbestos-related cash flow requirements for our known pending and unasserted potential future asbestos-related claims. However, given the uncertainties associated with projecting matters into the future and numerous other factors outside of our control, we believe that it is reasonably possible we may incur asbestos liabilities for the period through 2016 and beyond in excess of the C&W projection and our recorded reserve. While it is reasonably possible that such excess liabilities could be material to operating results in any given quarter or year, we do not believe that it is reasonably possible that such excess liabilities would have a material adverse effect on our long-term results of operations, liquidity or consolidated financial position.

We recognize that future facts, events and legislation, both state and/or federal, may alter our estimates of pending claims and unasserted potential future claims. With our outside advisors, we will continue to monitor the number and mix (disease type) of claims filed and paid each period against the estimates calculated by our asbestos liability model, the impact of state law changes and the evolving nature of federal legislative efforts to address asbestos litigation including the pending federal criminal investigation into the conduct of at least three plaintiffs’ law firms (all of whom have filed claims against our Subsidiaries and many other defendants) with respect to their asbestos claim-filing practices. This federal investigation, coupled with recent judicial findings in Texas, calls into question from a medical and legal perspective, the veracity of a significant number of asbestos claims for all defendants, including our Subsidiaries. We will continue to explore all feasible alternatives available to resolve our asbestos-related exposure in a manner consistent with the best interests of our stockholders.

The following table illustrates the movement of current and long-term asbestos-related liabilities for the three years ended May 31, 2006:

Asbestos Liability Movement
(Current and Long-Term)


	Balance at				Deductions			Balance at
	Beginning		Additions to		(Primarily			End of
(In thousands)	of Period		Asbestos Charge		Claims Paid)			Period

Year Ended May 31, 2006	$	101,172	$	380,000	$	59,887		$	421,285
Year Ended May 31, 2005		90,607		78,000		67,435			101,172
Year Ended May 31, 2004		144,583				53,976	^(a)		90,607


(a)		Represents our portion of total claims paid during the fiscal year ended May 31, 2004 of $63.4 million, net of insurer contributions totaling $9.4 million. Insurance coverage was depleted in the first quarter of fiscal year 2004.

RPM International Inc. and Subsidiaries

notes to consolidated financial statements

In addition, like others in similar businesses, we are involved in several proceedings relating to environmental matters. It is our policy to accrue remediation costs when it is probable that such efforts will be required and the related costs can be reasonably estimated. These liabilities are undiscounted. Provision for estimated warranty costs is recorded at the time of sale and periodically adjusted to reflect actual experience.

Due to the uncertainty inherent in the loss reserve estimation process, we are unable to estimate an additional range of loss in excess of our accruals. It is at least reasonably possible that actual costs will differ from estimates, but, based upon information presently available, such future costs are not expected to have a material adverse effect on our competitive or financial position or our ongoing results of operations. However, such costs could be material to results of operations in a future period.

NOTE I — SEGMENT INFORMATION

In addition to two reportable segments, there are certain business activities, referred to as corporate/other, that do not constitute an operating segment, including corporate headquarters and related administrative expenses, results of our captive insurance companies, gains or losses on the sales of certain assets and other expenses not directly associated with either reportable operating segment. Related assets consist primarily of investments, prepaid expenses, deferred pension assets, and headquarters property and equipment. These corporate and other assets and expenses reconcile reportable segment data to total consolidated net sales, income before income taxes, identifiable assets, capital expenditures, and depreciation and amortization.

The ten largest consumer segment customers represented approximately 22%, 25% and 25% of our consolidated net sales and approximately 55%, 57% and 55% of consumer net sales for 2006, 2005 and 2004, respectively. Sales to The Home Depot represented 10%, 11% and 11% of our consolidated net sales and 25%, 26% and 25% of our consumer segment net sales for 2006, 2005 and 2004, respectively.

We reflect income from our joint ventures on the equity method, and receive royalties from our licensees. Total income from royalties and joint ventures amounted to approximately 2% or less of income before income taxes for each of the periods presented, and is therefore included as an offset to selling, general and administrative expenses. Export sales amounted to less than 10% of net sales for each of the three years presented.

RPM International Inc. and Subsidiaries

notes to consolidated financial statements


Year Ended May 31	2006			2005			2004

(In thousands)
Segment Information
Net Sales
Industrial	$	1,811,590		$	1,441,548		$	1,272,781
Consumer		1,196,748			1,114,187			1,034,772

Total	$	3,008,338		$	2,555,735		$	2,307,553

Income (Loss) Before Income Taxes
Industrial	$	201,230		$	168,578		$	140,706
Consumer		159,147			147,601			142,852
Corporate/Other		(482,852	)¹		(152,451	)¹		(65,942	)

Total	$	(122,475	)	$	163,728		$	217,616

Identifiable Assets
Industrial	$	1,628,038		$	1,278,234		$	1,111,978
Consumer		1,102,687			1,144,909			1,090,531
Corporate/Other		249,493			224,332			142,693

Total	$	2,980,218		$	2,647,475		$	2,345,202

Capital Expenditures
Industrial	$	39,274		$	30,714		$	26,043
Consumer		20,800			24,175			23,303
Corporate/Other		1,081			720			1,907

Total	$	61,155		$	55,609		$	51,253

Depreciation and Amortization
Industrial	$	40,536		$	33,213		$	30,764
Consumer		29,938			29,264			29,503
Corporate/Other		3,825			3,515			3,010

Total	$	74,299		$	65,992		$	63,277

Geographic Information
Net Sales (based on shipping location)
United States	$	2,248,259		$	2,009,748		$	1,841,837

Foreign
Canada		222,602			192,579			172,894
Europe		411,548			250,585			207,557
Other Foreign		125,929			102,823			85,265

Total Foreign		760,079			545,987			465,716

Total	$	3,008,338		$	2,555,735		$	2,307,553

Long-Lived Assets
United States	$	1,190,722		$	1,158,138		$	1,148,773

Foreign
Canada		121,137			98,880			90,538
Europe		260,866			103,070			98,025
Other Foreign		18,027			18,392			16,858

Total Foreign		400,030			220,342			205,421

Total	$	1,590,752		$	1,378,480		$	1,354,194

¹ The asbestos charge, totaling $380.0 million in fiscal 2006 and $78.0 million in fiscal 2005, reflected in Corporate/Other, relates to our Bondex International, Inc. subsidiary.

RPM International Inc. and Subsidiaries

notes to consolidated financial statements

NOTE J — QUARTERLY INFORMATION (UNAUDITED)

The following is a summary of the quarterly results of operations for the years ended May 31, 2006 and 2005:


	For Quarter Ended
(In thousands, except per share amounts)	August 31		November 30		February 28			May 31

2006
Net Sales	$	747,352	$	739,350	$	612,475		$	909,161
Gross Profit		316,119		299,259		244,340			391,850
Net Income (Loss)		49,961		18,527		(2,687	)		(142,006	)^(c)
Basic Earnings (Loss) Per Share	$	0.43	$	0.16	$	(0.02	)	$	(1.21	)
Diluted Earnings (Loss) Per Share^(a)	$	0.40	$	0.15	$	(0.02	)^(b)	$	(1.21	)^(b)

Dividends Per Share	$	0.15	$	0.16	$	0.16		$	0.16


	For Quarter Ended
(In thousands, except per share amounts)	August 31		November 30		February 28			May 31

2005
Net Sales	$	661,513	$	623,469	$	516,337		$	754,416
Gross Profit		294,887		270,688		211,117			329,859
Net Income (Loss)		54,486		9,112		(4,772	)		46,206
Basic Earnings (Loss) Per Share	$	0.47	$	0.08	$	(0.04	)	$	0.39
Diluted Earnings (Loss) Per Share^(a)	$	0.44	$	0.08	$	(0.04	)^(b)	$	0.37

Dividends Per Share	$	0.14	$	0.15	$	0.15		$	0.15


(a)		Includes dilutive effect of EITF 04-8 as discussed in Note D.

(b)		Conversion of the net issuable common share equivalents and the shares related to convertible securities for the three month periods ended February 28, 2006 and 2005, and May 31, 2006 were not assumed, since the results would have been anti-dilutive.

(c)		During the fourth quarter ended May 31, 2006, we increased our reserve for asbestos claims by $335.0 million ($215.6 million after-tax), representing our estimation of our liability for pending and unasserted claims through May 31, 2016. See Note H to the Consolidated Financial Statements for discussion.

Quarterly earnings per share may not total to the yearly earnings per share due to the weighted average number of shares outstanding in each quarter.

RPM International Inc. and Subsidiaries

QUARTERLY STOCK PRICE AND DIVIDEND INFORMATION

RPM shares of common stock are traded on the New York Stock Exchange under the symbol RPM. The high and low sales prices for the shares of common stock, and the cash dividends paid on the common stock, for each quarter of the two most recent fiscal years are set forth in the table below.

Range of Sales Prices and Dividends Paid


					Dividends paid
Fiscal 2006	High		Low		per share

First Quarter	$	19.21	$	17.47	$	0.15
Second Quarter	$	19.15	$	16.90	$	0.16
Third Quarter	$	19.00	$	16.96	$	0.16
Fourth Quarter	$	19.70	$	17.40	$	0.16


					Dividends paid
Fiscal 2005	High		Low		per share

First Quarter	$	16.02	$	13.85	$	0.14
Second Quarter	$	18.99	$	15.71	$	0.15
Third Quarter	$	19.95	$	17.58	$	0.15
Fourth Quarter	$	19.25	$	16.51	$	0.15

Source: The Wall Street Journal

Cash dividends are payable quarterly, upon authorization of the Board of Directors. Regular payment dates are approximately the last day of July, October, January and April.

The number of holders of record of RPM common stock as of August 1, 2006 was approximately 33,519.

RPM International Inc. and Subsidiaries

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of RPM International Inc. is responsible for establishing and maintaining adequate internal control over financial reporting for the company, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. RPM’s internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Consolidated Financial Statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements and even when determined to be effective, can only provide reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may be inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of RPM’s internal control over financial reporting as of May 31, 2006. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework. The scope of such assessment did not include illbruck Sealant Systems, which was acquired by the Company in a purchase business combination on August 31, 2005. illbruck Sealant Systems’ total assets and net sales represent approximately 6.9% and 5.0%, respectively, of the accompanying consolidated financial statement amounts as of and for the year ended May 31, 2006. illbruck Sealant Systems will be included in our assessment of internal controls during fiscal 2007. Based on this assessment, management concluded that, as of May 31, 2006, RPM’s Internal Control over financial reporting is effective.

The independent registered public accounting firm Ernst & Young LLP, has also audited the Company’s assessment of internal control over financial reporting as of May 31, 2006 and their report thereon is included on page 59 of this report.




Frank C. Sullivan President and Chief Executive Officer		Robert L. Matejka Vice President, Chief Financial Officer and Controller

July 24, 2006

RPM International Inc. and Subsidiaries

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS

RPM International Inc. and Subsidiaries
Medina, Ohio

We have audited the accompanying consolidated balance sheet of RPM International Inc. and Subsidiaries (“RPM” or “the Company”) as of May 31, 2006 and the related consolidated statements of income, stockholders’ equity, and cash flows for the year then ended. 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 audit.

We conducted our audit in accordance with auditing standards of the Public Company Accounting Oversight Board (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 audit provides a reasonable basis for our opinion.

In our opinion, the 2006 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of RPM at May 31, 2006 and the consolidated results of their operations and their cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of RPM’s internal control over financial reporting as of May 31, 2006, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated July 24, 2006 expressed an unqualified opinion thereon.

Cleveland, Ohio
July 24, 2006

RPM International Inc. and Subsidiaries

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS

RPM International Inc. and Subsidiaries
Medina, Ohio

We have audited management’s assessment, included in the accompanying “Management’s Report on Internal Control Over Financial Reporting,” that RPM International Inc. and Subsidiaries (“RPM” or “the Company”) maintained effective internal control over financial reporting as of May 31, 2006, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). RPM’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of illbruck Sealant Systems (illbruck), which was acquired by RPM on August 31, 2005, and is included in the 2006 consolidated financial statements of RPM and constituted approximately $204 million of total assets as of May 31, 2006 and approximately $149 million and $6.1 million of revenue and pre-tax income, respectively, for the year then ended. Our audit of internal control over financial reporting of RPM as of May 31, 2006 also did not include an evaluation of the internal control over financial reporting of illbruck.

In our opinion, management’s assessment that RPM maintained effective internal control over financial reporting as of May 31, 2006, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, RPM maintained, in all material respects, effective internal control over financial reporting as of May 31, 2006, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of RPM International Inc. and Subsidiaries as of May 31, 2006 and the related consolidated statements of income, stockholders’ equity, and cash flows for the year then ended, and our report dated July 24, 2006, expressed an unqualified opinion thereon.

Cleveland, Ohio
July 24, 2006

RPM International Inc. and Subsidiaries

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS

RPM International Inc. and Subsidiaries
Medina, Ohio

We have audited the accompanying balance sheet of RPM International Inc. and Subsidiaries (the “Company”), as of May 31, 2005, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the two years in the period ended May 31, 2005. These financial statements are the responsibility of the management of the Company. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of May 31, 2005 and the results of its operations and its cash flows for each of the two years in the period ended May 31, 2005, in conformity with U.S. generally accepted accounting principles.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of May 31, 2005, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated July 7, 2005 expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Cleveland, Ohio

July 7, 2005, except as to Note K of the Annual Report on
Form 10-K for the year ended May 31, 2005, which is as of
July 22, 2005.

RPM International Inc. and Subsidiaries

EX-18.1 7 l21773aexv18w1.htm EX-18.1 EX-18.1

Exhibit 18.1

July 24, 2006

Board of Directors
RPM International Inc.

Note A of the Notes to the Consolidated Financial Statements of RPM International Inc. (the “Company”) included in its annual report on Form 10-K for the fiscal year ended May 31, 2006 describes an accounting change regarding the date of the Company’s annual impairment assessment for goodwill and other indefinite-lived intangible assets from the last day of the first quarter to the first day of the fourth quarter. There are no authoritative criteria for determining which date is preferable based on the particular circumstances; however, we conclude that such change is acceptable which, based on your business judgment to make this change for the stated reasons, is preferable in your circumstances.


	Very truly yours, /s/ Ernst & Young LLP ERNST & YOUNG LLP

EX-21.1 8 l21773aexv21w1.htm EX-21.1 EX-21.1

Exhibit 21.1

The following is a list of subsidiaries of RPM International Inc.¹ as of August 3, 2006.


		Jurisdiction of
Name		Incorporation
First Colonial Insurance Company, Inc.		Vermont
First Continental Services Co.		Vermont
RPM Asia Pte. Ltd.		Singapore
Espan Corporation Pte. Ltd.		Singapore
RPM China Pte. Ltd.		Singapore
Magnagro Industries Pte. Ltd.		Singapore
Dryvit Wall Systems (Suzhou) Co. Ltd.		China
RPM Consumer Holding Company		Delaware
DAP Products Inc.²		Delaware
DAP Holdings, LLC³		Delaware
Gloucester Co., Inc.		Massachusetts
Bondo Corporation		Ohio
Rust-Oleum Corporation⁴		Illinois
Rust-Oleum International, LLC⁵		Delaware
BPAG, Inc.		Delaware
ROC Sales, Inc.		Illinois
Rust-Oleum Sales Company, Inc.⁶		Ohio
Rust-Oleum Service Company		Delaware
The Flecto Company, Inc.⁷		California
Rust-Oleum Japan Corporation		Japan
The Testor Corporation⁸		Ohio
Zinsser Co., Inc.⁹		New Jersey
Zinsser Asia Pacific Pty. Limited		Australia
Zinsser Holdings, LLC¹⁰		Delaware
Mantrose-Haeuser Co., Inc.		Massachusetts
Modern Masters Inc.		California
Zinsser Divestiture Co., Inc.		New York
RPM Enterprises, Inc.		Delaware
RPM, Inc.¹¹		Ohio
American Emulsions Co., Inc.		Georgia
Select Dye & Chemical, Inc.		Georgia
Bondex International, Inc.		Ohio
Chemical Specialties Manufacturing Corporation		Maryland
Day-Glo Color Corp.¹²		Ohio
Dryvit Holdings, Inc.		Delaware
Dryvit Systems, Inc.¹³		Rhode Island
Dryvit Systems USA (Europe) Sp. zo.o.		Poland
Guardian Protection Products, Inc.		Delaware
Kop-Coat, Inc.		Ohio
Kop-Coat New Zealand Limited		New Zealand
Agpro (N.Z.) Limited		New Zealand


		Jurisdiction of
Name		Incorporation
RPM Wood Finishes Group, Inc.¹⁴		Nevada
Chemical Coatings, Inc.		North Carolina
RPM of Mass., Inc.		Massachusetts
Westfield Coatings Corporation		Massachusetts
TCI, Inc.		Georgia
RPM Industrial Holding Company		Delaware
Carboline Company¹⁵		Delaware
PLB Holdings Inc.		Nevada
A/D Fire Protection Systems Corp.		Nevada
Carboline International Corporation¹⁶		Delaware
Carboline Dubai Corporation		Missouri
StonCor Africa (Pty.) Ltd.		South Africa
Chemrite Equipment Systems (Pty.) Ltd.		South Africa
StonCor Namibia (Pty.) Ltd.		Namibia
Republic Powdered Metals, Inc.¹⁷		Ohio
StonCor Group, Inc.¹⁸		Delaware
Fibergrate Composite Structures Incorporated¹⁹		Delaware
Stonhard Nederland B.V.		Netherlands
National Building Facility Services, Inc.		Delaware
Parklin Management Group, Inc.²⁰		New Jersey
Stonhard Agencia en Chile		Chile
StonCor Corrosion Specialists Group Ltda.²¹		Brazil
Tremco Incorporated²²		Ohio
The Euclid Chemical Company²³		Ohio
Euclid Chemical International Sales Corp.²⁴		Ohio
Grandcourt N.V.²⁵		Netherlands Antilles
Redwood Transport, Inc.²⁶		Ohio
Paramount Technical Products, Inc.		South Dakota
Tremco A.B.		Sweden
Tremco Asia Pacific Pty. Limited		Australia
PABCO Products Pty. Limited		Australia
Tremco Pty. Limited		Australia
Tremco Asia Pte. Ltd.		Singapore
Tremco Barrier Solutions, Inc.		Delaware
Tremco GmbH		Germany
Weatherproofing Technologies, Inc.²⁷		Delaware
RSIF International Limited		Ireland
Sierra Performance Coatings, Inc.		California


¹		RPM International Inc. owns 100% of the outstanding voting Common Stock in RPM Funding Corporation, a Delaware corporation. The remaining outstanding shares in RPM Funding Corporation are held as follows: 100% of the outstanding Series A Preferred Stock (non-voting) by Republic Powdered Metals, Inc.; 100% of the outstanding Series B Preferred Stock (non-voting) by DAP Products Inc.; 100% of the outstanding Series C Preferred Stock (non-voting) by


		The Euclid Chemical Company; 100% of the outstanding Series D Preferred Stock (non-voting) by Republic Powdered Metals, Inc.; 100% of the outstanding Series E Preferred Stock (non-voting) by Rust-Oleum Corporation; 100% of the outstanding Series F Preferred Stock (non-voting) by The Testor Corporation; 100% of the outstanding Series G Preferred Stock (non-voting) by Tremco Incorporated; 100% of the outstanding Series H Preferred Stock (non-voting) by Weatherproofing Technologies, Inc.; 100% of the outstanding Series I Preferred Stock (non-voting) by Zinsser Co., Inc.; and 100% of the outstanding Series J Preferred Stock (non-voting) by Tremco Barrier Solutions, Inc.

		RPM Funding Corporation owns 5% of the outstanding shares in Carboline Norge A/S, a Norwegian corporation. Of the remaining outstanding shares in Carboline Norge A/S, Carboline International Corporation owns 40% and 55% are held by a joint venture partner.

²		DAP Products Inc. owns 100% of the outstanding Series B Preferred Stock (non-voting) in RPM Funding Corporation, a Delaware corporation. The remaining outstanding shares in RPM Funding Corporation are held as follows: 100% of the outstanding voting Common Stock by RPM International Inc.; 100% of the outstanding Series A Preferred Stock (non-voting) by Republic Powdered Metals, Inc.; 100% of the outstanding Series C Preferred Stock (non-voting) by The Euclid Chemical Company; 100% of the outstanding Series D Preferred Stock (non-voting) by Republic Powdered Metals, Inc.; 100% of the outstanding Series E Preferred Stock (non-voting) by Rust-Oleum Corporation; 100% of the outstanding Series F Preferred Stock (non-voting) by The Testor Corporation; 100% of the outstanding Series G Preferred Stock (non-voting) by Tremco Incorporated; 100% of the outstanding Series H Preferred Stock (non-voting) by Weatherproofing Technologies, Inc.; 100% of the Outstanding Series I Preferred Stock (non-voting) by Zinsser Co., Inc.; and 100% of the outstanding Series J Preferred Stock (non-voting) by Tremco Barrier Solutions, Inc.

		RPM Funding Corporation owns 5% of the outstanding shares in Carboline Norge A/S, a Norwegian corporation. Of the remaining outstanding shares in Carboline Norge A/S, Carboline International Corporation owns 40% and 55% are held by a joint venture partner.

		DAP Products Inc. owns 94% of the outstanding shares in Portazul, S.A., a Dominican Republic corporation. The remaining 6% of the outstanding shares in Portazul, S.A. are held by the directors of Portazul, S.A.

³		DAP Holdings, LLC owns 100% of the outstanding Common Stock in DAP Brands Company, a Delaware corporation. RPM Canada Company owns 100% of the outstanding Series A Preferred Stock and Series B Preferred Stock in DAP Brands Company.

		DAP Holdings, LLC owns 1.60% of the outstanding Common Stock in RPM Holdco Corp., a Delaware Corporation. The remaining outstanding Common Stock in RPM Holdco Corp. is held as follows: Carboline Company 2.93%, Day-Glo Color Corp. 7.33%, Dryvit Systems, Inc. 8.40%, The Euclid Chemical Company 1.27%, RPM Wood Finishes Group, Inc. 5.66%, Rust-Oleum International, LLC 15%, StonCor Group, Inc. 12.87%, Tremco Incorporated 44.67% and Zinsser Holdings, LLC .27%.


		DAP Holdings, LLC owns 23.81% of the outstanding Preferred Stock in RPM Holdco Corp., a Delaware Corporation. The remaining outstanding Preferred Stock is held as follows: Rust-Oleum International, LLC 51.54% and Zinsser Holdings, LLC 24.65%.

		RPM Holdco Corp. owns 100% of the outstanding shares in RPM Canada Company, a Canadian unlimited liability company. Subsidiaries of RPM Canada Company are listed under Tremco Incorporated footnote.

⁴		Rust-Oleum Corporation owns 100% of the outstanding Series E Preferred Stock (non-voting) in RPM Funding Corporation, a Delaware corporation. The remaining outstanding shares in RPM Funding Corporation are held as follows: 100% of the outstanding voting Common Stock by RPM International Inc.; 100% of the outstanding Series A Preferred Stock (non-voting) by Republic Powdered Metals, Inc.; 100% of the outstanding Series B Preferred Stock (non-voting) by DAP Products Inc.; 100% of the outstanding Series C Preferred Stock (non-voting) by The Euclid Chemical Company; 100% of the outstanding Series D Preferred Stock (non-voting) by Republic Powdered Metals, Inc.; 100% of the outstanding Series F Preferred Stock (non-voting) by The Testor Corporation; 100% of the outstanding Series G Preferred Stock (non-voting) by Tremco Incorporated; 100% of the outstanding Series H Preferred Stock (non-voting) by Weatherproofing Technologies, Inc.; 100% of the outstanding Series I Preferred Stock (non-voting) by Zinsser Co., Inc.; and 100% of the outstanding Series J Preferred Stock (non-voting) by Tremco Barrier Solutions, Inc.

		RPM Funding Corporation owns 5% of the outstanding shares in Carboline Norge A/S, a Norwegian corporation. Of the remaining outstanding shares in Carboline Norge A/S, Carboline International Corporation owns 40% and 55% are held by a joint venture partner.

		Rust-Oleum Corporation owns 95% of the outstanding shares in Rust-Oleum Argentina S.A., an Argentine corporation. The remaining 5% of the outstanding shares in Rust-Oleum Argentina S.A. are held by Rust-Oleum International, LLC.

⁵		Rust-Oleum International, LLC owns 100% of the outstanding Common Stock in Rust-Oleum Brands Company, a Delaware corporation. RPM Canada Company owns 100% of the outstanding Series A Preferred Stock and Series B Preferred Stock in Rust-Oleum Brands Company.

		Rust-Oleum International, LLC owns 15% of the outstanding Common Stock in RPM Holdco Corp., a Delaware Corporation. The remaining Common Stock in RPM Holdco Corp. is held as follows: Carboline Company 2.93%, DAP Holdings, LLC 1.60%, Day-Glo Color Corp. 7.33%, Dryvit Systems, Inc. 8.40%, The Euclid Chemical Company 1.27%, RPM Wood Finishes Group, Inc. 5.66%, StonCor Group, Inc. 12.87%, Tremco Incorporated 44.67% and Zinsser Holdings, LLC .27%.

		Rust-Oleum International, LLC owns 51.54% of the outstanding Preferred Stock in RPM Holdco Corp., a Delaware Corporation. The remaining outstanding Preferred Stock is held as follows: DAP Holdings, LLC 23.81% and Zinsser Holdings, LLC 24.65%.


		RPM Holdco Corp. owns 100% of the outstanding shares in RPM Canada Company, a Canadian unlimited liability company. Subsidiaries of RPM Canada Company are listed under Tremco Incorporated footnote.

⁶		Rust-Oleum International, LLC. owns 5% of the outstanding shares in Rust-Oleum Argentina S.A., an Argentine corporation. The remaining 95% of the outstanding shares in Rust-Oleum Argentina S.A. are held by Rust-Oleum Corporation.

⁷		The Flecto Company, Inc. owns 79% of the outstanding shares in Harry A. Crossland Investments, Ltd., a Nevada corporation. The remaining 21% of the outstanding shares in Harry A. Crossland Investments, Ltd. are held by RPM Canada Company.

		Harry A. Crossland Investments, Ltd. owns 100% of the outstanding shares in Crossland Distributors Ltd., a Canadian corporation.

⁸		The Testor Corporation owns 100% of the outstanding Series F Preferred Stock (non-voting) in RPM Funding Corporation, a Delaware corporation. The remaining outstanding shares in RPM Funding Corporation are held as follows: 100% of the outstanding voting Common Stock by RPM International Inc.; 100% of the outstanding Series A Preferred Stock (non-voting) by Republic Powdered Metals, Inc.; 100% of the outstanding Series B Preferred Stock (non-voting) by DAP Products Inc.; 100% of the outstanding Series C Preferred Stock (non-voting) by The Euclid Chemical Company; 100% of the outstanding Series D Preferred Stock (non-voting) by Republic Powdered Metals, Inc.; 100% of the outstanding Series E Preferred Stock (non-voting) by Rust-Oleum Corporation; 100% of the outstanding Series G Preferred Stock (non-voting) by Tremco Incorporated; 100% of the outstanding Series H Preferred Stock (non-voting) by Weatherproofing Technologies, Inc.; 100% of the outstanding Series I Preferred Stock (non-voting) by Zinsser Co., Inc.; and 100% of the outstanding Series J Preferred Stock (non-voting) by Tremco Barrier Solutions, Inc.

		RPM Funding Corporation owns 5% of the outstanding shares in Carboline Norge A/S, a Norwegian corporation. Of the remaining outstanding shares in Carboline Norge A/S, Carboline International Corporation owns 40% and 55% are held by a joint venture partner.

⁹		Zinsser Co., Inc. owns 100% of the outstanding Series I Preferred Stock (non-voting) in RPM Funding Corporation, a Delaware corporation. The remaining outstanding shares in RPM Funding Corporation are held as follows: 100% of the outstanding voting Common Stock by RPM International Inc.; 100% of the outstanding Series A Preferred Stock (non-voting) by Republic Powdered Metals, Inc.; 100% of the outstanding Series B Preferred Stock (non-voting) by DAP Products Inc.; 100% of the outstanding Series C Preferred Stock (non-voting) by The Euclid Chemical Company; 100% of the outstanding Series D Preferred Stock (non-voting) by Republic Powdered Metals, Inc.; 100% of the outstanding Series E Preferred Stock (non-voting) by Rust-Oleum Corporation; 100% of the outstanding Series F Preferred Stock (non-voting) by The Testor Corporation; 100% of the outstanding Series G Preferred Stock (non-voting) by Tremco Incorporated; 100% of the outstanding Series H Preferred Stock (non-voting) by Weatherproofing Technologies, Inc.; and 100% of the outstanding Series J Preferred Stock (non-voting) by Tremco Barrier Solutions, Inc.


		RPM Funding Corporation owns 5% of the outstanding shares in Carboline Norge A/S, a Norwegian corporation. Of the remaining outstanding shares in Carboline Norge A/S, Carboline International Corporation owns 40% and 55% are held by a joint venture partner.

¹⁰		Zinsser Holdings, LLC owns 100% of the outstanding Common Stock in Zinsser Brands Company, a Delaware corporation. RPM Canada Company owns 100% of the outstanding Series A Preferred Stock and Series B Preferred Stock in Zinsser Brands Company.

		Zinsser Holdings, LLC owns .27% of the outstanding Common Stock in RPM Holdco Corp., a Delaware Corporation. The remaining outstanding Common Stock in RPM Holdco Corp. is held as follows: Carboline Company 2.93%, DAP Holdings, LLC 1.60%, Day-Glo Color Corp. 7.33%, Dryvit Systems, Inc. 8.40%, The Euclid Chemical Company 1.27%, RPM Wood Finishes Group, Inc. 5.66%, Rust-Oleum International, LLC 15%, StonCor Group, Inc. 12.87% and Tremco Incorporated 44.67%.

		Zinsser Holdings, LLC owns 24.65% of the outstanding Preferred Stock in RPM Holdco Corp., a Delaware Corporation. The remaining outstanding Preferred Stock is held as follows: DAP Holdings, LLC 23.81% and Rust-Oleum International, LLC 51.54%

		RPM Holdco Corp. owns 100% of the outstanding shares in RPM Canada Company, a Canadian unlimited liability company. Subsidiaries of RPM Canada Company are listed under Tremco Incorporated footnote.

¹¹		RPM, Inc. owns 88% of the outstanding shares in RPM/Lux Consult S.A., a Luxembourg corporation. The remaining 12% of the outstanding shares in RPM/Lux Consult S.A. are held by Tremco Incorporated.

		RPM/Lux Consult S.A. owns .2% of the outstanding shares in Monile France S.á.r.l., a French corporation. The remaining 99.8% of the outstanding shares in Monile France S.á.r.l. are held by RPM/Belgium N.V.

¹²		Day-Glo Color Corp. owns 7.33% of the outstanding shares in RPM Holdco Corp., a Delaware Corporation. The remaining outstanding shares of RPM Holdco Corp. are held as follows: Carboline Company 2.93%, DAP Holdings, LLC 1.60%, Dryvit Systems, Inc. 8.40%, The Euclid Chemical Company 1.27%, RPM Wood Finishes Group, Inc. 5.66%, Rust-Oleum International, LLC 15%, StonCor Group, Inc. 12.87%, Tremco Incorporated 44.67% and Zinsser Holdings, LLC .27%.

		RPM Holdco Corp. owns 100% of the outstanding shares in RPM Canada Company, a Canadian unlimited liability company. Subsidiaries of RPM Canada Company are listed under Tremco Incorporated footnote.

		Day-Glo Color Corp. owns .32% of the outstanding shares in Radiant Color N.V., a Belgian corporation. The remaining 99.68% of the outstanding shares in Radiant Color N.V. are held by RPM Europe Holdco B.V.


		Radiant Color N.V. owns 99.99% of the outstanding shares in Martin Mathys N.V., a Belgian corporation. The remaining .01% of the outstanding shares in Martin Mathys N.V. are held by RPM/Belgium N.V.

		Radiant Color N.V. owns 85.71% of the outstanding shares in Carboline Italia S.p.A., an Italian corporation. Of the remaining outstanding shares in Carboline Italia S.p.A., 13.57% are held by RPOW France S.A.S. and .72% are held by RPM Europe Holdco B.V.

		Radiant Color N.V. owns 67.86% of the outstanding shares in Ecoloc N.V., a Belgian corporation. The remaining 32.14% of the outstanding shares in Ecoloc N.V. are held by Lock-Tile Belgium N.V.

		Radiant Color N.V. owns 99.96% of the outstanding shares in Lock-Tile Belgium N.V., a Belgian corporation. The remaining .04% of the outstanding shares in Lock-Tile Belgium N.V. are held by RPM/Belgium N.V.

¹³		Dryvit Systems, Inc. owns 8.40% of the outstanding shares in RPM Holdco Corp., a Delaware corporation. The remaining outstanding shares in RPM Holdco Corp. are held as follows: Carboline Company 2.93%, DAP Holdings, LLC 1.60%, Day-Glo Color Corp. 7.33%, The Euclid Chemical Company 1.27%, RPM Wood Finishes Group, Inc. 5.66%, Rust-Oleum International, LLC 15%, StonCor Group, Inc. 12.87%, Tremco Incorporated 44.67% and Zinsser Holdings, LLC .27%.

		RPM Holdco Corp. owns 100% of the outstanding shares in RPM Canada Company, a Canadian unlimited liability company. Subsidiaries of RPM Canada Company are listed under Tremco Incorporated footnote.

		Dryvit Systems, Inc. owns 88% of the outstanding shares in Beijing Dryvit Chemical Building Materials Co., Ltd., a Peoples Republic of China company. The remaining outstanding shares of Beijing Dryvit Chemical Building Materials Co., Ltd. are held by a joint venture partner.

		Dryvit Systems, Inc. owns 27.03% in AWCI Insurance Company, Ltd., a Bermuda exempt company. The remaining outstanding shares in AWCI Insurance Company, Ltd. are held by other EIFS manufacturers.

¹⁴		RPM Wood Finishes Group, Inc. owns 5.66% of the outstanding shares in RPM Holdco Corp., a Delaware corporation. The remaining outstanding shares in RPM Holdco Corp. are held as follows: Carboline Company 2.93%, DAP Holdings, LLC 1.60%, Day-Glo Color Corp. 7.33%, Dryvit Systems, Inc. 8.40%, The Euclid Chemical Company 1.27%, Rust-Oleum International, LLC 15%, StonCor Group, Inc. 12.87%, Tremco Incorporated 44.67% and Zinsser Holdings, LLC .27%.

		RPM Holdco Corp. owns 100% of the outstanding shares in RPM Canada Company, a Canadian unlimited liability company. Subsidiaries of RPM Canada Company are listed under Tremco Incorporated footnote.


¹⁵		Carboline Company owns 2.93% of the outstanding shares in RPM Holdco Corp., a Delaware Corporation. The remaining outstanding shares in RPM Holdco Corp. are held as follows: DAP Holdings, LLC 1.60%, Day-Glo Color Corp. 7.33%, Dryvit Systems, Inc. 8.40%, The Euclid Chemical Company 1.27%, RPM Wood Finishes Group, Inc. 5.66%, Rust-Oleum International, LLC 15%, StonCor Group, Inc. 12.87%, Tremco Incorporated 44.67% and Zinsser Holdings, LLC .27%.

		RPM Holdco Corp. owns 100% of the outstanding shares in RPM Canada Company, a Canadian unlimited liability company. Subsidiaries of RPM Canada Company are listed under Tremco Incorporated footnote.

¹⁶		Carboline International Corporation owns 49% of the outstanding shares in Carboline Korea Ltd.; 40% in Carboline Norge A/S; 49% in StonCor Middle East LLC; 33.33% in Japan Carboline Company Ltd.; and 40% in CDC Carboline (India) Ltd. All outstanding shares of these entities are held by joint venture partners. However, 5% of the outstanding shares in Carboline Norge A/S are held by RPM Funding Corporation.

¹⁷		Republic Powdered Metals, Inc. owns 100% of the outstanding Series A & D Preferred Stock (non-voting) in RPM Funding Corporation, a Delaware corporation. The remaining outstanding shares in RPM Funding Corporation are held as follows: 100% of the outstanding voting Common Stock by RPM International Inc.; 100% of the outstanding Series B Preferred Stock (non-voting) by DAP Products Inc.; 100% of the outstanding Series C Preferred Stock (non-voting) by The Euclid Chemical Company; 100% of the outstanding Series E Preferred Stock (non-voting) by Rust-Oleum Corporation; 100% of the outstanding Series F Preferred Stock (non-voting) by The Testor Corporation; 100% of the outstanding Series G Preferred Stock (non-voting) by Tremco Incorporated; 100% of the outstanding Series H Preferred Stock (non-voting) by Weatherproofing Technologies, Inc.; 100% of the outstanding Series I Preferred Stock (non-voting) by Zinsser Co., Inc.; and 100% of the outstanding Series J Preferred Stock (non-voting) by Tremco Barrier Solutions, Inc.

		RPM Funding Corporation owns 5% of the outstanding shares in Carboline Norge A/S, a Norwegian corporation. Of the remaining outstanding shares in Carboline Norge A/S, Carboline International Corporation owns 40% and 55% are held by a joint venture partner.

¹⁸		StonCor Group, Inc. owns 12.87% of the outstanding shares in RPM Holdco Corp., a Delaware corporation. The remaining outstanding shares in RPM Holdco Corp. are held as follows: Carboline Company 2.93%, DAP Holdings, LLC 1.60%, Day-Glo Color Corp. 7.33%, Dryvit Systems, Inc. 8.40%, The Euclid Chemical Company 1.27%, RPM Wood Finishes Group, Inc. 5.66%, Rust-Oleum International, LLC 15%, Tremco Incorporated 44.67% and Zinsser Holdings, LLC .27%.

		RPM Holdco Corp. owns 100% of the outstanding shares in RPM Canada Company, a Canadian unlimited liability company. Subsidiaries of RPM Canada Company are listed under Tremco Incorporated footnote.


		StonCor Group, Inc. owns 95% of the outstanding shares in StonCor South Cone S.A., an Argentine corporation. The remaining 5% of the outstanding shares in StonCor South Cone S.A. are held by Parklin Management Group, Inc.

		StonCor Group, Inc. owns 99% of the outstanding shares in Stonhard S.A., a Luxembourg corporation. The remaining 1% of the outstanding shares in Stonhard S.A. are held by Parklin Management Group, Inc.

		StonCor Group, Inc. owns 99.25% of the outstanding shares in Grupo StonCor, S.A. de C.V., a Mexican corporation. The remaining .75% of the outstanding shares in Grupo StonCor, S.A. de C.V. are held by Parklin Management Group, Inc.

		Grupo StonCor, S.A. de C.V. owns 100% of the outstanding shares in Plasite, S.A. de C.V. Mexico, a Mexican corporation and 100% of the outstanding shares in Grupo StonCor, S.A. de C.V., a Colombian corporation.

		Grupo StonCor, S.A. de C.V. owns .1% of the outstanding shares in Corgrate Fiberglass Systems S.A. de C.V., a Mexican corporation. The remaining 99.9% of the outstanding shares in Corgrate Fiberglass Systems S.A. de C.V. are held by Fibergrate Composite Structures Incorporated.

		StonCor Group, Inc. owns 99.99% of the outstanding shares in Stonhard de Mexico S.A. de C.V., a Mexican corporation. The remaining .01% of the outstanding shares are held by Parklin Management Group, Inc.

		Stonhard de Mexico S.A. de C.V. owns 100% of the outstanding shares in Juarez Immobiliaria, S.A., a Mexican corporation.

		StonCor Group, Inc. owns .01% of the outstanding shares in StonCor Services, Ltda., a Brazilian corporation. The remaining 99.99% of the outstanding shares in StonCor Services, Ltda. are held by StonCor Corrosion Specialists Group Ltda.

¹⁹		Fibergrate Composite Structures Incorporated owns 99.9% of the outstanding shares in Corgrate Fiberglass Systems S.A. de C.V., a Mexican corporation. The remaining .1% of the outstanding shares in Corgrate Fiberglass Systems S.A. de C.V. are held by Grupo StonCor, S.A. de C.V.

²⁰		Parklin Management Group, Inc. owns .875% of the outstanding shares in StonCor (Deutschland) GmbH, a German corporation. Of the remaining 99.125% in the outstanding shares of StonCor (Deutshland) GmbH, 98.25% are held by RPM Canada, a General Partnership and .875% are held by RPM Canada Company.

		StonCor (Deutschland) GmbH owns 100% of the outstanding shares in Alteco Technik GmbH, a German corporation.

		Alteco Technik GmbH owns 1% of the outstanding shares in Alteco Chemical-Produtos Quimicos SA, a Portuguese company. Of the remaining outstanding shares in Alteco Chemical-


		Produtos Quimicos SA, 96% are held by RPM/Belgium N.V. and 3% are held by three directors of Alteco Chemical-Produtos Quimicos SA.

		Parklin Management Group, Inc. owns .75% of the outstanding shares in Grupo StonCor, S.A. de C.V., a Mexican corporation. The remaining 99.25% of the outstanding shares in Grupo StonCor, S.A. de C.V. are held by StonCor Group, Inc.

		Parklin Management Group, Inc. owns .01% of the outstanding shares in Stonhard de Mexico S.A. de C.V., a Mexican corporation. The remaining 99.99% of the outstanding shares in Stonhard de Mexico S.A. de C.V. are held by StonCor Group, Inc.

		Parklin Management Group, Inc. owns 1% of the outstanding shares in Stonhard S.A., a Luxembourg corporation. The remaining 99% of the outstanding shares in Stonhard S.A. are held by StonCor Group, Inc.

		Parklin Management Group, Inc. owns 5% of the outstanding shares in StonCor South Cone S.A., an Argentine corporation. The remaining 95% of the outstanding shares in StonCor South cone S.A. are held by StonCor Group, Inc.

²¹		StonCor Corrosion Specialists Group Ltda. owns 99.99% of the outstanding shares in StonCor Services, Ltda., a Brazilian corporation. The remaining .01% of the outstanding shares in StonCor Services, Ltda. are held by StonCor Group, Inc.

²²		Tremco Incorporated owns 100% of the outstanding Series G Preferred Stock (non-voting) in RPM Funding Corporation, a Delaware corporation. The remaining outstanding shares in RPM Funding Corporation are held as follows: 100% of the outstanding voting Common Stock by RPM International Inc.; 100% of the outstanding Series A Preferred Stock (non-voting) by Republic Powdered Metals, Inc.; 100% of the outstanding Series B Preferred Stock (non-voting) by DAP Products Inc.; 100% of the outstanding Series C Preferred Stock (non-voting) by The Euclid Chemical Company; 100% of the outstanding Series D Preferred Stock (non-voting) by Republic Powdered Metals, Inc.; 100% of the outstanding Series E Preferred Stock (non-voting) by Rust-Oleum Corporation; 100% of the outstanding Series F Preferred Stock (non-voting) by The Testor Corporation; 100% of the outstanding Series H Preferred Stock (non-voting) by Weatherproofing Technologies, Inc.; 100% of the outstanding Series I Preferred Stock (non-voting) by Zinsser Co., Inc.; and 100% of the outstanding Series J Preferred Stock (non-voting) by Tremco Barrier Solutions, Inc.

		RPM Funding Corporation owns 5% of the outstanding shares in Carboline Norge A/S, a Norwegian corporation. Of the remaining outstanding shares in Carboline Norge A/S, Carboline International Corporation owns 40% and 55% are held by a joint venture partner.

		Tremco Incorporated owns 44.67% of the outstanding shares in RPM Holdco Corp., a Delaware corporation. The remaining outstanding shares in RPM Holdco Corp. are held as follows: Carboline Company 2.93%, DAP Holdings, LLC 1.60%, Day-Glo Color Corp. 7.33%, Dryvit Systems, Inc. 8.40%, The Euclid Chemical Company 1.27%, RPM Wood Finishes Group, Inc.


		5.66%, Rust-Oleum International, LLC 15%, StonCor Group, Inc. 12.87%, and Zinsser Holdings, LLC .27%.

		RPM Holdco Corp. owns 100% of the outstanding shares in RPM Canada Company, a Canadian unlimited liability company.

		RPM Canada Company owns 100% of the outstanding Series A Preferred Stock and Series B Preferred Stock in DAP Brands Company, a Delaware corporation. DAP Holdings, LLC owns 100% of the outstanding Common Stock in DAP Brands Company.

		RPM Canada Company owns 100% of the outstanding Series A Preferred Stock and Series B Preferred Stock in Rust-Oleum Brands Company, a Delaware corporation. Rust-Oleum International, LLC owns 100% of the outstanding Common Stock in Rust-Oleum Brands Company.

		RPM Canada Company owns 100% of the outstanding Series A Preferred Stock and Series B Preferred Stock in Zinsser Brands Company, a Delaware corporation. Zinsser Holdings, LLC owns 100% of the outstanding Common Stock in Zinsser Brands Company.

		RPM Canada Company owns 100% of the outstanding shares in RPM Canada Investment Company, a Canadian unlimited liability company.

		RPM Canada Company is a 75% partner in RPM Canada, a General Partnership, an Ontario partnership. RPM Canada Investment Company is a 25% partner in RPM Canada, a General Partnership.

		RPM Canada Company owns 21% of the outstanding shares in Harry A. Crossland Investments, Ltd., a Nevada corporation. The remaining 79% of the outstanding shares in Harry A. Crossland Investments, Ltd. are held by The Flecto Company, Inc.

		Harry A. Crossland Investments, Ltd. owns 100% of the outstanding shares in Crossland Distributors Ltd., a Canadian corporation.

		RPM Canada, a General Partnership owns 100% of the outstanding shares in Euclid Admixture Canada Inc., a Canadian corporation.

		RPM Canada, a General Partnership owns 100% of the outstanding shares in A/D Fire Protection Systems Inc., a Canadian corporation.

		A/D Fire Protection Systems Inc. owns 50% of the outstanding shares in the following Canadian corporations: Donalco Inc., Donalco Western Inc. and 2926253 Canada Ltd./Ltee. (dba Pro Firestop). The remaining 50% of the outstanding shares are held by non-RPM shareholders.

		RPM Canada, a General Partnership owns 99% of the outstanding partnership interest in RPM United Kingdom G.P., a non-registered United Kingdom partnership. The remaining 1% of the outstanding partnership interest in RPM United Kingdom G.P. is held by RPM Canada Investment Company.


		RPM United Kingdom G.P. owns 12% of the outstanding shares in RPM Europe Holdco B.V.. a Netherlands corporation. Of the remaining outstanding shares, RPM Canada Company owns 79% and RPM Canada, a General Partnership owns 9%.

		RPM United Kingdom G.P. is the sole member of RPM Europe Coöperatief U.A., a Dutch cooperative with excluded liability.

		RPM Europe Coöperatief U.A. owns 100% of the outstanding shares in RPM Germany GmbH, a German corporation and RPM Lux Holdco S.á.r.l., a Luxembourg corporation.

		RPM Lux Holdco S.á.r.l. owns 100% of the outstanding shares in RPM Ireland IP Limited, an Irish corporation.

		RPM Germany GmbH owns 100% of the outstanding shares in Compact Technology GmbH and Tremco illbruck International GmbH, both German Corporations.

		Tremco illbruck International GmbH owns 100% of the outstanding shares in Tremco illbruck Produktion GmbH, a German Corporation; illbruck Building Systems s.r.o., a Czech Republic corporation; illbruck Systemy Uszczelnien Sp. zo.o., a Polish corporation; and illbruck Joints et Systèmes S.A.S., a French corporation.

		Tremco illbruck Produktion GmbH owns 100% of the outstanding shares in Tremco illbruck GmbH & Co. KG, a German Corporation.

		Tremco illbruck International GmbH owns 99.75% of the outstanding shares in illbruck Sealant Systems N.V., a Belgian corporation. The remaining .25% of the outstanding shares in illbruck Sealant Systems N.V. are held by a director of the company.

		illbruck Sealant Systems N.V. owns 100% of the outstanding shares in Colcon N.V., a Belgian corporation.

		Colcon N.V. owns 100% of the outstanding shares in Colymit N.V. a Belgian corporation.

		Colymit N.V. owns 100% of the outstanding shares in Caseko Sealants B.V., a Netherlands corporation.

		RPM Canada, a General Partnership owns 100% of the outstanding shares in Tremco illbruck Production Limited, a United Kingdom corporation.

		Tremco illbruck Production Limited owns 100% of the outstanding shares in OY Tremco Ltd., a Finnish corporation and 100% of the outstanding shares in Tretol Group Limited, a United Kingdom corporation.

		Tretol Group Limited owns 100% of the outstanding shares in Tretol Limited and Tretolbond Limited, both United Kingdom corporations.


		RPM Canada Company owns 79% of the outstanding shares in RPM Europe Holdco B.V., a Netherlands corporation. Of the remaining 21% of the outstanding shares in RPM Europe Holdco B.V., 9% of the outstanding shares are held by RPM Canada, a General Partnership and 12% are held by RPM United Kingdom G.P.

		RPM Europe Holdco B.V. owns 100% of the outstanding shares in Vandex Holding AG, a Swiss corporation.

		Vandex Holding AG owns 100% of the outstanding shares in Vandex Isoliermittel-Gesellschaft mbH, a German corporation; Vandex UK Limited, a United Kingdom corporation; Vandex International AG and Vandex AG, both Swiss corporations; and 49% of the outstanding shares in Vandex (USA) LLC, a Pennsylvania corporation. The remaining outstanding shares in Vandex (USA) LLC are held by a joint venture partner.

		RPM Europe Holdco B.V. owns 100% of the outstanding shares in illbruck Sealant Systems B.V., Rust-Oleum Netherlands B.V., StonCor Benelux B.V., and Tremco illbruck B.V., all Netherlands corporations, and RPOW U.K. Limited, a United Kingdom corporation.

		illbruck Sealant Systems B.V. owns 9.214% of the outstanding shares in PDR GmbH and 8.32% of the outstanding shares in PDR Recycling GmbH & Co. KG, both German corporations. The remaining outstanding shares are held by joint venture partners.

		illbruck Sealant Systems B.V. owns 100% of the outstanding shares in Arkelveste B.V., a Netherlands corporation.

		illbruck Sealant Systems B.V. owns 99.80% of the outstanding shares in illbruck Sealant Systems Production S.A., a Belgian corporation. The remaining .20% of the outstanding shares in illbruck Sealant Systems Production S.A. are held by a director of the company.

		illbruck Sealant Systems Production S.A. owns 100% of the outstanding shares in Eurobond S.A., a Belgian corporation.

		RPM Europe Holdco B.V. owns 96.04% of the outstanding shares in RPM/Belgium N.V., a Belgian corporation. The remaining 3.96% of the outstanding shares in RPM/Belgium N.V. are held by Tremco Incorporated.

		RPM Europe Holdco B.V. owns 99.68% of the outstanding shares in Radiant Color N.V., a Belgian corporation. The remaining .32% of the outstanding shares in Radiant Color N.V. are held by Day-Glo Color Corp.

		Radiant Color N.V. owns 99.99% of the outstanding shares in Martin Mathys N.V., a Belgian corporation. The remaining .01% of the outstanding shares in Martin Mathys N.V. are held by RPM/Belgium N.V.

		Radiant Color N.V. owns 85.71% of the outstanding shares in Carboline Italia S.p.A., an Italian corporation. Of the remaining outstanding shares in Carboline Italia S.p.A., 13.57% are held by RPOW France S.A.S. and .72% are held by RPM Europe Holdco B.V.


		Radiant Color N.V. owns 67.86% of the outstanding shares in Ecoloc N.V., a Belgian corporation. The remaining 32.14% of the outstanding shares in Ecoloc N.V. are held by Lock-Tile Belgium N.V.

		Radiant Color N.V. owns 99.96% of the outstanding shares in Lock-Tile Belgium N.V., a Belgian corporation. The remaining .04% of the outstanding shares in Lock-Tile Belgium N.V. are held by RPM/Belgium N.V.

		RPM/Belgium N.V. owns 99.8% of the outstanding shares in Monile France S.á.r.l., a French corporation. The remaining .2% of the outstanding shares in Monile France S.á.r.l. are held by RPM/Lux Consult S.A.

		RPM/Belgium N.V. owns 96% of the outstanding shares in Alteco Chemical-Produtos Quimicos SA, a Portuguese corporation. Of the remaining outstanding shares in Alteco Chemical-Produtos Quimicos SA, 1% are held by Alteco Technik GmbH and 3% are held by three directors of Alteco Chemical-Produtos Quimicos SA.

		RPM Europe Holdco B.V. owns 99% of the outstanding shares in Zinsser Europe N.V., a Belgian corporation. The remaining 1% of the outstanding shares in Zinsser Europe N.V. are held by RPM/Belgium N.V.

		RPM Europe Holdco B.V. owns 100% of the outstanding shares in RPOW France S.A.S., a French corporation.

		RPM Europe Holdco B.V. owns .72% of the outstanding shares in Carboline Italia S.p.A., an Italian corporation. Of the remaining outstanding shares in Carboline Italia S.p.A., 85.71% are held by Radiant Color N.V. and 13.57% are held by RPOW France S.A.S.

		RPM Europe Holdco B.V. owns 99.04% of the outstanding shares in RPM Europe S.A., a Belgian corporation. The remaining .96% of the outstanding shares in RPM Europe S.A. are held by RPM/Lux Consult S.A.

		RPOW France S.A.S. owns 13.57% of the outstanding shares in Carboline Italia S.p.A., an Italian corporation. Of the remaining outstanding shares in Carboline Italia S.p.A., 85.71% are held by Radiant Color N.V. and .72% are held by RPM Europe Holdco B.V.

		RPOW France S.A.S. owns 100% of the outstanding shares in Carboline France S.A.S., a French corporation.

		RPOW France S.A.S. owns 100% of the outstanding shares in Rust-Oleum France S.A.S., a French corporation and Rust-Oleum Mathys Italia S.r.l., an Italian corporation.

		RPOW France S.A.S. owns 99.99% of the outstanding shares in Stonhard S.A.S., a French corporation. The remaining .01% of the outstanding shares are held by Rust-Oleum France S.A.S.


		Stonhard S.A.S. owns 100% of the outstanding shares in StonCor España SL, a Portuguese corporation.

		RPOW U.K. Limited owns 100% of the outstanding shares in each of the following United Kingdom corporations: Advanced Construction Materials Limited, Anglo Building Products Limited, Bondo U.K. Limited, Chemspec Europe Limited, Dryvit U.K. Limited, Fibergrate Composite Structures Limited, illbruck Holdings Limited, Mantrose U.K. Limited, RPM Holdings UK Limited, Rust-Oleum U.K. Limited, Stonhard U.K. Limited, Timberex International Limited, Watco International Limited, and Watco UK Limited, as well as Stonhard (Ireland) Limited, an Irish corporation.

		illbruck Holdings Limited owns 100% of the outstanding shares in Alfas Group Limited, a United Kingdom corporation.

		Alfas Group Limited owns 100% of the outstanding shares in illbruck Sealant Systems U.K. Limited and Tremco illbruck Limited, both United Kingdom corporations.

		Mantrose U.K. Limited owns 100% of the outstanding shares in Agricoat Industries Limited and Wm. Zinsser Limited, both United Kingdom corporations.

		Watco UK Limited owns 100% of the outstanding shares in the following United Kingdom corporations: Industrial Flooring Services Limited, Watco Group Manufacturing Limited and Watco Limited, as well as 100% of the outstanding shares of Watco GmbH, a German corporation and Watco S.arl., a French corporation.

		RPM Holdings UK Limited owns 100% of the outstanding shares in Dore Holdings Limited, a United Kingdom corporation.

		Dore Holdings Limited owns 100% of the outstanding shares in each of Amtred Limited and Nullifire Limited, both United Kingdom corporations.

		RPM Canada, a General Partnership, owns 98.25% of the outstanding shares in StonCor (Deutschland) GmbH, a German corporation. The remaining 1.75% of the outstanding shares in StonCor (Deutschland) GmbH are split equally between RPM Canada Company and Parklin Management Group, Inc., each holding .875% of the remaining outstanding shares.

		StonCor (Deutschland) GmbH owns 100% of the outstanding shares in Alteco Technik GmbH, a German corporation.

		Alteco Technik GmbH owns 1% of the outstanding shares in Alteco Chemical-Produtos Quimicos SA, a Portuguese company. Of the remaining outstanding shares in Alteco Chemical-Produtos Quimicos SA, 96% are held by RPM/Belgium N.V. and 3% are held by three directors of Alteco Chemical-Produtos Quimicos SA.

		Tremco Incorporated owns 3.96% of the outstanding shares in RPM/Belgium N.V., a Belgian corporation. The remaining 96.04% of the outstanding shares in RPM/Belgium N.V. are held by RPM Europe Holdco B.V.


		RPM/Belgium N.V. owns 99.8% of the outstanding shares in Monile France S.á.r.l., a French corporation. The remaining .2% of the outstanding shares in Monile France S.á.r.l. are held by RPM/Lux Consult S.A.

		RPM/Belgium N.V. owns 96% of the outstanding shares in Alteco Chemical-Produtos Quimicos SA, a Portuguese corporation. Of the remaining outstanding shares in Alteco Chemical-Produtos Quimicos SA, 1% are held by Alteco Technik GmbH and 3% are held by three directors of Alteco Chemical-Produtos Quimicos SA.

		RPM/Belgium N.V. owns .01% of the outstanding shares in Martin Mathys N.V., a Belgian corporation. The remaining 99.99% of the outstanding shares in Martin Mathys N.V. are held by Radiant Color N.V.

		RPM/Belgium N.V. owns 1% of the outstanding shares in Zinsser Europe N.V., a Belgian corporation. The remaining 99% of the outstanding shares in Zinsser Europe N.V. are held by RPM Europe Holdco B.V.

		RPM/Belgium N.V. owns .04% of the outstanding shares in Lock-Tile Belgium N.V., a Belgian corporation. The remaining 99.96% of the outstanding shares in Lock-Tile Belgium N.V. are held by Radiant Color N.V.

		Lock-Tile Belgium N.V. owns 32.14% of the outstanding shares in Ecoloc N.V. The remaining 67.86% of the outstanding shares in Ecoloc N.V. are held by Radiant Color N.V.

		Tremco Incorporated owns .0025% of the outstanding shares in Toxement S.A., a Colombian corporation. Of the remaining outstanding shares in Toxement S.A., Grandcourt N.V. owns 50.99%, The Euclid Chemical Company owns 49% and Euclid Chemical International Sales Corp, Redwood Transport, Inc. and Weatherproofing Technologies, Inc. each own .0025%.

		Tremco Incorporated owns 50% of the outstanding shares in Sime Tremco Sdn. Bhd., a Malaysian corporation. The remaining outstanding shares in Sime Tremco Sdn. Bhd. are held by a joint venture partner.

		Sime Tremco Sdn. Bhd. owns 100% of the outstanding shares in Sime Tremco Specialty Chemicals Sdn, Bhd., a Malaysian corporation.

		Tremco Incorporated owns 99.999% of the outstanding shares in Tremco Far East Limited, a Hong Kong corporation. The remaining .001% of the outstanding shares in Tremco Far East Limited are held by a director of Tremco Far East Limited.

		Tremco Far East Limited owns 100% of the outstanding shares in Tremco (Malaysia) Sdn. Bhd., a Malaysian corporation and 100% of the outstanding shares in Shanghai Tremco International Trading Co., Ltd., a Chinese corporation.


		Tremco Incorporated owns 12% of the outstanding shares in RPM/Lux Consult S.A., a Luxembourg corporation. The remaining 88% of the outstanding shares in RPM/Lux Consult S.A. are held by RPM, Inc.

		RPM/Lux Consult S.A. owns .2% of the outstanding shares in Monile France S.á.r.l., a French corporation. The remaining 99.8% of the outstanding shares in Monile France S.á.r.l. are held by RPM/Belgium N.V.

		RPM/Lux Consult S.A. owns .96% of the outstanding shares in RPM Europe S.A., a Belgian corporation. The remaining 99.04% of the outstanding shares in RPM Europe S.A. are held by RPM Europe Holdco B.V.

²³		The Euclid Chemical Company owns 60% interest in Euco Densit LLC, an Ohio limited liability company. The remaining 40% interest in Euco Densit LLC is held by a joint venture partner.

		The Euclid Chemical Company owns 100% of the outstanding Series C Preferred Stock (non-voting) in RPM Funding Corporation, a Delaware corporation. The remaining outstanding shares in RPM Funding Corporation are held as follows: 100% of the outstanding voting Common Stock by RPM International Inc.; 100% of the outstanding Series A Preferred Stock (non-voting) by Republic Powdered Metals, Inc.; 100% of the outstanding Series B Preferred Stock (non-voting) by DAP Products Inc.; 100% of the outstanding Series D Preferred Stock (non-voting) by Republic Powdered Metals, Inc.; 100% of the outstanding Series E Preferred Stock (non-voting) by Rust-Oleum Corporation; 100% of the outstanding Series F Preferred Stock (non-voting) by The Testor Corporation; 100% of the outstanding Series G Preferred Stock (non-voting) by Tremco Incorporated; 100% of the outstanding Series H Preferred Stock (non-voting) by Weatherproofing Technologies, Inc.; 100% of the outstanding Series I Preferred Stock (non-voting) by Zinsser Co., Inc.; and 100% of the outstanding Series J Preferred Stock (non-voting) by Tremco Barrier Solutions, Inc.

		RPM Funding Corporation owns 5% of the outstanding shares in Carboline Norge A/S, a Norwegian corporation. Of the remaining outstanding shares in Carboline Norge A/S, Carboline International Corporation owns 40% and 55% are held by a joint venture partner.

		The Euclid Chemical Company owns 1.27% of the outstanding shares in RPM Holdco Corp., a Delaware corporation. The remaining outstanding shares in RPM Holdco Corp. are held as follows: Carboline Company 2.93%, DAP Holdings, LLC 1.60%, Day-Glo Color Corp. 7.33%, Dryvit Systems, Inc. 8.40%, RPM Wood Finishes Group, Inc. 5.66%, Rust-Oleum International, LLC 15%, StonCor Group, Inc. 12.87%, Tremco Incorporated 44.67% and Zinsser Holdings, LLC .27%.

		RPM Holdco Corp. owns 100% of the outstanding shares in RPM Canada Company, a Canadian unlimited liability company. Subsidiaries of RPM Canada Company are listed under Tremco Incorporated footnote.


		The Euclid Chemical Company owns 99.997% of the outstanding shares in Eucomex S.A. de C.V., a Mexican corporation. The remaining .003% of the outstanding shares in Eucomex S.A. de C.V. are held by Redwood Transport, Inc.

		The Euclid Chemical Company owns 49% of the outstanding shares in Toxement S.A., a Colombian corporation. Of the remaining outstanding shares in Toxement S.A., Grandcourt N.V. owns 50.99% and Euclid Chemical International Sales Corp., Redwood Transport, Inc., Tremco Incorporated and Weatherproofing Technologies, Inc. each own .0025%.

²⁴		Euclid Chemical International Sales Corp. owns ..0025% of the outstanding shares in Toxement S.A., a Colombian corporation. Of the remaining outstanding shares in Toxement S.A., Grandcourt N.V. owns 50.99%, The Euclid Chemical Company owns 49% and Redwood Transport, Inc., Tremco Incorporated and Weatherproofing Technologies, Inc. each own .0025%.

²⁵		Grandcourt N.V. owns 50.99% of the outstanding shares in Toxement S.A., a Colombian corporation. Of the remaining outstanding shares in Toxement S.A., The Euclid Chemical Company owns 49% and Euclid Chemical International Sales Corp., Redwood Transport, Inc., Tremco Incorporated and Weatherproofing Technologies, Inc. each own .0025%.

²⁶		Redwood Transport, Inc. owns .003% of the outstanding shares in Eucomex S.A. de C.V., a Mexican corporation. The remaining 99.997% of the outstanding shares in Eucomex S.A. de C.V. are held by The Euclid Chemical Company.

		Redwood Transport, Inc. owns .0025% of the outstanding shares in Toxement S.A., a Colombian corporation. Of the remaining outstanding shares in Toxement S.A., Grandcourt N.V. owns 50.99%, The Euclid Chemical Company owns 49% and Euclid Chemical International Sales Corp., Tremco Incorporated and Weatherproofing Technologies, Inc. each own .0025%.

²⁷		Weatherproofing Technologies, Inc. owns 100% of the outstanding Series H Preferred Stock (non-voting) in RPM Funding Corporation, a Delaware corporation. The remaining outstanding shares in RPM Funding Corporation are held as follows: 100% of the outstanding voting Common Stock by RPM International Inc.; 100% of the outstanding Series A Preferred Stock (non-voting) by Republic Powdered Metals, Inc.; 100% of the outstanding Series B Preferred Stock (non-voting) by DAP Products Inc.; 100% of the outstanding Series C Preferred Stock (non-voting) by The Euclid Chemical Company; 100% of the outstanding Series D Preferred Stock (non-voting) by Republic Powdered Metals, Inc.; 100% of the outstanding Series E Preferred Stock (non-voting) by Rust-Oleum Corporation; 100% of the outstanding Series F Preferred Stock (non-voting) by The Testor Corporation; 100% of the outstanding Series G Preferred Stock (non-voting) by Tremco Incorporated; 100% of the outstanding Series I Preferred Stock (non-voting) by Zinsser Co., Inc.; and 100% of the outstanding Series J Preferred Stock (non-voting) by Tremco Barrier Solutions, Inc.

		RPM Funding Corporation owns 5% of the outstanding shares in Carboline Norge A/S, a Norwegian corporation. Of the remaining outstanding shares in Carboline Norge A/S, Carboline International Corporation owns 40% and 55% are held by a joint venture partner.


		Weatherproofing Technologies, Inc. owns .0025% of the outstanding shares in Toxement S.A., a Colombian corporation. Of the remaining outstanding shares in Toxement S.A., Grandcourt N.V. owns 50.99%, The Euclid Chemical Company owns 49% and Euclid Chemical International Sales Corp., Redwood Transport, Inc. and Tremco Incorporated each own .0025%.

EX-23.1 9 l21773aexv23w1.htm EX-23.1 EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in this Annual Report (Form 10-K) of RPM International Inc. (RPM) of our reports dated July 24, 2006, with respect to the consolidated financial statements of RPM, RPM Management’s Report on Internal Control Over Financial Reporting, and the effectiveness of internal control over financial reporting of RPM, included in the 2006 Annual Report to Shareholders of RPM.

Our audits also included the financial statement schedule of RPM listed in Item 15(a). This schedule is the responsibility of RPM’s management. Our responsibility is to express an opinion based on our audits. In our opinion, as to which the date is July 24, 2006, 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 consent to the incorporation by reference in the following Registration Statements:

(1)

Registration Statements (Form S-8 Nos. 033-32794, 1989 Stock Option Plan; 333-35967 and 333-60104, 1996 Stock Option Plan; 333-101512, Deferred Compensation Plan; 333-101501, 401(k) Trust and Plan and Union 401(k) Retirement Savings Trust and Plan; 333-117581, 2003 Restricted Stock Plan for Directors; and 333-120067, 2004 Omnibus Equity and Incentive Plan)

of our report dated July 24, 2006, with respect to the consolidated financial statements of RPM, RPM Management’s Report on Internal Control Over Financial Reporting and the effectiveness of internal control over financial reporting of RPM, incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedule of RPM included in this Annual Report (Form 10-K) of RPM.


		/s/ Ernst & Young LLP ERNST & YOUNG LLP

Cleveland, Ohio
August 7, 2006

EX-23.2 10 l21773aexv23w2.htm EX-23.2 EX-23.2

Exhibit 23.2

Consent of Independent Public Accounting Firm

We hereby consent to the incorporation by reference of our report dated July 7, 2005, except as to Note K to the consolidated financial statements, with respect to which our report is dated as of July 22, 2005, in the Annual Report on Form 10-K for the year ending May 31, 2006, in RPM International Inc.’s Registration Statements on Forms S-8 (Reg. Nos. 033-32794, 1989 Stock Option Plan; 333-35967 and 333-60104, 1996 Stock Option Plan; 333-101512, Deferred Compensation Plan; 333-101501, 401(k) Trust and Plan and Union 401(k) Retirement Savings Trust and Plan; 333-117581, 2003 Restricted Stock Plan for Directors; and 333-120067, 2004 Omnibus Equity and Incentive Plan).


		/s/ Ciulla, Smith & Dale, LLP Ciulla, Smith & Dale, LLP

August 10, 2006

EX-31.1 11 l21773aexv31w1.htm EX-31.1 EX-31.1

Exhibit 31.1

RULE 13a-14(a) CERTIFICATION

I, Robert L. Matejka, certify that:

1. I have reviewed this Annual Report on Form 10-K of RPM International Inc.;

Based on my knowledge, this 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 report;

Based on my knowledge, the financial statements, and other financial information included in this 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 report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	(a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

	(b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	(c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	(d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	(b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: August 10, 2006		/s/Robert L. Matejka

		Robert L. Matejka
		Vice President, Chief Financial Officer and Controller

EX-31.2 12 l21773aexv31w2.htm EX-31.2 EX-31.2

Exhibit 31.2

RULE 13a-14(a) CERTIFICATION

I, Frank C. Sullivan, certify that:

I have reviewed this Annual Report on Form 10-K of RPM International Inc.;

	(a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

	(b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	(c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	(d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

	(a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	(b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: August 10, 2006		/s/ Frank C. Sullivan

		Frank C. Sullivan
		President and Chief Executive Officer

EX-32.1 13 l21773aexv32w1.htm EX-32.1 EX-32.1

Exhibit 32.1

Certification

Pursuant to 18 U.S.C. Section 1350, the undersigned officer of RPM International Inc., a Delaware corporation (the “Company”), does hereby certify, to such officer’s knowledge, that the Company’s Annual Report on Form 10-K for the year ended May 31, 2006 (the “Form 10-K”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Form 10-K.


Dated: August 10, 2006		/s/ Robert L. Matejka

		Robert L. Matejka
		Vice President, Chief Financial Officer and Controller

The foregoing Certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Form 10-K or as a separate disclosure document.

EX-32.2 14 l21773aexv32w2.htm EX-32.2 EX-32.2

Exhibit 32.2

Certification


Dated: August 10, 2006		/s/ Frank C. Sullivan

		Frank C. Sullivan
		President and Chief Executive Officer

The foregoing Certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Form 10-K or as a separate disclosure document.

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