-----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, Efpdn65BNOM34xOCf6BwCR0Pz+wAI9lvnqma+gnIkvh8XPQRf3/dacr3v6nnljJU ZHBnR+/9omU0V60vMrlS7Q== 0001157523-05-002672.txt : 20050318 0001157523-05-002672.hdr.sgml : 20050318 20050318172833 ACCESSION NUMBER: 0001157523-05-002672 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 23 CONFORMED PERIOD OF REPORT: 20050102 FILED AS OF DATE: 20050318 DATE AS OF CHANGE: 20050318 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROGERS CORP CENTRAL INDEX KEY: 0000084748 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS, MATERIALS, SYNTH RESINS & NONVULCAN ELASTOMERS [2821] IRS NUMBER: 060513860 STATE OF INCORPORATION: MA FISCAL YEAR END: 0101 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04347 FILM NUMBER: 05692584 BUSINESS ADDRESS: STREET 1: P.O. BOX 188 STREET 2: ONE TECHNOLOGY DRIVE CITY: ROGERS STATE: CT ZIP: 06263-0188 BUSINESS PHONE: 8607749605 MAIL ADDRESS: STREET 1: ONE TECHNOLOGY DRIVE CITY: ROGERS STATE: CT ZIP: 06263 10-K 1 a4846542.txt ROGERS CORP. 10-K - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------- FORM 10-K ------------------------------- ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 2, 2005 Commission file number 1-4347 ------------------------------- ROGERS CORPORATION (Exact name of Registrant as specified in its charter) ------------------------------- Massachusetts 06-0513860 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) P.O. Box 188, One Technology Drive, Rogers, Connecticut 06263-0188 (860) 774-9605 (Address and telephone number of principal executive offices) ------------------------------- Securities registered pursuant to Section 12(b) of the Act: Title of Class Name of Each Exchange on Which Registered Common Stock, $1 Par Value New York Stock Exchange Rights to Purchase Capital Stock New York Stock Exchange Securities registered pursuant to Section 12(b) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark 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 the Form 10-K or any amendment to this Form 10-K. Yes [ ] No [X] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [X] No [ ] The aggregate market value of the voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the registrant's most recently completed second fiscal quarter, July 4, 2004, was approximately $1,096,828,327. Rogers has no non-voting common equity. The number of shares outstanding of capital stock as of February 28, 2005 was 16,373,507. - -------------------------------------------------------------------------------- -1- Documents Incorporated by Reference: (1) Portions of Rogers' Annual Report to Shareholders for the fiscal year ended January 2, 2005, are incorporated by reference in Parts I, II, and III of this Report. (2) Portions of Rogers' Proxy Statement for its Annual Meeting of Shareholders to be held on April 28, 2005 are incorporated by reference in Parts II and III of this Report. -2-
Table of Contents Page Part I ---- ------ Item 1. Business 4 Item 2. Properties 8 Item 3. Legal Proceedings 9 Item 4. Submission of Matters to a Vote of Security Holders 11 Part II ------- Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. 11 Item 6. Selected Financial Data 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 7a. Quantitative and Qualitative Disclosures About Market Risk 11 Item 8. Financial Statements and Supplementary Data 11 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 12 Item 9a. Controls and Procedures 12 Item 9b. Other Information 13 Part III -------- Item 10. Directors and Executive Officers of the Registrant 13 Item 11. Executive Compensation 13 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 13 Item 13. Certain Relationships and Related Transactions 13 Item 14. Principal Accounting Fees and Services 13 Part IV ------- Item 15. Exhibits and Financial Statement Schedules 14 Signatures 18 Exhibits List: - -------------- Exhibit 3l Articles of Merger of Parent and Subsidiary Corporation, filed with the Secretary of State of the Commonwealth of Massachusetts on December 28, 2003 Exhibit 10m-1 First Amendment to Multicurrency Revolving Credit Agreement Exhibit 10m-2 Second Amendment to Multicurrency Revolving Credit Agreement Exhibit 10n First Amendment to the Rogers Corporation Executive Supplemental Agreement Exhibit 10r Summary of Director and Executive Officer Compensation Exhibit 10s Form of 1991 Special Severance Agreement Exhibit 10t Schedule of 1991 Special Severance Agreements Exhibit 10v Schedule of Indemnification Agreements for Executives Exhibit 10x Schedule of Indemnification Agreements for Directors Exhibit 10y Change in Control Severance Agreement for Robert C. Daigle Exhibit 10z Change in Control Severance Agreement for Robert D. Wachob Exhibit 10aa Change in Control Severance Agreement for Robert M. Soffer Exhibit 10ab Change in Control Severance Agreement for John A. Richie Exhibit 10ac Change in Control Severance Agreement for Paul B. Middleton Exhibit 10ad Guaranty to Multicurrency Revolving Credit Agreement by Rogers China, Inc. Exhibit 10ae Guaranty to Multicurrency Revolving Credit Agreement by Rogers KF, Inc. Exhibit 13 Portions of the Rogers Corporation 2004 Annual Report to Shareholders Exhibit 21 Subsidiaries of Rogers Exhibit 23 Consent of Independent Registered Public Accounting Firm Exhibit 31.1 Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Exhibit 31.2 Certification of Acting CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Exhibit 32.1 Certification of CEO & Acting CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
-3- Forward-Looking Information Certain statements in this Annual Report on Form 10-K may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on management's expectations, estimates, projections and assumptions. Words such as "expects," "anticipates," "intends," "believes," "estimates," and variations of such words and similar expressions are intended to identify such forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results or performance of the Company to be materially different from any future results or performance expressed or implied by such forward-looking statements. Such factors include, but are not limited to, changing business, economic, and political conditions both in the United States and in foreign countries; increasing competition; changes in product mix; the development of new products and manufacturing processes and the inherent risks associated with such efforts; the outcome of current and future litigation; the accuracy of the Company's analysis of its potential asbestos-related exposure and insurance coverage; changes in the availability and cost of raw materials; fluctuations in foreign currency exchange rates; and any difficulties in integrating acquired businesses into the Company's operations. Such factors also apply to the Company's joint ventures. The Company makes no commitment to update any forward-looking statement or to disclose any facts, events, or circumstances after the date hereof that may affect the accuracy of any forward-looking statements. PART I Item 1. Business Industry Rogers Corporation (the "Company"), founded in 1832, is one of the oldest publicly traded U.S. companies in continuous operation. The Company has adapted its products over the years to meet changing market needs, moving from specialty paperboard to transformer boards for electrical insulation, and now predominantly to a range of specialty polymer composite materials for communications, imaging, computer, transportation, and consumer applications. In 1992, the Company restructured to focus on its materials-based businesses, which include printed circuit materials, high performance foams, and polymer materials and components. The Company divested most of its electronic components related businesses and management, operations, sales and marketing, and technology development activities were redirected to efforts intended to grow the materials-based businesses. In so doing, the Company takes advantage of its core competencies in polymers, fillers, and adhesion, and applies its related materials technologies to identified market needs. Materials-based businesses were the core businesses responsible for the Company's strong growth in the 1960's and 1970's, and provided most of the Company's profits in the 1980's. During that time, the profits from the materials-based businesses were often offset by substantial losses in the Company's former electronic components businesses. The materials based businesses are guided by clearly developed strategic business plans for profitable growth. The current focus is on worldwide markets for high performance foams, printed circuit materials, and polymer materials and components. An increasingly large percentage of these materials are going into growing high technology applications, such as cellular telephone base stations and antennas, handheld wireless devices and satellite television receivers. Business Segments & Products Rogers Corporation manufactures and sells specialty polymer composite materials and components, which it develops for growing markets and applications around the world. The Company has three business segments: High Performance Foams, Printed Circuit Materials, and Polymer Materials and Components. The Company's products are based on its core technologies in polymers, fillers, and adhesion. Most products are proprietary, or incorporate proprietary technology in their development and processing, and are sold under the Company's valuable brand names. Printed Circuit Materials Printed Circuit Materials include printed circuit board laminates for high frequency circuits, flexible printed circuit board laminates for high performance flexible circuits, and polyester based industrial laminates. The Company's Printed Circuit Materials have characteristics that offer performance and other functional advantages in many market applications, and serve to differentiate the Company's products from competitors' products and from other commonly available materials. Printed Circuit Materials are sold principally to independent and captive printed circuit board manufacturers who convert the Company's laminates to custom printed circuits. -4- The polymer based dielectric layers of the Company's high frequency circuit board laminates are proprietary materials that provide highly specialized electrical and mechanical properties. Trade names for the Company's high frequency printed circuit board materials include RO3000(R), RO4000(R), DUROID(R), RT/duroid(R), ULTRALAM(R), RO2800(R) and TMM(R) laminates. All of these laminates are used for making circuitry that receive, transmit, and process high frequency communications signals. Each laminate addresses specific needs and applications within the communications market. High frequency circuits are used throughout the equipment and devices that comprise wireless communications systems, including cellular communications, digital cellular communications, paging, direct broadcast television, global positioning, mobile radio communications, and radar. The flexible circuit materials that the Company manufactures are called R/flex(R) materials. They are mainly used to make interconnections for handheld and laptop computers, portable electronic devices, and hard disk drives. The performance characteristics of R/flex(R) materials differentiate these laminates from commonly available flexible circuit materials. Industrial laminates are manufactured by the Company under the Induflex(R) trade name. These polyester based laminates, with thin aluminum and copper cladding, are sold mostly to telecommunications and data communication cable manufacturers for shielding electromagnetic and radio frequency interference, and to automotive component manufacturers for making flat, etched-foil heaters. Polyimide Laminate Systems, LLC ("PLS"), the Company's joint venture with Mitsui Chemicals, Inc. of Japan, was established in early 2000 to sell adhesiveless flexible circuit materials to Hutchinson Technology Incorporated ("HTI"). HTI uses these materials to make trace suspension assemblies in magneto resistive hard disk drives. Until 2004, PLS was the sole provider of these materials to HTI. In 2004, HTI began to utilize other material providers, which resulted in a decline in the PLS business in 2004. Rogers Chang Chun Technology, Co., Ltd. ("RCCT"), the Company's joint venture with Chang Chun Plastics, Co., Ltd., which was established in late 2001 to manufacture flexible circuit material for customers in Taiwan, realized its first sales in 2002 and continued to grow in 2003. RCCT had significant application wins in late 2003 in the Taiwan market that drove significant sales growth in 2004. The Company also used this facility in 2004 to alleviate some of the manufacturing capacity constraints it experienced due to the overall increase in the Company's flexible circuit material business. High Performance Foams High Performance Foams include urethane foams, silicone foams, and polyolefin foams. The Company's High Performance Foams have characteristics that offer functional advantages in many market applications, and serve to differentiate the Company's products from competitors' materials and from other commonly available materials. High Performance Foams are sold to fabricators, printers and original equipment manufacturers for applications in imaging, communications, computer, transportation, consumer and other markets. Trade names for the Company's High Performance Foams include: PORON(R) urethane foams used for making high performance gaskets and seals in vehicles, communications devices, computers and peripherals; PORON(R) cushion insole materials for footwear and related products; PORON(R) healthcare and medical materials for body cushioning and orthotic appliances; BISCO(R) silicone foams used for making flame retardant gaskets and seals in aircraft, trains, cars and trucks, and for shielding extreme temperature or flame; and R/bak(R) compressible printing plate backing and mounting products for cushioning flexographic plates for printing on packaging materials. The Company's polyolefin foams are used in a range of industrial and consumer applications. Two of the Company's joint ventures extend and complement the Company's worldwide business in High Performance Foams. Rogers Inoac Corporation ("RIC"), a joint venture with Japan-based Inoac Corporation, manufactures high performance PORON(R) urethane foam materials in Mie and Nagoya, Japan. In 2004, the Company further extended its PORON(R) urethane foam production capacity into China with the formation of another joint venture, Rogers Inoac Suzhou Corporation ("RIS"). Polymer Materials and Components Polymer Materials and Components include high performance elastomer components, composite materials, power distribution busbars, electroluminescent lamps and inverters. The Company's Polymer Materials and Components have characteristics that offer functional advantages in many market applications, and serve to differentiate the Company's products from those of its competitors and from other commonly available products. Elastomer components are sold to original equipment manufacturers for applications in transportation, communications, imaging, computer, consumer and other markets. Trade names for the Company's elastomer components include: NITROPHYL(R) floats for fill level sensing in fuel tanks, motors, and storage tanks; and ENDUR(R) elastomer rollers and belts for document handling in copiers, computer printers, mail sorting machines and automated teller machines. In 2004, the Company moved production of its elastomer components products from South Windham, Connecticut to its facility in Suzhou, China in an effort to improve production cost efficiencies and to be closer to its customers in the Asian marketplace. Also in 2004, the Company acquired KF Inc., a Korean float manufacturer, to further expand its presence in the Asian marketplace. -5- Power distribution busbars are manufactured by the Company under the MEKTRON(R) trade name. Bus bars are sold to manufacturers of high voltage electrical traction systems for use in mass transit and industrial applications, and to manufacturers of communication and computer equipment. The Company's nonwoven composite materials are manufactured for medical padding, industrial pre-filtration applications, and as consumable supplies in the lithographic printing industry. In the fourth quarter of 2003, the Company acquired the remaining interest in its former joint venture, Durel Corporation, from 3M. Durel manufactures DUREL(R) electroluminescent lamps ("EL lamps") and phosphor, in Chandler, Arizona. The Company also designs and sells inverters that power EL lamps. For additional information, see "Business Segment and Geographic Information" in Footnote 11 to the consolidated financial statements in the annual report to shareholders for the year ended January 2, 2005,which is incorporated herein by reference. Sales and Marketing Most of the Company's products are sold through sales offices located near major concentrations of its customers throughout the Americas, Europe and Asia. The Company's products were sold to approximately 4,400 customers worldwide in 2004. Although the loss of all the sales made to any one of the Company's larger customers would require a period of adjustment during which the business of a segment would be adversely affected, the Company believes that such adjustment could be made over a period of time. The Company also believes that its business relationships with the major customers within all of its segments are generally favorable, and that it is in a good position to respond promptly to variations in customer requirements. However, the possibility exists of losing all the business of any major customer as to any product line. Likewise, the possibility exists of losing all the business of any single customer. The Company markets its full range of products throughout the United States and in most foreign markets. Almost all of the Company's sales are sold through the Company's own domestic and foreign sales force, with a small percentage sold through independent agents and distributors. Competition There are no firms that compete with the Company across its full range of product lines. However, each of the Company's products faces competition in each business segment in domestic and foreign markets. Competition comes from firms of all sizes and types, including those with substantially more resources than the Company. The Company's strategy is to offer technically advanced products that are price competitive in their markets, and to link the product offerings with market knowledge and customer service. The Company believes this serves to differentiate the Company's products in many markets. Research and Development The Company has many domestic and foreign patents and licenses and has additional patent applications on file related to all business segments. In some cases, the patents result in license royalties. The patents are of varying duration and provide some protection from competition. Although the Company vigorously defends its patents, the Company believes that its patents have most value in combination with its equipment, technology, skills, and market position. The Company also owns a number of registered and unregistered trademarks and has acquired certain technology that it believes to be of importance to its business. Environment The nature and scope of the Company's business bring it in regular contact with the general public and a variety of businesses and government agencies. Such activities inherently subject the Company to the possibility of litigation, including environmental matters that are defended and handled in the ordinary course of business. The Company has established accruals for matters for which management considers a loss to be probable and reasonably estimable. The Company does not believe that the outcome of any of these environmental matters will have a material adverse effect on its results of operations, financial position or cash flows, nor has the Company had any material recurring costs or capital expenditures relating to environmental matters, except as disclosed in Item 3 of this report ("Legal Proceedings") and footnote 11 to the consolidated financial statements in the annual report to shareholders for the year-ended January 2, 2005, which is incorporated herein by reference. However, there can be no assurances that the ultimate liability concerning these matters will not have a material adverse effect on the Company. -6- Raw Materials The manufacture of High Performance Foams, Printed Circuit Materials and Polymer Materials and Components requires a wide variety of purchased raw materials. Some of these raw materials are available only from limited sources of supply that, if discontinued, could interrupt production. When this has occurred in the past, the Company has purchased sufficient quantities of the particular raw material to sustain production until alternative materials and production processes could be qualified with customers. Management believes that similar responses would mitigate any raw material availability issues in the future. Seasonality In the Company's opinion, there is generally no material concentration of products or markets within the business that is seasonal in nature, except for some minor seasonality for those products sold into satellite television receivers due to fourth quarter holiday build-up, and also for those products sold into cellular telephones due to the annual new model launch timetable which can vary slightly year to year in terms of timing and impact. Employees As of January 2, 2005, the Company employed approximately 1,770 employees. Backlog Excluding joint venture activity, the backlog of firm orders for High Performance Foams was $6.9 million at January 2, 2005 and $4.8 million at December 28, 2003. The backlog of firm orders for Printed Circuit Materials was $5.7 million at January 2, 2005 and $23.6 million at December 28, 2003. The backlog of firm orders for Polymer Materials and Components was $14.3 million at January 2, 2005 and $19.9 million at December 28, 2003. The decrease in 2004 of backlog for Printed Circuit Materials and Polymer Materials and Components is due primarily to the sequential softening of sales in flexible products ($15.0 million decrease) and at Durel ($3.6 million decrease).
Executive Officers Year Elected To Present Other Positions Held During Name Age Present Position Position 2000-2004 - ----------------------------------------------------------------------------------------------------------------------------------- Robert W. Wachob 57 President and Chief 2004 President and Chief Operating Officer of the Company from Executive Officer April 2002 to April 2004; Executive Vice President of the Company from January 2000 to April 2002; Senior Vice President, Sales and Marketing of the Company from May 1997 to January 2000 Paul B. Middleton 37 Acting Chief Financial 2005 Corporate Controller of the Company from December 2001 to Officer and Corporate March 2005; Division Controller for Cooper Industries from Controller November 1999 to December 2001 Robert C. Daigle 41 Vice President of Research 2003 Vice President and Manager, Advance Circuit Materials and Development and Division of the Company from October 2001 to October 2003; Chief Technology Officer Manager, Advanced Circuit Materials Division of the Company from June 2001 to October 2001; Manager, Microwave Material Division of the Company from May 1997 to June 2001 John A. Richie 57 Vice President, 1994 Human Resources Robert M. Soffer 57 Vice President, Treasurer 2005 Vice President and Secretary of the Company from December and Secretary 2002 to March 2005; Vice President, Secretary, Treasurer and Clerk of the Company from June 2002 to December 2002; Vice President, Assistant Secretary, Treasurer and Clerk of the Company from April 2000 to June 2002; Treasurer, Assistant Secretary and Clerk of the Company from February 1992 to April 2000
-7- Available Information The Company makes available free of charge on its website (http://www.rogerscorporation.com) its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, reports filed pursuant to Section 16 and amendments to those reports filed pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 ("Exchange Act") as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the Securities and Exchange Commission ("SEC"). In addition the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC (http://www.sec.gov). The Company also makes available on its website the charters for certain of its various Board of Director committees, including the Audit Committee, Compensation and Organization Committee, and Nominating and Governance Committee, in addition to its Corporate Governance Guidelines, Bylaws and Code of Business Conduct and Ethics. This information is available in print without charge to any shareholder who requests it by sending a request to Rogers Corporation, One Technology Drive, P. O. Box 188, Rogers, CT 06263-0188, Attn: Vice President and Secretary. Rogers Corporation's website is not incorporated into or a part of this Annual Report on Form 10-K. Item 2. Properties On January 2, 2005, the Company operated various manufacturing facilities and sales offices throughout the United States, Europe and Asia. In general, its facilities are in good condition, are considered to be adequate for the uses to which they are being put, and are in the aggregate substantially in regular use. The principal facilities and offices are listed below:
Floor Space (Square Feet) Type of Facility Leased/Owned ------------- ---------------- ------------ High Performance Foams - ---------------------- Woodstock, Connecticut 152,000 Manufacturing Owned Carol Stream, Illinois 215,000 Manufacturing Owned Printed Circuit Materials - ------------------------- Chandler, Arizona 156,000 Manufacturing Owned Chandler, Arizona 142,000 Manufacturing Owned Evergem, Belgium 80,000 Manufacturing Owned Ghent, Belgium 113,000 Manufacturing Owned Polymer Materials and Components - -------------------------------- South Windham, Connecticut 88,000 Manufacturing Owned Rogers, Connecticut 290,000 Manufacturing Owned Ghent, Belgium 96,000 Manufacturing Owned Chandler, Arizona 120,000 Manufacturing Owned Chandler, Arizona 10,000 Manufacturing Leased through 2/06 Hwasung City, Korea 10,000 Manufacturing Leased through 2/09 Hwasung City, Korea 10,000 Manufacturing Leased through 2/09 Other - ----- Rogers, Connecticut 116,000 Corporate Headquarters/ Research & Development Owned Suzhou, China 93,000 Manufacturing Leased through 6/05 Suzhou, China 93,000 Manufacturing Leased through 6/05 Suzhou, China 200,000 Manufacturing Owned Tokyo, Japan 2,000 Sales Office Leased through 2/06 Wanchai, Hong Kong 1,000 Sales Office Leased through 4/05 Taipei, Taiwan, R.O.C. 1,000 Sales Office Leased through 7/05 Seoul, Korea 1,000 Sales Office Leased through 2/08 Singapore 1,000 Sales Office Leased through 5/06 Shanghai, China 1,000 Sales Office Leased through 6/05 Shenzen, China 1,000 Sales Office Leased through 8/05
-8- Item 3. Legal Proceedings The Company is currently engaged in the following legal proceedings: Environmental Remediation in Manchester, Connecticut In the fourth quarter of 2002, the Company sold its Moldable Composites Division ("MCD") located in Manchester, Connecticut to Vyncolit North America, Inc., a subsidiary of the Perstorp Group, Sweden. Subsequent to the divestiture, certain environmental matters were discovered at the Manchester location and Rogers determined that under the terms of the arrangement, the Company would be responsible for estimated remediation costs of approximately $500,000 and recorded this reserve in 2002. In the fourth quarter of 2004, the Connecticut Department of Environmental Protection ("DEP") accepted the Company's plan of remediation, which was subsequently accepted by the Town of Manchester in the first quarter of 2005 subject to the Company placing into escrow approximately $10,000 for future costs related to any work the town may have to perform on a sewer line that passes through the property and performing a study on the condition of that sewer line which would cost the Company approximately $25,000. In accordance with SFAS No. 5, "Accounting for Contingencies", the Company continues to maintain a reserve of approximately $500,000, which represents a probable and reasonably estimable amount to cover the anticipated remediation costs based on facts and circumstances known to the Company at the present time. The Company believes this project should be complete by the end of 2005 or soon thereafter. Superfund Sites The Company is currently involved as a potentially responsible party ("PRP") in four active cases involving waste disposal sites. In certain cases, these proceedings are at a stage where it is still not possible to estimate the ultimate cost of remediation, the timing and extent of remedial action that may be required by governmental authorities, and the amount of liability, if any, of the Company alone or in relation to that of any other PRPs. However, the costs incurred since inception for these claims have been immaterial and have been primarily covered by insurance policies, for both legal and remediation costs. In one particular case, the Company has been assessed a cost sharing percentage of 2.47% in relation to the range for estimated total cleanup costs of $17 to $24 million. The Company has confirmed sufficient insurance coverage to fully cover this liability and has recorded a liability and related insurance receivable of approximately $0.5 million, which approximates its share of the low end of the range. In all its superfund cases, the Company has been deemed by the respective PRP administrator to be a de minimis participant and only allocated an insignificant percentage of the total PRP cost sharing responsibility. Based on facts presently known to it, the Company believes that the potential for the final results of these cases having a material adverse effect on its results of operations, financial position or cash flows is remote. These cases have been ongoing for many years and the Company believes that they will continue on for the indefinite future. No time frame for completion can be estimated at the present time. PCB Contamination In addition to the above proceedings, the Company worked with the Connecticut Department of Environmental Protection related to certain polychlorinated biphenyl ("PCB") contamination in the soil beneath a section of cement flooring at its Woodstock, Connecticut facility. The Company completed clean-up efforts in 2000 and has monitored the site since the clean up was completed. In the fourth quarter of 2004, additional PCB's were detected in a well that was used for monitoring the site. The Company reported the results to the DEP and is awaiting the government's response. The Company anticipates that it will be required to install an additional well cluster at the site and expects the cost of this well to be approximately $40,000. Since inception, the Company has spent approximately $2.5 million in remediation and monitoring costs related to the site. The future costs of monitoring the site are expected to be de minimis and, although it is reasonably possible that the Company will incur additional remediation costs associated with the newly found PCB's, the Company cannot estimate the range of costs based on facts and circumstances known to it at the present time. The Company believes that this situation will continue for several more years, particularly considering the newly identified PCB presence at the site. No time frame for completion can be estimated at the present time. Asbestos Litigation Over the past several years, there has been a significant increase in certain U.S. states in asbestos-related product liability claims brought against numerous industrial companies where the third-party plaintiffs allege personal injury from exposure to asbestos-containing products. The Company has been named, along with hundreds of other companies, as a defendant in some of these claims. In virtually all of these claims filed against the Company, the plaintiffs are seeking unspecified damages, or, if an amount is specified, it merely represents jurisdictional amounts or amounts to be proven at trial. -9- In late 2004, the Company determined that it was reasonably prudent, based on facts and circumstances known to it at that time, to perform a formal analysis to determine its potential future liability and related insurance coverage for asbestos-related matters. This determination was made based on several factors, including the growing number of asbestos related claims and recent settlement history. As a result, National Economic Research Associates, Inc. ("NERA"), a consulting firm with expertise in the field of evaluating mass tort litigation asbestos bodily-injury claims, was engaged to assist the Company in projecting the Company's future asbestos-related liabilities and defense costs with regard to pending claims and future unasserted claims. Projecting future asbestos costs is subject to numerous variables that are extremely difficult to predict, including the number of claims that might be received, the type and severity of the disease alleged by each claimant, the long latency period associated with asbestos exposure, dismissal rates, costs of medical treatment, the financial resources of other companies that are co-defendants in claims, uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, and the impact of potential changes in legislative or judicial standards, including potential tort reform. Furthermore, any predictions with respect to these variables are subject to even greater uncertainty as the projection period lengthens. In light of these inherent uncertainties, the Company's limited claims history and consultations with NERA, the Company believes that five years is the most reasonable period for recognizing a reserve for future costs, and that costs that might be incurred after that period are not reasonably estimable at this time. As a result, the Company also believes that its ultimate net asbestos-related contingent liability (i.e., its indemnity or other claim disposition costs plus related legal fees) cannot be estimated with certainty. As part of this process, Marsh Risk Consulting ("Marsh"), a consulting firm with expertise in the field of evaluating insurance coverage and the likelihood of recovery for claims, was retained to assist the Company in projecting the extent of its insurance coverage related to these claims. Marsh's conclusions were based primarily on a review of the Company's coverage history, application of reasonable assumptions on the allocation of coverage consistent with industry standards, an assessment of the creditworthiness of insurance carriers, analysis of applicable deductibles, retentions and policy limits, and the experience of NERA and a review of NERA's report. Based on the results of these studies, the Company recorded a reserve at January 2, 2005 for its estimated bodily injury liabilities for asbestos-related matters for the five-year period through 2009 in the undiscounted amount of $36.2 million, including damages and defense costs, and a receivable for its estimated insurance recovery of $36.0 million, which represents probable and reasonably estimable amounts for both the potential liability and related insurance recovery at the present time. These amounts were based on currently known facts and a number of assumptions. However, projecting future events, such as the number of new claims to be filed each year, the average cost of disposing of each such claim, coverage issues among insurers, and the continuing solvency of various insurance companies, as well as numerous uncertainties surrounding asbestos litigation in the United States, could cause the actual liability and insurance recoveries for the Company to be higher or lower than those projected or recorded. There can be no assurance that the Company's accrued asbestos liabilities will approximate its actual asbestos-related settlement and defense costs, or that its accrued insurance recoveries will be realized. The Company believes that it is reasonably possible that it will incur additional charges for its asbestos liabilities and defense costs in the future, which could exceed existing reserves, but cannot estimate such excess amount at this time. The Company will continue to vigorously defend itself and believes it has substantial unutilized insurance coverage to mitigate future costs related to this matter. Given the inherent uncertainty in making future projections, the Company plans to have the projections of current and future asbestos claims periodically re-examined, and the Company will update them if needed based on the Company's experience, changes in the underlying assumptions that formed the basis for NERA's and Marsh's models, and other relevant factors, such as changes in the tort system. Other Environmental Matters In 2004, the Company became aware of a potential environmental matter at its facility in Korea involving potential soil contamination. The Company is currently in the initial stages of performing an assessment on the site to determine if any contamination exists. At present, it is not possible to determine the likelihood or to reasonably estimate the potential cost of any potential adverse outcome based on the facts and circumstances currently known to the Company. The Company is also aware of a potential environmental matter involving soil contamination at one of its European facilities. The Company is currently assessing this matter and believes that it is probable that a loss contingency exists relating to this site and that a reasonably estimable range of loss is between $200,000 and $400,000. The Company has recorded a reserve at the low end of the range at January 2, 2005. In addition to the above issues, the nature and scope of the Company's business bring it in regular contact with the general public and a variety of businesses and government agencies. Such activities inherently subject the Company to the possibility of litigation, including environmental and product liability matters that are defended and handled in the ordinary course of business. The Company has established accruals for matters for which management considers a loss to be probable and reasonably estimable. It is the opinion of management that facts known at the present time do not indicate that such litigation, after taking into account insurance coverage and the aforementioned accruals, will have a material adverse impact on the results of operations, financial position, or cash flows of the Company. -10- For additional discussion on the Company's environmental and litigation matters, see footnote 10 to the consolidated financial statements in the annual report to shareholders for the year-ended January 2, 2005, which is incorporated herein by reference and which is included in Exhibit 13 to this Form 10-K. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of our security holders during the last quarter of the period covered by the Annual Report on Form 10-K. PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Pursuant to General Instructions G to Form 10-K, there is hereby incorporated by this reference the information set forth under the captions "Capital Stock Market Prices" and "Restriction on Payment of Dividends" in the "Selected Financial Data" in the 2004 annual report to shareholders, which is included in Exhibit 13 to this Form 10-K, and "Dividend Policy" in the "Management's Discussion and Analysis" in the 2004 annual report to shareholders, and "Equity Compensation Plan Information" in the Company's definitive proxy statement for its 2005 Annual Meeting of Shareholders that is anticipated to be filed on March 25, 2005 pursuant to Section 14(a) of the Exchange Act, which is included in Exhibit 13 to this Form 10-K. At February 27, 2005 there were 826 shareholders of record. Issuer Purchases of Equity Securities
(d) Maximum Number (c) Total Number of (or Approximate Dollar Shares (or Units) Value) of Shares (or (a) Total Number of Purchase as Part of Units) that May Yet Be Shares (or Units) (b) Average Price Paid Publicly Announced Purchased Under the Period Purchased per share (or Unit) Plans or Programs Plans or Programs - ------ ----------------------------------------------------------------------------------------------- November 29 through January 2 -- -- -- -- November 1 through November 28 69,700 $ 45.64 69,700 $ 21,818,749 October 4 through October 31 -- -- -- --
On October 28, 2004, the Company's Board of Directors authorized the purchase, at management's discretion, of up to an aggregate of $25 million in market value of shares of the Company's capital stock in open market transactions. The buyback program will be completed or cancelled within twelve months. Item 6. Selected Financial Data Pursuant to General Instructions G to Form 10-K, there is hereby incorporated by this reference the information set forth under the caption "Selected Financial Data" in the 2004 annual report to shareholders, which is included in Exhibit 13 to this Form 10-K. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Pursuant to General Instructions G to Form 10-K, there is hereby incorporated by this reference the information set forth under the caption "Management's Discussion and Analysis" in the 2004 annual report to shareholders, which is included in Exhibit 13 to this Form 10-K. Item 7a. Quantitative and Qualitative Disclosures about Market Risk Pursuant to General Instructions G to Form 10-K, there is hereby incorporated by this reference the information set forth under the caption "Market Risk" in the "Management's Discussion and Analysis" in the 2004 annual report to shareholders, which is included in Exhibit 13 to this Form 10-K. Item 8. Financial Statements and Supplementary Data Pursuant to General Instructions G to Form 10-K, there is hereby incorporated by this reference the information set forth under the caption "Quarterly Results of Operations" in the 2004 annual report to shareholders, which is included in Exhibit 13 to this Form 10-K. -11- Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None. Item 9a. Controls and Procedures Evaluation of Disclosure Controls and Procedures The Company conducted an evaluation, with the participation of its Chief Executive Officer and Acting Chief Financial Officer, of its disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act, as of January 2, 2005. Based upon that evaluation, the Chief Executive Officer and Acting Chief Financial Officer concluded that the Company's disclosure controls and procedures were not effective as of January 2, 2005. Management's Report on Internal Control Over Financial Reporting The management of Rogers Corporation is responsible for establishing and maintaining adequate internal control over financial reporting as is defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f). Rogers Corporation's internal control system was designed to provide reasonable assurance to the Company's management, Board of Directors and shareholders regarding the preparation and fair presentation of the Company's published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. An internal control "material weakness" is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. An internal control "significant deficiency" is one that could result in a misstatement of the financial statements that is more than inconsequential. Management assessed the effectiveness of the Company's internal control over financial reporting as of January 2, 2005. In making its assessment of internal control over financial reporting management used the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework. As a result of this assessment, management determined that the Company did not maintain effective controls over its accounting for deferred income taxes. The specific control deficiency identified related to the lack of adequate reconciliation of differences between the deferred tax amounts on the balance sheet and the underlying differences between the tax and book bases of the related balance sheet items. This resulted in the Company recording adjustments to its deferred income tax accounts in the fourth quarter of 2004. Based on management's assessment, management concluded that this matter represents a material weakness and, accordingly, has concluded that as of January 2, 2005, the Company's internal control over financial reporting was not effective based on those criteria. Rogers Corporation's independent registered public accounting firm, Ernst & Young LLP, has issued an audit report on management's assessment of the Company's internal control over financial reporting. This report appears on page 70 of our Annual Report. Rogers, Connecticut March 9, 2005 Background on the Material Weakness On February 17, 2005, the Company announced that it would be delaying its fourth quarter and year-end earnings release because it had identified some potential issues associated with its historical accounting for deferred income taxes. Subsequently, it was determined that a change was necessary in the method used to reconcile and account for deferred income taxes to be consistent with the application of the provisions of Statement of Financial Accounting Standards No. 109. This change resulted in an increase of $5.0 million to after-tax income in the fourth quarter of 2004. This one-time, non-cash increase to current year's earnings reflects the adjustment required to properly state certain deferred income tax accounts for temporary tax differences that most likely accumulated over many years. Management believes that the adjustment relates most likely to amounts accumulated prior to 2002; that any temporary differences not properly accounted for did not materially affect the Company's reported results in any one year; nor was the cumulative amount material in relation to the Company's financial position at January 2, 2005. However, management has concluded that the internal control deficiency which resulted in this adjustment constitutes a "material weakness" as defined by the Public Company Accounting Oversight Board's Auditing Standard No. 2 and therefore management has concluded that internal controls over financial reporting were not effective as of January 2, 2005. Management is in the process of implementing additional internal control procedures over its accounting for deferred income taxes. Exclusive of this instance, no other material weaknesses were identified by management in the Company's internal control over financial reporting. -12- Changes in Internal Control Over Financial Reporting There have been no changes to the Company's internal control over financial reporting that occurred during the quarter ended January 2, 2005 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. However, as described above, management is currently implementing enhancements to the Company's internal control over financial reporting to address the material weakness discussed above. Item 9b. Other Information None. PART III Item 10. Directors and Executive Officers of the Registrant Pursuant to General Instruction G to Form 10-K, there is hereby incorporated by this reference the information with respect to the Directors of the Company set forth under the captions "Nominees for Director" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's definitive proxy statement for its 2005 Annual Meeting of Shareholders that is anticipated to be filed on March 25, 2005 pursuant to Section 14(a) of the Exchange Act. Information with respect to Executive Officers of the Company is presented in Part I, Item 1 of this report and is set forth in the Company's definitive proxy statement for its 2005 Annual Meeting of Shareholders that is anticipated to be filed on March 25, 2005 pursuant to Section 14(a) of the Exchange Act. Code of Ethics The Company has adopted a code of business conduct and ethics, which applies to all employees, officers and directors of Rogers. The code of business conduct and ethics is posted on the Company's website at http://www.rogerscorporation.com and is also available in print without charge to any shareholder who requests it by sending a request to Rogers Corporation, One Technology Drive, P. O. Box 188, Rogers, CT 06263-0188, Attn: Vice President and Secretary. The Company intends to satisfy the disclosure requirements regarding any amendment to, or waiver of, a provision of the code of business conduct and ethics for the Chief Executive Officer, principal financial officer and principal accounting officer (or others performing similar functions) by posting such information on its website. Rogers Corporation's website is not incorporated into or a part of this Annual Report on Form 10-K Item 11. Executive Compensation Pursuant to General Instruction G to Form 10-K, there is hereby incorporated by this reference the information set forth under the captions "Directors' Compensation" and "Executive Compensation" in the Company's definitive proxy statement for its 2005 Annual Meeting of Shareholders that is anticipated to be filed on March 25, 2005 pursuant to Section 14(a) of the Exchange Act. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Pursuant to General Instruction G to Form 10-K, there is hereby incorporated by this reference the information with respect to Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters set forth under the captions "Stock Ownership of Management", "Beneficial Ownership of More Than Five Percent of Rogers Stock", and "Equity Compensation Plan Information" in the Company's definitive proxy statement for its 2005 Annual Meeting of Shareholders that is anticipated to be filed on March 25, 2005 pursuant to Section 14(a) of the Exchange Act. Item 13. Certain Relationships and Related Transactions Pursuant to General Instruction G to form 10-K, there is hereby incorporated by reference the information with respect to certain relationships and related transactions set forth under the caption "Related Parties" in the "Management's Discussion and Analysis" in the 2004 annual report to shareholders, which is included in Exhibit 13 to this Form 10-K. Item 14. Principal Accountant Fees and Services Pursuant to General Instruction G to Form 10-K, there is hereby incorporated by this reference the information with respect to Accountant Fees set forth under the caption "Fees of Independent Registered Public Accounting Firm" in the Company's Proxy Statement for its 2005 Annual Meeting of Shareholders that is anticipated to be filed on March 25, 2005 pursuant to Section 14(a) of the Exchange Act. -13- PART IV Item 15. Exhibits and Financial Statement Schedules (a) The following documents are filed as part of this report: (1) Financial Statements (Pursuant to General Instructions to Form 10-K, there is hereby incorporated by reference the information set forth in the 2004 Annual Report to Shareholders): Consolidated Balance Sheets - January 2, 2005 and December 28, 2003 Consolidated Statements of Income - Fiscal Years Ended January 2, 2005, December 28, 2003, and December 29, 2002 Consolidated Statements of Shareholders' Equity - Fiscal Years Ended January 2, 2005, December 28, 2003, and December 29, 2002 Consolidated Statements of Cash Flows - Fiscal Years Ended January 2, 2005, December 28, 2003, and December 29, 2002 Notes to Consolidated Financial Statements - January 2, 2005 (2) Financial Statement Schedules: Schedule II - Valuation and Qualifying Accounts for the three fiscal years ending January 2, 2005 All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. (3) Exhibits: The following list of exhibits includes exhibits submitted with this Form 10-K as filed with the SEC and those incorporated by reference to other filings. 2 Stock Purchase Agreement, dated September 30, 2003, among 3M Company, 3M Innovative Properties Company, Durel Corporation and Rogers Corporation for the purchase of Durel Corporation was filed as Exhibit 2.1 to the Registrant's Form 8-K filed on October 15, 2003*. 3a Restated Articles of Organization, filed with the Secretary of State of the Commonwealth of Massachusetts on April 6, 1966, were filed as Exhibit 3a to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 1, 1989 (the 1988 Form 10-K)*. 3b Articles of Amendment to the Articles of Organization, filed with the Secretary of State of the Commonwealth of Massachusetts on August 10, 1966, were filed as Exhibit 3b to the 1988 Form 10-K*. 3c Articles of Merger of Parent and Subsidiary Corporations, filed with the Secretary of State of the Commonwealth of Massachusetts on December 29, 1975, were filed as Exhibit 3c to the 1988 Form 10-K*. 3d Articles of Amendment, filed with the Secretary of State of the Commonwealth of Massachusetts on March 29, 1979, were filed as Exhibit 3d to the 1988 Form 10-K*. 3e Articles of Amendment, filed with the Secretary of State of the Commonwealth of Massachusetts on March 29, 1979, were filed as Exhibit 3e to the 1988 Form 10-K*. 3f Articles of Amendment, filed with the Secretary of State of the Commonwealth of Massachusetts on April 2, 1982, were filed as Exhibit 3f to the 1988 Form 10-K*. 3g Articles of Merger of Parent and Subsidiary Corporations, filed with the Secretary of State of the Commonwealth of Massachusetts on December 31, 1984, were filed as Exhibit 3g to the 1988 Form 10-K*. 3h Articles of Amendment, filed with the Secretary of State of the Commonwealth of Massachusetts on April 6, 1988, were filed as Exhibit 3h to the 1988 Form 10-K*. 3i Bylaws of Rogers Corporation, as amended and restated effective August 26, 2004, were filed as Exhibit 3.1 to the Company's Current Report of Form 8-K, filed with the Securities and Exchange Commission on September 1, 2004, and incorporated herein by reference. 3j Articles of Amendment, as filed with the Secretary of State of the Commonwealth of Massachusetts on May 24, 1994, were filed as Exhibit 3j to the 1995 Form 10-K*. 3k Articles of Amendment, as filed with the Secretary of State of the Commonwealth of Massachusetts on May 8, 1998 were filed as Exhibit 3k to the 1998 Form 10-K*. -14- 3l Articles of Merger of Parent and Subsidiary Corporation, filed with the Secretary of State of the Commonwealth of Massachusetts on December 28, 2003, filed herewith. 4a 1997 Shareholder Rights Plan was filed on Form 8-A dated March 24, 1997. The June 19, 1997 and July 7, 1997 amendments were filed on Form 8-A/A dated July 21, 1997. The April 10, 2000 amendment was filed on Form 8-K on May 16, 2000*. 4b Certain Long-Term Debt Instruments, each representing indebtedness in an amount equal to less than 10 percent of the Registrant's total consolidated assets, have not been filed as exhibits to this Annual Report on Form 10-K. The Registrant hereby undertakes to file these instruments with the Commission upon request. 10b Description of the Company's Life Insurance Program**, was filed as Exhibit K to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 28, 1980*. 10c Rogers Corporation 2004 Annual Incentive Compensation Plan** (2004) was filed as Exhibit 10c to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 28, 2003*. 10d Rogers Corporation 1988 Stock Option Plan** (as amended December 17, 1988, September 14, 1989, October 23, 1996, April 18, 2000, June 21, 2001, August 22, 2002, and December 5, 2002). The 1988 plan, the 1988 amendment, and the 1989 amendment were filed as Exhibit 10d to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 1, 1995 (the 1994 Form 10-K)*. The 1996 amendment was filed as Exhibit 10d to the 1996 Form 10-K*. The April 18, 2000 amendment, June 21, 2001 amendment, August 22, 2002 amendment and December 5, 2002 were filed as Exhibit 10d to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 28, 2003*. 10e Rogers Corporation 1990 Stock Option Plan** (as restated and amended on October 18, 1996, December 21, 1999, amended on April 18, 2000, June 21, 2001, August 22, 2002, October 7, 2002, and December 4, 2002). The October 18, 1996 restatement and amendment was filed as Registration Statement No. 333-14419 on Form S-8 dated October 18, 1996*. The December 21, 1999 amendment was filed as Exhibit 10e to the 1999 Form 10-K*. The October 7, 2002 amendment was filed as Exhibit 10e to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 29, 2002*. The April 18, 2000 amendment, June 21, 2001 amendment, August 22, 2002 amendment and December 5, 2002 amendment was filed as Exhibit 10e to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 28, 2003*. 10f Rogers Corporation Deferred Compensation Plan** (1983) was filed as Exhibit O to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 1, 1984*. 10g Rogers Corporation Deferred Compensation Plan** (1986) was filed as Exhibit 10e to the 1987 Form 10-K*. 10h Rogers Corporation 1994 Stock Compensation Plan** (as restated and amended on October 17, 1996, amended on December 18, 1997, April 18, 2000, June 21, 2001, August 22, 2002, and December 5, 2002). The 1994 plan, as amended and restated on October 17, 1996, was filed as Exhibit 10h to the 1996 Form 10-K*. The 1997 amendment was filed as Exhibit 10h to the 1997 Form 10-K*. The April 18, 2000 amendment, June 21, 2001 amendment, August 22, 2002 amendment, and December 5, 2002 amendment were filed as Exhibit 10h to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 28, 2003*. 10i Rogers Corporation Voluntary Deferred Compensation Plan for Non-Employee Directors** (1994, as amended December 26, 1995, December 27, 1996 and as restated and amended December 21, 1999, October 7, 2002, and December 5, 2002). The 1994 plan, the December 26, 1995 and December 27, 1996 amendments were filed as Exhibit 10i to the 1994 Form 10-K, 1995 Form 10-K, and 1996 Form 10-K, respectively*. The December 21, 1999 restatement and amendment were filed as Exhibit 10i to the 1999 Form 10-K*. The October 7, 2002 amendment was filed as Exhibit 10i to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 29, 2002 *. The December 5, 2002 amendment was filed as Exhibit 10i to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 28, 2003*. 10j Rogers Corporation Voluntary Deferred Compensation Plan for Key Employees** (1993, as amended on December 22, 1994, December 21, 1995, December 22, 1995, April 17, 1996 and as restated and amended on December 21, 1999, October 7, 2002, and December 5, 2002). The 1993 plan and the 1994 amendments were filed as Exhibit 10j to the 1994 Form 10-K*. The 1995 and 1996 amendments were filed as Exhibit 10j to the 1995 Form 10-K and 1996 Form 10-K, respectively*. The December 21, 1999 restatement and amendment were filed as Exhibit 10j to the 1999 Form 10-K*. The October 7, 2002 amendment was filed as Exhibit 10j to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 29, 2002 *. The December 5, 2002 amendment was filed as Exhibit 10j to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 28, 2003*. 10k Rogers Corporation Long-Term Enhancement Plan for Senior Executives of Rogers Corporation** (December 18, 1997*, as amended April 4, 2000, October 7, 2002, and December 5, 2002). The April 4, 2000 amendment was file as Exhibit 10k to the 2000 Form 10-K*. The October 7, 2002 amendment was filed as Exhibit 10k to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 29, 2002*. The December 5, 2002 amendment was filed as Exhibit 10k to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 28, 2003*. 10l Rogers Corporation 1998 Stock Incentive Plan**(1998, as amended September 9, 1999, December 21, 1999, April 18, 2000, June 21, 2001, October 10, 2001, August 22, 2002, November 7, 2002, December 5, 2002 and February 19, 2004). The 1998 Plan was filed as Registration Statement No. 333-50901 on April 24, 1998*. The September 9, 1999 and December 21, 1999 amendments were filed as Exhibit 10l to the 1999 Form 10-K*. The October 10, 2001 and November 7, 2002 amendments were filed as Exhibit 10l to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 29, 2002 *. The April 18, 2000 amendment, June 21, 2001 amendment, August 22, 2002 amendment, December 5, 2002 amendment and February 19, 2004 amendment were filed as Exhibit 10l to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 28, 2003*. -15- 10m Multicurrency Revolving Credit Agreement (as amended September 7, 2001 and October 25, 2002) dated December 8, 2000 was filed as Exhibit 10m to the 2000 Form 10-K*. The September 7, 2001 and October 25, 2002 amendments are filed herewith as Exhibit 10m-1 and Exhibit 10m-2, respectively. 10n Rogers Corporation Executive Supplemental Agreement** (as amended April 29, 2004) for the Chairman of the Board and Chief Executive Officer, dated December 5, 2002, was filed as Exhibit 10n to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 29, 2002*. The April 29, 2004 amendment is filed herewith. 10o Rogers Corporation Pension Restoration Plan** (as amended and restated March 10, 2004). The March 10, 2004 amendment was filed as Exhibit 10o to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 28, 2003*. 10p 2002 Financial Statements for the Company's former joint venture with 3M, Durel Corporation, were filed as Exhibit 99.3 to the Registrant's Annual Report on Form 10-K for the fiscal year-ended December 29, 2002*. 10q Unaudited Financial Statements for the nine-month period ended September 30, 2003 for the Company's former joint venture with 3M, Durel Corporation were filed as Exhibit 33b to the Registrant's Annual Report on Form 10-K for the fiscal year-ended December 28, 2003*. 10r Summary of Director and Executive Officer Compensation, filed herewith**. 10s Form of 1991 Special Severance Agreement, filed herewith**. 10t Schedule of 1991 Special Severance Agreements (Exhibit 10s), filed herewith**. 10u Form of Indemnification Agreement for Executives was filed on Form 8-K on December 14, 2004**. 10v Schedule of Indemnification Agreements for Executives (Exhibit 10u), filed herewith**. 10w Form of Indemnification Agreement for Directors was filed on Form 8-K on December 14, 2004**. 10x Schedule of Indemnification Agreements for Directors (Exhibit 10w), filed herewith**. 10y Change in Control Severance Agreement, dated March 3, 2004, by and between the Company and Robert C. Daigle, filed herewith**. 10z Change in Control Severance Agreement, dated October 2, 1991, by and between the Company and Robert D. Wachob, filed herewith**. 10aa Change in Control Severance Agreement, dated October 2, 1991, by and between the Company and Robert M. Soffer, filed herewith**. 10ab Change in Control Severance Agreement, dated March 3, 1996, by and between the Company and John A. Richie, filed herewith**. 10ac Change in Control Severance Agreement, dated March 3, 2004, by and between the Company and Paul B. Middleton, filed herewith**. 10ad Guaranty to Multicurrency Revolving Credit Agreement by Rogers China, Inc., dated April 3, 2001, filed herewith. 10ae Guaranty to Multicurrency Revolving Credit Agreement by Rogers KF, Inc., dated February 18, 2004, filed herewith. 13 Portions of the Rogers Corporation 2004 Annual Report to Shareholders which are specifically incorporated by reference in this Annual Report on Form 10-K, filed herewith. 21 Subsidiaries of the Rogers, filed herewith. 23 Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm, filed herewith. 31.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, filed herewith. 31.2 Certification of Acting Chief Financial Officer and Corporate Controller Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, filed herewith. 32.1 Certification of Chief Executive Officer and Acting Chief Financial Officer and Corporate Controller Pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith. * In accordance with Rule 12b-23 and Rule 12b-32 under the Securities Exchange Act of 1934, as amended, reference is made to the documents previously filed with the Securities and Exchange Commission, which documents are hereby incorporated by reference. ** Management Contract. -16-
SCHEDULE II ROGERS CORPORATION AND CONSOLIDATED SUBSIDIARIES Valuation and Qualifying Accounts Balance at Charged to Taken Other Balance at Beginning of (Reduction of) Against (Deductions) End of (Dollars in Thousands) Period Costs and Expenses Allowance Recoveries Period ---------------- ------------------ --------- -------------- ------------- Allowance for Doubtful Accounts: January 2, 2005 $1,446 $350 $(33) $32 $1,795 December 28, 2003 1,102 349 (41) 36 1,446 December 29, 2002 1,363 (200) (154) 93 1,102
-17- Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ROGERS CORPORATION (Registrant) /s/ Paul B. Middleton ------------------------------------------ Paul B. Middleton Acting Chief Financial Officer and Corporate Controller (Acting Principal Financial and Accounting Officer) Dated: March 18, 2005 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 18, 2005, by the following persons on behalf of the Registrant and in the capacities indicated. /s/ Robert D. Wachob /s/ Gregory B. Howey - ------------------------------------- --------------------------- Robert D. Wachob Gregory B. Howey President and Chief Executive Officer Director /s/ Paul B. Middleton /s/ Leonard R. Jaskol - ------------------------------------- --------------------------- Paul B. Middleton Leonard R. Jaskol Acting Chief Financial Officer and Director Corporate Controller /s/ Walter E. Boomer /s/ Eileen S. Kraus - ------------------------------------- --------------------------- Walter E. Boomer Eileen S. Kraus Director Director /s/ Leonard M. Baker /s/ William E. Mitchell - ------------------------------------- --------------------------- Leonard M. Baker William E. Mitchell Director Director /s/ Edward L. Diefenthal /s/ Robert G. Paul - ------------------------------------- --------------------------- Edward L. Diefenthal Robert G. Paul Director Director -18- EX-10 2 a4846542ex10m1.txt EXHIBIT 10M-1 Exhibit 10m-1 FIRST AMENDMENT This FIRST AMENDMENT dated as of September 7, 2001 (this "Amendment"), is made by and among (a) ROGERS CORPORATION, a Massachusetts corporation (the "Borrower"), having its principal place of business at One Technology Drive, Rogers, Connecticut 06263, (b) the direct and indirect Subsidiaries of the Borrower listed as Guarantors on the signature pages hereto (the "Guarantors"), (c) FLEET NATIONAL BANK, a national banking association, as agent (in such capacity the "Agent") for the Banks referred to below; and (d) FLEET NATIONAL BANK and the other financial institutions from time to time parties to the Credit Agreement referred to below (collectively, the "Banks"). Terms defined in the Credit Agreement referred to below that are not otherwise defined herein shall have the respective meanings assigned to such terms in the Credit Agreement. WHEREAS, the Borrower, the Banks and the Agent are parties to that certain Multicurrency Revolving Credit Agreement dated as of December 8, 2000 (as amended, modified, supplemented or restated and in effect from time to time, the "Credit Agreement"); and WHEREAS, the Borrower has requested that the Credit Agreement be amended in order to modify the investment covenant thereof; and WHEREAS, the Agent and the Banks have agreed, subject to the terms and conditions set forth in this Amendment, to an amendment to provide for such modification; NOW, THEREFORE, in consideration of the mutual agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: ss.1. Amendments to the Credit Agreement. The Credit Agreement is hereby amended as follows: (a) Section 1.1 of the Credit Agreement is hereby amended by inserting the following new defined term in the appropriate place in the alphabetical order thereof: "Consolidated Tangible Net Worth. The excess of Consolidated Tangible Assets over Consolidated Total Liabilities." (b) Section 8.3 of the Credit Agreement is hereby amended by deleting clause (n) thereof in its entirety and by replacing it with the following: "(n) Investments other than as permitted by clauses (a) through (m) above; provided that the aggregate amount of all such Investments at any time outstanding shall not exceed three and one-half percent (3.5%) of Consolidated Tangible Net Worth at such time." ss.2. Guarantors' Consent. Each of the Guarantors hereby consents to the amendments to the Credit Agreement set forth in this Amendment, and each confirms its obligation to the Agent and the Banks under its Guaranty and agrees that its guaranty of the Obligations thereunder shall extend to and include the Credit Agreement as amended by this Amendment. ss.3. Representations, Warranties and Covenants; No Default; Authorization. The Borrower and the Guarantors hereby represent, warrant and covenant to the Agent and the Banks as follows: (a) each of the representations and warranties of the Borrower and the Guarantors contained in the Credit Agreement and the other Loan Documents was true as of the date as of which it was made and is true as and at the date of this Amendment (except to the extent of changes resulting from transactions contemplated or permitted by this Credit Agreement and the other Loan Documents and changes occurring in the ordinary course of business that singly or in the aggregate do not have a Material Adverse Effect, and to the extent that such representations and warranties relate expressly to an earlier date), and after giving effect to this Amendment, no Default or Event of Default has occurred and is continuing; (b) this Amendment has been duly authorized, executed and delivered by each of the Borrower and Guarantors and is in full force and effect; and (c) upon the execution and delivery of this Amendment by the respective parties hereto, this Amendment shall constitute the legal, valid and binding obligation of the Borrower and the Guarantors, enforceable in accordance with its terms, except that the enforceability thereof may be subject to any applicable bankruptcy, reorganization, insolvency or other laws affecting creditors' rights generally. ss.4. Conditions to Effectiveness. The effectiveness of this Amendment shall be subject to the satisfaction of the condition that this Amendment shall have been duly executed and delivered by the Borrower, each Guarantor, the Agent and the Majority Banks. ss.5. Ratification, etc. Except as expressly amended hereby, the Credit Agreement and each of the other Loan Documents are hereby ratified and confirmed in all respects. All references in the Credit Agreement or any related agreement or instrument to the Credit Agreement shall hereafter refer to the Credit Agreement as amended hereby. ss.6. No Implied Waiver. Nothing contained herein shall constitute a waiver of, impair or otherwise affect any Obligations, any other obligations of any of the Borrower or Guarantors or any right of the Agent or any Bank consequent thereon. ss.7. Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original but which together shall constitute one and the same instrument. ss.8. Governing Law. THIS AMENDMENT SHALL FOR ALL PURPOSES BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (WITHOUT REFERENCE TO PRINCIPLES OF CONFLICTS OR CHOICE OF LAW). IN WITNESS WHEREOF, the undersigned have duly executed this Amendment as a sealed instrument as of the date first above written. Borrower: ROGERS CORPORATION By: /s/Robert M. Soffer --------------------------------- Name: Robert M. Soffer Title: Vice President and Treasurer Guarantors: ROGERS L-K CORP. By: /s/Robert M. Soffer --------------------------------- Name: Robert M. Soffer Title: Vice President and Treasurer TL PROPERTIES, INC. By: /s/Robert M. Soffer --------------------------------- Name: Robert M. Soffer Title: Vice President and Treasurer ROGERS SPECIALTY MATERIALS CORPORATION By: /s/Robert M. Soffer --------------------------------- Name: Robert M. Soffer Title: Vice President, Treasurer and Secretary ROGERS JAPAN INC. By: /s/Robert M. Soffer --------------------------------- Name: Robert M. Soffer Title: Vice President, Treasurer and Secretary ROGERS SOUTHEAST ASIA, INC. By: /s/Robert M. Soffer --------------------------------- Name: Robert M. Soffer Title: Vice President and Treasurer ROGERS TAIWAN, INC. By: /s/Robert M. Soffer --------------------------------- Name: Robert M. Soffer Title: Vice President and Treasurer ROGERS KOREA, INC. By: /s/Robert M. Soffer --------------------------------- Name: Robert M. Soffer Title: Vice President, Treasurer and Secretary ROGERS TECHNOLOGIES SINGAPORE, INC. By: /s/Robert M. Soffer --------------------------------- Name: Robert M. Soffer Title: Vice President, Treasurer and Secretary ROGERS CIRCUIT MATERIALS INCORPORATED By: /s/Robert M. Soffer --------------------------------- Name: Robert M. Soffer Title: Vice President, Treasurer and Secretary ROGERS CHINA, INC. By: /s/Robert M. Soffer --------------------------------- Name: Robert M. Soffer Title: Vice President, Treasurer and Secretary Agent and Banks: FLEET NATIONAL BANK, individually and as Agent By: /s/ JGO'Donnell --------------------------------- Name: Janet G. O'Donnell Title: Managing Director CITIZENS BANK OF CONNECTICUT By: /s/Pat D Donnelly --------------------------------- Name: Patricia D. Donnelly Title: Vice President EX-10 3 a4846542ex10m2.txt EXHIBIT 10M-2 Exhibit 10m-2 SECOND AMENDMENT This SECOND AMENDMENT dated as of October 25, 2002 (this "Amendment"), is made by and among (a) ROGERS CORPORATION, a Massachusetts corporation (the "Borrower"), having its principal place of business at One Technology Drive, Rogers, Connecticut 06263, (b) the direct and indirect Subsidiaries of the Borrower listed as Guarantors on the signature pages hereto (the "Guarantors"), (c) FLEET NATIONAL BANK, a national banking association, as agent (in such capacity the "Agent") for the Banks referred to below; and (d) FLEET NATIONAL BANK and the other financial institutions from time to time parties to the Credit Agreement referred to below (collectively, the "Banks"). Terms defined in the Credit Agreement referred to below that are not otherwise defined herein shall have the respective meanings assigned to such terms in the Credit Agreement. WHEREAS, the Borrower, the Banks and the Agent are parties to that certain Multicurrency Revolving Credit Agreement dated as of December 8, 2000 (as amended as of September 7, 2001 and as further amended, modified, supplemented or restated and in effect from time to time, the "Credit Agreement"); and WHEREAS, the Borrower has requested that the Credit Agreement be amended in order to reduce the Commitment and to modify certain covenants therein; and WHEREAS, the Agent and the Banks have agreed, subject to the terms and conditions set forth in this Amendment, to an amendment to provide for such modification; NOW, THEREFORE, in consideration of the mutual agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: ss.1. Amendments to the Credit Agreement. (a) Section 8.3 of the Credit Agreement is hereby amended by restating the covenant in its entirety as follows: 8.3 Restrictions on Investments. The Borrower will not, and will not permit any of its Subsidiaries to, make or permit to exist or to remain outstanding any Investment except Investments in the following (each of which categories shall be interpreted as being separately permitted, notwithstanding any overlap among such categories): (a) Investments described in Section 3.0 of the Borrower's Investment Policy as promulgated on June 19, 2002 and provided to the Agent and the Banks in October, 2002. (b) Investments existing on the date hereof (including existing Investments in the Foreign Subsidiaries and Joint Ventures) and listed on Schedule 8.3 hereto; (c) Investments with respect to Indebtedness permitted by ss.8.1(f); (d) (i) Investments by the Guarantors consisting of the Guaranty, (ii) Investments by any Subsidiary in the Borrower, (iii) Investments by the Borrower in any Guarantor, (iv) Investments in World Properties not to exceed $750,000 at any time outstanding, and (v) Investments made after the Closing Date in the Foreign Subsidiaries not to exceed $15,000,000 at any time outstanding; (e) Investments made after the Closing Date in Joint Ventures in an aggregate amount not to exceed $30,000,000 at any time outstanding; (f) Investments in respect of Guarantied JV/Foreign Indebtedness permitted by ss.8.1(i); (g) Investments in respect of guaranties by the Borrower or any of its Domestic Subsidiaries of contractual obligations (not constituting Indebtedness) of Foreign Subsidiaries or Joint Ventures requiring payments in any fiscal year in excess of $500,000 ("Material JV/Foreign Contracts"); provided that the aggregate amount of required payments under all such guarantied Material JV/Foreign Contracts shall not exceed $5,000,000 in any fiscal year of the Borrower; (h) Investments consisting of promissory notes received as proceeds of asset dispositions permitted by ss.8.5.2; (i) Investments consisting of loans and advances to employees or former employees for moving, entertainment, travel and other similar expenses in the ordinary course of business not to exceed $1,500,000 in the aggregate at any time outstanding; (j) Investments in respect of mergers, consolidations and acquisitions permitted by ss.8.5.1; and (k) Investments other than as permitted by clauses (a) through (j) above; provided that the aggregate amount of all such Investments at any time outstanding shall not exceed three and one-half percent (3.5%) of Consolidated Tangible Net Worth at such time. For the avoidance of doubt, the foregoing restrictions shall not apply to investments made by any Guaranteed Pension Plan or Multiemployer Plan or so-called "Rabbi Trust" established for the benefit of directors or executives of the Borrower (or former executives or directors). For the avoidance of further doubt, any amendment to or revision of Section 3.0 of the investment policy described in paragraph (a) of this ss.8.3 must, prior to its becoming effective for purposes of the Credit Agreement, be consented to and approved in strict compliance with the provisions of ss.25 of the Credit Agreement. (b) Paragraph (f) of Section 8.5.2 of the Credit Agreement is hereby amended by restating the covenant in its entirety as follows: (f) the Borrower or any Subsidiary may sell or otherwise dispose of all or any part of its stock or its assets to any other Person; provided that the aggregate value on the books of the Borrower and its Subsidiaries of the assets so sold or otherwise disposed of (including any dispositions of the assets or stock of World Properties pursuant to ss.8.11) shall not exceed (i) ten percent (10%) of Consolidated Tangible Assets in any fiscal year of the Borrower, as determined on the last day of the previous fiscal year, and (ii) twenty-five percent (25%) of Consolidated Tangible Assets in the aggregate during the term of this Credit Agreement, as determined on December 31, 2000 (it being understood that prior to December 31, 2000 the Borrower shall be required to comply only with the requirements of subclause (i) of this proviso with respect to such dispositions) (it is also understood that, in lieu of the limitation in subclause (i) of this proviso relating to dispositions of stock and/or assets, in the Borrower's fiscal year in which the Borrower completes the sale of its Moldable Composites Division dispositions shall not exceed the aggregate sum of $24,000,000. For the avoidance of doubt, the requirements of subclause (ii) shall continue to apply.); and (c) The Credit Agreement is further amended by deleting Schedule 1 and replacing it with the amended form of Schedule 1 attached to this Amendment as Exhibit A, although the parties hereto acknowledge that the Borrower continues to have the unilateral right to reduce the Commitment pursuant to Section 2.3 of this Credit Agreement ss.2. Guarantors' Consent. Each of the Guarantors hereby consents to the amendments to the Credit Agreement set forth in this Amendment, and each confirms its obligation to the Agent and the Banks under its Guaranty and agrees that its guaranty of the Obligations thereunder shall extend to and include the Credit Agreement as amended by this Amendment. ss.3. Representations, Warranties and Covenants; No Default; Authorization. The Borrower and the Guarantors hereby represent, warrant and covenant to the Agent and the Banks as follows: (a) each of the representations and warranties of the Borrower and the Guarantors contained in the Credit Agreement and the other Loan Documents was true as of the date as of which it was made and is true as and at the date of this Amendment (except to the extent of changes resulting from transactions contemplated or permitted by this Credit Agreement and the other Loan Documents and changes occurring in the ordinary course of business that singly or in the aggregate do not have a Material Adverse Effect, and to the extent that such representations and warranties relate expressly to an earlier date), and after giving effect to this Amendment, no Default or Event of Default has occurred and is continuing; (b) this Amendment has been duly authorized, executed and delivered by each of the Borrower and Guarantors and is in full force and effect; and (c) upon the execution and delivery of this Amendment by the respective parties hereto, this Amendment shall constitute the legal, valid and binding obligation of the Borrower and the Guarantors, enforceable in accordance with its terms, except that the enforceability thereof may be subject to any applicable bankruptcy, reorganization, insolvency or other laws affecting creditors' rights generally. ss.4. Conditions to Effectiveness. The effectiveness of this Amendment shall be subject to the satisfaction of the condition that this Amendment shall have been duly executed and delivered by the Borrower, each Guarantor, the Agent and the Majority Banks. ss.5. Ratification, etc. Except as expressly amended hereby, the Credit Agreement and each of the other Loan Documents are hereby ratified and confirmed in all respects. All references in the Credit Agreement or any related agreement or instrument to the Credit Agreement shall hereafter refer to the Credit Agreement as amended hereby. ss.6. No Implied Waiver. Nothing contained herein shall constitute a waiver of, impair or otherwise affect any Obligations, any other obligations of any of the Borrower or Guarantors or any right of the Agent or any Bank consequent thereon. ss.7. Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original but which together shall constitute one and the same instrument. ss.8. Governing Law. THIS AMENDMENT SHALL FOR ALL PURPOSES BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (WITHOUT REFERENCE TO PRINCIPLES OF CONFLICTS OR CHOICE OF LAW). IN WITNESS WHEREOF, the undersigned have duly executed this Amendment as a sealed instrument as of the date first above written. Borrower: ROGERS CORPORATION By: /s/Robert M. Soffer -------------------------------- Name: Robert M. Soffer Title: Vice President and Secretary Guarantors: ROGERS L-K CORP. By: /s/Robert M. Soffer -------------------------------- Name: Robert M. Soffer Title: Vice President, Treasurer and Secretary TL PROPERTIES, INC. By: /s/Robert M. Soffer -------------------------------- Name: Robert M. Soffer Title: Vice President, Treasurer and Secretary ROGERS SPECIALTY MATERIALS CORPORATION By: /s/Robert M. Soffer -------------------------------- Name: Robert M. Soffer Title: Vice President, Treasurer and Secretary ROGERS JAPAN INC. By: /s/Robert M. Soffer -------------------------------- Name: Robert M. Soffer Title: Vice President, Treasurer and Secretary ROGERS SOUTHEAST ASIA, INC. By: /s/Robert M. Soffer -------------------------------- Name: Robert M. Soffer Title: Vice President, Treasurer and Secretary ROGERS TAIWAN, INC. By: /s/Robert M. Soffer -------------------------------- Name: Robert M. Soffer Title: Vice President, Treasurer and Secretary ROGERS KOREA, INC. By: /s/Robert M. Soffer -------------------------------- Name: Robert M. Soffer Title: Vice President, Treasurer and Secretary ROGERS TECHNOLOGIES SINGAPORE, INC. By: /s/Robert M. Soffer -------------------------------- Name: Robert M. Soffer Title: Vice President, Treasurer and Secretary ROGERS CIRCUIT MATERIALS INCORPORATED By: /s/Robert M. Soffer -------------------------------- Name: Robert M. Soffer Title: Vice President, Treasurer and Secretary ROGERS CHINA, INC. By: /s/Robert M. Soffer -------------------------------- Name: Robert M. Soffer Title: Vice President, Treasurer and Secretary Agent and Banks: FLEET NATIONAL BANK, individually and as Agent By: Joseph L Yotts -------------------------------- Name: Joseph L. Yotts Title: Vice President CITIZENS BANK OF CONNECTICUT By: /s/Patricia D. Donnelly -------------------------------- Name: Patricia D. Donnelly Title: Vice President EXHIBIT A --------- SCHEDULE 1 ---------- Banks; Commitments; Commitment Percentages ------------------------------------------ - -------------------------------------------------------------------------------- Bank; Address; Domestic Lending Office; Commitment Eurodollar Lending Office Percentage Commitment - ------------------------- ---------- ---------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Fleet National Bank 100 Federal Street, MA DE 10010A 60.0% $30,000,000 Boston, MA 02110 Attn: Roger C. Boucher - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Citizens Bank of Connecticut 90 State House Square 40.0% $20,000,000 Hartford, Connecticut 06103 Attn: Patricia D. Donnelly - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TOTAL 100% $50,000,000 - -------------------------------------------------------------------------------- EX-10 4 a4846542ex10n.txt EXHIBIT 10N Exhibit 10n ROGERS CORPORATION EXECUTIVE SUPPLEMENTAL RETIREMENT AGREEMENT First Amendment Pursuant to Section 9.5 of the Rogers Corporation Executive Supplemental Retirement Agreement (the "Agreement"), dated as of December 5, 2002, by and between Rogers Corporation (the "Company") and Walter E. Boomer (the "Executive"), the Company and the Executive each desire to amend the Agreement, as follows: 1. Effective as of January 1, 2004, Article One of the Agreement is amended by a Section 1.6 immediately following Section 1.5 thereof, as follows: "1.6 Employment Taxes. In addition to any other benefit payable pursuant to this Agreement, the Executive shall be entitled to receive an additional payment for each year, beginning after December 31, 2003, equal to the amount of the Executive's net out-of-pocket expenses related to any employment or similar tax which results from benefits accrued under this Agreement and any payment made under this Section 1.6." 2. Except as so amended, the Agreement in all other respects is hereby confirmed. IN WITNESS WHEREOF, the Company has caused this First Amendment to the Agreement to be executed by its duly authorized officer, and the Executive has hereunto set his hand, each on this 29th day of April, 2004. ROGERS CORPORATION /s/ Walter E. Boomer By: /s/ Robert M. Soffer - --------------------------------- ----------------------------------- Walter E. Boomer, in his Robert M. Soffer individual capacity Vice President and Secretary EX-10 5 a4846542ex10r.txt EXHIBIT 10R Exhibit 10r SUMMARY OF DIRECTOR AND EXECUTIVE OFFICER COMPENSATION. I. DIRECTOR COMPENSATION. The following table sets forth current rates of cash compensation for non-employee directors. Annual Retainer - --------------- Audit Committee Chairperson $30,000 Compensation and Organization Committee Chairperson $30,000 Lead Director Annual Retainer $30,000 Each Other Non-Employee Director $25,000 Board Meeting Attendance Fees - ----------------------------- Non-Employee Directors $1,260 Committee Meeting Attendance Fees - --------------------------------- Committee Chairpersons $1,500 Committee Members $1,000 Telephone Meetings 50% of the fee entitled had meeting been held in person Under the 1998 Stock Incentive Plan, the retainer fee for non-employee directors is paid semi-annually in shares of Rogers capital stock, with the number of shares of stock granted based on their then fair market value. Stock options are also granted to each non-employee director twice a year. In 2004, such semi-annual stock option grants were for 2,250 shares each, and in both cases with an exercise price equal to the fair market value of a share of Rogers capital stock as of the date of grant. Such options are immediately exercisable and expire ten years from the date of grant. Under Rogers Voluntary Deferred Compensation Plan for Non-Employee Directors, such individuals may defer all or a portion of their annual retainer and meeting fees, regardless of whether such amounts would have been paid in cash or in Rogers capital stock. II. EXECUTIVE COMPENSATION. The following table sets forth the base salaries provided to the current Executive Officers of Rogers Corporation as of the dates shown below. Annual Salary Annual Salary Executive Officer 4/1/04 4/1/05 ----------------- ------ ------ Robert D. Wachob $384,098 $416,338 President and Chief Executive Officer Robert C. Daigle $196,536 $214,006 Vice President, R&D Chief Technology Officer John A. Richie $181,778 $190,762 Vice President, Human Resources Robert M. Soffer $173,036 $181,584 Vice President, Treasurer and Secretary Paul B. Middleton $168,038 $178,126 Acting Chief Financial Officer and Corporate Controller .. Executive Officers are also eligible to receive a bonus each year under the Rogers Annual Incentive Compensation Plan. The Annual Incentive Compensation Plan has target bonuses of 60% to 75% of base salary for the CEO, and between 25% and 45% for the other executive officers, including the other current executive officers. Actual bonuses may vary from 0% to 300% of the target bonuses depending on performance relative to annual profit improvement objectives. These amounts are determined by the performance of Rogers (Net Income Per Share) and each division (Division Profit) versus the annual objectives. In general, the broader the responsibility of the executive, the larger the portion of his or her award which is based upon corporate, rather than divisional results; the corporate portion is 100% for the current executive officers. For 2004, overall corporate performance exceeded last year's results, which is the bonus threshold, and, as a result, all of the current executive officers earned a bonus. Bonuses earned by the Company's current executive officers for fiscal year 2004 are shown in the following table. Fiscal Year Executive Officer 2004 Bonus ----------------- ---------- Robert D. Wachob $524,021 President and Chief Executive Officer Robert C. Daigle $142,794 Vice President, R&D Chief Technology Officer John A. Richie $130,950 Vice President, Human Resources Robert M. Soffer $103,881 Vice President, Treasurer and Secretary Paul B. Middleton $99,983 Acting Chief Financial Officer and Corporate Controller III. EXECUTIVE OFFICER STOCK OPTION GRANTS. Executive officers of the Company are eligible to receive option grants each year, based on the individual's level in the organization, the same performance criteria used to determine salary adjustments, the number of shares granted in prior years and the total number of shares available for grants. These criteria are not weighted. Options generally have an exercise price equal to at least the fair market value of the Rogers stock as of the date of grant. Regular options generally have a ten-year life and generally vest in one-third increments on the second, third and fourth anniversary dates of the grant. Options granted to employees in 2004 had a special vesting schedule and selling restriction. All such 2004 options were immediately vested upon grant, but any options exercised during the first four years after the grant date cannot be sold while the individual is still actively employed by Rogers. Termination of employment because of retirement, or for other reasons, may shorten the vesting schedule and expiration date. Option grants made to current executive officers in 2004 are as shown in the following table: Executive Officer Option Grants (1) ----------------- ------------------ (in shares) Robert D. Wachob 40,000 President and Chief Executive Officer Robert C. Daigle 15,000 Vice President, R&D Chief Technology Officer John A. Richie 13,000 Vice President, Human Resources Robert M. Soffer 8,000 Vice President, Treasurer and Secretary Paul B. Middleton 7,000 Acting Chief Financial Officer and Corporate Controller (1)The exercise price of all options was $59.85/share. IV. RETIREMENT PLANS. The Company also maintains the Rogers Corporation Defined Benefit Pension Plan (the "Pension Plan"), for which the current Executive Officers are eligible. The Pension Plan Table below reflects estimated annual benefits payable at age 65, the normal retirement age, at various compensation levels and years of service pursuant to Rogers' non-contributory defined benefit pension plans for domestic salaried employees. Annual Pension Benefits (1) (2)
------------------------------------------------------------------------------- Final Average Years of Service - ------------------------------------------------------------------------------------------------- Earnings (3) 5 years 10 years 15 years 20 years 25 years 30 years - ------------------------------------------------------------------------------------------------- $125,000 $10,020 $20,050 $30,070 $40,100 $50,120 $60,150 150,000 12,210 24,420 36,640 48,850 61,060 73,270 175,000 14,400 28,800 43,200 57,600 72,000 86,400 200,000 16,590 33,170 49,760 66,350 82,930 99,520 225,000 18,770 37,550 56,320 75,100 93,870 112,650 250,000 20,960 41,920 62,890 83,850 104,810 125,770 275,000 23,150 46,300 69,450 92,600 115,750 138,900 300,000 25,340 50,670 76,010 101,350 126,680 152,020 325,000 27,520 55,050 82,570 110,100 137,620 165,150 350,000 29,710 59,420 89,140 118,850 148,560 178,270 375,000 31,900 63,800 95,700 127,600 159,500 191,400 400,000 34,090 68,170 102,260 136,350 170,430 204,520 425,000 36,270 72,550 108,820 145,100 181,370 217,650 450,000 38,460 76,920 115,390 153,850 192,310 230,770 475,000 40,650 81,300 121,950 162,600 203,250 243,900 500,000 42,840 85,670 128,510 171,350 214,180 257,020
(1) Benefits are calculated on a single life annuity basis. (2) Federal law limits the amount of benefits payable under tax qualified plans, such as the Rogers Corporation Defined Benefit Pension Plan. Rogers has adopted a non-qualified retirement plan (the "Pension Restoration Plan") for: (i) the payment of amounts to all plan participants who may be affected by such federal benefit limitations and other plan provisions; and (ii) the payment of supplemental amounts to certain senior executives specified by the Compensation and Organization Committee of the Board of Directors. In general, the total pension benefit due an individual will be actuarially equivalent to the amount calculated under Rogers' qualified pension plan as if such federal benefit limitations did not exist, as if covered compensation included amounts deferred under a deferral plan, and for certain senior executives specified by the Compensation and Organization Committee of the Board of Directors, as if covered compensation included bonuses paid on or after January 1, 2004, as described in footnote 3 below. Accordingly, the benefits shown have not been reduced by such limitations or provisions. (3) Final average earnings is the average of the highest consecutive five of the last ten years' annual earnings as of June 1 of each year. Covered compensation includes only salary, whether or not deferred under a deferral plan, and for certain senior executives over age 55 that have been specified by the Compensation and Organization Committee of the Board of Directors, including Messrs. Wachob, Richie and Soffer, covered compensation under the Pension Restoration Plan also includes bonuses paid on or after January 1, 2004, and will include bonuses paid before January 1, 2004 in the event of their death, disability, or termination of employment that results in the payment of severance. If there is a change in control of Rogers, covered compensation under the Pension Restoration Plan for these senior executives and for certain additional senior executives that have been specified by the Compensation and Organization Committee of the Board of Directors will also include bonuses paid before January 1, 2004. If there is a change in control of Rogers, the Pension Restoration Plan provides that benefits payable under such plan shall be reduced to an amount so that such benefits would not constitute so-called "excess parachute payments" under applicable provisions of the Internal Revenue Code of 1986. The five-year average earnings for Messrs. Wachob, Daigle, Richie, Soffer, and Middleton and their estimated years of credited service are: Mr. Wachob, $306,093 and 22 years; Mr. Daigle, $170,316 and 17 years; Mr. Richie, $163,821 and 28 years; Mr. Soffer, $159,604 and 26 years; and Mr. Middleton, $160,160 and 4 years. V. TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS. Rogers' severance policy for regular, full-time salaried employees provides, in general, for continuation of salary payments, health insurance and certain other benefits for employees whose employment has been involuntarily terminated. The number of weeks of salary and benefits continuance is based on length of service. The policy may be amended, modified or terminated at any time by Rogers, except in the case of the executive officers of Rogers as of November 1991. Such officers may elect the benefits of either the policy in effect in November 1991, or the severance policy, if any, which may be in existence at the time each such individual's employment terminates. The right of executive officers to make such an election may be cancelled by Rogers or the executive on three years written notice. Messrs. Wachob and Soffer would be entitled to 78 weeks of salary and benefit continuance upon termination of employment covered by the policy in effect in November 1991. The board of directors determined that it would be in the best interests of Rogers to ensure that the possibility of a change in control of Rogers would not interfere with the continuing dedication of Rogers executive officers to their duties to Rogers and its shareholders. Toward that purpose, Rogers has agreements with all current Executive Officers which provide certain severance benefits to them in the event of a termination of their employment during a 36 month period following a change in control, as defined in the agreements. The initial term of each agreement is three years and the term is automatically extended for additional one-year periods each anniversary date of the agreements, unless either party objects to such extension. If within a 36 month period following a change in control, an executive's employment is terminated by Rogers without cause, as defined in the agreements, or if such executive resigns in certain specified circumstances, then the executive is generally entitled to the following severance benefits: (i) twice his annual base salary plus bonus; (ii) two years of additional pension benefits; and (iii) the continuation of health and life insurance plans and certain other benefits for up to two years. The agreements provide that severance and other benefits be reduced to an amount so that such benefits would not constitute so-called "excess parachute payments" under applicable provisions of the Internal Revenue Code of 1986. EX-10 6 a4846542ex10s.txt EXHIBIT 10S Exhibit 10s FORM OF 1991 SPECIAL SEVERANCE AGREEMENT [Rogers Corporation Letterhead] November 19, 1991 Dear __________: As you may know, Rogers Corporation (the "Company") maintains a severance policy for the benefit of certain of its employees. This policy provides for severance pay upon termination of employment in certain circumstances. A copy of the Company's severance policy, in effect on the date of this letter, is attached as Exhibit A (the "Severance Policy"). In consideration of the valuable services you provide to the Company, the Company is setting forth in this letter the agreement between the Company and you concerning severance benefits to which you will become entitled should your employment with the Company terminate during the term of this agreement. 1. The Company agrees that if your employment with the Company terminates at any time (subject to paragraph 2. below), the severance benefits to which you will be entitled, if any, will be determined under the attached Severance Policy, regardless of any modification, revocation, or termination of the Company's severance policy applicable to any other employees of the Company, except that if the ------ Company's severance policy in effect on the date of your termination of employment is different from the attached Severance Policy, then within ten (10) days of the date of your termination of employment, you may decide whether your severance pay will be per the attached Severance Policy or per the severance policy in effect on the date of your termination. If you make so such election, the attached Severance Policy shall apply. 2. At any time starting one year from the date of this letter, the Company or the employee may, at their sole discretion, terminate this letter by providing a written notice of such termination at least three years in advance of the effective date of such termination. 3. If the Company is at any time merged or consolidated into or with any other entity, or if all or substantially all of the assets of the Company are transferred to another entity, the provisions of this letter will be binding upon and inure to the benefit of the other entity unless you voluntarily elect not to become an employee of the other entity with substantially the same responsibility, compensation, and benefits, and the Company will enter into an agreement with the other entity that such other entity will assume this letter and all obligations and liabilities hereunder; provided, that the Company's failure to comply with this provision shall not adversely affect any of your rights under this letter. In addition, this paragraph will apply in the event of any subsequent merger, consolidation, or transfer of assets. 4. The provisions of this letter may be modified only in a written instrument agreed to and executed by the Company and you. Sincerely, --------------------------------- Norman L. Greenman, President POLICY # B-10 ROGERS CORPORATION SEVERANCE POLICY FOR SALARIED EMPLOYEES ----------------------------- POLICY - ------ The terms of this Policy will apply to determine in what circumstances, and on what terms and conditions, regular, full-time salaried employees of Rogers Corporation based in the United States will be eligible for severance pay upon the termination of their employment. APPLICATION OF POLICY - --------------------- A. Definitions ----------- 1. Regular employees are those employees not classified as temporary. 2. Full-time employees are those employees normally scheduled for 40 or more hours of work per week. 3. Salaried employees are those employees eligible to participate in the Pension Plan for Salaried Employees. 4. Length of Service is calculated in the same manner as credited service for the Pension Plan for Salaried Employees - any fraction of a year is rounded to the next higher whole year. All service, hourly and salared, will be counted. However, the credited service accrual under Section H.1. will not be used in the Section C. formulae. 5. Annual Salary for purposes of determining amounts to be paid under this Policy shall be the current gross annualized rate of pay plus any bonus or commission payments during the previous twelve months, or, the average of the total gross annual pay plus any bonus or commission payments for the past two calendar years, whichever is greater. 6. Rate of pay is the amount paid to an employee on a regular basis before all deductions. B. General Principles ------------------ There are two general principles that apply to this Policy as a whole, notwithstanding any other provisions of this Policy. First, Rogers Corporation reserves the right to amend, modify, or terminate this Policy in whole or in part at any time. Second, no benefits shall be provided pursuant to this Policy in the event of any employee's termination of employment in connection with a business transaction if the individual immediately thereafter is employed or is offered employment in substantially the same capacity with substantially equivalent pay and benefits by the entity that, pursuant to the transaction, is the successor to or acquirer of most or all of the business in which the individual was primarily employed prior to the transaction. C. Severance Pay ------------- Severance pay, if any, will depend upon the reason for the termination of employment. 1. Voluntary Termination --------------------- Employees who voluntarily terminate their employment (except as indicated in Section F., below) are not eligible for any severance pay benefits under this Policy. The Company may choose to pay the employee in lieu of working during the notice period. Normally, such payment will not exceed two weeks. Employees who retire usually are considered to be voluntary terminations. However, if a terminated employee is eligible to receive a benefit under the Rogers Corporation Pension Plan for Salaried Employees, that employee will be eligible for severance pay if the reason for termination is covered in Sections C.2.a., C.2.b., or F. below. This payment is not affected by the employee's simultaneous or later decision to draw a pension. 2. Involuntary Termination ----------------------- a. Reduction-In-Force Employees terminated due to a reduction-in-force are eligible for severance pay benefits as follows: EXEMPT EMPLOYEES ---------------- Weeks of Pay for Weeks of Pay Based Length of Service PLUS On Annual Salary ----------------- ---------------- < 5 yrs = 4 weeks < $ 40K = 12 5 <10 yrs = 6 weeks 10 <15 yrs = 8 weeks $ 40K < $70K = 12 plus 1 15 <20 yrs = 10 weeks week for each $2,500 or 20 <25 yrs = 14 weeks portion thereof above $40K 25 <30 yrs = 16 weeks 30 <35 yrs = 18 weeks $ 70K <$100K = 24 plus 1 35 + yrs = 20 weeks week for each $1,250 or portion thereof above $70K > $100K = 48 plus 1 week for each $1,000 or portion there-of over $100K The maximum allowable weeks of pay under this formula is 78 weeks. NON-EXEMPT EMPLOYEES -------------------- Weeks of Pay for Length of Service ----------------- < 5 yrs = 5 weeks 5 <10 yrs = 10 weeks 10 <15 yrs = 15 weeks 15 <20 yrs = 20 weeks 20 + yrs = 25 weeks b. Unable to Fulfill Job Requirements Employees who are terminated because, in the sole judgment of the Company, they do not fulfill their job requirements, are eligible for severance pay benefits. Such terminees must have received written notification(s) from their supervisors or managers of their failure to fulfill job requirements. This type of termination must be approved by the Vice-President, Human Resources or his designee. The employee will receive the same severance as if the termination were a reduction-in-force. c. Felonious Actions, Serious Policy Violations, or Gross Misconduct Employees who are terminated for being convicted of a felonious action(s), serious violation of Company policy, or gross misconduct are not eligible for any severance pay or benefits. D. Payments -------- Payments under this Policy will be made with the same frequency (semi-monthly or weekly) as when the terminated employee was employed. A terminated employee will be paid as required by applicable state law and Company Policy for salary earned but not yet paid and for unused and accrued vacation time. At the end of the period covered by this vacation pay, severance payments will begin. If an employee collects state unemployment benefits during the severance period, the amount of the unemployment benefits will be deducted from the gross amount of the severance payment. E. Cessation of Payments --------------------- If a former employee who is receiving payments under this Policy is rehired by the Company or hired by any entity of which the Company owns at least 50%, payments under this Policy will cease. Additionally, payments will cease if the former employee violates the terms of his or her confidentiality and/or non-compete agreements in any material way. F. "Constructive" Discharge ------------------------ Employees who are earning at least $50,000 Annual Rate of Pay are eligible for reduction-in-force severance pay when their base salary is reduced by 20 percent or more so that, in effect, they have been "constructively" discharged. For such benefits to apply, the employee must terminate within one year of the date of such reduced compensation. G. Company Car and Gas Allowance ----------------------------- Monthly car and gas allowances for eligible employees will cease as of the date of termination. Employees who have a Company-leased car must return the car to the Company within thirty (30) days after the date of termination. If the terminated employee was receiving either a car allowance or a Company-leased car, and is entitled to severance pay under this Policy, a single lump sum payment of $5,000.00 will be paid to the former employee in addition to the regular severance pay. It will be paid within ten (10) business days following the later of discontinuation of monthly car allowance payments or the return of the Company-leased car. H. Related Benefit Programs ------------------------ 1. Benefits Which Continue Coverage under "Benefits & You" (flexible benefits) continues during the severance pay period. These programs may include: o Medical Insurance (or an HMO, if it has been chosen as an alternative), o Dental Insurance, o Life Insurance, o Dependent Life Insurance, o Personal and Family Accident Insurance, o Long Term Disability Insurance, o Flexible Spending Accounts. Even thought not a part of Benefits & You, the following programs continue during the severance pay period if they apply to the terminated employee(s): o RESIP 401(k) o Rogers Corporation Incentive Stock Options and Non-Qualified Stock Options granted, o Accrual of length of service for the pension plan, o U. S. Saving Bond Program, and o Tuition Refund. Tuition Refund, however, applies only to those courses in which an employee is enrolled prior to termination and then successfully completes. 2. Benefits Which Do Not Continue The following benefit programs do not apply during the severance pay period: o Vacation accrual, o Paid holidays, o Salary continuation for short-term disabilities, o Holiday gifts, and o Service Awards. I. Death Benefits -------------- If any employee who becomes entitled to receive any severance payments or benefits dies prior to the time when all amounts have been paid in full, all amounts payable and benefits due to that individual shall be paid to the individual's beneficiary. "Beneficiary" means the person or persons so designated to receive such amounts or, if no such beneficiary designation or beneficiary exists at the time of the individual's death, the legal representative of the individual's estate. APPROVED: /s/ NLGreenman - ----------------------- Norman L. Greenman 11/19/91 - ----------------------- Date EX-10 7 a4846542ex10t.txt EXHIBIT 10T Exhibit 10t SCHEDULE OF 1991 SPECIAL SEVERANCE AGREEMENTS In accordance with the Instructions to Item 601 of Regulation S-K, the Registrant has omitted filing 1991 Special Severance Agreements by and between Rogers Corporation and the following employees as exhibits to this Form 10-K because they are identical to the Form of 1991 Special Severance Agreement (the "Form Agreement") by and between Rogers Corporation and certain employees, which filed as Exhibit 10s to this Form 10-K. 1. Robert D. Wachob 2. Robert M. Soffer EX-10 8 a4846542ex10v.txt EXHIBIT 10V Exhibit 10v SCHEDULE OF INDEMNIFICATION AGREEMENTS FOR EXECUTIVES In accordance with the Instructions to Item 601 of Regulation S-K, the Registrant has omitted filing the Indemnification Agreement for Executives by and between Rogers Corporation and the following employees as exhibits to this Form 10-K because they are identical to the Form of Indemnification Agreement for Executives (the "Form Agreement") by and between Rogers Corporation and certain employees, which was filed on Form 8-K on December 14, 2004. 1. Michael D. Bessette 2. Michael L. Cooper 3. Robert C. Daigle 4. Frank J. Gillern 5. Debra J. Granger 6. Peter G. Kaczmarek 7. Mario C. Kerr 8. Richard F. Marani 9. Ty L. McFarland 10. Paul B. Middleton 11. John A. Richie 12. W. David Smith 13. Robert M. Soffer 14. Luc Van Eenaeme 15. Robert D. Wachob EX-10 9 a4846542ex10x.txt EXHIBIT 10X Exhibit 10x SCHEDULE OF INDEMNIFICATION AGREEMENTS FOR DIRECTORS In accordance with the Instructions to Item 601 of Regulation S-K, the Registrant has omitted filing the Indemnification Agreement for Directors by and between Rogers Corporation and the following employees as exhibits to this Form 10-K because they are identical to the Form of Indemnification Agreement for Officers (the "Form Agreement") by and between Rogers Corporation and certain employees, which was filed on Form 8-K on December 14, 2004. 1. Leonard M. Baker 2. Walter E. Boomer 3. Edward L. Diefenthal 4. Gregory B. Howey 5. Leonard R. Jaskol 6. Eileen S. Kraus 7. William E. Mitchell 8. Robert G. Paul EX-10 10 a4846542ex10y.txt EXHIBIT 10Y Exhibit 10y OFFICER SPECIAL SEVERANCE AGREEMENT ----------------------------------- THIS AGREEMENT, dated as of this third day of March 2004, by and between Rogers Corporation, a Massachusetts corporation, (herein referred to as the "Company") and Robert C. Daigle (the "Officer"). WITNESSETH THAT --------------- WHEREAS, the Board of Directors of the Company (the "Board") has determined that it is in the best interests of the Company and its shareholders for the Company to agree to provide benefits under circumstances described below to the Officer as one of the elected corporate officers who is responsible for the policy-making functions of the Company and the overall viability of the Company's business; and WHEREAS, the Board recognizes that the possibility of a change in control of the Company is unsettling to the Officer and wishes to make arrangements at this time to ensure the Officer's continuing dedication to his or her duties to the Company and its shareholders notwithstanding the occurrence of any attempt by outside parties to gain control of the Company; and WHEREAS, the Board believes it important, should the Company receive proposals from such outside parties, to enable the Officer, without being distracted by the uncertainties of the Officer's own employment situation, in addition to the Officer's regular duties, to participate in the assessment of such proposals and provision of advice to the Board as to the best interests of the Company and its shareholders and to take such other action as the Board determines to be appropriate; and WHEREAS, the Board also wishes to demonstrate to the Officer that the Company is concerned for the Officer's welfare and intends to ensure that he or she as a loyal officer is treated fairly; NOW, THEREFORE, in consideration of the promises and the mutual covenants contained herein, the parties hereto agree as follows: 1. Change in Control. The term "Change in Control" shall mean the occurrence of any one or more of the following prior to the Agreement Termination Date, as defined in Paragraph 3(a): (a) The Company receives or should have received a report on Schedule 13D (or any successor form) filed with the Securities and Exchange Commission pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended (hereinafter referred to as the "Act"), disclosing that any person, group, partnership, association, corporation or other entity is the beneficial owner, directly or indirectly, of twenty-five percent (25%) or more of the voting power of the then outstanding voting securities of the Company; (b) Any person (as such term is defined in Section 13(d) of the Act), group, partnership, association, corporation or other entity other than the Company, a wholly-owned subsidiary of the Company or the trustee(s) of any qualified retirement plan maintained by the Company or a wholly-owned subsidiary of the Company, becomes the beneficial owner of shares pursuant to a tender offer or exchange offer to acquire voting securities of the Company (or securities convertible into same) for cash, securities or any other consideration, provided that after consummation of the offer, the person, group, partnership, association, corporation or other entity in question is the beneficial owner (as defined in Rule 13(d)-3 under the Act) directly or indirectly, of twenty-five percent (25%) or more of the then outstanding voting securities of the Company (calculated as directed in paragraph (d) of Rule 13(d)-3 under the Act in the case of rights to acquire voting securities); (c) The members of the Board ("Directors") or the shareholders of the Company approve (i) any consolidation or merger of the Company in which the Company would not be the continuing or surviving corporation and pursuant to which shares of voting securities of the Company would be converted into cash, securities or other property, or (ii) any sale, lease, exchange or other transfer (in a single transaction or in a series of related transactions) of all or substantially all the assets of the Company; or (d) During any period of twenty-four consecutive months, individuals who at the beginning of such period constituted the Board cease for any reason to constitute a majority thereof; provided, however, that any Director who is not in office at the beginning of such 24-month period, but whose election was to fill a vacancy caused by death or retirement and was approved or nominated, as applicable, by a vote of at least two-thirds of the Directors then still in office who either were Directors at the beginning of such period or whose election or nomination for election was previously so approved shall be deemed to have been in office at the beginning of such period for purposes of this provision. 2. Position and Responsibilities. For such period as the Officer is employed during the term of this Agreement, the Officer agrees to serve the Company and/or one or more subsidiaries or affiliates of the Company ("subsidiary") in a management capacity. From and after the date on which any Change in Control occurs such service shall involve such duties and responsibilities at least equal in importance and scope to those of the Officer's position immediately prior to the date of such Change in Control, as the Board, the Chairman of the Board, or the Chief Executive Officer may from time to time in good faith determine, and the Officer shall perform such duties and responsibilities in good faith. 3. Agreement Termination Date: Term of Agreement. (a) "Agreement Termination Date" means the third anniversary of the date as of which this Agreement is dated; provided, however, that the Agreement Termination Date shall automatically be extended for an additional one year period on each anniversary of the date as of which this Agreement is dated unless either party to this Agreement notifies the other party in writing during the ninety (90) day period preceding any such anniversary that the Agreement Termination Date shall not be so extended; and provided, further, that the Agreement Termination Date may also be extended at any time and for any period in a written instrument modifying or renewing this Agreement that is in accordance with Paragraph 11. Should one or more Changes in Control occur at any time prior to the Agreement Termination Date, all provisions of this Agreement shall apply and continue in full force and effect in accordance with their terms for a period beginning with the date on which the first Change in Control occurs and ending thirty-six (36) months following the date of the last Change in Control that occurs prior to the Agreement Termination Date. If no Change in Control occurs at any time prior to the Agreement Termination Date, this Agreement shall terminate, except that Paragraphs 4(g) and 9 shall continue to apply to the extent the Officer disputes the termination of the Agreement. (b) The term of this Agreement shall begin on the date as of which this Agreement is dated and shall continue through (i) the day immediately preceding the Agreement Termination Date, as defined in the first sentence of Paragraph 3(a) above, if no Change in Control occurs prior to the Agreement Termination Date; or (ii) if a Change in Control occurs prior to the Agreement Termination Date, the last day of the thirty-six (36) month period following the date of the last Change in Control that occurs prior to the Agreement Termination Date; provided, that the terms of this Agreement shall remain in full force and effect after the date on which the term of this Agreement expires, to the extent the Officer is then receiving benefits hereunder, until the date as of which all payments and other benefits to which the Officer had become entitled hereunder prior to the date on which this Agreement expires have been paid or provided in full. 4. Severance Benefits. If within any period commencing with the day any Change in Control occurs and ending thirty-six (36) months after the date of that Change in Control the Officer's employment is terminated by the Company and by all subsidiaries, if any, by which the Officer is employed, including Constructive Termination (as defined in Paragraph 6(b)), but excluding termination for Cause (as defined in Paragraph 6(a)), the Officer shall be entitled to the following benefits in addition to any and all other severance benefits to which the Officer may be entitled under any other plan, program or policy of the Company (or subsidiary) or agreement between the Officer and the Company (or subsidiary: (a) Salary and Bonus Amount. The Company will pay to the Officer within fifteen (15) business days of such termination of employment a lump sum cash amount equal to the present value of the product obtained by multiplying (1) the sum of (i) salary at the annualized rate which was being paid by the Company and/or subsidiaries to the Officer immediately prior to the time of such termination or, if greater, at the time of the Change in Control plus (ii) the annual target bonus and/or any other cash bonus awards last determined for the Officer or, if greater, most recently paid prior to the Change in Control, by (2) two; for purposes of this Paragraph 4, present value shall be calculated using an interest rate equal to the rate reported for the auction of thirteen week United States Treasury Bills on the date coincident with or most immediately preceding the date of such termination as reported in The Wall Street Journal; (b) Pension Plan Amount. The Company will pay to the Officer within fifteen (15) business days of such termination of employment a lump sum cash amount equal to the lump sum present value of the accrued benefit that would be payable under the Rogers Corporation Pension Plan for Salaried Employees (the "Pension Plan"), or any successor plan, if the Officer remained in full-time, active salaried employment with the Company for a period of twenty-four (24) consecutive months following the month in which such termination of employment occurs minus the lump sum present value of the accrued benefit of the Officer under said plan as of the date of such termination of employment; (c) Other Company Benefits. For a period of twenty-four (24) consecutive months following the month in which such termination of employment occurs, the Officer shall be entitled, at no greater monthly cost to the Officer than the Officer's monthly cost immediately prior to such termination of the Officer's employment, to continue participation in those benefit programs of the Company (or a subsidiary) available to the Officers of the Company (or subsidiary) in which the Officer participated immediately prior to the time of the Officer's termination of employment, excluding vacation accrual, paid holidays, salary continuation for short term disability, holiday gifts, and qualified retirement plans but including such benefits as group term medical insurance, dental insurance, life insurance, dependent life insurance, personal and family accident insurance, long term disability insurance, annual physical examination, vision/hearing program, prescription drug card program, stock purchase program, U.S. savings bond program, tax planning and compliance service and tuition refund program; provided that: (1) provision of other Company benefits pursuant to this Paragraph 4(c) shall not result in any duplication of benefits provided by the Company (or subsidiary); (2) to the extent the Officer is not eligible under the terms of one or more of such plans or programs that are insured plans or programs, the Company shall (unless the Officer is then uninsurable) provide the Officer with substantially similar insurance coverage at no greater monthly cost to the Officer than if the Officer had continued to participate in the Company's plan or program' and (3) such benefits shall cease if and to the extent that any subsequent employer of the Officer provides substantially equivalent benefits to the Officer at no substantially greater monthly cost to the Officer than the Officer's monthly cost for such benefits immediately prior to the Officer's termination of employment; (d) Company Car Amount. If the Officer, as of the date of termination of employment, either was receiving a monthly car allowance or had a company-leased car, any such car allowance will be discontinued as of the date of termination of employment and any such company-leased car must be returned to the Company within thirty (30) days after the date of termination of employment. Upon such discontinuance or return, the Officer will receive a single lump sum payment of $5,000 within fifteen (15) business days following the date of such discontinuance or return; provided, that if the Officer is entitled to receive a payment for the same reason and upon the occurrence of substantially the same event as described in this Paragraph 4(d), the payment pursuant to this Paragraph 4(d) shall be reduced (but not below $0) by the amount of such other payment; (e) Nonqualified Plans. If the Officer participated in any nonqualified retirement and/or deferred compensation plan(s) of the Company immediately prior to the time of such termination, the Company shall not cause or allow the termination of, reduction of benefits under, or termination or impairment of any arrangement established to secure payment of benefits under, any such plan with respect to the Officer. Further, the Company or subsidiaries will provide the Officer with service credit for benefits under any nonqualified retirement or deferred compensation plan(s) of the Company, if the Officer participated in such plan(s) immediately prior to the time of such termination, equal to two additional years' service accruals upon such termination of the Officer's employment; and (f) Outplacement Services. In the event of such termination of employment of employment, the Company shall provide to the Officer executive outplacement services provided on a one-to-one basis by a senior counselor of a firm nationally recognized as a reputable provider of such services for a minimum sixty (60) hours, plus evaluation testing, at a location not more than two hundred (200) miles from the primary personal residence of the Officer; and (g) Reimbursement of Certain Expenses. The Company will promptly reimburse the Officer for any and all legal and accounting fees and expenses (including without limitation any travel and lodging expenses of the Officer that would be reimbursable in accordance with the then current Company travel expense reimbursement policy) incurred by the Officer as a result of such termination of employment in connection with the interpretation, implementation or enforcement of any of the provisions of this Agreement (regardless of which party ultimately prevails); and (h) Limitation on Amounts. Notwithstanding any provision of this Agreement to the contrary, the aggregate amount that shall be paid pursuant to this Agreement shall be the maximum amount payable under this Paragraph 4 that will not (when aggregated with any other payments by the Company or any subsidiary) result in the imposition of a tax under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any successor provision; provided, that if all or any part of the value of benefits under more than one subparagraph of this Paragraph 4 is treated as a "parachute payment" within the meaning of Code ss. 280G for purposes of determining whether payments would result in the imposition of said tax, then the Officer shall have sole discretion to determine which benefit(s) to forego in order to avoid the imposition of said tax. 5. Other Severance Payments. If the Officer immediately prior to the date of any Change in Control would be entitled to receive cash severance payments by reason of termination of employment (if termination then occurred) under any other plan, program or policy of the Company (or subsidiary) or any agreement between the Officer and the Company (or subsidiary) (collectively "policy"), and if there is a reduction in or termination of any such amounts payable on or after such Change in Control but before the Officer's employment is terminated, then if the Officer becomes entitled to severance benefits pursuant to Paragraph 4 above the Officer shall also be entitled to receive a cash payment that, when aggregated with any amount actually paid pursuant to any such policy, equals the amount of cash severance payments that would have been payable pursuant to such policy immediately prior to the date of such Change in Control. Further, if the Officer becomes entitled to receive cash severance payments under any such policy by reason of termination of employment within any period commencing with the day any Change in Control occurs and ending thirty-six (36) months after the date of that Change in Control, then to the extent such payments would be paid later than the date on which payments must be made under Paragraph 4(a) above the present value (determined as provided in Paragraph 4(a)) of such payments shall be paid no later than the date on which payments must be made under Paragraph 4(a). In addition, if on the date of any Change in Control, the Officer is receiving any such payments, the present value (determined as provided in Paragraph 4(a)) of the remainder of such payments shall be paid no later than the date on which payments must be made under Paragraph 4(a). 6. (a) Termination for Cause. "Cause" means only the willful commission by the Officer of material theft or embezzlement or other serious and substantial crimes against the Company or subsidiaries. For purposes of this definition, no act or omission shall be considered to have been "willful" unless it was not in good faith and the Officer had knowledge at the time that the act or omission was not in the best interests of the Company or subsidiaries. Further, the Officer's attempt to secure employment with another employer shall not constitute an event of "cause". Finally, any termination of the Officer's employment by the Company or any subsidiary at a time when the Officer is unable to perform all or any portion of the Officer's regular services by reason of any physical or mental impairment not expected to continue for a period exceeding twelve (12) consecutive months shall not constitute termination by the Company or subsidiary for "cause". (b) Constructive Termination. If the Officer leaves the employ of the Company or any subsidiary for any reason: (i) following a reduction in the Officer's position, compensation, bonus formula, responsibilities, authority, reputation, pension arrangements, stock option or other incentive compensation arrangements, or other Company benefits that the Officer would be entitled to pursuant to Paragraph 4(c) or 4(e) if the Officer's employment then terminated, or a material reduction in the Officer's prestige, enjoyed by the Officer prior to the Change in Control, as determined in good faith by the Officer; provided, that the Officer's failure immediately following any such reduction to terminate employment or otherwise to exercise his or her rights hereunder arising from such reduction shall not constitute a waiver of the Officer's rights hereunder arising from such reduction or otherwise impair the Officer's ability to exercise such rights within one year following any such reduction; (ii) following an attempt by the Company or any subsidiary to relocate the Officer to, or to require the Officer to perform regular services at, any location that is outside the continental United States of America; provided, that the Officer's failure immediately following any such attempt to terminate employment or otherwise to exercise his or her rights hereunder arising from such attempt shall not constitute a waiver of the Officer's rights hereunder arising from such attempt or otherwise impair the Officer's ability to exercise such rights within one year following any such attempt; (iii) within ninety (90) days of the Officer's receipt of notice from the Company that the Company's ratio of current assets to current liabilities as reflected on any quarterly or annual statements filed by the Company with the Securities and Exchange Commission falls below one and one-quarter (1 1/4) to one (1) or any date on which the total of -- the Company's long-term debt (including the current portion due within one year) and its short-term debt incurred for money borrowed exceeds seventy-five percent (75%) of the Company's net worth as reflected in such statements filed with the Securities and Exchange Commission (each, a "Financial Termination Event"); provided, that if at any time the Company is no longer required to file such statements or fails to file such statements, the Company shall cause to be prepared in accordance with generally accepted accounting principles consistently applied quarterly financial statements (within forty-five (45) days of the end of the Company's fiscal quarter) and annual financial statements (within sixty (60) days of the end of the Company's fiscal year) of the Company indicating the information required to determine whether either Financial Termination Event has occurred; and provided, further, that the Company shall provide written notice to the Officer within five (5) business days after the date any such statement is filed (or has been completed, if not filed) if either Financial Termination Event has occurred; and provided, further, that the Financial Termination Event shall not have resulted from economic conditions generally adverse to the Company or its markets but rather shall have resulted from deliberate mismanagement of the Company's affairs by, or a diminution of the Company's assets on the part of, the person(s) controlling the Company subsequent to the Change of Control; (iv) at any time within twelve (12) months after the Company notifies the Officer in writing that the Agreement Termination Date shall not be extended, as provided in Paragraph 3(a); or (v) at any time within twelve (12) months following the date the Officer knows that the Company has breached any of the terms of this Agreement; in each of the foregoing cases regardless of whether the Officer is entitled to elect, or elects, retirement upon leaving the employ of the Company or any subsidiary, such termination of employment shall constitute termination by the Company or subsidiary for reasons other than Cause. Finally, if the Officer is employed by the Company and also by one or more subsidiaries and if the Officer's employment is terminated by one or more but not by all of such employing entities, such termination of the Officer's employment shall constitute termination by all such employing entities if termination by less than all such employing entities results in any reduction described in Paragraph 6(b)(i) above and if the Officer leaves the employ of the one or more employing entities by which the Officer's employment was not terminated. Any such termination shall constitute "Constructive Termination". 7. Consolidation or Merger. If the Company is at any time before or after a Change in Control merged or consolidated into or with any other corporation, association, partnership or other entity (whether or not the Company is the surviving entity), or if substantially all of the assets thereof are transferred to another corporation, association, partnership or other entity, the provisions of this Agreement will be binding upon and inure to the benefit of the corporation, association, partnership or other entity resulting from such merger or consolidation or the acquirer of such assets (collectively, "acquiring entity") unless the Officer voluntarily elects not to become an employee of the acquiring entity as determined in good faith by the Officer. Furthermore, in the event of any such consolidation or transfer of substantially all of the assets of the Company, the Company shall enter into an agreement with the acquiring entity that shall provide that such acquiring entity shall assume this Agreement and all obligations and liabilities under this Agreement; provided, that the Company's failure to comply with this provision shall not adversely affect any right of the Officer hereunder. This Paragraph 7 will apply in the event of any subsequent merger or consolidation or transfer of assets. In the event of any merger, consolidation or sale of assets described above, nothing contained in this Agreement will detract from or otherwise limit the Officer's right to or privilege of participation in any restricted stock plan, bonus or incentive plan, stock option or purchase plan, profit sharing, pension, group insurance, hospitalization or other compensation or benefit plan or arrangement which may be or become applicable to officers of the corporation resulting from such merger or consolidation or the corporation acquiring such assets of the Company. In the event of any merger, consolidation or sale of assets described above, references to the Company in this Agreement shall, unless the context suggests otherwise, be deemed to include the entity resulting from such merger or consolidation or the acquirer of such assets of the Company. 8. Payments. All payments provided for in this Agreement shall be paid in cash in United States funds from the general funds of the Company and its subsidiaries drawn on the United States location of a bank and paid in bank or cashier's check. The Company shall not be required to establish a special or separate fund or other segregation of assets to ensure such payments. All payments made by the Company to the Officer or the Officer's dependents, beneficiaries or estate will be subject to the withholding of such amounts relating to tax and/or other payroll deductions as may be required by law. 9. Arbitration. In the event of a dispute between the parties as to the interpretation or application of this Agreement, such dispute may be submitted by the Officer or by the Company to binding arbitration before an impartial arbitrator pursuant to the Rules of Commercial Arbitration of the American Arbitration Association. The Officer shall be reimbursed promptly by the Company for all travel and lodging expenses (that would be reimbursable in accordance with the then current Company travel expense reimbursement policy) incurred in connection with any such arbitration. In addition, if the Officer prevails in any such arbitration proceeding, the Company shall reimburse the Officer promptly for 100% of the fees and expenses the Officer incurs in connection with any such arbitration, including legal fees and filing and arbitrator's fees; if the Company prevails in any such arbitration proceeding, the Company shall reimburse the Officer promptly for 80% of the fees and expenses the Officer incurs in connection with any such arbitration, including legal fees and filing and arbitrator's fees; and if each party prevails in part, the Company shall reimburse the Officer promptly for such percentage, not less than 80% and not more than 100%, of the fees and expenses the Officer incurs in connection with such arbitration, including legal fees and filing and arbitrator's fees, as the arbitrator shall determine. 10. Assignment; Payment on Death. The provisions of this Agreement shall be finding upon and shall inure to the benefit of the Officer, the Officer's executors, administrators, legal representatives and assigns and the Company and its successors. There shall be no right of set-off or counterclaim, in respect of any claim, debt or obligation, against any payments to the Officer, the Officer's dependents, beneficiaries or estate provided for in this Agreement. In the event that the Officer becomes entitled to payments under this Agreement and subsequently dies, all amounts payable to the Officer hereunder and not yet paid to the Officer at the time of the Officer's death shall be paid to the Officer's beneficiary. No right or interest to or in any payments shall be assignable by the Officer; provided, however, that this provision shall not preclude the Officer from designating one or more beneficiaries to receive any amount that may be payable after the Officer's death and shall not preclude the legal representatives of the Officer's estate from assigning any right hereunder to the person or persons entitled thereto under the Officer's will or, in the case of intestacy, to the person or persons entitled thereto under the laws of intestacy applicable to the Officer's estate. The term "beneficiary" as used in this Agreement shall mean the beneficiary or beneficiaries so designated by the Officer to receive such amount or, if no such beneficiary is in existence at the time of the Officer's death, the legal representative of the Officer's estate. No right, benefit or interest hereunder shall be subject to anticipation, alienation, sale, assignment, encumbrance, charge, pledge, hypothecation, or set-off in respect of any claim, debt or obligation, or to execution, attachment, levy or similar process, or assignment by operation of law. Any attempt, voluntary or involuntary, to effect any action specified in the immediately preceding sentence shall, to the full extent permitted by law, be null, void and of no effect. 11. Modification. This Agreement may be modified only in a written instrument agreed to and executed by the Company and the Officer. 12. Severability. If any provision of this Agreement shall, for any reason, be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 13. Headings of No Effect. The paragraph headings contained in this Agreement are included solely for convenience or reference and shall not in any way affect the meaning or interpretation of any of the provisions of this Agreement. 14. Governing Law. This Agreement and its validity, interpretation, performance and enforcement shall be governed by the laws of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its officers thereto duly authorized, and the Officer has signed this Agreement, all as of the date first above written. ROGERS CORPORATION By: /s/WEBoomer ------------------------ Walter E. Boomer, CEO EX-10 11 a4846542ex10z.txt EXHIBIT 10Z Exhibit 10z ROGERS CORPORATION ------------------ OFFICER SPECIAL SEVERANCE AGREEMENT ----------------------------------- THIS AGREEMENT, dated as of this 2nd_ day of _October_, 1991, by and between Rogers Corporation, a Massachusetts corporation, (herein referred to as the "Company") and Robert D. Wachob, Vice President, Sales and Marketing (the "Officer"), WITNESSETH THAT --------------- WHEREAS, the Board of Directors of the Company (the "Board") has determined that it is in the best interests of the Company and its shareholders for the Company to agree to provide benefits under circumstances described below to the Officer as one of the elected corporate officers who is responsible for the policy-making functions of the Company and the overall viability of the Company's business; and WHEREAS, the Board recognizes that the possibility of a change in control of the Company is unsettling to the Officer and wishes to make arrangements at this time to ensure the Officer's continuing dedication to his or her duties to the Company and its shareholders notwithstanding the occurrence of any attempt by outside parties to gain control of the Company; and WHEREAS, the Board believes it important, should the Company receive proposals from such outside parties, to enable the Officer, without being distracted by the uncertainties of the Officer's own employment situation, in addition to the Officer's regular duties, to participate in the assessment of such proposals and provision of advice to the Board as to the best interests of the Company and its shareholders and to take such other action as the Board determines to be appropriate; and WHEREAS, the Board also wishes to demonstrate to the Officer that the Company is concerned for the Officer's welfare and intends to ensure that he or she as a loyal officer is treated fairly; NOW, THEREFORE, in consideration of the promises and the mutual covenants contained herein, the parties hereto agree as follows: 1. Change in Control. The term "Change in Control" shall mean the occurrence of any one or more of the following prior to the Agreement Termination Date, as defined in Paragraph 3(a): (a) The Company receives or should have received a report on Schedule 13D (or any successor form) filed with the Securities and Exchange Commission pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended (hereinafter referred to as the "Act"), disclosing that any person, group, partnership, association, corporation or other entity is the beneficial owner, directly or indirectly, of twenty-five percent (25%) or more of the voting power of the then outstanding voting securities of the Company; (b) Any person (as such term is defined in Section 13(d) of the Act), group, partnership, association, corporation or other entity other than the Company, a wholly-owned subsidiary of the Company or the trustee(s) of any qualified retirement plan maintained by the Company or a wholly-owned subsidiary of the Company, becomes the beneficial owner of shares pursuant to a tender offer or exchange offer to acquire voting securities of the Company (or securities convertible into same) for cash, securities or any other consideration, provided that after consummation of the offer, the person, group, partnership, association, corporation or other entity in question is the beneficial owner (as defined in Rule 13(d)-3 under the Act) directly or indirectly, of twenty-five percent (25%) or more of the then outstanding voting securities of the Company (calculated as directed in paragraph (d) of Rule 13(d)-3 under the Act in the case of rights to acquire voting securities); (c) The members of the Board ("Directors") or the shareholders of the Company approve (i) any consolidation or merger of the Company in which the Company would not be the continuing or surviving corporation and pursuant to which shares of voting securities of the Company would be converted into cash, securities or other property, or (ii) any sale, lease, exchange or other transfer (in a single transaction or in a series of related transactions) of all or substantially all the assets of the Company; or (d) During any period of twenty-four consecutive months, individuals who at the beginning of such period constituted the Board cease for any reason to constitute a majority thereof; provided, however, that any Director who is not in office at the beginning of such 24-month period, but whose election was to fill a vacancy caused by death or retirement and was approved or nominated, as applicable, by a vote of at least two-thirds of the Directors then still in office who either were Directors at the beginning of such period or whose election or nomination for election was previously so approved shall be deemed to have been in office at the beginning of such period for purposes of this provision. 2. Position and Responsibilities. For such period as the Officer is employed during the term of this Agreement, the Officer agrees to serve the Company and/or one or more subsidiaries or affiliates of the Company ("subsidiary") in a management capacity. From and after the date on which any Change in Control occurs such service shall involve such duties and responsibilities at least equal in importance and scope to those of the Officer's position immediately prior to the date of such Change in Control, as the Board, the Chairman of the Board, or the Chief Executive Officer may from time to time in good faith determine, and the Officer shall perform such duties and responsibilities in good faith. 3. Agreement Termination Date; Term of Agreement. (a) "Agreement Termination Date" means the third anniversary of the date as of which this Agreement is dated; provided, however, that the Agreement Termination Date shall automatically be extended for an additional one year period on each anniversary of the date as of which this Agreement is dated unless either party to this Agreement notifies the other party in writing during the ninety (90) day period preceding any such anniversary that the Agreement Termination Date shall not be so extended; and provided, further, that the Agreement Termination Date may also be extended at any time and for any period in a written instrument modifying or renewing this Agreement that is in accordance with Paragraph 11. Should one or more Changes in Control occur at any time prior to the Agreement Termination Date, all provisions of this Agreement shall apply and continue in full force and effect in accordance with their terms for a period beginning with the date on which the first Change in Control occurs and ending thirty-six (36) months following the date of the last Change in Control that occurs prior to the Agreement Termination Date. If no Change in Control occurs at any time prior to the Agreement Termination Date, this Agreement shall terminate, except that Paragraphs 4(g) and 9 shall continue to apply to the extent the Officer disputes the termination of the Agreement. (b) The term of this Agreement shall begin on the date as of which this Agreement is dated and shall continue through (i) the day immediately preceding the Agreement Termination Date, as defined in the first sentence of Paragraph 3(a) above, if no Change in Control occurs prior to the Agreement Termination Date; or (ii) if a Change in Control occurs prior to the Agreement Termination Date, the last day of the thirty-six (36) month period following the date of the last Change in Control that occurs prior to the Agreement Termination Date; provided, that the terms of this Agreement shall remain in full force and effect after the date on which the term of this Agreement expires, to the extent the Officer is then receiving benefits hereunder, until the date as of which all payments and other benefits to which the Officer had become entitled hereunder prior to the date on which this Agreement expires have been paid or provided in full. 4. Severance Benefits. If within any period commencing with the day any Change in Control occurs and ending thirty-six (36) months after the date of that Change in Control the Officer's employment is terminated by the Company and by all subsidiaries, if any, by which the Officer is employed, including Constructive Termination (as defined in Paragraph 6(b)), but excluding termination for Cause (as defined in Paragraph 6(a)), the Officer shall be entitled to the following benefits in addition to any and all other severance benefits to which the Officer may be entitled under any other plan, program or policy of the Company (or subsidiary) or agreement between the Officer and the Company (or subsidiary), PROVIDED THAT THE officer enters into a noncompetition agreement in substantially the form attached hereto as Exhibit A: (a) Salary and Bonus Amount. The Company will pay to the Officer within fifteen (15) business days of such termination of employment a lump sum cash amount equal to the present value of the product obtained by multiplying (1) the sum of (i) salary at the annualized rate which was being paid by the Company and/or subsidiaries to the Officer immediately prior to the time of such termination or, if greater, at the time of the Change in Control plus (ii) the annual target bonus and/or any other cash bonus awards last determined for the Officer or, if greater, most recently paid prior to the Change in Control, by (2) two; for purposes of this Paragraph 4, present value shall be calculated using an interest rate equal to the rate reported for the auction of thirteen week United States Treasury Bills on the date coincident with or most immediately preceding the date of such termination as reported in The Wall Street Journal; (b) Pension Plan Amount. The Company will pay to the Officer within fifteen (15) business days of such termination of employment a lump sum cash amount equal to the lump sum present value of the accrued benefit that would be payable under the Rogers Corporation Pension Plan for Salaried Employees (the "Pension Plan") or any successor plan, if the Officer remained in full-time, active salaried employment with the Company for a period of twenty-four (24) consecutive months following the month in which such termination of employment occurs minus the lump sum present value of the accrued benefit of the Officer under said plan as of the date of such termination of employment; (c) Other Company Benefits. For a period of twenty-four (24) consecutive months following the month in which such termination of employment occurs, the Officer shall be entitled, at no greater monthly cost to the Officer than the Officer's monthly cost immediately prior to such termination of the Officer's employment, to continue participation in those benefit programs of the Company (or a subsidiary) available to the Officers of the Company (or subsidiary) in which the Officer participated immediately prior to the time of the Officer's termination of employment, excluding vacation accrual, paid holidays, salary continuation for short term disability, holiday gifts, and qualified retirement plans but including such benefits as group term medical insurance, dental insurance, life insurance, dependent life insurance, personal and family accident insurance, long term disability insurance, annual physical examination, vision/hearing program, prescription drug card program, stock purchase program, U.S. savings bond program, tax planning and compliance service and tuition refund program; provided that: (1) provision of other Company benefits pursuant to this Paragraph 4(c) shall not result in any duplication of benefits provided by the Company (or subsidiary); (2) to the extent the Officer is not eligible under the terms of one or more of such plans or programs that are insured plans or programs, the Company shall (unless the Officer is then uninsurable) provide the Officer with substantially similar insurance coverage at no greater monthly cost to the Officer than if the Officer had continued to participate in the Company's plan or program' and (3) such benefits shall cease if and to the extent that any subsequent employer of the Officer provides substantially equivalent benefits to the Officer at no substantially greater monthly cost to the Officer than the Officer's monthly cost for such benefits immediately prior to the Officer's termination of employment; (d) Company Car Amount. If the Officer, as of the date of termination of employment, either was receiving a monthly car allowance or had a company-leased car, any such car allowance will be discontinued as of the date of termination of employment and any such company-leased car must be returned to the Company within thirty (30) days after the date of termination of employment. Upon such discontinuance or return, the Officer will receive a single lump sum payment of $5,000 within fifteen (15) business days following the date of such discontinuance or return; provided, that if the Officer is entitled to receive a payment for the same reason and upon the occurrence of substantially the same event as described in this Paragraph 4(d), the payment pursuant to this Paragraph 4(d) shall be reduced (but not below $0) by the amount of such other payment; (e) Nonqualified Plans. If the Officer participated in any nonqualified retirement and/or deferred compensation plan(s) of the Company immediately prior to the time of such termination, the Company shall not cause or allow the termination of, reduction of benefits under, or termination or impairment of any arrangement established to secure payment of benefits under, any such plan with respect to the Officer. Further, the Company or subsidiaries will provide the Officer with service credit for benefits under any nonqualified retirement or deferred compensation plan(s) of the Company, if the Officer participated in such plan(s) immediately prior to the time of such termination, equal to two additional years' service accruals upon such termination of the Officer's employment; and (f) Outplacement Services. In the event of such termination of employment, the Company shall provide to the Officer executive outplacement services provided on a one-to-one basis by a senior counselor of a firm nationally recognized as a reputable provider of such services for a minimum sixty (60) hours, plus evaluation testing, at a location not more than two hundred (200) miles from the primary personal residence of the Officer; and (g) Reimbursement of Certain Expenses. The Company will promptly reimburse the Officer for any and all legal and accounting fees and expenses (including without limitation any travel and lodging expenses of the Officer that would be reimbursable in accordance with the then current Company travel expense reimbursement policy) incurred by the Officer as a result of such termination of employment in connection with the interpretation, implementation or enforcement of any of the provisions of this Agreement (regardless of which party ultimately prevails); and (h) Limitation on Amounts. Notwithstanding any provision of this Agreement to the contrary, the aggregate amount that shall be paid pursuant to this Agreement shall be the maximum amount payable under this Paragraph 4 that will not (when aggregated with any other payments by the Company or any subsidiary) result in the imposition of a tax under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any successor provision; provided, that if all or any part of the value of benefits under more than one subparagraph of this Paragraph 4 is treated as a "parachute payment" within the meaning of Code ss. 280G for purposes of determining whether payments would result in the imposition of said tax, then the Officer shall have sole discretion to determine which benefit(s) to forego in order to avoid the imposition of said tax. 5. Other Severance Payments. If the Officer immediately prior to the date of any Change in Control would be entitled to receive cash severance payments by reason of termination of employment (if termination then occurred) under any other plan, program or policy of the Company (or subsidiary) or any agreement between the Officer and the Company (or subsidiary) (collectively "policy"), and if there is a reduction in or termination of any such amounts payable on or after such Change in Control but before the Officer's employment is terminated, then if the Officer becomes entitled to severance benefits pursuant to Paragraph 4 above the Officer shall also be entitled to receive a cash payment that, when aggregated with any amount actually paid pursuant to any such policy, equals the amount of cash severance payments that would have been payable pursuant to such policy immediately prior to the date of such Change in Control. Further, if the Officer becomes entitled to receive cash severance payments under any such policy by reason of termination of employment within any period commencing with the day any Change in Control occurs and ending thirty-six (36) months after the date of that Change in Control, then to the extent such payments would be paid later than the date on which payments must be made under Paragraph 4(a) above the present value (determined as provided in Paragraph 4(a)) of such payments shall be paid no later than the date on which payments must be made under Paragraph 4(a). In addition, if on the date of any Change in Control the Officer is receiving any such payments, the present value (determined as provided in Paragraph 4(a)) of the remainder of such payments shall be paid no later than the date on which payments must be made under Paragraph 4(a). 6. (a) Termination for Cause. "Cause" means only the willful commission by the Officer of material theft or embezzlement or other serious and substantial crimes against the Company or subsidiaries. For purposes of this definition, no act or omission shall be considered to have been "willful" unless it was not in good faith and the Officer had knowledge at the time that the act or omission was not in the best interests of the Company or subsidiaries. Further, the Officer's attempt to secure employment with another employer shall not constitute an event of "cause". Finally, any termination of the Officer's employment by the Company or any subsidiary at a time when the Officer is unable to perform all or any portion of the Officer's regular services by reason of any physical or mental impairment not expected to continue for a period exceeding twelve (12) consecutive months shall not constitute termination by the Company or subsidiary for "cause". (b) Constructive Termination. If the Officer leaves the employ of the Company or any subsidiary for any reason: (i) following a reduction in the Officer's position, compensation, bonus formula, responsibilities, authority, reputation, pension arrangements, stock option or other incentive compensation arrangements, or other Company benefits that the Officer would be entitled to pursuant to Paragraph 4(c) or 4(e) if the Officer's employment then terminated, or a material reduction in the Officer's prestige, enjoyed by the Officer prior to the Change in Control, as determined in good faith by the Officer; provided, that the Officer's failure immediately following any such reduction to terminate employment or otherwise to exercise his or her rights hereunder arising from such reduction shall not constitute a waiver of the Officer's rights hereunder arising from such reduction or otherwise impair the Officer's ability to exercise such rights within one year following any such reduction; (ii) following an attempt by the Company or any subsidiary to relocate the Officer to, or to require the Officer to perform regular services at, any location that is outside the continental United States of America; provided, that the Officer's failure immediately following any such attempt to terminate employment or otherwise to exercise his or her rights hereunder arising from such attempt shall not constitute a waiver of the Officer's rights hereunder arising from such attempt or otherwise impair the Officer's ability to exercise such rights within one year following any such attempt; (iii) within ninety (90) days of the Officer's receipt of notice from the Company that the Company's ratio of current assets to current liabilities as reflected on any quarterly or annual statements filed by the Company with the Securities and Exchange Commission falls below one and one-quarter (1 1/4) to one (1) or any date on which the total of -- the Company's long-term debt (including the current portion due within one year) and its short-term debt incurred for money borrowed exceeds seventy-five percent (75%) of the Company's net worth as reflected in such statements filed with the Securities and Exchange Commission (each, a "Financial Termination Event"); provided, that if at any time the Company is no longer required to file such statements or fails to file such statements, the Company shall cause to be prepared in accordance with generally accepted accounting principles consistently applied quarterly financial statements (within forty-five (45) days of the end of the Company's fiscal quarter) and annual financial statements (within sixty (60) days of the end of the Company's fiscal year) of the Company indicating the information required to determine whether either Financial Termination Event has occurred; and provided, further, that the Company shall provide written notice to the Officer within five (5) business days after the date any such statement is filed (or has been completed, if not filed) if either Financial Termination Event has occurred; and provided, further, that the Financial Termination Event shall not have resulted from economic conditions generally adverse to the Company or its markets but rather shall have resulted from deliberate mismanagement of the Company's affairs by, or a diminution of the Company's assets on the part of, the person(s) controlling the Company subsequent to the Change of Control; (iv) at any time within twelve (12) months after the Company notifies the Officer in writing that the Agreement Termination Date shall not be extended, as provided in Paragraph 3(a); or (v) at any time within twelve (12) months following the date the Officer knows that the Company has breached any of the terms of this Agreement; in each of the foregoing cases regardless of whether the Officer is entitled to elect, or elects, retirement upon leaving the employ of the Company or any subsidiary, such termination of employment shall constitute termination by the Company or subsidiary for reasons other than Cause. Finally, if the Officer is employed by the Company and also by one or more subsidiaries and if the Officer's employment is terminated by one or more but not by all of such employing entities, such termination of the Officer's employment shall constitute termination by all such employing entities if termination by less than all such employing entities results in any reduction described in Paragraph 6(b)(i) above and if the Officer leaves the employ of the one or more employing entities by which the Officer's employment was not terminated. Any such termination shall constitute "Constructive Termination". 7. Consolidations or Merger. If the Company is at any time before or after a Change in Control merged or consolidated into or with any other corporation, association, partnership or other entity (whether or not the Company is the surviving entity), or if substantially all of the assets thereof are transferred to another corporation, association, partnership or other entity, the provisions of this Agreement will be binding upon and inure to the benefit of the corporation, association, partnership or other entity resulting from such merger or consolidation or the acquirer of such assets (collectively, "acquiring entity") unless the Officer voluntarily elects not to become an employee of the acquiring entity as determined in good faith by the Officer. Furthermore, in the event of any such consolidation or transfer of substantially all of the assets of the Company, the Company shall enter into an agreement with the acquiring entity that shall provide that such acquiring entity shall assume this Agreement and all obligations and liabilities under this Agreement; provided, that the Company's failure to comply with this provision shall not adversely affect any right of the Officer hereunder. This Paragraph 7 will apply in the event of any subsequent merger or consolidation or transfer of assets. In the event of any merger, consolidation or sale of assets described above, nothing contained in this Agreement will detract from or otherwise limit the Officer's right to or privilege of participation in any restricted stock plan, bonus or incentive plan, stock option or purchase plan, profit sharing, pension, group insurance, hospitalization or other compensation or benefit plan or arrangement which may be or become applicable to officers of the corporation resulting from such merger or consolidation or the corporation acquiring such assets of the Company. In the event of any merger, consolidation or sale of assets described above, references to the Company in this Agreement shall unless the context suggests otherwise, be deemed to include the entity resulting from such merger or consolidation or the acquirer of such assets of the Company. 8. Payments. All payments provided for in this Agreement shall be paid in cash in United States funds from the general funds of the Company and its subsidiaries drawn on the United States location of a bank and paid in bank or cashier's check. The Company shall not be required to establish a special or separate fund or other segregation of assets to ensure such payments. All payments made by the Company to the Officer or the Officer's dependents, beneficiaries or estate will be subject to the withholding of such amounts relating to tax and/or other payroll deductions as may be required by law. 9. Arbitration. In the event of a dispute between the parties as to the interpretation or application of this Agreement, such dispute may be submitted by the Officer or by the Company to binding arbitration before an impartial arbitrator pursuant to the Rules of Commercial Arbitration of the American Arbitration Association. The Officer shall be reimbursed promptly by the Company for all travel and lodging expenses (that would be reimbursable in accordance with the then current Company travel expense reimbursement policy) incurred in connection with any such arbitration. In addition, if the Officer prevails in any such arbitration proceeding, the Company shall reimburse the Officer promptly for 100% of the fees and expenses the Officer incurs in connection with any such arbitration, including legal fees and filing and arbitrator's fees; if the Company prevails in any such arbitration proceeding, the Company shall reimburse the Officer promptly for 80% of the fees and expenses the Officer incurs in connection with any such arbitration, including legal fees and filing and arbitrator's fees; and if each party prevails in part, the Company shall reimburse the Officer promptly for such percentage, not less than 80% and not more than 100%, of the fees and expenses the Officer incurs in connection with such arbitration, including legal fees and filing and arbitrator's fees, as the arbitrator shall determine. 10. Assignment; Payment on Death. The provisions of this Agreement shall be finding upon and shall inure to the benefit of the Officer, the Officer's executors, administrators, legal representatives and assigns and the Company and its successors. There shall be no right of set-off or counterclaim, in respect of any claim, debt or obligation, against any payments to the Officer, the Officer's dependents, beneficiaries or estate provided for in this Agreement. In the event that the Officer becomes entitled to payments under this Agreement and subsequently dies, all amounts payable to the Officer hereunder and not yet paid to the Officer at the time of the Officer's death shall be paid to the Officer's beneficiary. No right or interest to or in any payments shall be assignable by the Officer; provided, however, that this provision shall not preclude the Officer from designating one or more beneficiaries to receive any amount that may be payable after the Officer's death and shall not preclude the legal representatives of the Officer's estate from assigning any right hereunder to the person or persons entitled thereto under the Officer's will or, in the case of intestacy, to the person or persons entitled thereto under the laws of intestacy applicable to the Officer's estate. The term "beneficiary" as used in this Agreement shall mean the beneficiary or beneficiaries so designated by the Officer to receive such amount or, if no such beneficiary is in existence at the time of the Officer's death, the legal representative of the Officer's estate. No right, benefit or interest hereunder shall be subject to anticipation, alienation, sale, assignment, encumbrance, charge, pledge, hypothecation, or set-off in respect of any claim, debt or obligation, or to execution, attachment, levy or similar process, or assignment by operation of law. Any attempt, voluntary or involuntary, to effect any action specified in the immediately preceding sentence shall, to the full extent permitted by law, be null, void and of no effect. 11. Modification. This Agreement may be modified only in a written instrument agreed to and executed by the Company and the Officer. 12. Severability. If any provision of this Agreement shall, for any reason, be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 13. Headings of No Effect. The paragraph headings contained in this Agreement are included solely for convenience of reference and shall not in any way affect the meaning or interpretation of any of the provisions of this Agreement. 14. Governing Law. This Agreement and its validity, interpretation, performance and enforcement shall be governed by the laws of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its officers thereto duly authorized, and the Officer has signed this Agreement, all as of the date first above written. ROGERS CORPORATION By: /s/ NLGreenman -------------------------------- Norman L. Greenman, President /s/ Robert D. Wachob -------------------------------- Robert D. Wachob Exhibit A 10/89 [ Rogers Corporation Logo ] NON-COMPETE AGREEMENT --------------------- This agreement is made this _____ day of _____________, 19 __, by and between Rogers Corporation (hereinafter referred to as "Employer"), and ___________________________________, an individual hereinafter referred to as "Employee") on behalf of themselves, and their heirs, successors and assigns with reference to the following facts: 1. The employment policies of Employer frequently result in transfers and/or reassignment of employees and changes in the duties and responsibilities of employees. During the course of employment with Employer, and particularly in view of either the nature of the original employment assignment or future employment assignments, Employee may acquire knowledge of or information relating to trade secrets and other confidential or proprietary information of Employer including, without limitations, information about products, processes, research, development, business plans, customer or supplier identification, and product cost and profit information. 2. In order to protect Employer against disclosure of any such trade secrets or information, Employee agrees, as further consideration for employment hereunder, that for a period of two years after termination of employment with Employer he/she will not, without first obtaining written permission from the Chief Executive Officer of Employer, engage in, render services in or become associated in any way in the research, development, manufacture, use, or sale of any product in the United States which is the same as, similar to or is based on the same field of technology and is competitive with any product, development or research activity of Employer with respect to which at any time during the two years preceding termination of employment with Employer, Employee's work has been directly or indirectly concerned or with respect to which Employee has acquired knowledge of any such trade secrets or information. In the event that the provisions of this paragraph (2) prevent Employee, after the exercise of reasonable efforts by him, from obtaining employment at a rate of compensation at least equal to the monthly rate of compensation received by Employee at the end of his employment with Employer, then Employer shall, within 30 days from receipt of written notice from Employee in any month informing Employer of his inability to obtain such compensation for that month, notify Employee that it will either: (a) pay to Employee for that month the differences between the compensation received and the last regular monthly rate of compensation at Employer, up to 30% of the last monthly rate; or 10/89 (b) notify Employee that it has waived its rights under this paragraph (2). After expiration of said two-year period after the end of Employee's employment with Employer, or upon Employers' failure to notify Employee of its election after receipt of notice from Employee, the restrictions of this paragraph (2) shall no longer be in force. 3. In the event that Employee is assigned by Employer to work for any other company or organization which is a subsidiary or joint venture of or is otherwise affiliated with Employer, such employment shall be deemed to be employment by Employer for the purpose of this Agreement. - ---------------------------------------------------------- Employee Date - ---------------------------------------------------------- Human Resources Date CONFIRMATION AND AMENDMENT OF OFFICER SPECIAL SEVERANCE AGREEMENT This agreement confirms and amends that certain Officer Special Severance Agreement (the "Agreement") dated October 2, 1991 by and between Rogers Corporation, a Massachusetts corporation (the "Company") and Robert D. Wachob (the "Officer"). 1. The position and/or title held by the Officer with the Company has changed since the date the Agreement initially was entered into. Therefore, the parties hereby confirm that the Agreement shall apply to the Officer in his current position and/or title as fully as it did to him in his prior position and/or title, and is to be interpreted as though it were entered into with him in his current position and/or title. 2. The parties hereby acknowledge and agree that, in the event of any further changes in the position and/or title of the Officer subsequent to the date hereof, the Agreement nevertheless shall be deemed to continue to apply to the Officer fully and completely, so long as he continues to hold any office to which he has been elected or appointed by the Board of Directors of the Company or a duly constituted committee thereof. 3. Other than as stated above, the Agreement shall continue in full force and effect. ROGERS CORPORATION Officer: By: /s/ WEBoomer /s/ Robert D. Wachob ---------------------------------- --------------------------- Walter E. Boomer, Chairman Robert D. Wachob of the Board of Directors and Chief Executive Officer Dated: March 10, 2004 EX-10 12 a4846542ex10aa.txt EXHIBIT 10AA Exhibit 10aa ROGERS CORPORATION ------------------ OFFICER SPECIAL SEVERANCE AGREEMENT ----------------------------------- THIS AGREEMENT, dated as of this 2nd_ day of October, 1991, by and between Rogers Corporation, a Massachusetts corporation, (herein referred to as the "Company") and Robert M. Soffer, Treasurer (the "Officer"), WITNESSETH THAT --------------- WHEREAS, the Board of Directors of the Company (the "Board") has determined that it is in the best interests of the Company and its shareholders for the Company to agree to provide benefits under circumstances described below to the Officer as one of the elected corporate officers who is responsible for the policy-making functions of the Company and the overall viability of the Company's business; and WHEREAS, the Board recognizes that the possibility of a change in control of the Company is unsettling to the Officer and wishes to make arrangements at this time to ensure the Officer's continuing dedication to his or her duties to the Company and its shareholders notwithstanding the occurrence of any attempt by outside parties to gain control of the Company; and WHEREAS, the Board believes it important, should the Company receive proposals from such outside parties, to enable the Officer, without being distracted by the uncertainties of the Officer's own employment situation, in addition to the Officer's regular duties, to participate in the assessment of such proposals and provision of advice to the Board as to the best interests of the Company and its shareholders and to take such other action as the Board determines to be appropriate; and WHEREAS, the Board also wishes to demonstrate to the Officer that the Company is concerned for the Officer's welfare and intends to ensure that he or she as a loyal officer is treated fairly; NOW, THEREFORE, in consideration of the promises and the mutual covenants contained herein, the parties hereto agree as follows: 1. Change in Control. The term "Change in Control" shall mean the occurrence of any one or more of the following prior to the Agreement Termination Date, as defined in Paragraph 3(a): (a) The Company receives or should have received a report on Schedule 13D (or any successor form) filed with the Securities and Exchange Commission pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended (hereinafter referred to as the "Act"), disclosing that any person, group, partnership, association, corporation or other entity is the beneficial owner, directly or indirectly, of twenty-five percent (25%) or more of the voting power of the then outstanding voting securities of the Company; (b) Any person (as such term is defined in Section 13(d) of the Act), group, partnership, association, corporation or other entity other than the Company, a wholly-owned subsidiary of the Company or the trustee(s) of any qualified retirement plan maintained by the Company or a wholly-owned subsidiary of the Company, becomes the beneficial owner of shares pursuant to a tender offer or exchange offer to acquire voting securities of the Company (or securities convertible into same) for cash, securities or any other consideration, provided that after consummation of the offer, the person, group, partnership, association, corporation or other entity in question is the beneficial owner (as defined in Rule 13(d)-3 under the Act) directly or indirectly, of twenty-five percent (25%) or more of the then outstanding voting securities of the Company (calculated as directed in paragraph (d) of Rule 13(d)-3 under the Act in the case of rights to acquire voting securities); (c) The members of the Board ("Directors") or the shareholders of the Company approve (i) any consolidation or merger of the Company in which the Company would not be the continuing or surviving corporation and pursuant to which shares of voting securities of the Company would be converted into cash, securities or other property, or (ii) any sale, lease, exchange or other transfer (in a single transaction or in a series of related transactions) of all or substantially all the assets of the Company; or (d) During any period of twenty-four consecutive months, individuals who at the beginning of such period constituted the Board cease for any reason to constitute a majority thereof; provided, however, that any Director who is not in office at the beginning of such 24-month period, but whose election was to fill a vacancy caused by death or retirement and was approved or nominated, as applicable, by a vote of at least two-thirds of the Directors then still in office who either were Directors at the beginning of such period or whose election or nomination for election was previously so approved shall be deemed to have been in office at the beginning of such period for purposes of this provision. 2. Position and Responsibilities. For such period as the Officer is employed during the term of this Agreement, the Officer agrees to serve the Company and/or one or more subsidiaries or affiliates of the Company ("subsidiary") in a management capacity. From and after the date on which any Change in Control occurs such service shall involve such duties and responsibilities at least equal in importance and scope to those of the Officer's position immediately prior to the date of such Change in Control, as the Board, the Chairman of the Board, or the Chief Executive Officer may from time to time in good faith determine, and the Officer shall perform such duties and responsibilities in good faith. 3. Agreement Termination Date; Term of Agreement. (a) "Agreement Termination Date" means the third anniversary of the date as of which this Agreement is dated; provided, however, that the Agreement Termination Date shall automatically be extended for an additional one year period on each anniversary of the date as of which this Agreement is dated unless either party to this Agreement notifies the other party in writing during the ninety (90) day period preceding any such anniversary that the Agreement Termination Date shall not be so extended; and provided, further, that the Agreement Termination Date may also be extended at any time and for any period in a written instrument modifying or renewing this Agreement that is in accordance with Paragraph 11. Should one or more Changes in Control occur at any time prior to the Agreement Termination Date, all provisions of this Agreement shall apply and continue in full force and effect in accordance with their terms for a period beginning with the date on which the first Change in Control occurs and ending thirty-six (36) months following the date of the last Change in Control that occurs prior to the Agreement Termination Date. If no Change in Control occurs at any time prior to the Agreement Termination Date, this Agreement shall terminate, except that Paragraphs 4(g) and 9 shall continue to apply to the extent the Officer disputes the termination of the Agreement. (b) The term of this Agreement shall begin on the date as of which this Agreement is dated and shall continue through (i) the day immediately preceding the Agreement Termination Date, as defined in the first sentence of Paragraph 3(a) above, if no Change in Control occurs prior to the Agreement Termination Date; or (ii) if a Change in Control occurs prior to the Agreement Termination Date, the last day of the thirty-six (36) month period following the date of the last Change in Control that occurs prior to the Agreement Termination Date; provided, that the terms of this Agreement shall remain in full force and effect after the date on which the term of this Agreement expires, to the extent the Officer is then receiving benefits hereunder, until the date as of which all payments and other benefits to which the Officer had become entitled hereunder prior to the date on which this Agreement expires have been paid or provided in full. 4. Severance Benefits. If within any period commencing with the day any Change in Control occurs and ending thirty-six (36) months after the date of that Change in Control the Officer's employment is terminated by the Company and by all subsidiaries, if any, by which the Officer is employed, including Constructive Termination (as defined in Paragraph 6(b)), but excluding termination for Cause (as defined in Paragraph 6(a)), the Officer shall be entitled to the following benefits in addition to any and all other severance benefits to which the Officer may be entitled under any other plan, program or policy of the Company (or subsidiary) or agreement between the Officer and the Company (or subsidiary), PROVIDED THAT THE officer enters into a noncompetition agreement in substantially the form attached hereto as Exhibit A: (a) Salary and Bonus Amount. The Company will pay to the Officer within fifteen (15) business days of such termination of employment a lump sum cash amount equal to the present value of the product obtained by multiplying (1) the sum of (i) salary at the annualized rate which was being paid by the Company and/or subsidiaries to the Officer immediately prior to the time of such termination or, if greater, at the time of the Change in Control plus (ii) the annual target bonus and/or any other cash bonus awards last determined for the Officer or, if greater, most recently paid prior to the Change in Control, by (2) two; for purposes of this Paragraph 4, present value shall be calculated using an interest rate equal to the rate reported for the auction of thirteen week United States Treasury Bills on the date coincident with or most immediately preceding the date of such termination as reported in The Wall Street Journal; (b) Pension Plan Amount. The Company will pay to the Officer within fifteen (15) business days of such termination of employment a lump sum cash amount equal to the lump sum present value of the accrued benefit that would be payable under the Rogers Corporation Pension Plan for Salaried Employees (the "Pension Plan") or any successor plan, if the Officer remained in full-time, active salaried employment with the Company for a period of twenty-four (24) consecutive months following the month in which such termination of employment occurs minus the lump sum present value of the accrued benefit of the Officer under said plan as of the date of such termination of employment; (c) Other Company Benefits. For a period of twenty-four (24) consecutive months following the month in which such termination of employment occurs, the Officer shall be entitled, at no greater monthly cost to the Officer than the Officer's monthly cost immediately prior to such termination of the Officer's employment, to continue participation in those benefit programs of the Company (or a subsidiary) available to the Officers of the Company (or subsidiary) in which the Officer participated immediately prior to the time of the Officer's termination of employment, excluding vacation accrual, paid holidays, salary continuation for short term disability, holiday gifts, and qualified retirement plans but including such benefits as group term medical insurance, dental insurance, life insurance, dependent life insurance, personal and family accident insurance, long term disability insurance, annual physical examination, vision/hearing program, prescription drug card program, stock purchase program, U.S. savings bond program, tax planning and compliance service and tuition refund program; provided that: (1) provision of other Company benefits pursuant to this Paragraph 4(c) shall not result in any duplication of benefits provided by the Company (or subsidiary); (2) to the extent the Officer is not eligible under the terms of one or more of such plans or programs that are insured plans or programs, the Company shall (unless the Officer is then uninsurable) provide the Officer with substantially similar insurance coverage at no greater monthly cost to the Officer than if the Officer had continued to participate in the Company's plan or program' and (3) such benefits shall cease if and to the extent that any subsequent employer of the Officer provides substantially equivalent benefits to the Officer at no substantially greater monthly cost to the Officer than the Officer's monthly cost for such benefits immediately prior to the Officer's termination of employment; (d) Company Car Amount. If the Officer, as of the date of termination of employment, either was receiving a monthly car allowance or had a company-leased car, any such car allowance will be discontinued as of the date of termination of employment and any such company-leased car must be returned to the Company within thirty (30) days after the date of termination of employment. Upon such discontinuance or return, the Officer will receive a single lump sum payment of $5,000 within fifteen (15) business days following the date of such discontinuance or return; provided, that if the Officer is entitled to receive a payment for the same reason and upon the occurrence of substantially the same event as described in this Paragraph 4(d), the payment pursuant to this Paragraph 4(d) shall be reduced (but not below $0) by the amount of such other payment; (e) Nonqualified Plans. If the Officer participated in any nonqualified retirement and/or deferred compensation plan(s) of the Company immediately prior to the time of such termination, the Company shall not cause or allow the termination of, reduction of benefits under, or termination or impairment of any arrangement established to secure payment of benefits under, any such plan with respect to the Officer. Further, the Company or subsidiaries will provide the Officer with service credit for benefits under any nonqualified retirement or deferred compensation plan(s) of the Company, if the Officer participated in such plan(s) immediately prior to the time of such termination, equal to two additional years' service accruals upon such termination of the Officer's employment; and (f) Outplacement Services. In the event of such termination of employment, the Company shall provide to the Officer executive outplacement services provided on a one-to-one basis by a senior counselor of a firm nationally recognized as a reputable provider of such services for a minimum sixty (60) hours, plus evaluation testing, at a location not more than two hundred (200) miles from the primary personal residence of the Officer; and (g) Reimbursement of Certain Expenses. The Company will promptly reimburse the Officer for any and all legal and accounting fees and expenses (including without limitation any travel and lodging expenses of the Officer that would be reimbursable in accordance with the then current Company travel expense reimbursement policy) incurred by the Officer as a result of such termination of employment in connection with the interpretation, implementation or enforcement of any of the provisions of this Agreement (regardless of which party ultimately prevails); and (h) Limitation on Amounts. Notwithstanding any provision of this Agreement to the contrary, the aggregate amount that shall be paid pursuant to this Agreement shall be the maximum amount payable under this Paragraph 4 that will not (when aggregated with any other payments by the Company or any subsidiary) result in the imposition of a tax under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any successor provision; provided, that if all or any part of the value of benefits under more than one subparagraph of this Paragraph 4 is treated as a "parachute payment" within the meaning of Code ss. 280G for purposes of determining whether payments would result in the imposition of said tax, then the Officer shall have sole discretion to determine which benefit(s) to forego in order to avoid the imposition of said tax. 5. Other Severance Payments. If the Officer immediately prior to the date of any Change in Control would be entitled to receive cash severance payments by reason of termination of employment (if termination then occurred) under any other plan, program or policy of the Company (or subsidiary) or any agreement between the Officer and the Company (or subsidiary) (collectively "policy"), and if there is a reduction in or termination of any such amounts payable on or after such Change in Control but before the Officer's employment is terminated, then if the Officer becomes entitled to severance benefits pursuant to Paragraph 4 above the Officer shall also be entitled to receive a cash payment that, when aggregated with any amount actually paid pursuant to any such policy, equals the amount of cash severance payments that would have been payable pursuant to such policy immediately prior to the date of such Change in Control. Further, if the Officer becomes entitled to receive cash severance payments under any such policy by reason of termination of employment within any period commencing with the day any Change in Control occurs and ending thirty-six (36) months after the date of that Change in Control, then to the extent such payments would be paid later than the date on which payments must be made under Paragraph 4(a) above the present value (determined as provided in Paragraph 4(a)) of such payments shall be paid no later than the date on which payments must be made under Paragraph 4(a). In addition, if on the date of any Change in Control the Officer is receiving any such payments, the present value (determined as provided in Paragraph 4(a)) of the remainder of such payments shall be paid no later than the date on which payments must be made under Paragraph 4(a). 6. (a) Termination for Cause. "Cause" means only the willful commission by the Officer of material theft or embezzlement or other serious and substantial crimes against the Company or subsidiaries. For purposes of this definition, no act or omission shall be considered to have been "willful" unless it was not in good faith and the Officer had knowledge at the time that the act or omission was not in the best interests of the Company or subsidiaries. Further, the Officer's attempt to secure employment with another employer shall not constitute an event of "cause". Finally, any termination of the Officer's employment by the Company or any subsidiary at a time when the Officer is unable to perform all or any portion of the Officer's regular services by reason of any physical or mental impairment not expected to continue for a period exceeding twelve (12) consecutive months shall not constitute termination by the Company or subsidiary for "cause". (b) Constructive Termination. If the Officer leaves the employ of the Company or any subsidiary for any reason: (i) following a reduction in the Officer's position, compensation, bonus formula, responsibilities, authority, reputation, pension arrangements, stock option or other incentive compensation arrangements, or other Company benefits that the Officer would be entitled to pursuant to Paragraph 4(c) or 4(e) if the Officer's employment then terminated, or a material reduction in the Officer's prestige, enjoyed by the Officer prior to the Change in Control, as determined in good faith by the Officer; provided, that the Officer's failure immediately following any such reduction to terminate employment or otherwise to exercise his or her rights hereunder arising from such reduction shall not constitute a waiver of the Officer's rights hereunder arising from such reduction or otherwise impair the Officer's ability to exercise such rights within one year following any such reduction; (ii) following an attempt by the Company or any subsidiary to relocate the Officer to, or to require the Officer to perform regular services at, any location that is outside the continental United States of America; provided, that the Officer's failure immediately following any such attempt to terminate employment or otherwise to exercise his or her rights hereunder arising from such attempt shall not constitute a waiver of the Officer's rights hereunder arising from such attempt or otherwise impair the Officer's ability to exercise such rights within one year following any such attempt; (iii) within ninety (90) days of the Officer's receipt of notice from the Company that the Company's ratio of current assets to current liabilities as reflected on any quarterly or annual statements filed by the Company with the Securities and Exchange Commission falls below one and one-quarter (1 1/4) to one (1) or any date on which the total of -- the Company's long-term debt (including the current portion due within one year) and its short-term debt incurred for money borrowed exceeds seventy-five percent (75%) of the Company's net worth as reflected in such statements filed with the Securities and Exchange Commission (each, a "Financial Termination Event"); provided, that if at any time the Company is no longer required to file such statements or fails to file such statements, the Company shall cause to be prepared in accordance with generally accepted accounting principles consistently applied quarterly financial statements (within forty-five (45) days of the end of the Company's fiscal quarter) and annual financial statements (within sixty (60) days of the end of the Company's fiscal year) of the Company indicating the information required to determine whether either Financial Termination Event has occurred; and provided, further, that the Company shall provide written notice to the Officer within five (5) business days after the date any such statement is filed (or has been completed, if not filed) if either Financial Termination Event has occurred; and provided, further, that the Financial Termination Event shall not have resulted from economic conditions generally adverse to the Company or its markets but rather shall have resulted from deliberate mismanagement of the Company's affairs by, or a diminution of the Company's assets on the part of, the person(s) controlling the Company subsequent to the Change of Control; (iv) at any time within twelve (12) months after the Company notifies the Officer in writing that the Agreement Termination Date shall not be extended, as provided in Paragraph 3(a); or (v) at any time within twelve (12) months following the date the Officer knows that the Company has breached any of the terms of this Agreement; in each of the foregoing cases regardless of whether the Officer is entitled to elect, or elects, retirement upon leaving the employ of the Company or any subsidiary, such termination of employment shall constitute termination by the Company or subsidiary for reasons other than Cause. Finally, if the Officer is employed by the Company and also by one or more subsidiaries and if the Officer's employment is terminated by one or more but not by all of such employing entities, such termination of the Officer's employment shall constitute termination by all such employing entities if termination by less than all such employing entities results in any reduction described in Paragraph 6(b)(i) above and if the Officer leaves the employ of the one or more employing entities by which the Officer's employment was not terminated. Any such termination shall constitute "Constructive Termination". 7. Consolidations or Merger. If the Company is at any time before or after a Change in Control merged or consolidated into or with any other corporation, association, partnership or other entity (whether or not the Company is the surviving entity), or if substantially all of the assets thereof are transferred to another corporation, association, partnership or other entity, the provisions of this Agreement will be binding upon and inure to the benefit of the corporation, association, partnership or other entity resulting from such merger or consolidation or the acquirer of such assets (collectively, "acquiring entity") unless the Officer voluntarily elects not to become an employee of the acquiring entity as determined in good faith by the Officer. Furthermore, in the event of any such consolidation or transfer of substantially all of the assets of the Company, the Company shall enter into an agreement with the acquiring entity that shall provide that such acquiring entity shall assume this Agreement and all obligations and liabilities under this Agreement; provided, that the Company's failure to comply with this provision shall not adversely affect any right of the Officer hereunder. This Paragraph 7 will apply in the event of any subsequent merger or consolidation or transfer of assets. In the event of any merger, consolidation or sale of assets described above, nothing contained in this Agreement will detract from or otherwise limit the Officer's right to or privilege of participation in any restricted stock plan, bonus or incentive plan, stock option or purchase plan, profit sharing, pension, group insurance, hospitalization or other compensation or benefit plan or arrangement which may be or become applicable to officers of the corporation resulting from such merger or consolidation or the corporation acquiring such assets of the Company. In the event of any merger, consolidation or sale of assets described above, references to the Company in this Agreement shall unless the context suggests otherwise, be deemed to include the entity resulting from such merger or consolidation or the acquirer of such assets of the Company. 8. Payments. All payments provided for in this Agreement shall be paid in cash in United States funds from the general funds of the Company and its subsidiaries drawn on the United States location of a bank and paid in bank or cashier's check. The Company shall not be required to establish a special or separate fund or other segregation of assets to ensure such payments. All payments made by the Company to the Officer or the Officer's dependents, beneficiaries or estate will be subject to the withholding of such amounts relating to tax and/or other payroll deductions as may be required by law. 9. Arbitration. In the event of a dispute between the parties as to the interpretation or application of this Agreement, such dispute may be submitted by the Officer or by the Company to binding arbitration before an impartial arbitrator pursuant to the Rules of Commercial Arbitration of the American Arbitration Association. The Officer shall be reimbursed promptly by the Company for all travel and lodging expenses (that would be reimbursable in accordance with the then current Company travel expense reimbursement policy) incurred in connection with any such arbitration. In addition, if the Officer prevails in any such arbitration proceeding, the Company shall reimburse the Officer promptly for 100% of the fees and expenses the Officer incurs in connection with any such arbitration, including legal fees and filing and arbitrator's fees; if the Company prevails in any such arbitration proceeding, the Company shall reimburse the Officer promptly for 80% of the fees and expenses the Officer incurs in connection with any such arbitration, including legal fees and filing and arbitrator's fees; and if each party prevails in part, the Company shall reimburse the Officer promptly for such percentage, not less than 80% and not more than 100%, of the fees and expenses the Officer incurs in connection with such arbitration, including legal fees and filing and arbitrator's fees, as the arbitrator shall determine. 10. Assignment; Payment on Death. The provisions of this Agreement shall be finding upon and shall inure to the benefit of the Officer, the Officer's executors, administrators, legal representatives and assigns and the Company and its successors. There shall be no right of set-off or counterclaim, in respect of any claim, debt or obligation, against any payments to the Officer, the Officer's dependents, beneficiaries or estate provided for in this Agreement. In the event that the Officer becomes entitled to payments under this Agreement and subsequently dies, all amounts payable to the Officer hereunder and not yet paid to the Officer at the time of the Officer's death shall be paid to the Officer's beneficiary. No right or interest to or in any payments shall be assignable by the Officer; provided, however, that this provision shall not preclude the Officer from designating one or more beneficiaries to receive any amount that may be payable after the Officer's death and shall not preclude the legal representatives of the Officer's estate from assigning any right hereunder to the person or persons entitled thereto under the Officer's will or, in the case of intestacy, to the person or persons entitled thereto under the laws of intestacy applicable to the Officer's estate. The term "beneficiary" as used in this Agreement shall mean the beneficiary or beneficiaries so designated by the Officer to receive such amount or, if no such beneficiary is in existence at the time of the Officer's death, the legal representative of the Officer's estate. No right, benefit or interest hereunder shall be subject to anticipation, alienation, sale, assignment, encumbrance, charge, pledge, hypothecation, or set-off in respect of any claim, debt or obligation, or to execution, attachment, levy or similar process, or assignment by operation of law. Any attempt, voluntary or involuntary, to effect any action specified in the immediately preceding sentence shall, to the full extent permitted by law, be null, void and of no effect. 11. Modification. This Agreement may be modified only in a written instrument agreed to and executed by the Company and the Officer. 12. Severability. If any provision of this Agreement shall, for any reason, be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 13. Headings of No Effect. The paragraph headings contained in this Agreement are included solely for convenience of reference and shall not in any way affect the meaning or interpretation of any of the provisions of this Agreement. 14. Governing Law. This Agreement and its validity, interpretation, performance and enforcement shall be governed by the laws of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its officers thereto duly authorized, and the Officer has signed this Agreement, all as of the date first above written. ROGERS CORPORATION By: /s/ NLGreenman --------------------------------- Norman L. Greenman, President /s/ Robert M. Soffer -------------------------------- Robert M. Soffer Exhibit A 10/89 [ Rogers Corporation Logo ] NON-COMPETE AGREEMENT --------------------- This agreement is made this _____ day of _____________, 19 __, by and between Rogers Corporation (hereinafter referred to as "Employer"), and ___________________________________, an individual hereinafter referred to as "Employee") on behalf of themselves, and their heirs, successors and assigns with reference to the following facts: 1. The employment policies of Employer frequently result in transfers and/or reassignment of employees and changes in the duties and responsibilities of employees. During the course of employment with Employer, and particularly in view of either the nature of the original employment assignment or future employment assignments, Employee may acquire knowledge of or information relating to trade secrets and other confidential or proprietary information of Employer including, without limitations, information about products, processes, research, development, business plans, customer or supplier identification, and product cost and profit information. 2. In order to protect Employer against disclosure of any such trade secrets or information, Employee agrees, as further consideration for employment hereunder, that for a period of two years after termination of employment with Employer he/she will not, without first obtaining written permission from the Chief Executive Officer of Employer, engage in, render services in or become associated in any way in the research, development, manufacture, use, or sale of any product in the United States which is the same as, similar to or is based on the same field of technology and is competitive with any product, development or research activity of Employer with respect to which at any time during the two years preceding termination of employment with Employer, Employee's work has been directly or indirectly concerned or with respect to which Employee has acquired knowledge of any such trade secrets or information. In the event that the provisions of this paragraph (2) prevent Employee, after the exercise of reasonable efforts by him, from obtaining employment at a rate of compensation at least equal to the monthly rate of compensation received by Employee at the end of his employment with Employer, then Employer shall, within 30 days from receipt of written notice from Employee in any month informing Employer of his inability to obtain such compensation for that month, notify Employee that it will either: (a) pay to Employee for that month the differences between the compensation received and the last regular monthly rate of compensation at Employer, up to 30% of the last monthly rate; or (b) notify Employee that it has waived its rights under this paragraph (2). After expiration of said two-year period after the end of Employee's employment with Employer, or upon Employers' failure to notify Employee of its election after receipt of notice from Employee, the restrictions of this paragraph (2) shall no longer be in force. 3. In the event that Employee is assigned by Employer to work for any other company or organization which is a subsidiary or joint venture of or is otherwise affiliated with Employer, such employment shall be deemed to be employment by Employer for the purpose of this Agreement. - --------------------------------------------------- Employee Date - --------------------------------------------------- Human Resources Date CONFIRMATION AND AMENDMENT OF OFFICER SPECIAL SEVERANCE AGREEMENT This agreement confirms and amends that certain Officer Special Severance Agreement (the "Agreement") dated October 2, 1991 by and between Rogers Corporation, a Massachusetts corporation (the "Company") and Robert M. Soffer (the "Officer"). 1. The position and/or title held by the Officer with the Company has changed since the date the Agreement initially was entered into. Therefore, the parties hereby confirm that the Agreement shall apply to the Officer in his current position and/or title as fully as it did to him in his prior position and/or title, and is to be interpreted as though it were entered into with him in his current position and/or title. 2. The parties hereby acknowledge and agree that, in the event of any further changes in the position and/or title of the Officer subsequent to the date hereof, the Agreement nevertheless shall be deemed to continue to apply to the Officer fully and completely, so long as he continues to hold any office to which he has been elected or appointed by the Board of Directors of the Company or a duly constituted committee thereof. 3. Other than as stated above, the Agreement shall continue in full force and effect. ROGERS CORPORATION Officer: By: /s/ WEBoomer /s/ Robert M. Soffer ---------------------------------- ------------------------------ Walter E. Boomer, Chairman Robert M. Soffer of the Board of Directors and Chief Executive Officer Dated: March 10, 2004 EX-10 13 a4846542ex10ab.txt EXHIBIT 10AB Exhibit 10ab ROGERS CORPORATION ------------------ OFFICER SPECIAL SEVERANCE AGREEMENT ----------------------------------- THIS AGREEMENT, dated as of this 3 day of March, 1996, by and between Rogers Corporation, a Massachusetts corporation, (herein referred to as the "Company") and John A. Richie WITNESSETH THAT --------------- WHEREAS, the Board of Directors of the Company (the "Board") has determined that it is in the best interests of the Company and its shareholders for the Company to agree to provide benefits under circumstances described below to the Officer as one of the elected corporate officers who is responsible for the policy-making functions of the Company and the overall viability of the Company's business; and WHEREAS, the Board recognizes that the possibility of a change in control of the Company is unsettling to the Officer and wishes to make arrangements at this time to ensure the Officer's continuing dedication to his or her duties to the Company and its shareholders notwithstanding the occurrence of any attempt by outside parties to gain control of the Company; and WHEREAS, the Board believes it important, should the Company receive proposals from such outside parties, to enable the Officer, without being distracted by the uncertainties of the Officer's own employment situation, in addition to the Officer's regular duties, to participate in the assessment of such proposals and provision of advice to the Board as to the best interests of the Company and its shareholders and to take such other action as the Board determines to be appropriate; and WHEREAS, the Board also wishes to demonstrate to the Officer that the Company is concerned for the Officer's welfare and intends to ensure that he or she as a loyal officer is treated fairly; NOW, THEREFORE, in consideration of the promises and the mutual covenants contained herein, the parties hereto agree as follows: 1. Change in Control. The term "Change in Control" shall mean the occurrence of any one or more of the following prior to the Agreement Termination Date, as defined in Paragraph 3(a): (a) The Company receives or should have received a report on Schedule 13D (or any successor form) filed with the Securities and Exchange Commission pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended (hereinafter referred to as the "Act"), disclosing that any person, group, partnership, association, corporation or other entity is the beneficial owner, directly or indirectly, of twenty-five percent (25%) or more of the voting power of the then outstanding voting securities of the Company; (b) Any person (as such term is defined in Section 13(d) of the Act), group, partnership, association, corporation or other entity other than the Company, a wholly-owned subsidiary of the Company or the trustee(s) of any qualified retirement plan maintained by the Company or a wholly-owned subsidiary of the Company, becomes the beneficial owner of shares pursuant to a tender offer or exchange offer to acquire voting securities of the Company (or securities convertible into same) for cash, securities or any other consideration, provided that after consummation of the offer, the person, group, partnership, association, corporation or other entity in question is the beneficial owner (as defined in Rule 13(d)-3 under the Act) directly or indirectly, of twenty-five percent (25%) or more of the then outstanding voting securities of the Company (calculated as directed in paragraph (d) of Rule 13(d)-3 under the Act in the case of rights to acquire voting securities); (c) The members of the Board ("Directors") or the shareholders of the Company approve (i) any consolidation or merger of the Company in which the Company would not be the continuing or surviving corporation and pursuant to which shares of voting securities of the Company would be converted into cash, securities or other property, or (ii) any sale, lease, exchange or other transfer (in a single transaction or in a series of related transactions) of all or substantially all the assets of the Company; or (d) During any period of twenty-four consecutive months, individuals who at the beginning of such period constituted the Board cease for any reason to constitute a majority thereof; provided, however, that any Director who is not in office at the beginning of such 24-month period, but whose election was to fill a vacancy caused by death or retirement and was approved or nominated, as applicable, by a vote of at least two-thirds of the Directors then still in office who either were Directors at the beginning of such period or whose election or nomination for election was previously so approved shall be deemed to have been in office at the beginning of such period for purposes of this provision. 2. Position and Responsibilities. For such period as the Officer is employed during the term of this Agreement, the Officer agrees to serve the Company and/or one or more subsidiaries or affiliates of the Company ("subsidiary") in a management capacity. From and after the date on which any Change in Control occurs such service shall involve such duties and responsibilities at least equal in importance and scope to those of the Officer's position immediately prior to the date of such Change in Control, as the Board, the Chairman of the Board, or the Chief Executive Officer may from time to time in good faith determine, and the Officer shall perform such duties and responsibilities in good faith. 3. Agreement Termination Date; Term of Agreement. (a) "Agreement Termination Date" means the third anniversary of the date as of which this Agreement is dated; provided, however, that the Agreement Termination Date shall automatically be extended for an additional one year period on each anniversary of the date as of which this Agreement is dated unless either party to this Agreement notifies the other party in writing during the ninety (90) day period preceding any such anniversary that the Agreement Termination Date shall not be so extended; and provided, further, that the Agreement Termination Date may also be extended at any time and for any period in a written instrument modifying or renewing this Agreement that is in accordance with Paragraph 11. Should one or more Changes in Control occur at any time prior to the Agreement Termination Date, all provisions of this Agreement shall apply and continue in full force and effect in accordance with their terms for a period beginning with the date on which the first Change in Control occurs and ending thirty-six (36) months following the date of the last Change in Control that occurs prior to the Agreement Termination Date. If no Change in Control occurs at any time prior to the Agreement Termination Date, this Agreement shall terminate, except that Paragraphs 4(g) and 9 shall continue to apply to the extent the Officer disputes the termination of the Agreement. (b) The term of this Agreement shall begin on the date as of which this Agreement is dated and shall continue through (i) the day immediately preceding the Agreement Termination Date, as defined in the first sentence of Paragraph 3(a) above, if no Change in Control occurs prior to the Agreement Termination Date; or (ii) if a Change in Control occurs prior to the Agreement Termination Date, the last day of the thirty-six (36) month period following the date of the last Change in Control that occurs prior to the Agreement Termination Date; provided, that the terms of this Agreement shall remain in full force and effect after the date on which the term of this Agreement expires, to the extent the Officer is then receiving benefits hereunder, until the date as of which all payments and other benefits to which the Officer had become entitled hereunder prior to the date on which this Agreement expires have been paid or provided in full. 4. Severance Benefits. If within any period commencing with the day any Change in Control occurs and ending thirty-six (36) months after the date of that Change in Control the Officer's employment is terminated by the Company and by all subsidiaries, if any, by which the Officer is employed, including Constructive Termination (as defined in Paragraph 6(b)), but excluding termination for Cause (as defined in Paragraph 6(a)), the Officer shall be entitled to the following benefits in addition to any and all other severance benefits to which the Officer may be entitled under any other plan, program or policy of the Company (or subsidiary) or agreement between the Officer and the Company (or subsidiary), PROVIDED THAT THE officer enters into a noncompetition agreement in substantially the form attached hereto as Exhibit A: (a) Salary and Bonus Amount. The Company will pay to the Officer within fifteen (15) business days of such termination of employment a lump sum cash amount equal to the present value of the product obtained by multiplying (1) the sum of (i) salary at the annualized rate which was being paid by the Company and/or subsidiaries to the Officer immediately prior to the time of such termination or, if greater, at the time of the Change in Control plus (ii) the annual target bonus and/or any other cash bonus awards last determined for the Officer or, if greater, most recently paid prior to the Change in Control, by (2) two; for purposes of this Paragraph 4, present value shall be calculated using an interest rate equal to the rate reported for the auction of thirteen week United States Treasury Bills on the date coincident with or most immediately preceding the date of such termination as reported in The Wall Street Journal; (b) Pension Plan Amount. The Company will pay to the Officer within fifteen (15) business days of such termination of employment a lump sum cash amount equal to the lump sum present value of the accrued benefit that would be payable under the Rogers Corporation Pension Plan for Salaried Employees (the "Pension Plan") or any successor plan, if the Officer remained in full-time, active salaried employment with the Company for a period of twenty-four (24) consecutive months following the month in which such termination of employment occurs minus the lump sum present value of the accrued benefit of the Officer under said plan as of the date of such termination of employment; (c) Other Company Benefits. For a period of twenty-four (24) consecutive months following the month in which such termination of employment occurs, the Officer shall be entitled, at no greater monthly cost to the Officer than the Officer's monthly cost immediately prior to such termination of the Officer's employment, to continue participation in those benefit programs of the Company (or a subsidiary) available to the Officers of the Company (or subsidiary) in which the Officer participated immediately prior to the time of the Officer's termination of employment, excluding vacation accrual, paid holidays, salary continuation for short term disability, holiday gifts, and qualified retirement plans but including such benefits as group term medical insurance, dental insurance, life insurance, dependent life insurance, personal and family accident insurance, long term disability insurance, annual physical examination, vision/hearing program, prescription drug card program, stock purchase program, U.S. savings bond program, tax planning and compliance service and tuition refund program; provided that: (1) provision of other Company benefits pursuant to this Paragraph 4(c) shall not result in any duplication of benefits provided by the Company (or subsidiary); (2) to the extent the Officer is not eligible under the terms of one or more of such plans or programs that are insured plans or programs, the Company shall (unless the Officer is then uninsurable) provide the Officer with substantially similar insurance coverage at no greater monthly cost to the Officer than if the Officer had continued to participate in the Company's plan or program' and (3) such benefits shall cease if and to the extent that any subsequent employer of the Officer provides substantially equivalent benefits to the Officer at no substantially greater monthly cost to the Officer than the Officer's monthly cost for such benefits immediately prior to the Officer's termination of employment; (d) Company Car Amount. If the Officer, as of the date of termination of employment, either was receiving a monthly car allowance or had a company-leased car, any such car allowance will be discontinued as of the date of termination of employment and any such company-leased car must be returned to the Company within thirty (30) days after the date of termination of employment. Upon such discontinuance or return, the Officer will receive a single lump sum payment of $5,000 within fifteen (15) business days following the date of such discontinuance or return; provided, that if the Officer is entitled to receive a payment for the same reason and upon the occurrence of substantially the same event as described in this Paragraph 4(d), the payment pursuant to this Paragraph 4(d) shall be reduced (but not below $0) by the amount of such other payment; (e) Nonqualified Plans. If the Officer participated in any nonqualified retirement and/or deferred compensation plan(s) of the Company immediately prior to the time of such termination, the Company shall not cause or allow the termination of, reduction of benefits under, or termination or impairment of any arrangement established to secure payment of benefits under, any such plan with respect to the Officer. Further, the Company or subsidiaries will provide the Officer with service credit for benefits under any nonqualified retirement or deferred compensation plan(s) of the Company, if the Officer participated in such plan(s) immediately prior to the time of such termination, equal to two additional years' service accruals upon such termination of the Officer's employment; and (f) Outplacement Services. In the event of such termination of employment, the Company shall provide to the Officer executive outplacement services provided on a one-to-one basis by a senior counselor of a firm nationally recognized as a reputable provider of such services for a minimum sixty (60) hours, plus evaluation testing, at a location not more than two hundred (200) miles from the primary personal residence of the Officer; and (g) Reimbursement of Certain Expenses. The Company will promptly reimburse the Officer for any and all legal and accounting fees and expenses (including without limitation any travel and lodging expenses of the Officer that would be reimbursable in accordance with the then current Company travel expense reimbursement policy) incurred by the Officer as a result of such termination of employment in connection with the interpretation, implementation or enforcement of any of the provisions of this Agreement (regardless of which party ultimately prevails); and (h) Limitation on Amounts. Notwithstanding any provision of this Agreement to the contrary, the aggregate amount that shall be paid pursuant to this Agreement shall be the maximum amount payable under this Paragraph 4 that will not (when aggregated with any other payments by the Company or any subsidiary) result in the imposition of a tax under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any successor provision; provided, that if all or any part of the value of benefits under more than one subparagraph of this Paragraph 4 is treated as a "parachute payment" within the meaning of Code ss. 280G for purposes of determining whether payments would result in the imposition of said tax, then the Officer shall have sole discretion to determine which benefit(s) to forego in order to avoid the imposition of said tax. 5. Other Severance Payments. If the Officer immediately prior to the date of any Change in Control would be entitled to receive cash severance payments by reason of termination of employment (if termination then occurred) under any other plan, program or policy of the Company (or subsidiary) or any agreement between the Officer and the Company (or subsidiary) (collectively "policy"), and if there is a reduction in or termination of any such amounts payable on or after such Change in Control but before the Officer's employment is terminated, then if the Officer becomes entitled to severance benefits pursuant to Paragraph 4 above the Officer shall also be entitled to receive a cash payment that, when aggregated with any amount actually paid pursuant to any such policy, equals the amount of cash severance payments that would have been payable pursuant to such policy immediately prior to the date of such Change in Control. Further, if the Officer becomes entitled to receive cash severance payments under any such policy by reason of termination of employment within any period commencing with the day any Change in Control occurs and ending thirty-six (36) months after the date of that Change in Control, then to the extent such payments would be paid later than the date on which payments must be made under Paragraph 4(a) above the present value (determined as provided in Paragraph 4(a)) of such payments shall be paid no later than the date on which payments must be made under Paragraph 4(a). In addition, if on the date of any Change in Control the Officer is receiving any such payments, the present value (determined as provided in Paragraph 4(a)) of the remainder of such payments shall be paid no later than the date on which payments must be made under Paragraph 4(a). 6. (a) Termination for Cause. "Cause" means only the willful commission by the Officer of material theft or embezzlement or other serious and substantial crimes against the Company or subsidiaries. For purposes of this definition, no act or omission shall be considered to have been "willful" unless it was not in good faith and the Officer had knowledge at the time that the act or omission was not in the best interests of the Company or subsidiaries. Further, the Officer's attempt to secure employment with another employer shall not constitute an event of "cause". Finally, any termination of the Officer's employment by the Company or any subsidiary at a time when the Officer is unable to perform all or any portion of the Officer's regular services by reason of any physical or mental impairment not expected to continue for a period exceeding twelve (12) consecutive months shall not constitute termination by the Company or subsidiary for "cause". (b) Constructive Termination. If the Officer leaves the employ of the Company or any subsidiary for any reason: (i) following a reduction in the Officer's position, compensation, bonus formula, responsibilities, authority, reputation, pension arrangements, stock option or other incentive compensation arrangements, or other Company benefits that the Officer would be entitled to pursuant to Paragraph 4(c) or 4(e) if the Officer's employment then terminated, or a material reduction in the Officer's prestige, enjoyed by the Officer prior to the Change in Control, as determined in good faith by the Officer; provided, that the Officer's failure immediately following any such reduction to terminate employment or otherwise to exercise his or her rights hereunder arising from such reduction shall not constitute a waiver of the Officer's rights hereunder arising from such reduction or otherwise impair the Officer's ability to exercise such rights within one year following any such reduction; (ii) following an attempt by the Company or any subsidiary to relocate the Officer to, or to require the Officer to perform regular services at, any location that is outside the continental United States of America; provided, that the Officer's failure immediately following any such attempt to terminate employment or otherwise to exercise his or her rights hereunder arising from such attempt shall not constitute a waiver of the Officer's rights hereunder arising from such attempt or otherwise impair the Officer's ability to exercise such rights within one year following any such attempt; (iii) within ninety (90) days of the Officer's receipt of notice from the Company that the Company's ratio of current assets to current liabilities as reflected on any quarterly or annual statements filed by the Company with the Securities and Exchange Commission falls below one and one-quarter (1 1/4) to one (1) or any date on which the total of -- the Company's long-term debt (including the current portion due within one year) and its short-term debt incurred for money borrowed exceeds seventy-five percent (75%) of the Company's net worth as reflected in such statements filed with the Securities and Exchange Commission (each, a "Financial Termination Event"); provided, that if at any time the Company is no longer required to file such statements or fails to file such statements, the Company shall cause to be prepared in accordance with generally accepted accounting principles consistently applied quarterly financial statements (within forty-five (45) days of the end of the Company's fiscal quarter) and annual financial statements (within sixty (60) days of the end of the Company's fiscal year) of the Company indicating the information required to determine whether either Financial Termination Event has occurred; and provided, further, that the Company shall provide written notice to the Officer within five (5) business days after the date any such statement is filed (or has been completed, if not filed) if either Financial Termination Event has occurred; and provided, further, that the Financial Termination Event shall not have resulted from economic conditions generally adverse to the Company or its markets but rather shall have resulted from deliberate mismanagement of the Company's affairs by, or a diminution of the Company's assets on the part of, the person(s) controlling the Company subsequent to the Change of Control; (iv) at any time within twelve (12) months after the Company notifies the Officer in writing that the Agreement Termination Date shall not be extended, as provided in Paragraph 3(a); or (v) at any time within twelve (12) months following the date the Officer knows that the Company has breached any of the terms of this Agreement; in each of the foregoing cases regardless of whether the Officer is entitled to elect, or elects, retirement upon leaving the employ of the Company or any subsidiary, such termination of employment shall constitute termination by the Company or subsidiary for reasons other than Cause. Finally, if the Officer is employed by the Company and also by one or more subsidiaries and if the Officer's employment is terminated by one or more but not by all of such employing entities, such termination of the Officer's employment shall constitute termination by all such employing entities if termination by less than all such employing entities results in any reduction described in Paragraph 6(b)(i) above and if the Officer leaves the employ of the one or more employing entities by which the Officer's employment was not terminated. Any such termination shall constitute "Constructive Termination". 7. Consolidations or Merger. If the Company is at any time before or after a Change in Control merged or consolidated into or with any other corporation, association, partnership or other entity (whether or not the Company is the surviving entity), or if substantially all of the assets thereof are transferred to another corporation, association, partnership or other entity, the provisions of this Agreement will be binding upon and inure to the benefit of the corporation, association, partnership or other entity resulting from such merger or consolidation or the acquirer of such assets (collectively, "acquiring entity") unless the Officer voluntarily elects not to become an employee of the acquiring entity as determined in good faith by the Officer. Furthermore, in the event of any such consolidation or transfer of substantially all of the assets of the Company, the Company shall enter into an agreement with the acquiring entity that shall provide that such acquiring entity shall assume this Agreement and all obligations and liabilities under this Agreement; provided, that the Company's failure to comply with this provision shall not adversely affect any right of the Officer hereunder. This Paragraph 7 will apply in the event of any subsequent merger or consolidation or transfer of assets. In the event of any merger, consolidation or sale of assets described above, nothing contained in this Agreement will detract from or otherwise limit the Officer's right to or privilege of participation in any restricted stock plan, bonus or incentive plan, stock option or purchase plan, profit sharing, pension, group insurance, hospitalization or other compensation or benefit plan or arrangement which may be or become applicable to officers of the corporation resulting from such merger or consolidation or the corporation acquiring such assets of the Company. In the event of any merger, consolidation or sale of assets described above, references to the Company in this Agreement shall unless the context suggests otherwise, be deemed to include the entity resulting from such merger or consolidation or the acquirer of such assets of the Company. 8. Payments. All payments provided for in this Agreement shall be paid in cash in United States funds from the general funds of the Company and its subsidiaries drawn on the United States location of a bank and paid in bank or cashier's check. The Company shall not be required to establish a special or separate fund or other segregation of assets to ensure such payments. All payments made by the Company to the Officer or the Officer's dependents, beneficiaries or estate will be subject to the withholding of such amounts relating to tax and/or other payroll deductions as may be required by law. 9. Arbitration. In the event of a dispute between the parties as to the interpretation or application of this Agreement, such dispute may be submitted by the Officer or by the Company to binding arbitration before an impartial arbitrator pursuant to the Rules of Commercial Arbitration of the American Arbitration Association. The Officer shall be reimbursed promptly by the Company for all travel and lodging expenses (that would be reimbursable in accordance with the then current Company travel expense reimbursement policy) incurred in connection with any such arbitration. In addition, if the Officer prevails in any such arbitration proceeding, the Company shall reimburse the Officer promptly for 100% of the fees and expenses the Officer incurs in connection with any such arbitration, including legal fees and filing and arbitrator's fees; if the Company prevails in any such arbitration proceeding, the Company shall reimburse the Officer promptly for 80% of the fees and expenses the Officer incurs in connection with any such arbitration, including legal fees and filing and arbitrator's fees; and if each party prevails in part, the Company shall reimburse the Officer promptly for such percentage, not less than 80% and not more than 100%, of the fees and expenses the Officer incurs in connection with such arbitration, including legal fees and filing and arbitrator's fees, as the arbitrator shall determine. 10. Assignment; Payment on Death. The provisions of this Agreement shall be finding upon and shall inure to the benefit of the Officer, the Officer's executors, administrators, legal representatives and assigns and the Company and its successors. There shall be no right of set-off or counterclaim, in respect of any claim, debt or obligation, against any payments to the Officer, the Officer's dependents, beneficiaries or estate provided for in this Agreement. In the event that the Officer becomes entitled to payments under this Agreement and subsequently dies, all amounts payable to the Officer hereunder and not yet paid to the Officer at the time of the Officer's death shall be paid to the Officer's beneficiary. No right or interest to or in any payments shall be assignable by the Officer; provided, however, that this provision shall not preclude the Officer from designating one or more beneficiaries to receive any amount that may be payable after the Officer's death and shall not preclude the legal representatives of the Officer's estate from assigning any right hereunder to the person or persons entitled thereto under the Officer's will or, in the case of intestacy, to the person or persons entitled thereto under the laws of intestacy applicable to the Officer's estate. The term "beneficiary" as used in this Agreement shall mean the beneficiary or beneficiaries so designated by the Officer to receive such amount or, if no such beneficiary is in existence at the time of the Officer's death, the legal representative of the Officer's estate. No right, benefit or interest hereunder shall be subject to anticipation, alienation, sale, assignment, encumbrance, charge, pledge, hypothecation, or set-off in respect of any claim, debt or obligation, or to execution, attachment, levy or similar process, or assignment by operation of law. Any attempt, voluntary or involuntary, to effect any action specified in the immediately preceding sentence shall, to the full extent permitted by law, be null, void and of no effect. 11. Modification. This Agreement may be modified only in a written instrument agreed to and executed by the Company and the Officer. 12. Severability. If any provision of this Agreement shall, for any reason, be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 13. Headings of No Effect. The paragraph headings contained in this Agreement are included solely for convenience of reference and shall not in any way affect the meaning or interpretation of any of the provisions of this Agreement. 14. Governing Law. This Agreement and its validity, interpretation, performance and enforcement shall be governed by the laws of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its officers thereto duly authorized, and the Officer has signed this Agreement, all as of the date first above written. ROGERS CORPORATION By: /s/ Harry H. Birkenruth ------------------------------- Harry H. Birkenruth, President /s/ John Richie ------------------------------- John Richie NON-COMPETE AGREEMENT This Non-Compete Agreement ("Agreement") is made on March 4, 1996 (date), by and between Rogers Corporation ("Rogers"), and me, John A. Richie , an employee, on behalf of ourselves, our heirs, successors and assigns. This Agreement replaces any existing Agreement entered into by Rogers and me relating to the same subject matter. I desire to be employed by Rogers, and Rogers desires to employ me; however, as a condition of employment, Rogers requires that I complete and execute this Agreement. But for my execution of this Agreement, Rogers would be unwilling to hire and/or retain me. 1. Rogers Corporation develops and manufactures specialty polymer composite materials and components mainly for the imaging, communications, computer and peripheral, consumer products and transportation markets. It has consistently allocated considerable resources towards research and development activities with respect to its products, and it has devoted a substantial amount of time and effort and incurred significant costs in developing and maintaining its customers. I acknowledge that (a) Rogers' products are highly specialized items which have lengthy developmental periods; (b) the identity and particular needs of Rogers' customers are not generally known in the industry; (c) Rogers has a proprietary interest in the identity of its customers and customer lists; and (d) the documents and information regarding Rogers' products, processes, inventions, research, development, formulae, manufacturing and testing methods, business plans, customer or supplier identification, product cost and profit information, and the specialized requirements of Rogers customers are highly confidential and are regarded as trade secrets, commonly referred to at Rogers as "Proprietary Information". 2. I have had a full and complete opportunity to discuss, consider and understand each provision of this Agreement, and agree that the terms of this Agreement are fair and reasonable. 3. The employment policies of Rogers may result in my transfer and/or reassignment and changes in my duties and responsibilities. During the course of my employment with Rogers, and particularly in view of either the nature of my original or future employment assignments and specialized training provided by Rogers, I will acquire Proprietary Information of Rogers. 4. In order to protect Rogers against disclosure of any such Proprietary Information, I agree, as further consideration for employment, salary and benefits paid for my services, that for a period of two years after termination of employment with Rogers (for whatever reason), I will not, without first obtaining written permission from the Chief Executive Officer of Rogers, engage in, render services, either as an employee, consultant or independent contractor, or become associated in any way, either directly or indirectly, in the research, development, manufacture, use or sale of any product which is the same as, similar to or is competitive with any product, development or research activity of Rogers with respect to which at any time during the two years preceding termination of employment with Rogers, or a company acquired by Rogers, my work has been directly or indirectly concerned, or with respect to which I have acquired knowledge of any Proprietary Information. In the event that, after conscientious and aggressive efforts, the provisions of this Agreement prevent me from obtaining employment at a rate of compensation at least equal to the annual rate of compensation at the end of my employment with Rogers, I may provide Rogers with a detailed written account of my efforts in any month to obtain employment which would not conflict with the provisions of this Agreement. Upon receipt of my monthly written account, Rogers will, within 30 days, either: (a) pay me for that month 100% of the difference between my current compensation, if any, and my last regular rate of compensation at Rogers, less any severance or retirement income, or (b) notify me that Rogers has waived its rights under this Agreement. If, based on my written account, Rogers reasonably concludes that I have failed to seek employment conscientiously and aggressively, I understand that Rogers may, at its option, withhold payment for that month. Upon expiration of the two-year period after my termination with Rogers, or upon Rogers failure to notify me of its election within 30 days after receipt of my written notice, the restrictions of this Agreement shall no longer be in force. 5. In the event that I am assigned by Rogers to work for any other company or organization which is a subsidiary or joint venture of or is otherwise affiliated with Rogers, or which is a successor company by way of acquisition, merger or other corporate transaction, such employment will be deemed to be continuous employment by Rogers for all purposes of this Agreement. 6. Any prior service that I have had with a company which is acquired by, merged with, or otherwise becomes affiliated with Rogers through joint venture or other corporate transaction will be deemed to be continuous employment by Rogers for all purposes of this Agreement. 7. If any provision of this Agreement is found to be invalid or unenforceable, it will not effect the remaining provisions of this Agreement. Further, a court will have the authority to reform and rewrite the "invalid or unenforceable" provision, so it will be valid and enforceable. 8. Rogers' failure to enforce the terms of another Agreement similar to this with another employee, will not constitute a waiver of any term or provision in this Agreement. 9. This Agreement shall be subject to the laws of the State of Connecticut and any dispute arising herein will be heard in the appropriate state or federal court, as applicable, within this jurisdiction. 10. I acknowledge that full compliance with the terms of this Agreement is necessary to protect the business and goodwill of Rogers and that a breach of this Agreement will irreparably and continually harm Rogers, for which money damages may not be adequate. Consequently, I understand that, in the event I breach or threaten to breach any of these covenants, Rogers will be entitled to both (a) a preliminary or permanent injunction in order to prevent the continuation of such harm and (b) money damages insofar as they can be determined. Nothing in this Agreement, however, will be construed to prohibit Rogers from also pursuing any other remedy, the parties having agreed that all remedies are cumulative. 11. No alteration or modification to any of the provisions of this Agreement will be valid unless made in writing and signed by both Rogers and me. /s/ John Richie xxx-xx-xxxx 3/4/96 ------------------------------- ----------------- ------ Employee Social Security # Date /s/ Harry Birkenruth President 3/4/96 ------------------------------- ----------------- ------ Accepted for Rogers Corporation Title Date EX-10 14 a4846542ex10ac.txt EXHIBIT 10AC Exhibit 10ac OFFICER SPECIAL SEVERANCE AGREEMENT ----------------------------------- THIS AGREEMENT, dated as of this third day of March 2004, by and between Rogers Corporation, a Massachusetts corporation, (herein referred to as the "Company") and Paul B.. Middleton (the "Officer"). WITNESSETH THAT --------------- WHEREAS, the Board of Directors of the Company (the "Board") has determined that it is in the best interests of the Company and its shareholders for the Company to agree to provide benefits under circumstances described below to the Officer as one of the elected corporate officers who is responsible for the policy-making functions of the Company and the overall viability of the Company's business; and WHEREAS, the Board recognizes that the possibility of a change in control of the Company is unsettling to the Officer and wishes to make arrangements at this time to ensure the Officer's continuing dedication to his or her duties to the Company and its shareholders notwithstanding the occurrence of any attempt by outside parties to gain control of the Company; and WHEREAS, the Board believes it important, should the Company receive proposals from such outside parties, to enable the Officer, without being distracted by the uncertainties of the Officer's own employment situation, in addition to the Officer's regular duties, to participate in the assessment of such proposals and provision of advice to the Board as to the best interests of the Company and its shareholders and to take such other action as the Board determines to be appropriate; and WHEREAS, the Board also wishes to demonstrate to the Officer that the Company is concerned for the Officer's welfare and intends to ensure that he or she as a loyal officer is treated fairly; NOW, THEREFORE, in consideration of the promises and the mutual covenants contained herein, the parties hereto agree as follows: 1. Change in Control. The term "Change in Control" shall mean the occurrence of any one or more of the following prior to the Agreement Termination Date, as defined in Paragraph 3(a): (a) The Company receives or should have received a report on Schedule 13D (or any successor form) filed with the Securities and Exchange Commission pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended (hereinafter referred to as the "Act"), disclosing that any person, group, partnership, association, corporation or other entity is the beneficial owner, directly or indirectly, of twenty-five percent (25%) or more of the voting power of the then outstanding voting securities of the Company; (b) Any person (as such term is defined in Section 13(d) of the Act), group, partnership, association, corporation or other entity other than the Company, a wholly-owned subsidiary of the Company or the trustee(s) of any qualified retirement plan maintained by the Company or a wholly-owned subsidiary of the Company, becomes the beneficial owner of shares pursuant to a tender offer or exchange offer to acquire voting securities of the Company (or securities convertible into same) for cash, securities or any other consideration, provided that after consummation of the offer, the person, group, partnership, association, corporation or other entity in question is the beneficial owner (as defined in Rule 13(d)-3 under the Act) directly or indirectly, of twenty-five percent (25%) or more of the then outstanding voting securities of the Company (calculated as directed in paragraph (d) of Rule 13(d)-3 under the Act in the case of rights to acquire voting securities); (c) The members of the Board ("Directors") or the shareholders of the Company approve (i) any consolidation or merger of the Company in which the Company would not be the continuing or surviving corporation and pursuant to which shares of voting securities of the Company would be converted into cash, securities or other property, or (ii) any sale, lease, exchange or other transfer (in a single transaction or in a series of related transactions) of all or substantially all the assets of the Company; or (d) During any period of twenty-four consecutive months, individuals who at the beginning of such period constituted the Board cease for any reason to constitute a majority thereof; provided, however, that any Director who is not in office at the beginning of such 24-month period, but whose election was to fill a vacancy caused by death or retirement and was approved or nominated, as applicable, by a vote of at least two-thirds of the Directors then still in office who either were Directors at the beginning of such period or whose election or nomination for election was previously so approved shall be deemed to have been in office at the beginning of such period for purposes of this provision. 2. Position and Responsibilities. For such period as the Officer is employed during the term of this Agreement, the Officer agrees to serve the Company and/or one or more subsidiaries or affiliates of the Company ("subsidiary") in a management capacity. From and after the date on which any Change in Control occurs such service shall involve such duties and responsibilities at least equal in importance and scope to those of the Officer's position immediately prior to the date of such Change in Control, as the Board, the Chairman of the Board, or the Chief Executive Officer may from time to time in good faith determine, and the Officer shall perform such duties and responsibilities in good faith. 3. Agreement Termination Date: Term of Agreement. (a) "Agreement Termination Date" means the third anniversary of the date as of which this Agreement is dated; provided, however, that the Agreement Termination Date shall automatically be extended for an additional one year period on each anniversary of the date as of which this Agreement is dated unless either party to this Agreement notifies the other party in writing during the ninety (90) day period preceding any such anniversary that the Agreement Termination Date shall not be so extended; and provided, further, that the Agreement Termination Date may also be extended at any time and for any period in a written instrument modifying or renewing this Agreement that is in accordance with Paragraph 11. Should one or more Changes in Control occur at any time prior to the Agreement Termination Date, all provisions of this Agreement shall apply and continue in full force and effect in accordance with their terms for a period beginning with the date on which the first Change in Control occurs and ending thirty-six (36) months following the date of the last Change in Control that occurs prior to the Agreement Termination Date. If no Change in Control occurs at any time prior to the Agreement Termination Date, this Agreement shall terminate, except that Paragraphs 4(g) and 9 shall continue to apply to the extent the Officer disputes the termination of the Agreement. (b) The term of this Agreement shall begin on the date as of which this Agreement is dated and shall continue through (i) the day immediately preceding the Agreement Termination Date, as defined in the first sentence of Paragraph 3(a) above, if no Change in Control occurs prior to the Agreement Termination Date; or (ii) if a Change in Control occurs prior to the Agreement Termination Date, the last day of the thirty-six (36) month period following the date of the last Change in Control that occurs prior to the Agreement Termination Date; provided, that the terms of this Agreement shall remain in full force and effect after the date on which the term of this Agreement expires, to the extent the Officer is then receiving benefits hereunder, until the date as of which all payments and other benefits to which the Officer had become entitled hereunder prior to the date on which this Agreement expires have been paid or provided in full. 4. Severance Benefits. If within any period commencing with the day any Change in Control occurs and ending thirty-six (36) months after the date of that Change in Control the Officer's employment is terminated by the Company and by all subsidiaries, if any, by which the Officer is employed, including Constructive Termination (as defined in Paragraph 6(b)), but excluding termination for Cause (as defined in Paragraph 6(a)), the Officer shall be entitled to the following benefits in addition to any and all other severance benefits to which the Officer may be entitled under any other plan, program or policy of the Company (or subsidiary) or agreement between the Officer and the Company (or subsidiary: (a) Salary and Bonus Amount. The Company will pay to the Officer within fifteen (15) business days of such termination of employment a lump sum cash amount equal to the present value of the product obtained by multiplying (1) the sum of (i) salary at the annualized rate which was being paid by the Company and/or subsidiaries to the Officer immediately prior to the time of such termination or, if greater, at the time of the Change in Control plus (ii) the annual target bonus and/or any other cash bonus awards last determined for the Officer or, if greater, most recently paid prior to the Change in Control, by (2) two; for purposes of this Paragraph 4, present value shall be calculated using an interest rate equal to the rate reported for the auction of thirteen week United States Treasury Bills on the date coincident with or most immediately preceding the date of such termination as reported in The Wall Street Journal; (b) Pension Plan Amount. The Company will pay to the Officer within fifteen (15) business days of such termination of employment a lump sum cash amount equal to the lump sum present value of the accrued benefit that would be payable under the Rogers Corporation Pension Plan for Salaried Employees (the "Pension Plan"), or any successor plan, if the Officer remained in full-time, active salaried employment with the Company for a period of twenty-four (24) consecutive months following the month in which such termination of employment occurs minus the lump sum present value of the accrued benefit of the Officer under said plan as of the date of such termination of employment; (c) Other Company Benefits. For a period of twenty-four (24) consecutive months following the month in which such termination of employment occurs, the Officer shall be entitled, at no greater monthly cost to the Officer than the Officer's monthly cost immediately prior to such termination of the Officer's employment, to continue participation in those benefit programs of the Company (or a subsidiary) available to the Officers of the Company (or subsidiary) in which the Officer participated immediately prior to the time of the Officer's termination of employment, excluding vacation accrual, paid holidays, salary continuation for short term disability, holiday gifts, and qualified retirement plans but including such benefits as group term medical insurance, dental insurance, life insurance, dependent life insurance, personal and family accident insurance, long term disability insurance, annual physical examination, vision/hearing program, prescription drug card program, stock purchase program, U.S. savings bond program, tax planning and compliance service and tuition refund program; provided that: (1) provision of other Company benefits pursuant to this Paragraph 4(c) shall not result in any duplication of benefits provided by the Company (or subsidiary); (2) to the extent the Officer is not eligible under the terms of one or more of such plans or programs that are insured plans or programs, the Company shall (unless the Officer is then uninsurable) provide the Officer with substantially similar insurance coverage at no greater monthly cost to the Officer than if the Officer had continued to participate in the Company's plan or program' and (3) such benefits shall cease if and to the extent that any subsequent employer of the Officer provides substantially equivalent benefits to the Officer at no substantially greater monthly cost to the Officer than the Officer's monthly cost for such benefits immediately prior to the Officer's termination of employment; (d) Company Car Amount. If the Officer, as of the date of termination of employment, either was receiving a monthly car allowance or had a company-leased car, any such car allowance will be discontinued as of the date of termination of employment and any such company-leased car must be returned to the Company within thirty (30) days after the date of termination of employment. Upon such discontinuance or return, the Officer will receive a single lump sum payment of $5,000 within fifteen (15) business days following the date of such discontinuance or return; provided, that if the Officer is entitled to receive a payment for the same reason and upon the occurrence of substantially the same event as described in this Paragraph 4(d), the payment pursuant to this Paragraph 4(d) shall be reduced (but not below $0) by the amount of such other payment; (e) Nonqualified Plans. If the Officer participated in any nonqualified retirement and/or deferred compensation plan(s) of the Company immediately prior to the time of such termination, the Company shall not cause or allow the termination of, reduction of benefits under, or termination or impairment of any arrangement established to secure payment of benefits under, any such plan with respect to the Officer. Further, the Company or subsidiaries will provide the Officer with service credit for benefits under any nonqualified retirement or deferred compensation plan(s) of the Company, if the Officer participated in such plan(s) immediately prior to the time of such termination, equal to two additional years' service accruals upon such termination of the Officer's employment; and (f) Outplacement Services. In the event of such termination of employment of employment, the Company shall provide to the Officer executive outplacement services provided on a one-to-one basis by a senior counselor of a firm nationally recognized as a reputable provider of such services for a minimum sixty (60) hours, plus evaluation testing, at a location not more than two hundred (200) miles from the primary personal residence of the Officer; and (g) Reimbursement of Certain Expenses. The Company will promptly reimburse the Officer for any and all legal and accounting fees and expenses (including without limitation any travel and lodging expenses of the Officer that would be reimbursable in accordance with the then current Company travel expense reimbursement policy) incurred by the Officer as a result of such termination of employment in connection with the interpretation, implementation or enforcement of any of the provisions of this Agreement (regardless of which party ultimately prevails); and (h) Limitation on Amounts. Notwithstanding any provision of this Agreement to the contrary, the aggregate amount that shall be paid pursuant to this Agreement shall be the maximum amount payable under this Paragraph 4 that will not (when aggregated with any other payments by the Company or any subsidiary) result in the imposition of a tax under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any successor provision; provided, that if all or any part of the value of benefits under more than one subparagraph of this Paragraph 4 is treated as a "parachute payment" within the meaning of Code ss. 280G for purposes of determining whether payments would result in the imposition of said tax, then the Officer shall have sole discretion to determine which benefit(s) to forego in order to avoid the imposition of said tax. 5. Other Severance Payments. If the Officer immediately prior to the date of any Change in Control would be entitled to receive cash severance payments by reason of termination of employment (if termination then occurred) under any other plan, program or policy of the Company (or subsidiary) or any agreement between the Officer and the Company (or subsidiary) (collectively "policy"), and if there is a reduction in or termination of any such amounts payable on or after such Change in Control but before the Officer's employment is terminated, then if the Officer becomes entitled to severance benefits pursuant to Paragraph 4 above the Officer shall also be entitled to receive a cash payment that, when aggregated with any amount actually paid pursuant to any such policy, equals the amount of cash severance payments that would have been payable pursuant to such policy immediately prior to the date of such Change in Control. Further, if the Officer becomes entitled to receive cash severance payments under any such policy by reason of termination of employment within any period commencing with the day any Change in Control occurs and ending thirty-six (36) months after the date of that Change in Control, then to the extent such payments would be paid later than the date on which payments must be made under Paragraph 4(a) above the present value (determined as provided in Paragraph 4(a)) of such payments shall be paid no later than the date on which payments must be made under Paragraph 4(a). In addition, if on the date of any Change in Control, the Officer is receiving any such payments, the present value (determined as provided in Paragraph 4(a)) of the remainder of such payments shall be paid no later than the date on which payments must be made under Paragraph 4(a). 6. (a) Termination for Cause. "Cause" means only the willful commission by the Officer of material theft or embezzlement or other serious and substantial crimes against the Company or subsidiaries. For purposes of this definition, no act or omission shall be considered to have been "willful" unless it was not in good faith and the Officer had knowledge at the time that the act or omission was not in the best interests of the Company or subsidiaries. Further, the Officer's attempt to secure employment with another employer shall not constitute an event of "cause". Finally, any termination of the Officer's employment by the Company or any subsidiary at a time when the Officer is unable to perform all or any portion of the Officer's regular services by reason of any physical or mental impairment not expected to continue for a period exceeding twelve (12) consecutive months shall not constitute termination by the Company or subsidiary for "cause". (b) Constructive Termination. If the Officer leaves the employ of the Company or any subsidiary for any reason: (i) following a reduction in the Officer's position, compensation, bonus formula, responsibilities, authority, reputation, pension arrangements, stock option or other incentive compensation arrangements, or other Company benefits that the Officer would be entitled to pursuant to Paragraph 4(c) or 4(e) if the Officer's employment then terminated, or a material reduction in the Officer's prestige, enjoyed by the Officer prior to the Change in Control, as determined in good faith by the Officer; provided, that the Officer's failure immediately following any such reduction to terminate employment or otherwise to exercise his or her rights hereunder arising from such reduction shall not constitute a waiver of the Officer's rights hereunder arising from such reduction or otherwise impair the Officer's ability to exercise such rights within one year following any such reduction; (ii) following an attempt by the Company or any subsidiary to relocate the Officer to, or to require the Officer to perform regular services at, any location that is outside the continental United States of America; provided, that the Officer's failure immediately following any such attempt to terminate employment or otherwise to exercise his or her rights hereunder arising from such attempt shall not constitute a waiver of the Officer's rights hereunder arising from such attempt or otherwise impair the Officer's ability to exercise such rights within one year following any such attempt; (iii) within ninety (90) days of the Officer's receipt of notice from the Company that the Company's ratio of current assets to current liabilities as reflected on any quarterly or annual statements filed by the Company with the Securities and Exchange Commission falls below one and one-quarter (1 1/4) to one (1) or any date on which the total of -- the Company's long-term debt (including the current portion due within one year) and its short-term debt incurred for money borrowed exceeds seventy-five percent (75%) of the Company's net worth as reflected in such statements filed with the Securities and Exchange Commission (each, a "Financial Termination Event"); provided, that if at any time the Company is no longer required to file such statements or fails to file such statements, the Company shall cause to be prepared in accordance with generally accepted accounting principles consistently applied quarterly financial statements (within forty-five (45) days of the end of the Company's fiscal quarter) and annual financial statements (within sixty (60) days of the end of the Company's fiscal year) of the Company indicating the information required to determine whether either Financial Termination Event has occurred; and provided, further, that the Company shall provide written notice to the Officer within five (5) business days after the date any such statement is filed (or has been completed, if not filed) if either Financial Termination Event has occurred; and provided, further, that the Financial Termination Event shall not have resulted from economic conditions generally adverse to the Company or its markets but rather shall have resulted from deliberate mismanagement of the Company's affairs by, or a diminution of the Company's assets on the part of, the person(s) controlling the Company subsequent to the Change of Control; (iv) at any time within twelve (12) months after the Company notifies the Officer in writing that the Agreement Termination Date shall not be extended, as provided in Paragraph 3(a); or (v) at any time within twelve (12) months following the date the Officer knows that the Company has breached any of the terms of this Agreement; in each of the foregoing cases regardless of whether the Officer is entitled to elect, or elects, retirement upon leaving the employ of the Company or any subsidiary, such termination of employment shall constitute termination by the Company or subsidiary for reasons other than Cause. Finally, if the Officer is employed by the Company and also by one or more subsidiaries and if the Officer's employment is terminated by one or more but not by all of such employing entities, such termination of the Officer's employment shall constitute termination by all such employing entities if termination by less than all such employing entities results in any reduction described in Paragraph 6(b)(i) above and if the Officer leaves the employ of the one or more employing entities by which the Officer's employment was not terminated. Any such termination shall constitute "Constructive Termination". 7. Consolidation or Merger. If the Company is at any time before or after a Change in Control merged or consolidated into or with any other corporation, association, partnership or other entity (whether or not the Company is the surviving entity), or if substantially all of the assets thereof are transferred to another corporation, association, partnership or other entity, the provisions of this Agreement will be binding upon and inure to the benefit of the corporation, association, partnership or other entity resulting from such merger or consolidation or the acquirer of such assets (collectively, "acquiring entity") unless the Officer voluntarily elects not to become an employee of the acquiring entity as determined in good faith by the Officer. Furthermore, in the event of any such consolidation or transfer of substantially all of the assets of the Company, the Company shall enter into an agreement with the acquiring entity that shall provide that such acquiring entity shall assume this Agreement and all obligations and liabilities under this Agreement; provided, that the Company's failure to comply with this provision shall not adversely affect any right of the Officer hereunder. This Paragraph 7 will apply in the event of any subsequent merger or consolidation or transfer of assets. In the event of any merger, consolidation or sale of assets described above, nothing contained in this Agreement will detract from or otherwise limit the Officer's right to or privilege of participation in any restricted stock plan, bonus or incentive plan, stock option or purchase plan, profit sharing, pension, group insurance, hospitalization or other compensation or benefit plan or arrangement which may be or become applicable to officers of the corporation resulting from such merger or consolidation or the corporation acquiring such assets of the Company. In the event of any merger, consolidation or sale of assets described above, references to the Company in this Agreement shall, unless the context suggests otherwise, be deemed to include the entity resulting from such merger or consolidation or the acquirer of such assets of the Company. 8. Payments. All payments provided for in this Agreement shall be paid in cash in United States funds from the general funds of the Company and its subsidiaries drawn on the United States location of a bank and paid in bank or cashier's check. The Company shall not be required to establish a special or separate fund or other segregation of assets to ensure such payments. All payments made by the Company to the Officer or the Officer's dependents, beneficiaries or estate will be subject to the withholding of such amounts relating to tax and/or other payroll deductions as may be required by law. 9. Arbitration. In the event of a dispute between the parties as to the interpretation or application of this Agreement, such dispute may be submitted by the Officer or by the Company to binding arbitration before an impartial arbitrator pursuant to the Rules of Commercial Arbitration of the American Arbitration Association. The Officer shall be reimbursed promptly by the Company for all travel and lodging expenses (that would be reimbursable in accordance with the then current Company travel expense reimbursement policy) incurred in connection with any such arbitration. In addition, if the Officer prevails in any such arbitration proceeding, the Company shall reimburse the Officer promptly for 100% of the fees and expenses the Officer incurs in connection with any such arbitration, including legal fees and filing and arbitrator's fees; if the Company prevails in any such arbitration proceeding, the Company shall reimburse the Officer promptly for 80% of the fees and expenses the Officer incurs in connection with any such arbitration, including legal fees and filing and arbitrator's fees; and if each party prevails in part, the Company shall reimburse the Officer promptly for such percentage, not less than 80% and not more than 100%, of the fees and expenses the Officer incurs in connection with such arbitration, including legal fees and filing and arbitrator's fees, as the arbitrator shall determine. 10. Assignment; Payment on Death. The provisions of this Agreement shall be finding upon and shall inure to the benefit of the Officer, the Officer's executors, administrators, legal representatives and assigns and the Company and its successors. There shall be no right of set-off or counterclaim, in respect of any claim, debt or obligation, against any payments to the Officer, the Officer's dependents, beneficiaries or estate provided for in this Agreement. In the event that the Officer becomes entitled to payments under this Agreement and subsequently dies, all amounts payable to the Officer hereunder and not yet paid to the Officer at the time of the Officer's death shall be paid to the Officer's beneficiary. No right or interest to or in any payments shall be assignable by the Officer; provided, however, that this provision shall not preclude the Officer from designating one or more beneficiaries to receive any amount that may be payable after the Officer's death and shall not preclude the legal representatives of the Officer's estate from assigning any right hereunder to the person or persons entitled thereto under the Officer's will or, in the case of intestacy, to the person or persons entitled thereto under the laws of intestacy applicable to the Officer's estate. The term "beneficiary" as used in this Agreement shall mean the beneficiary or beneficiaries so designated by the Officer to receive such amount or, if no such beneficiary is in existence at the time of the Officer's death, the legal representative of the Officer's estate. No right, benefit or interest hereunder shall be subject to anticipation, alienation, sale, assignment, encumbrance, charge, pledge, hypothecation, or set-off in respect of any claim, debt or obligation, or to execution, attachment, levy or similar process, or assignment by operation of law. Any attempt, voluntary or involuntary, to effect any action specified in the immediately preceding sentence shall, to the full extent permitted by law, be null, void and of no effect. 11. Modification. This Agreement may be modified only in a written instrument agreed to and executed by the Company and the Officer. 12. Severability. If any provision of this Agreement shall, for any reason, be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 13. Headings of No Effect. The paragraph headings contained in this Agreement are included solely for convenience or reference and shall not in any way affect the meaning or interpretation of any of the provisions of this Agreement. 14. Governing Law. This Agreement and its validity, interpretation, performance and enforcement shall be governed by the laws of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its officers thereto duly authorized, and the Officer has signed this Agreement, all as of the date first above written. ROGERS CORPORATION By: /s/WEBoomer ---------------------- Walter E. Boomer, CEO EX-10 15 a4846542ex10ad.txt EXHIBIT 10AD Exhibit 10ad GUARANTY This GUARANTY dated as of April 3, 2001 is made by ROGERS CHINA, INC., a Delaware corporation, (the "Guarantor") in favor of (i) Fleet National Bank, a national banking association, as agent (hereinafter, in such capacity, the "Agent") for itself and the other lending institutions (hereinafter, collectively, the "Banks") which are or may become parties to the Multicurrency Revolving Credit Agreement dated as of December 8, 2000 (as amended, modified, supplemented or restated and in effect from time to time, the "Credit Agreement"), among Rogers Corporation, a Massachusetts corporation (the "Borrower"), the Banks and the Agent and (ii) each of the Banks. WHEREAS, the Borrower and the Guarantor are members of a group of related corporations, the success of any one of which is dependent in part on the success of the other members of such group; WHEREAS, the Guarantor expects to receive direct and indirect benefits from the extensions of credit to the Borrower by the Banks pursuant to the Credit Agreement (which benefits are hereby acknowledged); WHEREAS, it is a condition precedent to the obligation of the Banks to make any loans or otherwise extend credit to the Borrower under the Credit Agreement that the Guarantor execute and deliver to the Agent, for the benefit of the Banks and the Agent, this Guaranty; and WHEREAS, the Guarantor wishes to guaranty the Borrower's obligations to the Banks and the Agent under or in respect of the Credit Agreement as provided herein; NOW, THEREFORE, the Guarantor hereby agrees with the Banks and the Agent as follows: 1. Definitions. The term "Obligations" or "Obligation" and all other capitalized terms used herein without definition that are defined in the Credit Agreement shall have the respective meanings provided therefor in the Credit Agreement. 2. Guaranty of Payment and Performance. The Guarantor hereby guarantees to the Banks and the Agent the full and punctual payment when due (whether at stated maturity, by required pre-payment, or by acceleration after the occurrence of an Event of Default or when otherwise due), as well as the performance, of all of the Obligations including all such which would become due but for the operation of the automatic stay pursuant to ss.362(a) of the Federal Bankruptcy Code and the operation of ss.ss.502(b) and 506(b) of the Federal Bankruptcy Code. This Guaranty is an absolute, unconditional and continuing guaranty of the full and punctual payment and performance of all of the Obligations and not of their collectibility only and is in no way conditioned upon any requirement that the Agent or any Bank first attempt to collect any of the Obligations from the Borrower or resort to any collateral security or other means of obtaining payment. Should the Borrower default in the payment or performance of any of the Obligations, the obligations of the Guarantor hereunder with respect to such Obligations in default shall, upon demand by the Agent, become immediately due and payable to the Agent, for the benefit of the Banks and the Agent, without further demand or notice of any nature, all of which are expressly waived by the Guarantor. Payments by the Guarantor hereunder may be required by the Agent on any number of occasions. All payments by the Guarantor hereunder shall be made to the Agent, in the manner and at the place of payment specified therefor in the Credit Agreement, for the account of the Banks and the Agent. 3. Guarantor's Agreement to Pay Enforcement Costs, etc. The Guarantor further agrees, as principal obligor and not as Guarantor only, to pay to the Agent, on demand, all costs and expenses (including court costs and reasonable legal expenses) reasonably incurred or expended by the Agent or any Bank in connection with the Obligations, this Guaranty and the enforcement thereof, together with interest on amounts recoverable under this ss.3 from the time when such amounts become due until payment, whether before or after judgment, at the rate of interest for overdue principal set forth in the Credit Agreement, provided that if such interest exceeds the maximum amount permitted to be paid under applicable law, then such interest shall be reduced to such maximum permitted amount. 4. Waiver by Guarantor; Bank's Freedom to Act. The Guarantor agrees that the Obligations will be paid and performed strictly in accordance with their respective terms, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Agent or any Bank with respect thereto. The Guarantor waives promptness, diligences, presentment, demand, protest, notice of acceptance, notice of any Obligations incurred and all other notices of any kind, all defenses which may be available by virtue of any valuation, stay, moratorium law or other similar law now or hereafter in effect, any right to require the marshalling of assets of the Borrower or any other entity or other person primarily or secondarily liable with respect to any of the Obligations, and all suretyship defenses generally. Without limiting the generality of the foregoing, the Guarantor agrees to the provisions of any instrument evidencing, securing or otherwise executed in connection with any Obligation and agrees that the obligations of the Guarantor hereunder shall not be released or discharged, in whole or in part, or otherwise affected by (i) the failure of the Agent or any Bank to assert any claim or demand or to enforce any right or remedy against the Borrower or any other entity or other person primarily or secondarily liable with respect to any of the Obligations; (ii) any extensions, compromise, refinancing, consolidation or renewals of any Obligation; (iii) any change in the time, place or manner of payment of any of the Obligations or any rescissions, waivers, compromise, refinancing, consolidation or other amendments or modifications of any of the terms or provisions of the Credit Agreement, the Note, the other Loan Documents or any other agreement evidencing, securing or otherwise executed in connection with any of the Obligations; (iv) the addition, substitution or release of any entity or other person primarily or secondarily liable for any Obligation; (v) the adequacy of any rights which the Agent or any Bank may have against any collateral security or other means of obtaining repayment of any of the Obligations; (vi) the impairment of any collateral securing any of the Obligations, including without limitation the failure to perfect or preserve any rights which the Agent or any Bank might have in such collateral security or the substitution, exchange, surrender, release, loss or destruction of any such collateral security; or (vii) any other act or omission which might in any manner or to any extent vary the risk of the Guarantor or otherwise operate as a release or discharge of the Guarantor, all of which may be done without notice to the Guarantor. To the fullest extent permitted by law, the Guarantor hereby expressly waives any and all rights or defenses arising by reason of (A) any "one action" or "anti-deficiency" law which would otherwise prevent the Agent or any Bank from bringing any action, including any claim for a deficiency, or exercising any other right or remedy (including any right of set-off), against the Guarantor before or after the Agent's or such Bank's commencement or completion of any foreclosure action, whether judicially, by exercise of power of sale or otherwise, or (B) any other law which in any other way would otherwise require any election of remedies by the Agent or any Bank. 5. Unenforceability of Obligations Against Borrower. If for any reason the Borrower has no legal existence or is under no legal obligation to discharge any of the Obligations, or if any of the Obligations have become irrecoverable from the Borrower by reason of the Borrower's insolvency, bankruptcy or reorganization or by other operation of law or for any other reason, this Guaranty shall nevertheless be binding on the Guarantor to the same extent as if the Guarantor at all times had been the principal obligor on all such Obligations. In the event that acceleration of the time for payment of any of the Obligations is stayed upon the insolvency, bankruptcy or reorganization of the Borrower, or for any other reason, all such amounts otherwise subject to acceleration under the terms of the Credit Agreement, the Note, the other Loan Documents or any other agreement evidencing, securing or otherwise executed in connection with any Obligation shall be immediately due and payable by the Guarantor . 6. Subrogation; Subordination. 6.1. Waiver of Rights Against Borrower. Until the final payment and performance in full of all of the Obligations, the Guarantor shall not exercise and hereby waives any rights against the Borrower arising as a result of payment by the Guarantor hereunder, by way of subrogation, reimbursement, restitution, contribution or otherwise, and will not prove any claim in competition with the Agent or any Bank in respect of any payment hereunder in any bankruptcy, insolvency or reorganization case or proceedings of any nature; the Guarantor will not claim any setoff, recoupment or counterclaim against the Borrower in respect of any liability of the Guarantor to the Borrower; and the Guarantor waives any benefit of and any right to participate in any collateral security which may be held by the Agent or any Bank. 6.2. Subordination. The payment of any amounts due with respect to any indebtedness of the Borrower for money borrowed or credit received now or hereafter owed to the Guarantor is hereby subordinated to the prior payment in full of all of the Obligations; provided that so long as no Event of Default has occurred and is continuing, any amounts due to the Guarantor from the Borrower may continue to be paid when due. The Guarantor agrees that, after the occurrence of any Event of Default, the Guarantor will not demand, sue for or otherwise attempt to collect any such indebtedness of the Borrower to the Guarantor until all of the Obligations shall have been paid in full. If, notwithstanding the foregoing sentence, the Guarantor shall collect, enforce or receive any amounts in respect of such indebtedness while any Obligations are still outstanding, such amounts shall be collected, enforced and received by the Guarantor as trustees for the Banks and the Agent and be paid over to the Agent, for the benefit of the Banks and the Agent, on account of the Obligations without affecting in any manner the liability of the Guarantor under the other provisions of this Guaranty. 6.3. Provisions Supplemental. The provisions of this ss.6 shall be supplemental to and not in derogation of any rights and remedies of the Banks and the Agent under any separate subordination agreement which the Agent may at any time and from time to time enter into with the Guarantor for the benefit of the Banks and the Agent. 7. Setoff. Regardless of the adequacy of any collateral security or other means of obtaining payment of any of the Obligations, each of the Agent and the Banks is hereby authorized at any time and from time to time after the occurrence of an Event of Default, without notice to the Guarantor (any such notice being expressly waived by the Guarantor) and to the fullest extent permitted by law, to set off and apply such deposits and other sums against the obligations of the Guarantor under this Guaranty, whether or not the Agent or such Bank shall have made any demand under this Guaranty. The Agent or such Bank, as the case may be, shall provide notice to the applicable Guarantor promptly after the exercise of any such right of setoff. 8. Further Assurances. The Guarantor agrees that it will from time to time, at the written request of the Agent, do all such things and execute all such documents as the Agent may consider reasonably necessary or desirable to give full effect to this Guaranty and to perfect and preserve the rights and powers of the Banks and the Agent hereunder. The Guarantor acknowledges and confirms that the Guarantor has established its own adequate means of obtaining from the Borrower on a continuing basis all information desired by the Guarantor concerning the financial condition of the Borrower and that the Guarantor will look to the Borrower and not to the Agent or any Bank in order for the Guarantor to keep adequately informed of changes in the Borrower's financial condition. 9. Termination; Reinstatement. This Guaranty shall remain in full force and effect until the Agent is given written notice of the Guarantor's intention to discontinue this Guaranty, notwithstanding any intermediate or temporary payment or settlement of the whole or any part of the Obligations. No such notice shall be effective unless received and acknowledged by an officer of the Agent at the address of the Agent for notices set forth in ss.19 of the Credit Agreement. No such notice shall affect any rights of the Agent or any Bank hereunder, including without limitation the rights set forth in ss.ss.4 and 6, with respect to any Obligations incurred or accrued prior to the receipt of such notice or any Obligations incurred or accrued pursuant to any contract or commitment in existence prior to such receipt. This Guaranty shall continue to be effective or be reinstated, notwithstanding any such notice, if at any time any payment made or value received with respect to any Obligation is rescinded or must otherwise be returned by the Agent or any Bank upon the insolvency, bankruptcy or reorganization of the Borrower, or otherwise, all as though such payment had not been made or value received. 10. Successors and Assigns. This Guaranty shall be binding upon the Guarantor, its successors and assigns, and shall inure to the benefit of the Agent and the Banks and their respective successors, transferees and assigns. Without limiting the generality of the foregoing sentence, subject to and in accordance with ss.18 of the Credit Agreement, each Bank may assign or otherwise transfer the Credit Agreement, its Revolving Credit Note, the other Loan Documents or any other agreement or note held by it evidencing, securing or otherwise executed in connection with the Obligations, or sell participations in any interest therein, to any other entity or other person, and such other entity or other person shall thereupon become vested, to the extent set forth in the agreement evidencing such assignment, transfer or participation, with all the rights in respect thereof granted to such Bank herein. The Guarantor may not assign any of its obligations hereunder without the prior written consent of the Agent and each of the Banks. 11. Amendments and Waivers. No amendment or waiver of any provision of this Guaranty nor consent to any departure by the Guarantor therefrom shall be effective unless the same shall be in writing and signed by the Agent with the consent of the Majority Banks. No failure on the part of the Agent or any Bank 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. 12. Notices. All notices and other communications called for hereunder shall be made in accordance with ss.19 of the Credit Agreement and shall be addressed as follows: if to the Guarantor, at the address set forth beneath its signature hereto, and if to the Agent, at the address for notices to the Agent set forth in ss. 19 of the Credit Agreement, or at such address as either party may designate by notice in writing to the other. 13. Governing Law; Consent to Jurisdiction. THIS GUARANTY IS INTENDED TO TAKE EFFECT AS A SEALED INSTRUMENT AND SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS. The Guarantor agrees that any suit for the enforcement of this Guaranty may be brought in the courts of The Commonwealth of Massachusetts or any federal court sitting therein and consent to the nonexclusive jurisdiction of such court and to service of process in any such suit being made upon the Guarantor by mail at the address referred to in ss.12. The Guarantor hereby waives any objection that it may now or hereafter have to the venue of any such suit or any such court or that such suit was brought in an inconvenient court. 14. Waiver or Jury Trial. THE GUARANTOR HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS GUARANTY, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THE PERFORMANCE OF ANY OF SUCH RIGHTS OR OBLIGATIONS. Except as prohibited by law, the Guarantor hereby waives any rights which it may have to claim or recover in any litigation referred to in the preceding sentence any special, exemplary, punitive or consequential damages or any damages other than, or in addition to, actual damages. The Guarantor (i) certifies that neither the Agent or any Bank nor any representative, agent or attorney of the Agent or any Bank has represented, expressly or otherwise, that the Agent or any Bank would not, in the event of litigation, seek to enforce the foregoing waivers and (ii) acknowledges that, in entering into the Credit Agreement and the other Loan Documents to which the Agent or any Bank is a party, the Agent and the Banks are relying upon, among other things, the waivers and certifications contained in this ss.14. 15. Miscellaneous. This Guaranty constitutes the entire agreement of the 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 Guaranty shall be in addition to any other guaranty of or collateral security for any of the Obligations. The invalidity or unenforceability of any one or more sections of this Guaranty shall not affect the validity or enforceability of its remaining provisions. Captions are for the ease of reference only and shall not affect the meaning of the relevant provisions. The meanings of all defined terms used in this Guaranty shall be equally applicable to the singular and plural forms of the terms defined. IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be executed and delivered as an instrument under seal as of the date first above written. ROGERS CHINA, INC. By: /s/ Robert M. Soffer --------------------------------- Robert M. Soffer, Vice President, Treasurer and Secretary Address: One Technology Drive P.O. Box 188 Rogers, CT 06263-0188 Telecopier No.: 860-779-5585 EX-10 16 a4846542ex10ae.txt EXHIBIT 10AE Exhibit 10ae GUARANTY This GUARANTY dated as of February 18, 2004 is made by ROGERS KF, INC., a Delaware corporation, (the "Guarantor") in favor of (i) Fleet National Bank, a national banking association, as agent (hereinafter, in such capacity, the "Agent") for itself and the other lending institutions (hereinafter, collectively, the "Banks") which are or may become parties to the Multicurrency Revolving Credit Agreement dated as of December 8, 2000 (as amended, modified, supplemented or restated and in effect from time to time, the "Credit Agreement"), among Rogers Corporation, a Massachusetts corporation (the "Borrower"), the Banks and the Agent and (ii) each of the Banks. WHEREAS, the Borrower and the Guarantor are members of a group of related corporations, the success of any one of which is dependent in part on the success of the other members of such group; WHEREAS, the Guarantor expects to receive direct and indirect benefits from the extensions of credit to the Borrower by the Banks pursuant to the Credit Agreement (which benefits are hereby acknowledged); WHEREAS, it is a condition precedent to the obligation of the Banks to make any loans or otherwise extend credit to the Borrower under the Credit Agreement that the Guarantor execute and deliver to the Agent, for the benefit of the Banks and the Agent, this Guaranty; and WHEREAS, the Guarantor wishes to guaranty the Borrower's obligations to the Banks and the Agent under or in respect of the Credit Agreement as provided herein; NOW, THEREFORE, the Guarantor hereby agrees with the Banks and the Agent as follows: 1. Definitions. The term "Obligations" or "Obligation" and all other capitalized terms used herein without definition that are defined in the Credit Agreement shall have the respective meanings provided therefor in the Credit Agreement. 2. Guaranty of Payment and Performance. The Guarantor hereby guarantees to the Banks and the Agent the full and punctual payment when due (whether at stated maturity, by required pre-payment, or by acceleration after the occurrence of an Event of Default or when otherwise due), as well as the performance, of all of the Obligations including all such which would become due but for the operation of the automatic stay pursuant to ss.362(a) of the Federal Bankruptcy Code and the operation of ss.ss.502(b) and 506(b) of the Federal Bankruptcy Code. This Guaranty is an absolute, unconditional and continuing guaranty of the full and punctual payment and performance of all of the Obligations and not of their collectibility only and is in no way conditioned upon any requirement that the Agent or any Bank first attempt to collect any of the Obligations from the Borrower or resort to any collateral security or other means of obtaining payment. Should the Borrower default in the payment or performance of any of the Obligations, the obligations of the Guarantor hereunder with respect to such Obligations in default shall, upon demand by the Agent, become immediately due and payable to the Agent, for the benefit of the Banks and the Agent, without further demand or notice of any nature, all of which are expressly waived by the Guarantor. Payments by the Guarantor hereunder may be required by the Agent on any number of occasions. All payments by the Guarantor hereunder shall be made to the Agent, in the manner and at the place of payment specified therefor in the Credit Agreement, for the account of the Banks and the Agent. 3. Guarantor's Agreement to Pay Enforcement Costs, etc. The Guarantor further agrees, as principal obligor and not as Guarantor only, to pay to the Agent, on demand, all costs and expenses (including court costs and reasonable legal expenses) reasonably incurred or expended by the Agent or any Bank in connection with the Obligations, this Guaranty and the enforcement thereof, together with interest on amounts recoverable under this ss.3 from the time when such amounts become due until payment, whether before or after judgment, at the rate of interest for overdue principal set forth in the Credit Agreement, provided that if such interest exceeds the maximum amount permitted to be paid under applicable law, then such interest shall be reduced to such maximum permitted amount. 4. Waiver by Guarantor; Bank's Freedom to Act. The Guarantor agrees that the Obligations will be paid and performed strictly in accordance with their respective terms, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Agent or any Bank with respect thereto. The Guarantor waives promptness, diligences, presentment, demand, protest, notice of acceptance, notice of any Obligations incurred and all other notices of any kind, all defenses which may be available by virtue of any valuation, stay, moratorium law or other similar law now or hereafter in effect, any right to require the marshalling of assets of the Borrower or any other entity or other person primarily or secondarily liable with respect to any of the Obligations, and all suretyship defenses generally. Without limiting the generality of the foregoing, the Guarantor agrees to the provisions of any instrument evidencing, securing or otherwise executed in connection with any Obligation and agrees that the obligations of the Guarantor hereunder shall not be released or discharged, in whole or in part, or otherwise affected by (i) the failure of the Agent or any Bank to assert any claim or demand or to enforce any right or remedy against the Borrower or any other entity or other person primarily or secondarily liable with respect to any of the Obligations; (ii) any extensions, compromise, refinancing, consolidation or renewals of any Obligation; (iii) any change in the time, place or manner of payment of any of the Obligations or any rescissions, waivers, compromise, refinancing, consolidation or other amendments or modifications of any of the terms or provisions of the Credit Agreement, the Note, the other Loan Documents or any other agreement evidencing, securing or otherwise executed in connection with any of the Obligations; (iv) the addition, substitution or release of any entity or other person primarily or secondarily liable for any Obligation; (v) the adequacy of any rights which the Agent or any Bank may have against any collateral security or other means of obtaining repayment of any of the Obligations; (vi) the impairment of any collateral securing any of the Obligations, including without limitation the failure to perfect or preserve any rights which the Agent or any Bank might have in such collateral security or the substitution, exchange, surrender, release, loss or destruction of any such collateral security; or (vii) any other act or omission which might in any manner or to any extent vary the risk of the Guarantor or otherwise operate as a release or discharge of the Guarantor, all of which may be done without notice to the Guarantor. To the fullest extent permitted by law, the Guarantor hereby expressly waives any and all rights or defenses arising by reason of (A) any "one action" or "anti-deficiency" law which would otherwise prevent the Agent or any Bank from bringing any action, including any claim for a deficiency, or exercising any other right or remedy (including any right of set-off), against the Guarantor before or after the Agent's or such Bank's commencement or completion of any foreclosure action, whether judicially, by exercise of power of sale or otherwise, or (B) any other law which in any other way would otherwise require any election of remedies by the Agent or any Bank. 5. Unenforceability of Obligations Against Borrower. If for any reason the Borrower has no legal existence or is under no legal obligation to discharge any of the Obligations, or if any of the Obligations have become irrecoverable from the Borrower by reason of the Borrower's insolvency, bankruptcy or reorganization or by other operation of law or for any other reason, this Guaranty shall nevertheless be binding on the Guarantor to the same extent as if the Guarantor at all times had been the principal obligor on all such Obligations. In the event that acceleration of the time for payment of any of the Obligations is stayed upon the insolvency, bankruptcy or reorganization of the Borrower, or for any other reason, all such amounts otherwise subject to acceleration under the terms of the Credit Agreement, the Note, the other Loan Documents or any other agreement evidencing, securing or otherwise executed in connection with any Obligation shall be immediately due and payable by the Guarantor . 6. Subrogation; Subordination. 6.1. Waiver of Rights Against Borrower. Until the final payment and performance in full of all of the Obligations, the Guarantor shall not exercise and hereby waives any rights against the Borrower arising as a result of payment by the Guarantor hereunder, by way of subrogation, reimbursement, restitution, contribution or otherwise, and will not prove any claim in competition with the Agent or any Bank in respect of any payment hereunder in any bankruptcy, insolvency or reorganization case or proceedings of any nature; the Guarantor will not claim any setoff, recoupment or counterclaim against the Borrower in respect of any liability of the Guarantor to the Borrower; and the Guarantor waives any benefit of and any right to participate in any collateral security which may be held by the Agent or any Bank. 6.2. Subordination. The payment of any amounts due with respect to any indebtedness of the Borrower for money borrowed or credit received now or hereafter owed to the Guarantor is hereby subordinated to the prior payment in full of all of the Obligations; provided that so long as no Event of Default has occurred and is continuing, any amounts due to the Guarantor from the Borrower may continue to be paid when due. The Guarantor agrees that, after the occurrence of any Event of Default, the Guarantor will not demand, sue for or otherwise attempt to collect any such indebtedness of the Borrower to the Guarantor until all of the Obligations shall have been paid in full. If, notwithstanding the foregoing sentence, the Guarantor shall collect, enforce or receive any amounts in respect of such indebtedness while any Obligations are still outstanding, such amounts shall be collected, enforced and received by the Guarantor as trustees for the Banks and the Agent and be paid over to the Agent, for the benefit of the Banks and the Agent, on account of the Obligations without affecting in any manner the liability of the Guarantor under the other provisions of this Guaranty. 6.3. Provisions Supplemental. The provisions of this ss.6 shall be supplemental to and not in derogation of any rights and remedies of the Banks and the Agent under any separate subordination agreement which the Agent may at any time and from time to time enter into with the Guarantor for the benefit of the Banks and the Agent. 7. Setoff. Regardless of the adequacy of any collateral security or other means of obtaining payment of any of the Obligations, each of the Agent and the Banks is hereby authorized at any time and from time to time after the occurrence of an Event of Default, without notice to the Guarantor (any such notice being expressly waived by the Guarantor) and to the fullest extent permitted by law, to set off and apply such deposits and other sums against the obligations of the Guarantor under this Guaranty, whether or not the Agent or such Bank shall have made any demand under this Guaranty. The Agent or such Bank, as the case may be, shall provide notice to the applicable Guarantor promptly after the exercise of any such right of setoff. 8. Further Assurances. The Guarantor agrees that it will from time to time, at the written request of the Agent, do all such things and execute all such documents as the Agent may consider reasonably necessary or desirable to give full effect to this Guaranty and to perfect and preserve the rights and powers of the Banks and the Agent hereunder. The Guarantor acknowledges and confirms that the Guarantor has established its own adequate means of obtaining from the Borrower on a continuing basis all information desired by the Guarantor concerning the financial condition of the Borrower and that the Guarantor will look to the Borrower and not to the Agent or any Bank in order for the Guarantor to keep adequately informed of changes in the Borrower's financial condition. 9. Termination; Reinstatement. This Guaranty shall remain in full force and effect until the Agent is given written notice of the Guarantor's intention to discontinue this Guaranty, notwithstanding any intermediate or temporary payment or settlement of the whole or any part of the Obligations. No such notice shall be effective unless received and acknowledged by an officer of the Agent at the address of the Agent for notices set forth in ss.19 of the Credit Agreement. No such notice shall affect any rights of the Agent or any Bank hereunder, including without limitation the rights set forth in ss.ss.4 and 6, with respect to any Obligations incurred or accrued prior to the receipt of such notice or any Obligations incurred or accrued pursuant to any contract or commitment in existence prior to such receipt. This Guaranty shall continue to be effective or be reinstated, notwithstanding any such notice, if at any time any payment made or value received with respect to any Obligation is rescinded or must otherwise be returned by the Agent or any Bank upon the insolvency, bankruptcy or reorganization of the Borrower, or otherwise, all as though such payment had not been made or value received. 10. Successors and Assigns. This Guaranty shall be binding upon the Guarantor, its successors and assigns, and shall inure to the benefit of the Agent and the Banks and their respective successors, transferees and assigns. Without limiting the generality of the foregoing sentence, subject to and in accordance with ss.18 of the Credit Agreement, each Bank may assign or otherwise transfer the Credit Agreement, its Revolving Credit Note, the other Loan Documents or any other agreement or note held by it evidencing, securing or otherwise executed in connection with the Obligations, or sell participations in any interest therein, to any other entity or other person, and such other entity or other person shall thereupon become vested, to the extent set forth in the agreement evidencing such assignment, transfer or participation, with all the rights in respect thereof granted to such Bank herein. The Guarantor may not assign any of its obligations hereunder without the prior written consent of the Agent and each of the Banks. 11. Amendments and Waivers. No amendment or waiver of any provision of this Guaranty nor consent to any departure by the Guarantor therefrom shall be effective unless the same shall be in writing and signed by the Agent with the consent of the Majority Banks. No failure on the part of the Agent or any Bank 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. 12. Notices. All notices and other communications called for hereunder shall be made in accordance with ss.19 of the Credit Agreement and shall be addressed as follows: if to the Guarantor, at the address set forth beneath its signature hereto, and if to the Agent, at the address for notices to the Agent set forth in ss. 19 of the Credit Agreement, or at such address as either party may designate by notice in writing to the other. 13. Governing Law; Consent to Jurisdiction. THIS GUARANTY IS INTENDED TO TAKE EFFECT AS A SEALED INSTRUMENT AND SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS. The Guarantor agrees that any suit for the enforcement of this Guaranty may be brought in the courts of The Commonwealth of Massachusetts or any federal court sitting therein and consent to the nonexclusive jurisdiction of such court and to service of process in any such suit being made upon the Guarantor by mail at the address referred to in ss.12. The Guarantor hereby waives any objection that it may now or hereafter have to the venue of any such suit or any such court or that such suit was brought in an inconvenient court. 14. Waiver or Jury Trial. THE GUARANTOR HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS GUARANTY, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THE PERFORMANCE OF ANY OF SUCH RIGHTS OR OBLIGATIONS. Except as prohibited by law, the Guarantor hereby waives any rights which it may have to claim or recover in any litigation referred to in the preceding sentence any special, exemplary, punitive or consequential damages or any damages other than, or in addition to, actual damages. The Guarantor (i) certifies that neither the Agent or any Bank nor any representative, agent or attorney of the Agent or any Bank has represented, expressly or otherwise, that the Agent or any Bank would not, in the event of litigation, seek to enforce the foregoing waivers and (ii) acknowledges that, in entering into the Credit Agreement and the other Loan Documents to which the Agent or any Bank is a party, the Agent and the Banks are relying upon, among other things, the waivers and certifications contained in this ss.14. 15. Miscellaneous. This Guaranty constitutes the entire agreement of the 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 Guaranty shall be in addition to any other guaranty of or collateral security for any of the Obligations. The invalidity or unenforceability of any one or more sections of this Guaranty shall not affect the validity or enforceability of its remaining provisions. Captions are for the ease of reference only and shall not affect the meaning of the relevant provisions. The meanings of all defined terms used in this Guaranty shall be equally applicable to the singular and plural forms of the terms defined. IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be executed and delivered as an instrument under seal as of the date first above written. ROGERS KF, INC. By: /s/ Robert D. Wachob --------------------------- Robert D. Wachob, President Address: One Technology Drive P.O. Box 188 Rogers, CT 06263-0188 Telecopier No.: 860-779-5585 EX-13 17 a4846542ex13.txt EXHIBIT 13 Exhibit 13 Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the Consolidated Financial Statements and the related notes that appear elsewhere in this document. Business Overview - ----------------- Rogers Corporation is a global enterprise that provides its customers with innovative solutions and industry leading products in three business segments: Printed Circuit Materials, High Performance Foams and Polymer Materials and Components. These segments generate revenues and cash flows through the development, manufacturing, and distribution of specialty materials that are focused on the portable communications devices, communications infrastructure, computer and office equipment, ground transportation, defense and aerospace, and consumer markets. In these markets, Rogers primarily serves as a supplier of diverse products for varied applications to multiple customers that in turn produce end-user products; as such, Rogers' business is highly dependent, although indirectly, on market demand for these end-user products. The Company's ability to forecast future sales growth is largely dependent on management's ability to anticipate changing market conditions and how the Company's customers will react to these changing conditions; it is also highly limited due to the short lead times demanded by the Company's customers and the dynamics of serving as a relatively small supplier in the overall supply chain for these end-user products. In addition, the Company's sales represent a number of different products across a wide range of price points and distribution channels that do not always allow for meaningful quantitative analysis of changes in demand or price per unit with respect to the effect on net sales. The Company's current focus is on worldwide markets that have an increased percentage of materials being used to support growing high technology applications, such as cellular base stations and antennas, handheld wireless devices, satellite television receivers, hard disk drives and automotive electronics. The Company continues to focus on business opportunities in Asian markets, as evidenced by the continued growth in production at the Company's facility in Suzhou, China and expanding Asian sales offices. The Company also continues to focus on new products and emerging technologies and opportunities, such as electroluminescent lamps in cell phone keypads and polyolefin foams in automotive applications. To better position itself from a strategic standpoint in certain markets, the Company completed the move in 2004 of both its polyolefin foam manufacturing operations from St. Johnsville, New York to its new facility in Carol Stream, Illinois, and its elastomer component and float manufacturing operations from South Windham, Connecticut to Suzhou, China. The Company believes that these relocations will enable it to better serve its customers, take advantage of more opportunities in the Asian marketplace and gain production efficiencies going forward. The Company also continues to focus on its Six Sigma initiatives, as it plans to increase employee participation in this effort in 2005 by training more Green Belts and project champions. Six Sigma is a quantitative process improvement methodology used by the Company to help streamline and improve its processes - from manufacturing to transactional and from product to service. The Company continuously has projects in progress as it is focused on gaining both operational and transactional efficiencies as a result of its Six Sigma efforts. In 2004, the Company's estimated cost savings and value creation was greater than two-times its investment. The Company experienced record sales and operating results during 2004. Sales increased 50% to $365.0 million in 2004 from $243.3 million in 2003. Operating profit increased almost 60% in 2004 to $34.3 million from $21.6 million in 2003. Significant factors that affected operating results in 2004 as compared to 2003 include: (i) the consolidation of Durel Corporation ("Durel") into the Company's operating results, which accounted for approximately $51.1 million in sales in 2004 as compared to $20.8 million in 2003 subsequent to the September 30, 2003 acquisition of Durel; overall operating income was negatively impacted in 2004 by approximately $5.6 million as compared to 2003 due to lower overall sales for this business (full year sales in 2003 were approximately $72.0 million) stemming from several programs reaching end of life and start up costs in 2004 associated with a new product launch; (ii) sales and operating profit increases in 2004 of approximately $67 million and $14 million in the Printed Circuit Materials segment, primarily due to the increase in sales of high frequency and flexible laminate products; (iii) sales and operating profit increases of $18.9 million and $2.3 million, respectively, in the High Performance Foams segment, driven primarily by strength in urethane foam sales into the industrial market, partially mitigated by the impact of the move of polyolefin foam manufacturing to Carol Stream, Illinois and the related start-up and qualification costs; and (iv) $3.1 million in restructuring costs related to the transition of manufacturing operations of the Company's elastomer component products from South Windham, Connecticut to Suzhou, China. The Company's sales volumes are impacted and can swing significantly based on multiple factors, including, but not limited to: end user market trends, suppliers and competitors, availability of raw materials, commercial success of new products, and market development activities. The Company has experienced recent upturns and downturns due to these varied factors and while the Company has projected sales volumes for resource planning and strategic considerations, the Company anticipates these factors will continue to impact actual results and its ability to accurately forecast and plan resources and initiatives accordingly. While the Company experienced significant sales growth in the first part of 2004 and expects to continue sequential growth in certain applications, such as urethane foams and electroluminescent lamps, the Company has seen and expects to continue to experience some sequential softening in various flexible circuit material applications, such as those for cellular phones, due to model volatility and the fact that many customers have increased inventories to normalize seasonal purchase requirements, as well as a number of programs coming to end of life. With regard to operating performance, as the Company's various strategic initiatives are completed, such as the shift of polyolefin operations to Carol Stream and the movement of elastomer component and float manufacturing to China, the Company is now focused on the continued ramp up of other product line production in China and moving up the learning curve with its new process technology in Carol Stream. The Company expects to experience cost savings resulting from the elimination of duplicate operational costs that existed during these transitional phases and from improvements in production efficiencies. The Company expects these events, along with other cost-saving initiatives, such as Six Sigma and the continued implementation of an enterprise-wide information system, will have a positive effect on the future operating results of the Company. However, based on the dynamic nature of the Company's markets, products, and supply chain, the constant emerging operational challenges in meeting its customers evolving needs, and the expected trends in sales and product mix discussed above, although the Company expects improved operating results in 2005, actual results will be highly dependent on the aforementioned factors. Results of Operations The following table sets forth, for 2002-2004, selected Company operations data expressed as a percentage of net sales. 2004 2003 2002 ---- ---- ---- Net Sales 100.0% 100.0% 100.0% Manufacturing Margins 31.0% 32.3% 31.6% Selling and Administrative Expenses 16.0% 17.8% 18.9% Research and Development Expenses 5.6% 5.6% 6.2% Operating Profit 9.4% 8.9% 6.5% Equity Income in Unconsolidated Joint Ventures 1.7% 2.7% 4.0% Other Income 1.7% 2.7% 1.0% Net Income 11.0% 10.8% 8.5%
2004 vs. 2003 - ------------- Net Sales Net sales increased by 50% in 2004 to $365.0 million from $243.3 million in 2003. The record sales level experienced by the Company in 2004 was driven by the strong sales performance at each of the Company's reportable segments: Printed Circuit Materials sales increased by almost 59% in 2004 to $181.2 million from $114.2 million in 2003; High Performance Foam sales increased from $69.5 million in 2003 to $88.4 million in 2004, or 27%; and sales in the Polymer Materials and Components segment increased 60% in 2004 from $59.6 million in 2003 to $95.4 million in 2004. Sales in the Polymer Materials and Components segment included a full year of sales from Durel ($51.1 million) as compared to sales from the fourth quarter of 2003 of $20.8 million, as Rogers acquired Durel at the end of the third quarter of 2003. See "Segment Sales and Operations" section below for further discussion of segment sales performance. Manufacturing Margins Manufacturing margins decreased approximately 130 basis points to 31.0% in 2004 from 32.3% in 2003. The decline in margins is attributable to several factors, including: (i) An unfavorable sales mix in the Printed Circuit Materials segment, as sales growth of lower margin products (108% increase) exceeded the sales growth of higher margin products (38% increase), causing the margin impact as a percent of sales to effectively offset each other on a year-over-year basis, even though sales increased almost 60% as a whole for the segment. The Company expects this trend to level out in 2005, as it believes sales of the lower margin products will level off, while sales of the higher margin products will continue to grow. (ii) Costs specifically associated with the transition of manufacturing of the Company's polyolefin product line to its new facility in Carol Stream, Illinois, caused overall Company margins to decline by approximately 100 basis points in 2004. The Company has experienced a cumulative manufacturing loss to date in this business as it continues to work to improve efficiencies and yields in the manufacturing process and develop new product platforms for which the technology was acquired. The Company expects this business to continue requiring operating and development investment in 2005 as it begins to develop new, more profitable products, expand into new markets and streamline its new manufacturing process technology. (iii) Margins at the Durel division declined by approximately 20 percentage points in 2004 as compared to 2003 as full-year sales decreased by almost 30% year-over-year. The margin decline is attributable to several key programs reaching end of life and high levels of start up costs associated with the ramp up of production of its new flexible lamp keypad applications. (iv) These unfavorable margin items were partially offset by a 90 basis point increase in margins in the urethane and silicone foams business due to the Company's ability to leverage its existing overhead base, as sales for this business increased by 35% as compared to the prior year. Selling and Administrative Expenses Selling and administrative expenses increased 34.9% from $43.3 million in 2003 to $58.4 million in 2004, but declined as a percentage of net sales from 17.8% to 16.0%. The increase was driven primarily by restructuring charges associated with the closing of its manufacturing facility in South Windham, Connecticut as the Company made the strategic decision to shift production of its elastomer components and float products to Suzhou, China. Costs incurred as a result of this move included $2.3 million in severance and a $0.8 million curtailment loss from the acceleration of deferred costs related to the Company's defined benefit pension plan. The Company also had a headcount reduction at its Durel facility during 2004 that resulted in approximately $0.3 million of severance charges. The reduction occurred as the Company attempted to realign its workforce to adjust to Durel's production needs stemming from the decline in Durel's business in 2004. Other factors impacting selling and administrative expenses include: (i) the inclusion of a full year of expenses from Durel versus only one quarter of expenses in 2003 ($1.7 million incremental impact); (ii) incrementally higher incentive compensation and sales commission expenses of $2.3 million, which are commensurate with higher sales and profit volumes experienced in 2004 as compared to 2003; (iii) incrementally higher benefit costs of $4.7 million as the costs of medical, pension, postretirement and other fringe benefit costs have increased in 2004; (iv) consulting and audit fees associated with the Company's Sarbanes-Oxley compliance efforts, which increased approximately $1.1 million in 2004 as compared to 2003; and (v) a $1.2 million incremental increase in expenses associated with other consulting and professional services utilized by the Company in 2004. Selling and administrative expenses as a percentage of sales improved to 16.0% in 2004 from 17.8% in 2003. This improvement is attributable to the record sales volumes the Company experienced in 2004, partially mitigated by the increased costs discussed above. The Company manages its selling and administrative expenses in an effort to achieve a relatively stable level of costs in relation to its sales volumes, with a targeted percentage of 14%. The Company recognizes the challenges associated with this target, particularly as it continues to expand in Asia and as it works to meet the expanding regulatory requirements in the current environment in which it operates. Research and Development Research and development expenses increased $6.8 million in 2004 to $20.5 million from $13.7 million in 2003. As a percentage of sales, 2004 research and development expenses were the same as 2003 at 5.6%. The Company's strategic plan is to invest an average of 6% of sales annually into research and development and it is expected that future expenditures will be consistent with this targeted investment level. 2004 expenses included a full year of expenses for Durel, which contributed approximately $2.1 million over 2003 spending levels. The Company has also invested significantly in printed circuit material development, focusing on next generation printed circuit materials to expand the Company's product portfolio and build on its strong market position in applications such as mobile phone handsets, and in polyolefin foams in order to develop differentiated products to generate higher sales margins. Equity Income in Unconsolidated Joint Ventures Equity income in unconsolidated joint ventures decreased $0.5 million from $6.6 million in 2003 to $6.1 million in 2004. This 7.6% decrease was primarily due to the acquisition of Durel, the Company's former 50% joint venture, and its inclusion in the Company's consolidated results beginning in the fourth quarter of 2003 (equity income included for Durel in 2003 was approximately $4.6 million). Equity income from the Company's joint ventures other than Durel increased by $4.1 million in 2004. This increase was driven by the strong performances of the Company's joint venture in Taiwan, Rogers Chang Chun Technology Company, Ltd. ("RCCT"), and its joint venture in Japan, Rogers Inoac Corporation ("RIC"), where equity income increased by $3.5 million and $1.3 million, respectively, partially offset by a $0.8 million equity loss from the Company's new joint venture in China, Rogers Inoac Suzhou Corporation ("RIS"), which began operations in the second half of 2004. The operations and performance of the joint ventures are described further in the "Joint Ventures" section below. Other Income Less Other Charges Other income less other charges decreased from $6.6 million in 2003 to $6.1 million in 2004. The main components that affected this change are as follows: (i) a $1.4 million decrease in commission income from its joint venture, Polyimide Laminate Systems, LLC ("PLS"), as activity between the joint venture and its sole customer decreased in 2004 due to its sole customer implementing a dual sourcing strategy; (ii) a $1.1 million charge for the disposition or sale of certain assets associated with the move of its elastomer components production from Connecticut to China; (iii) a $0.4 million reduction of royalty income in 2004, primarily related to a royalty the Company receives as a result of the sale of its Moldable Composites Division ("MCD") in 2002; (iv) a $2.1 million gain on the sale of an idle building in Chandler, Arizona; and (v) a $0.6 million gain on the realization of life insurance policies for one of the Company's former executives. Income Taxes The effective tax rate was 14% in 2004 and 25% in 2003. The decrease in the effective tax rate in 2004 was due primarily to a one-time, non-cash adjustment of $5.0 million in the fourth quarter of 2004. This adjustment was a result of procedures followed during the Company's year-end financial closing process, in which it was determined that the method of accounting for deferred income taxes was not consistent with the application of the provisions of Statement of Financial Accounting Standards ("SFAS") No. 109. The adjustment was required to properly state certain deferred income tax accounts for temporary tax differences that may have accumulated over many years. The adjustment effectively decreased 2004 income tax expense by $5.0 million to $6.7 million from $11.7 million prior to the adjustment. Management believes that any temporary differences not properly accounted for would not have materially affected the Company's reported results in any one year nor was the cumulative amount material in relation to the Company's financial position. Also in 2004, as in 2003, the effective tax rate continued to benefit from foreign tax credits (4 percentage point reduction), research and development credits (2 percentage point reduction), and nontaxable foreign sales income (6 percentage point reduction). The Company had used the equity method of accounting for the profit and loss of its 50% ownership of Durel Corporation prior to September 30, 2003. A deferred tax liability was provided on historical earnings annually. Prior to the acquisition by the Company of the remaining 50% of Durel's stock, Durel, as anticipated, paid a $3 million dividend to the Company that qualified for the dividend received deduction benefit. Therefore, 80% of the dividend was not subject to U.S. tax and the corresponding deferred tax liability for the distribution of equity was eliminated, resulting in a net tax benefit of $840,000. Also, in conjunction with the acquisition accounting for the purchase, the remaining deferred tax liability for the undistributed earnings of Durel was accounted for as a decrease to goodwill as the deferred tax liability was no longer required. It is the Company's policy that no U.S. taxes are provided on undistributed earnings of wholly owned foreign subsidiaries because substantially all such earnings are expected to be indefinitely reinvested. The Company provides deferred taxes for the undistributed earnings of its Japanese high performance foams joint venture. The net deferred tax asset for foreign tax credits available in excess of the expected tax on the undistributed income is entirely offset by a corresponding valuation allowance due to the future uncertainty of the recognition of such credits as they may be limited under the U.S. tax code. The Company also claims a U.S. benefit for nontaxable foreign sales income as allowed under the current extraterritorial income exclusion ("ETI"). The World Trade Organization has upheld a challenge of this regime by the European Union and in response the U.S. has enacted the American Jobs Creation Act of 2004 that repealed ETI and replaced it with a manufacturers activity deduction. ETI will be phased out by limiting the calculated deduction to 80% in 2005, 60% in 2006 and 0% thereafter. The manufacturing deduction will be phased in as a 3% deduction on the income from certain qualifying activities in 2005 to a 9% deduction in 2010. The Company has determined that the net effect of these items will not materially effect the tax rate in the short term, but may have an impact, given the nature of the Company's international business, once these changes are fully phased in. The decrease in the effective tax rate attributable to ETI is 6.3 percentage points and 3.5 percentage points for 2004 and 2003, respectively. Backlog The Company's backlog of firm orders was $27.0 million at January 2, 2005 and $48.3 million at December 28, 2003. The decrease in 2004 is due primarily to the sequential softening of sales in flexible circuit material products ($15.0 million decrease) and at Durel ($3.6 million decrease). 2003 vs. 2002: Sales Net sales increased by 11% to $243.3 million in 2003 from $219.4 million in 2002. 2002 net sales included $30.3 million from the Moldable Composites Division ("MCD") that was divested late in the fourth quarter of 2002. Excluding MCD, net sales increased $54.2 million, or 29%, from 2002 to 2003. The major cause of the increase was the growth in sales in the Printed Circuit Materials ($31.8 million, or 39%) and High Performance Foams ($4.4 million, or 7%) segments, and from the fourth quarter 2003 acquisition of the 50% of Durel that the Company did not already own ($20.8 million of sales included in consolidated net sales during the year ended December 28, 2003). The growth in Printed Circuit Materials stemmed mainly from increased sales of flexible circuit materials into the cellular and handheld mobile device markets and high frequency materials into the satellite television and base station markets. The increase in the High Performance Foams segment was due to increased sales of urethane foams used in various industrial applications. Manufacturing Margins Manufacturing margins increased from 31.6% in 2002 to 32.3% in 2003. The impact of higher revenues in the Company's higher margin businesses coupled with productivity improvements continues to drive stronger manufacturing margins; however, the gains have been somewhat offset by the continued start-up investment associated with the Company's plant openings in Suzhou, China and Carol Stream, Illinois. Selling and Administrative Expenses Selling and administrative expenses increased from $39.3 million in 2002 to $43.3 million in 2003, but remained approximately the same as a percentage of net sales, at 18%. This increase was driven primarily by the inclusion of costs for the Durel business ($1.0 million incremental increase over 2003), increased support of the Asian operations ($2.8 million higher in 2003), and higher incentive compensation expenses ($1.1 million incremental increase over 2003). In 2002, the Company incurred restructuring charges of approximately $2.2 million. These charges were associated solely with the severance benefits for 62 employees of which 48 had been terminated prior to the end of fiscal 2002. The remaining employees were notified prior to year-end and subsequently terminated at various dates in 2003. These workforce reductions were initiated in order to appropriately align resources with the Company's business requirements, given varied ongoing operational initiatives, including non-strategic business unit consolidations, plant rationalizations, outsourcing low value production and/or moving it to lower production cost environments, and support function reorganizations to streamline administrative activities. As of December 28, 2003, there was no balance remaining in the restructuring accrual as all of the accrual was used for its intended purpose. Research and Development Research and development expenses in 2003 were consistent with 2002. As a percentage of sales, 2003 costs are slightly lower when compared to 2002, 5.6% to 6.2%, respectively. This decrease is due primarily to the timing of developmental projects. The Company's strategic plan is to invest an average of 6% of sales annually into research and development. Equity Income in Unconsolidated Joint Ventures Equity income in unconsolidated joint ventures decreased $2.1 million from $8.7 million in 2002 to $6.6 million in 2003. The decrease was primarily due to the acquisition of Durel, the Company's former 50% joint venture, and its inclusion in the Company's consolidated results in the fourth quarter of 2003 (Durel's equity income in the fourth quarter of 2002 was approximately $2.0 million). Equity income from the Company's joint ventures other than Durel remained reasonably consistent from 2003 to 2002. The operations and the performance of the joint ventures are described further in the "Joint Ventures" section below. Other Income Less Other Charges Other income less other charges increased from $2.2 million in 2002 to $6.6 million in 2003. This increase was primarily due to increased royalties, principally associated with the intellectual property license entered into in connection with the divestiture of MCD ($3.4 million). Income Taxes The effective tax rate was 25% in 2003 and 2002. In 2003, as in 2002, the effective tax rate continued to benefit from foreign tax credits, research and development credits, and nontaxable foreign sales income. In December 2002, the Belgian government enacted a tax rate decrease effective for years ending in 2003 or later. All ending deferred tax balances attributable to Belgian operations were modified from the 40.17% tax rate to the new 33.99% tax rate for U.S. GAAP purposes to reflect this change. The effect of this change on 2003 earnings of Belgian operations was approximately a $284,000 decrease in current tax expense. The Company had used the equity method of accounting for the profit and loss of its 50% ownership of Durel Corporation prior to September 30, 2003. A deferred tax liability was provided on historical earnings annually. Prior to the acquisition by the Company of the remaining 50% of Durel's stock, Durel, as anticipated, paid a $3 million dividend to the Company that qualified for the dividend received deduction benefit. Therefore, 80% of the dividend was not subject to U.S. tax and the corresponding deferred tax liability for the distribution of equity was eliminated, resulting in a net tax benefit of $840,000. Also, in conjunction with the acquisition accounting for the purchase, the remaining deferred tax liability for the undistributed earnings of Durel was accounted for as a decrease to goodwill as the deferred tax liability was no longer required. It is the Company's policy that no U.S. taxes are provided on undistributed earnings of consolidated foreign subsidiaries because substantially all such earnings are expected to be indefinitely reinvested. The Company provides deferred taxes for the undistributed earnings of its Japanese high performance foams joint venture. The net deferred tax asset for foreign tax credits available in excess of the expected tax on the undistributed income is entirely offset by a corresponding valuation allowance due to the future uncertainty of the recognition of such credits as they may be limited under the U.S. tax code. The Company also claims a U.S. benefit for nontaxable foreign sales income as allowed under the current ETI. The decrease in the effective tax rate attributable to this item is 3.5 percentage points and 4.5 percentage points for 2003 and 2002, respectively. Backlog The Company's backlog of firm orders was $48.3 million at December 28, 2003 and $21.7 million at December 29, 2002. The increase in 2003 is due primarily to the acquisition of Durel and growth in orders in the Printed Circuit Materials segment. Segment Sales and Operations Printed Circuit Materials (Dollars in millions) 2004 2003 2002 ---- ---- ---- Net Sales $ 181.2 $ 114.2 $ 82.4 Operating Income 29.3 15.3 4.8 Sales of Printed Circuit Materials continue to increase at record levels, growing 59% in 2004 as compared to 2003 and 120% as compared to 2002. This record sales increase is attributable to the strong sales of high frequency products, which grew 38% in 2004 as compared to 2003 and 86% when compared to 2002. Demand continued to be strong in the satellite television market and in base station amplifier applications as more third generation ("3G") base stations were built. However, the Company has seen some recent softening in these markets and expects the softening to continue into 2005. The segment also experienced significant growth in its flexible circuit product sales, which increased almost 110% in 2004 as compared to 2003 and over 200% as compared to 2002. Sales were driven by the portable communication devices (165% increase) and consumer electronics (118% increase) markets as demand has, and appears will continue over the long-term, to escalate for high quality interconnects used increasingly in complex end-user products, such as high end cell phones. Operating income, as a percentage of net sales, increased to 16% in 2004 as compared to 13% in 2003 and 6% in 2002. The primary driver of this positive impact was the ability of the operating units within the segment to leverage its existing overhead structure to drive profit performance. In 2002 and 2003, the segment had available capacity in its manufacturing facilities in the U.S. and Belgium. As business increased late in 2003 and into 2004, the Company was able to bring production at these facilities up to maximum capacity while minimizing its investment in additional labor to support the production shift. High Performance Foams (Dollars in millions) 2004 2003 2002 ---- ---- ---- Net Sales $ 88.4 $ 69.5 $ 65.1 Operating Profit 4.9 2.6 8.1 High Performance Foams net sales increased 27% in 2004 as compared to 2003 and 36% compared to 2002. The sales increase is attributable to the continued strength in PORON(R) urethane foam product sales, which increased 34% in 2004 as compared to 2003 and 49% as compared to 2002. This growth was driven by increased penetration and new program adoptions in portable communication devices, automotive, and general industrial applications, which increased 103%, 11%, and 17%, respectively in 2004 as compared to 2003, and the growth of business in China where sales increased 210% in 2004 as compared to 2003. The Company expects the strength in urethane foam sales to continue, although most likely not at the same escalating pace as experienced in 2004. Strong sales of BISCO(R) silicone foam products also drove the overall increase in this segment with sales growth of 37% in 2004 as compared to 2003 and 43% as compared to 2002. This growth is a result of strong sales in industrial (31% increase), transportation (48% increase), and computers and infrastructure (39% increase) applications, which is also anticipated to continue, although most likely not at the same pace. The increases in PORON(R) and BISCO(R) foam sales were partially offset by the 12% decline in Polyolefin foam revenues as compared to 2003 and 17% decline as compared to 2002. The Company completed the transition of polyolefin foam production to its Carol Stream, Illinois facility in the third quarter of 2004. The Company experienced a loss of sales in part due to long lead times resulting from the transition and qualification of the new process equipment in Carol Stream. In addition, the Company phased out sales of bunstock polyolefin foams, which were not strategic to the Company's business strategy. Now that operations are stable in Carol Stream and Six Sigma projects are providing improvements in costs and product quality, the Company believes that it will be able to grow sales and improve the profitability of its polyolefin operations. Several new products based on patented technology are under development and are expected to commercialize in the next 12-18 months. Operating income, as a percentage of net sales, increased to 6% in 2004 as compared to 4% in 2003 and 12% in 2002. The negative operating results of polyolefins have significantly mitigated these amounts in 2004 and 2003. The year-over year-increases (excluding the impact of polyolefins) are the result of the sales growth in PORON(R) and BISCO(R) foam products coupled with the ability to leverage its overhead structure to maximize returns on these product lines. Polymer Materials and Components (Dollars in millions) 2004 2003 2002 ---- ---- ---- Net Sales $ 95.4 $ 59.6 $ 71.9 Operating Profit 0.1 3.7 1.3 Net sales of Polymer Materials and Components increased 60% in 2004 as compared to 2003 and 33% as compared to 2002. This increase is mainly due to the inclusion of a full year of Durel sales in 2004 ($51.1 million) as compared to only the fourth quarter sales in 2003 ($20.1 million), as Durel was acquired in the fourth quarter of 2003. The decline in sales from 2002 to 2003 is mainly due to the inclusion in 2002 of $30.3 million of sales from the former Moldable Composites Division ("MCD"), which was divested near the end of 2002. Excluding the impact of Durel and MCD, sales in this segment increased 14% in 2004 as compared to 2003 and 6% as compared to 2002. The increase in sales in 2004 from 2003 is attributable to the Company's power distribution busbar business based in Belgium, which experienced a 19% increase in 2004 as compared to 2003 and 48% compared to 2002. This increase stemmed in large part from foreign currency fluctuations, as the dollar weakened significantly from the Euro in 2004. The effective increase in 2004 from 2003 in sales in Euros was approximately 8%, which was driven by continued success in the electrical traction market (5% increase), as well as the successful launch of a new project in the information technology market. The segment also experienced higher sales of its elastomer component products, which increased 12% compared to 2003 and decreased 17% as compared to 2002. The increase in 2004 as compared to 2003 is driven by new business for its Endur product line in the Asian marketplace and the acquisition of a Korean float company early in 2004 (KF contributed $2.2 million to sales in 2004). Sales in this segment decreased 17% in 2003 as compared to 2002 as 2002 sales included $30.3 million of sales from MCD that was divested in November 2002. Excluding MCD, sales were up $18.0 million, or 43%, over 2002. This increase was driven by higher sales of the busbar and non-woven businesses and the consolidation of the Durel business in the fourth quarter of 2003 with sales of $20.8 million, offset by a decrease in elastomer component products (26%, or $5.9 million). Operating income (excluding Durel and MCD) increased by $2.0 million in 2004 as compared to 2003 and decreased by $5.5 million as compared to 2002. The increase as compared to 2003 is attributable to increased production and sales of elastomer component products, as customers built inventory in anticipation of the Company's transition of production to China; partially offset by the costs associated with the move and operating losses sustained at the end of 2004 when production began to ramp up in China. Management anticipates this segment should see continued sales and margin improvements, although incremental and evolving sequentially, as the elastomer components transition was recently completed in the fourth quarter of 2004, coupled with the anticipated continued commercial success at Durel for keypad lamp applications, and anticipated continued strength in busbar sales. Operating income increased $2.4 million to $3.7 million in 2003 from $1.3 million in 2002. The increase in 2003 was mainly attributable to the Durel acquisition on September 30, 2003 and commensurate inclusion of Durel's operating income ($9.2 million) in the Company's consolidated fourth quarter results, offset by a decrease in operating results of the elastomer components business ($6.9 million incremental decline). In 2004, Durel experienced a 40% decline in sales as compared to 2003 full year sales as a result of the expected shift away from monochrome cell phone displays and some softening in varied inverter applications. Durel is currently introducing its new flexible electroluminescent ("EL") keypad lamp products and is involved in several new cell phone keypad designs. During the latter half of 2004, ramp up of this application exceeded Company expectations; however, overall lower sales levels and continued ramp up of expenses for the new programs resulted in a greater than 50% decline in operating income for the year within this business. The Company expects a continued increase in sales of its new flexible EL lamp products in 2005; however, this increase may be mitigated by the expected softening of sales of its inverter products. Joint Ventures Rogers Inoac Corporation ("RIC"): RIC, the Company's 21 year-old joint venture with Japan-based Inoac Corporation, manufactures high performance PORON(R) urethane foam materials in Japan. Sales and operating profit increased 42% and 43%, respectively, from 2003 to 2004 and 35% and 52%, respectively, from 2002 to 2003. These increases were driven by a number of application wins resulting in market share growth in various industrial markets, including cell phones and automotive, and the increased adoptions of PORON(R) into the consumer electronics market. Rogers Chang Chun Technology Co., Ltd. ("RCCT"): RCCT, the Company's joint venture with Chang Chun Plastics Co., Ltd., was established in late 2001 to manufacture flexible circuit material for customers in Taiwan. The joint venture experienced its first sales in 2002 and became profitable in 2004. Sales in 2004 increased over 450% as compared to 2003 and operating results improved from a nominal loss in 2003 to income of $8.3 million in 2004. This increase was due to significant application wins late in 2003 in the Taiwan market that substantially drove sales growth in 2004. The Company also used this facility to alleviate some of the capacity constraints it experienced in the United States due to the overall increase in the Company's flexible circuit laminate business. The Company expects this business to level off in 2005 and not grow at the significant rate experienced in 2004 due to a softening in the flexible circuit material market. Polyimide Laminate Systems, LLC ("PLS"): PLS, the Company's joint venture with Mitsui Chemicals, Inc., sells adhesiveless laminates for trace suspension assemblies. Sales decreased by 20% in 2004 as compared to 2003 after increasing 8% in 2003 as compared to 2002. Operating profits decreased by 38% in 2004 as compared to 2003 after remaining flat in 2003 as compared to 2002. Operations slowed in 2004 as orders from the joint venture's sole customer declined as their customer increased its allocation of purchases from other suppliers to mitigate its risk of reliance on a sole supplier. Nevertheless, PLS has retained a significant portion of this customer's business. Rogers Inoac Suzhou Corporation ("RIS") In 2003, the Company entered into a joint venture agreement with Inoac Corporation for the purpose of manufacturing PORON(R) urethane foam materials in China. RIS began operations during the second half of 2004 and had its first sales in the fourth quarter of 2004. Activity at RIS in 2004 was minimal and did not materially impact the Company's 2004 results of operations. The Company anticipates that this joint venture will enhance its Asian presence in the urethane foam market and will begin to positively contribute to the Company's results in 2005. Product and Market Development The Company's research and development team is dedicated to growing the Company's businesses by developing cost effective solutions that improve the performance of customers' products. Research and development as a percentage of sales was approximately 5.6% in 2004 and 2003 and 6.2% in 2002. The Company's investment in technology resulted in several new products in 2004. Thin, flexible electroluminescent keypad lamps were developed to meet the needs of cellular phone handset keypad applications. This technology allows electroluminescent lamps to be placed directly below the cell phone keys for improved light uniformity without degrading the tactile feel when keys are depressed. Thinner RO4000(R) laminate product configurations and high flow bond ply materials were developed for the communications infrastructure market. These materials help maintain signal integrity at high data rates. A family of thin cushion R/bak(R) mounting tapes was developed for flexographic printing applications. These tapes improve print quality and increase the range of applications that can be printed with a single mounting tape configuration. Also, a softer PORON(R) grade was developed to address the need for thinner, softer gaskets in some cell phone applications. Acquisitions and Divestitures In the first quarter of 2004, the Company acquired KF Inc. ("KF"), a Korean manufacturer of liquid level sensing devices for the automotive market, through a stock purchase agreement for approximately $3.9 million. Under the terms of the agreement, KF has become a wholly owned subsidiary of the Company and was included in its consolidated results beginning in the first quarter of 2004. The acquisition was accounted for as a purchase pursuant to SFAS No. 141, "Business Combinations". As such, the purchase price was allocated to assets and liabilities based on their respective fair values at the date of acquisition. On September 30, 2003, the Company acquired from 3M Company its 50% interest in Durel Corporation, a joint venture of the Company and 3M, for $26.0 million in cash. Effective September 30, 2003, the operations of Durel were fully integrated and consolidated into the Company. The new business unit is called the Durel division and its financial and operating results are included as part of the Company's Polymer Materials and Components business segment. The acquisition was accounted for as a purchase pursuant to SFAS No. 141. In early 2002, the Company acquired much of the intellectual property and most of the polyolefin foam product lines of Cellect LLC ("Cellect"). This polyolefin foam business was fully integrated into Rogers' High Performance Foams operations in Carol Stream, Illinois in the second half of 2004. The Company has sustained operating losses since this acquisition took place and is currently working to improve pricing, production efficiencies and market penetration for these foams. The Company is also in the process of developing new products based on the acquired polyolefin foam technology and expanding its market presence through these developing products. (See "Related Parties" section of this MD&A for further discussion on Cellect.) Liquidity, Capital Resources, and Financial Position Rogers' management believes that the Company's ability to generate cash from operations to reinvest in the business is one of its fundamental strengths, as demonstrated by the Company's financial position remaining strong throughout 2004. The Company has remained debt free since 2002 and continues to finance its operational needs through internally generated funds. Management believes that over the next twelve months, internally generated funds plus available lines of credit will be sufficient to meet the capital expenditures and ongoing needs of the business. However, the Company continually reviews and evaluates the adequacy of its lending facilities and relationships. Cash Flows from Operating, Investing and Financing Activities At January 2, 2005 and December 28, 2003, the Company had cash and cash equivalents of $38.0 million and $31.5 million, respectively, and working capital of $115.6 million and $77.1 million, respectively. Cash flows from operating activities were $28.6 million in 2004 compared to $29.7 million in 2003 and $26.0 million in 2002. The 4% decrease from 2003 is attributable to several factors, including a significant increase in inventories of $20.5 million, which is described in more detail in the "Financial Position" section below. Accounts receivable increased by $5.1 million in 2004, as compared to an increase of $11.6 million in 2003 and $10.2 million in 2002. Higher sales volumes in 2004 drove the change in accounts receivable, mitigated by continuing successful collection efforts in 2004. These working capital investments were partially offset by the Company's strong operating performance during 2004 as net income increased by $13.8 million as compared to 2003; depreciation and amortization expense increased by $4.5 million in 2004 as the Company included a full year of depreciation from Durel and projects related to its expansion in Carol Stream and Suzhou were completed. During 2004, the Company used $27.5 million in investing activities, as compared to $24.8 million in 2003 and $20.6 million in 2002. Capital expenditures were $28.1 million in 2004, $18.0 million in 2003 and $22.7 million in 2002. Capital spending in 2004 increased by 56% over 2003 as the Company continued its expansion at its facility in Carol Stream, Illinois, which was opened to accommodate the polyolefin product line and its silicone foam business. The Company also continued to invest in its new manufacturing campus in Suzhou, China, with the opening of a new building and the move of its elastomer components production to this facility. Cash generated from the Company's operating activities exceeded capital spending in all three years, and spending was financed through these internally generated funds. Capital expenditures in 2005 are forecasted to be between $25-$30 million. Other investing activities in 2004 included $4.7 million in proceeds from the sale of an idle building in Arizona and $3.4 million, net, in spending to acquire the Company's Korean subsidiary, KF Inc. In 2003, the Company spent $17.7 million, net, for the acquisition of Durel. In 2002, the Company received net cash of $10.3 million related to the sale of MCD and spent $8.1 million, net, for the acquisition of the polyolefin technology from Cellect LLC. Net cash provided by financing activities was $5.7 million in 2004 as compared to $4.3 million in 2003 and net cash used in financing activities of $3.9 million in 2002. Activity in 2004 was comprised mainly of proceeds from the sale of capital stock, primarily as a result of the exercise of stock options, of $8.2 million; offset by the repurchase of stock amounting to $2.5 million as part of a buy-back program initiated in the fourth quarter of 2004. In 2003 and 2002, the Company received cash from the exercise of stock options of $3.7 million and $0.7 million, respectively. Also in 2002, the Company borrowed approximately $4.5 million in cash and paid $6.5 million to eliminate its debt. The Company has an unsecured multi-currency revolving credit agreement with two domestic banks and can borrow up to $50.0 million, or the equivalent in certain other foreign currencies. Any amounts borrowed under this agreement are to be paid in full by December 8, 2005. The rate of interest charged on outstanding loans can, at the Company's option and subject to certain restrictions, be based on the prime rate or at rates from 50.0 to 112.5 basis points over a Eurocurrency loan rate. The spreads over the Eurocurrency rate are based on the Company's leverage ratio. Under the arrangement, the ongoing commitment fee varies from 30.0 to 37.5 basis points of the maximum amount that can be borrowed, net of any outstanding borrowings and the maximum amount that beneficiaries may draw under outstanding letters of credit. There were no borrowings pursuant to this arrangement at January 2, 2005. The loan agreement contains restrictive covenants primarily related to total indebtedness, interest expense, capital expenditures and net worth. The Company is in compliance with these covenants. Additionally, the Company was obligated under irrevocable standby letters of credit, which guarantee the Company's self-insured workers compensation plan, in the amount of $1.5 million at January 2, 2005. There were no amounts outstanding pursuant to this agreement as of January 2, 2005. Financial Position The following impacted the Company's balance sheet as of January 2, 2005 as compared to December 28, 2003: o Increase in inventories of 78% due in part to the following factors: (i) $8.2 million increase in inventory in flexible products due primarily to timing issues associated with lengthy lead times for raw material purchases and some softening in sales volumes at the end of 2004; (ii) $5.2 million increase in inventory in China as a result of the increase in operations and production of several of the Company's product lines, including floats ($1.0 million), PORON(R) foams ($2.6 million), and Endur(R) products ($1.5 million); (iii) $3.6 million increase in Europe due primarily to exchange rate fluctuations ($0.6 million), the launch of a consignment stock program for busbar products ($1.4 million), and a shift from a shortage of high frequency materials at the end of 2003 to fully stocked position at the end of 2004 as sales declined in the fourth quarter of 2004 ($0.8 million); and (iv) $1.5 million increase in polyolefin foam inventory resulting from the build in inventory required to support the Company's own manufacture of polyolefin products as all such products were manufactured at the Company's Carol Stream facility beginning in the fourth quarter of 2004. o Increase of 74% in the Company's investment in its unconsolidated joint ventures includes equity income of $6.8 million from RCCT and RIC and a dividend paid by RIC of $2.7 million. These were offset by a capital contribution of $1.5 million to its new joint venture in China, RIS. o The Company conducted a study of its asbestos related liabilities resulting in a significant increase in its projected liability and related insurance receivable at year-end 2004. See "Environmental Activities and General Litigation" in MD&A and Note 10 to the consolidated financial statements for further discussion on asbestos litigation. o Additional paid-in-capital increased $10.1 million, or 32%, in 2004 due primarily to the increased volume of stock option exercises in 2004 as the Company's stock price achieved a record high in the second quarter of 2004. Contractual Obligations The following table summarizes the Company's significant contractual obligations as of January 2, 2005: Payments Due by Period Within 1 1-3 3-5 After 5 (Dollars in Thousands) Total Year Years Years Years ----- ---- ----- ----- ----- Operating Leases $ 1,487 $ 900 $ 586 $ 1 $ - Inventory Purchase Obligations 12,294 12,294 - - - Capital Commitments 3,065 3,065 - - - --------- ---------- ---------- -------- --------- Total $ 16,846 $ 16,259 $ 586 $ 1 $ - ========= ========== ========== ======== =========
The Company has met the 2005 funding requirements for its defined benefit pension plans; therefore, no amounts have been included in the above table. See footnote 5 for further discussion on pensions and other postretirement benefits. Effects of Inflation The Company does not believe that inflation has had a material impact on our business, sales, or operating results during the periods presented. Off-Balance Sheet Arrangements The Company does not have any off-balance sheet arrangements that have, or are in the opinion of management reasonably likely to have, a current or future effect on the Company's financial condition or results of operations. Dividend Policy The Company evaluates from time-to-time the desirability of paying a dividend; however, at present, the Company expects to maintain a policy of emphasizing longer-term growth of capital rather than immediate dividend income. Related Parties In the beginning of fiscal year 2002, the Company acquired certain assets of the high performance polyolefin foam business of Cellect LLC, including intellectual property rights, inventory, machinery and equipment, and customer lists, for approximately $10 million in cash, plus a potential earn-out in five years based upon performance. The acquisition was accounted for as a purchase pursuant to SFAS No. 141, "Business Combinations". As such, the purchase price was allocated to property, plant and equipment and intangible assets based on their respective fair values at the date of acquisition. In June 2004, the Company entered into a post-closing agreement with Cellect that amended the terms of the original acquisition agreement, particularly as it related to the earn-out provision. Under the post-closing agreement, the Company agreed to accelerate the earn-out provision to the third quarter of 2004 and to fix the amount of the earn-out at $3.0 million. The obligation was partially satisfied in the second quarter of 2004 through a $200,000 cash payment to Cellect and the exchange of a $1.8 million note receivable the Company had from Cellect with the balance of $1.0 million due at the conclusion of the supply agreement. In the third quarter of 2004, the Company ceased production activities at Cellect and is currently manufacturing polyolefins exclusively at its Carol Stream facility. As of January 2, 2005, the Company has accounts receivable from Cellect of $1.5 million, which primarily represents the net culmination of varied transactions during the term of the agreement. This amount is net of the residual $1.0 million due in connection with the post-closing agreement. In accordance with SFAS No. 141, the $3.0 million earn-out was recognized as additional purchase price and capitalized as goodwill in the second quarter of 2004. The Company is currently finalizing its net financial position with Cellect, and does not anticipate the ultimate outcome of its financial settlement with Cellect will have a material effect on the Company's results of operations, financial position or cash flows. Environmental Activities and General Litigation The Company is currently engaged in the following legal proceedings: Environmental Remediation in Manchester, Connecticut In the fourth quarter of 2002, the Company sold its Moldable Composites Division ("MCD") located in Manchester, Connecticut to Vyncolit North America, Inc., a subsidiary of the Perstorp Group, Sweden. Subsequent to the divestiture, certain environmental matters were discovered at the Manchester location and the Company determined that under the terms of the arrangement, the Company would be responsible for estimated remediation costs of approximately $500,000 and recorded this reserve in 2002. In the fourth quarter of 2004, the Connecticut Department of Environmental Protection ("DEP") accepted the Company's plan of remediation, which was subsequently accepted by the Town of Manchester in the first quarter of 2005 subject to the Company placing into escrow approximately $10,000 for future costs related to any work the town may have to perform on a sewer line that passes through the property and performing a study on the condition of that sewer line which would cost the Company approximately $25,000. In accordance with SFAS No. 5, "Accounting for Contingencies", the Company continues to carry a reserve that approximates $500,000, which represents a probable and reasonably estimable amount to cover the anticipated remediation costs based on facts and circumstances known to the Company at the present time. The Company believes this project should be complete by the end of 2005 or soon thereafter. Superfund Sites The Company is currently involved as a potentially responsible party ("PRP") in four active cases involving waste disposal sites. In certain cases, these proceedings are at a stage where it is still not possible to estimate the ultimate cost of remediation, the timing and extent of remedial action that may be required by governmental authorities, and the amount of liability, if any, of the Company alone or in relation to that of any other PRPs. However, the costs incurred since inception for these claims have been immaterial and have been primarily covered by insurance policies, for both legal and remediation costs. In one particular case, the Company has been assessed a cost sharing percentage of 2.47% in relation to the range of estimated total cleanup costs of $17 to $24 million. The Company has confirmed sufficient insurance coverage to fully cover this liability and has recorded a liability and related insurance receivable of approximately $0.5 million, which approximates its share of the low end of the range. In all its superfund cases, the Company has been deemed by the respective PRP administrator to be a de minimis participant and only allocated an insignificant percentage of the total PRP cost sharing responsibility. Based on facts presently known to it, the Company believes that the potential for the final results of these cases having a material adverse effect on its results of operations, financial position or cash flows is remote. These cases have been ongoing for many years and the Company believes that they will continue on for the indefinite future. No time frame for completion can be estimated at the present time. PCB Contamination In addition to the above proceedings, the Company worked with the Connecticut Department of Environmental Protection related to certain polychlorinated biphenyl ("PCB") contamination in the soil beneath a section of cement flooring at its Woodstock, Connecticut facility. The Company completed clean-up efforts in 2000 and has monitored the site since the clean up was completed. In the fourth quarter of 2004, additional PCB's were detected in one of the wells used for monitoring the site. The Company has reported the results to the DEP and is awaiting the government's response. The Company anticipates that it will be required to install an additional well cluster at the site and expects the cost of this new well to be approximately $40,000. Since inception, the Company has spent approximately $2.5 million in remediation and monitoring costs related to the site. The future costs of monitoring the site are expected to be de minimis and, although it is reasonably possible that the Company will incur additional remediation costs associated with the newly found PCB's, the Company cannot estimate the range of costs based on facts and circumstances known to it at the present time. The Company believes that this situation will continue for several more years, particularly considering the newly identified PCB presence at the site. No time frame for completion can be estimated at the present time. Asbestos Litigation Over the past several years, there has been a significant increase in certain U.S. states in asbestos-related product liability claims brought against numerous industrial companies where the third-party plaintiffs allege personal injury from exposure to asbestos-containing products. The Company has been named, along with hundreds of other companies, as a defendant in some of these claims. In virtually all of these claims filed against the Company, the plaintiffs are seeking unspecified damages, or, if an amount is specified, it merely represents jurisdictional amounts or amounts to be proven at trial. In late 2004, the Company determined that it was reasonably prudent, based on facts and circumstances known to it at that time, to perform a formal analysis to determine its potential future liability and related insurance coverage for asbestos-related matters. This determination was made based on several factors, including the growing number of asbestos related claims and recent settlement history. As a result, National Economic Research Associates, Inc. ("NERA"), a consulting firm with expertise in the field of evaluating mass tort litigation asbestos bodily-injury claims, was engaged to assist the Company in projecting the Company's future asbestos-related liabilities and defense costs with regard to pending claims and future unasserted claims. Projecting future asbestos costs is subject to numerous variables that are extremely difficult to predict, including the number of claims that might be received, the type and severity of the disease alleged by each claimant, the long latency period associated with asbestos exposure, dismissal rates, costs of medical treatment, the financial resources of other companies that are co-defendants in claims, uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, and the impact of potential changes in legislative or judicial standards, including potential tort reform. Furthermore, any predictions with respect to these variables are subject to even greater uncertainty as the projection period lengthens. In light of these inherent uncertainties, the Company's limited claims history and consultations with NERA, the Company believes that five years is the most reasonable period for recognizing a reserve for future costs, and that costs that might be incurred after that period are not reasonably estimable at this time. As a result, the Company also believes that its ultimate net asbestos-related contingent liability (i.e., its indemnity or other claim disposition costs plus related legal fees) cannot be estimated with certainty. As part of this process, Marsh Risk Consulting ("Marsh"), a consulting firm with expertise in the field of evaluating insurance coverage and the likelihood of recovery for claims, was retained to assist the Company in projecting the extent of its insurance coverage related to these claims. Marsh's conclusions were based primarily on a review of the Company's coverage history, application of reasonable assumptions on the allocation of coverage consistent with industry standards, an assessment of the creditworthiness of insurance carriers, analysis of applicable deductibles, retentions and policy limits, and the experience of NERA and a review of NERA's report. Based on the results of these studies, the Company recorded a reserve at January 2, 2005 for its estimated bodily injury liabilities for asbestos-related matters for the five-year period through 2009 in the undiscounted amount of $36.2 million, including damages and defense costs, and a receivable for its estimated insurance recovery of $36.0 million, which represents probable and reasonably estimable amounts for both the potential liability and related insurance recovery at the present time. These amounts were based on currently known facts and a number of assumptions. However, projecting future events, such as the number of new claims to be filed each year, the average cost of disposing of each such claim, coverage issues among insurers, and the continuing solvency of various insurance companies, as well as numerous uncertainties surrounding asbestos litigation in the United States, could cause the actual liability and insurance recoveries for the Company to be higher or lower than those projected or recorded. There can be no assurance that the Company's accrued asbestos liabilities will approximate its actual asbestos-related settlement and defense costs, or that its accrued insurance recoveries will be realized. The Company believes that it is reasonably possible that it will incur additional charges for its asbestos liabilities and defense costs in the future, which could exceed existing reserves, but cannot estimate such excess amount at this time. The Company will continue to vigorously defend itself and believes it has substantial unutilized insurance coverage to mitigate future costs related to this matter. Given the inherent uncertainty in making future projections, the Company plans to have the projections of current and future asbestos claims periodically re-examined, and the Company will update them if needed based on the Company's experience, changes in the underlying assumptions that formed the basis for NERA's and Marsh's models, and other relevant factors, such as changes in the tort system. For additional information regarding the Company's asbestos litigation matters, see "Legal Proceedings" (Item 3) and footnote 10 to the consolidated financial statements ("Commitments and Contingencies"). Other Environmental Matters In 2004, the Company became aware of a potential environmental matter at its facility in Korea involving possible soil contamination. The Company is currently in the initial stages of performing an assessment on the site to determine if any contamination exists. At present, it is not possible to determine the likelihood or to reasonably estimate the cost of any potential adverse outcome based on the facts and circumstances currently known to the Company. The Company is also aware of a potential environmental matter involving soil contamination at one of its European facilities. The Company is currently assessing this matter and believes that it is probable that a loss contingency exists relating to this site and that a reasonably estimable range of loss is between $200,000 and $400,000. The Company has recorded a reserve that approximates the low end of the range at January 2, 2005. In addition to the above issues, the nature and scope of the Company's business brings it in regular contact with the general public and a variety of businesses and government agencies. Such activities inherently subject the Company to the possibility of litigation, including environmental and product liability matters that are defended and handled in the ordinary course of business. The Company has established accruals for matters for which management considers a loss to be probable and reasonably estimable. It is the opinion of management that facts known at the present time do not indicate that such litigation, after taking into account insurance coverage and the aforementioned accruals, will have a material adverse impact on the results of operations, financial position, or cash flows of the Company. For additional discussion on the Company's environmental and litigation matters, see footnote 10 to the consolidated financial statements ("Commitments and Contingencies"). Recent Accounting Standards FASB Statement No. 123R On December 16, 2004, the FASB issued FASB Statement No. 123 (revised 2004), "Share Based Payment" ("SFAS 123R"), which is a revision of FASB Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123R supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees", and amends FASB Statement No. 95, "Statement of Cash Flows." Generally, the approach in SFAS 123R is similar to the approach described in SFAS 123. However, SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. SFAS 123R must be adopted in the first interim period beginning after June 15, 2005. SFAS 123R permits public companies to adopt its requirements using one of two methods: 1. A "modified prospective" method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS 123R for all share-based payments granted after the effective date and (b) based on the requirements of SFAS 123 for all awards granted to employees prior to the effective date of SFAS 123R that remain unvested on the effective date. 2. A "modified retrospective" method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption. As permitted by SFAS 123, the Company currently accounts for share-based payments to employees using Opinion 25's intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. The impact of adoption of SFAS 123R cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had we adopted SFAS 123R in prior periods, the impact of that standard would have approximated the impact of SFAS 123 as described in the disclosure of pro forma net income and earnings per share in Note 1 to our consolidated financial statements. SFAS 123R also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. While the Company cannot estimate what those amounts will be in the future (because they depend on, among other things, when employees exercise stock options), the amount of operating cash flows recognized in prior periods for such excess tax deductions were $4.3 million, $3.5 million, and $0.6 million in 2004, 2003 and 2002, respectively. FSP No. 106-2 In May 2004, the FASB issued Financial Statement Position 106-2, which provides accounting guidance to sponsors of postretirement health care plans that are impacted by the Medicare Prescription Drug Improvement and Modernization Act of 2003 (the "Act"). The FSP is effective for interim or annual periods beginning after June 15, 2004. Although detailed regulations necessary to implement the Act have not yet been finalized, the Company believes that drug benefits offered to the salaried retirees under Postretirement Welfare plans will qualify for the subsidy under Medicare Part D. The effects of this subsidy were factored into the Company's 2004 annual expense. The reduction in the benefit obligation attributable to past service cost was approximately $545,000 and has been reflected as an actuarial gain. The reduction in expense for 2004 related to the Act is approximately $126,000. FASB Statement No. 151 In November 2004, the FASB issued SFAS No. 151, "Inventory Costs - An Amendment of ARB No. 43, Chapter 4" ("SFAS 151"). SFAS 151 amends the guidance in Accounting Research Bulletin No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and spoilage. Among other provisions, the new rule requires that these items be recognized as current-period charges regardless of whether they meet the criterion of "so abnormal" as stated in ARB No. 43. Additionally, SFAS 151 requires that the allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 is effective for fiscal years beginning after June 15, 2005 and is required to be adopted by the Company in the first quarter of fiscal 2006. The Company is currently evaluating the effect that the adoption of SFAS 151 will have on its consolidated results of operations and financial condition but does not expect SFAS 151 to have a material impact. Critical Accounting Policies The Company's Consolidated Financial Statements are prepared in accordance with U.S. generally accepted accounting principles, which require management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and accompanying notes. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances and believes that appropriate reserves have been established that are based on reasonable methodologies and appropriate assumptions based on facts and circumstances known to the Company; however, actual results may differ from these estimates under different assumptions or conditions. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions that are highly judgmental and uncertain at the time the estimate is made, if different estimates could reasonably have been used; or if changes to those estimates are reasonably likely to periodically occur that could affect the amounts carried in the financial statements. These critical accounting policies are as follows: Environmental and Product Liabilities The Company accrues for its environmental investigation, remediation, operating and maintenance costs when it is probable that a liability has been incurred and the amount can be reasonably estimated. For environmental matters, the most likely cost to be incurred is accrued based on an evaluation of currently available facts with respect to each individual site, including existing technology, current laws and regulations and prior remediation experience. For sites with multiple PRP's, the Company considers its likely proportionate share of the anticipated remediation costs and the ability of the other parties to fulfill their obligations in establishing a provision for those costs. Where no amount within a range of estimates is more likely to occur than another, the minimum is accrued. When future liabilities are determined to be reimbursable by insurance coverage, an accrual is recorded for the potential liability and a receivable is recorded related to the insurance reimbursement. The Company is exposed to the uncertain nature inherent in such remediation and the possibility that initial estimates will not reflect the final outcome of a matter. In late 2004, the Company determined that it was reasonably prudent, based on facts and circumstances known to it at that time, to perform a formal analysis to determine its potential future liability and related insurance coverage for asbestos-related matters. This determination was made based on several factors, including the growing number of asbestos related claims and recent settlement history. Projecting future asbestos costs is subject to numerous variables that are extremely difficult to predict, including the number of claims that might be received, the type and severity of the disease alleged by each claimant, the long latency period associated with asbestos exposure, dismissal rates, costs of medical treatment, the financial resources of other companies that are co-defendants in claims, uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, and the impact of potential changes in legislative or judicial standards, including potential tort reform. Furthermore, any predictions with respect to these variables are subject to even greater uncertainty as the projection period lengthens. In light of these inherent uncertainties, the Company's limited claims history and consultations with NERA, the Company believes that five years is the most reasonable period for recognizing a reserve for future costs, and that costs that might be incurred after that period are not reasonably estimable at this time. As a result, the Company also believes that its ultimate net asbestos-related contingent liability (i.e., its indemnity or other claim disposition costs plus related legal fees) cannot be estimated with certainty. The models developed for determining the potential exposure and related insurance coverage were developed by outside consultants deemed to be experts in their respective fields. The models required the Company to make numerous assumptions that significantly impacted the results generated by the models. The Company believes the assumptions made are reasonable at the present time, but are subject to uncertainty based on the actual future outcome of its asbestos litigation. The liability model determined the Company's future liability annually for a 50-year period. The Company believes, based on the limited amount of settlement and claims history currently known to it, that a reasonable future time frame to quantify its liability is 5 years, resulting in a liability of approximately $36.2 million, which is substantially offset by an insurance receivable of $36.0 million. The impact of changing this assumption from 5 years to 7 years would be an increase to the liability of $15.7 million and an increase to the insurance receivable of $15.3 million; conversely, the impact of changing this assumption from 5 years to 3 years would be a decrease to the liability and corresponding insurance receivable of $15.3 million. Given the inherent uncertainty in making future projections, the Company plans to have the projections of current and future asbestos claims periodically re-examined, and the Company will update them if needed based on the Company's experience, changes in the underlying assumptions that formed the basis for NERA's and Marsh's models, and other relevant factors, such as changes in the tort system. There can be no assurance that the Company's accrued asbestos liabilities will approximate its actual asbestos-related settlement and defense costs, or that its accrued insurance recoveries will be realized. The Company believes that it is reasonably possible that it will incur additional charges for its asbestos liabilities and defense costs in the future, which could exceed existing reserves, but cannot estimate such excess amount at this time. Income Taxes SFAS No. 109, "Accounting for Income Taxes", establishes financial accounting and reporting standards for the effect of income taxes. The objective of accounting for income taxes is to recognize the amount of taxes payable or refundable for the current year and the deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company's financial statements. The Company is subject to income taxes in the Untied States and in numerous foreign jurisdictions. Significant judgment is required in determining the Company's worldwide income tax position as well as its effective tax rate. Although the Company believes its tax estimates are reasonable, the final determination of certain transactions and tax audits could be materially different than that which is reflected in historical income tax provisions and accruals. For sensitivity analysis purposes, a 1% increase/decrease in the Company's effective tax rate at year-end 2004 would affect net income by approximately $0.5 million. Inventory Allowances The Company maintains an obsolescence and slow-moving allowance for inventory. Products and materials that are specifically identified as obsolete are fully reserved. Most products that have been held in inventory greater than one year are fully reserved unless there are mitigating circumstances, including forecasted sales or current orders for the product. The remainder of the allowance is based on management's estimates and fluctuates with market conditions, design cycles and other economic factors. Risks associated with this allowance include unforeseen changes in business cycles that could affect the marketability of certain products and an unforecasted decline in current production. Management closely monitors the market place and related inventory levels and has historically maintained reasonably accurate allowance levels. In addition, the Company values certain inventories using the last-in, first-out ("LIFO") method. Accordingly, a LIFO valuation reserve is calculated using the link chain index method and is maintained to properly value these inventories. The Company's obsolescence reserve has ranged from 9.5% to 13.5% of gross inventory over the last three years. A 100 basis point adjustment to the 2004 obsolescence reserve would change the reserve by approximately $0.6 million. Valuation of Goodwill and Indefinite-Lived Intangible Assets SFAS No. 142, "Goodwill and Other Intangible Assets," classifies intangible assets into three categories: (1) intangible assets with definite lives subject to amortization; (2) intangible assets with indefinite lives not subject to amortization; and (3) goodwill. The Company reviews goodwill and intangible assets with indefinite lives for impairment annually and/or if events or changes in circumstances indicate the carrying value of an asset may have been impaired. The Company reviews intangible assets with definite lives for impairment whenever conditions exist that indicate the carrying value may not be recoverable, such as economic downturn in a market or a change in the assessment of future operations. Determining the fair value of a reporting unit or an indefinite-lived purchased intangible asset is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates and operating margins, discount rates, and future market conditions, among others. The Company believes that its rates and assumptions are reasonable, but inherently uncertain. The 2004 impairment test was performed in the fourth quarter of 2004 and did not result in an impairment charge. The excess of fair value over carrying value for each of the Company's reporting units as of November 2004, the annual testing date, ranged from approximately $3.2 million to $24.2 million. In order to evaluate the sensitivity of the analysis performed, the Company applied a hypothetical 10% decrease to the fair values of each reporting unit, which resulted in excess fair value over carrying value ranging from approximately $2.7 million to $15.6 million for each reporting unit. Pension and Other Postretirement Benefits The Company provides various defined benefit pension plans for its U.S. employees and sponsors three defined benefit healthcare and life insurance plans. The costs and obligations associated with these plans are dependent upon various actuarial assumptions used in calculating such amounts. These assumptions include discount rates, salary growth, long-term rate of return on plan assets, and other factors. The assumptions used by the Company are determined as follows: (i) the discount rate used is based on comparisons to the Moody's AA and AAA bond index, as well as a hypothetical yield curve that creates a reference portfolio of high-quality corporate bonds whose payments mimic the plan's benefit payment stream; (ii) the salary growth is based on the Company's historical and projected level of salary increases; and (iii) the long-term rate of return on plan assets is determined based on historical portfolio results and management's expectations of future returns. The rates used to determine the Company's costs and obligations under its pension and postretirement plans are disclosed in footnote 5 to the consolidated financial statements. Each assumption has different sensitivity characteristics. For 2004, a 25 basis point reduction in the discount rate would have increased the Company's net benefit cost by approximately $0.4 million; a 25 basis point increase in the salary growth rate used would have increased the Company's net benefit cost by approximately $0.2 million; and a 25 basis point reduction in the long-term rate of return on plan assets would have increased the Company's net benefit cost by approximately $0.2 million. Allowance for Doubtful Accounts The Company's allowance for doubtful accounts is determined based on a variety of factors that affect the potential collectibility of the related receivables, including length of time receivables are past due, customer credit ratings, financial stability of customer, specific one-time events and past customer history. In addition, in circumstances where the Company is made aware of a specific customer's inability to meet its financial obligations, a specific allowance is established. The majority of accounts are individually evaluated on a regular basis and appropriate reserves are established as deemed appropriate based on the criteria previously mentioned. The remainder of the reserve is based on management's estimates and takes into consideration historical trends, market conditions and the composition of the Company's customer base. The risk associated with this estimate is that the Company would not become aware of potential collectibility issues related to specific accounts and thereby become exposed to potential unreserved losses. In 2004, based on write-off history and future expectations of such write-offs, the Company adjusted this component of its allowance analysis. Originally, the Company deemed this reserve necessary as it was expanding into Asia and did not have as much visibility into customers in the Far East. Since the Company has been active in Asia for a few years and has been able to manage this market successfully, the Company deemed it reasonable to reduce this reserve by approximately $0.4 million in 2004. Historically, the Company's estimates and assumptions around the allowance have been reasonably accurate and the Company has processes and controls in place to closely monitor customers and potential credit issues. Historically over the past three years, the Company's allowance as a percentage of total receivables has ranged from 2.5% to 3.5%. A 50 basis point increase in the Company's current year receivable percentage would increase its allowance reserve by approximately $0.3 million. Market Risk Currently, the Company is exposed to market risk from changes in foreign exchange rates. The Company does not use derivative instruments for trading or speculative purposes. The Company monitors foreign exchange and interest rate risks and manages such risks on specific transactions. The risk management process primarily uses analytical techniques and sensitivity analysis. The Company has various borrowing facilities where the interest rates, although not fixed, are relatively low. Currently, an increase in the associated interest rates would not significantly impact interest expense on these facilities, as the Company currently has no debt. The fair value of the Company's investment portfolio or the related interest income would not be significantly impacted by either a 100 basis point increase or decrease in interest rates due mainly to the size and short-term nature of the Company's investment portfolio and the relative insignificance of interest income to consolidated pretax income. The Company's financial results are affected by changes in foreign exchange rates and economic conditions in foreign countries in which the Company does business. The Company's primary overseas markets are in Europe and Asia; thus exposing the Company to exchange rate risk from fluctuations in the Euro and the various currencies used in the Far East. Exposure to variability in currency exchange rates is mitigated, when possible, through the use of natural hedges, whereby purchases and sales in the same foreign currency and with similar maturity dates offset one another; however, no such material hedges were outstanding at year-end. The Company can initiate hedging activities by entering into foreign exchange forward contracts with third parties when the use of natural hedges is not possible or desirable. In 2004, a 10% increase/decrease in exchange rates would have resulted in a translation increase/decrease to sales of approximately $7.6 million, to net income of approximately $0.5 million and to equity of approximately $4.8 million. Forward-Looking Information Certain statements in this Management's Discussion and Analysis section and in other parts of this annual report may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on management's expectations, estimates, projections, and assumptions. Words such as "expects," "anticipates," "intends," "believes," "estimates," and variations of such words and similar expressions are intended to identify such forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results or performance of the Company to be materially different from any future results or performance expressed or implied by such forward-looking statements. Such factors include, but are not limited to, changing business, economic, and political conditions both in the United States and in foreign countries; increasing competition; changes in product mix; the development of new products and manufacturing processes and the inherent risks associated with such efforts; the outcome of current and future litigation; the accuracy of the Company's analysis of its asbestos-related exposure and insurance coverage; changes in the availability and cost of raw materials; fluctuations in foreign currency exchange rates; environmental and product liability matters; and any difficulties in integrating acquired businesses into the Company's operations. Such factors also apply to the Company's joint ventures. The Company makes no commitment to update any forward-looking statement or to disclose any facts, events, or circumstances after the date hereof that may affect the accuracy of any forward-looking statements. Additional information about certain factors that could cause actual results to differ from such forward-looking statements include, but are not limited to, the following: Technology and Product Development The Company's future results depend upon its ability to continue to develop new products and improve its product and process technologies. The Company's success in this effort will depend upon the Company's ability to anticipate market requirements in its product development efforts, the acceptance and continued commercial success of the end user products for which the Company's products have been designed, and the Company's ability to adapt to technological changes and to support established and emerging industry standards. In particular, the communications market is characterized by frequent new product introductions, evolving industry standards, rapid changes in product and process technologies, price competition and many new potential applications. The products that the Company manufactures and sells to the communications market are relatively new. To continue to be successful in this area, the Company must be able to consistently manufacture and supply materials that meet the demanding expectations of customers for quality, performance and reliability at competitive prices. The timely introduction by the Company of such new products could be affected by engineering or other development program slippages and problems in effectively and efficiently increasing production to meet customer needs. In addition, the markets for computers and related equipment, such as printers and electronic portable hand-held devices, are characterized by rapid technological change, significant pricing pressures and short lead times. Because the Company manufactures and sells its own materials to meet the needs of these markets, the Company's results may be affected by these factors. Volatility of Demand The computer and related equipment industry and the communications industry have historically been characterized by wide fluctuations in product supply and demand. From time-to-time, these industries have experienced significant downturns, often in connection with, or in anticipation of, maturing product cycles and declines in general economic conditions. These downturns have been characterized by diminished product demand, production over-capacity and accelerated price erosion. The Company's business may in the future be materially and adversely affected by such downturns. Environmental and Product Liability Litigation As discussed in footnote 10 to the consolidated financial statements, the Company is subject to a variety of claims and lawsuits. The Company is currently engaged in proceedings involving four waste disposal sites, as a participant in a group of PRP's. The Company's estimation of environmental liabilities is based on an evaluation of currently available information with respect to each individual situation, including existing technology, presently enacted laws and regulations, and the Company's past experience in the addressing of environmental matters. Although current regulations impose potential joint and several liability upon each named party at any Superfund site, the Company expects its contribution for cleanup to be limited due to the number of other PRP's, and the Company's share of the contributions of alleged waste to the sites, which the Company believes is de minimis. However, there can be no assurances that the Company's estimates will not be disputed or that any ultimate liability concerning these sites will not have a material adverse effect on the Company. The Company is also involved in certain asbestos-related product liability litigation. The level of such litigation has escalated in certain U.S. states in the past several years and involves hundreds of companies that have been named as defendants. The Company believes it has sufficient insurance to cover all material costs of these claims and that it has valid defenses to these claims and intends to defend itself vigorously in these matters. However, there can be no assurances that the ultimate resolution of these matters will be consistent with Company expectations and will not have a material adverse effect on the Company. Capital Expenditures The level of anticipated 2005 capital expenditures and the anticipated benefits to be derived from such expenditures could differ significantly from the forecasted amounts due to a number of factors including, but not limited to: changes in design, differences between the anticipated and actual delivery dates for new machinery and equipment, problems with the installation and start-up of such machinery and equipment, delays in the construction or modifications of buildings and delays caused by the need to address other business priorities, as well as changes in customer demand for the products the Company manufactures. Raw Materials The Company from time to time must procure certain raw materials from single or limited sources that expose the Company to vulnerability to price increases and the varying quality of the material. In addition, the inability of the Company to obtain these materials in required quantities could result in significant delays or reductions in its own product shipments. In the past, the Company has been able to purchase sufficient quantities of raw materials to sustain production until alternative materials and production processes could be requalified with customers. However, any inability of the Company to obtain timely deliveries of materials of acceptable quantity or quality, or a significant increase in the prices of materials, could materially and adversely affect the Company's operating results. Foreign Manufacturing and Sales The Company's international manufacturing and sales involve risks, including imposition of governmental controls, currency exchange fluctuation, potential insolvency of international customers, reduced protection for intellectual property rights, the impact of recessions in foreign countries, political instability, employee selection and retention and generally longer receivable collection periods, as well as tariffs and other trade barriers. There can be no assurance that these factors will not have an adverse effect on the Company's future international manufacturing and sales, and consequently, on the Company's business, operating results and financial condition. Acquisitions and Divestitures Acquisitions are an important component of the Company's growth strategy. Accordingly, the Company's future performance will be impacted by its ability to identify appropriate businesses to acquire, negotiate favorable terms for such acquisitions and then effectively and efficiently integrate such acquisitions into the Company's existing businesses. There is no certainty that the Company will succeed in such endeavors. In relation to acquisitions and divestitures undertaken, it is common for the Company to structure the transactions to include earn-out and/or intellectual property royalty agreements that generally are tied to the performance of the underlying products or business acquired or divested. Accordingly, the Company's future performance will be impacted by the respective performances of the products and/or businesses divested and the successful utilization of products and/or businesses acquired. In addition, there is no guarantee that these underlying products and/or businesses will perform as forecasted at the time the associated transactions were consummated. Other Information The foregoing list of important factors does not include all such factors that could cause actual results to differ from forward-looking statements contained in this report, nor are such factors necessarily presented in order of importance. Exhibit 13
SELECTED FINANCIAL DATA (Dollars in thousands, except per share amounts) 2004* 2003** 2002*** 2001 2000 ---------------------------------------------------------------- SALES AND INCOME Net Sales $365,002 $243,329 $219,438 $216,037 $248,215 Income Before Income Taxes 46,779 35,034 24,809 20,979 37,634 Net Income 40,098 26,275 18,607 15,734 26,720 PER SHARE DATA Basic 2.45 1.67 1.20 1.03 1.79 Diluted 2.34 1.61 1.16 .98 1.69 Book Value 17.12 14.18 11.81 10.62 9.65 FINANCIAL POSITION Current Assets 172,934 127,097 89,775 84,916 92,849 Current Liabilities 57,387 50,023 34,780 29,692 38,745 Ratio of Current Assets to Current Liabilities 3.0 to 1 2.5 to 1 2.5 to 1 2.9 to 1 2.4 to 1 Cash, Cash Equivalents, and Short-Term Investments 39,967 34,481 28,928 20,891 10,100 Working Capital 115,547 77,074 54,995 55,224 54,104 Property, Plant and Equipment-Net 140,384 131,157 99,883 98,454 94,199 Total Assets 405,195 314,440 257,701 223,809 221,514 Long-Term Debt less Current Maturities -- -- -- 1,315 9,116 Shareholders' Equity 281,367 226,869 183,038 163,062 145,813 Long-Term Debt as a Percentage of Shareholders' Equity 0% 0% 0% 1% 6% OTHER DATA Depreciation and Amortization 18,068 13,615 13,571 13,712 12,507 Research and Development Expenses 20,490 13,665 13,596 12,570 12,493 Capital Expenditures 28,131 17,951 22,682 18,032 22,744 Number of Employees (Average) 1,728 1,197 1,251 1,376 1,358 Net Sales per Employee 211 203 175 157 183 Number of Shares Outstanding At Year-End 16,437,790 15,995,713 15,496,261 15,356,284 15,102,670
* 2004 consolidated results include a $5.0 million adjustment to decrease tax expense (see footnote 10). ** 2003 consolidated results include three months of operations of Durel Corporation (acquired on September 30, 2003). *** Moldable Composites Division was divested in the fourth quarter of 2002.
CONSOLIDATED BALANCE SHEETS January 2, December 28, (Dollars in thousands, except per share amounts) 2005 2003 ----------- ------------ ASSETS Current Assets: Cash and Cash Equivalents $ 37,967 $ 31,476 Short-Term Investments 2,000 3,005 Accounts Receivable, Less Allowance for Doubtful Accounts of $1,795 and $1,446 57,264 52,981 Accounts Receivable from Joint Ventures 5,176 3,178 Note Receivable, Current 2,100 2,100 Inventories 49,051 27,501 Current Deferred Income Taxes 9,064 4,914 Asbestos-related Insurance Receivables 7,154 -- Other Current Assets 3,158 1,942 ----------- ----------- Total Current Assets 172,934 127,097 Notes Receivable 4,200 7,800 Property, Plant and Equipment, Net of Accumulated Depreciation of $111,215 and $104,885 140,384 131,157 Investments in Unconsolidated Joint Ventures 18,671 10,741 Pension Asset 5,831 6,886 Goodwill 21,928 16,671 Other Intangible Assets 7,144 8,450 Asbestos-related Insurance Receivables, noncurrent 28,803 -- Other Assets 5,300 5,638 ----------- ----------- Total Assets $ 405,195 $ 314,440 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts Payable $ 21,117 $ 20,442 Accrued Employee Benefits and Compensation 18,427 15,359 Accrued Income Taxes Payable 8,177 9,104 Asbestos-Related Liabilities 7,154 -- Other Accrued Liabilities 2,512 5,118 ----------- ----------- Total Current Liabilities 57,387 50,023 Deferred Income Taxes 14,111 14,058 Pension Liability 14,757 14,909 Retiree Health Care and Life Insurance Benefits 6,483 6,198 Asbestos-Related Liabilities 29,045 -- Other Long-Term Liabilities 2,045 2,383 Commitments and Contingencies -- -- Shareholders' Equity: Capital Stock, $1 Par Value: Authorized Shares 50,000,000; Issued and Outstanding Shares 16,437,790 and 15,995,713 16,437 15,995 Additional Paid-In Capital 41,769 31,659 Retained Earnings 214,418 174,320 Accumulated Other Comprehensive Income 8,743 4,895 ----------- ----------- Total Shareholders' Equity 281,367 226,869 ----------- ----------- Total Liabilities and Shareholders' Equity $ 405,195 $ 314,440 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME For each of the years in the three-year period ended January 2, 2005 (Dollars in thousands, except per share amounts) 2004 2003 2002 ----------- ------------ ------------- Net Sales $ 365,002 $ 243,329 $ 219,438 Cost of Sales 251,811 164,789 150,183 Selling and Administrative Expenses 58,410 43,304 41,485 Research and Development Expenses 20,490 13,665 13,596 ------------ ----------- ------------ Total Costs and Expenses 330,711 221,758 205,264 ------------ ----------- ------------ Operating Income 34,291 21,571 14,174 Equity Income in Unconsolidated Joint Ventures 6,097 6,571 8,705 Other Income Less Other Charges 6,131 6,572 2,156 Interest Income (Expense), Net 260 320 (226) ------------ ----------- ------------ Income Before Income Taxes 46,779 35,034 24,809 Income Taxes 6,681 8,759 6,202 ------------ ----------- ------------ Net Income $ 40,098 $ 26,275 $ 18,607 ============ ============ ============ Net Income Per Share: Basic $ 2.45 $ 1.67 $ 1.20 Diluted $ 2.34 $ 1.61 $ 1.16 Shares Used in Computing: Basic 16,380,972 15,774,744 15,470,697 Diluted 17,103,583 16,318,885 16,023,273
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For each of the years in the three-year period ended January 2, 2005 Accumulated Additional Other Total Capital Paid-In Retained Comprehensive Shareholders' (Dollars in thousands) Stock Capital Earnings Income (Loss) Equity ---------- --------- ---------- ----------- ---------- Balance at December 30, 2001 $ 15,356 $ 22,298 $ 129,438 $ (4,030) $ 163,062 Comprehensive Income: Net Income -- -- 18,607 -- 18,607 Other Comprehensive Income (Loss): Foreign Currency Translation -- -- -- 4,172 4,172 Minimum Pension Liability, net of tax -- -- -- (4,835) (4,835) --------- Total Comprehensive Income 17,944 Stock Options Exercised 152 1,697 -- -- 1,849 Stock Issued to Directors 7 319 -- -- 326 Shares Reacquired (41) (1,262) -- -- (1,303) Shares Issued 22 504 -- -- 526 Tax Benefit on Stock Options Exercised -- 634 -- -- 634 ---------- --------- --------- --------- --------- Balance at December 29, 2002 15,496 24,190 148,045 (4,693) 183,038 Comprehensive Income: Net Income -- -- 26,275 -- 26,275 Other Comprehensive Income: Foreign Currency Translation -- -- -- 5,864 5,864 Minimum Pension Liability, net of tax -- -- -- 3,724 3,724 --------- Total Comprehensive Income 35,863 Stock Options Exercised 561 6,528 -- -- 7,089 Stock Issued to Directors 8 232 -- -- 240 Shares Reacquired (100) (3,307) -- -- (3,407) Shares Issued 30 549 -- -- 579 Tax Benefit on Stock Options Exercised -- 3,467 -- -- 3,467 ---------- --------- --------- --------- --------- Balance at December 28, 2003 15,995 31,659 174,320 4,895 226,869 Comprehensive Income: Net Income -- -- 40,098 -- 40,098 Other Comprehensive Income: Foreign Currency Translation -- -- -- 3,725 3,725 Minimum Pension Liability, net of tax -- -- -- 123 123 -------- Total Comprehensive Income 43,946 Stock Options Exercised 537 10,679 -- -- 11,216 Stock Issued to Directors 4 251 -- -- 255 Shares Reacquired (51) (2,753) -- -- (2,804) Shares Issued 22 697 -- -- 719 Share Buyback (70) (3,111) -- -- (3,181) Tax Benefit on Stock Options Exercised -- 4,347 -- -- 4,347 ---------- --------- --------- --------- --------- Balance at January 2, 2005 $ 16,437 $ 41,769 $ 214,418 $ 8,743 $ 281,367 ========= ========= ========= ========= =========
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS For each of the years in the three-year period ended January 2, 2005 (Dollars in thousands) 2004 2003 2002 Operations Net Income $ 40,098 $ 26,275 $ 18,607 Adjustments to Reconcile Net Income to Cash Provided by Operating Activities: Depreciation and Amortization 18,068 13,615 13,571 Deferred Income Taxes (2,681) 4,828 2,561 Tax Benefit Related to Stock Award Plans 4,347 3,467 634 Equity in Undistributed Income of Unconsolidated Joint Ventures, Net (6,097) (6,571) (8,705) Loss (Gain) on Disposition/Sale of Assets (947) 250 860 Pension and Postretirement Benefits 1,312 (3,559) 2,954 Other, Net 1,411 (241) (908) Changes in Operating Assets and Liabilities Excluding Effects of Acquisition and Disposition of Businesses: Accounts Receivable (5,100) (11,579) (10,207) Inventories (20,509) (1,664) 3,627 Other Current Assets (1,094) (453) (170) Accounts Payable and Other Accrued Liabilities (206) 5,294 3,203 -------- -------- -------- Net Cash Provided by Operating Activities 28,602 29,662 26,027 Investing Activities Capital Expenditures (28,131) (17,951) (22,682) Acquisition of Businesses, Net of Cash Acquired (3,408) (17,656) (8,060) Proceeds from Sale of Property, Plant and Equipment 4,773 -- -- Dividends Received from (Investment in) Unconsolidated Joint Ventures, Net (1,833) 4,494 2,962 Proceeds from (Purchase of) Short-Term Investments 1,006 3,624 (6,628) Proceeds from Repayments of Loans to Joint Ventures -- -- 5,000 Proceeds from (Investment in) Notes Receivable -- 2,100 (1,500) Proceeds from Other Investing Activities 49 568 -- Proceeds from Disposition of Business -- -- 10,300 -------- -------- -------- Net Cash Used in Investing Activities (27,544) (24,821) (20,608) Financing Activities Proceeds from Sale of Capital Stock, Net 8,150 3,682 673 Proceeds from Issuance of Shares to Employee Stock Ownership Plan 719 579 526 Purchase of Stock (3,181) -- -- Proceeds from Short- and Long-Term Borrowings -- -- 4,463 Repayments of Debt Principal -- -- (6,522) Repayment of Life Insurance Loans -- -- (3,087) Net Cash Provided by (Used in) Financing Activities 5,688 4,261 (3,947) -------- -------- -------- Effect of Exchange Rate Changes on Cash (255) 74 (63) -------- -------- -------- Net Increase in Cash and Cash Equivalents 6,491 9,176 1,409 Cash and Cash Equivalents at Beginning of Year 31,476 22,300 20,891 -------- -------- -------- Cash and Cash Equivalents at End of Year $ 37,967 $ 31,476 $ 22,300 ======== ======== ======== Supplemental Disclosure of Noncash Investing Activities Note Received from Sale of Business $ -- $ -- $ 10,500 Escrow Associated with Divestiture of Business -- -- 200 Receivable for Closing Balance Sheet Adjustments -- -- 509 Contribution of Shares to Fund Employee Stock Ownership Plan 689 838 664
The accompanying notes are an integral part of the consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Rogers Corporation manufactures specialty materials, which are sold to targeted markets around the world. These specialty materials are grouped into three distinct business segments: Printed Circuit Materials include rigid circuit board laminates for high frequency printed circuits, flexible circuit board laminates for flexible interconnections, and industrial laminates for shielding of radio and electromagnetic interference, which are sold principally to printed circuit board manufacturers and equipment manufacturers for applications in the computer, portable communication, communication infrastructure, defense and consumer markets; High Performance Foams include urethane foams, silicone materials, and polyolefin foams, which are sold principally to manufacturers in the portable communication, communication infrastructure, computer, ground transportation, aerospace and consumer markets; and Polymer Materials and Components are comprised of Endur rollers, nitrophyl floats, electroluminescent lamps and inverters, nonwoven materials, and busbars for power distribution, which are sold principally to the office equipment, ground transportation, consumer, and portable communication markets. Principles of Consolidation The consolidated financial statements include the accounts of Rogers Corporation and its wholly-owned subsidiaries (the "Company"), after elimination of intercompany accounts and transactions. The Company operates on a 52 or 53-week fiscal year. Fiscal 2003 and 2002 were 52-week fiscal years; 2004 was a 53-week fiscal year with the extra week included in the first quarter results. Certain prior period amounts have been reclassified to conform to the current year presentation. Cash Equivalents Highly liquid investments with original maturities of three months or less are considered cash equivalents. These investments are stated at cost, which approximates market value. Short-Term Investments Short-term investments represent investments in fixed and floating rate financial instruments with maturities of twelve months or less from time of purchase. They are classified as held-to-maturity as the Company has the ability and intent to hold these investments to the maturity date and they are recorded at amortized cost. The fair market value of held-to-maturity securities approximates amortized cost at January 2, 2005 and December 28, 2003. Investments in Unconsolidated Joint Ventures The Company accounts for its investments in and advances to unconsolidated joint ventures, all of which are 50% owned, using the equity method. Foreign Currency Translation All balance sheet accounts of foreign subsidiaries are translated at rates of exchange in effect at each year-end, and income statement items are translated at the average exchange rates for the year. Resulting translation adjustments are made directly to a separate component of shareholders' equity. Currency transaction adjustments, which are not material, are reported as income or expense. Allowance for Doubtful Accounts The Company's allowance for doubtful accounts is determined based on a variety of factors that affect the potential collectibility of the related receivables, including length of time receivables are past due, customer credit ratings, financial stability of customers, specific one-time events and past customer history. In addition, in circumstances where the Company is made aware of a specific customer's inability to meet its financial obligations, a specific allowance is established. The majority of accounts are individually evaluated on a regular basis and appropriate reserves are established as deemed appropriate based on the criteria previously mentioned. The remainder of the reserve is based on management's estimates and takes into consideration historical trends, market conditions and the composition of the Company's customer base. Inventories Inventories are valued at the lower of cost or market. Certain inventories, amounting to $3.1 million at January 2, 2005 and $1.9 million at December 28, 2003, or 6% and 7% of total Company inventories in the respective periods, are valued by the last-in, first-out ("LIFO") method. The cost of the remaining portion of the inventories was determined principally on the basis of actual first-in, first-out ("FIFO") costs. Inventories consist of the following:
(Dollars in thousands) January 2, December 28, 2005 2003 ---------- ----------- Raw materials $ 16,121 $ 6,230 Work-in-process 10,301 13,190 Finished goods 22,629 8,081 $ 49,051 $ 27,501
Property, Plant and Equipment Property, plant and equipment is stated on the basis of cost. For financial reporting purposes, provisions for depreciation are calculated on a straight-line basis over the following estimated useful lives of the assets: Years ------------------------------------------------------------------ Buildings 20 -- 45 Building improvements 10 -- 25 Machinery and equipment 5 -- 15 Office equipment 3 -- 10 Goodwill and Intangible Assets Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," classifies intangible assets into three categories: (1) intangible assets with definite lives subject to amortization; (2) intangible assets with indefinite lives not subject to amortization; and (3) goodwill. The Company reviews goodwill and intangible assets with indefinite lives for impairment annually and/or if events or changes in circumstances indicate the carrying value of an asset may have been impaired. The Company reviews intangible assets with definite lives for impairment whenever conditions exist that indicate the carrying value may not be recoverable, such as economic downturn in a market or a change in the assessment of future operations. Goodwill and intangible assets are considered to be impaired when the net book value of a reporting unit exceeds its estimated fair value. Fair values are primarily established using a discounted cash flow methodology. The determination of discounted cash flows is based on the business' strategic plans and long-range planning forecasts. The revenue growth rates included in the plans are management's best estimates based on current and forecasted market conditions, and the profit margin assumptions are projected by each segment based on the current cost structure and anticipated cost changes. As part of the 2004 impairment review, the Company reassessed the useful lives of its intangible assets and determined that certain trademarks should now be amortized over 10 years. Previously, the Company had not been recording amortization on these assets as the Company estimated that these trademarks were considered indefinite-lived intangible assets. The effect of this change on the Company's results of operations, financial position and cash flows was not material. Purchased patents, covenants-not-to-compete and licensed technology are capitalized and amortized on a straight-line basis over their estimated useful lives, generally from 3 to 17 years. Environmental and Product Liabilities The Company accrues for its environmental investigation, remediation, operating and maintenance costs when it is probable that a liability has been incurred and the amount can be reasonably estimated. For environmental matters, the most likely cost to be incurred is accrued based on an evaluation of currently available facts with respect to each individual site, current laws and regulations and prior remediation experience. For sites with multiple potential responsible parties ("PRP's"), the Company considers its likely proportionate share of the anticipated remediation costs and the ability of the other parties to fulfill their obligations in establishing a provision for those costs. Where no amount within a range of estimates is more likely to occur than another, the minimum is accrued. When future liabilities are determined to be reimbursable by insurance coverage, an accrual is recorded for the potential liability and a receivable is recorded related to the insurance reimbursement. The Company is exposed to the uncertain nature inherent in such remediation and the possibility that initial estimates will not reflect the final outcome of a matter. In late 2004, the Company determined that it was reasonably prudent, based on facts and circumstances known to it at that time, to perform a formal analysis to determine its potential future liability and related insurance coverage for asbestos-related matters. This determination was made based on several factors, including the growing number of asbestos related claims and recent settlement history. Projecting future asbestos costs is subject to numerous variables that are extremely difficult to predict, including the number of claims that might be received, the type and severity of the disease alleged by each claimant, the long latency period associated with asbestos exposure, dismissal rates, costs of medical treatment, the financial resources of other companies that are co-defendants in claims, uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, and the impact of potential changes in legislative or judicial standards, including potential tort reform. Furthermore, any predictions with respect to these variables are subject to even greater uncertainty as the projection period lengthens. In light of these inherent uncertainties, the Company's limited claims history and consultations with NERA, the Company believes that five years is the most reasonable period for recognizing a reserve for future costs, and that costs that might be incurred after that period are not reasonably estimable at this time. As a result, the Company also believes that its ultimate net asbestos-related contingent liability (i.e., its indemnity or other claim disposition costs plus related legal fees) cannot be estimated with certainty. The models developed for determining the potential exposure and related insurance coverage were developed by outside consultants deemed to be experts in their respective fields. The models required the Company to make numerous assumptions that significantly impacted the results generated by the models. The Company believes the assumptions made are reasonable at the present time, but are subject to uncertainty based on the actual future outcome of its asbestos litigation. The liability model projects the Company's future liability annually for a 50-year period. The Company believes, based on the limited amount of settlement and claims history currently known to it, that a reasonable future time frame to quantify its liability is five years, resulting in a liability of approximately $36.2 million as of January 2, 2005, which is substantially offset by an insurance receivable of $36.0 million. Given the inherent uncertainty in making future projections, the Company plans to have the projections of current and future asbestos claims periodically re-examined, and the Company will update them if needed based on the Company's experience, changes in the underlying assumptions that formed the basis for NERA's and Marsh's models, and other relevant factors, such as changes in the tort system. There can be no assurance that the Company's accrued asbestos liabilities will approximate its actual asbestos-related settlement and defense costs, or that its accrued insurance recoveries will be realized. The Company believes that it is reasonably possible that it will incur additional charges for its asbestos liabilities and defense costs in the future, which could exceed existing reserves, but cannot estimate such excess amount at this time. Fair Value of Financial Instruments Management believes that the carrying values of financial instruments, including cash and cash equivalents, short-term investments, accounts receivable, accounts payable, and accrued liabilities approximate fair value as a result of the short-term maturities of these instruments. Concentration of Credit Risk The Company extends credit on an uncollateralized basis to almost all customers. Concentration of credit and geographic risk with respect to accounts receivable is limited due to the large number and general dispersion of accounts which constitute the Company's customer base. The Company periodically performs credit evaluations of its customers. At January 2, 2005 and December 28, 2003, there were no customers accounting for greater than ten percent of the Company's accounts receivable. The Company has not experienced significant credit losses on customers' accounts in 2004 and 2003. The Company invests its excess cash principally in investment grade government and corporate debt securities. The Company has established guidelines relative to diversification and maturities that maintain safety and liquidity. These guidelines are periodically reviewed and modified to reflect changes in market conditions. The Company has not experienced any significant losses on its cash equivalents or short-term investments in 2004 and 2003. Income Taxes The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), which establishes financial accounting and reporting standards for the effect of income taxes. The objective of accounting for income taxes is to recognize the amount of taxes payable or refundable for the current year and the deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the entity's financial statements. The Company is subject to income taxes in the United States and in numerous foreign jurisdictions. No provision is made for U.S. income taxes on the undistributed earnings of its wholly owned foreign subsidiaries because substantially all such earnings are indefinitely reinvested in those companies. Provision for the tax consequences of distributions, if any, from consolidated foreign subsidiaries is recorded in the year the distribution is declared. Significant judgment is required in determining the Company's worldwide income tax position as well as its effective tax rate. The Company has provided for potential liabilities due in various jurisdictions. Judgment is required in determining the worldwide income tax expense provision. In the ordinary course of global business, there are many transactions and calculations where the ultimate tax outcome is uncertain. Some of these uncertainties arise as a consequence of cost reimbursement arrangements among related entities. Although the Company believes its estimates are reasonable, no assurance can be given that the final tax outcome of these matters will not be different than that which is reflected in the historical income tax provisions and accruals. Such differences could have a material impact on the Company's income tax provision and operating results in the period in which such determination is made. Revenue Recognition Revenue is recognized upon delivery of products and transfer of title to customers, when persuasive evidence of an arrangement exists, the price is fixed or determinable, and collection is reasonably assured. Pension and Retiree Healthcare and Life Insurance Benefits The Company provides various defined benefit pension plans for its U.S. employees and sponsors three defined benefit healthcare and life insurance plans for its U.S. retirees. The costs and obligations associated with these plans are dependent upon various actuarial assumptions used in calculating such amounts. These assumptions include discount rates, salary growth, long-term rate of return on plan assets, and other factors. The assumptions used by the Company are determined as follows: (i) the discount rate used is based on comparisons to the Moody's AA and AAA bond index, as well as a hypothetical yield curve that creates a reference portfolio of high-quality corporate bonds whose payments mimic the plan's benefit payment stream; (ii) the salary growth is based on the Company's historical and projected level of salary increases; and (iii) the long-term rate of return on plan assets is determined based on historical portfolio results and management's expectations of future returns. Net Income Per Share The following table sets forth the computation of basic and diluted earnings per share:
(Dollars in Thousands, Except Per Share Amounts) 2004 2003 2002 Numerator: Net income $ 40,098 $ 26,275 $ 18,607 Denominator: Denominator for basic earnings per share - weighted-average shares 16,380,972 15,774,744 15,470,697 Effect of stock options 722,611 544,141 552,576 ----------- ----------- ----------- Denominator for diluted earnings per share - adjusted weighted-average shares and assumed conversions 17,103,583 16,318,885 16,023,273 Basic earnings per share $ 2.45 $ 1.67 $ 1.20 Diluted earnings per share $ 2.34 $ 1.61 $ 1.16
Use of Estimates The preparation of financial statements, in conformity with U.S. generally accepted accounting principles, requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Hedging Activity The Company, on occasion, uses derivative instruments to manage certain foreign currency exposures. Derivative instruments are viewed as risk management tools by the Company and are not used for trading or speculative purposes. Derivatives used for hedging purposes must be designated and effective as a hedge of the identified risk exposure at the inception of the contract. Accordingly, changes in fair value of the derivative contract must be highly correlated with changes in the fair value of the underlying hedged item at inception of the hedge and over the life of the hedge contract. Derivatives used to hedge forecasted cash flows associated with foreign currency commitments or forecasted commodity purchases are accounted for as cash flow hedges. Gains and losses on derivatives designated as cash flow hedges are recorded in other comprehensive income and reclassified to earnings in a manner that matches the timing of the earnings impact of the hedged transactions. The ineffective portion of all hedges, if any, is recognized currently in earnings. Currently, the Company has outstanding forward contracts used to hedge foreign currency transactional exposures. The effects of these contracts are recorded directly to the Company's income statement as these items have not been designated as hedges. As of January 2, 2005, the Company does not have any instruments outstanding that would require hedge accounting treatment. Advertising Costs Advertising is expensed as incurred and amounted to $1.7 million, $1.4 million, and $1.3 million for 2004, 2003, and 2002, respectively. Variable-Interest Entities In December 2003, the Financial Accounting Standards Board ("FASB") issued FIN No. 46 (revised December 2003), "Consolidation of Variable Interest Entities" ("FIN 46R") to address certain FIN 46 implementation issues. The Company adopted the provisions of FIN 46R in the first quarter of 2004. As a result of its review, the Company determined that it had one variable interest entity ("VIE"); however, the Company determined that it was not the primary beneficiary and, as such, did not consolidate the entity in accordance with FIN 46R. The VIE identified by the Company is Polyimide Laminate Systems, LLC ("PLS"), a 50% owned joint venture with Mitsui Chemicals, Inc. The joint venture sells adhesiveless laminates for trace suspension assemblies and was established in October 1999. Sales of PLS were approximately $18.2 million and $22.6 million in 2004 and 2003, respectively. The Company's maximum exposure to loss as a result of its involvement with PLS is limited to its equity investment, which was approximately $40,000 at January 2, 2005, and to its outstanding trade receivables if those amounts were to become uncollectible for various financial reasons, such as insolvency. In accordance with FIN 46R, the Company reviews its FIN 46R compliance whenever transactions occur that could give rise to a potential VIE, both for existing relationships and for new relationships that are entered into over the course of time. Stock-Based Compensation Under various plans, the Company may grant stock and stock options to directors, officers, and other key employees. Stock-based compensation awards are accounted for using the intrinsic value method prescribed in APB Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related interpretations. Stock-based compensation costs for stock options are not reflected in net income as all options granted under the plans had an exercise price equal to market value of the underlying common stock on the date of the grant. Stock-based compensation costs for stock awards are reflected in net income over the awards' vesting period. The Company has adopted the disclosure-only provisions of SFAS 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). Accordingly, no compensation cost has been recognized in the financial statements for the stock option plans. Had compensation cost for the Company's stock option plans been determined based on the fair value at the grant date for awards in 2004, 2003, and 2002, consistent with the provisions of SFAS 123, the Company's net earnings and earnings per share would have been reduced to the pro forma amounts indicated below:
(Dollars in Thousands, Except Per Share Amounts) 2004 2003 2002 --------- -------- ------- Net income, as reported $ 40,098 $ 26,275 $ 18,607 Less: Total stock-based compensation expense determined under Black-Scholes option pricing model, net of related tax effect 9,832 2,694 2,283 Pro forma net income $ 30,266 $ 23,581 $ 16,324 Basic earnings per share: As Reported $ 2.45 $ 1.67 $ 1.20 Pro Forma 1.85 1.49 1.06 Diluted earnings per share: As Reported 2.34 1.61 1.16 Pro Forma 1.77 1.45 1.01
The effects on pro forma net income and earnings per share of expensing the estimated fair value of stock options are not necessarily representative of the effects on reported net income for future years, due to such things as the variation in vesting periods of future stock options that might be granted, the variation each year in the number of stock options granted, and the potential variations in the future assumptions used in the Black-Scholes model for calculating pro-forma compensation expense. An average vesting period of three years was used for the assumption regarding stock options granted, except for approximately 353,000 shares that were granted in 2004 that vested immediately. These options increased 2004 pro-forma stock based compensation expense by approximately $6.4 million, or $0.37 per pro-forma diluted share. Shares obtained through the exercise of options issued under these 2004 grants, however, cannot be sold until after the fourth anniversary of the grant date. Recent Accounting Standards FASB Statement No. 123R On December 16, 2004, the FASB issued FASB Statement No. 123 (revised 2004), "Share Based Payment" ("SFAS 123R"), which is a revision of SFAS 123. SFAS 123R supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees", and amends FASB Statement No. 95, "Statement of Cash Flows." Generally, the approach in SFAS 123R is similar to the approach described in SFAS 123. However, SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. SFAS 123R must be adopted in the first interim period beginning after June 15, 2005. SFAS 123R permits public companies to adopt its requirements using one of two methods: 1. A "modified prospective" method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS 123R for all share-based payments granted after the effective date and (b) based on the requirements of SFAS 123 for all awards granted to employees prior to the effective date of SFAS 123R that remain unvested on the effective date. 2. A "modified retrospective" method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption. As permitted by SFAS 123, the Company currently accounts for share-based payments to employees using Opinion 25's intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. The impact of adoption of SFAS 123R cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had we adopted SFAS 123R in prior periods, the impact of that standard would have approximated the impact of SFAS 123 as described in the disclosure of pro forma net income and earnings per share in Note 1 to our consolidated financial statements. SFAS 123R also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. While the Company cannot estimate what those amounts will be in the future (because they depend on, among other things, when employees exercise stock options), the amount of operating cash flows recognized in prior periods for such excess tax deductions were $4.3 million, $3.5 million, and $0.6 million in 2004, 2003 and 2002, respectively. FSP No. 106-2 In May 2004, the FASB issued Financial Statement Position 106-2 ("FSP 106-2"), which provides accounting guidance to sponsors of postretirement health care plans that are impacted by the Medicare Prescription Drug Improvement and Modernization Act of 2003 (the "Act"). FSP 106-2 is effective for interim or annual periods beginning after June 15, 2004. Although detailed regulations necessary to implement the Act have not yet been finalized, the Company believes that drug benefits offered to the salaried retirees under Postretirement Welfare plans will qualify for the subsidy under Medicare Part D. The effects of this subsidy were factored into the Company's 2004 annual expense. See footnote 5 for further discussion. FASB Statement No. 151 In November 2004, the FASB issued SFAS No. 151, "Inventory Costs - An Amendment of ARB No. 43, Chapter 4" ("SFAS 151"). SFAS 151 amends the guidance in Accounting Research Bulletin No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and spoilage. Among other provisions, the new rule requires that these items be recognized as current-period charges regardless of whether they meet the criterion of "so abnormal" as stated in ARB No. 43. Additionally, SFAS 151 requires that the allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 is effective for fiscal years beginning after June 15, 2005 and is required to be adopted by the Company in the first quarter of fiscal 2006. The Company is currently evaluating the effect that the adoption of SFAS 151 will have on its consolidated results of operations and financial condition but does not expect SFAS 151 to have a material impact. NOTE 2 - PROPERTY, PLANT AND EQUIPMENT
(Dollars in thousands) January 2, December 28, 2005 2003 ----------- ------------ Land $ 10,357 $ 10,978 Buildings and improvements 91,213 89,372 Machinery and equipment 119,032 103,815 Office equipment 22,511 19,466 Installations in process 8,486 _ 12,411 ----------- ------------ 251,599 236,042 Accumulated depreciation (111,215) (104,885) ----------- ------------ $ 140,384 $ 131,157 =========== ============
Depreciation expense was $17.7 million in 2004, $13.5 million in 2003, and $13.5 million in 2002. NOTE 3 - GOODWILL AND OTHER INTANGIBLE ASSETS Identifiable intangible assets are comprised of the following:
January 2, December 28, (Dollars in thousands) 2005 2003 ---------- ------------ Trademarks and patents $ 2,222 $ 2,724 Technology 5,359 5,710 Covenant not to compete 925 981 ---------- --------- 8,506 9,415 Accumulated amortization (1,362) (965) ---------- --------- $ 7,144 $ 8,450 ========== =========
Amortization expense for 2004, 2003, and 2002 amounted to $397,000, $93,000, and $50,000, respectively. Estimated amortization expense is expected to approximate $500,000 in 2005 and 2006 and $200,000 in 2007, 2008 and 2009. The changes in the carrying amount of goodwill for the three-year period ended January 2, 2005, by segment, is as follows:
Polymer Printed High Materials Circuit Performance and (Dollars in thousands) Materials Foams Components Total ----------- ----------- ----------- --------- Balance as of December 29, 2002 and December 28, 2003 $ 5,509 $ 10,637 $ 525 $ 16,671 Acquisition of KF, Inc. - - 2,224 2,224 Cellect technology purchase price adjustment - 3,033 - 3,033 ----------- ---------- ------------ -------- Balance as of January 2, 2005 $ 5,509 $ 13,670 $ 2,749 $ 21,928
NOTE 4 - SUMMARIZED FINANCIAL INFORMATION OF UNCONSOLIDATED JOINT VENTURES As of January 2, 2005, the Company had four joint ventures, each 50% owned, that are accounted for by the equity method of accounting.
Joint Venture Location Business Segment Fiscal Year-End - ---------------------------------------- --------- --------------------------------- --------------------- Rogers Inoac Corporation Japan High Performance Foams October 31 Rogers Inoac Suzhou Corporation China High Performance Foams December 31 Polyimide Laminate Systems, LLC U.S. Printed Circuit Materials December 31 Rogers Chang Chun Technology Co., Ltd. Taiwan Printed Circuit Materials December 31
Equity income of $6.1 million, $6.6 million, and $8.7 million for 2004, 2003 and 2002, respectively, was included in the Company's consolidated results relating to these joint ventures. In 2004, the Company established Rogers Inoac Suzhou Corporation ("RIS"), a new joint venture with Inoac Corporation for the purpose of manufacturing PORON polyurethane foam products in China. Activity at RIS commenced in the second half of 2004 and the entity recorded its first sales activity in the fourth quarter of 2004. Activity at RIS was minimal in 2004 and did not materially impact Rogers' 2004 results of operations. On September 30, 2003, the Company acquired the 50% interest of Durel owned by the Company's former joint venture partner. Accordingly, the operating results of Durel were included in the Company's consolidated results subsequent to that time. Prior to September 30, 2003, Durel was accounted for using the equity method of accounting. The summarized financial information for these joint ventures is included in the following tables. Note that there is a difference between the Company's investment in unconsolidated joint ventures and its one-half interest in the underlying shareholders' equity of the joint ventures due primarily to two factors. First, the Company's major initial contribution to one of the joint ventures was technology that was valued differently by the joint venture than it was on the Company's books. Second, the translation of foreign currency at current rates differs from that at historical rates. Also, financial information for the years-ended December 28, 2003 and December 29, 2002 includes nine months and twelve months of Durel's results of operations, respectively. Summarized Information for Joint Ventures:
(Dollars in thousands) January 2, December 28, 2005 2003 ----------- ------------- Current Assets $ 43,426 $ 24,360 Noncurrent Assets 17,025 7,619 Current Liabilities 19,863 9,817 Noncurrent Liabilities - 5 Shareholders' Equity 40,589 22,158
(Dollars in thousands) For the Years Ended: January 2, December 28, December 29, 2005 2003 2002 ----------- ------------ ------------ Net Sales $ 85,200 $ 106,432 $ 136,861 Gross Profit 28,897 38,558 50,836 Net Income 13,558 13,033 17,790
The effect of sales made between the unconsolidated joint ventures and the Company were appropriately accounted for on a consolidated basis. NOTE 5 - PENSION BENEFITS AND RETIREMENT HEALTH AND LIFE INSURANCE BENEFITS The Company has two qualified noncontributory defined benefit pension plans covering substantially all U.S. employees. The plans provide defined benefits based on years of service and final average salary. The Company also has established a nonqualified unfunded noncontributory defined benefit pension plan to restore certain retirement benefits that might otherwise be lost due to limitations imposed by federal law on qualified pension plans, as well as to provide supplemental retirement benefits for certain senior executives of the Company. Also, Durel had a qualified noncontributory defined benefit pension plan covering substantially all of its employees. As a result of the acquisition, the Company terminated the Durel plan effective December 31, 2003 and brought qualified employees into the Rogers' defined benefit plan beginning on January 1, 2004. In addition, the Company sponsors three unfunded defined benefit health care and medical and life insurance plans for retirees. The measurement date for all plans for 2004 and 2003 is January 2, 2005 and December 28, 2003, respectively. Obligations and Funded Status
Retirement Health and (Dollars in thousands) Pension Benefits Life Insurance Benefits ----------------------- -------------------------- 2004 2003 2004 2003 Change in benefit obligation: Benefit obligation at beginning of year $ 105,826 $ 88,832 $ 8,911 $ 6,328 Service cost 3,932 2,731 579 412 Interest cost 6,222 6,118 541 458 Actuarial losses 7,771 7,695 2,001 2,382 Benefit payments (10,153) (4,243) (761) (669) Acquisitions -- 4,699 -- -- Plan amendments 1,515 (6) -- -- --------- -------- ---------- ----------- Benefit obligation at end of year 115,113 105,826 11,271 8,911 Change in plan assets: Fair value of plan assets at beginning of year 83,860 60,542 -- -- Actual return on plan assets 13,640 18,455 -- -- Employer contributions 3,718 5,824 761 669 Benefit payments (10,153) (4,243) (761) (669) Acquisitions -- 3,282 -- -- --------- -------- ---------- ----------- Fair value of plan assets at end of year 91,065 83,860 -- -- --------- -------- ---------- ----------- Funded status (24,048) (21,966) (11,271) (8,911) Unrecognized net loss 17,433 16,627 3,887 2,013 Unrecognized prior service cost 4,114 4,019 -- -- --------- -------- ---------- ----------- Accrued benefit cost at end of year $ (2,501) $ (1,320) $ (7,384) $ (6,898) ========== ========= ========== ==========
Amounts recognized in the statement of financial position consist of:
Retirement Health and Pension Benefits Life Insurance Benefits ------------------------ --------------------------- (Dollars in thousands) 2004 2003 2004 2003 ---------- --------- ------------ ----------- Prepaid benefit cost $ 3,304 $ 4,567 $ -- $ -- Accrued benefit liability (14,606) (14,680) (7,384) (6,898) Intangible asset 2,527 2,319 -- -- Deferred tax asset 2,383 2,460 -- -- Accumulated other comprehensive loss, net of tax 3,891 4,014 -- -- Net amount recognized at end of year $ (2,501) $ (1,320) $ (7,384) $ (6,898)
The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plans with an accumulated benefit obligation in excess of plan assets were $115.1 million, $100.4 million and $91.1 million, respectively, as of January 2, 2005, and $105.8 million, $92.8 million and $83.9 million, respectively, as of December 28, 2003. Components of Net Periodic Benefit Cost
Retiree Health and Pension Benefits Life Insurance Benefits -------------------------------- ------------------------------- (Dollars in thousands) 2004 2003 2002 2004 2003 2002 ---------- --------- -------- -------- ------- ------ Service cost $ 3,932 $ 2,731 $ 2,518 $ 579 $ 412 $ 389 Interest cost 6,222 6,112 5,571 541 458 407 Expected return on plan assets (7,069) (5,730) (6,191) -- -- -- Amortization of prior service cost 626 715 969 -- -- (5) Amortization of net (gain) loss 548 1,125 219 -- -- -- Transition cost -- (314) (356) -- -- -- Curtailment (gain)/loss 794 -- 613 -- -- (213) Settlement (gain)/loss (154) -- -- 127 -- -- -------- ------- ------- ------- ----- ----- Net periodic benefit costs $ 4,899 $ 4,639 $ 3,343 $ 1,247 $ 870 $ 578
Additional Information Retiree Health and Pension Benefits Life Insurance Benefits --------------------------------- ------------------------------ (Dollars in thousands) 2004 2003 2002 2004 2003 2002 -------- -------- -------- ------- ------- ------ Increase (decrease) in minimum liability included in other comprehensive income $(200) $(6,007) $7,799 $ -- $ -- $ -- ======== ======== ======== ======= ======= ======
Assumptions Weighted-average assumptions used to determine benefit obligations at year end:
Retiree Health and Pension Benefits Life Insurance Benefits ------------------------ -------------------------- 2004 2003 2004 2003 ------- ------ ------- ------ Discount rate 5.75% 6.25% 5.75% 6.25% Rate of compensation increase 4.00% 4.00% -- --
Weighted-average assumptions used to determine net benefit cost for years ended:
Retiree Health and Pension Benefits Life Insurance Benefits -------------------- --------------------------- 2004 2003 2004 2003 -------- ------ -------- ------ Discount rate 6.25% 6.75% 6.25% 6.75% Expected long-term rate of return on plan assets 9.00% 9.00% -- -- Rate of compensation increase 4.00% 4.00% -- --
For measurement purposes as of January 2, 2005, Rogers assumed an annual healthcare cost trend rate of 10% for covered healthcare benefits in 2005. The rate was assumed to decrease gradually to 5% in 2010 and remain at that level thereafter. As of December 28, 2003, Rogers assumed an annual healthcare cost trend rate of 10% for covered healthcare benefits in 2004. The rate was assumed to decrease gradually to 5% in 2009 and remain at that level thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage point change in assumed health care cost trend rates would have the following effects:
One Percentage Point Increase Decrease --------- ---------- Effect on total of service and interest cost $122,400 $(109,400) Effect on other postretirement benefit obligation $618,000 $(579,000)
Plan Assets Rogers' pension plan weighted-average asset allocations at January 2, 2005 and December 28, 2003, by asset category are as follows:
Current Target Allocation Plan Assets at Year-End Asset Category 2005 2004 2003 - -------------------- --------------- -------- ------ Equity securities 67% 73% 67% Debt securities 33% 27% 33% Total 100% 100% 100%
Investment Strategy Rogers' defined benefit pension assets are invested with the objective of achieving a total rate of return over the long-term that is sufficient to fund future pension obligations. Overall investment risk is mitigated by maintaining a diversified portfolio of assets (as reflected in the above tables). Asset allocation target ranges were established to meet the Company's investment objectives. The expected long-term rate of return on plan assets is based on several factors, including the plans' asset allocation targets, the historical and projected performance on those asset classes, and on the plans' current asset composition. Medicare Prescription Drug Improvement and Modernization Act of 2003 In December 2003, the U.S. Congress passed and the President signed into law the Medicare Prescription Drug Improvement and Modernization Act of 2003 (the "Act"). The Act includes a prescription drug benefit under Medicare Part D as well as a federal subsidy beginning in 2006. This subsidy will be paid to sponsors of postretirement health care benefit plans that provide a benefit that is at least actuarially equivalent (as defined in the Act) to Medicare Part D. In May 2004, the FASB issued FSP 106-2, which provides accounting guidance to sponsors of postretirement health care plans that are impacted by the Act. The FSP is effective for interim or annual periods beginning after June 15, 2004. Although detailed regulations necessary to implement the Act have not yet been finalized, the Company believes that drug benefits offered to salaried retirees under postretirement welfare plans will qualify for the subsidy under Medicare Part D and, consequently, the effects of this subsidy were factored into the 2004 results. The reduction in the benefit obligation attributable to past service cost was approximately $545,000 and has been reflected as an actuarial gain. The reduction in expense for 2004 related to the Act is approximately $126,000. Cash Flows Contributions At the current time, the Company has met the minimum funding requirements for its qualified defined benefit pension plans and is therefore not required to make a contribution to the plans in 2005. In 2004 and 2003, the Company made voluntary annual contributions to the pension plans of approximately $3.3 million and $5.6 million, respectively. The Company will most likely make a voluntary contribution to the pension plans in 2005 for an undetermined amount, but anticipates the amount will be consistent with the amounts contributed in prior years. As there is no minimum funding requirement for the nonqualified defined benefit plans and the Retiree Health and Life Insurance benefit plans, the Company will contribute the amount of benefit payments made during the year consistent with past practices. Estimated Future Payments The following pension benefit payments, which reflect expected future employee service, as appropriate, are expected to be paid through the utilization of plan assets. The Retiree Health and Life Insurance benefits, for which no funding has been made, are expected to be paid from operating cash flows. The benefit payments are based on the same assumptions used to measure the Company's benefit obligation at the end of fiscal 2004.
(Dollars in thousands) Retiree Health and Pension Life Insurance Benefits Benefits --------- ------------------- 2005 $ 4,604 $ 876 2006 4,795 887 2007 4,963 923 2008 5,198 1,018 2009 5,997 1,042 2010-2014 36,423 4,907
NOTE 6 - EMPLOYEE SAVINGS AND INVESTMENT PLAN The Company sponsors the Rogers Employee Savings and Investment Plan ("RESIP") for domestic employees, a 401(k) plan. Prior to 2003, the plan allowed such employees to contribute up to 18% of their compensation through payroll deductions. Effective January 1, 2003, the plan limitation of 18% on employee pre-tax contributions was eliminated. Employees are now able to defer a percentage or flat amount they choose, up to the yearly IRS limit, which is $13,000 in 2004 and $14,000 in 2005. Currently up to 5% of an eligible employee's annual pre-tax contribution is matched at a rate of 50% by the Company. In 2004, 2003 and 2002, 100% of the Company's matching contribution was invested in Company stock. RESIP related expense amounted to $1,063,000 in 2004, $771,000 in 2003, and $813,000 in 2002, which related solely to Company matching contributions. NOTE 7 - DEBT Long-Term Debt The Company has an unsecured multi-currency revolving credit agreement with two domestic banks and can borrow up to $50 million, or the equivalent, in certain other foreign currencies. Amounts borrowed under this agreement are to be paid in full by December 8, 2005. The rate of interest charged on outstanding loans can, at the Company's option and subject to certain restrictions, be based on the prime rate or at rates from 50 to 112.5 basis points over a Eurocurrency loan rate. The spreads over the Eurocurrency rate are based on the Company's leverage ratio. Under the arrangement, the ongoing commitment fee varies from 30.0 to 37.5 basis points of the maximum amount that can be borrowed, net of any outstanding borrowings and the maximum amount that beneficiaries may draw under outstanding letters of credit. There were no borrowings pursuant to this arrangement at January 2, 2005 and December 28, 2003. The loan agreement contains restrictive covenants primarily related to total indebtedness, interest expense, capital expenditures and net worth. The Company is in compliance with these covenants. Additionally, the Company was obligated under irrevocable standby letters of credit which guarantee the Company's self-insured workers compensation plan in the amount of $1.5 million at January 2, 2005. There were no amounts outstanding pursuant to this agreement as of January 2, 2005. In September 2001, Rogers N.V., a Belgian subsidiary of the Company, signed an unsecured revolving credit agreement with a European bank. This arrangement had a credit limit of 6.2 million Euros and an original expiration date of May 2005. All outstanding balances owed under this credit agreement were repaid in 2002 and the agreement was subsequently cancelled in 2003. Interest Interest costs and bank fees incurred on bank commitments and debt during the years 2004, 2003, and 2002 were $146,000, $146,000, and $695,000, respectively. Interest and bank fees paid on bank commitments and debt during the years 2004, 2003, and 2002, was $185,000, $154,000, and $698,000, respectively. Restriction on Payment of Dividends Pursuant to the multi-currency revolving credit loan agreement, the Company cannot make a cash dividend payment if a default or event of default has occurred and is continuing or shall result from the cash dividend payment. NOTE 8 - INCOME TAXES Consolidated income before income taxes consists of:
(Dollars in thousands) 2004 2003 2002 -------- -------- -------- Domestic $ 40,669 $ 28,071 $ 20,488 International 6,110 6,963 4,321 -------- -------- -------- $ 46,779 $ 35,034 $ 24,809 ======== ======== ========
The income tax expense (benefit) in the consolidated statements of income consists of:
(Dollars in thousands) Current Deferred Total -------- -------- -------- 2004: Federal $ 5,378 $ (2,786) $ 2,592 International 3,836 (103) 3,733 State 148 208 356 -------- -------- ------- $ 9,362 $ (2,681) $ 6,681 ======== ========= ======== 2003: Federal $ 1,693 $ 3,624 $ 5,317 International 2,238 778 3,016 State -- 426 426 -------- -------- ------- $ 3,931 $ 4,828 $ 8,759 ========= ======== ======= 2002: Federal $ 2,946 $ 1,844 $ 4,790 International 615 621 1,236 State 80 96 176 -------- -------- ------- $ 3,641 $ 2,561 $ 6,202 ========= ======== =======
Deferred tax assets and liabilities as of January 2, 2005 and December 28, 2003, respectively, are comprised of the following:
(Dollars in thousands) January 2, December 28, 2005 2003 ---------- ------------- Deferred tax assets: Accrued employee benefits and compensation $ 6,208 $ 3,985 Accrued postretirement benefits 2,806 2,181 Other accrued liabilities and allowances 2,856 3,182 Investments in joint ventures, net 456 1,371 Tax credit carryforwards 2,734 1,988 Other -- 203 --------- -------- Total deferred tax assets 15,060 12,910 Less deferred tax asset valuation allowance 1,032 1,323 --------- -------- Net deferred tax assets 14,028 11,587 Deferred tax liabilities: Depreciation and amortization 18,934 20,731 Other 141 -- --------- -------- Total deferred tax liabilities 19,075 20,731 --------- -------- Net deferred tax liability $ (5,047) $ (9,144) ========= ========
Deferred taxes are classified on the consolidated balance sheet at January 2, 2005 and December 28, 2003 as a net current deferred tax asset of $9,064,000 and $4,914,000, respectively, and a net long-term deferred tax liability of $14,111,000 and $14,058,000, respectively. Income tax expense differs from the amount computed by applying the United States federal statutory income tax rate to income before income taxes. The reasons for this difference are as follows:
(Dollars in thousands) 2004 2003 2002 -------- -------- --------- Tax expense at Federal statutory income tax rate $ 16,373 $ 12,262 $ 8,683 International tax rate differential (56) (62) (619) Net U.S. tax (foreign tax credit) on foreign earnings (1,913) (1,442) (926) General business credits (780) (900) (582) Nontaxable foreign sales income (2,947) (1,225) (1,120) State income taxes, net of federal benefit 392 276 114 Nontaxable dividend income from joint venture -- (840) - Adjustment to deferred tax accounts (5,014) -- -- Valuation allowance change (291) 817 122 Other 917 (127) 530 -------- -------- ------- Income tax expense $ 6,681 $ 8,759 $ 6,202 ======== ======= =======
The Company recorded a one-time, non-cash adjustment of $5.0 million in the fourth quarter of 2004. This adjustment was a result of procedures followed during the Company's year-end financial closing process, in which it was determined that the method of accounting for deferred income taxes was not consistent with the application of the provisions of SFAS 109. The adjustment was required to properly state certain deferred income tax accounts for temporary tax differences that may have accumulated over many years. The adjustment effectively decreased 2004 income tax expense by $5.0 million to $6.7 million from $11.7 million prior to the adjustment. Management believes that any temporary differences not properly accounted for would not have materially affected the Company's reported results in any one year nor was the cumulative amount material in relation to the Company's financial position. The adjustment reduced the Company's effective tax rate for 2004 by 11 percentage points. The tax credit carryforwards consist of general business credits of $1,236,000, $447,000 and $990,000, and alternative minimum tax credits of $1,498,000, $1,541,000 and $1,541,000 at January 2, 2005, December 28, 2003 and December 29, 2002, respectively. The general business credits begin to expire in 2023 while the alternative minimum tax credits have no expiration. A valuation allowance of $1,032,000, $982,000 and $420,000 at January 2, 2005, December 28, 2003 and December 29, 2002, respectively, is recorded for the net U.S. deferred tax asset associated with the excess foreign tax credits from undistributed foreign earnings available to offset resulting U.S. tax on future foreign source income. It is uncertain whether the net asset will be realized in future years due to the various foreign tax credit limitations imposed by the U.S. tax code. The Company provided a valuation allowance of $341,000 and $86,000 at December 28, 2003 and December 29, 2002, respectively, for the net operating losses generated by its China subsidiary since its operations began in 2002. No tax benefit had been provided on these deferred tax assets since the subsidiary was in a cumulative loss position. During 2004, the Company reversed the valuation allowance associated with these operations as the Company believes it is more likely than not that these tax benefits will be realized. The deferred tax asset valuation allowance decreased by $291,000 in 2004 and increased by $817,000 and $122,000 during 2003 and 2002, respectively. The Company recognized a U.S. deferred tax asset in 2004, 2003 and 2002 of $2,451,000, $120,000 and $2,080,000, respectively, based on the Company's assessment of the realizability of deferred tax assets on a more likely than not basis. On October 22, 2004, the American Jobs Creation Act of 2004 (the "Act") was signed into law. The Act creates a temporary incentive for U.S. multinationals to repatriate accumulated income earned outside the U.S. at an effective tax rate of 5.25%. On December 21, 2004, the FASB issued FASB staff position, Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004 ("FAS 109-2"). FAS 109-2 allows companies additional time to evaluate the effect of the law on whether unrepatriated foreign earnings continue to qualify for SFAS 109's exception with respect to recognizing deferred tax liabilities and would require explanatory disclosures from those who need the additional time. Through January 2, 2005. The Company has not provided U.S. income taxes on approximately $30,675,000 of unremitted foreign earnings because substantially all such earnings were intended to be indefinitely reinvested outside the U.S. The Company has evaluated this provision of the Act and has not identified any opportunity to change its intention to continue to reinvest earnings outside the U.S. Income taxes paid were $7,071,000, $2,218,000 and $1,471,000 in 2004, 2003, and 2002, respectively. NOTE 9 - SHAREHOLDERS' EQUITY AND STOCK OPTIONS Accumulated Other Comprehensive Income (Loss) Accumulated balances related to each component of Accumulated Other Comprehensive Income (Loss) are as follows:
(Dollars in thousands) January 2, December 28, 2005 2003 ---------- ------------ Foreign currency translation adjustments $ 12,634 $ 8,909 Minimum pension liability, net of $2,383 and $2,460 in taxes in 2004 and 2003 (3,891) (4,014) ---------- ------------ Accumulated other comprehensive income $ 8,743 $ 4,895 =========== =========== Capital Stock and Stock Options
Under various plans the Company may grant stock options to officers, directors, and other key employees at exercise prices that range as low as 50% of the fair market value of the Company's stock as of the date of grant. However, to date, virtually all such options have been granted at an exercise price equal to the fair market value of the Company's stock as of the date of grant. Except for grants made in 2004, regular employee options in the United States generally become exercisable over a four-year period from the grant date and expire ten years after the date of grant. Stock option grants are also made to non-employee directors, generally on a semi-annual basis. For such director stock options, the exercise price is equal to the fair market value of the Company's stock and they are immediately exercisable and expire ten years after the date of grant. Stock grants in lieu of cash compensation are also made to non-employee directors. Shares of capital stock reserved for possible future issuance are as follows:
January 2, December 28, 2005 2003 ------------ ------------- Shareholder Rights Plan 19,602,479 19,784,538 Stock options 2,585,224 3,096,802 Rogers Employee Savings and Investment Plan 109,719 89,906 Rogers Corporation Global Stock Ownership Plan For Employees 426,004 447,616 Long-Term Enhancement Plan - 111,771 Stock to be issued in lieu of deferred compensation 43,742 42,730 ---------- ----------- Total 22,767,168 23,573,363 ========== ==========
Each outstanding share of Rogers capital stock has attached to it a stock purchase right. One stock purchase right entitles the holder to buy one share of Rogers capital stock at an exercise price of $60 per share. The rights become exercisable only under certain circumstances related to a person or group acquiring or offering to acquire a substantial block of Rogers capital stock. In certain circumstances, holders may acquire Rogers stock, or in some cases the stock of an acquiring entity, with a value equal to twice the exercise price. The rights expire on March 30, 2007 but may be exchanged or redeemed earlier. If such rights are redeemed the redemption price would be $ 0.005 per right. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants:
2004 2003 2002 ----------- ------------ ---------- Risk-free interest rate 4.06% 3.76% 3.11% Dividend yield 0% 0% 0% Volatility factor 37.5% 38.0% 36.3% Weighted-average expected life 6.8 years 6.8 years 6.1 years
A summary of the status of the Company's stock option program at year-end 2004, 2003, and 2002, and changes during the years ended on those dates is presented below:
2004 2003 2002 ---- ---- ----- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Stock Options Shares Price Shares Price Shares Price - -------------------------- ----------- --------- ----------- -------- ---------- ---------- Outstanding at beginning of year 2,529,941 $ 26.47 2,688,037 $ 21.66 2,314,821 $ 20.04 Granted 378,029 59.08 452,100 37.98 528,560 26.07 Exercised (526,249) 20.91 (561,610) 12.52 (152,177) 12.15 Cancelled (9,784) 37.76 (48,586) 28.65 (3,167) 30.44 ---------- ------- --------- ------- ---------- --------- Outstanding at end of year 2,371,937 $ 32.86 2,529,941 $ 26.47 2,688,037 $ 21.66 ---------- ------- --------- ------- ---------- --------- Options exercisable at end of year 1,688,599 1,471,271 1,807,673 ========== ========= ========= Weighted-average fair value of options granted during year $ 27.96 $ 17.65 $ 9.38 ======= ======= =======
The following table summarizes information about stock options outstanding at January 2, 2005:
Weighted- Average Number Remaining Weighted- Number Weighted- Outstanding Contractual Average Exercisable Average Range of At January 2, Life In Exercise At January 2, Exercise Exercise Prices 2005 Years Price 2005 Price - ------------------ ------------ - ---------- ----------- ------------- ---------- $12 to $28 1,077,056 5.4 $ 21.03 845,222 $ 19.62 $29 to $43 1,294,881 7.9 $ 42.69 843,377 $ 44.65 ------------- ---------- ----------- ------------- ---------- $12 to $43 2,371,937 6.8 $ 32.86 1,688,599 $ 32.12 ============= ========== ========= ============= ==========
In 2001, shareholders approved the Rogers Corporation Global Stock Ownership Plan for Employees, an employee stock purchase plan. The plan provides for the issuance of up to 500,000 shares of Company stock. Shares may be purchased by participating employees through payroll deductions that are made during prescribed offering periods with the actual purchases made at the end of each offering period. Currently, shares may be purchased at 85% of the stock's closing price at the beginning or end of each offering period, whichever is lower, and other rules have been established for participation in the plan. Common Stock Repurchase From time to time the Company's Board of Directors authorizes the repurchase, at management's discretion, of shares of the Company's capital stock. The most recent regular authorization was approved on October 28, 2004 and provided for the repurchase of up to an aggregate of $25,000,000 in market value of such stock. As of January 2, 2005, the Company had repurchased approximately 69,700 shares of stock for a total of $3.2 million as a result of this plan. Effective July 1, 2004, companies incorporated in the Commonwealth of Massachusetts became subject to Chapter 156D of the Massachusetts Business Corporation Act. Chapter 156D eliminates the concept of treasury shares and provides that shares reacquired by a company are to be treated as authorized but unissued shares of common stock. As a result of this change, the Company has reclassified, for the balance sheets presented, shares previously classified as treasury shares authorized, but unissued shares of common stock. At January 2, 2005 and December 28, 2003, the Company had 378,604 and 330,516 shares, respectively, at a cost of $14.4 million and $11.9 million, respectively, that were previously classified as treasury stock and, based upon the legislation above, have been reclassified to common stock and additional paid in capital. NOTE 10 - COMMITMENTS AND CONTINGENCIES Leases The Company's principal noncancellable operating lease obligations are for building space and vehicles. The leases generally provide that the Company pays maintenance costs. The lease periods range from one to five years and include purchase or renewal provisions at the Company's option. The Company also has leases that are cancellable with minimal notice. Lease expense was $1.4 million in 2004, $1.1 million in 2003, and $1.5 million in 2002. Future minimum lease payments under noncancellable operating leases at January 2, 2005, aggregate $1.5 million. Of this amount, annual minimum payments are $900,000, $381,000, $156,000, $49,000, and $1,000 for years 2005 through 2009, respectively. Environmental Activities and General Litigation The Company is currently engaged in the following legal proceedings: Environmental Remediation in Manchester, Connecticut In the fourth quarter of 2002, the Company sold its Moldable Composites Division ("MCD") located in Manchester, Connecticut to Vyncolit North America, Inc., a subsidiary of the Perstorp Group, Sweden. Subsequent to the divestiture, certain environmental matters were discovered at the Manchester location and Rogers determined that under the terms of the arrangement, the Company would be responsible for estimated remediation costs of approximately $500,000 and recorded this reserve in 2002. In the fourth quarter of 2004, the Connecticut Department of Environmental Protection ("DEP") accepted the Company's plan of remediation, which was subsequently accepted by the Town of Manchester in the first quarter of 2005 subject to the Company placing into escrow approximately $10,000 for future costs related to any work the town may have to perform on a sewer line that passes through the property and performing a study on the condition of that sewer line which would cost the Company approximately $25,000. In accordance with SFAS No. 5, "Accounting for Contingencies," the Company continues to maintain a reserve of approximately $500,000, which represents a probable and reasonably estimable amount to cover the anticipated remediation costs based on facts and circumstances known to the Company at the present time. The Company believes this project should be complete by the end of 2005 or soon thereafter. Superfund Sites The Company is currently involved as a potentially responsible party ("PRP") in four active cases involving waste disposal sites. In certain cases, these proceedings are at a stage where it is still not possible to estimate the ultimate cost of remediation, the timing and extent of remedial action that may be required by governmental authorities, and the amount of liability, if any, of the Company alone or in relation to that of any other PRPs. However, the costs incurred since inception for these claims have been immaterial and have been primarily covered by insurance policies, for both legal and remediation costs. In one particular case, the Company has been assessed a cost sharing percentage of 2.47% in relation to the range for estimated total cleanup costs of $17 to $24 million. The Company has confirmed sufficient insurance coverage to fully cover this liability and has recorded a liability and related insurance receivable of approximately $0.5 million, which approximates its share of the low end of the range. In all its superfund cases, the Company has been deemed by the respective PRP administrator to be a de minimis participant and only allocated an insignificant percentage of the total PRP cost sharing responsibility. Based on facts presently known to it, the Company believes that the potential for the final results of these cases having a material adverse effect on its results of operations, financial position or cash flows is remote. These cases have been ongoing for many years and the Company believes that they will continue on for the indefinite future. No time frame for completion can be estimated at the present time. PCB Contamination In addition to the above proceedings, the Company worked with the Connecticut Department of Environmental Protection ("CT DEP") related to certain polychlorinated biphenyl ("PCB") contamination in the soil beneath a section of cement flooring at its Woodstock, Connecticut facility. The Company completed clean-up efforts in 2000 and has monitored the site since the clean up was completed. In the fourth quarter of 2004, additional PCB's were detected in one of the wells used for monitoring the site. The Company has reported the results to the DEP and is awaiting the government's response. The Company anticipates that it will be required to install an additional well cluster at the site and expects the cost of this new well to be approximately $40,000. Since inception, the Company has spent approximately $2.5 million in remediation and monitoring costs related to the site. The future costs of monitoring the site are expected to be de minimis and, although it is reasonably possible that the Company will incur additional remediation costs associated with the newly found PCB's, the Company cannot estimate the range of costs based on facts and circumstances known to it at the present time. The Company believes that this situation will continue for several more years, particularly considering the newly identified PCB presence at the site. No time frame for completion can be estimated at the present time. Asbestos Litigation Overview Over the past several years, there has been a significant increase in certain U.S. states in asbestos-related product liability claims brought against numerous industrial companies where the third-party plaintiffs allege personal injury from exposure to asbestos-containing products. The Company has been named, along with hundreds of other industrial companies, as a defendant in some of these claims. In virtually all of these claims filed against the Company, the plaintiffs are seeking unspecified damages or, if an amount is specified, it merely represents jurisdictional amounts or amounts to be proven at trial. Even in those situations where specific damages are alleged, the claims frequently seek the same amount of damages, irrespective of the disease or injury. Plaintiffs' lawyers often sue dozens or even hundreds of defendants in individual lawsuits on behalf of hundreds or even thousands of claimants. As a result, even when specific damages are alleged with respect to a specific disease or injury, those damages are not expressly identified as to the Company. In fact, there are no cases in which the Company is the sole named defendant. The Company did not mine, mill, manufacture or market asbestos; rather, the Company made some limited products which contained encapsulated asbestos. Such products were provided to industrial users. The Company stopped the manufacture of these products in 1987. Claims As of January 2, 2005, the Company was named in asbestos litigation pending primarily in Illinois, Pennsylvania, and Mississippi. As of January 2, 2005, there were approximately 232 pending claims, compared to approximately 192 pending claims as of December 28, 2003, and approximately 127 pending claims as of December 29, 2002. The number of open claims during a particular time can fluctuate significantly from period to period depending on how successful the Company has been in getting these cases dismissed or settled. In addition, most of these lawsuits do not include specific dollar claims for damages, and many include a number of plaintiffs and multiple defendants. Therefore, the Company cannot provide any meaningful disclosure about the total amount of the damages sought. The rate at which plaintiffs filed asbestos-related suits against a number of defendants including the Company increased in 2001, 2002 and the first half of 2003 because of increased activity on the part of plaintiffs to identify those companies that sold asbestos containing products, but which did not directly mine, mill or market asbestos. In addition, a significant increase in the volume of asbestos-related bodily injury cases arose in Mississippi beginning in 2002 and extended through mid-year 2003. This increase in the volume of claims in Mississippi was apparently due to the passage of tort reform legislation (applicable to asbestos-related injuries), which became effective on September 1, 2003 and which resulted in a large number of claims being filed in Mississippi by plaintiffs seeking to ensure their claims would be governed by the law in effect prior to the passage of tort reform. Defenses In many cases, plaintiffs are unable to demonstrate that they have suffered any compensable loss as a result of exposure to the Company's asbestos-containing products. Management continues to believe that a majority of the claimants in pending cases will not be able to demonstrate exposure or loss. This belief is based in large part on two factors: the limited number of asbestos-related products manufactured and sold by the Company and the fact that the asbestos was encapsulated in such products. In addition, even at sites where a claimant can verify his or her presence during the same period those products were used, liability of the Company cannot be presumed because even if an individual contracted an asbestos-related disease, not everyone who was employed at a site was exposed to the Company's asbestos-containing products. Based on these and other factors, the Company has and will continue to vigorously defend itself in asbestos-related matters. Dismissals and Settlements Cases involving the Company typically name 50-300 defendants, although some cases have had as few as 6 and as many as 833 defendants. The Company has, however, settled a small number of cases for which all costs have been paid by the Company's insurance carriers. The Company has obtained dismissals of many of these claims. In 2004 and 2003, the Company was able to have approximately 84 and 35 claims dismissed, respectively. During 2004, the Company settled eight claims, and during 2003, the Company settled five claims. Although these historical figures provide some insight into the Company's experience with asbestos litigation, no guarantee can be made as to the dismissal and settlement rate the Company will experience in the future. Settlements are made without any admission of liability. Settlement amounts may vary depending upon a number of factors, including the jurisdiction where the action was brought, the nature and extent of the disease alleged and the associated medical evidence, the age and occupation of the claimant, the existence or absence of other possible causes of the claimant's alleged illness, and the availability of legal defenses, as well as whether the action is brought alone or as part of a group of claimants. To date, the Company has been successful in obtaining dismissals for many of the claims and has settled only a limited number. The majority of settled claims were settled for immaterial amounts, and such costs have been paid by the Company's insurance carriers. In addition, to date, the Company has not been required to pay any punitive damage awards. Potential Liability In late 2004, the Company determined that it was reasonably prudent, based on facts and circumstances known to it at that time, to perform a formal analysis to project its potential future liability and related insurance coverage for asbestos-related matters. This determination was made based on several factors, including the growing number of asbestos related claims and recent settlement history. As a result, National Economic Research Associates, Inc. ("NERA"), a consulting firm with expertise in the field of evaluating mass tort litigation asbestos bodily-injury claims, was engaged to assist the Company in projecting the Company's future asbestos-related liabilities and defense costs with regard to pending claims and future unasserted claims. Projecting future asbestos costs is subject to numerous variables that are extremely difficult to predict, including the number of claims that might be received, the type and severity of the disease alleged by each claimant, the long latency period associated with asbestos exposure, dismissal rates, costs of medical treatment, the financial resources of other companies that are co-defendants in claims, uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, and the impact of potential changes in legislative or judicial standards, including potential tort reform. Furthermore, any predictions with respect to these variables are subject to even greater uncertainty as the projection period lengthens. In light of these inherent uncertainties, the Company's limited claims history and consultations with NERA, the Company believes that five years is the most reasonable period for recognizing a reserve for future costs, and that costs that might be incurred after that period are not reasonably estimable at this time. As a result, the Company also believes that its ultimate net asbestos-related contingent liability (i.e., its indemnity or other claim disposition costs plus related legal fees) cannot be estimated with certainty. Insurance Coverage The Company's applicable insurance policies generally provide coverage for asbestos liability costs, including coverage for both resolution and defense costs. Following the initiation of asbestos litigation, an effort was made to identify all of the Company's primary and excess insurance carriers that provided applicable coverage beginning in the 1950s through the mid-1980s. There appear to be three such primary carriers, all of which were put on notice of the litigation. In late 2004, Marsh Risk Consulting ("Marsh"), a consulting firm with expertise in the field of evaluating insurance coverage and the likelihood of recovery for asbestos-related claims, was engaged to work with the Company to project the insurance coverage of the Company for asbestos-related claims. Marsh's conclusions were based primarily on a review of the Company's coverage history, application of reasonable assumptions on the allocation of coverage consistent with industry standards, an assessment of the creditworthiness of the insurance carriers, analysis of applicable deductibles, retentions and policy limits, and the experience of NERA and a review of NERA's report. Cost Sharing Agreement To date, the Company's primary insurance carriers have provided for substantially all of the legal and defense costs associated with its asbestos-related claims. However, as claims continue to escalate, the Company and its insurance carriers have determined that it would be appropriate to enter into a cost sharing agreement to clearly define the cost sharing relationship among the carriers and the Company. As of November 5, 2004, an interim cost sharing agreement was established that provided that the known primary insurance carriers would continue to pay all legal and defense costs associated with these claims until a definitive cost sharing arrangement was consummated. The Company expects a definitive cost sharing agreement to be finalized at some point in 2005, at which time the final terms of the cost sharing relationship would be agreed to by these respective parties. Impact on Financial Statements Given the inherent uncertainty in making future projections, the Company plans to have the projections of current and future asbestos claims periodically re-examined, and the Company will update them if needed based on the Company's experience and other relevant factors, such as changes in the tort system and the Company's success in resolving claims. Based on the assumptions employed by and the report prepared by NERA and other variables, the Company recorded a reserve for its estimated bodily injury liabilities for asbestos-related matters, including projected indemnity and legal costs, for the five-year period through 2009 in the undiscounted amount of $36.2 million as of January 2, 2005. Likewise, based on the analysis prepared by Marsh, the Company recorded a receivable for its estimated insurance recovery of $36.0 million. This resulted in the Company recording a pre-tax charge to earnings of $200,000 as of January 2, 2005. The amounts recorded by the Company for the asbestos-related liability and the related insurance receivable described above were based on currently known facts and a number of assumptions. However, projecting future events, such as the number of new claims to be filed each year, the average cost of disposing of each such claims, coverage issues among insurers, and the continuing solvency of various insurance companies, as well as the numerous uncertainties surrounding asbestos litigation in the United States, could cause the actual liability and insurance recoveries for the Company to be higher or lower than those projected or recorded. There can be no assurance that the Company's accrued asbestos liabilities will approximate its actual asbestos-related settlement and defense costs, or that its accrued insurance recoveries will be realized. The Company believes that it is reasonably possible that it will incur additional charges for its asbestos liabilities and defense costs in the future which could exceed existing reserves, but such excess amount cannot be estimated at this time. The Company will continue to vigorously defend itself and believes it has substantial unutilized insurance coverage to mitigate future costs related to this matter. Given the inherent uncertainty in making future projections, the Company plans to have the projections of current and future asbestos claims periodically re-examined, and the Company will update them if needed based on the Company's experience, changes in the underlying assumptions that formed the basis for NERA's and Marsh's models, and other relevant factors, such as changes in the tort system. Other Environmental Matters In 2004, the Company became aware of a potential environmental matter at its facility in Korea involving possible soil contamination. The Company is currently in the initial stages of performing an assessment on the site to determine if any contamination exists. At present, it is not possible to determine the likelihood or to reasonably estimate the cost of any potential adverse outcome based on the facts and circumstances currently known to the Company. The Company is also aware of a potential environmental matter involving soil contamination at one of its European facilities. The Company is currently assessing this matter and believes that it is probable that a loss contingency exists relating to this site and that a reasonably estimable range of loss is between $200,000 and $400,000. The Company has recorded a reserve that approximates the low end of the range at January 2, 2005. In addition to the above issues, the nature and scope of the Company's business bring it in regular contact with the general public and a variety of businesses and government agencies. Such activities inherently subject the Company to the possibility of litigation, including environmental and product liability matters that are defended and handled in the ordinary course of business. The Company has established accruals for matters for which management considers a loss to be probable and reasonably estimable. It is the opinion of management that facts known at the present time do not indicate that such litigation, after taking into account insurance coverage and the aforementioned accruals, will have a material adverse impact on the results of operations, financial position, or cash flows of the Company. NOTE 11 - BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION As of January 2, 2005, the Company has ten business units and four joint ventures. The business units and joint ventures have been aggregated into three reportable segments: Printed Circuit Materials, High Performance Foams, and Polymer Materials and Components. Each segment has common management oversight, share common infrastructures, and each offers different products and services. Printed Circuit Materials: There are three business units and two joint ventures in this segment. These operations produce laminate materials, which are primarily fabricated by others into circuits which are then used in electronic equipment for transmitting, receiving, and controlling electrical signals. These products tend to be proprietary materials which provide highly specialized electrical and mechanical properties to meet the demands imposed by increasing speed, complexity, and power in analog, digital, and microwave equipment. These materials are fabricated, coated and/or customized as necessary to meet customer demands and are sold worldwide. High Performance Foams: This segment consists of three business units and two joint ventures. These operations produce products consisting primarily of high-performance urethane, silicone and polyolefin foams that are designed to perform to predetermined specifications where combinations of properties are needed to satisfy rigorous mechanical and environmental requirements. These materials are sold worldwide and for the most part are sold to fabricators and original equipment manufacturers. Polymer Materials and Components: This segment is comprised of four business units. The products produced by these operations consist primarily of molded elastomer components, power distribution components, electroluminescent lamps and inverters and nonwoven materials. These products have been engineered to provide special performance characteristics to suit a wide range of markets and applications. These products are sold worldwide to a varied customer base. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on many factors including sales and operating income of the segments, the business units and the joint ventures. Inter-segment and inter-area sales, which are generally priced with reference to costs or prevailing market prices, have been eliminated from the data reported in the following tables. Business Segment Information
(Dollars in thousands) Printed High Polymer Circuit Performance Materials and Materials Foams Components Total ----------- ----------- --------------- ---------- 2004: Net sales $ 181,218 $ 88,355 $ 95,429 $ 365,002 Operating income 29,267 4,888 136 34,291 Total assets 236,791 75,220 89,030 401,041 Capital expenditures 4,595 10,839 12,697 28,131 Depreciation 8,522 4,488 4,661 17,671 Joint venture equity income 3,266 2,831 - 6,097 2003: Net sales $ 114,244 $ 69,482 $ 59,603 $ 243,329 Operating income 15,230 2,611 3,730 21,571 Total assets 175,117 57,926 81,397 314,440 Capital expenditures 2,615 12,415 2,921 17,951 Depreciation 7,945 2,593 2,984 13,522 Joint venture equity income (loss) (218) 2,161 4,628 6,571 2002: Net sales $ 82,419 $ 65,084 $ 71,935 $ 219,438 Operating income 4,802 8,052 1,320 14,174 Total assets 135,062 59,520 63,119 257,701 Capital expenditures 7,072 13,877 1,733 22,682 Depreciation 6,700 1,996 4,825 13,521 Joint venture equity income (loss) (351) 1,778 7,278 8,705
Information relating to the Company's operations by geographic area is as follows:
Net Sales (1) Long-lived Assets (2) ------------- --------------------- (Dollars in thousands) 2004 2003 2002 2004 2003 --------- ---------- --------- --------- --------- United States $ 128,460 $ 102,846 $ 119,459 $ 173,488 $ 144,489 Europe 63,852 50,888 51,600 43,159 39,497 Asia 163,423 82,192 39,780 16,364 3,357 Other 9,267 7,403 8,599 - - --------- --------- --------- --------- --------- Total $ 365,002 $ 243,329 $ 219,438 $ 233,011 $ 187,343 ========= ========= ========= ========= =========
(1) Net sales are attributed to countries based on the location of the customer. (2) Long-lived assets are based on the location of the asset. NOTE 12-RESTRUCTURING COSTS On January 21, 2004, the Company announced that it would cease operations at its South Windham, Connecticut facility by the end of 2004. The relocation of manufacturing operations of the Company's molded polyurethane materials and nitrile rubber floats to the Company's facility in Suzhou, China was completed in the third quarter of 2004. Charges associated with this transaction are projected to be approximately $2.3 million related primarily to severance that will be paid to employees upon termination and completion of service requirements. In addition, the Company incurred a $0.8 million curtailment charge on its defined benefit pension plan as a result of the termination of employees as the amortizable prior service cost related to terminated employees was accelerated into 2004 as a result of the shutdown. In accordance with SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities", and SFAS No. 112, "Employers' Accounting for Postemployment Benefits", the Company has recorded $2.3 million in restructuring charges in 2004 for the cessation of operations in the South Windham, Connecticut facility, which is included in selling and administrative expenses on the statements of income. Actual costs charged against the reserve to date are approximately $1.1 million and the Company expects to pay the remaining amounts over the course of 2005. On October 5, 2004, the Company announced a restructuring plan resulting in a headcount reduction at its Durel division. The terminations occurred early in the fourth quarter of 2004 and, as such, the Company recognized approximately $330,000 in charges associated with severance payments that will be made to employees as a result of this plan in accordance with SFAS No. 146. Actual payments made during 2004 were approximately $144,000 with the remainder to be paid over the course of 2005. NOTE 13-RELATED PARTIES In the beginning of fiscal year 2002, the Company acquired certain assets of the high performance polyolefin foam business of Cellect LLC, including intellectual property rights, inventory, machinery and equipment, and customer lists, for approximately $10 million in cash, plus a potential earn-out in five years based upon performance. In June 2004, the Company entered into a post-closing agreement with Cellect that amended the terms of the original acquisition agreement, particularly as it related to the earn-out provision. Under the post-closing agreement, the Company agreed to accelerate the earn-out provision to the third quarter of 2004 and to fix the amount of the earn-out at $3.0 million. The obligation was partially satisfied in the second quarter of 2004 through a $200,000 cash payment to Cellect and the exchange of a $1.8 million note receivable the Company had from Cellect with the balance of $1.0 million due at the conclusion of the supply agreement. In the third quarter of 2004, the Company ceased production activities at Cellect and is currently manufacturing polyolefins exclusively at its Carol Stream facility. As of January 2, 2005, the Company has accounts receivable from Cellect of $1.5 million, which primarily represents the net balance of various transactions during the term of the agreement. This amount is net of the residual $1.0 million due in connection with the post-closing agreement. In accordance with SFAS No. 141, the $3.0 million earn-out was recognized as additional purchase price and capitalized as goodwill in the second quarter of 2004. The Company is currently finalizing its net financial position with Cellect, and does not anticipate the ultimate outcome of its financial settlement with Cellect will have a material effect on the Company's results of operations, financial position or cash flows. NOTE 14-ACQUISITIONS AND DIVESTITURES Acquisitions KF Inc. On January 31, 2004, the Company acquired KF Inc. ("KF"), a Korean manufacturer of liquid level sensing devices for the automotive market, through a stock purchase agreement for approximately $3.9 million. The acquisition allows the Company to position itself for further growth and expansion in the float business in Asia. Under the terms of the agreement, KF is a wholly owned subsidiary of Rogers and was included in the Company's consolidated results beginning on January 31, 2004. The acquisition was accounted for as a purchase pursuant to SFAS No. 141, "Business Combinations". As such, the purchase price was allocated to the acquired assets and liabilities as of the date of acquisition. The following table summarizes the estimated fair values of the acquired assets as of the date of acquisition, which include amounts recorded in the fourth quarter of 2004 to finalize the purchase accounting for this acquisition: (Dollars in thousands) Purchase price $ 3,902 Less: Identified assets and liabilities: Cash 495 Accounts receivable 255 Inventory 351 Property, plant and equipment 404 Intangible assets 800 Other assets 93 Accounts payable and other accruals (434) Deferred tax liability (235) Other liabilities (51) ------- Goodwill $ 2,224 ======== Due to the insignificant effect of KF on Rogers' consolidated statement of financial position and operating results, no pro-forma information has been presented. Durel Corporation On September 30, 2003, the Company acquired from 3M Company ("3M") its 50% interest in Durel Corporation, a joint venture of Rogers and 3M, for $26 million in cash plus $0.5 million in closing costs. The acquisition allows Rogers to expand its market presence in Durel's core business lines, to position the Company for further growth in Durel's markets and gives the Company proprietary ownership over Durel's research and development capabilities. Effective September 30, 2003, the operations of Durel were fully integrated and consolidated into Rogers Corporation and its financial and operating results are included as part of Rogers' Polymer Materials and Components business segment. The acquisition was accounted for as a purchase pursuant to SFAS No. 141. As such, the purchase price was allocated to assets and liabilities based on their respective fair values at the date of acquisition. In connection with the Company's purchase price allocation, the Company eliminated the basis difference between the carrying value of its investment in Durel and its one-half interest in the underlying shareholders' equity of Durel as of the acquisition date. This basis difference was due primarily to the Company's initial contribution to the joint venture that represented technology, which was valued differently by the joint venture than it was on the Company's books. In the first quarter of 2004, in connection with the preparation of certain tax reconciliations and tax return filings, the Company determined that the original deferred tax liability eliminated in the purchase price allocation did not properly reflect the equity earnings of Durel for the nine-month period ended September 30, 2003. Therefore, the "Elimination of deferred tax liability related to Durel" caption below increased by approximately $2.8 million, with a corresponding reduction to the captions "Property, plant and equipment" and "Intangible assets" by approximately $1.0 million and $1.8 million, respectively. The following table contains the adjusted fair market value assigned to the respective assets and liabilities of Durel that were acquired by Rogers in the transaction: (Dollars in thousands) Cash$ 4,172 Accounts receivable 4,353 Inventory 4,525 Property, plant and equipment 10,385 Intangible assets 1,291 Other assets 1,363 Total assets 26,089 Accounts payable and other accruals 3,800 Accrued income taxes payable 1,111 Pension liability 2,363 Deferred tax liability 1,799 ------ Total liabilities 9,073 ------ Fair value of assets acquired 17,016 Basis difference in carrying value of Durel investment 3,387 Elimination of deferred tax liability related to Durel 6,097 ------ Purchase price $ 26,500 ========= As part of the transaction, the Company acquired intangible assets consisting of trademarks, developed technology, a non-compete agreement and in-process research and development. The intangibles acquired are being amortized over their estimated useful lives, with the exception of in-process research and development, which was amortized immediately in the fourth quarter of 2003. At the acquisition date, the Company had a cumulative deferred tax liability of approximately $6.1 million related to the joint venture investment and equity income from Durel. This amount was eliminated as part of the purchase accounting as Rogers was no longer liable for this amount. The following table contains pro-forma financial information for the Company's consolidated results of operations assuming the Company had owned Durel for the two-year period ending December 28, 2003: 2003 2002 ---------- ---------- Net sales $ 294,660 $ 303,500 Operating income 29,553 35,560 Net income 30,867 27,388 Earnings per share Basic $ 1.96 $ 1.77 Diluted 1.89 1.71 Management's Report on Internal Control Over Financial Reporting The management of Rogers Corporation is responsible for establishing and maintaining adequate internal control over financial reporting as is defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f). Rogers Corporation's internal control system was designed to provide reasonable assurance to the Company's management, Board of Directors and shareholders regarding the preparation and fair presentation of the Company's published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. An internal control "material weakness" is a significant deficiency, or aggregation of deficiencies, that does not reduce to a relatively low level the risk that material misstatements in financial statements will be prevented or detected on a timely basis by employees in the normal course of their work. An internal control "significant deficiency" is one that could result in a misstatement of the financial statements that is more than inconsequential. Management assessed the effectiveness of the Company's internal control over financial reporting as of January 2, 2005. In making its assessment of internal control over financial reporting management used the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework. As a result of this assessment, management determined that the Company did not maintain effective controls over its accounting for deferred income taxes. The specific control deficiency identified related to the lack of adequate reconciliation of differences between the deferred tax amounts on the balance sheet and the underlying differences between the tax and book bases of the related balance sheet items. This resulted in the Company recording adjustments to its deferred income tax accounts in the fourth quarter of 2004. Based on management's assessment, management concluded that this matter represents a material weakness and, accordingly, has concluded that as of January 2, 2005, the Company's internal control over financial reporting was not effective based on those criteria. Rogers Corporation's independent registered public accounting firm, Ernst & Young LLP, has issued an audit report on management's assessment of the Company's internal control over financial reporting. This report appears on page 70 of our Annual Report. Rogers, Connecticut March 9, 2005 Background on the Material Weakness On February 17, 2005, the Company announced that it would be delaying its fourth quarter and year-end earnings release because it had identified some potential issues associated with its historical accounting for deferred income taxes. Subsequently, it was determined that a change was necessary in the method used to reconcile and account for deferred income taxes to be consistent with the application of the provisions of Statement of Financial Accounting Standards No. 109. This change resulted in an increase of $5.0 million to after-tax income in the fourth quarter of 2004. This one-time, non-cash increase to current year's earnings reflects the adjustment required to properly state certain deferred income tax accounts for temporary tax differences that most likely accumulated over many years. Management believes that the adjustment relates most likely to amounts accumulated prior to 2002; that any temporary differences not properly accounted for did not materially affect the Company's reported results in any one year; nor was the cumulative amount material in relation to the Company's financial position at January 2, 2005. However, management has concluded that the internal control deficiency which resulted in this adjustment constitutes a "material weakness" as defined by the Public Company Accounting Oversight Board's Auditing Standard No. 2 and therefore management has concluded that internal controls over financial reporting were not effective as of January 2, 2005. Management is in the process of implementing additional internal control procedures over its accounting for deferred income taxes. Exclusive of this instance, no other material weaknesses were identified by management in the Company's internal control over financial reporting. Report of Independent Registered Public Accounting Firm The Board of Directors and Shareholders of Rogers Corporation We have audited management's assessment, included in the accompanying Management's Report on Internal Control over Financial Reporting, that Rogers Corporation did not maintain effective internal control over financial reporting as of January 2, 2005, because of the Company's insufficient controls over the adequate reconciliation of differences between the deferred tax amounts on the balance sheet and the underlying differences between the tax and book bases of the related balance sheet items, based on criteria established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Rogers Corporation'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. A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weakness has been identified and included in management's assessment: In its assessment as of January 2, 2005, management identified as a material weakness the Company's insufficient controls over the adequate reconciliation of differences between the deferred tax amounts on the balance sheet and the underlying differences between the tax and book bases of the related balance sheet items. This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the fiscal 2004 financial statements, and this report does not affect our report dated March 9, 2005, on those financial statements. In our opinion, management's assessment that Rogers Corporation did not maintain effective internal control over financial reporting as of January 2, 2005 is fairly stated, in all material respects, based on the COSO control criteria. Also, in our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, Rogers Corporation has not maintained effective internal control over financial reporting as of January 2, 2005, based on the COSO control criteria. ERNST & YOUNG LLP Boston, Massachusetts March 9, 2005 REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Shareholders Rogers Corporation We have audited the accompanying consolidated balance sheets of Rogers Corporation and subsidiaries as of January 2, 2005 and December 28, 2003, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three fiscal years in the period ended January 2, 2005. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with 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, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Rogers Corporation and subsidiaries at January 2, 2005 and December 28, 2003, and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended January 2, 2005, 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 Rogers Corporation's internal control over financial reporting as of January 2, 2005, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 9, 2005 expressed an unqualified opinion on management's assessment and an adverse opinion on the effectiveness of internal control over financial reporting. ERNST & YOUNG LLP Boston, Massachusetts March 9, 2005 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (Dollars in Thousands, Except Per Share Amounts)
Basic Diluted Net Manufacturing Net Net Income Net Income Quarter Sales Profit Income Per Share Per Share - ------------------------------------------------------------------------------------------------------ 2004 Fourth* $87,269 $23,830 $9,605 $0.58 $0.56 Third 86,740 24,310 6,461 0.39 0.38 Second 93,323 31,666 11,801 0.72 0.68 First 97,670 33,385 12,231 0.76 0.72 - ------------------------------------------------------------------------------------------------------ 2003 Fourth** $85,795 $28,621 $8,995 $0.57 $0.54 Third 56,497 18,706 6,329 0.40 0.39 Second 49,159 14,726 5,212 0.33 0.32 First 51,878 16,488 5,739 0.37 0.36
* 2004 fourth quarter results include an adjustment to deferred income taxes which increased net income by $5.0 million and diluted earnings per share by $0.29. ** Results of operations of Durel are included in the Company's 2003 fourth quarter consolidated results of operations. Durel's net sales included in the Company's consolidated results for this period were $20.8 million. CAPITAL STOCK MARKET PRICES The Company's capital stock is traded on the New York Stock Exchange. The following table sets forth the composite high and low closing prices during each quarter of the last two years on a per share basis.
2004 2003 ---- ---- High Low High Low ------- ------ ------ ------- Fourth $48.18 $40.10 $45.75 $34.47 Third 67.75 41.25 33.70 27.27 Second 70.76 53.50 34.50 29.75 First 54.35 43.96 31.14 23.10
EX-21 18 a4846542ex21.txt EXHIBIT 21 EXHIBIT 21 ROGERS CORPORATION AND CONSOLIDATED SUBSIDIARIES Subsidiaries of the Registrant
Percentage of Voting Jurisdiction of Securities Incorporation or Company Owned Organization - ------------------------------------------------------------------------------------------------------------ Rogers L-K Corp. 100% Delaware Rogers Japan Inc. 100% Delaware Rogers Southeast Asia, Inc. 100% Delaware Rogers Taiwan, Inc. 100% Delaware Rogers Korea, Inc. 100% Delaware Rogers China, Inc. 100% Delaware Rogers Technologies Singapore, Inc. 100% Delaware Rogers Specialty Materials Corporation 100% Delaware Rogers Circuit Materials Incorporated 100% Delaware Rogers Technologies (Suzhou) Co., Ltd. 100% China TL Properties, Inc. 100% Arizona World Properties, Inc. 100% Illinois Rogers Technologies (Barbados) SRL 100% Barbados Rogers Induflex N.V. 100% Belgium Rogers N.V. 100% Belgium Rogers GmbH 100% Germany Rogers (U.K.) Ltd. 100% England Rogers S.A. 100% France Rogers (Shanghai) International Trading Co. Ltd. 100% China Rogers (Shanghai) International Trading Co. Ltd. - Shenzen Branch 100% China Rogers KF, Inc. 100% Delaware KF, Inc. 100% Korea Rogers Inoac Corporation * 50% Japan Rogers Inoac Suzhou Corporation * 50% China Polyimide Laminate Systems, LLC * 50% Delaware Rogers Chang Chun Technology Co. Ltd. * 50% Taiwan * These entities are unconsolidated joint ventures and accordingly are not included in the consolidated financial statements of Rogers Corporation, except to the extent required by the equity method of accounting.
EX-23 19 a4846542ex23.txt EXHIBIT 23 EXHIBIT 23 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in this Annual Report (Form 10-K) of Rogers Corporation of our reports dated March 9, 2005, with respect to the consolidated financial statements of Rogers Corporation, Rogers Corporation management's assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of Rogers Corporation included in the 2004 Annual Report to Shareholders of Rogers Corporation. Our audits also included the financial statement schedule of Rogers Corporation listed in Item 15(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 2-84992, 33-21121, 33-38219, 33-38920, 33-64314, 33-44087, 33-53353, 333-14419, 333-42545, 333-50901, and 333-59634 and Form S-3 No. 33-53369) pertaining to various stock option plans, employee savings plans, employee stock ownership plans, and stock grants of Rogers Corporation of our reports dated March 9, 2005, with respect to the consolidated financial statements of Rogers Corporation, Rogers Corporation management's assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of Rogers Corporation incorporated by reference, and our report included in the preceding paragraph with respect to the financial statement schedule included in this Annual Report (Form 10-K) for the year ended January 2, 2005. ERNST & YOUNG LLP Boston, Massachusetts March 14, 2005 EX-31 20 a4846542ex31.txt EXHIBIT 31 Exhibit 31 FEDERAL IDENTIFICATION NO. 06-0513860 FEE: $250.00 The Commonwealth of Massachusetts William Francis Galvin Secretary of the Commonwealth One Ashburton Place, Boston, Massachusetts 02108-1512 ARTICLES OF MERGER OF PARENT AND SUBSIDIARY CORPORATIONS (General Laws, Chapter 156B, Section 82) We, Robert D. Wachob, *President and Robert M. Soffer, *Clerk of Rogers Corporation, organized under the laws of Massachusetts and herein called the parent corporation, certify as follows: 1. That the subsidiary corporation(s) to be merged into the parent corporation is/are: NAME STATE OF ORGANIZATION DATE OF ORGANIZATION Durel Corporation Delaware June 1, 1988 2. The parent corporation, at the date of the vote, owned not less than ninety percent (90%) of the outstanding shares of each class of stock of the subsidiary corporation or corporations with which it has voted to merge. Item 3 below may be deleted if all the corporations are organized under the laws of Massachusetts and if General Laws, Chapter 156B is applicable to them. 3. That in the case of each of the above named corporations, the laws of the state of its organization, if other than Massachusetts, permit the merger herein described, and that all action required under the laws of each such state in connection with this merger has been duly taken. * Delete the inapplicable words. In case the parent corporation is organized under the laws of a state other than Massachusetts, these articles are to be signed by officers having corresponding powers and duties. 4. That at a meeting of the directors of the parent corporation, the following vote, pursuant to General Laws, Chapter 156B, Section 82, Subsection (a) was duly adopted: Voted: That Rogers Corporation, a Massachusetts corporation, ------ merge, and it hereby does merge into itself Durel Corporation, a Delaware corporation and a wholly-owned subsidiary of Rogers Corporation, and pursuant to such merger this corporation assumes all of Durel Corporation's obligations. Further Voted: That the merger shall become effective at the close ------- of business on December 28, 2003. Further Voted: That the terms and provisions of the Articles of ------- Merger of Parent and Subsidiary Corporations (the "Articles") attached hereto as Exhibit A, and the execution and delivery of the Articles by Robert D. Wachob, President of this corporation, and Robert M. Soffer, Clerk of the corporation, be, and the same hereby are, authorized and approved in all respects. Further Voted: That the merger of Durel Corporation into this ------- corporation, as contemplated by the Articles, may be amended or terminated and abandoned by the Board of Directors of this corporation at any time prior to the time that this merger filed with the Secretary of the Commonwealth of Massachusetts becomes effective. Note: Votes, for which the space provided above is not sufficient, should be listed on additional sheets to be numbered 4A, 4B, etc. Additional sheets must be 8 1/2 x 11 and have a left hand margin of 1 inch. Only one side should be used. THE COMMONWEALTH OF MASSACHUSETTS ARTICLES OF MERGER OF PARENT AND SUBSIDIARY CORPORATIONS (General Laws, Chapter 156B, Section 82) I hereby approve the within Articles of Merger of Parent and Subsidiary Corporations and, the filing fee in the amount of $250.00, having been paid, said articles are deemed to have been filed with me this 16th day of December, 2003. Effective date: December 28th, 2003 ------------------- WILLIAM FRANCIS GALVIN Secretary of the Commonwealth TO BE FILLED IN BY CORPORATION Contact Information: Terrance W. Mahoney LeBoeuf, Lamb, Greene & MacRae L.L.P. 260 Franklin Street, Boston, MA 02110 Telephone: 617-748-6810 Email: tmahoney@llgm.com A copy of this filing will be available on-line at www.state.ma.us/sec/cor once the document is filed. 5. The effective date of the merger shall be the date approved and filed by the Secretary of the Commonwealth. If a later effective date is desired, specify such date, which shall not be more than thirty days after the date of filing: Close of business on December 28, 2003. SIGNED UNDER THE PENALTIES OF PERJURY, this 12th day of December, 2003, Robert D. Wachob, *President/XXXXXXXXX Robert M. Soffer, *Clerk/XXXXXXXXXXXX *Delete the inapplicable words. In case the parent corporation is organized under the laws of a state other than Massachusetts, these articles are to be signed by officers having corresponding powers and duties. EX-31.1 21 a4846542ex311.txt EXHIBIT 31.1 Exhibit 31.1 CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Robert W. Wachob, certify that: 1. I have reviewed this annual report on Form 10-K of Rogers Corporation; 2. 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; 3. 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; 4. The registrant's other certifying officers 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 5. The registrant's other certifying officers 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 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: March 18, 2005 /s/ Robert D. Wachob - ------------------------------------- Robert D. Wachob President and Chief Executive Officer EX-31.2 22 a4846542ex312.txt EXHIBIT 31.2 Exhibit 31.2 CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Paul B. Middleton, certify that: 1. I have reviewed this annual report on Form 10-K of Rogers Corporation; 2. 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; 3. 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; 4. The registrant's other certifying officers 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 5. The registrant's other certifying officers 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 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: March 18, 2005 /s/ Paul B. Middleton - ------------------------------------------------------- Paul B. Middleton Acting Chief Financial Officer and Corporate Controller EX-32.1 23 a4846542ex321.txt EXHIBIT 32.1 Exhibit 32.1 SECTION 1350 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (Subsection (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of Rogers Corporation, a Massachusetts corporation (the "Corporation"), does hereby certify that: The Annual Report on Form 10-K for the year ended January 2, 2005 (the "Form 10-K") of the Corporation fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Corporation. /s/ Robert D. Wachob ------------------------------------------------------- Robert D. Wachob President and Chief Executive Officer March 18, 2005 /s/ Paul B. Middleton ------------------------------------------------------- Paul B. Middleton Acting Chief Financial Officer and Corporate Controller March 18, 2005 A signed original of this written statement required by Section 906 has been provided to Rogers Corporation and will be retained by Rogers Corporation and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----