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
Fiscal year ended December 31, 1998 Commission file number 1-5222
M. A. HANNA COMPANY
(Exact name of Registrant as specified in its charter)
STATE OF DELAWARE 34-0232435
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
SUITE 36-5000, 200 PUBLIC SQUARE, CLEVELAND, OHIO 44114-2304
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 216-589-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, $1 par value New York Stock Exchange
Chicago Stock Exchange
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,
and (2) has been subject to such filing requirements for the past
90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
Aggregate market value of the voting stock held by
nonaffiliates of the Registrant, computed by reference to the
price at which the stock was sold as of February 17, 1999:
$517,948,141.
Common Shares outstanding as of February 17, 1999:
49,623,774.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by
reference into the designated parts of this Form 10-K: (1)
Registrant's definitive proxy statement distributed to
stockholders dated March 18, 1999, filed with the Commission
pursuant to Regulation 14A and incorporated by reference into
Parts I and III of this Form 10-K; and (2) Registrant's Annual
Report distributed to stockholders for the fiscal year ended
December 31, 1998, incorporated by reference into Parts I and II
of this Form 10-K. With the exception of the information
specifically incorporated by reference, neither the Registrant's
proxy statement nor the 1998 Annual Report to stockholders is
deemed to be filed as part of this Form 10-K.
Except as otherwise stated, the information contained in
this report is given as of December 31, 1998, the end of the
Registrant's last fiscal year.
PART I
ITEM 1. BUSINESS
(a) Acquisitions and Dispositions
In February 1998, the Registrant announced the
completion of its previously announced acquisition of
Melos Carl Bosch GmbH + Co., a German rubber and
plastic compounder. With a plant in Melle, Germany,
the company produces rubber and thermoplastic elastomer
compounds for the wire and cable, sport and recreation
and automotive markets.
In March 1998, the Registrant announced that it
had acquired Exxon Chemical's business in halogen-free,
flame retardant plastic compounds for the wire and
cable industry.
In June 1998, the Registrant announced the
formation of a global joint venture with UBE
Industries, Ltd., Japan's largest producer of nylon
resins and compounds for the plastics industry. The
new venture will manufacture and sell nylon 6, nylon
6/6 and nylon 12 plastic compounds in North America,
Europe and China.
In August 1998, the Registrant announced a profit
improvement plan, which called for closure of five of
its manufacturing facilities and elimination of
approximately 300 jobs. Registrant's manufacturing
operations at five of those plants, all in Registrant's
custom formulated color business unit, had been closed
or sold as of February 1, 1999.
In December 1998, the Registrant announced the
completion of a previously announced joint venture with
Bifan S.A., a holding company that controls So.F.teR
S.p.A., a leading Italian producer of thermoplastic
elastomers. The Registrant holds a majority interest
in the venture and the balance is held by So.F.teR,
which is one of the largest independent plastic
compounders in Europe and a leader in the fast-growing
market for thermoplastic elastomers, serving the wire
and cable, automotive, electrical and electronic, and
shoe markets.
(b) See the financial information regarding the
Registrant's business segments set forth at pages 20 to
21 of the Registrant's Annual Report distributed to
stockholders for the fiscal year ended December 31,
1998, which information is incorporated herein by this
reference.
(c)
(1) (i)
(a) Rubber Processing
Through its rubber compounding businesses,
M.A. Hanna Rubber Compounding, Chase Elastomer and
Melos Carl Bosch, Registrant engages in the custom
compounding of rubber materials to the specifications
of manufacturers of rubber products throughout North
America and Europe. Registrant's Harwick Chemical
Manufacturing produces rubber colorants and additives
in the United States for the rubber industry worldwide.
(b) Plastic Processing
The Registrant, through its custom plastic
compounding businesses, Th. Bergmann, Compounding
Technology Europe, DH Compounding Company, Hanna SuXing
(Suzhou) Plastics Compounding Co., Ltd., M.A. Hanna
Engineered Materials, MACH-1 Compounding, So.F.teR,
Southwest Chemical Services, UBE-Hanna Compounding, LLC
and Victor International Plastics, Ltd. business units,
engages in the custom compounding of plastic materials
to the specifications of manufacturers of molded
plastic products for customers located throughout North
America, Europe and Asia.
Through its custom formulated color and additives
businesses, M.A. Hanna Color, Hanna Polimeros, Victor
International Plastics, Ltd., Wilson Color, Hanna
Wilson Polymer (Shanghai) Limited and Techmer PM, LLC,
the Registrant manufactures custom formulated colorants
in the form of color concentrates, liquid dispersions,
dry colorants, and additives for customers in the
plastics industry throughout North America, Europe,
South America and Asia. M.A. Hanna Color also produces
specialty colorants and additives for the automobile,
vinyl building products and textile industries.
Enviro Care Compounds, M.A. Hanna Color, MACH-I, Wilson
Color and Hanna Wilson Polymer (Shanghai) Limited also
produce specialty colorants, additives and compounds
for the wire and cable industry worldwide.
(c) Distribution
Through its M.A. Hanna Resin Distribution and
Hanna de Mexico business units, the Registrant
distributes thermoplastic and thermoset resins and
glass-reinforced materials in North America for major
resin producers.
Through its Cadillac Plastic business unit,
Registrant engages in the worldwide distribution of
engineered plastic sheet, rod, tube, and film products
to industrial and retail customers as well as cutting
and machining plastic products to customers'
specifications and thermoforming plastic into products
such as skylights and signs.
(d) Other
Through its Diversified Polymer Products business
unit, Registrant manufactures molded sponge automotive
parts for customers located throughout the United
States and Canada.
(1) (iii) In Registrant's plastic and rubber compounding
businesses, the primary raw materials required are
natural and synthetic rubbers, resins, and chemicals,
all of which are available in adequate supply. The
primary raw materials required by Registrant's color
businesses are resins, chemicals, and organic and
inorganic pigments, all of which are available in
adequate supply.
(1) (iv) Registrant's business units own numerous patents
and trademarks, which are important in that they
protect the Registrant's corresponding inventions and
product names against infringement by others and
thereby enhance Registrant's position in the
marketplace. The patents vary in duration of up to 20
years, and the trademarks have an indefinite life which
is based upon continued use.
(1) (x) The custom compounding of rubber materials and the
manufacture of rubber colorants and additives are
highly competitive, with product quality, price and
service to customers being principal factors affecting
competition. Registrant believes it is the largest
independent custom compounder of rubber in North
America and Europe.
The custom compounding of plastics and the
manufacture of custom-formulated color and additive
systems for the plastics industry is highly
competitive, with product quality, price and service to
customers being principal factors affecting
competition. Registrant believes it is a leading
independent compounder of plastics in North America and
Europe and one of the leading producers of custom
formulated color and additive systems in the United
States and Europe.
The distribution and fabrication of engineered
plastic sheet, rod, tube and film products, and polymer
resins is highly competitive, with product quality,
price and service to customers being principal factors
affecting competition. Registrant believes it is one
of the leading distributors of engineered shapes in the
world and one of the leading distributors of plastic
resins in North America.
The manufacture of molded sponge automotive parts
is highly competitive, with quality, price and service
to customers being principal factors affecting
competition. Information generally available indicates
that Registrant is among the leading suppliers of such
parts in the United States.
(1) (xii) At each of its operations the Registrant, its
subsidiaries, and associated companies are governed by
laws and regulations designed to protect the
environment, and in this connection Registrant has
adopted a corporate policy which directs compliance
with the various requirements of these laws and
regulations. The Registrant believes that it, its
subsidiaries and associated companies are in
substantial compliance with all such laws and
regulations, although it recognizes that these laws and
regulations are constantly changing.
There are presently no material estimated capital
expenditures for further environmental control
facilities projected by the Registrant or its
subsidiaries for any of its operations.
(1) (xiii) Registrant employs 7,130 persons at its
consolidated operations (7,016 in 1997).
(d) (1) See information regarding Registrant's
international operations at page 21 of Registrant's
Annual Report distributed to stockholders for the
fiscal year ended December 31, 1998, which page is
incorporated herein by this reference.
(2) The international operations owned directly by
Registrant and in which the Registrant and its
subsidiaries have equity interests, may be affected
from time to time by foreign political and economic
developments, laws and regulations, increases or
decreases in costs in such countries and changes in the
relative values of the various currencies involved.
ITEM 2. PROPERTIES
The table below sets forth the principal plants and
properties owned or leased by the Registrant's business units.
For properties which are leased, the date of expiration of the
current term of the lease is indicated. Properties which are
shown as owned are owned in fee simple. Some properties may be
subject to minor encumbrances of a nature which do not materially
affect the Registrant's operations.
In addition, Registrant's Cadillac Plastic, M.A. Hanna Resin
Distribution and Hanna de Mexico business units lease floor space
at various locations within North America. They are used for
sales offices, for the distribution of Registrant's products, for
fabrication, and for warehousing. These are short-term leases.
Registrant's Cadillac Plastic business unit also leases
space in various locations outside the United States, including
Australia, Canada, China, England, France, Germany, Korea,
Malaysia, Netherlands, New Zealand, Singapore, Spain, Taiwan and
Vietnam.
Location Facility Owned/Leased Approximate
Size (sq.
ft.)
Burton, M.A. Hanna Rubber Owned 160,000
Ohio Compounding
Macedonia, MACH-1 Compounding Owned 87,000
Ohio
Tillsonburg, M.A. Hanna Rubber Owned 60,000
Ontario Compounding
Jonesboro, M.A. Hanna Rubber Owned 69,000
Tennessee Compounding
Location Facility Owned/Leased Approximate
Size (sq.
ft.)
DeForest, M.A. Hanna Rubber Owned 130,000
Wisconsin Compounding
Santa Fe Springs, M.A. Hanna Rubber Leased 13,231
California Compounding 1999
Chicago, Chase Elastomer Leased 31,000
Illinois 2001
Kennedale, Chase Elastomer Owned 80,000
Texas
Broadview Heights, M.A. Hanna Color Owned 61,000
Ohio
Phoenix, M.A. Hanna Color Owned 20,500
Arizona
Vonore, M.A. Hanna Color Owned 47,000
Tennessee
San Fernando, M.A. Hanna Color Leased 45,000
California 2000
Vancouver, M.A. Hanna Resin Leased 35,000
Washington Distribution 2002
Facility Owned/Leased Approximate
Location Size (sq.
ft.)
Troy, Cadillac Plastic Leased 34,655
Michigan (headquarters and 2007
call center)
Coppell, Cadillac Plastic Leased 101,016
Texas (area distribution 2006
and call center)
Naperville, Cadillac Plastic Leased 88,910
Illinois (area distribution 2007
center)
Austell, Cadillac Plastic Leased 88,500
Georgia (area distribution 2008
center)
Fresno, Cadillac Plastic Leased 50,960
California (area distribution 2007
center)
Middletown, Cadillac Plastic Leased 61,620
Pennsylvania (area distribution 2008
center)
Lemont, M.A. Hanna Resin Leased 103,000
Illinois Distribution 2008
(headquarters)
Location Facility Owned/Leased Approximate
Size (sq.
ft.)
Seattle, M.A. Hanna Resin Leased 44,520
Washington Distribution 2005
Kingstree, M.A. Hanna Rubber Owned 156,174
South Carolina Compounding and
Southwest Chemical
Services
Dyersburg, M.A. Hanna Owned 862,399
Tennessee Engineered
Materials, M.A.
Hanna Rubber
Compounding and
Diversified
Polymer Products
Bethlehem, M.A. Hanna Leased
Pennsylvania Engineered 2004 82,000
Materials 1999 25,400
Norcross M.A. Hanna Leased 27,814
Georgia Engineered 2002
Materials
(headquarters and
technical center)
Suwanee, M.A. Hanna Color Owned 20,000
Georgia (headquarters)
Location Facility Owned/Leased Approximate
Size (sq.
ft.)
Suwanee, M.A. Hanna Color Owned 44,022
Georgia (technical center)
Somerset, M.A. Hanna Color Owned 44,300
New Jersey
Florence, M.A. Hanna Color Owned 30,000
Kentucky
Eagan, M.A. Hanna Resin Leased 51,600
Minnesota Distribution 2002
Gastonia, M.A. Hanna Color Owned 43,992
North Carolina
Elk Grove Village, M.A. Hanna Color Owned 51,870
Illinois
St. Peters, M.A. Hanna Color Owned 32,480
Missouri
Fort Worth, M.A. Hanna Color Owned 75,080
Texas
Norwalk, M.A. Hanna Color Owned 94,000
Ohio
Location Facility Owned/Leased Approximate
Size (sq.
ft.)
Bethlehem, M.A. Hanna Color Owned 58,672
Pennsylvania
LaPorte, Southwest Chemical Owned 200,000
Texas Services
Ayer, M.A. Hanna Resin Leased 53,250
Massachusetts Distribution 2002
Houston, M.A. Hanna Leased
Texas Engineered 2002 88,000
Materials 2002 44,120
Statesville, M.A. Hanna Resin Leased 48,240
North Carolina Distribution 2002
Corona, M.A. Hanna Leased 32,000
California Engineered 2001
Materials
Clinton, Techmer PM, LLC Owned 151,000
Tennessee
Rancho Dominguez, Techmer PM, LLC Leased 119,000
California 1999
Gainesville, Techmer PM, LLC Leased 36,374
Georgia 2005
Location Facility Owned/Leased Approximate
Size (sq.
ft.)
Massillon, Harwick Chemical Owned 100,000
Ohio Manufacturing
Wynne, Harwick Chemical Owned 119,000
Arkansas Manufacturing
Toluca, Hanna Polimeros Owned 37,978
Mexico
Assesse, Wilson Color Owned 120,976
Belgium
Tossiat, Wilson Color Owned 87,188
France
Bendorf, Wilson Color Owned 72,086
Germany
Angered, Wilson Color Owned 22,259
Sweden
Saint Ouen(Paris), Wilson Color Owned 46,285
France
Coventry, Victor Leased 52,750
England International 2000
Manchester, Victor Owned 58,890
England International
Location Facility Owned/Leased Approximate
Size (sq.
ft.)
Gaggenau, Th. Bergmann Owned 241,114
Germany
Barbastro, Polibasa Owned 71,042
Spain (Bergmann)
Jurong, Compounding Leased 43,000
Singapore Technology, 1999
Pte. Ltd.
Saint Etienne, Compounding Owned 35,000
France Technology Euro,
S.A.
Pudong (Shanghai), Hanna Wilson Owned 30,400
China Polymer
Glostrup, Wilson Color Owned 7,545
Denmark
Melle, Melos Carl Bosch Owned 69,225
Germany
Forli, So.F.teR Owned 753,480
Italy
Location Facility Owned/Leased Approximate
Size (sq.
ft.)
Civitanova/ So.F.teR Owned 32,292
Porto S. Elpidio
Italy
Lecco, So.F.teR Owned 43,056
Italy
Registrant's combined annual plastic and rubber compounding
capacity and colorant manufacturing capacity, based on the
estimated design capacities of Registrant's plants, amounts to
approximately 766 million pounds of compounded rubber products,
approximately 1 billion pounds of compounded plastic products and
approximately 311 million pounds of colorants. A variation in
the mix of products produced at a given plant results in a
corresponding increase or decrease in the quantity of products
that can be produced at full capacity. Beyond these estimated
capacities for Registrant's rubber processing and plastic
processing manufacturing properties, there are no comparative
measurement units of production capacity that reasonably can be
ascribed to Registrant's other properties in the processing
segment.
Registrant's 50 percent-owned partnership, DH Compounding
Company, owns and operates an engineering plastics compounding
plant in Clinton, Tennessee. The 150,000 square foot plant has
an annual design capacity of 150 million pounds.
ITEM 3. LEGAL PROCEEDINGS
Registrant, directly and indirectly through wholly-owned
subsidiaries, is obligated for costs of environmental remediation
measures taken and to be taken in connection with certain
operations that have been sold or discontinued. These include
the clean-up of a Superfund site and participation with other
companies in the clean-up of hazardous waste disposal sites,
several of which have been closed. Registrant has established
reserves for these anticipated liabilities for environmental
remediation, which do not reflect potential insurance recoveries
and which management believes are adequate to cover Registrant's
ultimate exposure. Registrant believes that these liabilities
will not have a material adverse effect on the Registrant's
results of operations, financial position or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
_______ EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists information as of March 1, 1999,
as to each executive officer of the Registrant, including his
position with the Registrant as of that date and other positions
held by him during at least the past five years:
M. D. Walker Chairman and Chief Executive
Age - 66 Officer, September 1986 to December
1996 and
October 1998 to date.
L. L. Beach Vice President, Human Resources,
Age - 54 April 1995 to date. Vice President,
Human Resources of Kraft Foods
International (manufacturer and
distributor of consumer products)
1991 to April 1995.
K. J. Darragh Senior Vice President, Operations,
Age - 52 May 1997 to date. President -
Cadillac Plastic, February 1995 to
May 1997. Vice President Operations
- Cadillac Plastic, February 1991 to
January 1995.
M. S. Duffey Senior Vice President, Finance and
Age - 44 Administration, August 1998 to date.
Vice President and Chief Financial
Officer, August 1996 to August 1998.
Vice President, Chief Financial
Officer and Treasurer of Registrant,
April 1995 to August 1996. Treasurer
of the Registrant, July 1994 - April
1995. Vice President and Treasurer,
Foote, Cone & Belding
Communications, Inc. (advertising
agency) 1992 - July 1994.
A. F. Pizzelanti Vice President, Information
Age - 60 Technology, January 1997 to date.
Vice President, Management
Information Systems, Premier Farnell
(industrial and electronics
distributor) 1995 to 1996; Chief
Information Officer and Vice
President, Information Technology,
James River Corp. (paper products
manufacturer) 1993 to 1995.
J. R. Gwinnell Vice President, Corporate
Age - 43 Development and Strategy, February
4, 1998 to date. Senior Engagement
Manager, McKinsey & Company, Inc.,
(management consultants), 1989 to
1996. Vice President, Strategy,
Westinghouse Electric Corporation
(electrical equipment manufacturer),
1996 to February 1998.
G. W. Henry Executive Vice President, Worldwide
Age - 53 Plastics, August 1998 to date.
Senior Vice President, International
Operations, May 1997 to August 1998.
Vice President - Operations, 1992 -
1994; Vice President, International
Operations, 1994 - May 1997.
J. S. Pyke, Jr. Vice President, General Counsel and
Age - 60 Secretary, 1979 to date.
D. R. Schrank Senior Vice President, Operations,
Age - 50 May 1997 to date. Vice President and
Chief Financial Officer of the
Registrant, September 1993 - April
1995; Vice President, North American
Plastics Operations, April 1995 to
May 1997.
C. R. Sachs Treasurer, August 1996 to date.
Age - 46 Treasurer Outboard Marine
Corporation (manufacturer of
recreational boats and marine
engines) 1992-1996.
T. E. Lindsey Controller, July 1990 to date.
Age - 48
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
See the tables regarding Registrant's stock price data
at page 25 and Shareholder Information at the bottom of
page 26 of Registrant's Annual Report distributed to
stockholders for the fiscal year ended December 31,
1998, which tables and information are incorporated
herein by this reference.
ITEM 6. SELECTED FINANCIAL DATA
See Selected Financial Data at pages 26 and 27 of
Registrant's Annual Report distributed to stockholders
for the fiscal year ended December 31, 1998, which
Selected Financial Data is incorporated herein by this
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
See pages 28 through 30 of Registrant's Annual Report
distributed to stockholders for the fiscal year ended
December 31, 1998, which pages are incorporated herein
by this reference.
ITEM 7.A QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK.
See the paragraphs captioned "Concentrations of Credit
Risk" and "Derivative Financial Instruments" on page
17, and "Financial Instruments," "Cash and Cash
Equivalents," "Long and Short-Term Debt," and "Foreign
Exchange Contracts" and the corresponding table on
pages 22 to 23, and the paragraph captioned "Market
Risk" on page 29 of the Registrant's Annual Report
distributed to stockholders for the fiscal year ended
December 31, 1998, which paragraphs and table are
incorporated herein by this reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See pages 13 through 25 and the bottom of page 30 of
Registrant's Annual Report distributed to stockholders
for the fiscal year ended December 31, 1998, which
pages are incorporated herein by this reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
See the table listing nominees for directors on page 2
of Registrant's definitive proxy statement distributed
to stockholders dated March 18, 1999, filed with the
Commission pursuant to Regulation 14A, which table is
incorporated herein by this reference.
Executive Officers
See the item captioned "Executive Officers of the
Registrant" in Part I of this Form 10-K, which item is
incorporated herein by this reference.
Section 16(a) Beneficial Ownership Reporting Compliance
See the paragraph bearing the foregoing caption on page
5 of Registrant's definitive proxy statement
distributed to stockholders dated March 18, 1999, filed
with the Commission pursuant to Regulation 14A, which
paragraph is incorporated herein by this reference.
ITEM 11. EXECUTIVE COMPENSATION
See the section captioned "Executive Compensation" at
pages 5 through 13 of Registrant's definitive proxy
statement distributed to stockholders dated March 18,
1999, filed with the Commission pursuant to Regulation
14A, which section is incorporated herein by this
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners:
See the section captioned "Holdings of Shares of the
Company's Common Stock" at page 5 of Registrant's
definitive proxy statement distributed to stockholders
dated March 18, 1999 filed with the Commission pursuant
to Regulation 14A, which section is incorporated herein
by this reference.
(b) Security Ownership by Management:
See the table, and footnotes thereto, regarding
beneficial ownership of the Registrant's Common Stock
by management, at page 3 of Registrant's definitive
proxy statement distributed to stockholders dated
March 18, 1999 filed with the Commission pursuant to
Regulation 14A, which table and footnotes are
incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) 1. and 2. The response to this portion of Item 14 is
submitted as a separate section commencing on page F-1
of this Form 10-K.
3. List of Exhibits. [Those documents listed below
that are incorporated herein by reference to
Registrant's earlier periodic reports were filed with
the Commission under Registrant's File No. 1-5222.]
(i) Exhibits filed pursuant to Regulation S-K (Item
601):
(3) Articles of Incorporation and By-laws.
(a) Registrant's Articles of Incorporation (as amended and
restated as of May 1, 1996, and currently in effect), filed
as Exhibit 3(a) to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996 and incorporated
herein by this reference.
(b) Registrant's by-laws (as adopted as of November 5, 1997
and currently in effect), filed as Exhibit 3(ii) to
Registrant's Current Report on Form 8-K dated November 10,
1997, and incorporated herein by this reference.
(4) Instruments Defining the Rights of Security Holders:
(a) Indenture dated November 9, 1996, between the
Registrant and NBD Bank, as trustee, governing Registrant's
Medium Term Notes, a form of which was filed as Exhibit 4.1
to Registrant's Form S-3 filed on June 12, 1996 and
incorporated herein by this reference.
(b) Credit and Guarantee Agreement, dated January 31, 1997
between the Registrant, Bank of America, N.T. & N.A. and the
other banks signatory thereto, a copy of which will be
provided to the Commission upon request.
(c) Indenture dated September 15, 1991 between the
Registrant and Ameritrust Company, National Association,
Trustee relating to Registrant's $150,000,000 aggregate
principal amount of 9 3/8% Senior notes due 2003, filed as
Exhibit 4 to the Registrant's Form S-3 filed on
September 18, 1991, and incorporated herein by this
reference.
(d) Associates Ownership Trust Agreement dated September
12, 1991, between Registrant and Wachovia Bank of North
Carolina, filed as Exhibit 28.3 to Registrant's Current
Report on Form 8-K dated September 12, 1991, and
incorporated herein by this reference.
(10) Material Contracts:
*(a) 1988 Long-Term Incentive Plan, and forms of Grants of
Stock Options, Grants of Appreciation Rights and Grants of
Long-Term Incentive Units thereunder, filed as Exhibit 10(e)
to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1988, and incorporated herein by
this reference. Also forms of 1989 Stock Option Agreement,
1989 Grant of Appreciation Rights and 1989 Grant of Long-
Term Incentive Units, filed as Exhibit 10(e) to Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1989 and incorporated herein by this reference.
Also 1990 Amendment to the Plan, filed as Exhibit 10(e) to
Registrant's Form 10-K for the fiscal year ended December
31, 1990 and incorporated herein by this reference and forms
of 1990 Stock Option Agreement, 1990 Grant of Appreciation
Rights and 1990 Grant of Long-Term Incentive Units, filed as
Exhibit 10(e) to Registrant's Form 10-K for the fiscal year
ended December 31, 1990 and incorporated herein by this
reference. Also 1991 Amendment to the Plan, filed as
Exhibit 10(f) to Registrant's Form 10-K for the fiscal year
ended December 31, 1991, and incorporated herein by this
reference. Also 1994 Amendment to the Plan, filed as Exhibit
A to Registrant's definitive proxy statement distributed to
stockholders dated March 17, 1994 and incorporated herein by
this reference. Also forms of Stock Option Agreement,
Performance Share Award Agreement and Restricted Stock
Agreement entered into by all participants in the Plan,
filed as Exhibit 10(a) to Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1997, and
incorporated herein by this reference.
*(b) Form of Supplemental Deferred Compensation agreement in
which any of the five most highly compensated executive
officers of the Registrant participates, filed as Exhibit
10(e) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993, and incorporated
herein by this reference.
*(c) Form of Supplemental Death Benefits agreement in which
any of the five most highly compensated executive officers
of the Registrant participates, filed as Exhibit 10(f) to
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993, and incorporated herein by this
reference.
*(d) Form of Amended and Restated Employment Agreement dated
as of August 5, 1998 between Registrant and certain of
Registrant's executive officers filed herewith.
*(e) Description of Directors' compensation and retirement
benefit, set forth in the section captioned "Directors'
Compensation" on page 14 of Registrant's definitive proxy
statement dated March 18, 1999, as distributed to
stockholders and filed with the Commission pursuant to
Regulation 14A, which section is incorporated herein by this
reference.
*(f) Excess Benefit Plan in which any of the five most
highly compensated executive officers of the Registrant
participates, filed as Exhibit 10(j) to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31,
1992 and incorporated herein by this reference.
*(g) Supplemental Retirement Benefit Plan in which any of
the five most highly compensated executive officers of the
Registrant participates, filed as Exhibit 10(k) to
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992 and incorporated herein by this
reference. Also, Amendment and Restatement of M.A. Hanna
Company Supplemental Retirement Plan dated as of January 1,
1999, filed herewith.
*(h) Voluntary Non-Qualified Deferred Compensation Plan in
which any of the five most highly compensated executive
officers of the Registrant participates, filed as Exhibit A
to the Registrant's definitive proxy statement distributed
to stockholders dated March 20, 1995 filed with the
Commission pursuant to Regulation 14A, which Exhibit A is
incorporated herein by this reference.
(i) Termination Agreement and Release between Registrant
and its former Chairman of the Board and Chief Executive
Officer, D. J. McGregor, dated as of October 7, 1998, filed
herewith.
[*- Identifies management contract or compensation
plans or arrangements filed pursuant to Item 601(b)
(10) (iii) (A) ]
(11) Computation of per share earnings, filed herewith.
(13) Registrant's Annual Report as distributed to stockholders
for the fiscal year ended December 31, 1998, filed herewith.
(18) Letter regarding Change in Accounting Principles, filed
herewith.
(21) Subsidiaries of the Registrant, filed herewith.
(23) Consent of Independent Accountants, filed herewith.
(24) Powers of Attorney of certain Directors of Registrant, filed
herewith.
(27) Financial Data Schedule, filed herewith.
(ii) Other exhibits:
Financial statements (and consent of independent
accountants) pursuant to Form 11-K and Rule 15D-21 for the year
ended December 31, 1998, for the Capital Accumulation Plan for
Salaried Employees of M. A. Hanna Company and Associated
Companies, and for stock purchase/savings plans of Registrant's
subsidiaries and divisions will be filed as exhibits to the Form
10-K under a Form 10-K/A amendment not later than June 29, 1999.
(b) Since September 30, 1998, Registrant has filed no report on
Form 8-K.
(c) The response to this portion of Item 14 is submitted as a
separate Section commencing on page X-1 of this Form 10-K.
(d) The response to this portion of Item 14 is submitted as a
separate section commencing on page F-1 of this Form 10-K.
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.
M. A. HANNA COMPANY
(Registrant)
Date: March 22, 1999 By /s/J. S. Pyke, Jr.
J. S. Pyke, Jr.
Vice President, General Counsel
and Secretary
Pursuant to the requirements of the Securities and Exchange
Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Date: March 22, 1999 By /s/M. D. Walker _____
M. D. Walker
Chairman and Chief
Executive Officer (Principal
Executive Officer) and
Director
Date: March 22, 1999 By /s/M. S. Duffey
M. S. Duffey
Senior Vice President
Finance and Administration
(Principal Financial Officer)
Date: March 22, 1999 By /s/T. E. Lindsey
T. E. Lindsey
Controller
(Principal Accounting Officer)
C. A. Cartwright, Director
W. R. Embry, Director
J. T. Eyton, Director
R. A. Garda, Director
By /s/T. E. Lindsey G. D. Harnett, Director
T. E. Lindsey
Attorney-In Fact
G. D. Kirkham, Director
Date: March 22, 1999
D. B. Lewis, Director
M. L. Mann, Director
R. W. Pogue, Director
FORM 10-K
ITEM 14(a)(1) and (2)
FINANCIAL STATEMENTS AND SCHEDULES
M.A. HANNA COMPANY
The following consolidated financial statements of the
Registrant and its consolidated subsidiaries, included in the
annual report of the Registrant to its stockholders for the
year ended December 31, 1998, are incorporated herein by
reference in Item 8:
Summary of accounting policies
Consolidated balance sheets - December 31, 1998 and 1997
Consolidated statements of income, stockholders' equity
and cash
flows - years ended December 31, 1998, 1997 and 1996
Notes to financial statements
The following consolidated financial information, together
with the report of the independent accountants, are included
in Item 14(d):
Schedule II - Valuation and qualifying accounts
All other schedules for which provision is made in the
applicable accounting regulation of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable, and therefore have been
omitted.
Financial statements of unconsolidated subsidiaries or 50% or
less owned persons accounted for by the equity method have
been omitted because they do not, considered individually or
in the aggregate, constitute a significant subsidiary.
F-1
Report of Independent Accountants on
Financial Statement Schedule
To the Board of Directors of M.A. Hanna Company
Our audits of the consolidated financial statements referred
to in our report dated January 27, 1999 appearing on page 30
of the 1998 Annual Report to Stockholders of M.A. Hanna
Company (which report and consolidated financial statements
are incorporated by reference in this Annual Report on Form
10-K) also included an audit of the Financial Statement
Schedule listed in Item 14(a) of this Form 10-K. In our
opinion, this Financial Statement Schedule presents fairly,
in all material respects, the information set forth therein
when read in conjunction with the related consolidated
financial statements.
/s/ PricewaterhouseCoopers LLP
Cleveland, Ohio
January 27, 1999
F-2
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
M. A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES
COL. A COL. B COL. C
ADDITIONS
(1) (2)
Charged Charged
Balance to Costs to Other
at Beginning and Accounts
DESCRIPTION of Period Expenses - Describe
Year ended December 31, 1998:
Deducted from asset accounts:
Allowance for doubtful accounts $ 8,649,000 $ 2,596,000 $ 49,000(a)
Reserve for Profit Improvement Plan - 29,800,000 -
Year ended December 31, 1997:
Deducted from asset accounts:
Allowance for doubtful accounts 7,572,000 4,073,000 84,000(a)
Year ended December 31, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts 11,034,000 3,362,000 934,000(a)
COL. A COL. D COL. E
Deductions - Balance at End
Describe of Period
DESCRIPTION
Year ended December 31, 1998:
Deducted from asset accounts:
Allowance for doubtful accounts $ 1,537,000(b) $ 9,757,000
Reserve for Profit Improvement Plan 19,601,000(c) 10,199,000
Year ended December 31, 1997:
Deducted from asset accounts:
Allowance for doubtful accounts 3,080,000(b) 8,649,000
Year ended December 31, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts 7,758,000(b) 7,572,000
(a) Reserves of companies acquired and translation impact of foreign reserves.
(b) Uncollectible amounts written off.
(c) Asset write-offs, severance payments and plant closure costs.
F-3
ITEM 14(c)
EXHIBIT LIST
Sequential
Page No.
(i) Exhibits filed pursuant to Regulation
S-K (Item 601):
(3) Articles of Incorporation and By-laws.
(a) Registrant's Articles of
Incorporation (as amended and restated
as of May 1, 1996, and currently in
effect), filed as Exhibit 3(a) to
Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31,
1996 and incorporated herein by this
reference.
(b) Registrant's by-laws (as adopted as
of November 5, 1997 and currently in
effect), filed as Exhibit 3(ii) to
Registrant's Current Report on Form 8-K
dated November 10, 1997, and
incorporated herein by this reference.
(4) Instruments Defining the Rights of
Security Holders:
(a) Indenture dated November 9, 1996,
between the Registrant and NBD Bank, as
trustee, governing Registrant's Medium
Term Notes, a form of which was filed as
Exhibit 4.1 to Registrant's Form S-3
filed on June 12, 1996 and incorporated
herein by this reference.
(b) Credit and Guarantee Agreement,
dated January 31, 1997 between the
Registrant, Bank of America, N.T. & N.A.
and the other banks signatory thereto, a
copy of which will be provided to the
Commission upon request.
(c) Indenture dated September 15, 1991
between the Registrant and Ameritrust
Company, National Association, Trustee
relating to Registrant's $150,000,000
aggregate principal amount of 9 3/8%
Senior notes due 2003, filed as Exhibit
4 to the Registrant's Form S-3 filed on
September 18, 1991, and incorporated
herein by this reference.
(d) Associates Ownership Trust
Agreement dated September 12, 1991,
between Registrant and Wachovia Bank of
North Carolina, filed as Exhibit 28.3 to
Registrant's Current Report on Form 8-K
dated September 12, 1991, and
incorporated herein by this reference.
(10) Material Contracts:
*(a) 1988 Long-Term Incentive Plan, and
forms of Grants of Stock Options, Grants
of Appreciation Rights and Grants of
Long-Term Incentive Units thereunder,
filed as Exhibit 10(e) to Registrant's
Annual Report on Form 10-K for the
fiscal year ended December 31, 1988, and
incorporated herein by this reference.
Also forms of 1989 Stock Option
Agreement, 1989 Grant of Appreciation
Rights and 1989 Grant of Long-Term
Incentive Units, filed as Exhibit 10(e)
to Registrant's Annual Report on Form 10-
K for the fiscal year ended December 31,
1989 and incorporated herein by this
reference. Also 1990 Amendment to the
Plan, filed as Exhibit 10(e) to
Registrant's Form 10-K for the fiscal
year ended December 31, 1990 and
incorporated herein by this reference
and forms of 1990 Stock Option
Agreement, 1990 Grant of Appreciation
Rights and 1990 Grant of Long-Term
Incentive Units, filed as Exhibit 10(e)
to Registrant's Form 10-K for the fiscal
year ended December 31, 1990 and
incorporated herein by this reference.
Also 1991 Amendment to the Plan, filed
as Exhibit 10(f) to Registrant's Form 10-
K for the fiscal year ended December 31,
1991, and incorporated herein by this
reference. Also 1994 Amendment to the
Plan, filed as Exhibit A to Registrant's
definitive proxy statement distributed
to stockholders dated March 17, 1994 and
incorporated herein by this reference.
Also forms of Stock Option Agreement,
Performance Share Award Agreement and
Restricted Stock Agreement entered into
by all participants in the Plan, filed
as Exhibit 10(a) to Registrant's Annual
Report on Form 10-K for the fiscal year
ended December 31, 1997, and
incorporated herein by this reference.
*(b) Form of Supplemental Deferred
Compensation agreement in which any of
the five most highly compensated
executive officers of the Registrant
participates, filed as Exhibit 10(e) to
Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31,
1993, and incorporated herein
by this reference.
*(c) Form of Supplemental Death Benefits
agreement in which any of the five most
highly compensated executive officers of
the Registrant participates, filed as
Exhibit 10(f) to Registrant's Annual
Report on Form 10-K for the fiscal year
ended December 31, 1993, and
incorporated herein by this reference.
*(d) Form of Amended and Restated
Employment Agreement dated as of August
5, 1998 between Registrant and certain
of Registrant's executive officers,
filed herewith. 39
*(e) Description of Directors'
compensation and retirement benefit, set
forth in the section captioned
"Directors' Compensation" on page 14 of
Registrant's definitive proxy statement
dated March 18, 1999, as distributed to
stockholders and filed with the
Commission pursuant to Regulation 14A,
which section is incorporated herein by
this reference.
*(f) Excess Benefit Plan in which any of
the five most highly compensated
executive officers of the Registrant
participates, filed as Exhibit 10(j) to
Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31,
1992 and incorporated herein by this
reference.
*(g) Supplemental Retirement Benefit
Plan in which any of the five most
highly compensated executive officers of
the Registrant participates, filed as
Exhibit 10(k) to Registrant's Annual
Report on Form 10-K for the fiscal year
ended December 31, 1992 and incorporated
herein by this reference. Also,
Amendment and Restatement of M.A. Hanna
Company Supplemental Retirement Plan
dated as of January 1, 1999, filed
herewith. 59
*(h) Voluntary Non-Qualified Deferred
Compensation Plan in which any of the
five most highly compensated executive
officers of the Registrant participates,
filed as Exhibit A to the Registrant's
definitive proxy statement distributed
to stockholders dated March 20, 1995
filed with the Commission pursuant to
Regulation 14A, which Exhibit A is
incorporated herein by this reference.
(i) Termination Agreement and Release
between Registrant and its former
Chairman of the Board and Chief
Executive Officer, D. J. McGregor, dated
as of October 7, 1998, filed herewith. 80
[*- Identifies management contract
or compensation plans or
arrangements filed pursuant to
Item 601(b) (10) (iii) (A) ]
(11) Computation of per share earnings, filed
herewith. 90
(13) Registrant's Annual Report as
distributed to stockholders for the fiscal
year ended December 31, 1998, filed herewith. 91
(18) Letter regarding Change in Accounting
Principles, filed herewith. 127
(21) Subsidiaries of the Registrant, filed
herewith. 128
(23) Consent of Independent Accountants,
filed herewith. 129
(24) Powers of Attorney of certain Directors
of Registrant, filed herewith. 130
(27) Financial Data Schedule, filed herewith. 140
(ii) Other exhibits:
Financial statements (and consent
of independent accountants) pursuant to Form
11-K and Rule 15D-21 for the year ended
December 31, 1998, for the Capital
Accumulation Plan for Salaried Employees of
M. A. Hanna Company and Associated Companies,
and for stock purchase/savings plans of
Registrant's subsidiaries and divisions will
be filed as exhibits to the Form 10-K under a
Form 10-K/A amendment not later than June 29,
1999.
(b) Since September 30, 1998, Registrant has
filed no report on Form 8-K.
(c) The response to this portion of Item 14
is submitted as a separate Section
commencing on page X-1 of this Form 10-
K.
(d) The response to this portion of Item 14
is submitted as a separate section
commencing on page F-1 of this Form 10-
K.
Item 14(c) Exhibit (i) (10) (d)
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement
(this "Agreement"), dated as of August 5, 1998, by and
between M.A. HANNA COMPANY, a Delaware corporation (the
"Company") and (the "Executive");
WITNESSETH:
WHEREAS, the Executive is an executive officer of
the Company and has made and is expected to continue to make
major contributions to the short- and long-term
profitability, growth and financial strength of the Company;
WHEREAS, the Company recognizes that, as is the
case for most publicly held companies, the possibility of a
Change in Control (as that term is hereafter defined)
exists;
WHEREAS, the Company desires to assure itself of
both present and future continuity of management in the
event of a Change in Control and, having established certain
employment rights of its key executive officers applicable
in the event of a Change in Control, now desires to include
the Executive among the key senior executives with such
employment rights;
WHEREAS, the Company wishes to ensure that its
executive officers are not practically disabled from
discharging their duties in respect of a proposed or actual
transaction involving a Change in Control;
WHEREAS, this Agreement is not intended to alter
materially the compensation and benefits which the Executive
could reasonably expect to receive from the Company absent a
Change in Control and, accordingly, although effective and
binding as of the date hereof, this Agreement shall become
operative only upon the occurrence of a Change in Control;
WHEREAS, the Executive is willing to render
services to the Company on the terms and subject to the
conditions set forth in this Agreement; and
WHEREAS, the Company desires to take action to
provide additional inducement for the Executive to continue
to remain in the ongoing employ of the Company;
NOW, THEREFORE, the Company and the Executive
agree as
follows:
1. Operation of Agreement: (a) This Agreement
shall be effective and binding immediately upon its
execution, but, anything in this Agreement to the contrary
notwithstanding, this Agreement shall not become operative
unless and until a Change in Control occurs. For purposes
of this Agreement, a "Change in Control" shall have occurred
if at any time during the Term (as that term is hereafter
defined) any of the following events shall occur:
(i) The acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 15% or more of
either: (A) the then-outstanding shares of common stock
of the Company (the "Company Common Stock") or (B) the
combined voting power of the then-outstanding voting
securities of the Company entitled to vote generally in
the election of directors ("Voting Stock"); provided,
however, that for purposes of this subsection (i), the
following acquisitions shall not constitute a Change of
Control: (A) any acquisition directly from the Company,
(B) any acquisition by the Company, (C) any acquisition
by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any
Subsidiary of the Company, or (D) any acquisition by
any Person pursuant to a transaction which complies
with clauses (A), (B) and (C) of subsection (iii) of
this Section 1(a); or
(ii) Individuals who, as of the date hereof,
constitute the Board (the "Incumbent Board") cease for
any reason (other than death or disability) to
constitute at least a majority of the Board; provided,
however, that any individual becoming a director
subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders,
was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board (either
by a specific vote or by approval of the proxy
statement of the Company in which such person is named
as a nominee for director, without objection to such
nomination) shall be considered as though such
individual were a member of the Incumbent Board, but
excluding for this purpose, any such individual whose
initial assumption of office occurs as a result of an
actual or threatened election contest (within the
meaning of Rule 14a-11 of the Exchange Act) with
respect to the election or removal of directors or
other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the
Board; or
(iii) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or
substantially all of the assets of the Company (a
"Business Combination"), in each case, unless,
following such Business Combination, (A) all or
substantially all of the individuals and entities who
were the beneficial owners, respectively, of the
Company Common Stock and Voting Stock immediately prior
to such Business Combination beneficially own, directly
or indirectly, more than 66.6% of, respectively, the
then-outstanding shares of common stock and the
combined voting power of the then-outstanding voting
securities entitled to vote generally in the election
of directors, as the case may be, of the entity
resulting from such Business Combination (including,
without limitation, an entity which as a result of such
transaction owns the Company or all or substantially
all of the Company's assets either directly or through
one or more subsidiaries) in substantially the same
proportions relative to each other as their ownership,
immediately prior to such Business Combination, of the
Company Common Stock and Voting Stock of the Company,
as the case may be, (B) no Person (excluding any entity
resulting from such Business Combination or any
employee benefit plan (or related trust) sponsored or
maintained by the Company or such entity resulting from
such Business Combination) beneficially owns, directly
or indirectly, 15% or more of, respectively, the then-
outstanding shares of common stock of the entity
resulting from such Business Combination, or the
combined voting power of the then-outstanding voting
securities of such corporation except to the extent
that such ownership existed prior to the Business
Combination and (C) at least a majority of the members
of the board of directors of the corporation resulting
from such Business Combination were members of the
Incumbent Board at the time of the execution of the
initial agreement, or of the action of the Board,
providing for such Business Combination; or
(iv) Approval by the shareholders of the Company
of a complete liquidation or dissolution of the
Company.
(b) Upon the occurrence of a Change in Control at
any time during the Term, without further action, this
Agreement shall become immediately operative.
(c) The period during which this Agreement shall
be in effect (the "Term") shall commence as of the date
hereof and shall expire as of the later of (i) the close of
business on December 31, 2001 and (ii) the expiration of the
Period of Employment (as that term is hereafter defined),
provided, however, that (A) commencing on the first day of
the first calendar year after the year in which this
Agreement is executed and each January 1 thereafter, the
term of this Agreement shall automatically be extended for
an additional year unless, not later than September 30 of
the immediately preceding year, the Company or the Executive
shall have given written notice that it or he, as the case
may be, does not wish to have the Term extended, and (B)
subject to Section 10 hereof, if, prior to a Change in
Control, the Executive ceases for any reason to be an
officer of the Company or any Subsidiary, thereupon the
Term, without further action, shall be deemed to have
expired and this Agreement shall immediately terminate and
be of no further effect.
2. Employment; Period of Employment: (a)
Subject to the terms and conditions of this Agreement, upon
the occurrence of a Change in Control, the Company shall
continue the Executive in its employ and the Executive shall
remain in the employ of the Company for the period set forth
in Section 2(b) hereof (the "Period of Employment"), in the
position and with substantially the same duties and
responsibilities that he had immediately prior to the Change
in Control, or to which the Company and the Executive may
hereafter mutually agree in writing. Throughout the Period
of Employment, the Executive shall devote substantially all
of his time during normal business hours (subject to
vacations, sick leave and other absences in accordance with
the policies of the Company as in effect for senior
executives immediately prior to the Change in Control) to
the business and affairs of the Company, but nothing in this
Agreement shall preclude the Executive from devoting
reasonable periods of time during normal business hours to
(i) serving as a director, trustee or member of or
participant in any organization or business as long as such
activity would not constitute Competitive Activity if
conducted by the Executive after the Executive's Termination
Date, (ii) engaging in charitable and community activities,
or (iii) managing his personal investments. For purposes of
this Agreement, the term "Competitive Activity" shall mean
the Executive's participation in the management of any
business enterprise if such enterprise engages in
substantial and direct competition with the Company.
"Competitive Activity" shall not include the mere ownership
of securities in any such enterprise and the exercise of
rights appurtenant thereto.
(b) The Period of Employment shall commence on
the date of an occurrence of a Change in Control and,
subject only to the provisions of Sections 1(b) and 5
hereof, shall continue until the earlier of (i) the
expiration of the third anniversary of the occurrence of the
Change in Control, (ii) the Executive's death, or (iii) the
Executive's attainment of age 65; provided, however, that
commencing on each anniversary of the Change in Control, the
Period of Employment shall automatically be extended for an
additional year unless, not later than 90 calendar days
prior to such anniversary date, either the Company or the
Executive shall have given written notice to the other that
the Period of Employment shall not be so extended.
3. Compensation During Period of Employment: (a)
For his services pursuant to Section 2(a) hereof, upon the
occurrence of a Change in Control, the Executive shall
receive during the Period of Employment (i) annual base
salary at the highest rate in effect in the twelve months
prior to the occurrence of the Change in Control (payable
monthly or otherwise as in effect for senior executives of
the Company immediately prior to the occurrence of the
Change in Control) or such higher rate as may be determined
from time to time by the Board of Directors of the Company
(the "Board") or the Compensation and Organization Committee
thereof (the "Committee") (which base salary at such rate is
herein referred to as "Base Pay") and (ii) an annual amount
equal to not less than the average aggregate annual bonus,
incentive or other payments of cash compensation in addition
to the amounts referred to in clause (i) above made or to be
made in regard to services rendered during the three
calendar years immediately preceding the year in which the
Change in Control occurred pursuant to any bonus, short-term
incentive, profit-sharing, performance, discretionary pay or
similar policy, plan, program or arrangement of the Company
or any successor thereto ("Incentive Pay"), provided,
however, that, (x) with the prior written consent of the
Executive, nothing herein shall preclude a change in the mix
between Base Pay and Incentive Pay so long as the aggregate
cash compensation received by the Executive in any one
calendar year is not reduced in connection therewith or as a
result thereof, (y) the aggregate of the Executive's Base
Pay and Incentive Pay may be reduced as provided in Section
6(a)(iii) hereof, and (z) in no event shall any increase in
the Executive's aggregate cash compensation or any portion
thereof in any way diminish any other obligations of the
Company under this Agreement.
(b) For his services pursuant to Section 2(a)
hereof, during the Period of Employment the Executive shall
be a full participant in, and shall be entitled to the
perquisites, benefits and service credit for benefits as
provided under any and all employee retirement income and
welfare benefit policies, plans, programs or arrangements in
which senior executives of the Company were entitled to
participate immediately prior to the Change in Control,
including without limitation any stock option, stock
purchase, stock appreciation, savings, pension, supplemental
executive retirement or other retirement income or welfare
benefit, deferred compensation, long-term incentive
compensation, group and/or other executive life, health,
medical/hospital or other insurance (whether funded by
actual insurance or self-insured by the Company),
disability, salary continuation, expense reimbursement and
other policies, plans, programs or arrangements providing
perquisites, benefits and service credit for benefits at
least as great as are payable thereunder prior to a Change
in Control (collectively, "Employee Benefits"), provided,
however, that except as expressly provided in, and subject
to the terms of, Sections 6(b)(ii) and (iii) hereof, the
Executive's rights thereunder shall be governed by the terms
thereof and shall not be enlarged hereunder or otherwise
affected hereby. Subject to the proviso in the immediately
preceding sentence, if and to the extent such perquisites,
benefits or service credit for benefits are not payable or
provided under any such policy, plan, program or arrangement
as a result of the amendment or termination thereof, then
the Company shall itself pay or provide therefor. Nothing
in this Agreement shall preclude improvement or enhancement
of any such Employee Benefits, provided that no such
improvement shall in any way diminish any other obligation
of the Company under this Agreement.
4. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event that this Agreement shall
become operative and it shall be determined (as hereafter
provided) that any payment or distribution by the Company or
any of its affiliates to or for the benefit of the
Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise pursuant to or by reason of any other agreement,
policy, plan, program or arrangement, including without
limitation any stock option, stock appreciation right or
similar right, or the lapse or termination of any
restriction on or the vesting or exercisability of any of
the foregoing (a "Payment"), would be subject to the excise
tax imposed by Section 4999 of the Internal Revenue Code of
1986, as amended (the "Code") (or any successor provision
thereto) by reason of being considered "contingent on a
change in ownership or control" of the Company, within the
meaning of Section 280G of the Code (or any successor
provision thereto) or to any similar tax imposed by state or
local law, or any interest or penalties with respect to such
tax (such tax or taxes, together with any such interest and
penalties, being hereafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to
receive an additional payment or payments (collectively, a
"Gross-Up Payment"); provided, however, that no Gross-up
Payment shall be made with respect to the Excise Tax, if
any, attributable to (i) any incentive stock option, as
defined by Section 422 of the Code ("ISO") granted prior to
the execution of this Agreement, or (ii) any stock
appreciation or similar right, whether or not limited,
granted in tandem with any ISO described in clause (i). The
Gross-Up Payment shall be in an amount such that, after
payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes),
including any Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payment.
(b) Subject to the provisions of Section 4(f)
hereof, all determinations required to be made under this
Section 4, including whether an Excise Tax is payable by the
Executive and the amount of such Excise Tax and whether a
Gross-Up Payment is required to be paid by the Company to
the Executive and the amount of such Gross-Up Payment, if
any, shall be made by a nationally recognized accounting
firm (the "Accounting Firm") selected by the Executive in
his sole discretion. The Executive shall direct the
Accounting Firm to submit its determination and detailed
supporting calculations to both the Company and the
Executive within 30 calendar days after the Termination
Date, if applicable, and any such other time or times as may
be requested by the Company or the Executive. If the
Accounting Firm determines that any Excise Tax is payable by
the Executive, the Company shall pay the required Gross-Up
Payment to the Executive within five business days after
receipt of such determination and calculations with respect
to any Payment to the Executive. If the Accounting Firm
determines that no Excise Tax is payable by the Executive,
it shall, at the same time as it makes such determination,
furnish the Company and the Executive an opinion that the
Executive has substantial authority not to report any Excise
Tax on his federal, state or local income or other tax
return. As a result of the uncertainty in the application
of Section 4999 of the Code (or any successor provision
thereto) and the possibility of similar uncertainty
regarding applicable state or local tax law at the time of
any determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been
made by the Company should have been made (an
"Underpayment"), consistent with the calculations required
to be made hereunder. In the event that the Company
exhausts or fails to pursue its remedies pursuant to Section
4(f) hereof and the Executive thereafter is required to make
a payment of any Excise Tax, the Executive shall direct the
Accounting Firm to determine the amount of the Underpayment
that has occurred and to submit its determination and
detailed supporting calculations to both the Company and the
Executive as promptly as possible. Any such Underpayment
shall be promptly paid by the Company to, or for the benefit
of, the Executive within five business days after receipt of
such determination and calculations.
(c) The Company and the Executive shall each
provide the Accounting Firm access to and copies of any
books, records and documents in the possession of the
Company or the Executive, as the case may be, reasonably
requested by the Accounting Firm, and otherwise cooperate
with the Accounting Firm in connection with the preparation
and issuance of the determinations and calculations
contemplated by Section 4(b) hereof. Any determination by
the Accounting Firm as to the amount of the Gross-Up Payment
shall be binding upon the Company and the Executive.
(d) The federal, state and local income or other
tax returns filed by the Executive shall be prepared and
filed on a consistent basis with the determination of the
Accounting Firm with respect to the Excise Tax payable by
the Executive. The Executive shall make proper payment of
the amount of any Excise Payment, and at the request of the
Company, provide to the Company true and correct copies
(with any amendments) of his federal income tax return as
filed with the Internal Revenue Service and corresponding
state and local tax returns, if relevant, as filed with the
applicable taxing authority, and such other documents
reasonably requested by the Company, evidencing such
payment. If prior to the filing of the Executive's federal
income tax return, or corresponding state or local tax
return, if relevant, the Accounting Firm determines that the
amount of the Gross-Up Payment should be reduced, the
Executive shall within five business days pay to the Company
the amount of such reduction.
(e) The fees and expenses of the Accounting Firm
for its services in connection with the determinations and
calculations contemplated by Section 4(b) hereof shall be
borne by the Company. If such fees and expenses are
initially paid by the Executive, the Company shall reimburse
the Executive the full amount of such fees and expenses
within five business days after receipt from the Executive
of a statement therefor and reasonable evidence of his
payment thereof.
(f) The Executive shall notify the Company in
writing of any claim by the Internal Revenue Service or any
other taxing authority that, if successful, would require
the payment by the Company of a Gross-Up Payment. Such
notification shall be given as promptly as practicable but
no later than 10 business days after the Executive actually
receives notice of such claim and the Executive shall
further apprise the Company of the nature of such claim and
the date on which such claim is requested to be paid (in
each case, to the extent known by the Executive). The
Executive shall not pay such claim prior to the earlier of
(i) the expiration of the 30-calendar-day period following
the date on which he gives such notice to the Company and
(ii) the date that any payment of amount with respect to
such claim is due. If the Company notifies the Executive in
writing prior to the expiration of such period that it
desires to contest such claim, the Executive shall:
(i) provide the Company with any written records
or documents in his possession relating to such claim
reasonably requested by the Company;
(ii) take such action in connection with
contesting such claim as the Company shall reasonably
request in writing from time to time, including without
limitation accepting legal representation with respect to
such claim by an attorney competent in respect of the
subject matter and reasonably selected by the Company;
(iii) cooperate with the Company in good faith in
order effectively to contest such claim; and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay
directly all costs and expenses (including interest and
penalties) incurred in connection with such contest and
shall indemnify and hold harmless the Executive, on an
after-tax basis, for and against any Excise Tax or income
tax, including interest and penalties with respect thereto,
imposed as a result of such representation and payment of
costs and expenses. Without limiting the foregoing
provisions of this Section 4(f), the Company shall control
all proceedings taken in connection with the contest of any
claim contemplated by this Section 4(f) and, at its sole
option, may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim (provided,
however, that the Executive may participate therein at his
own cost and expense) and may, at its option, either direct
the Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and the
Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court
of initial jurisdiction and in one or more appellate courts,
as the Company shall determine; provided, however, that if
the Company directs the Executive to pay the tax claimed and
sue for a refund, the Company shall advance the amount of
such payment to the Executive on an interest-free basis and
shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income or other tax,
including interest or penalties with respect thereto,
imposed with respect to such advance; and provided further,
however, that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the
Executive with respect to which the contested amount is
claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of any such
contested claim shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the
case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(g) If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 4(f)
hereof, the Executive receives any refund with respect to
such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 4(f) hereof)
promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after
any taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to
Section 4(f) hereof, a determination is made that the
Executive shall not be entitled to any refund with respect
to such claim and the Company does not notify the Executive
in writing of its intent to contest such denial or refund
prior to the expiration of 30 calendar days after such
determination, then such advance shall be forgiven and shall
not be required to be repaid and the amount of any such
advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid by the Company to the
Executive pursuant to this Section 4.
5. Termination Following a Change in Control:
In the event of the occurrence of a Change in Control, the
Executive's employment may be terminated by the Company
during the Period of Employment and the Executive shall be
entitled to the damages provided by Section 6(b) hereof
unless such termination is solely the result of the
occurrence of one or more of the following events:
(a) The Executive's death;
(b) If the Executive shall become
permanently disabled within the meaning of,
and begins actually to receive disability
benefits pursuant to, the long-term
disability plan in effect for senior
executives of the Company immediately prior
to the Change in Control; or
(c) "Cause", which for purposes of this
Agreement shall mean that, prior to any
termination pursuant to Section 5 hereof, the
Executive shall have committed:
(i) an intentional
act of fraud, embezzlement or theft
in connection with his duties or in
the course of his employment with
the Company;
(ii) intentional
wrongful damage to property of the
Company;
(iii) intentional wrongful
disclosure of proprietary or
confidential information of the
Company; or
(iv) intentional wrongful
engagement in any Competitive
Activity;
and any such act shall have been materially harmful to the
Company. "Cause" shall also mean that, prior to such
termination, the Executive shall have been convicted for a
crime involving moral turpitude, which conviction if
appealed shall have been sustained on appeal. For purposes
of this Agreement, no act, or failure to act, on the part of
the Executive shall be deemed "intentional" if it was due
primarily to an error in judgment or negligence, but shall
be deemed "intentional" only if done, or omitted to be done,
by the Executive not in good faith and without reasonable
belief that his action or omission was in, or not opposed
to, the best interest of the Company. Notwithstanding the
foregoing, the Executive shall not be deemed to have been
terminated for "Cause" hereunder unless and until there
shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less
than three-quarters of the Board then in office at a meeting
of the Board called and held for such purpose (after
reasonable notice to the Executive and an opportunity for
the Executive, together with his counsel (if the Executive
chooses to have counsel present at such meeting), to be
heard before the Board, finding that, in good faith opinion
of the Board, the Executive had committed an act
constituting "Cause" as herein defined and specifying the
particulars thereof in detail. Nothing herein shall limit
the right of the Executive or his beneficiaries to contest
the validity or propriety of any such determination.
6. Damages for Breach by Company: (a) Each and
every term of Executive's employment set forth in Sections
2, 3 and 4 hereof is deemed to be a material term of this
Agreement, and any failure by the Company to perform any
term thereof precisely as provided herein shall be deemed a
material breach of this Agreement and a rejection of an
offer by the Executive to work for the Company on the terms
provided in this Agreement, entitling Executive to repudiate
this Agreement and to cease performing any services for the
Company, and thereupon Executive shall be entitled to the
damages provided in Section 6(b) hereof. Without limiting
the generality of the foregoing, the taking of any of the
following actions by the Company during the Period of
Employment, following the occurrence of a Change in Control,
shall be a material breach of this Agreement by the Company:
(i) Any termination by the Company of the
employment of the Executive prior to the date upon
which the Executive shall have attained age 65, which
termination shall be for any reason other than for
Cause or as a result of the death of the Executive or
by reason of the Executive's permanent disability and
the actual receipt of disability benefits in accordance
with Section 6(b) hereof;
(ii) Failure to elect, reelect or otherwise
maintain the Executive in the office or position, or a
substantially equivalent office or position, of or with
the Company or a Subsidiary which the Executive held
immediately prior to a Change in Control, or the
removal of the Executive as a Director of the Company
(or any successor thereto) if the Executive shall have
been a Director of the Company immediately prior to the
Change in Control;
(iii) Action effecting a significant adverse
change in the nature or scope of the authorities,
powers, functions, responsibilities or duties attached
to the position with the Company which the Executive
held prior to the Change in Control, a reduction in the
aggregate of the Executive's Base Pay and Incentive Pay
received from the Company, if such reduction does not
affect all senior executives of the Company
proportionately (such Base Pay and Incentive Pay shall
be the higher of (x) the Base Pay and Incentive Pay at
the time of the Change in Control and (y) the Base Pay
and Incentive Pay at the date of the Executive's
termination), or the termination or denial of the
Executive's rights to Employee Benefits to which he was
entitled immediately prior to the Change in Control or
a significant reduction in scope or value thereof, any
which situation is not remedied within 10 calendar days
after receipt by the Company of written notice from the
Executive;
(iv) A determination by the Executive (which
determination shall be conclusive and binding upon the
parties hereto provided that it was made in good faith
and in all events shall be presumed to have been made
in good faith unless otherwise shown by the Company by
clear and convincing evidence) that a change in
circumstances has occurred following a change in
control, including without limitation, a change in the
scope of the business or other activities for which the
Executive was responsible immediately prior to the
Change in Control, a substantial reduction in any of
the authorities, powers, functions, responsibilities or
duties attached to the position held by the Executive
immediately prior the Change in Control, or a
significant hindrance to the Executive's ability to
perform his duties, any which situation is not remedied
within 10 calendar days after receipt by the Company of
written notice of such determination from the
Executive;
(v) The liquidation, dissolution, merger,
consolidation or reorganization of the Company or
transfer of all or a significant portion of its
business and/or assets, unless the successor or
successors (by liquidation, merger, consolidation,
reorganization, transfer or otherwise) to which all or
a significant portion of its business and/or assets
have been transferred (directly or by operation of law)
shall have assumed all duties and obligations of the
Company under this Agreement pursuant to Section 12
hereof;
(vi) The Company shall relocate its principal
executive offices, or require the Executive to have his
principal location of work changed, to any location
which is in excess of 25 miles from the location
thereof immediately prior to the Change in Control or
the Company shall require the Executive to travel away
from his office in the course of discharging his
responsibilities or duties hereunder significantly more
(in terms of either consecutive days or aggregate days
in any calendar year when annualized for purposes of
comparison to any prior year) than was required of him
prior to the Change in Control without, in either case,
his prior written consent; or
(vii)Without limiting the generality or effect of
the foregoing, any other material breach of this
Agreement by the Company or any successor thereto.
(b) If, following the occurrence of a Change in
Control, the Company shall terminate the Executive's
employment during the Period of Employment other than
pursuant to Section 5 hereof, or if there shall be a
material breach of this Agreement by the Company as provided
in Section 6(a) hereof, the Company shall pay or provide to
the Executive the following, as liquidated damages:
(i) the amount specified below within five
business days after the date (the "Termination Date")
that the Executive's employment is terminated (the
effective date of which shall be the date of
termination or such other date that may be specified by
the Executive if the termination is pursuant to Section
6(a) hereof): In lieu of any further payments to the
Executive for periods subsequent to the Termination
Date, but without affecting the rights of the Executive
referred to in Section 6(b)(ii) or 6(b)(iii) hereof, a
lump sum payment (the "Lump Sum Damages") in an amount
equal to the present value (using a discount rate
prescribed for purposes of valuation computations under
Section 280G of the Code or any successor provision
thereto (the "Discount Rate")) of the sum of (A) Base
Pay (at the highest rate in effect for any year prior
to the Termination Date), which the Executive would
have received had such termination or breach not
occurred, for the longer of (1) 18 months or (2) the
remainder of the Period of Employment, plus (B)
Incentive Pay (based upon the average amount of
Incentive Pay earned in the three fiscal years
immediately preceding the year in which the Change in
Control occurred), which the Executive would have
received pursuant to this Agreement during or with
respect to the longer of (1) 18 months or (2) the
remainder of the Period of Employment, had such
termination or breach not occurred; and
(ii) For the longer of (A) 18 months or (B) the
remainder of the Period of Employment (the
"Continuation Period"), Employee Benefits that are
health or welfare benefits (but not stock option, stock
purchase, stock appreciation or similar compensatory
benefits) substantially similar to those which the
Executive was receiving or entitled to receive
immediately prior to the Termination Date. If and to
the extent that such benefits shall not or cannot be
paid or provided under any policy, plan, program or
arrangement of the Company, then the Company shall
itself pay or provide for the payment to the Executive,
his dependents and beneficiaries, such Employee
Benefits. Notwithstanding the foregoing, or any other
provision of the Agreement, for purposes of determining
the period of continuation coverage to which the
Executive or any of his dependents is entitled pursuant
to Section 4980B of the Code (or any successor
provision thereto) under the Company's medical, dental
and other group health plans, or successor plans, the
Executive's "qualifying event" shall be the termination
of the Continuation Period and the Executive shall be
considered to have remained actively employed on a full-
time basis through that date. Without otherwise
limiting the purposes or effect of Section 7 hereof,
Employee Benefits payable to the Executive pursuant to
this Section 6(b)(ii) by reason of any "welfare benefit
plan" of the Company (as the term "welfare benefit
plan" is defined in Section 3(l) and any successor
provision thereto of the Employee Retirement Income
Security Act of 1974, as amended) shall be reduced to
the extent comparable welfare benefits are actually
received by the Executive from another employer during
such period following the Executive's Termination Date
until the expiration of the Continuation Period and any
such benefits actually received by the Executive shall
be reported to the Company.
(iii) The Executive shall also be entitled to
receive from the Company, within five business days
after the Termination Date, a lump sum payment equal to
the sum of (I) the present value (determined using a
discount rate prescribed for purposes of valuation
computations under Section 280G of the Code in any
successor provision thereto) of the excess of (X) what
the Executive's aggregate accrued benefits under all of
the Company's defined benefit plans in which the
Executive participates, whether or not such plans are
intended to be qualified under Section 401(a) of the
Code (including without limitation the M.A. Hanna
Company Salaried Employees Retirement Income Plan and
the M.A. Hanna Company Supplemental Retirement Benefit
Plan (the "Supplemental Plan")), would be if determined
after the Executive was given service credit thereunder
(at the rate of pay provided for in Section 3(a)) for
the 36-month period following the Termination Date over
(Y) the Executive's actual aggregate accrued benefit
under such plans as of the Termination Date, plus (II)
the aggregate employer contributions that the Company
would be required to make to the Executive's accounts
under all of the Company's defined contribution plans
in which the Executive participates, whether or not
such plans are intended to be qualified under Section
401(a) of the Code (including, without limitation, the
M.A. Hanna Company Capital Accumulation Plan and the
Supplemental Plan), for the 36-month period following
the Termination Date if (1) the Executive remained
employed by the Company for such period, (2) the
Executive continued during such period to authorize his
own elective contributions to such plans at the highest
rate selected by the Executive during either the three-
year period preceding the Termination Date or the three-
year period preceding the Change in Control and (3) the
rate at which the Company made matching, discretionary
or nondiscretionary employer contributions to such
plans during such period was at the highest rate for
each such type of contribution that was in effect at
any time during either the three-year period preceding
the Termination Date or the three-year period preceding
the Change in Control.
(c) A termination by the Company pursuant to
Section 5 or 6(a)(i) hereof or by the Executive pursuant to
Section 6(a) hereof shall not affect any rights which the
Executive may have pursuant to any agreement, policy, plan,
program or arrangement of the Company providing Employee
Benefits, which rights shall be governed by the terms
thereof. If this Agreement or the employment of the
Executive is terminated under circumstances in which the
Executive is not entitled to any payments under this
Agreement, the Executive shall have no further obligation or
liability to the Company hereunder with respect to his prior
or any future employment by the Company.
(d) Upon written notice given by the Executive to
the Company prior to the occurrence of a Change in Control,
the Executive, at his sole option, without reduction to
reflect the present value of such amounts as aforesaid, may
elect to have all or any of the Lump Sum Damages payable
pursuant to Section 6(b)(i) hereof paid to him on a
quarterly or monthly basis during the remainder of the
Period of Employment.
(e) There shall be no right of set-off or
counterclaim in respect of any claim, debt or obligation
against any payment to or benefit for the Executive provided
for in this Agreement.
(f) Without limiting the rights of the Executive
at law or in equity, if the Company fails to make any
payment required to be made hereunder on a timely basis, the
Company shall pay interest on the amount thereof at an
annualized rate of interest equal to the then applicable
interest rate prescribed by the Pension Benefit Guarantee
Corporation for benefit valuations in connection with non-
multiemployer pension plan terminations assuming the
immediate commencement of benefit payments. Such interest
shall be payable as it accrues on demand.
7. Mitigation: In the event that this Agreement
or the employment of the Executive by the Company hereunder
is terminated other than by the Company pursuant to Section
5 hereof, the Executive shall use reasonable efforts to
mitigate his damages by seeking other employment, provided,
however, that in no event shall the Executive be required
hereby to accept a position of less importance or dignity or
of substantial different character than the position held as
of the Termination Date or a position that would call upon
the Executive to engage in Competitive Activity (as that
term is hereafter defined), nor shall he be required hereby
to accept a position other than in a location within 25
miles of his principal location of work immediately prior to
the Change in Control. Subject to the foregoing provisions
of this Section 7, in the event that the Executive secures
other permanent employment with another Person, he shall
promptly pay over to the Company, as received by him in his
new employment, an amount equal to the lesser of (i) the
total cash compensation actually paid to him in his new
employment during the period of Employment, and (ii) the
amount of Lump Sum Damages received by him pursuant to
Section 6(b)(i) hereof (plus interest thereon using the
Discount Rate as in effect when the payment was made under
Section 6(b)(i) hereof as the annualized interest rate) or
Section 6(d) hereof in respect of the comparable period.
Except as otherwise expressly provided in this Section 7,
the Executive shall not be required to mitigate the amount
of any payment provided for in this Agreement by seeking
other employment or otherwise.
8. Competitive Activity: If the Executive shall
have received or shall be receiving benefits under Section
6(b) or 6(d) hereof, then for the longer of (i) one year, or
(ii) the period of time that the Executive receives benefits
under Section 6(b) or 6(d) hereof, the Executive shall not
engage in any Competitive Activity. For purposes of this
Agreement, the term "Competitive Activity" shall mean the
Executive's participation in the management of any business
enterprise if such enterprise engages in substantial and
direct competition with the Company. "Competitive Activity"
shall not include the mere ownership of securities in any
such enterprise and the exercise of rights appurtenant
thereto.
9. Legal Fees and Expenses: (a) It is the
intent of the Company that the Executive not be required to
incur the expenses associated with the enforcement of his
rights under this Agreement by litigation or other legal
action because the cost and expense thereof would
substantially detract from the benefits intended to be
extended to the Executive hereunder. Accordingly, if it
should appear to the Executive that the Company has failed
to comply with any of its obligations under this Agreement
or in the event that the Company or any other Person takes
any action to declare this Agreement void or unenforceable,
or institutes any litigation to deny, or to recover from,
the Executive the benefits intended to be provided to the
Executive hereunder, the Company irrevocably authorizes the
Executive from time to time to retain counsel of his choice,
at the expense of the Company as hereafter provided, to
represent the Executive in connection with the initiation or
defense of any litigation or other legal action, whether by
or against the Company or any Director, officer, stockholder
or other person affiliated with the Company, in any
jurisdiction. Notwithstanding any existing or prior
attorney-client relationship between the Company and such
counsel, the Company irrevocably consents to the Executive's
entering into an attorney-client relationship with such
counsel, and in that connection the Company and the
Executive agree that a confidential relationship shall exist
between the Executive and such counsel. The Company shall
pay or cause to be paid and shall be solely responsible for
any and all attorneys' and related fees and expenses
incurred by the Executive as a result of the Company's
failure to perform this Agreement or any provision thereof
or as a result of the Company or any Person contesting the
validity or enforceability of this Agreement or any
provision hereof as aforesaid.
(b) Without limiting the obligations of the
Company pursuant to this Agreement, in the event a Change in
Control occurs, the performance of the Company's obligations
under this Agreement shall be secured by amounts deposited
or to be deposited in trust pursuant to certain trust
agreements to which the Company shall be a party, providing,
among other things for the payment of severance compensation
to the Executive pursuant to Section 6 hereof, and the Gross-
Up Payment to the Executive pursuant to Section 4 hereof,
and providing that the reasonable fees and related expenses
of one or more professionals selected from time to time by
the Executive pursuant to Section 9(a) hereof shall be paid,
or reimbursed to the Executive if paid by the Executive,
either in accordance with the terms of such trust
agreements, or, if not so provided, on a regular, periodic
basis upon presentation by the Executive to the trustee of a
statement or statements prepared by such professional in
accordance with its customary practices. Any failure by the
Company to satisfy any of its obligations under this Section
9(b) shall not limit the rights of the Executive hereunder.
Upon the earlier to occur of (i) a Change in Control or (ii)
a declaration by the Board that a Change in Control is
imminent, the Company shall promptly to the extent it has
not previously done so, and in any event within five
business days:
(A) transfer to trustees of such trust
agreements to be added to the principal of the
trusts a sum equal to (I) the present value on the
date of the Change in Control (or on such fifth
business day if the Board has declared a Change in
Control to be imminent) of the payments to be made
to the Executive under the provisions of Sections
6 and 4 hereof, less (II) the balance in the
Executive's accounts provided for in such trust
agreements as of the most recent completed
valuation thereof, as certified by the trustee
under each trust agreement; provided, however,
that if the trustee under any trust agreement,
respectively, does not so certify by the end of
the fourth business day after the earlier of such
Change in Control or declaration, then the balance
of such respective account shall be deemed to be
zero. Any payments of severance compensation or
other benefits hereunder by the trustee pursuant
to any trust agreement shall, to the extent
thereof, discharge the Company's obligation to pay
severance compensation and other benefits
hereunder, it being the intent of the Company that
assets in such trusts be held as security for the
Company's obligation to pay severance compensation
and other benefits under this Agreement; and
(B) transfer to the trustees to be added to
the principal of the trusts under the trust
agreements the sum of one hundred thousand dollars
($100,000), less any principal in such trusts, on
such fifth business day dedicated to the payment
of the Company's obligations under Section 9(a)
hereof. Any payments of the Executive's
reasonable professional fees and related expenses
by the trustees pursuant to the trust agreements
shall, to the extent thereof, discharge the
Company's obligation hereunder, it being the
intent of the Company that assets in such trust be
held as security for the Company's obligation
under Section 9(a) hereof. The Executive
understands and acknowledges that the corpus of
the trust, or separate portion thereof, dedicated
to the payment of the Company's obligations under
Section 9(a) hereof will be $100,000 and that such
amount will be available to discharge not only the
obligations of the Company to the Executive under
Section 9(a) hereof, but also similar obligations
of the Company to other executives and employees
under similar provisions of other agreements.
(c) Subject to the foregoing, the Executive
shall have the status of a general unsecured
creditor of the Company and shall have no right
to, or security interest in, any assets of the
Company or any Subsidiary.
10. Employment Rights: Nothing expressed or
implied in this Agreement shall create any right or duty on
the part of the Company or the Executive to have the
Executive remain in the employment of the Company prior to
any Change in Control, provided, however, that any
termination of employment of the Executive or the removal of
the Executive from the office or position in the Company
following the commencement of any discussion with a third
Person that ultimately results in a Change in Control shall
be deemed to be a termination or removal of the Executive
after a Change in Control for purposes of this Agreement.
11. Withholding of Taxes: The Company may
withhold from any amounts payable under this Agreement all
federal, state, city or other taxes as shall be required
pursuant to any law or government regulation or ruling.
12. Successors and Binding Agreement: (a) The
Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation, reorganization
or otherwise) to all or substantially all of the business
and/or assets of the Company, by agreement in form and
substance satisfactory to the Executive, expressly to assume
and agree to perform this Agreement in the same manner and
to the same extent the Company would be required to perform
if no such succession had taken place. This Agreement shall
be binding upon and inure to the benefit of the Company and
any successor to the Company, including without limitation
any Persons acquiring directly or indirectly all or
substantially all of the business and/or assets of the
Company whether by purchase, merger, consolidation,
reorganization or otherwise (and such successor shall
thereafter be deemed the "Company" for the purposes of this
Agreement), but shall not otherwise be assignable,
transferable or delegable by the Company.
(b) This Agreement shall inure to the benefit of
and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors,
heirs, distributees and/or legatees.
(c) This Agreement is personal in nature and
neither of the parties hereto shall, without the consent of
the other, assign, transfer or delegate this Agreement or
any rights or obligations hereunder except as expressly
provided in Sections 11(a) and 11(b) hereof. Without
limiting the generality of the foregoing, the Executive's
right to receive payments hereunder shall not be assignable,
transferable or delegable, whether by pledge, creation of a
security interest or otherwise, other than by a transfer by
his will or by the laws of descent and distribution and, in
the event of any attempted assignment or transfer contrary
to this Section 12(c), the Company shall have no liability
to pay any amount so attempted to be assigned, transferred
or delegated.
(d) The Company and the Executive recognize that,
except as provided in Section 6 hereof, each party will have
no adequate remedy at law for breach by the other of any of
the agreements contained herein and, in the event of any
such breach, the Company and the Executive hereby agree and
consent that the other shall be entitled to a decree of
specific performance, mandamus or other appropriate remedy
to enforce performance of this Agreement.
13. Notice: For all purposes of this Agreement,
all communications including without limitation notices,
consents, requests or approvals provided for herein shall be
in writing and shall be deemed to have been duly given when
delivered or five business days after having been mailed by
United States registered or certified mail, return receipt
requested, postage prepaid, addressed to the Company (to the
attention of the Corporate Secretary of the Company) at its
principal executive office and to the Executive at his
principal residence, or to such other address as any party
may have furnished to the other in writing and in accordance
herewith, except that notices of change of address shall be
effective only upon receipt.
14. Governing Law: The validity, interpretation,
construction and performance of this Agreement shall be
governed by the laws of the State of Ohio, without giving
effect to the principles of conflict of laws of such State.
15. Validity: If any provision of this Agreement
or the application of any provision hereof to any Person or
circumstances is held invalid, unenforceable or otherwise
illegal, the remainder of this Agreement and the application
of such provision to any other Person or circumstances shall
not be affected, and the provision so held to be invalid,
unenforceable or otherwise illegal shall be reformed to the
extent (and only to the extent) necessary to make it
enforceable, valid and legal.
16. Miscellaneous: No provisions of this
Agreement may be modified, waived or discharged unless such
waiver, modification or discharge is agreed to in writing
signed by the Executive and the Company. No waiver by
either party hereto at any time of any breach by the other
party hereto or compliance with any condition or provision
of this Agreement to be performed by such other party shall
be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
No agreements or representations, oral or otherwise,
expressed or implied with respect to the subject matter
hereof have been made by either party which are not set
forth expressly in this Agreement. Whenever the context
requires or permits, the masculine gender shall include the
feminine gender.
17. Counterparts: This Agreement may be executed
in one or more counterparts, each of which shall be deemed
to be an original but all of which together will constitute
one and the same agreement.
18. Prior Agreement: This Agreement amends and
restates the Employment Agreement, dated as of __________
("Prior Agreement"), between the Company and the Executive,
which Prior Agreement shall, without further action, be
superseded as of the date first above written.
IN WITNESS WHEREOF, the parties have caused this
Agreement to be duly executed and delivered as of the date
first above written.
M.A. HANNA COMPANY
By:___________________________
Chairman and Chief
Executive Officer
___________________________
Executive
Item 14(c) Exhibit (i) (10) (g)
AMENDMENT AND RESTATEMENT OF
THE M. A. HANNA COMPANY
SUPPLEMENTAL RETIREMENT BENEFIT PLAN
WHEREAS, M. A. Hanna Company ("Hanna") and certain
other employers have established a qualified defined benefit
pension plan now known as the M. A. Hanna Company Salaried
Employees Retirement Income Plan ("SERIP"); and
WHEREAS, Hanna and certain other employers previously
established a qualified defined contribution pension plan known
as the Capital Accumulation Plan for Salaried Employees of M. A.
Hanna Company and Associated Companies ("CAP"); and
WHEREAS, effective December 31, 1998, Hanna amended
SERIP to cease benefit accruals as of such date and, effective
December 31, 1998, merged CAP with and into the M.A. Hanna
Company 401(k) and Retirement Plan and Trust (the "Retirement
Plan"); and
WHEREAS, SERIP and the Retirement Plan, pursuant to
Sections 401(a)(17), 401(k), 401(m), 402(g) and 415 of the Code,
place certain restrictions on the amount of benefits and
contributions that would otherwise be provided thereunder for
certain participants therein; and
WHEREAS, Hanna has previously established and restated
this M. A. Hanna Company Supplemental Retirement Benefit Plan to
provide certain SERIP and CAP participants with benefits and
contributions they would have received under SERIP and CAP except
for limitations described in the preceding paragraph (and certain
limitations previously contained in CAP), in consideration of
services performed and to be performed by each; and
WHEREAS, Hanna now desires to amend and restate the
Plan to provide certain Retirement Plan and SERIP participants
with benefits and contributions they would have received under
SERIP (prior to its amendment to cease benefit accruals effective
as of December 31, 1998) and the Retirement Plan (as in effect
after Hanna merged CAP with and into the Retirement Plan,
effective December 31, 1998) except for the limitations described
in the second preceding paragraph, in consideration of services
performed and to be performed by each.
NOW, THEREFORE, pursuant to the order of the Board,
Hanna hereby amends and restates this Plan, effective as of
January 1, 1999, as hereinafter set forth.
1. Definitions.
A. Certain words and phrases used herein are
defined in Article I of SERIP and/or the Retirement Plan and
shall have the respective meanings set forth therein, unless
otherwise specifically defined in this Plan or unless the context
clearly indicates otherwise.
B. "Beneficiary" shall mean such person or
persons (natural or otherwise) as may be designated by the
Participant as his Beneficiary under this Plan. Such a
designation may be made, and may be revoked or changed (without
the consent of any previously designated Beneficiary), only by an
instrument (in a form acceptable to CEBA) signed by the
Participant and filed with CEBA prior to the Participant's death.
In the absence of such a designation and at any other time when
there is no existing Beneficiary designated by the Participant to
whom payment is to be made pursuant to his designation, his
Beneficiary shall be his beneficiary as determined under SERIP or
the Retirement Plan, whichever is applicable to the Supplemental
Retirement Benefit involved. A person designated by a
Participant as his Beneficiary who or which ceases to exist shall
not be entitled to any part of any payment thereafter to be made
to the Participant's Beneficiary unless the Participant's
designation specifically provided to the contrary. If two or
more persons designated as a Participant's Beneficiary are in
existence, the amount of any payment to the Beneficiary under the
Plan shall be divided equally among such persons unless the
Participant shall have designated otherwise in the instrument
filed with CEBA pursuant to this subparagraph, and any action
permitted to be taken by a Beneficiary pursuant to any provision
of this Plan shall not be effective unless such action is taken
by all such persons other than any contingent Beneficiary who is
not entitled to any payment under this Plan until after another
then existing Beneficiary ceases to exist.
C. "Board" shall mean the Board of Directors of
Hanna.
D. "CAP" shall mean the qualified defined
contribution pension plan known as the Capital Accumulation Plan
for Salaried Employees of M. A. Hanna Company and Associated
Companies, effective as of October 1, 1985, which was merged with
and into the Retirement Plan effective December 31, 1998.
E. "Change in Control" shall mean:
(i) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of
15% or more of either: (I) the then-outstanding shares of
common stock of Hanna (the "Hanna Common Stock") or (II) the
combined voting power of the then-outstanding voting
securities of Hanna entitled to vote generally in the
election of directors ("Voting Stock"); provided, however,
that for purposes of this subsection (i), the following
acquisitions shall not constitute a Change in Control: (w)
any acquisition directly from Hanna, (x) any acquisition by
Hanna, (y) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by Hanna or any of
its subsidiaries, or (z) any acquisition by any Person
pursuant to a transaction which complies with clauses (I),
(II) and (III) of subsection (iii) of this Section 1(E); or
(ii) Individuals who, as of the date hereof, constitute
the Board (the "Incumbent Board") cease for any reason
(other than death or disability) to constitute at least a
majority of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof
whose election, or nomination for election by Hanna's
shareholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board (either
by a specific vote or by approval of the proxy statement of
Hanna in which such person is named as a nominee for
director, without objection to such nomination) shall be
considered as though such individual were a member of the
Incumbent Board, but excluding for this purpose, any such
individual whose initial assumption of office occurs as a
result of an actual or threatened election contest (within
the meaning of Rule 14a-11 of the Exchange Act) with respect
to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board; or
(iii) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or
substantially all of the assets of Hanna (a "Business
Combination"), in each case, unless, following such Business
Combination, (I) all or substantially all of the individuals
and entities who were the beneficial owners, respectively,
of Hanna Common Stock and Voting Stock immediately prior to
such Business Combination beneficially own, directly or
indirectly, more than 66 % of, respectively, the then-
outstanding shares of common stock and the combined voting
power of the then-outstanding voting securities entitled to
vote generally in the election of directors, as the case may
be, of the entity resulting from such Business Combination
(including, without limitation, an entity which as a result
of such transaction owns Hanna or all or substantially all
of Hanna's assets either directly or through one or more
subsidiaries) in substantially the same proportions relative
to each other as their ownership, immediately prior to such
Business Combination, of Hanna Common Stock and Voting Stock
of Hanna, as the case may be, (II) no Person (excluding any
entity resulting from such Business Combination or any
employee benefit plan (or related trust) sponsored or
maintained by Hanna or such entity resulting from such
Business Combination) beneficially owns, directly or
indirectly, 15% or more of, respectively, the then-
outstanding shares of common stock of the entity resulting
from such Business Combination, or the combined voting power
of the then-outstanding voting securities of such
corporation except to the extent that such ownership existed
prior to the Business Combination and (III) at least a
majority of the members of the board of directors of the
corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution
of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(iv) Approval by the shareholders of Hanna of a
complete liquidation or dissolution of Hanna.
F. "Code" shall mean the Internal Revenue Code
of 1986, as the same may from time to time be amended and as
interpreted by all valid rulings, regulations and other
interpretations.
G. "Controlled Group" shall mean Hanna and any
other trade or business that would be treated, together with
Hanna, as a single employer pursuant to Section 414(b) or 414(c)
of the Code, if the phrase "at least 50 percent" was substituted
for the phrase "at least 80 percent" each place it appears in
Section 1563(a)(1)of the Code.
H. "Employer" shall mean Hanna or any
corporation or business organization which has adopted this Plan
pursuant to paragraph 6.
I. "Hanna" shall mean M. A. Hanna Company, a
Delaware corporation, or its successor or successors in interest.
J. "Limitations of the Code" shall mean the
limitations imposed by Sections 401(a)(17), 401(k), 401(m) and
415 of the Code, or any successor provisions thereto, on (i) the
amount of benefits which may be payable to a Participant from
SERIP or (ii) the amount of contributions which may be made to
the Retirement Plan by or for a Participant.
K. "Participant" shall mean each individual who
is (i) a participant in SERIP or the Retirement Plan, (ii)
designated by the Board (or a committee thereof authorized to
make such designations) as a Participant in this Plan and (iii),
as a result of participation in this Plan, is entitled to a
Supplemental Retirement Benefit under this Plan. Each individual
who is so designated as a Participant under this Plan shall be
notified in writing of such fact by CEBA, which also shall
deliver a copy of the Plan to such individual.
L. "Plan" shall mean this M.A. Hanna Company
Supplemental Retirement Benefit Plan, as the same is hereby
amended and restated and may hereafter be amended or restated
from time to time. The provisions of the Plan, as amended and
restated effective as of January 1, 1999, shall apply only to
Participants who are actively employed by the Employer on or
after January 1, 1999. The rights and benefits of Participants
who retired or otherwise terminated employment with the Employer
before January 1, 1999 and who are not rehired thereafter shall
be governed by the provisions of the Plan in effect at the
relevant time or times of or preceding such retirement or other
termination of employment.
M. "Potential Change in Control" shall mean the
occurrence of any of the following events:
(i) Hanna enters into a letter of intent,
agreement in principle or other agreement, the consummation
of which would constitute a Change in Control;
(ii) The Board approves actions which, if
consummated, would constitute a Change in Control;
(iii) The Board determines that a Change in
Control is likely to occur; or
(iv) A Change in Control has occurred.
N. "Retirement Plan" shall mean the qualified
defined contribution plan known as the M.A. Hanna Company 401(k)
and Retirement Plan and Trust, as the same has been or may
hereafter be amended or restated from time to time.
O. "SERIP" shall mean the qualified defined
benefit pension plan previously known as The Hanna Mining Company
Group Annuity Plan and now known as M. A. Hanna Company Salaried
Employees Retirement Income Plan, as amended and restated as of
January 1, 1994, as the same has been or may hereafter be amended
or restated from time to time.
P. "Supplemental Employer Contributions" shall
have the meaning assigned thereto in paragraph 3.
Q. "Supplemental Member Contributions" shall
mean contributions made to the Plan at the direction of a
Participant pursuant to subparagraph C of paragraph 3, as a
result of the reduction of Associate Pre-Tax Contributions made
to the Retirement Plan due to the Limitations of the Code.
R. "Supplemental Retirement Benefit" shall mean
the Supplemental Retirement Plan Benefit and the Supplemental
SERIP Benefit and each of them.
S. "Supplemental Retirement Plan Account" shall
mean the account established for a Participant pursuant to
subparagraph B of paragraph 3.
T. "Supplemental Retirement Plan Benefit" shall
mean a retirement benefit determined as provided in paragraph 3.
U. "Supplemental SERIP Benefit" shall mean a
retirement benefit determined as provided in paragraph 2.
V. The masculine wherever used herein shall
include the feminine.
2. Determining the Supplemental SERIP Benefit.
A. Each Participant (or his Beneficiary, in the
event of the Participant's death) who is employed by the
Controlled Group on December 31, 1998 and whose benefits under
SERIP are reduced due to the Limitations of the Code or the
reduction in such Participant's Compensation pursuant to
subparagraph C of paragraph 3 or whose accrual of benefits under
SERIP ceased as a result of the amendment to SERIP which became
effective as of December 31, 1998, shall be entitled to a
Supplemental SERIP Benefit, which shall be determined as
hereinafter provided. The Supplemental SERIP Benefit of a
Participant or Beneficiary shall be a monthly amount equal to the
difference between (i) the amount of the monthly pension benefit
that would be payable in the normal form under SERIP to the
Participant or his Beneficiary, commencing on the earliest date
on which the Participant or Beneficiary could receive a monthly
pension benefit under SERIP without reduction for early
commencement, if the amount of such monthly pension benefit under
SERIP was calculated (a) without regard to (I) any reduction in
the Participant's Compensation pursuant to subparagraph C of
paragraph 3 and (II) the provisions of SERIP implementing the
Limitations of the Code and (b) by treating the provisions of
SERIP implementing the cessation of benefit accruals under SERIP
which are effective as of December 31, 1998 as if such provisions
were effective as of December 31, 2003, and (ii) the monthly
pension benefit in fact payable in the normal form under SERIP to
the Participant or his Beneficiary commencing on the earliest
date on which the Participant or Beneficiary could receive a
monthly pension benefit under SERIP without reduction for early
commencement. The Supplemental SERIP Benefit payable with
respect to a Participant shall be paid to him (or his
Beneficiary) as provided in subparagraph A of paragraph 4. The
determination of the amount of Supplemental SERIP Benefit shall
be made by CEBA pursuant to the provisions hereof, and the
decision of CEBA, if reasonable and made in good faith, shall be
final and conclusive on the Participant, his Employer, his
Beneficiary and all other persons.
B. Notwithstanding subparagraph A of paragraph
2, if a Participant terminates his employment with the Controlled
Group and is subsequently reemployed by the Controlled Group
following the receipt of all or part of his Supplemental SERIP
Benefit, (i) the payment of his Supplemental SERIP Benefit under
this Plan shall be suspended upon such reemployment and (ii) the
amount of his Supplemental SERIP Benefit shall be calculated upon
his subsequent termination of employment with the Controlled
Group in accordance with subparagraph A of paragraph 2, with such
adjustments as CEBA shall determine in its sole discretion to be
appropriate and equitable after taking into account the previous
payment of all or part of the Participant's Supplemental SERIP
Benefit.
3. Determining the Supplemental Retirement Plan
Benefit. Each Participant shall be entitled to a Supplemental
Retirement Plan Benefit, if any, equal to (x) the Participant's
Supplemental CAP Benefit under the Plan as of December 31, 1998
plus (y) for each Participant whose additions to the Retirement
Plan for any year commencing on or after January 1, 1999 are
reduced due to the Limitations of the Code, the amount determined
as hereinafter provided.
A. Each Employer shall (i) calculate for each
Plan Year the amount of any and all Company Match Contributions
and Retirement Contributions (hereinafter referred to as
"Supplemental Employer Contributions") which would have been
contributed to the Retirement Plan during such Plan Year but
which, due to the Limitations of the Code, cannot be allocated
and credited to the Account maintained under the Retirement Plan
for a Participant, and (ii) credit the amount of such
Supplemental Employer Contributions to the Participant's
Supplemental Retirement Plan Account as hereinafter provided.
B. Each such Employer shall establish and
maintain on its books an account for each such Participant (the
"Supplemental Retirement Plan Account") which shall contain, in a
subaccount thereunder, the following entries:
(i) Credits, effective as of the dates any
Supplemental Employer Contribution described in subparagraph
A of this paragraph 3 would have been made to the Retirement
Plan except for the Limitations of the Code, in the amount
of such Supplemental Employer Contributions credited to the
Participant from time to time pursuant to clause (ii) of
subparagraph A of this paragraph 3; and
(ii) Charges for amounts paid to the Participant or his
Beneficiary from time to time pursuant to the terms hereof
and charged against such subaccount by CEBA pursuant to
subparagraph B of paragraph 4; and
(iii) Credits or charges (including expenses,
gains, losses and earnings) equal to the amounts which would
have been attributable to the Supplemental Employer
Contributions described in this subparagraph B if such
Contributions had been properly credited to the
Participant's Account under the Retirement Plan, had been
invested on a tax deferred basis and had been credited with
gains, losses and earnings based on investment deferral
crediting options and procedures determined by CEBA
quarterly. The entries provided by this clause (iii) shall
continue to be made until an amount equal to the entire
subaccount maintained pursuant to this subparagraph B has
been distributed to, or received by, the Participant and/or
his Beneficiary pursuant to subparagraph B of paragraph 4 or
subparagraph B of paragraph 5.
C. Each Participant (or person who has been
notified he is to become a Participant commencing with the first
day of the next calendar year) whose contributions to the
Retirement Plan are reduced due to Limitations of the Code may,
within 30 days after the Plan becomes effective as to him and
prior to December 31 of each calendar year thereafter, by written
notice to CEBA on a form provided by it, direct his Employer (i)
to reduce (in accordance with rules established by CEBA) his
Compensation for the balance of the calendar year in which the
Plan becomes effective as to him or for the next succeeding
calendar year by any or all of the amounts which he could have
contributed to the Retirement Plan pursuant to the applicable
provisions of the Retirement Plan (calculated for purposes of
this Plan without regard to any reduction in the Participant's
Compensation pursuant to this subparagraph C) as Associate Pre-
Tax Contributions except for the Limitations of the Code, and
(ii) to credit the amount of such Supplemental Member
Contributions to the Participant's Supplemental Retirement Plan
Account as hereinafter provided. The Employer of each
Participant who so directs that his Compensation be reduced shall
establish and maintain a separate subaccount under the
Supplemental Retirement Plan Account of each such Participant
which shall contain the following entries:
(a) Credits, effective as of the dates any
Supplemental Member Contributions described in this
subparagraph C would have been made to the Retirement Plan
except for the Limitations of the Code, in the amount of
Supplemental Member Contributions credited to the
Participant from time to time pursuant to clause (ii) of
this subparagraph C; and
(b) Credits (hereinafter referred to as "Supplemental
Employer Contributions") equal to the amounts which would
have been contributed by the Employers to the Retirement
Plan for such Participant, from time to time, as
Supplemental Employer Contributions if the Participant's
Supplemental Member Contributions had been properly
contributed by him pursuant to the applicable provisions of
the Retirement Plan (notwithstanding the Limitations of the
Code); and
(c) Charges for amounts paid to the Participant or his
Beneficiary from time to time pursuant to the terms hereof
and charged against such subaccount by CEBA pursuant to
subparagraph B of paragraph 4; and
(d) Credits or charges (including expenses, gains,
losses and earnings) equal to the amounts which would have
been attributable to the Participant's Supplemental Member
Contributions and Supplemental Employer Contributions
described in this subparagraph C if such contributions had
been properly credited to the Participant's Account under
the Retirement Plan and had been invested on a tax deferred
basis and had been credited with gains, losses and earnings
based on investment deferral crediting options and
procedures determined by CEBA quarterly. The entries
provided by this subclause (d) shall continue to be made
until an amount equal to the entire subaccount maintained
pursuant to this subparagraph C has been distributed to, or
received by, the Participant and/or his Beneficiary pursuant
to subparagraph B of paragraph 4 or subparagraph B of
paragraph 5.
4. Payment of Supplemental Benefits.
A. (i) Except as hereinafter provided, the
Employers shall pay the Supplemental SERIP Benefit to a
Participant or his Beneficiary entitled thereto in the form of
benefit elected by the Participant or his Beneficiary under
SERIP, provided, however, that if the election described in
clause (ii) of this subparagraph A is made, the Supplemental
SERIP Benefit shall be paid as provided in the following
provisions of this subparagraph A. The Supplemental SERIP
Benefit may commence to be paid at any time after the later of
the Participant's termination of employment with the Controlled
Group or the first date on which the Participant or Beneficiary
is entitled to commence receiving a pension benefit under SERIP,
provided, however, that if the Supplemental SERIP Benefit
commences before the earliest date on which the Participant could
commence receiving a monthly pension benefit under SERIP without
reduction for early commencement, the Supplemental SERIP Benefit
shall be reduced for early commencement in accordance with the
reduction factors set forth in SERIP, and if the Supplemental
SERIP Benefit is paid in a form other than the normal form
applicable to such Participant under SERIP, the Supplemental
SERIP Benefit shall be adjusted to reflect the form of payment
using the applicable adjustment factor under SERIP.
(ii) At the election of a person who shall become
a Participant made in the calendar year prior to the calendar
year in which he shall have accrued any Supplemental SERIP
Benefit or at a time permitted by the last sentence of this
clause (ii), a Participant's (or his Beneficiary's) Supplemental
SERIP Benefit (calculated as provided in paragraph 2, but reduced
for early commencement, if applicable, pursuant to clause (i) of
this subparagraph A) shall be converted at the time of his
termination of employment with the Controlled Group into a lump
sum amount of equivalent actuarial value when computed at the
interest rate and on basis of the other actuarial factors,
assumptions and procedures adopted by CEBA for such purpose (the
"SERIP Lump Sum Amount"), and the Participant's former Employer
shall establish and maintain on its books an account (the
"Supplemental SERIP Account") for such Participant or his
Beneficiary which shall contain the following entries:
(a) A credit equal to the SERIP Lump Sum Amount:
(b) Charges for amount paid to the Participant or his
Beneficiary from time to time pursuant to the terms hereof
and attributable to the Participant's Supplemental SERIP
Account; and
(c) Credits or charges (including expenses, gains,
losses and earnings) equal to the amounts which would have
been attributable to such SERIP Lump Sum Amount if such
Amount had been invested on a tax deferred basis and had
been credited with gains, losses and earnings based on
investment deferral crediting options and procedures
determined by CEBA quarterly. The entries provided by this
subclause (c) shall continue to be made until an amount
equal to the Participant's entire Supplemental SERIP Account
has been distributed to, or received by, the Participant or
his Beneficiary as hereinafter provided.
A Participant may revoke a prior election made under this clause
(ii) or make an election under this clause (ii) at any time, and
from time to time; provided, however, that any election made less
than one year prior to any payment of any benefits under the Plan
shall not be valid, and in such case, payment shall be made in
accordance with the latest valid election of such Participant, if
any.
(iii) The amount of the Participant's (or his
Beneficiary's) Supplemental SERIP Account shall be paid to him or
his Beneficiary in ten annual installments (or such lesser number
of installments or one installment as shall be selected by the
Participant in any valid election referred to in clause (ii) of
this Subparagraph A, or in any separate election made at any time
permitted for a valid election under clause (ii) of this
Subparagraph A) with each installment being based on the value of
the Participant's (or his Beneficiary's) Supplemental SERIP
Account on the day immediately preceding the date such
installment is to be paid and being a fraction of such value in
which the numerator is one and the denominator is the total
0umber of remaining installments to be paid. The first such
annual installment payment (or the only such installment payment
if the Participant elects to receive his SERIP Lump Sum Account
in one installment) shall be made to the Participant or
Beneficiary on the first day of the second month following the
month in which the Participant's termination of employment with
the Controlled Group occurs, and each subsequent installment (if
any) shall be made to the Participant or his Beneficiary on the
anniversary of such date. However, CEBA may at any time, upon
written request of the Participant or his Beneficiary, cause to
be paid to such Participant (or his Beneficiary) an amount equal
to all or any part of the remaining balance credited to the
Participant's (or his Beneficiary's) Supplemental SERIP Account
if CEBA determines, in its absolute discretion based on such
reasonable evidence that it shall require, that such a payment or
payments is necessary for the purpose of alleviating the
consequences of an unforeseeable emergency occurring with respect
to the Participant (or his Beneficiary). For the purposes hereof
the term "unforeseeable emergency" means an event which results
(or will result) in severe financial hardship to the Participant
(or his Beneficiary) as a consequence of unexpected illness or
accident or loss of the Participant's (or Beneficiary's) property
due to casualty or other similar extraordinary or unforeseen
circumstances out of the control of the Participant (or
Beneficiary). Payments by CEBA of amounts because of an
unforeseeable emergency will be permitted only to the extent
reasonably necessary to satisfy the emergency need.
B. A Participant's (or his Beneficiary's)
Supplemental Retirement Plan Account shall be paid to the
Participant or his Beneficiary pursuant to the method described
in clause (iii) of subparagraph A of this paragraph. CEBA shall
determine in its sole discretion the subaccount or subaccounts
under the Participant's Supplemental Retirement Plan Account
against which any such payment shall be charged pursuant to the
terms hereof.
C. Notwithstanding any other provision of this
Plan, upon or following the occurrence of a Change in Control, a
Participant (or his Beneficiary) shall be permitted to make an
election to receive, payable as soon as practicable after such
election is received by Hanna, his entire Supplemental Retirement
Benefit in the form of a lump sum payment. If a Participant or
Beneficiary so elects, the amount to be paid to him shall be the
sum of his Supplemental Retirement Plan Benefit and the sum of
his Supplemental SERIP Benefit at the time of such election
(assuming in the case of a Participant or Beneficiary whose
Supplemental SERIP Benefit had not previously been converted into
a SERIP Lump Sum Amount that such Supplemental SERIP Benefit was
converted into a SERIP Lump Sum Amount at the time of such
election), reduced by ten percent. The remaining ten percent of
the Participant's Supplemental Retirement Plan Benefit and
Supplemental SERIP Benefit shall be forfeited.
5. General.
A. The entire cost of the Plan shall be paid
from the general assets of one or more of the Employers. It is
the intent of the Employers to so pay benefits under the Plan as
they become due; provided, however, that Hanna may, in its sole
discretion, establish or cause to be established a trust account
for any or each Participant pursuant to an agreement, or
agreements, with a bank and direct that under certain
circumstances amounts payable to or for a Participant under the
Plan be paid from the general assets of his Employer which are
transferred to the custody of such bank to be held by it in such
trust account as property of the Employer subject to the claims
of the Employer's general creditors until such time as benefit
payments pursuant to the Plan are made from such assets in
accordance with such agreement, and provided further that until
such payment is so made, neither the Plan nor any Participant or
Beneficiary shall have any preferred claim on, or any beneficial
ownership interest in, such assets. No liability for the payment
of benefits under the Plan shall be imposed upon any officer,
director, employee, or stockholder of Hanna or any other
Employer, or upon CEBA or any member thereof.
B. To the extent permitted by law, no right or
interest of a Participant or his Beneficiary under the Plan shall
be transferable or assignable (either at law or in equity), nor
shall any such right or interest be subject to alienation,
anticipation, encumbrance, attachment, garnishment, levy,
execution or other legal or equitable process of any kind,
voluntary or involuntary, or in any manner be liable for or
subject to the debts of any Participant or Beneficiary. If the
Participant or Beneficiary (other than the surviving spouse of
the Participant) shall attempt to or shall transfer, assign,
alienate, anticipate, sell, pledge or otherwise encumber his
benefits hereunder or any part thereof, or if by reason of his
bankruptcy or other event happening at any time such benefits
would devolve upon anyone else or would not be enjoyed by him,
then Hanna, in its discretion, may terminate his interest in any
such benefit to the extent Hanna considers necessary or advisable
to prevent or limit the effects of such occurrence.
C. Employment rights shall not be enlarged or
affected hereby. The Employers shall continue to have the right
to discharge a Participant, with or without cause.
D. Each Participant's rights under the Plan are
not greater than those of an unsecured creditor.
E. In the event of the occurrence of a Potential
Change in Control, Hanna shall:
(i) As soon as practicable, but not later than 30
days following the occurrence of such an event, establish a
trust described in subparagraph A of paragraph 5, if such
trust has not previously been established (any such trust,
including such a trust established prior to the Potential
Change in Control, being hereinafter referred to as the
"Trust").
(ii) As soon as practicable, but not later than 30
days following the occurrence of a Potential Change in
Control, make a contribution to the Trust of cash and/or a
letter of credit in an amount sufficient, taking into
account the assets (if any) of the Trust prior to such
contribution, if any, to provide for the payment of 100% of
all benefits provided under the Plan (assuming, for purposes
of calculating this amount, that all such benefits shall be
payable on the date the Potential Change in Control occurs,
and that all Supplemental SERIP Benefits are to be converted
into SERIP Lump Sum Amounts on such date) and any other
amounts payable or reimbursable pursuant to the terms of the
Trust (including not less than $100,000 to pay for the
expenses of the trustee of the Trust). Any letter of credit
deposited with the trustee of the Trust pursuant to this
subparagraph shall be issued by a reputable commercial bank
having combined capital and surplus of at least $500
million, shall be irrevocable and shall entitle the trustee
of the Trust to draw all amounts payable thereunder
immediately upon the occurrence of a Change in Control.
(iii) Within 30 days following the occurrence
of a Change in Control and the end of any calendar year
ending following the occurrence of a Change in Control,
Hanna shall make a contribution to the Trust in cash that is
sufficient, taking into account the assets of the Trust,
including the undrawn amount of any letter of credit, prior
to such contribution, to provide for the payment of 100% of
all benefits provided under the Plan and any other amounts
payable or reimbursable pursuant to the terms of the Trust.
6. Adoption of the Plan. Any other Employer under
SERIP or the Retirement Plan may become a party hereto with the
consent of the Board, if such other Employer executes an
instrument evidencing its adoption of the Plan on the order of
its board of directors or other governing body and files a copy
thereof with Hanna and CEBA. Such instrument of adoption may be
subject to such terms and conditions as Hanna requires or
approves.
7. Interpretation. CEBA shall interpret where
necessary, in its reasonable and good faith judgment, the
provisions of the Plan, shall make factual findings with respect
to any issue arising under the Plan, and shall determine the
rights and status of Participants and Beneficiaries hereunder
(including, without limitation, the amount of any Supplemental
Retirement Benefit to which a Participant or Beneficiary may be
entitled under the Plan). Except to the extent federal law
controls, all questions pertaining to the construction, validity
and effect of the provisions hereof are to be determined in
accordance with the laws of the State of Ohio.
8. Amendment and Termination.
A. The Board has reserved and does hereby
reserve the right to amend, at any time, any or all of the
provisions of the Plan, without the consent of any other Employer
who shall have adopted the Plan pursuant to paragraph 6 or of any
Participant, Beneficiary or any other person. Any such amendment
shall be expressed in an instrument executed by Hanna upon the
order of its Board and shall become effective as of the date
designated in such instrument or, if no such date is specified,
on the date of its execution.
B. The Board has reserved, and does hereby
reserve, the right to terminate the Plan at any time, without the
consent of any other Employer who shall have adopted the Plan
pursuant to paragraph 6 or of any Participant, Beneficiary or any
other person. Such termination shall be expressed in an
instrument executed by Hanna upon the order of its Board and
shall become effective as of the date designated in such
instrument or, if no date is specified, on the date of its
execution. Any other Employer which shall have adopted the Plan
may elect separately to withdraw from the Plan and such
withdrawal shall constitute a termination of the Plan as to it,
but it shall continue to be an Employer for the purposes hereof
as to the Participants or Beneficiaries to whom it owes
obligations hereunder. Any such withdrawal (and resulting
termination) shall be expressed in an instrument executed by the
withdrawing Employer on authority of its board of directors or
other governing body and shall become effective as of the date
designated in such instrument or, if no date is specified, on the
date of its execution.
C. Notwithstanding the foregoing provisions of
this paragraph, no amendment or termination of the Plan shall,
without the consent of the Participant (or where applicable the
Beneficiary), adversely affect (i) the benefit under the Plan of
any Participant or his Beneficiary then entitled to receive a
benefit under the Plan or (ii) the right of any other Participant
to receive upon termination of his employment with the Controlled
Group (or the right of his Beneficiary to receive upon such
Participant's death) that benefit which would have been received
under the Plan if the Participant's said employment had
terminated immediately prior to the amendment or termination of
the Plan. No amendment to the Plan shall increase the
obligations hereunder, without its consent, of any corporation or
other business organization which is or at any time has been an
Employer under the Plan.
9. Effective Date. This restated Plan shall be
effective as of January 1, 1999.
IN WITNESS WHEREOF, M. A. Hanna Company, pursuant to
the order of its Board, has executed this restated Plan at
Cleveland, Ohio, as of January 1, 1999, but actually executed on
this ____ day of _____________, 1998.
M. A. HANNA COMPANY
By: ____________________________
Title
And: _____________________________
Title
Item 14(c) Exhibit (i) 10 (i)
TERMINATION AGREEMENT AND RELEASE
This TERMINATION AGREEMENT AND RELEASE ("Agreement") is made
and entered into as of October 7, 1998 between the M.A.
HANNA COMPANY, a Delaware corporation (the "Company") and
DOUGLAS J. McGREGOR ("Executive").
WITNESSETH:
WHEREAS, Executive has advised the Company he wishes to
terminate his employment as a full-time executive of the
Company and retire;
WHEREAS, in connection with the foregoing, the parties
desire to make provision for (a) granting a leave of absence
to the Executive; (b) the payments and benefits that
Executive is entitled to receive prior to and after his
termination of employment and retirement, (c) a covenant by
the Executive not to compete with the Company and (d) a
release of any claims Executive may have against the
Company;
NOW, THEREFORE, in consideration of the promises and
agreements contained herein and other good and valuable
consideration, the sufficiency and receipt of which are
hereby acknowledged, and intending to be legally bound, the
Company and the Executive agree as follows:
1. Executive elects to resign the positions of Chairman of
the Board and Chief Executive Officer June 30effective
October 7, 1998 (the "Resignation Date") and to remain as an
employee of the Company until January 3, 2001 (the
"Retirement Date"), at which time the Executive shall
retire. The Company hereby accepts Executive's resignation
and consents to his retirement on the Retirement Date. The
Company hereby grants the Executive a leave of absence from
October 7, 1998 through January 3, 2001. During the leave
of absence Executive's duties and responsibilities shall be
to assist the Company in defense of any litigation or
proceeding relating to matters in which Executive was
involved prior to October 7, 1998 and to undertake such
other tasks as the parties shall mutually agree
2. On the Resignation Date all of Executive's rights to
payments and benefits from the Company shall terminate
except as specifically provided herein.
A. The Company shall continue payment of Executive's
salary at the annual rate in effect on the Resignation Date
for six months after the Resignation Date and shall make a
severance payment to the Executive in the amount of $590,000
in January, 1999, all subject to the required withholdings.
B. Until the Retirement Date Executive and his
dependents shall continue to have a right to participate in
the Company's medical benefits and dental plans pursuant to
the terms of those plans, as they may be amended from time
to time. The Executive agrees that, in the event he fails
to make his semi-monthly participant contribution to such
plans, the Company may deduct such contribution from the
payments yet to be made pursuant to subsection A. above.
After the Retirement Date Executive and his dependents shall
participate in the Company's salaried retiree health care
plan in accordance with the terms of that plan, as it may be
amended from time to time.
C. In accordance with the respective Stock Option
Agreements entered into between the Company and the
Executive, the options granted to the Executive will
continue to vest under the terms prescribed in such
Agreements until the close of business on November 5, 2000,
and Executive may exercise the options granted to him to
purchase the Company's Common Stock for up to the earlier of
(i) the expiration date of each grant or (ii) three (3) or
five (5) years as prescribed by the respective Stock Option
Agreement.
D. For purposes of the awards of LTIP Units under the
M. A. Hanna Company 1988 Long-Term Incentive Plan for the
1996-'97-'98, 1997-`98-'99 and 1998-`99-2000 performance
periods, the Executive shall have the right to payouts at
the same time and same payout percentage as the corporate
executive officers, pro-rated to reflect the Executive's
service in the respective performance periods from the
beginning of the periods to the Resignation Date
E. The restricted stock agreements entered into
between the Company and the Executive will continue to be in
full force and effect and operate in accordance with the
terms thereof and on the Retirement Date any shares which
are still restricted will become vested and free of
restrictions.
F. The Executive's accounts in the Company's
Voluntary Non-Qualified Deferred Compensation Plan and the
Deferral of Stock Options Gain Plan shall be paid out after
the Retirement Date in accordance with the terms of the
Plans and the Executive's elections thereunder.
G. The Executive may continue to participate in the
Company's split-dollar insurance and retirement program, in
accordance with the terms of that program, and may make his
scheduled premium payments in 1999 and 2000, and if he so
participates, the Company will make available to him the
benefits prescribed by such program.
H. The Executive's rights to any additional
contributions to the Company's Capital Accumulation Plan
shall terminate on the Resignation Date and all other rights
under such Plan will continue in accordance with the terms
and provisions of such Plan as such Plan may be amended from
time to time.
I. The Executive shall have the right to convert his
Company-provided life insurance coverage on the Retirement
Date to a whole life policy in the principal amount of
$550,000.
J. After the Resignation Date the Executive shall
continue to participate as a deferred vested participant in
the Salaried Employees Retirement Income Plan according to
the terms of the Plan, as amended as of November 4, 1998,
and as may be amended from time to time in the future, and
upon attaining age 65 shall be eligible for benefits
thereunder as prescribed by the Plan, as amended.
K. The Executive shall cease participation in the
Supplemental Retirement Benefit Plan effective on the
Resignation Date and shall be paid a lump sum SERIP benefit
under the Plan of $1,814,000 on the effective date of this
Agreement, as defined in Section 7 hereof, and a CAP benefit
under the Plan of $2,037,679 in ten annual installments
commencing on January 1, 1999.
L. The Company shall provide third-party financial
counseling services to the Executive in accordance with its
program for executive officers, as that program may be
amended from time to time, through Executive's 1999 tax
year.
3. In consideration of the promises, agreements and the
payments described herein, the parties agree that except as
otherwise specifically provided herein, all of the
agreements, arrangements or understandings between the
Company and the Executive are hereby terminated and canceled
and shall be of no further force or effect whatsoever.
4. Executive acknowledges and confirms that the Agreement
between the Company and the Executive dated August 5, 1996
with respect to intellectual property rights is binding and
in full force and effect and after the Resignation Date will
continue to be binding and in full force and effect.
5. Unless he receives written waiver from the Chief
Executive Officer of the Company, Executive agrees that
prior to January 3, 2001 he shall not, whether directly as
an individual or on his own account, or indirectly as a
partner, joint venturer, employee, agent, sales
representative, consultant, officer, director or stockholder
of any firm or corporation, directly or indirectly engage in
any or all of the following activities within North America:
(a) enter into or engage in any business which
competes with the Company's business, as defined below;
(b) promote or assist, financially or otherwise, any
person, firm, association or corporation engaged in any
business which competes with the Company's business, as
defined below;
(c) solicit customers and/or sources of referral for
the same, business, patronage or orders for, or sell, any
products or services in competition with, or for any
business that competes with the Company's business, as
defined below; or
(d) divert, entice, or take away any customers and/or
sources of referral for the same, business, patronage or
orders of the Company's business, as defined below, or
attempt to do so;
provided, however, that neither beneficial ownership by
Executive of not more than five percent (5%) of the
outstanding equity securities of any publicly traded company
or Executive's investment in Metapoint Partners shall be
deemed to be a violation of this Section 5.
For purposes of this Section 5, the Company's business
is defined as the compounding of plastics and rubber, the
manufacture and sale of color and additive systems and the
distribution of resin and engineered plastic shapes.
6. Executive acknowledges that his obligations under this
Agreement are reasonable in the context of the nature of the
business of the Company and the competitive injuries likely
to be sustained by the Company if Executive violated such
obligations.
Executive acknowledges and agrees that the remedy at
law available to the Company for breach of any of
Executive's obligations under this Agreement would be
inadequate, and agrees and consents that in addition to any
other rights or remedies which the Company may have at law
or in equity, including offsetting any amounts due hereunder
or terminating any additional payments due hereunder,
temporary and permanent injunctive relief may be granted in
any proceeding which may be brought to enforce any provision
contained in this Agreement without the necessity of proof
of actual damage.
7. (a) In consideration of the promises, agreements and
the payments described herein to which Executive would not
otherwise be entitled by virtue of his leave of absence,
termination of employment and retirement, Executive will
execute and deliver to the Company upon the execution of
this Agreementon the Termination Date a release
substantially in the form of Exhibit A hereto (the
"Release"). Failure to deliver the Release as prescribed
shall operate to release the Company from any obligation
hereunder to pay compensation and benefits to which
Executive would not otherwise be entitled by virtue of his
termination of employment.
(b) Executive further agrees and acknowledges that:
(i) He has been advised by the Company to consult with
legal counsel prior to executing the Agreement and the
release provided for in this Section; has had an
opportunity to consult with and has been advised by
legal counsel of his choice, fully understands the
terms of this Agreement, enters into this Agreement
freely and voluntarily and intending to be legally
bound.
(ii) He has received in exchange for this Agreement and
for the release consideration above and beyond that to
which he otherwise would be entitled, including but not
limited to, a portion of the payments described in
Section 2.A. hereof and the payments
described in Section 2.K. hereof.
(iii) He may have available to him a period of
twenty-one (21) days to review and consider the terms
of this Agreement, and the release contained herein,
prior to its execution and that he may use as much of
the twenty-one (21) days period as he desires.
(iv) He may, within seven (7) days after his execution
hereof, which 7-day period may not be shortened, revoke
this Agreement. Revocation shall be made by delivering
a written notice of revocation to John S. Pyke, Jr.,
Vice President, General Counsel and Secretary of the
Company. For such revocation to be effective, written
notice must be actually delivered to Mr. Pyke's office
by no later than the close of business on the seventh
(7th) day after Executive executes this Agreement. If
Executive exercises his right to revoke this Agreement,
all of the terms and conditions of the Agreement shall
be of no force and effect, including, but not limited
to, the obligation of the Company to make any payments
to Executive pursuant to the Agreement.
(v) This Agreement shall not become effective and
enforceable until after expiration of the seven (7) day
revocation period described above and Executive's
delivery to the Vice President, General Counsel and
Secretary of the Company of a certificate in the form
of Exhibit B hereto (the "Certificate") executed by
Executive after such time, if there has been no
revocation of the Agreement, and upon delivery of the
executed Certificate, the Company shall become
obligated to make the payments to Executive provided
for in this Agreement and this Agreement shall be fully
enforceable and effective.
8. For all purposes of this Agreement, all communications
provided for herein shall be in writing and shall be deemed
to have been duly given when delivered, addressed to the
Company (to the attention of the Vice President, General
Counsel and Secretary) at Suite 36-5000, 200 Public Square,
Cleveland, OH 44114-2304, and to the Executive at his
principal residence, 6 Country Lane, Pepper Pike, Ohio
44124, or to such other address as any party may have
furnished to the other in writing and in accordance
herewith. Notices of change of address shall be effective
only upon receipt.
9. The validity, interpretation, construction and
performance of this Agreement (and every other issue arising
hereunder) shall be governed by the laws of the State of
Ohio, without giving effect to the principles of conflict of
laws of such state.
10. Any dispute arising out of or relating to this
Agreement or the breach, termination or validity thereof,
shall be settled by arbitration in accordance with the then-
current Center for Public Resouces Rules for Non-
Administered Arbitration of Business Disputes by a panel of
three (3) arbitrators. Each party shall appoint an
arbitrator and the Center for Public Resouces shall appoint
the third arbitrator. The arbitration shall be governed by
the United States Arbitration Act, U.S.C. 1-16, and
judgment upon the award rendered by the arbitration panel
may be entered by any court having jurisdiction thereof.
The place of arbitration shall be Cleveland, Ohio. The
arbitrators are not empowered to award damages in excess of
compensatory damages and each party hereby waives any right
to recover such damages with respect to any dispute resolved
by arbitration. The parties shall equally share the fees
and costs of the arbitrators.
11. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge
is agreed to in writing signed by Executive and the Company.
No waiver by any party hereto at any time of any breach by
any other party hereto or compliance with any condition or
provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or
otherwise, expressed or implied with respect to the subject
matter hereof have been made by any of the parties that are
not set forth expressly in this Agreement and every one of
them (if, in fact, there have been any) is hereby terminated
without liability or any other legal effect whatsoever.
12. This Agreement together with its Exhibits shall
constitute the entire agreement among the parties hereto
with respect to the subject matter hereof and shall
supersede all prior verbal or written agreements, covenants,
communications, understandings, commitments, representations
or warranties, whether oral or written, by any party hereto
or any of its representatives pertaining to such subject
matter.
IN WITNESS WHEREOF, the parties have entered into this
Agreement as of the
first date written above.
M. A. HANNA COMPANY
By:____________________________
Vice President
_______________________________
Douglas J. McGregor
EXHIBIT A
TO
TERMINATION AGREEMENT AND RELEASE
DATED AS OF OCTOBER 7, 1998
RELEASE
This RELEASE is made and entered into pursuant to a certain
TERMINATION AGREEMENT AND RELEASE dated as of October 7,
1998 between M. A. HANNA COMPANY and DOUGLAS J. McGREGOR
(the "Agreement").
1. The terms defined in the Agreement shall have the same
meaning herein, unless the context otherwise requires.
2. Executive for himself and his dependents, successors,
assigns, heirs, executors and administrators (and his and
their legal representatives of every kind), hereby releases,
dismisses and forever discharges the Company and its
successors and assigns and its directors, officers, agents
and employees in their capacities as such (collectively, the
"Released Parties") from any and all arbitrations, claims,
demands, damages, suits, actions and/or causes of action of
any kind and every description, whether known or unknown,
which now has or may have had, or may have in the future,
for, upon, or by reason of any cause whatsoever arising out
of fact or events occurring prior to the Termination Date
(except that this release shall not apply to the obligations
of the Company arising under the Agreement, and certain
claims specifically excepted in clause (v) below), against
any of the Released Parties, including, but not limited to:
(i) any and all claims, including claims for
attorneys' fees, causes of action, suits, proceedings,
damages or demands arising out of or relating to any
agreements, arrangements or understandings between the
Executive and the Company (other than certain claims
specifically excepted in clause (v) below);
(ii) any and all claims, including claims for
attorneys' fees, causes of action, suits, proceedings,
damages or demands arising out of or relating to
Executive's employment by and/or service with the
Company, in any capacity, and his termination from the
Company;
(iii) any and all claims, including claims for
attorneys' fees, demands, and causes of action,
including all claims of discrimination, including, but
not limited to, claims of sex, race, age, national
origin, religious and/or handicapped discrimination,
including, specifically, but without limiting the
generality of the foregoing, any claims under the Age
Discrimination in Employment Act, as amended, 29 U.S.C.
621 to 634, Title VII of the Civil Rights Act of 1964,
as amended, and the Americans with Disabilities Act of
1990, as amended;
(iv) any and all claims, demands, causes of
action, including, but not limited to, claims of
wrongful or unjust discharge or breach of any contract
or promise, express or implied; and
(v) any and all claims, demands or causes of
action, including claims for attorneys' fees, under the
Employee Retirement Income Security Act of 1974, as
amended, or relating to any and all employee benefit
plans, programs or arrangements of the Company, other
than claims incurred and properly payable under the
terms of the Company's health benefit plan or under the
terms of any other benefits plan specified in Section 3
of the Agreement.
_________________________
Douglas J. McGregor
Dated: 199_
EXHIBIT B
TO
TERMINATION AGREEMENT AND RELEASE
DATED AS OF OCTOBER 7, 1998
I hereby certify that I have not revoked and/or canceled my
obligations pursuant to that certain Termination Agreement
and Release between M. A. Hanna Company and Douglas J.
McGregor entered into as of October 7, 1998.
__________________________
Douglas J. McGregor
Dated: 199_
Item 14(c) Exhibit (i) (11)
M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
Year Ended December 31
1998 1997 1996
(Dollars in thousands except per share data)
Basic
Income from continuing operations
before extraordinary charge and
cumlative effect of a change in
accounting principle $ 30,342 $ 64,601 $ 59,162
Extraordinary charge - - (5,352)
Cumulative effect of a change in
accounting principle (2,059) - -
Net income $ 28,283 $ 64,601 $ 53,810
Average common shares outstanding 44,573,436 45,167,937 45,789,136
Income(loss) per share
Continuing operations $ .68 $ 1.43 $ 1.29
Extraordinary charge - - (.11)
Cumulative effect of a change in
accounting principle (.04) - -
Net income $ .64 $ 1.43 $ 1.18
Diluted
Income from continuing operations
before extraordinary charge $ 30,342 $ 64,601 $ 59,162
Extraordinary charge - - (5,352)
Cumulative effect of a change in
accounting principle (2,059) - -
Net income $ 28,283 $ 64,601 $ 53,810
Average common shares outstanding 44,573,436 45,167,937 45,789,136
Effect of dilutive stock options 463,240 1,103,920 1,034,365
Total 45,036,676 46,271,857 46,823,501
Income(loss) per share
Continuing operations $ .67 $ 1.40 $ 1.26
Extraordinary charge - - (.11)
Cumulative effect of a change in
accounting principle (.04) - -
$ .63 $ 1.40 $ 1.15
Item 14(c) Exhibit (i) (13)
CONSOLIDATED STATEMENTS OF INCOME
M.A. Hanna Company and Consolidated Subsidiaries
Year Ended December 31
Dollars in thousands except per share data 1998 1997 1996
Net Sales $2,285,882 $2,200,345 $2,066,248
Costs and Expenses
Cost of goods sold 1,883,344 1,781,736 1,685,167
Selling, general and administrative 295,267 271,894 243,505
Interest on debt 33,915 23,751 20,033
Amortization of intangibles 16,167 14,204 14,313
Other - net 22,161 (1,669) 339
2,250,854 2,089,916 1,963,357
Income Before Income Taxes, Extraordinary
Charge and Cumulative Effect of a
Change in Accounting Principle 35,028 110,429 102,891
Income taxes 4,686 45,828 43,729
Income Before Extraordinary Charge
and Cumulative Effect of a Change in
Accounting Principle 30,342 64,601 59,162
Extraordinary charge - - (5,352)
Cumulative effect of a change in
accounting principle (2,059) - -
Net Income $ 28,283 $ 64,601 $ 53,810
Net Income Per Share
Basic
Income before extraordinary charge
and cumulative effect of a change
in accounting principle $ .68 $ 1.43 $ 1.29
Extraordinary charge - - (.11)
Cumulative effect of a change
in accounting principle (.04) - -
Net income $ .64 $ 1.43 $ 1.18
Diluted
Income before extraordinary charge
and cumulative effect of a change
in accounting principle $ .67 $ 1.40 $ 1.26
Extraordinary charge - - (.11)
Cumulative effect of a change
in accounting principle (.04) - -
Net income $ .63 $ 1.40 $ 1.15
See summary of accounting policies and notes to consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
M.A. Hanna Company and Consolidated Subsidiaries
Year Ended December 31
Dollars in thousands 1998 1997 1996
Cash Provided from (Used for) Operating Activities
Net income $ 28,283 $ 64,601 $ 53,810
Depreciation and amortization 59,735 52,639 50,116
Companies carried at equity:
Income (4,558) (4,546) (6,058)
Dividends received 3,459 5,420 7,104
Changes in operating assets and liabilities:
Receivables 2,795 (37,153) 3,743
Inventories (4,161) (30,746) 3,197
Prepaid expenses (701) (3,193) (2,450)
Trade payables and accrued expenses (33,841) 43,380 (1,978)
Gain from sales of assets (1,009) (6,340) -
Restructuring payments (10,576) (8,239) (13,157)
Restructuring charges 29,800 6,140 -
Cumulative effect of a change in accounting principle 3,460 - -
Extraordinary charge - - 8,774
Other 2,939 7,487 8,248
Net operating activities 75,625 89,450 111,349
Cash Provided from (Used for) Investing
Activities
Capital expenditures (66,424) (52,604) (49,532)
Acquisitions of businesses, less cash acquired (76,045) (96,512) (58,439)
Acquisition payments (207) (14,965) (1,805)
Sales of assets 5,635 13,048 11,928
Investments in associated and other companies - (22,071) (2,862)
Return of cash from associated and other companies - 851 8,170
Other (11,810) 2,468 7
Net investing activities (148,851)(169,785) (92,533)
CONSOLIDATED STATEMENTS OF CASH FLOWS
M.A. Hanna Company and Consolidated Subsidiaries
Year Ended December 31
1998 1997 1996
Cash Provided from (Used for) Financing
Activities
Cash dividends paid (20,370) (19,176) (18,291)
Proceeds from the sale of common stock 3,036 4,333 8,027
Purchase of shares for treasury (16,944) (17,972) (28,830)
Increase in debt 233,066 227,523 110,872
Reduction in debt (134,567) (99,161) (172,218)
Net financing activities 64,221 95,547 (100,440)
Effect of exchange rate changes on cash
(103) (3,810) 417
Cash and Cash Equivalents
Increase(decrease) (9,108) 11,402 (81,207)
Beginning of year 41,430 30,028 111,235
End of year $ 32,322 $ 41,430 $ 30,028
Cash Paid During Year
Interest $ 34,304 $ 22,836 $ 22,938
Income taxes 25,527 36,992 31,731
See summary of accounting policies and notes to consolidated financial
statements
CONSOLIDATED BALANCE SHEETS
M.A. Hanna Company and Consolidated Subsidiaries
December 31
Dollars in thousands 1998 1997
Assets
Current Assets
Cash and cash equivalents $ 32,322 $ 41,430
Receivables
Trade (less allowance of $9,757 in 1998
and $8,649 in 1997) 339,721 322,975
Other 10,381 9,372
350,102 332,347
Inventories
Finished products 169,830 161,731
Raw materials and supplies 66,703 65,430
236,533 227,161
Prepaid expenses 9,937 10,976
Deferred income taxes 25,554 31,005
Total current assets 654,448 642,919
Property, Plant and Equipment
Land 21,549 19,285
Buildings 141,569 118,413
Machinery and equipment 435,455 385,571
598,573 523,269
Less accumulated depreciation 258,986 234,956
339,587 288,313
Other Assets
Goodwill and other intangibles 467,577 420,696
Investments and other assets 91,277 87,608
Deferred income taxes 41,008 29,469
599,862 537,773
Total assets $1,593,897 $1,469,005
December 31
1998 1997
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable to banks $ 3,391 $ 2,919
Trade payables and accrued expenses 358,081 393,925
Current portion of long-term debt 2,611 2,149
Total current liabilities 364,083 398,993
Other Liabilities 210,476 205,480
Long-term Debt
Senior notes 87,775 124,960
Medium-term notes 160,000 120,000
Other 233,111 80,267
480,886 325,227
Stockholders' Equity
Preferred stock, without par value;
authorized 5,000,000 shares:
issued and outstanding 0 shares in 1998 and 1997 - -
Common stock, par value $1.00 per share:
authorized 100,000,000 shares; issued 66,059,298 shares
in 1998 and 65,749,570 shares in 1997 66,059 65,750
Capital surplus 293,613 358,145
Retained earnings 470,566 462,653
Accumulated translation adjustment (12,327) (11,964)
Associates ownership trust (5,249,721
shares in 1998 and 5,545,273 shares in 1997) (65,255) (144,213)
Cost of treasury stock (16,439,467 shares
in 1998 and 15,272,602 shares in 1997) (214,204) (191,066)
Total stockholders' equity 538,452 539,305
Total liabilities and stockholders' equity $ 1,593,897 $ 1,469,005
See summary of accounting policies and notes to consolidated financial
statements
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
M.A. Hanna Company and Consolidated Subsidiaries
Dollars in thousands except per share data
Preferred Common Capital Retained
Stock Stock Surplus Earnings
Balance January 1, 1996 $ - $ 43,274 $ 324,273 $ 381,709
Comprehensive income:
Net income 53,810
Translation adjustment
Minimum pension adjustment
Total comprehensive income
Cash dividends - $.402 per share (18,291)
Exercise of stock options 309 4,532
Purchase of shares for treasury
Sale of common stock (193,058 shares) 42 2,005
Payment of incentive compensation awards
and associate benefits 866
Three-for-two common stock split 21,637 (21,637)
Adjustment to market value 19,504
Balance December 31, 1996 - 65,262 329,543 417,228
Comprehensive income:
Net income 64,601
Translation adjustment
Minimum pension adjustment
Total comprehensive income
Cash dividends - $.4275 per share (19,176)
Exercise of stock options 449 7,047
Purchase of shares for treasury
Sale of common stock (49,356 shares) 39 976
Transfer of shares (300,000 shares)
Payment of incentive compensation awards
and associate benefits 1,779
Adjustment to market value 18,800
Balance December 31, 1997 - 65,750 358,145 462,653
Comprehensive income:
Net income 28,283
Translation adjustment
Total comprehensive income
Cash dividends - $.4575 per share) (20,370)
Exercise of stock options 244 3,302
Purchase of shares for treasury
Sale of common stock (65,319 shares 65 989
Transfer of shares (200,151 shares)
Payment of incentive compensation awards
and associate benefits
Adjustment to market value (68,823)
Balance December 31, 1998 $ - $ 66,059 $293,613 $ 470,566
Accumulated Other
Comprehensive Income
Minimum
Pension Accumulated Associates
Liability Translation Ownership
Adjustment Adjustment Trust
Balance January 1, 1996 $ (7,522) $ 1,588 $ (121,363)
Comprehensive income:
Net income
Translation adjustment 59
Minimum pension adjustment 2,504
Total comprehensive income
Cash dividends - $.402 per share
Exercise of stock options
Purchase of shares for treasury
Sale of common stock (193,058 shares) 4,041
Payment of incentive compensation awards
and associate benefits 2,122
Three-for-two common stock split
Adjustment to market value (19,504)
Balance December 31, 1996 (5,018) 1,647 (134,704)
Comprehensive income:
Net income
Translation adjustment (13,611)
Minimum pension adjustment 5,018
Total comprehensive income
Cash dividends - $.4275 per share
Exercise of stock options
Purchase of shares for treasury
Sale of common stock (49,356 shares) 220
Transfer of shares (300,000 shares) 6,166
Payment of incentive compensation awards
and associate benefits 2,905
Adjustment to market value (18,800)
Balance December 31, 1997 - (11,964) (144,213)
Comprehensive income:
Net income
Translation adjustment (363)
Total comprehensive income
Cash dividends - $.4575 per share
Exercise of stock options
Purchase of shares for treasury
Sale of common stock (65,319 shares
Transfer of shares (200,151 shares) 4,797
Payment of incentive compensation awards
and associate benefits 5,338
Adjustment to market value 68,823
Balance December 31, 1998 $ - $ (12,327) $ (65,255)
Total
Treasury Stockholders'
Stock Equity
Balance January 1, 1996 $ (137,181) $ 484,778
Comprehensive income:
Net income
Translation adjustment
Minimum pension adjustment
Total comprehensive income 56,373
Cash dividends - $.402 per share (18,291)
Exercise of stock options (817) 4,024
Purchase of shares for treasury (28,830) (28,830)
Sale of common stock (193,058 shares) 6,088
Payment of incentive compensation awards
and associate benefits 1,153 4,141
Three-for-two common stock split -
Adjustment to market value -
Balance December 31, 1996 (165,675) 508,283
Comprehensive income:
Net income
Translation adjustment
Minimum pension adjustment
Total comprehensive income 56,008
Cash dividends - $.4275 per share (19,176)
Exercise of stock options (3,069) 4,427
Purchase of shares for treasury (17,972) (17,972)
Sale of common stock (49,356 shares) 1,235
Transfer of shares (300,000 shares) (6,166) -
Payment of incentive compensation awards
and associate benefits 1,816 6,500
Adjustment to market value -
Balance December 31, 1997 (191,066) 539,305
Comprehensive income:
Net income
Translation adjustment
Total comprehensive income 27,920
Cash dividends - $.4575 per share (20,370)
Exercise of stock options (1,397) 2,149
Purchase of shares for treasury (16,944) (16,944)
Sale of common stock (65,319 shares 1,054
Transfer of shares (200,151 shares) (4,797) -
Payment of incentive compensation awards
and associate benefits 5,338
Adjustment to market value -
Balance December 31, 1998 $ (214,204) $ 538,452
See summary of accounting policies and notes to consolidated financial
statements
SUMMARY OF ACCOUNTING POLICIES
M.A. Hanna Company and Consolidated Subsidiaries
Dollars in thousands except per share data
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
M.A. Hanna Company and all majority-owned subsidiaries.
Investments in less than majority-owned companies are carried
at cost adjusted for undistributed earnings and losses since
acquisition, or at cost. All significant intercompany
accounts and transactions have been eliminated.
REVENUE RECOGNITION
Revenues are recognized when a product is shipped or a
service is performed.
NET INCOME PER SHARE
Basic earnings per share is computed by dividing net income
by the weighted average number of shares of common stock
outstanding during the year. Shares of common stock held by
the Associates Ownership Trust (AOT) enter into the
determination of the average number of shares outstanding
when the shares are released from the AOT to fund obligations
under certain associate compensation and benefit plans.
Basic weighted average shares outstanding for the years ended
December 31, 1998, 1997 and 1996 were 44,573,436, 45,167,937
and 45,789,136, respectively.
For diluted earnings per share, the number of shares used for
basic earnings per share are increased by the common stock
equivalents which would arise from the exercise of stock
options. Weighted average shares outstanding (diluted) for
the years ended December 31, 1998, 1997 and 1996, were
45,036,676, 46,271,857 and 46,823,501, respectively.
CASH EQUIVALENTS
Cash equivalents are highly liquid investments with an
original purchased maturity of three months or less. Cash
equivalents are stated at cost, which approximates fair
value.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company
to credit risk are trade accounts receivable and foreign
exchange contracts. Concentration of credit risk with
respect to trade accounts receivable is limited due to the
large number of customers comprising the Company's customer
base and their distribution among many different industries
and geographic locations. The Company is exposed to credit
risk with respect to forward foreign exchange contracts in
the event of nonperformance by the counterparties to these
financial instruments, which are major financial
institutions. Management believes the risk of incurring
material losses related to this credit risk is remote.
INVENTORIES
Inventories are stated at the lower of cost or market. Prior
to 1998, a majority of the domestic inventories were valued
by the last-in, first-out (LIFO) cost method. Effective
January 1, 1998, the Company changed its method of accounting
for all domestic inventories to the LIFO cost method. The
change in accounting was made to better match acquisition
costs against sales, conform to the LIFO election made for
income tax purposes and to provide greater consistency in
inventory valuations across domestic business units. The
effect of this change was not significant to 1998 reported
results. Inventories of international subsidiaries are
valued by the first-in, first-out (FIFO) method. The excess
of current cost over LIFO cost was $8,143 and $8,794 at
December 31, 1998 and 1997, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost.
Depreciation is computed principally by the straight-line
method. Estimated asset lives are:
Building and improvements 20 - 40 years
Machinery and equipment 5 - 10 years
Computer software and hardware 5 years
Property items retired or otherwise disposed of are removed
from the property and related accumulated depreciation
accounts, and any gain or loss is included in operating
results.
GOODWILL AND OTHER INTANGIBLES
Goodwill is amortized over 40 years on a straight-line basis.
Net other intangibles of $22,065 and $10,675 at December 31,
1998 and 1997, respectively, are amortized on a straight-line
basis over 5 to 40 years. Accumulated amortization at
December 31, 1998 and 1997 was $127,588 and $111,747,
respectively.
The carrying value of goodwill and other intangibles is
evaluated if circumstances indicate a possible impairment in
value. If undiscounted cash flows over the remaining
amortization period indicate that goodwill and other
intangibles may not be recoverable, the carrying value will
be reduced by the estimated shortfall of cash flows on a
discounted basis.
INCOME TAXES
Deferred tax liabilities and assets are determined based on
the differences between the financial reporting and tax basis
of assets and liabilities and are measured using the enacted
tax rate and laws that are currently in effect.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the reported
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of international affiliates are
translated at the exchange rates as of the balance sheet
date. Related translation adjustments are reported as a
component of stockholders' equity. Revenues and expenses are
translated at the average rates in effect during the period.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company limits its use of derivative financial
instruments to forward foreign exchange contracts to hedge
certain foreign currency receivables, payables and
intercompany lending transactions. Gains and losses on
foreign currency transaction hedges are recognized in other
income or expense and offset the foreign exchange gains and
losses on the underlying transactions.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 133
"Accounting for Derivative Instruments and Hedging
Activities." The Company is analyzing the impact of this
Statement and will adopt it in 2000.
CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 1998, the Company adopted the AICPA's
Statement of Position 98-5 "Reporting on the Costs of Start-
up Activities" which requires all pre-operating costs to be
expensed as incurred. Adoption of this Statement resulted in
a one-time charge of $2,059 (net of taxes of $1,401) for
previously capitalized costs. This charge was reported as a
cumulative effect of a change in accounting principle in 1998
earnings.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
M.A. Hanna Company and Consolidated Subsidiaries
Dollars in thousands except per share data
PROFIT IMPROVEMENT PLAN
In 1998, the Company completed a review of its business and
implemented a plan which would lower the Company's overall
cost structures. This plan included consolidating
manufacturing operations and improving customer service
capabilities through more efficient production facilities and
more focused sales, marketing and technical support. As part
of the profit improvement plan, the Company has closed four
plants and is in negotiations to sell a fifth plant. The
Company will continue to incur facility costs including lease
payments, utilities and taxes until the various leases expire
or properties are sub-leased. The plan included the
elimination of approximately 300 jobs, of which half were
eliminated in 1998 and half will be eliminated in early 1999.
These actions resulted in a pre-tax charge of $29,800 in the
third quarter of 1998. The charge included $4,300 related to
inventory valuations, which was charged to cost of goods
sold, $1,700 related to accounts receivable, which was
charged to selling, general and administrative costs and
$23,800 related to involuntary severances, fixed asset write-
downs and plant closings which was charged to other-net. The
one-time charge on an after-tax basis was $17,731 or $.39 per
share on a diluted basis.
Details of the charge and its utilization as of December 31,
1998 are as follows:
1998 Utilized Remaining
Charge In 1998 Accrual
Inventory valuations $ 4,300 $ 4,300 $ -
Accounts receivable 1,700 1,700 -
Associate costs 9,206 3,949 5,257
Asset write-downs 12,046 9,267 2,779
Plant closures 2,548 385 2,163
$29,800 $19,601 $10,199
ACQUISITIONS
In January 1998, the Company acquired a majority interest in
Melos Carl Bosch GmbH + Co. based in Melle, Germany. Melos
produces rubber, thermoplastic elastomer and plastic
compounds for the wire and cable, sport recreation and
automotive markets. In March 1998, the Company acquired a
line of halogen free, low-smoke flame retardant compounds
from Exxon. These products will compliment the halogen-free
flame retardant plastic compounds currently marketed by the
Company's subsidiary, Enviro Care Compounds, based in Norway.
Enviro Care Compounds was acquired by the Company in February
1997. In December 1998, the Company formed a joint venture
with Bifan S. A., which controls So.F.teR S.p.A., an Italian
producer of thermoplastic elastomers.
During 1997, the Company purchased the former Sadolin
Masterbatch, a plastic color and additive concentrate
business based in Denmark; and the manufacturing business of
Harwick Chemical Manufacturing Corporation, a supplier of
chemical dispersions, specialty colorants and other specialty
products for the rubber industry, and specialty color pigment
dispersions and dry colorants for plastics. In November 1997,
the Company formed a joint venture alliance with Techmer PM
to produce color and additive concentrates for the film and
fiber markets. The Company contributed cash and the assets
of its fiber colorant business for a 51% interest in the
joint venture.
These acquisitions were accounted for using the purchase
method of accounting. Had the acquisitions and the formation
of joint ventures been made at the beginning of 1997,
reported pro forma results of operations for 1998 and 1997
would not be materially different.
INCOME TAXES
Income taxes consist of the following:
1998 1997 1996
Current
Federal $(1,280) $26,693 $24,613
State 1,519 5,663 4,022
Foreign 8,153 8,675 8,505
8,392 41,031 37,140
Deferred
Federal (4,913) 2,297 4,055
State (893) 8 759
Foreign 2,100 2,492 1,775
(3,706) 4,797 6,589
$ 4,686 $45,828 $43,729
The provision for income taxes differs from the amount
computed by applying the U.S. statutory federal income tax
rate as follows:
1998 1997 1996
Amount Percent Amount Percent Amount Percent
Provision at statutory tax rate $12,260 35.0% $38,650 35.0% $36,012 35.0%
State income taxes 407 1.1 3,686 3.3 3,108 3.0
Goodwill amortization 3,213 9.2 2,869 2.6 2,811 2.7
Adjustment to reserves (9,500)(27.1) - - - -
Other - net (1,694) (4.8) 623 .6 1,798 1.8
$ 4,686 13.4% $45,828 41.5% $43,729 42.5%
During 1998, the Company recorded a one-time reduction of
income tax reserves of $9,500 in connection with reaching an
agreement with the Internal Revenue Service relative to an
examination of previously filed tax returns.
Deferred income taxes reflect the net effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. The Company has not provided
deferred taxes on undistributed earnings of international
subsidiaries and joint ventures as these earnings are
considered indefinitely reinvested. The Company may
consider repatriating these earnings, if at some future time
the distribution results in no incremental tax cost.
Significant components of the Company's deferred tax assets
(liabilities) are as follows:
1998 1997
Basis differences from purchase accounting $(6,188) $(7,471)
Property, plant and equipment (11,245) (12,490)
Other postretirement benefits 34,035 32,948
Associate benefits 19,463 18,012
Foreign net operating losses and tax
credit carryforwards 7,336 6,776
Restructuring and plant closedown costs 5,510 4,926
Environmental costs 6,582 6,869
Inventory and receivable allowances 3,062 4,082
Other 7,594 7,816
66,149 61,468
Valuation allowance (7,336) (6,776)
Net deferred income tax asset $58,813 $54,692
At December 31, 1998, the Company has foreign net operating
loss carryforwards the majority of which expire by 2003 and
foreign tax credit carryforwards the majority of which
expire in 2000. The Company has recorded a valuation
allowance for these carryforwards as it is not anticipated
that they will be utilized before expiration.
Income from continuing operations before income taxes
includes $27,392, $35,343, and $26,980 in 1998, 1997, and
1996, respectively, from international operations.
LONG-TERM DEBT
Long-term debt at December 31 consists of the following:
1998 1997
9.375% Senior notes due 2003 $ 87,775 $ 87,775
9% Senior notes due 1998 - 37,185
Medium-term notes - interest rates
from 6.52% to 7.16% with a weighted
average rate of 6.85% - due
between 2004 and 2011 160,000 120,000
Bank borrowings 214,625 77,197
Capital lease obligations 3,839 -
Other 17,258 5,219
483,497 327,376
Less current portion 2,611 2,149
$480,886 $325,227
Annual maturities of long-term debt for the next five years
are: 1999--$2,611; 2000--$2,734; 2001--$2,594; 2002--$2,834;
and 2003--$305,490.
The Company has a revolving credit agreement which provides
for borrowings up to $200 million through January 2003 with
interest rates determined at the time of the borrowing based
on a choice of formulas specified in the agreement. There
were no borrowings under this agreement at December 31, 1998
or 1997.
Bank borrowings include committed and uncommitted borrowings.
At December 31, 1998, the Company had $103,940 of borrowings
from uncommitted bank lines and $27,172 from committed bank
lines at interest rates ranging from 3.35% to 10.50% and a
weighted average interest rate of 5.98%. Bank borrowings
from uncommitted bank lines include $9,485 of debt assumed as
part of the acquisition of So.F.teR S.p.A. During 1998, the
Company entered into a five-year, 5.1% fixed rate borrowing
for 90,000 DM ($53,687 as of December 31, 1998) and a three-
month, 3.93% rate borrowing of 50,000 DM ($29,826 as of
December 31, 1998). It is the Company's policy to classify
these bank borrowings as long-term debt since the Company has
the ability, under the revolving credit agreement, and the
intent to maintain these obligations longer than one year.
Other debt at December 31, 1998 and 1997, consists primarily
of mortgages, industrial revenue bonds and notes. Other debt
at December 31, 1998, also includes mortgages assumed as part
of the acquisition of So.F.teR S.p.A. totaling $14,014.
These obligations mature in various installments through 2007
and are at interest rates ranging from 3.46% to 7.00%.
The Company had $3,391 and $2,919 of outstanding notes
payable to banks at December 31, 1998 and 1997, at weighted
average interest rates of 8.99% and 8.62%, respectively.
In 1996, the Company repurchased $102,310 principal amount of
Senior Notes in the open market, resulting in an
extraordinary charge of $8,774 ($5,352 after tax).
The Senior Note agreement contains certain restrictions and
conditions among which are limitations on cash dividends and
other payments. Under the most restrictive of these
agreements, approximately $236,318 of retained earnings was
free of such limitations at December 31, 1998.
STOCKHOLDERS' EQUITY
The Associates Ownership Trust (AOT) acquired shares of
common stock from the Company in 1991 for a promissory note
in the amount of $100,049. The shares acquired are released
from the AOT on an annual basis to fund a portion of the
Company's obligations under certain of its associate
compensation and associate benefit plans for the 15-year term
of the AOT and to meet annual principal payments on the
promissory note. Shares remaining in the AOT are adjusted at
each balance sheet date to their respective market value with
an offsetting adjustment to capital surplus.
Under the Company's Stock Purchase Rights Plan, each Right
entitles the holder of common stock to buy from the Company
one one-hundredth of a share of Cumulative Series A Preferred
Stock, without par value for $95, subject to adjustment. The
Rights become exercisable if certain triggering events occur,
including the acquisition of 15% or more of the Company's
common stock. The Company is entitled to redeem the Rights
at $.01 per Right at any time until ten days after any person
or group has acquired 20% of the Company's common stock and
in certain circumstances thereafter. If a party owning 20%
or more of the Company's common stock merges with the Company
or engages in certain other transactions with the Company,
each Right, other than the Rights held by the acquiring
party, entitles the holder to purchase that number of
additional common shares having a market value of two times
the exercise price of the Right. The Rights expire on
December 16, 2001.
The Company's 1988 Long-Term Incentive Plan provides for the
granting of options, including options to non-associate
directors, up to 6,426,038 shares. The exercise price of
each option equals the market price of the Company's stock on
the date of grant; options have a life of ten years. Options
vest according to a graded vesting schedule of one-third one
year from the date of grant, one-third two years from the
date of grant and one-third three years from the date of
grant.
The Company applies the intrinsic value-based method of
accounting prescribed by APB Opinion No. 25 for this plan.
Accordingly, no compensation expense has been recognized for
its fixed stock option plan as options are granted at fair
market value. Had compensation expense for the Company's
stock-based compensation plan been determined based on the
fair value at the grant dates for awards under that plan
consistent with the method of SFAS No. 123, the Company's net
income, basic earnings per share and diluted earnings per
share amounts would have been restated as follows:
Proforma 1998 1997 1996
Net income $26,499 $62,392 $53,065
Basic earnings per share .59 1.38 1.16
Diluted earnings per share .59 1.35 1.13
The imputed fair value of each option is estimated on the
date of grant using the Black-Scholes option pricing model
with the following assumptions.
1998 1997 1996
Dividend yield 3.20% 2.00% 2.08%
Expected price volatility 27.00% 25.00% 22.60%
Risk free interest rate 4.75% 5.75% 6.25%
Expected option life 8 years 8 years 10 years
The following table summarizes the changes in the outstanding
options for the three years ended December 31:
1998 1997 1996
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding at
beginning of year 2,905,524 $16.21 2,951,234 $14.14 2,821,484 $12.39
Granted 737,760 15.03 470,026 23.92 456,521 21.15
Exercised (244,409) 11.46 (446,958) 10.31 (309,131) 8.39
Canceled or expired (16,370) 22.70 (68,778) 18.01 (17,640) 15.49
Outstanding at
end of year 3,382,505 16.26 2,905,524 16.21 2,951,234 14.14
Options exercisable
at end of year 2,298,819 2,177,233 1,862,317
Weighted-average fair
value of options
granted during the year $3.98 $7.96 $7.54
The following table summarizes information about options
outstanding at December 31, 1998:
Options Outstanding Options Exercisable
Weighted Average Weighted Weighted
Range of Options Remaining Average Options Average
Exercise Prices Outstanding Contractual Exercise Exercisable Exercise
Life Price Price
$ 7.40 to 12.99 715,970 3.2 years $10.81 597,699 $10.61
13.00 to 16.99 1,381,553 6.6 years 14.55 823,917 14.25
17.00 to 26.81 1,284,982 7.8 years 21.12 877,203 20.13
3,382,505 2,298,819
At December 31, 1998, 820,133 shares were available for
future grants.
BUSINESS SEGMENTS
In 1998, the Company adopted SFAS No. 131 "Disclosures about
Segments of an Enterprise and Related Information," which
changes the way the Company reports information about its
operating segments. Segment information for 1997 and 1996
has been restated to conform with the new presentation.
The Company has three reportable segments - rubber
processing, plastic processing and distribution. The
reportable segments are business units that offer different
products and services. Additionally, the manufacturing
processes for rubber processing and plastic processing are
different. Rubber processing includes the manufacture of
custom rubber compounds and additives. Plastic processing
includes the production of custom plastic compounds and
custom formulated colorants and additives. Distribution
includes distribution of engineered plastic shapes and
thermoplastic and thermoset resins and fiberglass materials.
Other operations include the Company's Diversified Polymer
Products business, its marine and insurance operations and
management fees.
The Company evaluates performance and allocates resources on
operating income before interest and income taxes. The
accounting policies of the reportable segments are the same
as those described in the summary of accounting policies.
NOTES TO FINANCIAL STATEMENTS --Continued
M.A. Hanna Company and Consolidated Subsidiaries
Rubber Plastic
Processing Processing Distribution
1998
Net sales from external customers $528,513 $833,091 $910,057
Intersegment sales 2,483 25,032 7,834
Depreciation and amortization 17,855 33,499 6,586
Operating income 47,816 (1) 28,286 (2) 13,457 (3)
Assets 390,197 670,324 372,798
Capital expenditures 23,955 35,444 5,573
1997
Net sales from external customers $448,488 $768,683 $961,222
Intersegment sales 3,347 22,637 7,118
Depreciation and amortization 13,556 31,175 6,167
Operating income 44,381 63,460 (5) 42,767 (6)
Assets 326,107 616,097 376,681
Capital expenditures 11,672 34,283 6,022
1996
Net sales from external customers $388,400 $723,537 $921,838
Intersegment sales 4,064 14,417 4,392
Depreciation and amortization 11,425 31,235 5,909
Operating income 35,440 61,251 40,497
Assets 219,845 538,469 360,564
Capital expenditures 10,826 31,952 6,140
Other
Operations Corporate Total
1998
Net sales from external customers $ 14,221 $ - $2,285,882
Intersegment sales - - 35,349
Depreciation and amortization 785 1,010 59,735
Operating income 1,358 (21,974)(4) 68,943
Assets 18,678 141,900 1,593,897
Capital expenditures 699 753 66,424
1997
Net sales from external customers $ 21,952 $ - $2,200,345
Intersegment sales - - 33,102
Depreciation and amortization 825 916 52,639
Operating income 10,552 (7) (26,980) 134,180
Assets 16,471 133,649 1,469,005
Capital expenditures 420 207 52,604
1996
Net sales from external customers $ 32,473 $ - $2,066,248
Intersegment sales - - 22,873
Depreciation and amortization 746 801 50,116
Operating income 10,507 (24,771) 122,924
Assets 7,926 123,975 1,250,779
Capital expenditures 157 457 49,532
(1) Includes $4,251 of charges from the profit improvement plan
(2) Includes $16,372 of charges from the profit improvement plan
(3) Includes $5,640 of charges from the profit improvement plan
(4) Includes $3,537 of charges from the profit improvement plan
(5) Includes $5,140 of restructuring charges
(6) Includes $1,000 of restructuring charges
(7) Includes $6,340 gain from the sale of assets
Net sales, which are attributed to countries based on the
location of the business unit recognizing the sale, and long-
lived assets by geographic area are as follows:
1998 1997 1996
Net sales
United States $1,775,373 $1,722,373 $1,637,252
Europe 291,007 251,720 234,263
Asia/Pacific 144,011 154,897 137,407
Other 75,491 71,355 57,326
$2,285,882 $2,200,345 $2,066,248
Long-lived assets
United States $636,553 $ 642,077 $ 519,332
Europe 211,063 102,699 110,359
Asia/Pacific 45,748 46,858 45,825
Other 5,077 4,983 5,107
$898,441 $ 796,617 $ 680,623
PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company has noncontributory defined benefit plans
covering certain of its associates which comply with federal
funding requirements. Benefits for these plans are based
primarily on years of service and qualifying compensation
during the final years of employment. Plan assets include
marketable equity securities (including stock of the
Company), money market funds and fixed income securities.
The Company also sponsors defined contribution plans for
certain of its associates, which provide for Company
contributions of a specified percentage of each associate's
total compensation.
A summary of the components of net periodic pension cost for
the defined benefit plans and the total contributions
charged to expense for the defined contribution plans
follows:
1998 1997 1996
Defined benefit plans
Service cost $ 480 $ 411 $ 430
Interest cost on projected
benefit obligation 5,477 5,979 5,911
Return on plan assets (7,760) (8,941) (6,933)
Net amortization and deferral (58) 2,673 1,735
Net pension cost (1,861) 122 1,143
Defined contribution plans 6,822 5,464 5,213
$4,961 $5,586 $6,356
The following table sets forth the funded status of the
Company's defined benefit plans:
1998 1997
Change in projected benefit obligation
Benefit obligation at beginning of year $ 81,009 $79,367
Service and interest cost 5,957 6,390
Plan amendments (1,178) -
Actuarial losses 3,430 2,248
Benefits paid (6,982) (6,996)
Benefit obligation at year end 82,236 81,009
Change in plan assets
Fair value of plan
assets at beginning of year 100,711 86,706
Actual return on plan assets 11,774 20,915
Employer contributions 484 86
Benefits paid (6,982) (6,996)
Fair value of plan assets at end of year 105,987 100,711
Funded Status 23,751 19,702
Unrecognized actuarial gains (9,257) (7,814)
Unrecognized net transition obligation 159 758
Net amount recognized $ 14,653 $12,646
The projected benefit obligation was determined using an
assumed discount rate of 6.75% and 7.50% in 1998 and 1997,
respectively, an assumed long-term rate of increase in
compensation of 5% for both years and an assumed long-term
rate of return on plan assets of 8.5% for both years.
Effective December 31, 1998, the Company amended the
Salaried Employees Retirement Income Plan, freezing the
benefits earned under the Plan. In accordance with SFAS No.
88 "Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits", the
Company recorded a $1,457 net curtailment loss.
Additionally, this plan amendment resulted in a $1,178
decrease in the projected benefit obligation.
Prior to 1997, the Company had recorded a minimum pension
liability representing the excess of the accumulated benefit
obligation over the fair value of plan assets and accrued
pension liabilities. The liability had been offset by
intangible assets to the extent possible. Because the
intangible assets recognized may not exceed the amount of
unrecognized prior service cost plus unrecognized
obligations at transition that remain at December 31 each
year, the balance of the liability at the end of 1996 was
reported as a separate reduction of stockholders' equity,
net of applicable deferred income taxes.
In addition to providing pension benefits, the Company
provides certain contributory and noncontributory health
care and life insurance benefits for certain retired
associates. Certain associates of the Company may become
eligible for these postretirement benefits if they reach
retirement age while working for the Company.
The status of the Company's plans, which are unfunded, at
December 31, 1998 and 1997, is as follows:
1998 1997
Change in benefit obligation
Benefit obligation at the beginning of the year $65,773 $63,484
Service and interest cost 5,605 5,641
Benefits paid (4,233) (4,701)
Actuarial losses 3,149 1,349
Benefit obligation at the end of the year $70,294 $65,773
Funded status
Unfunded obligation $70,294 $65,773
Unrecognized actuarial gain 14,447 18,677
Accrued liability recognized at year end $84,741 $84,450
Net periodic postretirement benefit cost includes the
following components:
1998 1997 1996
Service cost $ 972 $ 834 $ 1,060
Interest cost 4,633 4,807 4,863
Amortization of unrecognized actuarial gain (1,081) (781) (425)
Net periodic postretirement benefit cost $ 4,524 $ 4,860 $ 5,498
The weighted-average assumed rate of increase in the per
capita cost of covered benefits (i.e., health care cost
trend rate) is assumed to be 8.5% at December 31, 1998 and
1997, respectively, and decreasing gradually to 5.25% in
2005 and remaining at that level thereafter. A one
percentage point change in the assumed health care cost
trend rates would have the following effects:
One One
percentage percentage
point point
increase decrease
Change in service and interest $ 772 $ (656)
cost components of annual
expense
Change in postretirement
benefit obligation $8,138 $(7,114)
A discount rate of 6.75% and 7.50% in 1998 and 1997,
respectively, was used in determining the accumulated
benefit obligation.
FINANCIAL INSTRUMENTS
The Company transacts business in various foreign currencies
and is subject to financial exposure from foreign exchange
rate movement between the date a foreign currency transaction
is recorded and the date it is consummated. To mitigate this
risk, the Company enters into foreign exchange contracts.
Gains and losses on these contracts generally offset gains or
losses on the assets and liabilities being hedged and are
recorded as other income or expense. Additionally, the
Company enters into intercompany lending transactions. The
Company also enters into foreign exchange contracts related
to this foreign exchange exposure. Realized and unrealized
gains and losses on these contracts are recorded as other
income or expense. The Company does not hold or issue
financial instruments for trading purposes.
The table below summarizes by currency the contractual
amounts of the Company's foreign exchange contracts at
December 31, 1998. Foreign currency amounts are translated
at exchange rates as of December 31, 1998. The "Buy" amounts
represent the U.S. dollar equivalent of commitments to
purchase foreign currencies, and the "Sell" amounts represent
the U.S. dollar equivalent of commitments to sell foreign
currencies.
Buy Sell
Currency
U.S. dollar $59,605 $19,892
British pound sterling 17,770 10,098
French franc 1,060 68,104
German deutschmark 7,200 1,494
Belgian franc 6,407 -
Canadian dollar 4,248 -
Dutch guilder 4,350 -
Australian dollar - 3,424
Other 3,506 983
The following methods and assumptions were used by the
Company in estimating fair value disclosures for financial
instruments:
Cash and Cash Equivalents: The carrying amounts reported in
the balance sheet approximate fair value.
Long and Short-Term Debt: The carrying amount of the
Company's short-term borrowings approximates fair value. The
fair value of the Company's Senior and Medium-term Notes is
based on quoted market prices. The carrying amount of the
Company's borrowings under its variable interest rate long-
term revolving credit agreements and other long-term
borrowings approximates fair value.
Foreign Exchange Contracts: The fair value of short-term
foreign exchange contracts is based on exchange rates at
December 31, 1998. The fair value of long-term foreign
exchange contracts is based on quoted market prices for
contracts with similar maturities.
The carrying amounts and fair values of the Company's
financial instruments at December 31, 1998 and 1997, are as
follows:
1998 1997
Carrying Fair Carrying Fair
Amount Value Amount Value
Cash and cash equivalents $32,322 $32,322 $41,430 $41,430
Notes payable to banks 3,391 3,391 2,919 2,919
Long-term debt
9.375% Senior notes 87,775 99,291 87,775 100,055
9% Senior notes - - 37,185 37,910
Medium-term notes 160,000 163,637 120,000 122,545
Bank borrowings 214,625 214,625 77,197 77,197
Other 21,097 21,097 5,219 5,219
Foreign exchange contracts 166 166 663 663
LEASE COMMITMENTS
The Company leases certain manufacturing facilities,
warehouses, transportation equipment and data processing and
office equipment under capital and operating leases. Rent
expense for operating leases was $21,530, $21,009 and
$18,646 for the years ending December 31, 1998, 1997 and
1996, respectively. Certain of the Company's leases have
options to renew, and there are no significant contingent
rentals.
At December 31, 1998, future minimum lease commitments for
noncancelable leases are as follows:
Operating Capital
Leases Leases
1999 $15,844 $ 758
2000 11,733 815
2001 9,753 808
2002 7,954 836
2003 5,706 1,170
Thereafter 15,076 -
Total $66,066 4,387
Less: Interest 548
Present value of minimum lease payments $3,839
CONTINGENCIES
Claims have been made against subsidiaries of the Company for
the costs of environmental remediation measures taken or to
be taken in connection with operations that have been sold or
closed. These include the clean-up of Superfund sites and
participation with other companies in the clean-up of
hazardous waste disposal sites, several of which have been
designated as Superfund sites. Reserves for such liabilities
have been established and no insurance recoveries have been
anticipated in the determination of the reserves. In
management's opinion, the aforementioned claims will be
resolved without material adverse effect on the financial
position, results of operations or cash flows of the Company.
LITIGATION
The Company is engaged in legal proceedings arising in the
ordinary course of business. The Company believes that the
ultimate outcome of these proceedings will not have material
adverse impact on the Company's financial position, results
of operations or cash flows.
OTHER - NET
Other - net includes the following:
1998 1997 1996
Interest and dividends $(1,010) $ (589) $(1,578)
Gain on sale of assets (1,009) (6,340) -
Expenses of closed facilities 1,291 3,166 4,160
Profit improvement plan charges 23,800 6,140 -
Foreign exchange gain (3,249) (2,800) (2,558)
Minority interest 4,706 - -
Other (2,368) (1,246) 315
$22,161 $(1,669) $ 339
DETAIL OF CURRENT AND OTHER LIABILITIES
Trade payables and accrued expenses and other liabilities at
December 31 are principally comprised of the following items:
1998 1997
Trade payables and accrued expenses
Trade payables $222,993 $247,778
Salaries and wages 10,732 12,466
Associate benefits 39,657 42,847
Restructuring and acquisition costs 18,350 10,164
Other postretirement benefits 4,912 4,763
Other liabilities
Plant closedown costs 8,718 11,420
Environmental costs 13,687 14,641
Associate benefits 31,924 27,544
Other postretirement benefits 79,829 79,687
Minority interest 33,091 25,708
Associate benefit accruals include employee health, life and
disability insurance, profit sharing and incentive
compensation, pension expense, workers' compensation costs
and vacation pay.
SUPPLEMENTAL CASH FLOW DATA
The following is a summary of noncash investing and financing
activities.
1998 1997 1996
Acquisition of businesses
Assets acquired $129,674 $103,369 $130,712
Liabilities assumed 52,096 6,520 68,574
Cash paid 77,578 96,849 62,138
Less cash acquired 1,533 337 3,699
$ 76,045 $ 96,512 $ 58,439
Debt of companies acquired $ 27,338 - $ 19,106
Payment of incentive compensation
awards with treasury and AOT stock $ 1,042 $ 3,293 $ 2,019
Payment of stock options exercised
with shares of common stock $ 1,396 $ 3,069 $ 817
Release of common stock held by
Associates Ownership Trust $ 5,033 $ 8,134 $ 2,122
Transfer of common stock released
from Associates Ownership Trust
to treasury stock $ (4,797) $ (6,166) -
Quarterly Financial and Stock Price Data
M.A. Hanna Company and Consolidated Subsidiaries
Dollars in thousands except per share data
Summarized unaudited quarterly financial and stock price data for 1998 and 1997
are as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter
1998
Net sales $ 591,501 $ 595,613 $ 564,539 $ 534,229
Gross margin 114,229 109,573 92,861 85,875
Income before cumulative effect of
change in accounting principl 15,407 12,969 (145) 2,111
Cumulative effect of change in
accounting principle (2,059) - - -
Net income 13,348 12,969 (145) 2,111
Net income per common share (diluted)
Income before cumulative effect of
a change in accounting principle .34 .29 - 0.05
Cumulative effect of a change in
accounting principle (.05) - - -
Net Income .29 .29 - 0.05
Price range
High 25.56 24.69 18.25 15.94
Low 19.75 17.88 9.75 10.56
Cash dividends paid .1125 .1125 .1125 .1200
1997
Net sales $ 527,629 $ 555,382 $ 561,418 $ 555,916
Gross margin 101,477 106,020 103,907 107,205
Net income 15,228 17,104 16,631 15,638
Net income per common share (dilu .33 .37 .36 .34
Price range
High 24.63 30.00 28.75 27.25
Low 19.75 20.38 24.63 23.63
Cash dividends paid .105 .105 .105 .1125
Income per share calculations for each of the quarters are based on the weighted
average number of shares outstanding for each quarter, and the sum of the
quaters may not be necessarily be equal to the full year income per share
amount.
SELECTED FINANCIAL DATA
M. A. Hanna Company and Consolidated Subsidiaries
Dollars in thousands except per share data
1998 1997 1996
Summary of Operations
Net sales $2,285,882 $2,200,345 $2,066,248
Cost of goods sold 1,883,344 1,781,736 1,685,167
Selling, general and administrative 295,267 271,894 243,505
Amortization of intangibles 16,167 14,204 14,313
Interest on debt 33,915 23,751 20,033
Income(loss) from continuing operations
before income taxes, extraordinary
charge and cumulative effect of changes
in accounting principles 35,028 110,429 102,891
Income taxes 4,686 45,828 43,729
Income(loss) from continuing operations
before extraordinary charge and
cumulative effect of changes in
accounting principles 30,342 64,601 59,162
Net income 28,283 64,601 53,810
Per share of common stock (basic)
Income(loss) from continuing operations .68 1.43 1.29
Net income .64 1.43 1.18
Dividends paid .46 .43 .40
Cash dividends paid on
Common stock 20,370 19,176 18,291
Preferred stock - - -
Balance Sheet
Current assets $ 654,448 $ 642,919 $ 533,539
Current liabilities 364,083 398,993 351,939
Working capital 290,365 243,926 181,600
Property, plant and equipment - net 339,587 288,313 254,407
Other assets 599,862 537,773 462,833
Net long-term assets of discontinued
operations - - -
Other liabilities (210,476) (205,480) (182,852)
Long-term debt (480,886) (325,227) (207,705)
Total stockholders' equity $ 538,452 $ 539,305 $ 508,283
Shares of common stock outstanding 49,619,831 50,476,968 50,989 815
Average diluted shares outstanding 45,036,676 46,271,857 46,823,501
Book value per share of common stock $ 10.85 $ 10.68 $ 9.97
1995 1994 1993
Summary of Operations
Net sales $1,901,954 $1,719,356 $1,412,071
Cost of goods sold 1,552,643 1,393,036 1,146,191
Selling, general and administrative 218,823 213,318 179,228
Amortization of intangibles 13,969 12,458 12,006
Interest on debt 26,278 28,549 32,258
Income(loss) from continuing operations
before income taxes, extraordinary
charge and cumulative effect of changes
in accounting principles 98,821 66,222 37,654
Income taxes 42,119 29,218 16,357
Income(loss) from continuing operations
before extraordinary charge and
cumulative effect of changes in 56,702 37,004 21,297
accounting principles
Net income 102,039 43,294 2,018
Per share of common stock (basic)
Income(loss) from continuing operations 1.22 .80 .46
Net income 2.19 .93 .05
Dividends paid .37 .34 .32
Cash dividends paid on
Common stock 16,962 15,688 14,003
Preferred stock - - -
Balance Sheet
Current assets $ 574,612 $ 565,615 $ 405,782
Current liabilities 335,251 337,491 259,680
Working capital 239,361 228,124 146,102
Property, plant and equipment - net 227,021 204,135 184,296
Other assets 429,963 445,410 438,628
Net long-term assets of discontinued
operations - - 94,904
Other liabilities (179,580) (173,888) (176,422)
Long-term debt (231,987) (288,869) (322,052)
Total stockholders' equity $ 484,778 $ 414,912 $ 365,456
Shares of common stock outstanding 51,964,377 53,541,141 53,417,283
Average diluted shares outstanding 47,412,297 47,203,412 46,283,262
Book value per share of common stock $ 9.33 $ 7.75 $ 6.84
1992 1991 1990
Summary of Operations
Net sales $1,188,541 $1,006,638 $ 960,228
Cost of goods sold 961,925 797,892 749,071
Selling, general and administrative 152,366 147,998 137,674
Amortization of intangibles 11,069 10,146 9,704
Interest on debt 32,509 23,221 18,301
Income(loss) from continuing operations
before income taxes, extraordinary
charge and cumulative effect of changes
in accounting principles 27,005 (16,195) 44,023
Income taxes 8,819 8,225 12,830
Income(loss) from continuing operations
before extraordinary charge and
cumulative effect of changes in 18,186 (24,420) 31,193
accounting principles
Net income 19,025 1,875 55,871
Per share of common stock (basic)
Income(loss) from continuing operati .42 (.48) .50
Net income .44 .01 .90
Dividends paid .29 .28 .25
Cash dividends paid on
Common stock 12,630 15,267 15,175
Preferred stock - 1,031 -
Balance Sheet
Current assets $ 416,739 $ 275,060 $ 276,711
Current liabilities 229,327 195,610 181,471
Working capital 187,412 79,450 95,240
Property, plant and equipment - net 195,117 184,877 183,536
Other assets 440,873 443,702 458,394
Net long-term assets of discontinued
operations 99,836 121,374 129,869
Other liabilities (174,558) (118,082) (161,674)
Long-term debt (350,737) (330,863) (137,691)
Total stockholders' equity $ 397,943 $ 380,458 $ 567,674
Shares of common stock outstanding 52,650,162 51,367,613 59,906,358
Average diluted shares outstanding 44,332,720 54,472,086 63,136,015
Book value per share of common stock $ 7.56 $ 7.41 $ 9.47
1989
Summary of Operations
Net sales $ 918,276
Cost of goods sold 718,636
Selling, general and administrative 135,741
Amortization of intangibles 8,886
Interest on debt 21,128
Income(loss) from continuing operations
before income taxes, extraordinary
charge and cumulative effect of changes
in accounting principles 44,797
Income taxes 7,608
Income(loss) from continuing operations
before extraordinary charge and
cumulative effect of changes in 37,189
accounting principles
Net income 86,920
Per share of common stock (basic)
Income(loss) from continuing operati .61
Net income 1.49
Dividends paid .20
Cash dividends paid on
Common stock 11,812
Preferred stock 2,125
Balance Sheet
Current assets $ 264,772
Current liabilities 167,272
Working capital 97,500
Property, plant and equipment - net 173,477
Other assets 444,479
Net long-term assets of discontinued
operations 137,304
Other liabilities (175,310)
Long-term debt (134,834)
Total stockholders' equity $ 542,616
Shares of common stock outstanding 62,524,211
Average diluted shares outstanding 63,399,335
Book value per share of common stock $ 8.68
Shareholder Information
M.A. Hanna Company common stock is listed on the New York and Chicago
stock exchanges under the symbol MAH. At December 31, 1998, the number
of shareholders of record of the Company's common stock was 4,625.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
The Company faced strategic and tactical challenges in 1998
that were driven by both external and internal factors. The
Company's performance was impacted by the economic crises in
Asia and Russia, softness in certain industrial markets, a
work stoppage at General Motors and a downward trend in resin
prices, all of which put pressures on gross margins.
Executing integration plans in the Company's domestic plastic
colorant and compounding businesses was more difficult than
anticipated. Installation of new information technology
systems also consumed a substantial amount of energy of
management and associates. In addition, the conversion to a
hub and spoke distribution system with call centers in the
shapes distribution business increased costs and negatively
impacted this business's ability to service customers.
During 1998, the Company completed a review of its business
and implemented a plan that will lower the Company's overall
cost structures. The Company expects between $12 million
and $14 million in benefits from these actions in 1999,
mostly from reduced headcount and lower fixed overhead costs.
The plan includes consolidating manufacturing operations and
improving customer service capabilities through more
efficient production facilities and more focused sales,
marketing and technical support. These actions resulted in a
pre-tax charge of $29.8 million. The charge includes $4.3
million related to inventory valuations which was charged to
cost of goods sold and $1.7 million related to accounts
receivable which was charged to selling, general and
administrative expenses. The remainder of the charge related
to involuntary severances, the write down of fixed assets and
provisions for closing of five manufacturing facilities, and
was charged to other-net. The breakdown of the total cost of
the plan by business segment is as follows: rubber processing
- - $4.3 million; plastic processing - $16.4 million;
distribution - $5.6 million; and corporate - $3.5 million.
As of December 31, 1998, the Company had closed four of the
manufacturing facilities and, subsequent to year end, sold
the fifth facility. The Company will continue to incur
facility costs until leases expire or the facilities are
subleased. The plan included the elimination of
approximately 300 jobs, of which half were eliminated in 1998
and half will be eliminated in early 1999.
A number of other actions were taken in 1998 to set a more
solid footing for the future. The Company expanded its
geographic reach and broadened its products through
acquisitions and joint ventures. It gained its first
international presence in rubber compounding with the
acquisition of a majority interest in Melos Carl Bosch GmbH +
Co. Key product lines were established through the
acquisition of Exxon Chemical's halogen-free, flame retardant
business. A joint venture agreement was also reached with
Bifan S.A., a holding company that controls So.F.teR S.p.A, a
leading Italian producer of thermoplastic elastomers.
Finally, another joint venture was formed with Ube Industries
for the manufacture of nylon compounds in North America,
Europe and Asia. These acquisitions and joint ventures were
accounted for as a purchase and resulted in approximately $55
million of additional goodwill in 1998.
Further actions in 1998, led to two new facilities which are
under construction - a rubber colorant and additives plant in
Ohio and a rubber compounding facility in Mexico. Expansion
of two additional facilities - a plastic colorant and
compounding plant in Texas and the Melos facility in Germany
- - is also under way. During 1998, the Company opened a
plastic compounding plant in China and a colorants plant in
Hungary.
1998 COMPARED WITH 1997
Revenues from rubber processing businesses increased from
$448.5 million to $528.5 million in 1998 due to acquisitions
and higher volumes, partially offset by lower pricing.
Plastic processing revenues increased 8.4% over 1997 levels
to $833.1 million; acquisitions made in 1998 and 1997 account
for all of the growth with unit volumes, pricing and a
stronger U.S. dollar partially offsetting the growth.
Revenues from the distribution businesses decreased $51.2
million to $910.1 million due to lower unit volumes, lower
pricing and the stronger U.S. dollar. Revenues from other
operations were $14.2 million in 1998 compared with $21.9
million in 1997 due to lower volume and pricing.
Gross margins were 17.6% in 1998 compared with 19.0% in 1997.
Gross margins in the rubber processing business improved over
1997 levels due to acquisitions. Plastic processing margins
deteriorated from 1997 levels due to lower volume and pricing
without a corresponding decrease in cost structures. Gross
margins in the distribution businesses also fell from 1997
levels due in part to lower volume and pricing and the
problems converting to the hub and spoke distribution system
in the shapes distribution business. A reduction in LIFO
reserves also improved gross margins in 1997.
Selling, general and administrative expenses increased $23.4
million in 1998 to $295.3 million. Acquisitions accounted
for $20.3 million and incremental costs for the Company's
information technology systems were $6.0 million. As a
percentage of sales, selling, general and administrative
expenses were 12.9% in 1998 and 12.4% in 1997 and reflect
lower revenues without a corresponding reduction in expenses.
Interest on debt increased from $23.8 million in 1997 to
$33.9 million in 1998 due to increased borrowings to fund
acquisitions made in 1998 and 1997, higher levels of working
capital and capital expenditure programs.
Other-net in 1998 includes a $23.8 million provision related
to the profit improvement plan announced during 1998. The
provision included costs for asset write downs, plant
closings and severance. Other - net in 1997 included gains of
$6.3 million from the sale of the Company's remaining
interest in the Iron Ore Company of Canada sales agency and
its interest in Hollinger Hanna. Additionally, in 1997 the
Company recorded a $5.1 million charge related to plastic
processing businesses for plant closings, facilities
rationalization and start up costs for a new plant and a $1.0
million charge for the reengineering of its resin
distribution business.
The Company's effective tax rate in 1998 was 13.4% compared
with 41.5% in 1997. Included in tax expense in 1998 is a one-
time benefit of $9.5 million as a result of an agreement with
the Internal Revenue Service regarding an examination for the
years 1990 through 1992. Without the one time benefit, the
effective tax rate for 1998 would have been 40.5%. The
Company continues to explore tax planning strategies that
will enable it to sustain or lower the current tax rate in
the future.
1997 COMPARED WITH 1996
Revenues from rubber processing businesses increased 15.5%
over 1996 levels to $448.5 million due to acquisitions and
higher unit volumes and pricing. Plastic processing revenues
increased from $723.5 million in 1996 to $768.7 million in
1997. Acquisitions in both plastic colorants and compounding
and higher unit volumes were partially offset by lower
pricing and the impact of foreign exchange. Distribution
revenues increased 4.3% from 1996 levels to $961.2 million.
Increases in unit volume and product mix were partially
offset by lower pricing and the stronger U.S. dollar. Sales
from other operations were down $10.5 million from 1996
levels. 1996 revenues included revenues from the management
of Iron Ore Company of Canada (IOC), management of a bulk
unloading facility in Cleveland and the Company's ownership
interest in the IOC sales agency. No revenues were generated
during 1997 from these operations due to the expiration of
the management contracts and the sale of the Company's
ownership interest in the sales agency.
Gross margins were 19.0% in 1997 compared with 18.4% in 1996.
Gross margins in the rubber processing businesses improved
over 1996 levels due to higher unit volumes and acquisitions
made in 1997. Plastic processing margins also improved over
1996 levels due to acquisitions and higher unit volumes.
Gross margins from distribution businesses were favorably
impacted in 1997 by higher unit volumes and reductions in
LIFO reserves.
Selling, general and administrative expenses increased from
$243.5 million in 1996 to $271.9 million in 1997. The
increase was due to higher levels of sales, acquisitions and
higher costs associated with the development of HannaLinkT,
the Company's enterprise-wide information system.
Acquisitions accounted for $10.2 million while the
incremental cost of HannaLinkT was $8.2 million. As a
percent of sales, selling, general and administrative
expenses were 12.4% in 1997 compared with 11.8% in 1996.
Interest on debt increased $3.7 million in 1997 to $23.8
million. The increase in interest expense resulted from
increased borrowings to fund acquisitions, the formation of a
joint venture and increased working capital levels.
Other - net included gains of $6.3 million from the sale of
the Company's remaining interest in the Iron Ore Company of
Canada sales agency and its interest in Hollinger Hanna.
Additionally, the Company recorded a $5.1 million charge
related to its plastic processing businesses for plant
closings, facilities rationalization and start up costs for a
new plant and a $1.0 million charge for the reengineering of
its resin distribution business.
The Company's effective tax rate was 41.5% in 1997 compared
with 42.5% in 1996.
LIQUIDITY AND SOURCES OF CAPITAL
Cash flows from operating activities provided $75.6 million
in 1998. Working capital used $35.9 million, reflecting an
increase in days sales outstanding primarily in the
distribution businesses and a reduction in days supply in
trade payables over 1997 levels. Inventory turns were flat
with 1997 levels with improvement in the plastic processing
businesses being offset by deterioration in the rubber
processing and distribution businesses. Payments related to
restructuring activities used $10.6 million in cash in 1998.
Investing activities used $148.9 million and included $66.4
million for capital expenditures and $76.0 million for
acquisitions and formation of joint ventures. The Company's
capital budget for 1999 is $77.0 million. Financing
activities generated $64.2 million. Dividends used $20.4
million and the repurchase of 876,000 shares for treasury
used $16.9 million. The Company issued $40.0 million of
medium-term notes in 1998 under a shelf registration
statement filed with the Securities and Exchange Commission
in 1996. During 1998, the Company entered into a five year
fixed rate borrowing for 90.0 million DM. Funds from this
agreement were used to refinance borrowings incurred earlier
in the year to acquire a majority interest in Melos Carl
Bosch GmbH + Co.
The Company has a revolving credit facility which provides
for borrowing up to $200 million and expires in 2003. The
agreement provides for interest rates to be determined at the
time of borrowing based on a choice of formulas specified in
the agreement.
The current ratio was 1.8:1 on December 31, 1998, compared
with 1.6:1 on December 31, 1997. Long-term debt to capital
was 47.2% and 37.6% on December 31, 1998 and 1997,
respectively.
MARKET RISK
The Company is exposed to foreign currency exchange risk
in the ordinary course of business. Management has
examined the Company's exposure to this risk and has
concluded that the Company's exposure in this area is
not material to fair values, cash flows or earnings.
The Company's products are sold in numerous countries.
The collection of revenues and the payment of certain
expenses may give rise to currency exposure. The
Company also enters into intercompany lending
transactions. Foreign exchange contracts are entered
into as a result of this foreign currency exposure.
ENVIRONMENTAL MATTERS
The Company is subject to various laws and regulations
concerning environmental matters. The Company is committed
to a long-term environmental protection program that reduces
releases of hazardous materials into the environment as well
as the remediation of identified existing environmental
concerns.
Claims have been made against subsidiaries of the Company for
costs of environmental remediation measures taken or to be
taken in connection with operations that have been sold or
closed. These include the clean-up of Superfund sites and
participation with other companies in the clean-up of
hazardous waste disposal sites. Several of these sites have
been designated as Superfund sites. Reserves for such
liabilities have been established and no insurance recoveries
have been anticipated in the determination of reserves.
While it is not possible to predict with certainty,
management believes that the aforementioned claims will be
resolved without material adverse effect on the financial
position, results of operations or cash flows of the Company.
YEAR 2000 READINESS DISCLOSURE
The Company is addressing the issue of computer programs and
embedded computer chips being unable to distinguish between
the year 1900 and the year 2000. It has undertaken various
initiatives intended to ensure that its computer programs and
embedded computer chips will perform as intended regardless
of date and that all data including dates can be accessed and
processed with expected results. The Company expects to be
year 2000 compliant by June 30, 1999.
Beginning in 1995 the Company began a multi-year project to
(i) replace 22 legacy systems which resulted from
acquisitions made since 1986, (ii) introduce enterprise-wide
information technology systems from SAP America, Inc., Oracle
Corporation and J.D. Edwards in order to consolidate and
standardize its information technology systems and (iii)
install other enterprise-wide software in order to serve
customers better and operate more efficiently. An important
benefit of this project is that new systems and software will
be year 2000 compliant.
It is expected that the new systems and software will be
installed, tested and operating no later than June 30, 1999.
When installed the new systems and software will comprise at
least 95% of the systems and software being operated by the
Company worldwide. In connection with the introduction of
the new systems and software, the Company has identified the
legacy systems being retained that are not currently year
2000 compliant, and has put in place programs to bring them
to a state of year 2000 compliance by the middle of 1999
through upgrading or replacement, as appropriate. In
addition, the Company has implemented a program to identify
and test date sensitive chips to ensure year 2000
functionality, with a formal monthly reporting procedure.
The Company has also been engaged in the process of
identifying and prioritizing critical suppliers and customers
at the direct interface level, and communicating with respect
to their state of year 2000 readiness. Evaluations of the
most critical third parties have commenced and will be
followed by the development of contingency plans.
A significant portion of the costs to implement the new
systems and software have already been incurred and are being
amortized or charged to expense in current operations. The
historical costs of remediating the non-compliant systems has
been included in the Company's information technology cost
reporting and are not material to its financial position,
results of operations or cash flows. The Company does not
believe that future costs associated with the new systems and
software and the required modifications of the legacy systems
to become year 2000 compliant will be material to its
financial position, results of operations or cash flows.
The Company has formulated a general contingency plan for
dealing with the most serious year 2000 compliance failures
as they may occur and expects to fund the contingency plan
efforts from operating funds. During 1999, the Company will
develop more detailed contingency plans.
The failure to correct a material year 2000 problem could
result in an interruption in, or a failure of, certain normal
business activities or operations. Such failure could
materially and adversely affect the Company's results of
operations, liquidity and financial condition or adversely
affect the Company's relationships with its suppliers,
customers or other third parties. Due to the general
uncertainty inherent in the year 2000 problem, resulting in
part from the uncertainty of the year 2000 readiness of
suppliers and customers, the Company is unable to determine
at this time whether the consequences of year 2000 failures
will have a material impact on its financial position,
results of operations or cash flows. The Company believes
that the scheduled completion of the implementation of the
new systems and software prior to June 30, 1999, should
reduce the possibility of significant interruptions of normal
operations.
CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
Any forward-looking statements included in this annual report
are based on current expectations with respect to the future
performance of the Company and may constitute "forward-
looking statements" within the meaning of federal securities
laws. Any statements in this annual report that are not
historical in nature are forward-looking statements. Actual
results may differ materially depending on the business
conditions and growth in the plastics and rubber industries,
the general economy, foreign, political and economic
developments, foreign exchange rates, availability and
pricing of plastic resins, supplies and raw materials,
changes in product mix, shifts in market demand, year 2000
compliance issues and changes in prevailing interest rates.
On behalf of M.A. Hanna management,
/s/ Michael S. Duffey
Senior Vice President, Finance and Administration
Item 14(c) Exhibit (i) (18)
January 27, 1999
To the Board of Directors
M.A. Hanna Company
Dear Directors:
We have audited the consolidated financial statements
included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998 and issued our report thereon
dated January 27, 1999. The notes to the consolidated
financial statements describe a change in the Company's
method of determining the cost of inventories from the first-
in, first-out method to the last-in, first-out method. It
should be understood that the preferability of one
acceptable method of inventory accounting over another has
not been addressed in any authoritative accounting
literature and in arriving at our opinion expressed below,
we have relied on management's business planning and
judgement. Based on our discussions with management and the
stated reasons for the change, we believe that such change
represents, in your circumstances, the adoption of a
preferable alternative accounting principle for inventories
in conformity with Accounting Principles Board Opinion No,
20.
Yours very truly,
/s/ PricewaterhouseCoopers LLP
Item 14(c) Exhibit (i) (21)
SUBSIDIARIES OF THE REGISTRANT:
Where Incorporated
Name (or formed)
Burton Rubber Compounding, L.P. Delaware
(a limited partnership)
Burton Rubber Processing, Ltd. Ontario
Bifan S.A. Italy
Cadillac Plastic Group, Inc. Michigan
Compounding Technology, Euro S.A. France
Compounding Technology Pte. Ltd. Singapore
DH Compounding Company Delaware
(a general partnership)
Enviro Care Compounds AS Norway
Hanna France SARL France
Hanna Hamilton Holdings Company Delaware
Hanna International Corporation Delaware
Hanna Polimeros, S.A. de C.V. Mexico
Hanna Su Xing Plastics Compounding (Suzhou)
Company Limited China
Hanna-Wilson Polymer Feldolgozo Kft Hungary
Hanna Wilson Polymer (Shanghai) Limited China
Harwick Chemical Manufacturing Company Delaware
M. A. Hanna Export Services Company Barbados
M. A. Hanna International Financial Services Company Ireland
M. A. Hanna de Mexico, S.A. de C.V. Mexico
M. A. Hanna Resin Distribution Company Delaware
MAH Plastics Company Delaware
Melos Carl Bosch GmbH & Co. Germany
Monmouth Plastics Company Delaware
Poliamidas Barbastro, S.A. Spain
So.F.teR S.p.A. Italy
Techmer PM, LLC Delaware
The Pennsylvania Tidewater Dock Company Delaware
Theodor Bergmann GmbH & Co. Kunststoffwerk KG Germany
UBE-Hanna Compounding Company, LLC Delaware
UBE-Hanna Compounding GmbH Germany
Victor International Plastics, Ltd. England
Wilson Color S.A. Belgium
Wilson Color GmbH Germany
Wilson Color S.A. France
Wilson Color AB Sweden
The Registrant has other unconsolidated subsidiaries and 50
percent or less owned persons accounted for by the equity method, which
in the aggregate do not constitute a significant subsidiary.
Item 14(c) Exhibit (i) (23)
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the
Prospectus constituting part of the Registration Statement on
Form S-3 and the Registration Statements on Form S-8
(appearing on Exhibit 1) of M.A. Hanna Company of our report
dated January 27, 1999 appearing on page 30 of the Annual
Report to Stockholders which is incorporated in this Annual
Report on Form 10-K. We also consent to the incorporation by
reference of our report on the Financial Statement Schedule,
which appears on page F-2 of this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Cleveland, Ohio
March 22, 1999
Item 14(c) Exhibit (i) (24)
POWERS OF ATTORNEY
OF
CERTAIN DIRECTORS OF REGISTRANT
POWER OF ATTORNEY
The undersigned, Director of the corporation named
herein opposite her signature, hereby appoints T. E.
Lindsey,
J. S. Pyke, Jr., and M. S. Duffey, or any of them, her
attorney or attorneys in fact, with full power of
substitution, to sign the Annual Report on Form 10-K
for the fiscal year ended December 31, 1998, being
filed with the Securities and Exchange Commission by M.A.
Hanna Company, and any and all amendments to such Annual
Report, with full power and authority to take any and all
such action as may be necessary or advisable in the
premises.
Capacity in which Annual Report
on Form 10-K is to be signed
Signature
Date
/s/C.A. Cartwright Director of M.A. Hanna March 3, 1999
C. A. Cartwright Company
POWER OF ATTORNEY
The undersigned, Director of the corporation
named herein opposite his signature, hereby
appoints T. E. Lindsey, J. S. Pyke, Jr., and
M. S. Duffey, or any of them, his attorney or
attorneys in fact, with full power of substitution,
to sign the Annual Report on Form 10-K for the
fiscal year ended December 31, 1998, being filed
with the Securities and Exchange Commission by M.A.
Hanna Company, and any and all amendments to such
Annual Report, with full power and authority to take
any and all such action as may be necessary or
advisable in the premises.
Capacity in which Annual Report
on Form 10-K is to be signed
Signature
Date
/s/W. R. Embry Director of M.A. Hanna March 3, 1999
W. R. Embry Company
POWER OF ATTORNEY
The undersigned, Director of the corporation
named herein opposite his signature, hereby
appoints T. E. Lindsey, J. S. Pyke, Jr., and
M. S. Duffey, or any of them, his attorney or
attorneys in fact, with full power of substitution,
to sign the Annual Report on Form 10-K for the
fiscal year ended December 31, 1998, being filed
with the Securities and Exchange Commission by M.A.
Hanna Company, and any and all amendments to such
Annual Report, with full power and authority to take
any and all such action as may be necessary or
advisable in the premises.
Capacity in which Annual Report
on Form 10-K is to be signed
Signature
Date
/s/J. T. Eyton Director of M.A. Hanna March 3, 1999
J. T. Eyton Company
POWER OF ATTORNEY
The undersigned, Director of the corporation
named herein opposite his signature, hereby
appoints T. E. Lindsey, J. S. Pyke, Jr., and
M. S. Duffey, or any of them, his attorney or
attorneys in fact, with full power of substitution,
to sign the Annual Report on Form 10-K for the
fiscal year ended December 31, 1998, being filed
with the Securities and Exchange Commission by M.A.
Hanna Company, and any and all amendments to such
Annual Report, with full power and authority to take
any and all such action as may be necessary or
advisable in the premises.
Capacity in which Annual Report
on Form 10-K is to be signed
Signature
Date
/s/R. A. Garda Director of M.A. Hanna March 3, 1999
R. A. Garda Company
POWER OF ATTORNEY
The undersigned, Director of the corporation
named herein opposite his signature, hereby
appoints T. E. Lindsey, J. S. Pyke, Jr., and
M. S. Duffey, or any of them, his attorney or
attorneys in fact, with full power of substitution,
to sign the Annual Report on Form 10-K for the
fiscal year ended December 31, 1998, being filed
with the Securities and Exchange Commission by M.A.
Hanna Company, and any and all amendments to such
Annual Report, with full power and authority to take
any and all such action as may be necessary or
advisable in the premises.
Capacity in which Annual Report
on Form 10-K is to be signed
Signature
Date
/s/G. D. Harnett Director of M.A. Hanna March 3, 1999
G. D. Harnett Company
POWER OF ATTORNEY
The undersigned, Director of the corporation
named herein opposite his signature, hereby
appoints T. E. Lindsey, J. S. Pyke, Jr., and
M. S. Duffey, or any of them, his attorney or
attorneys in fact, with full power of substitution,
to sign the Annual Report on Form 10-K for the
fiscal year ended December 31, 1998, being filed
with the Securities and Exchange Commission by M.A.
Hanna Company, and any and all amendments to such
Annual Report, with full power and authority to take
any and all such action as may be necessary or
advisable in the premises.
Capacity in which Annual Report
on Form 10-K is to be signed
Signature
Date
/s/G. D. Kirkham Director of M.A. Hanna March 3, 1999
G. D. Kirkham Company
POWER OF ATTORNEY
The undersigned, Director of the corporation
named herein opposite his signature, hereby
appoints T. E. Lindsey, J. S. Pyke, Jr., and
M. S. Duffey, or any of them, his attorney or
attorneys in fact, with full power of substitution,
to sign the Annual Report on Form 10-K for the
fiscal year ended December 31, 1998, being filed
with the Securities and Exchange Commission by M.A.
Hanna Company, and any and all amendments to such
Annual Report, with full power and authority to take
any and all such action as may be necessary or
advisable in the premises.
Capacity in which Annual Report
on Form 10-K is to be signed
Signature
Date
/s/D. B. Lewis Director of M.A. Hanna March 3, 1999
D. B. Lewis Company
POWER OF ATTORNEY
The undersigned, Director of the corporation
named herein opposite his signature, hereby
appoints T. E. Lindsey,
J. S. Pyke, Jr., and M. S. Duffey, or any of them,
his attorney or attorneys in fact, with full power
of substitution, to sign the Annual Report on
Form 10-K for the fiscal year ended December
31, 1998, being filed with the Securities and
Exchange Commission by M.A. Hanna Company, and any
and all amendments to such Annual Report, with full
power and authority to take any and all such action
as may be necessary or advisable in the
premises.
Capacity in which Annual Report
on Form 10-K is to be signed
Signature
Date
/s/M. L. Mann Director of M.A. Hanna March 3, 1999
M. L. Mann Company
POWER OF ATTORNEY
The undersigned, Director of the corporation
named herein opposite his signature, hereby
appoints T. E. Lindsey,
J. S. Pyke, Jr., and M. S. Duffey, or any of them,
his attorney or attorneys in fact, with full power
of substitution, to sign the Annual Report on
Form 10-K for the fiscal year ended December
31, 1998, being filed with the Securities and
Exchange Commission by M.A. Hanna Company, and any
and all amendments to such Annual Report, with full
power and authority to take any and all such action
as may be necessary or advisable in the
premises.
Capacity in which Annual Report
on Form 10-K is to be signed
Signature
Date
/s/R. W. Pogue Director of M.A. Hanna March 3, 1999
R. W. Pogue Company
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<ARTICLE> 5 Item 14(c) Exhibit (i) (27)
<MULTIPLIER> 1,000
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
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<COMMON> 66,059
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