UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission file number 0-15899
WELLMAN, INC.
-------------
(Exact name of registrant as specified in its charter)
Delaware 04-1671740
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1040 Broad Street, Shrewsbury, NJ 07702
---------------------------------------
(Address of principal executive offices)
(908) 542-7300
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
As of August 5, 1996, there were 33,610,119 shares of the registrant's
common stock, $.001 par value, issued and outstanding and no shares of Class B
common stock outstanding.
<PAGE>
WELLMAN, INC.
INDEX
Page No.
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PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
Condensed Consolidated Statements of Income -
For the three and six months ended June 30, 1996 and 1995 3
Condensed Consolidated Balance Sheets -
June 30, 1996 and December 31, 1995 . . . . . . . . . . . 4
Condensed Consolidated Statements of Stockholders' Equity. . . 5
Condensed Consolidated Statements of Cash Flows -
For the six months ended June 30, 1996 and 1995 . . . . . 6
Notes to Condensed Consolidated Financial Statements . . . . . 7
ITEM 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . 8 - 11
PART II - OTHER INFORMATION
ITEM 4 - Submission of Matters to a Vote of Security Holders. . . . 12
ITEM 6 - Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 13
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2
<PAGE>
WELLMAN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------- --------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales $283,850 $293,971 $584,851 $570,037
Cost of sales 238,509 227,351 494,863 441,345
-------- -------- -------- --------
Gross profit 45,341 66,620 89,988 128,692
Selling, general and
administrative expenses 22,739 23,407 44,696 45,908
-------- -------- -------- --------
Operating income 22,602 43,213 45,292 82,784
Interest expense, net 3,064 2,876 7,002 5,775
Loss on sale of subsidiary -- 5,500 -- 5,500
-------- -------- --------- -------
Earnings before income taxes 19,538 34,837 38,290 71,509
Income taxes 7,809 13,238 14,857 27,174
-------- -------- -------- --------
Net earnings $ 11,729 $ 21,599 $ 23,433 $ 44,335
======== ======== ======== ========
Net earnings per common share $ 0.35 $ 0.64 $ 0.69 $ 1.32
======== ======== ======== ========
Weighted average common shares 33,779 33,657 33,741 33,683
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
WELLMAN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 15,616 $ 3,893
Accounts receivable, less allowance
of $5,446 in 1996 and $5,335 in 1995 149,551 145,572
Inventories 204,226 200,224
Prepaid expenses and other current assets 1,633 14,614
---------- ----------
Total current assets 371,026 364,303
Property, plant and equipment, at cost:
Land, buildings and improvements 129,592 127,555
Machinery and equipment 702,539 648,639
---------- ----------
832,131 776,194
Less accumulated depreciation 271,191 248,638
---------- ----------
Property, plant and equipment, net 560,940 527,556
Cost in excess of net assets acquired, net 289,894 295,062
Other assets, net 21,374 23,752
---------- ----------
$1,243,234 $1,210,673
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 85,568 $ 89,104
Accrued liabilities 39,086 50,368
Line of credit with bank -- 6,216
Current portion of long-term debt 147 147
---------- ----------
Total current liabilities 124,801 145,835
Long-term debt 304,614 272,867
Deferred income taxes and other liabilities 145,808 141,625
---------- ----------
Total liabilities 575,223 560,327
Stockholders' equity:
Common stock, $.001 par value; 55,000,000
shares authorized, 33,436,595 shares
issued and outstanding in 1996,
33,441,391 in 1995 33 33
Class B common stock, $.001 par value;
5,500,000 shares authorized -- --
Paid-in capital 229,658 230,008
Foreign currency translation adjustments 6,461 6,849
Retained earnings 431,859 413,456
---------- ----------
Total stockholders' equity 668,011 650,346
---------- ----------
$1,243,234 $1,210,673
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
WELLMAN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
COMMON STOCK CURRENCY
--------------- PAID-IN TRANSLATION RETAINED
SHARES AMOUNT CAPITAL ADJUSTMENTS EARNINGS TOTAL
------ ------ ------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 33,192 $ 33 $ 224,352 $ 4,783 $ 348,405 $ 577,573
Net earnings 74,054 74,054
Cash dividends ($0.27 per share) (9,003) (9,003)
Exercise of stock options 90 846 846
Issuance of common stock to
employee benefit plans 158 4,190 4,190
Issuance of restricted stock 1 34 34
Tax effect of exercise of stock
options 586 586
Currency translation adjustments 2,066 2,066
------ ---- --------- ------- --------- ----------
Balance at December 31, 1995 33,441 33 230,008 6,849 413,456 650,346
------ ---- --------- ------- --------- ----------
Net earnings 23,433 23,433
Cash dividends ($0.15 per share) (5,030) (5,030)
Exercise of stock options 45 852 852
Issuance of common stock to
employee benefit plans 121 2,670 2,670
Tax effect of exercise of stock
option 83 83
Currency translation adjustments (388) (388)
Purchase of treasury stock (170) (3,955) (3,955)
------ ---- -------- -------- -------- ---------
Balance at June 30, 1996 33,437 $ 33 $229,658 $ 6,461 $431,859 $ 668,011
====== ==== ======== ======== ======== =========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
WELLMAN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(In thousands)
<TABLE>
<CAPTION>
1996 1995
----- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $23,433 $44,335
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation 28,814 26,189
Amortization 6,439 6,114
Deferred income taxes 4,348 5,506
Common stock issued for stock plans 2,670 2,757
Changes in assets and liabilities (8,593) 8,035
------- -------
Net cash provided by operating activities 57,111 92,936
------- -------
Cash flows from investing activities:
Additions to property, plant and equipment (67,186) (45,810)
Other investing activities 4,645 1,239
------- -------
Net cash used in investing activities (62,541) (44,571)
------- -------
Cash flows from financing activities:
Net borrowings (repayments) of long-term debt 31,747 (28,452)
Net increase in line of credit with bank (6,216) --
Dividends paid on common stock (5,030) (4,324)
Exercise of stock options 935 192
Purchase of treasury stock (3,955) --
------- -------
Net cash provided by (used in) financing
activities 17,481 (32,584)
------- -------
Effect of exchange rate changes on cash
and cash equivalents (328) 668
------- -------
Increase in cash and cash equivalents 11,723 16,449
Cash and cash equivalents at beginning of period 3,893 21,556
------- -------
Cash and cash equivalents at end of period $15,616 $38,005
======= =======
Supplemental cash flow data:
Cash paid (received)during the period for:
Interest (net of amounts capitalized) $ 7,080 $ 7,433
Income taxes $ 2,566 $19,920
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
WELLMAN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information for the three and six months ended
June 30, 1996 and 1995 is unaudited)
(In thousands)
1. BASIS OF PRESENTATION
The results of operations for the three and six month periods are not
necessarily indicative of those for the full year.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements are presented on a basis consistent with
the audited statements, and all adjustments, which consist only of normal
recurring adjustments necessary to present fairly the financial position and
the results of operations for the periods indicated, have been reflected.
2. NET EARNINGS PER COMMON SHARE
Net earnings per common share is based on the weighted average number of
common and common equivalent shares outstanding.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
--------- ----------
<S> <C> <C>
Raw materials $ 74,977 $ 85,318
Finished and semi-finished goods 115,012 101,435
Supplies 14,237 13,471
--------- ---------
$ 204,226 $ 200,224
========= =========
</TABLE>
4. ENVIRONMENTAL MATTERS
The Company's operations are subject to extensive laws and regulations
governing air emissions, wastewater discharges and solid and hazardous
waste management activities. The Company's policy is to accrue
environmental remediation costs when it is both probable that a liability
has been incurred and the amount can be reasonably estimated. While it is
often difficult to reasonably quantify future environmental-related
expenditures, the Company currently estimates its future non-capital
expenditures related to environmental matters to range between $11,000 and
$28,000. In connection with these expenditures, the Company has accrued
an amount at June 30, 1996 within this range representing management's best
estimate of probable non-capital environmental expenditures. In addition,
future capital expenditures aggregating approximately $12,000 to $36,000 may
be required related to environmental matters. These non-capital and capital
expenditures are estimated to be incurred over the next 10 to 20 years. The
Company believes that it is entitled to recover a portion of these
expenditures under indemnification and escrow agreements.
5. STOCK REPURCHASE PROGRAM
In June 1996, the Company announced its intention to repurchase up to
2.5 million shares of the Company's common stock in the open market. As of
June 30, 1996, 170,000 shares had been repurchased.
7
<PAGE>
WELLMAN, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1995
Net sales for the three months ended June 30, 1996 decreased 3.4% to $283.9
million from $294.0 million for the three months ended June 30, 1995. Sales for
the Fibers Group declined to $114.7 million in the 1996 period from $127.7
million in the 1995 period due to lower polyester fiber selling prices and sales
volumes, reflecting weak textile demand. A recent improvement in textile demand
(see Outlook) enabled the Company in June 1996 to restart a production line at
its polyester fiber plant in Darlington, SC, representing approximately 7% of
the Company's total worldwide fiber capacity, which had been curtailed since the
fourth quarter of 1995. Sales for the Recycled Products Group (RPG) decreased
to $93.6 million in the 1996 period from $132.0 million in the year-ago period
primarily due to lower selling prices and sales volumes in the domestic and
European recycled fiber operations and the disposition of certain businesses
which had sales in the second quarter of 1995 of $15.8 million. Sales for the
Packaging Products Group (PPG) increased to $75.5 million in 1996 from $34.3
million in 1995 due to higher sales volumes resulting from the mid-1995
expansion of domestic PET resins capacity and the December 31, 1995 acquisition
of a Netherlands-based PET resins business. Domestic and European PET resin
selling prices have declined significantly since year end 1995, while domestic
volumes have remained stable and European volumes were lower than expected.
Gross profit for the three months ended June 30, 1996 amounted to $45.3
million versus $66.6 million for the comparable 1995 period. The gross profit
margin for the 1996 period was 16.0% compared to 22.7% in the 1995 period.
Gross profit for the Fibers Group decreased in the 1996 period compared to the
1995 period due to lower polyester fiber selling prices and sales volumes.
Gross profit for the RPG also decreased in the 1996 period versus the 1995
period primarily due to reduced profit at the European recycled fibers operation
stemming from significantly lower selling prices and sales volumes. Gross
profit for the PPG increased in the 1996 period compared to last year due to
higher sales volumes primarily resulting from the aforementioned domestic PET
resins expansion.
Selling, general and administrative expenses amounted to $22.7 million, or
8.0% of sales, for 1996 compared to $23.4 million, or 8.0% of sales, for 1995.
As a result of the foregoing, operating income was $22.6 million for the
second quarter of 1996 versus $43.2 million for the second quarter of 1995.
Net interest expense was $3.1 million in 1996 compared to $2.9 million in
1995. Interest expense increased due to an increase in outstanding borrowings
and a decrease in interest income, which was partially offset by a slight
decrease in interest rates.
The effective income tax rate was 40.0% in the second quarter of 1996 versus
38.0% in the comparable 1995 period, primarily reflecting lower overall
earnings and the negative impact of lower earnings in Ireland. The Irish tax
rate for manufacturing operations is significantly lower than the U.S. statutory
rate.
As a result of the foregoing, net earnings in the three months ended June
30, 1996 were $11.7 million, or $0.35 per share, compared to $21.6 million, or
$0.64 per share, for the three months ended June 30, 1995.
8
<PAGE>
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Net sales for the six months ended June 30, 1996 increased approximately
2.6% to $584.9 million from $570.0 million for the six months ended June 30,
1995. Sales for the Fibers Group decreased to $228.3 million in the 1996 period
from $251.8 million in the 1995 period due to lower polyester fiber sales
volumes and selling prices, reflecting weak textile demand. Recent improvements
in textile demand (see Outlook) enabled the Company in June 1996 to restart a
production line at its polyester fiber plant in Darlington, SC, which had been
curtailed since the fourth quarter of 1995. Sales for the RPG decreased to
$200.5 million in the first half of 1996 from $261.0 million in the first half
of 1995 due to lower sales volumes and selling prices for the domestic and
European recycled fiber operations and the disposition of certain businesses
which had sales in the first half of 1995 of $30.4 million. Sales for the PPG
increased to $156.1 million in the first six months of 1996 from $57.3 million
in the year-ago period due to higher sales volumes resulting from the mid-1995
expansion of domestic PET resins capacity and the acquisition of a Netherlands-
based PET resins business. Domestic and European PET resin selling prices
have declined significantly since year end 1995, while domestic volumes have
remained stable and European volumes were lower than expected.
Gross profit for the six months ended June 30, 1996 was $90.0 million
compared to $128.7 million for the 1995 period. The gross profit margin for the
1996 period was 15.4% compared to 22.6% in the year-ago period. Gross profit
for the Fibers Group decreased in the first six months of 1996 versus last year
due to increased chemical raw material costs and lower polyester fiber sales
volumes and selling prices. Gross profit for the RPG declined in the first
half of 1996 primarily due to increased waste raw material costs, significantly
lower selling prices and sales volumes in the European recycled fibers
business and the elimination of gross profit from divested businesses. Gross
profit for the PPG increased in the first half of 1996 compared to the year-ago
period primarily due to higher sales volumes resulting from the aforementioned
domestic PET resins expansion.
Selling, general and administrative expenses amounted to $44.7 million, or
7.6% of sales, for the 1996 period compared to $45.9 million, or 8.1% of sales,
for the 1995 period.
As a result of the foregoing, operating income was $45.3 million for the
first six months of 1996 versus $82.8 million for the comparable 1995 period.
Net interest expense was $7.0 million for the first six months of 1996
compared to $5.8 million for the first six months of 1995. Interest expense
increased due to an increase in outstanding borrowings and a decrease in
interest income, which was partially offset by a decrease in interest rates.
The effective income tax rate was 38.8% in the first six months of 1996
versus 38.0% in the comparable 1995 period, primarily reflecting lower overall
earnings and the negative impact of lower earnings in Ireland. The Irish
tax rate for manufacturing operations is significantly lower than the U.S.
statutory rate.
As a result of the foregoing, net earnings for the six months ended June 30,
1996 were $23.4 million, or $0.69 per share, compared to $44.3 million, or $1.32
per share, for the six months ended June 30, 1995.
OUTLOOK
The Fibers Group has recently begun to experience improved market conditions
stemming from stronger textile demand, lower inventories throughout the textile
pipeline, and lower chemical raw material costs. This improvement enabled the
9
<PAGE>
Company in June 1996 to restart a fiber production line, which had been
curtailed since the fourth quarter of 1995. Although the Fibers Group expects
improved sales volumes in the second half of 1996, profits are expected to be
affected by the relationship between selling prices and chemical raw material
costs.
Improvement in market conditions for the recycled fiber operations is
lagging the textile market. In Europe, continued selling price pressure and
weak demand, along with seasonal vacation shutdowns during the third quarter,
are expected to negatively affect the profitability of the recycled fiber
business during the second half of 1996. Approximately 50% of the workforce at
the European recycled fibers operation went on strike in mid-July 1996.
Although negotiations are continuing, a protracted strike will have an adverse
impact on the recycled fiber operations' 1996 profits.
Domestic PET resin demand is expected to remain stable during the second
half of 1996, although selling price declines may continue, principally due to
expected chemical raw material cost declines. A previously-announced, 200
million pounds per year PET resin capacity expansion at the Company's
Darlington, SC plant is expected to be completed by year end 1996.
The European PET resins business, acquired on December 31, 1995, experienced
significant selling price declines and lower-than-expected sales volume during
the first half of 1996, primarily due to weak demand stemming from slower
economic growth, poor spring weather and high customer inventories. Although
the European PET resins business expects improved sales volumes in the second
half of 1996, profits are expected to be affected by the relationship between
selling prices and chemical raw material costs.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated cash from operations of $57.1 million for the six
months ended June 30, 1996 compared to $92.9 million for the six months ended
June 30, 1995. The decrease in cash from operations was primarily the result of
significantly lower net earnings.
Net cash used in investing activities totaled $62.5 million in 1996
compared to $44.6 million in 1995. This was primarily the result of additions
to property, plant and equipment which totaled $67.2 million in 1996 compared
to $45.8 million in 1995.
Net cash provided by financing activities totaled $17.5 million for
1996. In 1995, net cash used in financing activities totaled $32.6
million. Net borrowings of long-term debt totaled $31.7 million in 1996
compared to repayments of $28.5 million in 1995. In addition, the Company's
purchase of treasury stock in 1996 totaled $4.0 million.
The Company is currently engaged in a long-term capital investment program
and estimates that capital expenditures could aggregate approximately $600
million over the five year period from 1996 through 2000. The capital program
includes a domestic PET resins capacity expansion expected to be completed in
the fourth quarter of 1996 and construction of a new domestic polyester
production facility expected to cost approximately $400 million and to be
operational in phases beginning in late 1998. Internally generated funds, the
current bank facility and other credit arrangements are expected to fund the
construction.
10
<PAGE>
The Company's long-term capital investment program includes approximately
$140 million in planned expenditures in 1996. The exact amount and timing of
the capital spending is difficult to predict since certain projects may extend
into 1997 or beyond depending upon equipment delivery and construction
schedules. Significant 1996 capital expenditures include the aforementioned
expansion of domestic PET resins production capacity and design and
construction of the new domestic polyester production facility.
The Company initiated a plan during the second quarter of 1996 to repurchase
up to 2.5 million shares of its common stock in the open market. At June 30,
1996, 170,000 shares had been repurchased. The stock will be purchased from
available cash and short-term borrowings.
The Company's financing agreements contain normal financial and restrictive
covenants. The Company believes that the financial resources available to it,
including $218 million available at June 30, 1996 under its $330 million
revolving credit facility, unused short-term uncommitted lines of credit
aggregating $108.0 million, and internally generated funds will be sufficient to
meet its foreseeable working capital, capital expenditures, stock repurchases
and dividend payment requirements.
FORWARD LOOKING STATEMENTS
Statements contained in this Form 10-Q that are not historical facts are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. The Company cautions that a
number of important factors could cause actual results for 1996 and beyond to
differ materially from those expressed in any forward-looking statements made by
or on behalf of the Company. Such statements contain a number of risks and
uncertainties, including, but not limited to, demand and competition for
polyester fiber and PET resins, availability and cost of raw materials, U.S. and
global economic conditions, prices of competing products, such as cotton and
aluminum, and the Company's ability to complete expansions and other capital
projects on time and budget and to maintain the operations of its existing
production facilities. The Company cannot assure that it will be able to
anticipate or respond timely to changes which could adversely affect its
operating results in one or more fiscal quarters. Results of operations in any
past period should not be considered indicative of results to be expected in
future periods. Fluctuations in operating results may result in fluctuations in
the price of the Company's common stock.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Stockholders was held on May 21, 1996.
(b) Not applicable.
(c) At the Annual Meeting of Stockholders, the stockholders voted on the
following matters:
1. The nominees for election as directors for the ensuing year, and
until their successors are elected and qualified, received the
following votes:
<TABLE>
<CAPTION>
Against/
Name For Withheld
---- --- --------
<S> <C> <C>
Thomas M. Duff 26,846,806 384,363
Clifford J. Christenson 26,846,206 384,963
James B. Baker 26,846,716 384,453
C. William Beckwith 26,845,306 385,863
Peter H. Conze 26,842,118 389,051
Allan R. Dragone 26,844,363 386,806
Richard F. Heitmiller 26,845,806 385,363
Jonathan M. Nelson 26,845,966 385,203
James E. Rogers 26,846,066 385,103
Raymond C. Tower 26,842,918 388,251
Roger A. Vandenberg 26,845,906 385,263
</TABLE>
As a result, all of the above nominees were elected to the Board.
2. The proposal to ratify the selection by the Board of Directors of
Ernst & Young LLP as independent auditors to audit the Company's
books and accounts for the fiscal year ending December 31, 1996
received the following votes: 27,009,916 votes cast for, 106,544
votes cast against, 24,709 abstentions and no broker non-votes. As
a result, the Board's selection of Ernst & Young LLP was approved.
3. The stockholder proposal to request the Board of Directors to
redeem the shareholder rights issued on August 6, 1991 unless the
issue is approved by the majority of stockholders received the
following votes: 12,140,667 votes cast for, 10,366,305 votes
votes cast against, 323,173 abstentions and 4,401,024 broker
non-votes. As a result, the stockholder proposal was defeated.
(d) Not applicable.
12
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
4(a) Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the registrant
has not filed herewith any instrument with respect to long-term
debt which does not exceed 10% of the total assets of the
registrant and its subsidiaries on a consolidated basis. The
registrant hereby agrees to furnish a copy of any such instrument
to the Securities and Exchange Commission upon request.
10(a) Employment Agreement date as of May 21, 1996 between the Company
and John R. Hobson.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
None.
13
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
WELLMAN, INC.
Dated August 13, 1996 By /s/ Keith R. Phillips
------------- ------------------------
Keith R. Phillips
Vice President, Chief Financial
Officer and Treasurer (Principal
Financial Officer)
Dated August 13, 1996 By /s/ Mark J. Rosenblum
------------- ------------------------
Mark J. Rosenblum
Chief Accounting Officer,
Controller and Vice President
(Principal Accounting Officer)
14
Exhibit-10(a)
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT by and between WELLMAN, INC., a Delaware corporation (the
"Company"), and John R. Hobson (the "Executive"), dated as of the 21st day of
May, 1996.
The Board of Directors of the Company (the "Board") has determined that
it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued service and dedication of the
Executive. In addition, the Board believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control
and to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control,
and to provide the Executive with compensation and benefits arrangements
currently and upon a Change of Control which ensure that the compensation and
benefits expectations of the Executive will be satisfied and which are
competitive with those of other corporations. The Board of Directors also
believes that the autonomy, authority and responsibility possessed by the
Executive is a significant attribute of his employment and a Change of
Control would be likely to significantly diminish the attractiveness to
Executive of employment by the Company, and has determined to allow Executive
to chose whether to continue in the employ of the Company upon a Change of
Control. Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall be the first
date during the "Employment Period" (as defined in Section 1(b)) on which a
Change of Control occurs. Anything in this Agreement to the contrary
notwithstanding, if the Executive's employment with the Company is terminated
or the Executive ceases to be an officer of the Company prior to the date on
which a Change of Control occurs, and it is reasonably demonstrated that such
termination of employment (1) was at the request of a third party who has
taken steps reasonably calculated to effect the Change of Control or (2)
otherwise arose in connection with or anticipation of the Change of Control,
then for all purposes of this Agreement the "Effective Date" shall mean the
date immediately prior to the date of such termination of employment.
(b) The "Employment Period" is the period commencing on the date hereof
and ending on the earlier of the third anniversary hereof or the Date of
Termination (as defined in Section 4(f); provided, however, that if the Date
of Termination has not yet occurred, commencing on the third anniversary
hereof and on each annual anniversary of such date (such date and each annual
anniversary thereof is hereinafter referred to as a "Renewal Date"), the
Employment Period will be extended so as to terminate three years from such
Renewal Date unless either party shall have delivered to the other a Notice
of Termination (as defined in Section 4(e)). Notwithstanding the foregoing,
unless the Employment Period has already terminated, the Employment Period
shall be automatically extended upon a Change of Control so as to terminate
three years from the Effective Date (such three year period of the Employment
Period being hereinafter referred to as the "Change of Control Employment
Period").
(c) "Change of Control". For the purpose of this Agreement, a "Change
of Control" shall mean:
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(i) There shall have occurred a change in control which the Company
would be required to report in response to Item 1 of Form 8-K promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
or if such regulation is no longer in effect, any regulations promulgated by
the Securities and Exchange Commission pursuant to the Exchange Act which are
intended to serve similar purposes;
(ii) The acquisition, other than from the Company, by any
individual, entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Exchange Act) of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either the
then outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election
of directors (the "Company Voting Securities"), provided, however, that any
acquisition by the Company or its subsidiaries, or any employee benefit plan
(or related trust) of the Company or its subsidiaries, or any corporation
with respect to which, following such acquisition, more than 50% of,
respectively, the then outstanding shares of common stock of such corporation
and the combined voting power of the then outstanding voting securities of
such corporation entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by all or substantially all
of the individuals and entities who were the beneficial owners, respectively,
of the Outstanding Company Common Stock and Company Voting Securities
immediately prior to such acquisition in substantially the same proportion as
their ownership, immediately prior to such acquisition, of the Outstanding
Company Common Stock and Company Voting Securities, as the case may be, shall
not constitute a Change of Control; or
(iii) Individuals who, as of January 1, 1994, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board, provided that any individual becoming a director
subsequent to January 1, 1994 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 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 is
in connection with an actual or threatened election contest relating to the
election of the Directors of the Company (as such terms are used in Rule 14a-
11 of Regulation 14A promulgated under the Exchange Act); or
(iv) Approval by the stockholders of the Company of (x) a
reorganization, merger or consolidation, in each case, with respect to which
all or substantially all of the individuals and entities who were the
respective beneficial owners of the Outstanding Company Common Stock and
Company Voting Securities immediately prior to such reorganization, merger or
consolidation do not, following such reorganization, merger or consolidation,
beneficially own, directly or indirectly, more than 50% 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 corporation resulting from such
reorganization, merger or consolidation, or (y) a complete liquidation or
dissolution of the Company, or (z) the sale or other disposition of all or
substantially all of the assets of the Company.
(v) Anything in this Agreement to the contrary notwithstanding, if
an event that would, but for this paragraph, constitute a Change of Control
results from or arises out of a purchase or other acquisition of the Company,
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directly or indirectly, by a corporation or other entity in which the
Executive has a direct or indirect equity interest, such event shall not
constitute a Change of Control; provided, however, that the limitation
contained in this sentence shall not apply to any direct or indirect equity
interest in a corporation or other entity (1) which equity interest is part
of a class of equity interests which are publicly traded on any securities
exchange or other market system, (2) received by the Executive, without the
Executive's concurrence or consent, as a result of a purchase or other
acquisition of the Company by such corporation or other entity, or (3)
received by the Executive, without the Executive's concurrence or consent, in
connection with a purchase or other acquisition of the Company by such
corporation or other entity in respect of any stock options or performance
awards granted to the Executive by the Company.
2. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the
employ of the Company during the Employment Period, in each case subject to
the terms and conditions of this Agreement.
3. Terms of Employment. (a) Position and Duties. (i) During the
Employment Period, the Company agrees to employ the Executive as Vice
President, or in such other capacity as the Company may designate, provided
that during the Change of Control Employment Period, (A) the Executive's
position (including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least commensurate in all
material respects with the most significant of those held, exercised and
assigned at any time during the 90-day period immediately preceding the
Effective Date and (B) the Executive's services shall be performed at the
location where the Executive was employed immediately preceding the Effective
Date or any office or location less than 35 miles from such location and in
no event shall Executive be required to travel outside such location more
often than 45 days in any calendar year.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business hours
to the business and affairs of the Company and to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Change of Control Employment Period it shall
not be a violation of this Agreement for the Executive to (A) serve on
corporate, civic or charitable boards or committees, (B) deliver lectures,
fulfill speaking engagements or teach at educational institutions, and (C)
manage personal investments, so long as such activities do not significantly
interfere with the performance of the Executive's responsibilities as an
employee of the Company in accordance with this Agreement. It is expressly
understood and agreed that to the extent that any such activities have been
conducted by the Executive prior to the Effective Date, the continued conduct
of such activities (or the conduct of activities similar in nature and scope
thereto) subsequent to the Effective Date shall not thereafter be deemed to
interfere with the performance of the Executive's responsibilities to the
Company.
(b) Compensation. (i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary") in an
amount determined annually by the Compensation Committee of the Board of
Directors of the Company. The Annual Base Salary shall be payable no less
frequently than monthly.
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(ii) Management Incentive Compensation Plan. In addition to Annual
Base Salary, during each year of the Employment Period, the Executive shall
be designated as a participant in the Company's Management Incentive
Compensation Plan (the "Bonus Plan") and, subject to meeting the criteria of
the Bonus Plan, shall receive the bonus award provided for therein (the
"Annual Award").
(iii) Annual Bonus. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year during the Change of Control
Employment Period, an annual bonus (the "Annual Bonus") in cash at least
equal to (x) the average annualized (for any fiscal year consisting of less
than twelve full months or with respect to which the Executive has been
employed by the Company for less than twelve full months) bonus (the "Recent
Annual Bonus") paid or payable to the Executive by the Company and its
affiliated companies in respect of the two fiscal years immediately preceding
the fiscal year in which the Effective Date occurs less (y) the Annual Award
actually paid to the Executive with respect to the current fiscal year under
the Bonus Plan. Each such Annual Bonus shall be paid not later than the end
of the third month of the fiscal year next following the fiscal year for
which the Annual Bonus is awarded, unless the Executive shall elect to defer
the receipt of such Annual Bonus.
(iv) Incentive, Savings and Retirement Plans. In addition to Annual
Base Salary, the Annual Award and Annual Bonus payable as hereinabove
provided, the Executive shall be eligible to participate during the
Employment Period in all incentive, savings and retirement plans, practices,
policies and programs applicable to other peer executives of the Company and
its affiliated companies, but in no event shall such plans, practices,
policies and programs provide the Executive during the Change of Control
Employment Period with incentive, savings and retirement benefits
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the Company and its affiliated companies for
the Executive under such plans, practices, policies and programs as in effect
at any time during the 90-day period immediately preceding the Effective
Date.
(v) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be
eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and
its affiliated companies (including, without limitation, medical,
prescription, dental, disability, salary continuance, employee life, group
life, accidental death and travel accident insurance plans and programs) and
applicable to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide benefits during the Change of Control Employment Period which are
less favorable, in the aggregate, than the most favorable of such plans,
practices, policies and programs in effect at any time during the 90-day
period immediately preceding the Effective Date.
(vi) Expenses. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred
by the Executive provided that during the Change of Control Employment Period
such reimbursement shall be in accordance with the most favorable policies,
practices and procedures of the Company and its affiliated companies in
effect at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect at any
time thereafter with respect to other peer executives of the Company and its
affiliated companies.
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(vii) Fringe Benefits. During the Change of Control Employment
Period, the Executive shall be entitled to fringe benefits in accordance with
the most favorable plans, practices, programs and policies of the Company and
its affiliated companies in effect at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
(viii) Office and Support Staff. During the Change of Control
Employment Period, the Executive shall be entitled to an office or offices of
a size and with furnishings and other appointments, and to exclusive personal
secretarial and other assistance, at least equal to the most favorable of the
foregoing provided to the Executive by the Company and its affiliated
companies at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as provided at any
time thereafter with respect to other peer executives of the Company and its
affiliated companies.
(ix) Vacation. During the Change of Control Employment Period, the
Executive shall be entitled to paid vacation in accordance with the most
favorable plan, policies, programs and practices of the Company and its
affiliated companies as in effect at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, as provided at any time thereafter with respect to other peer
incentives of the Company and its affiliated companies.
(x) Perquisites. During the Employment Period the Company also will
furnish the Executive without cost to him, (i) a Company owned or leased
full-sized luxury automobile not more than three years old, and (ii) an
annual examination of the Executive by a physician selected in accordance
with the Company's current policy, to the extent costs and expenses of the
Executive to be reimbursed are properly documented for federal income
taxation purposes to preserve any deduction for such reimbursement to which
the Company may be entitled.
4. Termination of Employment. (a) Prior to Effective Date. At any
time prior to the Effective Date, the Executive's employment may be
terminated for any reason, with or without cause, by the Company or by the
Executive by delivery of a Notice of Termination (as defined below) to the
other party hereto given in accordance with Section 11(b) of this Agreement.
(b) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. If
the Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of
"Disability" set forth below), it may give to the Executive written notice in
accordance with Section 11(b) of this Agreement of its intention to terminate
the Executive's employment. In such event, the Executive's employment with
the Company shall terminate effective on the 30th day after receipt of such
notice by the Executive (the "Disability Effective Date"), provided that,
within the 30 days after such receipt, the Executive shall not have returned
to full-time performance of the Executive's duties. For purposes of this
Agreement, "Disability" means the absence of the Executive from the
Executive's duties with the Company on a full-time basis for 180 consecutive
business days as a result of incapacity due to mental or physical illness
which is determined to be total and permanent by a physician selected by the
Company or its insurers and acceptable to the Executive or the Executive's
legal representative (such agreement as to acceptability not to be withheld
unreasonably).
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(c) Cause. The Company may terminate the Executive's employment during
the Change of Control Employment Period for "Cause". For purposes of this
Agreement, "Cause" means (i) an act or acts of personal dishonesty taken by
the Executive and intended to result in substantial personal enrichment of
the Executive at the expense of the Company, (ii) repeated violations by the
Executive of the Executive's obligations under Section 3(a) of this Agreement
which are demonstrably willful and deliberate on the Executive's part and
which are not remedied in a reasonable period of time after receipt of
written notice from the Company, or (iii) the conviction of the Executive of
a felony involving moral turpitude.
(d) Good Reason. The Executive's employment may be terminated by the
Executive during the Change of Control Employment Period for Good Reason.
For purposes of this Agreement, "Good Reason" means (i) a Change of Control
and/or (ii) if Executive shall elect to remain in the employ of the Company
during the Change of Control Employment Period, the occurrence of any one or
more of the following during the Change of Control Employment Period:
A. the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices, titles
and reporting requirements), authority, duties or responsibilities as
contemplated by Section 3(a)(i)(A) of this Agreement, or any other action
by the Company which results in a diminition in such position, authority,
duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by
the Executive;
B. any failure by the Company to comply with any of the provisions
of Section 3(b) of this Agreement, other than an isolated, insubstantial
and inadvertent failure not occurring in bad faith and which is remedied
by the Company promptly after receipt of notice thereof given by the
Executive;
C. the Company's requiring the Executive to be based at any office or
location other than that described in Section 3(a)(i)(B) hereof;
D. any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
E. any failure by the Company to comply with and satisfy Section
10(c) of this Agreement.
The Company acknowledges and agrees that a material inducement to
Executive in entering into this Agreement was the right of Executive to
determine whether to continue in the employ of the Company upon a Change of
Control or terminate such employment and receive the monetary payments and
other benefits provided for in Section 5(e).
(e) Notice of Termination. Any termination by the Company or by the
Executive shall be communicated by Notice of Termination to the other party
hereto given in accordance with Section 11(b) of this Agreement. For
purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) if the Date of Termination (as defined below) is other than the
date of receipt of such notice, specifies the termination date (which date
shall be not more than thirty days after the giving of such notice), and (ii)
if the Date of Termination is on or after the Effective Date, indicates the
specific termination provision in this Agreement relied upon and sets forth
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in reasonable detail the facts and circumstances claimed to provide a basis
for termination of the Executive's employment under such provision. The
failure by the Executive to set forth in the Notice of Termination any fact
or circumstance which contributes to a showing of Good Reason shall not waive
any right of the Executive hereunder or preclude the Executive from asserting
such fact or circumstance in enforcing the Executive's rights hereunder.
(f) Date of Termination. "Date of Termination" means the date of
receipt of the Notice of Termination or any later date specified therein, as
the case may be; provided, however, that (i) if the Executive's employment is
terminated by the Company other than for death or Disability, the Date of
Termination shall be the date on which the Company notifies the Executive of
such termination, and (ii) if the Executive's employment is terminated by
reason of death or Disability, the Date of Termination shall be the date of
death of the Executive or the Disability Effective Date, as the case may be.
5. Obligations of the Company upon Termination.
(a) Death. If the Executive's employment is terminated by reason of
the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal
representatives under this Agreement, provided that if the Executive's death
occurs during the Change of Control Employment Period, the Company shall have
the following obligations: (i) the Executive's Annual Base Salary through
the Date of Termination to the extent not theretofore paid, (ii) the product
of the greater of the Annual Bonus paid or payable (and annualized for any
fiscal year consisting of less than twelve full months or for which the
Executive has been employed for less than twelve full months) to the
Executive for the most recently completed fiscal year during the Employment
Period, if any, and the Recent Annual Bonus (such greater amount hereafter
referred to as the "Highest Annual Bonus") and a fraction, the numerator of
which is the number of days in the current fiscal year through the Date of
Termination, and the denominator of which is 365 and (iii) any compensation
previously deferred by the Executive (together with any accrued interest
thereon) and not yet paid by the Company (the amounts described in paragraphs
(i), (ii) and (iii) are hereafter referred to as "Accrued Obligations"). All
Accrued Obligations, as well as any amounts (the "SERP Amounts") payable to
the Executive pursuant to the Wellman, Inc. Executive Restoration Plan (the
"Plan"), shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination.
Anything in this Agreement to the contrary notwithstanding, if the
Executive's death occurs during the Change of Control Employment Period, the
Executive's family shall be entitled to receive benefits at least equal to
the most favorable benefits provided by the Company and any of its affiliated
companies to surviving families of peer executives of the Company and such
affiliated companies under such plans, programs, practices and policies
relating to family death benefits, if any, as in effect with respect to other
peer executives and their families at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to the
Executive and/or the Executive's family, as in effect on the date of the
Executive's death with respect to other peer executives of the Company and
its affiliated companies and their families.
(b) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for Accrued Obligations. All Accrued Obligations, and all SERP Amounts
if the Disability Effective Date occurs during the Change of Control
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Employment Period, shall be paid to the Executive in a lump sum in cash
within 30 days of the Date of Termination. Anything in this Agreement to the
contrary notwithstanding, if the Disability Effective Date occurs during the
Change of Control Employment Period, the Executive shall be entitled after
the Disability Effective Date to receive disability and other benefits at
least equal to the most favorable of those provided by the Company and its
affiliated companies to disabled executives and/or their families in
accordance with such plans, programs, practices and policies relating to
disability, if any, as in effect with respect to other peer executives and
their families at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive and/or the Executive's
family, as in effect at any time thereafter with respect to other peer
executives of the Company and its affiliated companies and their families.
(c) Termination during Change of Control Employment Period for Cause
or Other than for Good Reason. If the Executive's employment shall be
terminated for Cause during the Change of Control Employment Period, this
Agreement shall terminate without further obligations to the Executive other
than the obligation to pay to the Executive the Annual Base Salary through
the Date of Termination plus the amount of any compensation previously
deferred by the Executive, in each case to the extent theretofore unpaid. If
the Executive terminates employment during the Change of Control Employment
Period other than for Good Reason, this Agreement shall terminate without
further obligations to the Executive, other than for Accrued Obligations. In
such case, all Accrued Obligations and all SERP Amounts shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of Termination.
(d) Termination Other than for Death or Disability Prior to the
Effective Date. If the Executive's employment shall be terminated during the
Employment Period but prior to the Effective Date, this Agreement shall
terminate without further obligations to the Executive, other than for
Accrued Obligations. In such case, all Accrued Obligations shall be paid to
the Executive in a lump sum in cash within 30 days of the Date of
Termination.
(e) Termination During Change of Control Employment Period for Good
Reason. If the Executive shall terminate his employment during the Change of
Control Employment Period for Good Reason or if the Company shall terminate
the Executive's employment during the Change of Control Employment Period
other than for Cause or Disability:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination all Accrued Obligations and
all SERP Amounts, provided that notwithstanding the terms of the Plan,
100% of the Company Contribution Credit Account (as defined therein)
shall be deemed vested;
(ii) the Company shall pay to the Executive as severance pay within
30 days after the Date of Termination an amount equal to the product of
(x) 3 and (y) the sum of (i) Annual Base Salary and (ii) the Highest
Annual Bonus; and
(iii) from the Date of Termination through the end of the Change of
Control Employment Period, or such longer period as any plan, program,
practice or policy may provide, the Company shall continue benefits to
the Executive and/or the Executive's family at least equal to those which
would have been provided to them in accordance with the plans, programs,
practices and policies described in Section 3(b)(v) of this Agreement if
the Executive's employment had not been terminated in accordance with the
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most favorable plans, practices, programs or policies of the Company and
its affiliated companies applicable to other peer executives and their
families during the 90-day period immediately preceding the Effective
Date, or, if more favorable to the Executive, as in effect at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies and their families. For purposes of determining
eligibility of the Executive for retiree benefits pursuant to such plans,
practices, programs and policies, the Executive shall be considered to
have remained employed until the end of the Change of Control Employment
Period and to have retired on the last day of such period.
6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any benefit,
bonus, incentive or other plans, programs, policies or practices provided by
the Company or any of its affiliated companies and for which the Executive
may qualify, nor shall anything herein limit or otherwise affect such rights
as the Executive may have under any other agreements with the Company or any
of its affiliated companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice
or program of the Company or any of its affiliated companies at or subsequent
to the Date of Termination shall be payable in accordance with such plan,
policy, practice or program except as explicitly modified by this Agreement.
7. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against
the Executive or others. In no event shall the Executive be obligated to
seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this
Agreement and amounts payable to Executive from any other employment or
source shall not reduce the amounts payable to Executive hereunder. The
Company agrees to pay, to the full extent permitted by law, all legal fees
and expenses which the Executive may reasonably incur as a result of any
contest (regardless of the outcome thereof) by the Company or others of the
validity or enforceability of, or liability under, any provision of this
Agreement or any guarantee of performance thereof (including as a result of
any contest by the Executive about the amount of any payment pursuant to
Section 8 of this Agreement), plus in each case interest at the applicable
Federal rate provided for in Section 7872(f)(2) of the Internal Revenue Code
of 1986, as amended (the "Code").
8. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Company
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 (a "Payment"), would be subject to the excise tax imposed by
Section 4999 of the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") 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, without limitation, any income taxes and
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 Payments.
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(b) Subject to the provisions of Section 8(c), all determinations
required to be made under this Section 8, including whether a Gross-Up
Payment is required and the amount of such Gross-Up Payment, shall be made by
Ernst & Young (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within fifteen business
days of the Date of Termination, if applicable, or such earlier time as is
requested by the Company. All fees and expenses of the Accounting Firm shall
be borne solely by the Company. The initial Gross-Up Payment, if any, as
determined pursuant to this Section 8(b), shall be paid to the Executive
within five days of the receipt of the Accounting Firm's determination. If
the Accounting Firm determines that no Excise Tax is payable by the
Executive, it shall furnish the Executive with an opinion that failure to
report the Excise Tax on the Executive's applicable federal income tax return
would not result in the imposition of a negligence or similar penalty. Any
determination by the Accounting Firm shall be binding upon the Company and
the Executive. As a result of the uncertainty in the application of Section
4999 of the Code at the time of the initial 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 ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 8(c) and the Executive
thereafter is required to make a payment of any Excise Tax, the Accounting
Firm shall determine the amount of the Underpayment that has occurred and any
such Underpayment shall be promptly paid by the Company to or for the benefit
of the Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as
soon as practicable but not later than twenty business days after the
Executive knows of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day
period following the date on which it gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes 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) give the Company any information reasonably requested by the
Company relating to such claim;
(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 reasonably selected by the Company;
(iii) cooperate with the Company in good faith in order effectively
to contest such claim;
(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 additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for 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 limitation on the foregoing
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provisions of this Section 8(c), the Company shall control all proceedings
taken in connection with such contest and, at its sole option, may pursue or
forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at
its sole 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 such claim 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 tax,
including interest or penalties with respect thereto, imposed with respect to
such advance or with respect to any imputed income with respect to such
advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control
of the contest 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.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 8(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 8(c)) promptly pay to
the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by
the Executive of an amount advanced by the Company pursuant to Section 8(c),
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 of refund prior to
the expiration of 30 days after such determination, then such advance shall
be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
9. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its
affiliated companies, and their respective businesses, which shall have been
obtained by the Executive during the Executive's employment by the Company or
any of its affiliated companies and which shall not be or become public
knowledge (other than by acts by the Executive or representatives of the
Executive in violation of this Agreement). After termination of the
Executive's employment with the Company, the Executive shall not, without the
prior written consent of the Company, communicate or divulge any such
information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions
of this Section 9 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement during or with
respect to the Change of Control Employment Period.
10. Successors. (a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by
the Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
11
<PAGE>
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken
place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
11. Miscellaneous. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without
reference to principles of conflict of laws. The captions of this Agreement
are not part of the provisions hereof and shall have no force or effect.
This Agreement may not be amended or modified otherwise than by a written
agreement executed by the parties hereto or their respective successors and
legal representatives.
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party, or by Federal
Express, Express Mail or other overnight courier service, or by registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
John R. Hobson
5809 Longleaf Drive
Myrtle Beach, SC 29577
If to the Company:
The Compensation Committee
of the Board of Directors of Wellman, Inc.
c/o Wellman, Inc.
1040 Broad Street
Shrewsbury, NJ 07702
with a copy to:
David K. Duffell, Esq.
c/o Edwards & Angell
2700 Hospital Trust Tower
Providence, RI 02903
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
12
<PAGE>
(e) The Executive's failure to insist upon strict compliance with any
provision hereof shall not be deemed to be a waiver of such provision or any
other provision thereof.
(f) This Agreement contains the entire understanding of the Company and
the Executive with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant
to the authorization from its Board of Directors, the Company has caused
these presents to be executed in its name on its behalf, all as of the day
and year first above written.
_/s/John R. Hobson_____________
John R. Hobson
WELLMAN, INC.
By_/s/Thomas M. Duff__________
Thomas M. Duff
President
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ART. 5 FDS for second quarter 1996 10-q
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 15,616
<SECURITIES> 0
<RECEIVABLES> 154,997
<ALLOWANCES> 5,446
<INVENTORY> 204,226
<CURRENT-ASSETS> 371,026
<PP&E> 832,131
<DEPRECIATION> 271,191
<TOTAL-ASSETS> 1,243,234
<CURRENT-LIABILITIES> 124,801
<BONDS> 304,614
<COMMON> 33
0
0
<OTHER-SE> 668,011
<TOTAL-LIABILITY-AND-EQUITY> 1,243,234
<SALES> 584,851
<TOTAL-REVENUES> 584,851
<CGS> 494,863
<TOTAL-COSTS> 494,863
<OTHER-EXPENSES> 44,696
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,002
<INCOME-PRETAX> 38,290
<INCOME-TAX> 14,857
<INCOME-CONTINUING> 23,433
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,433
<EPS-PRIMARY> 0.69
<EPS-DILUTED> 0.69
</TABLE>
