UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 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.
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(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, Suite 302
Shrewsbury, New Jersey 07702
- --------------------------------- -------------------------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (908) 542-7300
--------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ----------------------
Common Stock, New York Stock
$.001 par value Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
------- ------
Indicate by check mark if disclosure of delinquent filers pursuant to Rule
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. [ ]
<PAGE>
Aggregate market value of the voting stock held by nonaffiliates of the
registrant, computed on the basis of $16.75 per share (the closing price of
such stock on March 17, 1997 on the New York Stock Exchange): $514,321,932.
The number of shares of the registrant's Common Stock, $.001 par value,
and Class B Common Stock, $.001 par value, outstanding as of March 17, 1997
was 31,113,143 and -0-, respectively.
DOCUMENTS INCORPORATED BY REFERENCE
1. Proxy Statement for the 1997 Annual Meeting of Stockholders (to be
filed with the Securities and Exchange Commission on or before April 30,
1997) is incorporated by reference in Part III hereof.
2
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PART I
Item 1. BUSINESS
- ------ --------
Wellman, Inc. (which, together with its subsidiaries, is herein referred
to as the "Company") was founded in 1927 and incorporated in Delaware in
1985. The principal business of the Company is the manufacture and sale of
polyester products, including Fortrel(R) brand polyester textile fibers,
polyester fibers made from recycled raw materials and PermaClear(TM) PET
(polyethylene terephthalate) packaging resins.
RECENT DEVELOPMENTS
- -------------------
On February 20, 1996, the Company's Board of Directors approved plans to
construct a new PET packaging resin and polyester fiber production facility
in the state of Mississippi. The facility, budgeted to cost $400 million and
expected to commence operation in phases beginning in late 1998, is designed
to provide an additional 700 million pounds of annual production capacity.
See "Capital Investment Program" and "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Outlook" and
"-Liquidity and Capital Resources."
During the third quarter of 1996, Wellman experienced a labor dispute with
approximately 260 out of 490 workers at its fiber production facility in
Mullagh, Republic of Ireland, which led to the closure of operations at the
facility for 12 weeks. Production was restarted in early October 1996. The
striking workers left their jobs in mid-July 1996 to protest work practice
changes at the facility implemented in early June 1996. The plant is
operating under what are essentially the Company's original staffing and work
practice proposals. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations."
On December 31, 1995, the Company acquired a PET packaging resins business
located in the Netherlands from Akzo Nobel B.V. See note 2 to the
consolidated financial statements.
The polyester bonded batting and needle-punched fabric operations located
in Charlotte, NC and Commerce, CA were sold during the first quarter of 1996.
PRODUCTS AND MARKETS
- --------------------
The Company's operating structure is organized in three product groups:
the Fibers Group, which is composed of the chemical-based polyester textile
fiber manufacturing operations; the Recycled Products Group (RPG), primarily
consisting of polyester fiber manufacturing operations in the United States
and Europe and their related recycling operations which procure and process
waste raw materials, as well as the nylon engineering resins and wool
businesses; and the Packaging Products Group (PPG), which includes the PET
packaging resins businesses in the United States and Europe, and the PET
sheet and thermoformed packaging products business.
The following table presents the combined net sales (in millions) and
percentage of net sales of the Company by product group for the periods
indicated. In the table, intercompany transactions have been eliminated and
historical exchange rates have been applied to the data.
3
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
-------------- -------------- --------------
Net % of Net % of Net % of
Sales Total Sales Total Sales Total
----- ----- ----- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Fibers Grp $ 450.6 41.0% $ 483.9 43.6% $426.8 45.6%
RPG 369.3 33.6 473.0 42.6 427.9 45.7
PPG 278.9 25.4 152.5 13.8 81.4 8.7
------- ----- ------- ------ ------ ------
TOTAL $1098.8 100.0% $1109.4 100.0% $936.1 100.0%
======= ===== ====== ===== ====== ======
- ------------
Fibers Group
- ------------
The Fibers Group manufactures chemical-based polyester staple fibers and
polyester partially-oriented yarn (POY) for sale to the textile industry.
Staple, the primary product produced, is multi-strand fiber cut into short
lengths to simulate certain properties found in natural fibers, such as
cotton and wool, and/or to meet the end product needs of the Company's
customers. POY is a continuous polyester filament. Both products are
marketed under the Fortrel(R) brand.
Staple customers include integrated textile mills and yarn spinners which
process polyester staple into fabric and yarn for a variety of applications,
including apparel, home furnishings and industrial uses. The Company
manufactures polyester textile staple from two petrochemicals, purified
terephthalic acid (PTA) and monoethylene glycol (MEG), at its Palmetto Plant
in Darlington, SC. The stated annual fiber production capacity of the
Palmetto Plant is approximately 500 million pounds.
The Company purchases PTA under an exclusive supply contract with Amoco
Chemical Corporation, the primary domestic supplier. MEG is purchased under
an exclusive supply contract with Oxy Chem Inc. which expires December 31,
1997. The prices of PTA and MEG, which are typically set on a quarterly
basis, have fluctuated in the past and are likely to continue to do so in the
future.
POY is produced at the Company's Fayetteville, NC plant from fiber-grade
polyester resin manufactured from PTA and MEG at the Company's Palmetto
Plant. POY is sold to integrated textile mills and texturizers, which further
process it before making it into fabric for use in apparel, home furnishings
and industrial applications. The stated annual POY production capacity of
the Fayetteville Plant is 130 million pounds.
Recycled Products Group
- -----------------------
The major product manufactured by the RPG is polyester staple fiber for use
as fiberfill (for pillows, comforters and furniture), and in carpets, rugs
and industrial uses. Domestically, these products are made from recycled raw
materials at facilities in Johnsonville and Marion, SC. The stated annual
fiber production capacities of the Johnsonville and Marion Plants are
approximately 260 million and 30 million pounds, respectively.
The Company utilizes two categories of recycled raw materials: producer plant
wastes and postconsumer PET soft drink bottles. Producer wastes include off-
quality or off-spec production, trim and other wastes generated from fiber,
resin or film manufacturing processes. A portion of producer plant waste is
purchased from manufacturers that compete with the Company in the sale of
fiber and resin. The Company obtains postconsumer PET bottles primarily from
deposit return and curbside recycling programs.
4
<PAGE>
The Company's recycling operation in Johnsonville, SC is responsible for the
procurement of wastes, which it processes into usable raw materials for the
fibers and engineering resins businesses. As a result, this operation is
primarily an internal supplier. Stated annual capacity to recycle PET
bottles at the Johnsonville location is approximately 190 million pounds.
In Europe, the RPG manufactures polyester staple fiber from recycled raw
materials through Wellman International Limited (WIL), a wholly-owned
subsidiary based in Mullagh, Republic of Ireland. The stated annual fiber
production capacity of WIL is approximately 174 million pounds. WIL's
polyester fibers are used primarily in fiberfill, nonwovens and industrial
applications. WIL exports, primarily to the United Kingdom and continental
Europe, virtually all of its fiber production.
The majority of WIL's raw materials are producer wastes, some of which are
obtained from suppliers who compete with WIL in the fibers business in
Europe. WIL also utilizes as raw material postconsumer PET bottles obtained
from its recycling facility in Spijk, the Netherlands and from third party
purchases. During 1996, the Company opened a PET bottle sorting facility in
Verdun, France, to which it plans to add washing facilities at the end of
1997. After this expansion, WIL will have the capacity to process 50 million
pounds of PET bottles per year.
Including domestic and European production, the Company believes it is the
world's largest producer of polyester staple fiber made from recycled
feedstocks and the world's largest postconsumer PET bottle recycler.
The RPG also produces nylon engineering resins, wool top and anhydrous
lanolin in Johnsonville, SC.
Packaging Products Group
- ------------------------
The PPG primarily manufactures amorphous and solid-stated PET packaging
resins at the Company's Palmetto Plant. Amorphous resin, which is produced
from PTA and MEG, is sold to external customers and used internally for
solid-stating (a process which upgrades the resin). Solid-stated PET resin
is primarily used in the manufacture of soft drink bottles and other food and
beverage packaging and is sold under the PermaClear(TM) brand.
The Company's domestic production capacity for amorphous resin is
approximately 300 million pounds per year, 220 million pounds of which is
solid-stated. The Company expects to commence operation of an additional 200
million pounds per year of solid-stated production capacity in the second
quarter of 1997. See "Capital Investment Program."
On December 31, 1995, the Company acquired a solid-stated PET packaging resin
production facility in Emmen, the Netherlands (Wellman PET Resins Europe BV,
herein referred to as "PET Resins-Europe"). The stated annual production
capacity of this facility, where PTA and MEG are also used as raw materials,
is 110 million pounds. As part of the transaction, the seller and Wellman
entered into a PET resin multi-year take or pay arrangement, under which the
Company purchased 75 million pounds in 1996 and which phases out over the
next four years. Virtually all of the resin is sold to PET bottle and
packaging manufacturers in Europe. See note 2 to the consolidated financial
statements and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The PPG also manufactures PET sheet and thermoformed products from chemical-
based and recycled PET in Ripon, WI.
5
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Capital Investment Program
- --------------------------
The Company is currently engaged in a long-term capital investment
program, which began in 1993. The Company's combined 1993, 1994 and 1995
capital expenditures totaled approximately $285 million, while 1996
expenditures were approximately $126 million. Major capital projects
included in the 1996 expenditures were the domestic solid-stated PET resin
expansion expected on-line in the second quarter of 1997 and design and
engineering for the new PET resin and polyester fiber production facility in
Mississippi, expected to commence operation in phases beginning in late 1998.
Capital expenditures are expected to total approximately $400 million over
the next four years. These expenditures primarily include the remaining
construction costs of the PET resin and polyester staple fiber production
facility in Mississippi, the total cost of which is budgeted at approximately
$400 million. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources."
Sales and Marketing
- -------------------
Approximately 50 employees market the majority of the Company's products.
For certain fiber sales outside the United States, the Company also utilizes
representatives or agents.
The Company's polyester fibers are also marketed through various
activities, such as advertising, sales promotion, market analysis, product
development and fashion forecasting, directed to its customers and to
organizations downstream from its customers. As part of this effort, the
Company's marketing personnel encourage downstream purchasers of apparel,
home furnishings and other products to specify to their suppliers the use of
Fortrel(R) brand polyester in their products.
The Company's sales are neither materially dependent upon a single
customer nor seasonal in nature. Sales for PET resin, primarily for soft
drink bottles, may be influenced by weather and the relative price of
aluminum cans.
The Company's markets have historically displayed price and volume
cyclicality. The cost of PTA and MEG is a primary determinant of polyester
fiber and PET resin prices. The polyester fiber markets are subject to
changes in, among other factors, polyester fiber and/or textile product
imports, consumer preferences and spending and retail sales patterns, all of
which are driven by general economic conditions. Consequently, a downturn in
either the U.S., European, or global economy or an increase in imports of
textile or polyester fiber products could adversely affect the Company's
business. Polyester textile fiber demand also may be influenced by the
relative price of substitute fibers, most notably cotton.
Major factors affecting the PET resin market include producer supply and
capacity utilization rates and demand for PET containers, primarily for soft
drinks and other foods and beverages. Worldwide PET resin supply is
currently undergoing significant expansion. Demand for PET resin is also
driven by new product applications and conversion from other materials. See
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations - General."
Competitors
- -----------
Each of the Company's major fiber markets is highly competitive. The
Company competes primarily on the basis of product quality, customer service,
6
<PAGE>
brand identity and price. Several competitors are substantially larger than
the Company and have substantially greater economic resources. The Company's
primary competitors are E.I. DuPont de Nemours & Co., the Hoechst Celanese
Corp. (HCC) subsidiary of Hoechst A.G. and Nan Ya Plastics Corp. (Nan Ya).
The Company believes it is currently the second-largest producer of polyester
staple in the United States, representing approximately 28% of U.S.
production capacity.
Primary competitors in the PET packaging resin business, which the Company
entered in 1994, are Eastman Chemical Co., Shell Chemical Co., HCC and Nan
Ya. The Company competes primarily on the basis of resin quality, customer
service and price. The Company's competitors are substantially larger than
the Company and have substantially greater economic resources.
Research and Development
- ------------------------
The Company has approximately 85 employees devoted to research,
development and technical service activities in the fibers, recycling and
resins businesses. The Company has entered into technology sharing
arrangements from time to time with various parties.
Foreign Activities
- ------------------
The Company operates in international markets, primarily through WIL and
PET Resins-Europe. Since most of the sales are in different currencies,
changes in exchange rates may affect profit margins and sales levels of these
operations. In addition, fluctuations between currencies may also affect the
Company's reported financial results. Foreign exchange contracts and
borrowings in local currencies are utilized by the Company to manage its
foreign currency exposure. See "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital
Resources" and notes 2 and 12 to the consolidated financial statements.
The Company's foreign businesses are subject to certain risks customarily
attendant to foreign operations and investments in foreign countries,
including restrictive action by local governments, limitations on
repatriating funds and changes in currency exchange rates. See note 13 to
the consolidated financial statements for additional information relating to
the Company's foreign activities.
Employees
- ---------
As of December 31, 1996, the Company employed a total of approximately
3,200 persons in the United States and Europe. At December 31, 1996, the
Amalgamated Clothing and Textile Workers Union (ACTWU) represented
approximately 1,054 employees at the Company's Johnsonville, SC operations.
Approximately 626 of these employees were members of ACTWU, whose contract
with the Company expires in July 1999. At WIL, approximately 340 out of 480
total employees were represented by four unions at year-end 1996. The wage
agreements with these unions each expire on April 30, 2000. During the third
quarter of 1996, the Company experienced a labor dispute with approximately
260 workers at WIL which led to the closure of that operation for 12 weeks.
The dispute was settled and production was restarted in early October 1996.
Employees at the PET Resins-Europe operation total 65, with 49 represented by
three unions whose contracts expire at the end of 1997. The Company believes
relations with its employees are satisfactory.
Environmental Matters
- ---------------------
The Company's plants are subject to numerous existing and proposed laws
and regulations designed to protect the environment from wastes, emissions
7
<PAGE>
and hazardous substances. The Company believes it is either in material
compliance with all currently applicable regulations or is operating in
accordance with the appropriate variances and compliance schedules or similar
arrangements. For additional information relating to environmental matters,
see "Item 7. Management's Discussion and Analysis of Financial Position and
Results of Operations - Environmental Matters" and note 8 to the consolidated
financial statements.
Executive Officers of the Registrant
- ------------------------------------
The current executive officers of the Company are as follows:
Name and Age Position
- ------------ --------
Thomas M. Duff, 49 President, Chief Executive Officer and
Director
Clifford J. Christenson, 47 Executive Vice President, Chief Operating
Officer and Director
Keith R. Phillips, 42 Vice President, Chief Financial Officer
and Treasurer
C.W. Beckwith, 65 Vice President and Director
James P. Casey, 56 Vice President; President, Fibers Group
John R. Hobson, 56 Vice President, Recycled Products Group
Mark J. Rosenblum, 43 Vice President, Chief Accounting Officer
and Controller
Mark H. Tashjian, 34 Vice President, Corporate Development
Ernest G. Taylor, 46 Vice President, Administration
Officers are elected annually by the Board of Directors. Set forth below
is certain information with respect to the Company's executive officers.
Thomas M. Duff. Mr. Duff has been President and CEO of the Company since
its inception in 1985.
Clifford J. Christenson. Mr. Christenson has been Executive Vice
President since October 1993 and Chief Operating Officer since June 1995.
Prior to October 1993 he was Chief Financial Officer and Treasurer since he
joined the Company in 1985 and Vice President since 1986.
Keith R. Phillips. Mr. Phillips has been Vice President, Chief Financial
Officer and Treasurer since October 1993. Prior to joining the Company in
October 1993 he was a partner in Ernst & Young LLP. Mr. Phillips is a
certified public accountant.
C.W. Beckwith. Mr. Beckwith has been Vice President of the Company since
1987.
James P. Casey. Mr. Casey has been President of the Fibers Group since
October 1993. Prior to such time he was Vice President, Marketing since
March 1991.
John R. Hobson. Mr. Hobson has been Vice President, Recycled Products
Group since July 1995. Prior to such time, he served as Vice President of
8
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various divisions from January 1992 to July 1995. Prior to 1992, he was
Director of International Sales and (chemical) Raw Material Purchasing.
Mark J. Rosenblum. Mr. Rosenblum has been Vice President, Controller
since September 1989, Chief Accounting Officer since August 1996 and
Controller since he joined the Company in 1985. Mr. Rosenblum is a certified
public accountant.
Mark H. Tashjian. Mr. Tashjian has been Vice President, Corporate
Development since he joined the Company in August 1995. Prior to such time,
he was a partner with Trinity Associates, a management consulting firm, since
1989.
Ernest G. Taylor. Mr. Taylor has been Vice President, Administration
since January 1991.
Item 2. Properties
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The location and general description of the principal manufacturing
properties owned by the Company are set forth in the table below:
Principal Square
Location Functions Footage
- -------- --------- -------
Johnsonville, SC Fiber, Engineering Resins and 2,330,160
Wool Manufacturing, Recycling
Operations and Warehouse
Darlington, SC Fiber and Resin Manufacturing 1,127,000
(Palmetto) and Warehouse
Mullagh, Ireland (1) Fiber Manufacturing 360,161
and Warehouse
Fayetteville, NC Fiber Manufacturing 331,913
and Warehouse
Emmen, the Netherlands Resin Manufacturing and 143,797
Warehouse
- --------------------
(1) WIL's credit facilities are secured by the assets of WIL.
The Company also has manufacturing, marketing and administrative
facilities in Marion, SC, Charlotte, NC, New York, NY, Ripon, WI, Bridgeport,
NJ, Spijk, the Netherlands, Yorkshire, England, Dortmund, Germany and Verdun,
France. The corporate office is located in Shrewsbury, NJ.
Item 3. Legal Proceedings
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Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
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Not applicable.
9
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
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The Company's common stock is listed on the New York Stock Exchange (NYSE)
under the symbol WLM. The following table shows the high, low and closing
sales prices as reported by the NYSE and cash dividends paid per share of
common stock for the last two fiscal years.
</TABLE>
<TABLE>
<CAPTION>
Year High Low Close Dividend
- ---- ---- --- ----- --------
1996
- ----
<S> <C> <C> <C> <C>
Fourth Quarter $19-1/4 $15-7/8 $17-1/8 $0.08
Third Quarter $23-1/2 $17 $17-1/2 $0.08
Second Quarter $24-7/8 $22-1/8 $23-3/8 $0.08
First Quarter $24-3/8 $18 $23-1/2 $0.07
1995
- ----
Fourth Quarter $27-1/4 $21-1/2 $22-3/4 $0.07
Third Quarter $29-1/2 $23-3/4 $24-1/2 $0.07
Second Quarter $28 $23-1/2 $27-3/8 $0.07
First Quarter $30 $24-3/8 $25-1/4 $0.06
The Company had 1,000 holders of record and, to its knowledge, approximately
20,000 beneficial owners of its common stock as of March 17, 1997.
See note 10 to the consolidated financial statements for information
regarding common stock rights associated with the common stock.
10
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Item 6. Selected Consolidated Financial Data
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</TABLE>
<TABLE>
<CAPTION>
(In thousands, except Years Ended December 31,
per share data) 1996 1995 1994 1993(2) 1992
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Income Statement Data:
<S> <C> <C> <C> <C> <C>
Net sales . . . . . . . . . .$1,098,804 $1,109,398 $936,133 $842,064 $828,200
Cost of sales. . . . . . . . 941,693 886,817 724,874 679,182 639,664
---------- ---------- -------- -------- --------
Gross profit. . . . . . . . . 157,111 222,581 211,259 162,882 188,536
Selling, general and
administrative expenses. . . 88,987 89,704 89,518 86,511 77,439
Interest expense, net . . . . 13,975 11,666 13,741 15,736 23,012
Gain (loss) on divestitures . -- (5,500) -- 12,386 --
---------- ---------- -------- -------- --------
Earnings before income taxes
and cumulative effect of
changes in accounting
principles. . . . 54,149 115,711 108,000 73,021 88,085
Income taxes. . . . . . . . . 27,620 41,657 43,200 32,567 35,801
---------- ---------- -------- -------- --------
Earnings before cumulative
effect of changes in
accounting principles. . . . 26,529 74,054 64,800 40,454 52,284
Cumulative effect of changes
in accounting principles,
net of income taxes. . . . . -- -- -- (9,010) --
---------- ---------- -------- -------- --------
Net earnings. . . . . . . . .$ 26,529 $ 74,054 $ 64,800 $ 31,444 $ 52,284
========== ========== ======== ======== ========
Earnings per common share:
Before cumulative effect of
changes in accounting
principles . . . . . . . .$ 0.81 $ 2.20 $ 1.94 $ 1.23 $ 1.60
Cumulative effect of changes
in accounting principles, net
of income taxes. . . . . . -- -- (0.27) --
---------- ---------- -------- -------- --------
Net earnings. . . . . . . . .$ 0.81 $ 2.20 $ 1.94 $ 0.96 $ 1.60
========== ========== ======== ======== ========
Average common shares . . . . 32,774 33,699 33,417 32,857 32,728
Dividends (1) . . . . . . . .$ 10,085 $ 9,003 $ 7,593 $ 5,885 $ 3,895
Pro forma amounts assuming
the effects of the changes
in accounting principles are
applied retroactively:
Net earnings. . . . . . . . NA NA NA $ 40,454 $ 43,759
Net earnings per share. . . NA NA NA $ 1.23 $ 1.34
</TABLE>
<TABLE>
<CAPTION>
December 31,
1996 1995 1994 1993 1992
Balance Sheet Data: ----------------------------------------------
<S> <C> <C> <C> <C> <C>
Total assets. . . . . . .$1,203,949 $1,210,673 $1,044,462 $1,015,247 $996,583
Total debt. . . . . . . .$ 319,566 $ 279,230 $ 256,531 $ 312,767 $324,548
Stockholders' equity. . .$ 623,928 $ 650,346 $ 577,573 $ 506,506 $483,268
(1) Dividends paid were $0.31 per share in 1996, $0.27 per share in 1995,
$0.23 per share in 1994, $0.18 per share in 1993 and 0.12 per share in
1992.
(2) 1993 net earnings reflect $15.9 million ($0.48 per share) of accounting
changes and unusual and nonrecurring items.
</TABLE>
11
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- ------- -----------------------------------------------------------------
GENERAL
The primary business of Wellman, Inc. is the manufacture and marketing of
high-quality polyester products, including Fortrel brand polyester textile
fibers, polyester fibers made from recycled raw materials and PermaClear
brand PET (polyethylene terephthalate) packaging resin. The Company
currently has annual capacity to manufacture approximately 1.1 billion
pounds of fiber and over 400 million pounds of resin worldwide at five major
production facilities in the United States and Europe. The Company expects
to commence operation of an additional 200 million pounds per year of solid-
stated resins production capacity in the second quarter of 1997. The Company
is also the world's largest plastics recycler, utilizing a significant amount
of recycled raw materials in its manufacturing operations.
The Fibers Group produces Fortrel textile fibers, which represent
approximately 60% of the Company's fiber production. These fibers are used
in apparel and home furnishings and produced from two chemical raw materials,
purified terephthalic acid (PTA) and monoethylene glycol (MEG). The other
40% of fiber production, primarily fiberfill and carpet fibers, is
manufactured by the Recycled Products Group from recycled raw materials,
including producer fiber, resin and film wastes and postconsumer PET soft
drink bottles. The Company's PET resins, produced by the Packaging Products
Group from PTA and MEG, are primarily used in the manufacture of clear
plastic soft drink bottles and other food and beverage packaging.
The Company's markets are highly competitive. It competes in these markets
primarily on the basis of product quality, customer service, brand identity
and price. It believes it is the second-largest polyester staple and third-
largest POY producer in the United States and the fourth-largest PET resin
producer in North America. Several of the Company's competitors are
substantially larger than the Company and have substantially greater economic
resources.
Demand for polyester fiber historically has been cyclical, as it is subject
to changes in consumer preferences and spending, retail sales patterns, and
fiber or textile product imports, all of which are driven primarily by
general economic conditions. Global PET resin demand continues to grow,
driven by new product applications for PET and conversion from other
packaging materials to PET.
Several factors significantly affect the Company's profitability: raw
material margins, or the difference (or spread) between product selling
prices and raw material costs; supply and demand for its products; the prices
of competing materials, such as cotton and aluminum, which can affect demand
for its products; and economic and market conditions in the United States,
Europe and other regions of the world. Prices of PTA and MEG, primary
determinants of polyester fiber and PET resin selling prices, are cyclical.
Changes in PTA and MEG prices are driven by worldwide supply and demand.
Raw material margins for the chemical-based fiber and PET resin businesses
have generally been influenced by supply and demand factors. Despite growing
demand for PET resin, worldwide supply is currently undergoing significant
expansion which has adversely affected profitability, and is expected to
continue to do so. Both fiber and resin margins experience increases or
decreases due to timing of price changes and market conditions.
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<PAGE>
Raw material margins for the recycled fiber operation tend to be more
variable than those for the chemical-based businesses, primarily because
recycled raw material costs do not cause changes in fiber prices. Recycled
raw material costs are primarily dependent upon worldwide supply and demand
for waste materials.
The Company's sales are neither materially dependent upon a single customer
nor seasonal in nature. Demand, prices and raw material costs for both
fibers and PET resins may be affected by global economic conditions, supply
and demand balances and export activity.
By the year 2000, the Company plans to substantially increase its polyester
fiber and PET resin production capacity through the expansion of existing
facilities and construction of a new, state-of-the-art production facility in
Mississippi. Most of the expansion will be in PET resin capacity. As a
result, the Company's production mix is expected to be approximately 50%
fibers and 50% PET resins.
RESULTS OF OPERATIONS - 1996 COMPARED TO 1995
Net sales for 1996 remained unchanged as compared to 1995 at $1.1 billion.
This was generally the result of increased sales volumes and lower selling
prices. Sales for the Fibers Group decreased 6.9% to $450.6 million in 1996
from $483.9 million in 1995 due to significantly lower polyester fiber
selling prices which more than offset improved fiber sales volume during the
latter part of 1996. Sales for the Recycled Products Group (RPG) decreased
22.0% to $369.3 million from $473.0 million due primarily to a 12-week strike
at the European recycled fibers operation, which kept the facility closed
from mid-July through early October; and the disposition of certain
businesses which had sales in 1995 of $47.5 million. In addition, the
decline in RPG's sales was a result of lower polyester fiber selling prices
for the domestic and European recycled fibers operations. Sales for the
Packaging Products Group (PPG) increased 82.9% to $278.9 million in 1996
from $152.5 million in 1995 due to higher sales volumes resulting from the
December 31, 1995 acquisition of a Netherlands-based PET resins business and
the mid-1995 expansion of domestic PET resins capacity. This increased
volume more than offset significantly lower worldwide PET resin selling
prices.
Gross profit decreased 29.4% to $157.1 million in 1996 versus $222.6 million
in 1995. The gross profit margin for 1996 was 14.3% compared to 20.1% for
1995. Gross profit for the Fibers Group decreased primarily as a result of
significantly lower fiber selling prices due to weak textile demand in the
first half of the year which more than offset lower chemical raw material
costs. Gross profit for the RPG also decreased in 1996 versus 1995 primarily
due to reduced profit at the European recycled fibers operation stemming from
weak business conditions compounded by the strike, and the discontinuance of
gross profit from divested businesses. This more than offset increased
profits for the domestic recycled fibers business as a result of lower raw
material costs. Despite higher sales volumes resulting from the
aforementioned acquisition of the Netherlands-based PET resins business and
domestic PET resins expansion, the gross profit for the PPG decreased in 1996
due to significantly lower worldwide PET resins selling prices, which more
than offset lower raw material cost. These factors contributed to a loss at
the Netherlands-based PET resins operation. The Company's gross profit for
1996 was also negatively impacted by a $7 million inventory charge resulting
from large declines in raw material costs and selling prices, including a $3
million charge related to the PET resins take or pay arrangement. See note 2
to the consolidated financial statements.
13
<PAGE>
Selling, general and administrative expenses amounted to $89.0 million in
1996, or 8.1% of sales, compared to $89.7 million in 1995, or 8.1% of sales.
As a result of the foregoing, operating income decreased to $68.1 million in
1996 versus $132.9 million in 1995.
Net interest expense for 1996 increased to $14.0 million from $11.7 million
for 1995. Interest expense increased as a result of higher average
outstanding borrowings which were partially offset by higher interest
capitalization resulting from the Company's long-term capital investment
program.
The effective income tax rate was 51% in 1996 versus 36% in 1995. This
resulted from lower pretax earnings, lower earnings at its Irish
manufacturing operations which benefit from a favorable tax rate, and a
pretax loss at the European PET resin operation which has no tax benefit.
See note 7 to the consolidated financial statements.
As a result of the foregoing, net earnings for 1996 were $26.5 million, or
$0.81 per share, compared to $74.1 million, or $2.20 per share, in 1995.
OUTLOOK
Demand for polyester fibers and PET packaging resins is expected to improve
in 1997. However, previously announced industry capacity increases are
expected to exceed the higher demand. The Company anticipates increased
capacity utilization rates in its polyester fiber business in 1997, resulting
from the operation of certain domestic production lines which were curtailed
during 1996 due to weak demand and the end of the 12-week labor strike at the
Irish fiber plant in October 1996. PET resin sales volumes are expected to
increase significantly in 1997 due to the start-up of a new 200 million
pounds per year production line at the Darlington, SC facility in the second
quarter of 1997.
However, the higher sales volumes anticipated in 1997 are not expected to
contribute materially to the Company's net earnings. Profit margins for
chemical-based polyester staple fibers and PET resins deteriorated to
historically low levels in 1996, due to large declines in worldwide selling
prices throughout the year which more than offset reduced raw material costs.
Significant additions to PET resin and polyester staple capacity which have
been announced for 1997 are expected to put further pressure on profit
margins. These conditions may result in the Company's European PET resins
business reporting a loss in 1997.
See "Forward Looking Statements" below.
RESULTS OF OPERATIONS - 1995 COMPARED TO 1994
Net sales for 1995 increased 18.5% to $1.1 billion from $936.1 million in
1994. Sales increased during 1995 for each of the Company's three product
groups: Fibers Group sales increased 13.4% to $483.9 million from $426.8
million, RPG sales increased 10.5% to $473.0 million from $427.9 million and
PPG sales increased 87.3% to $152.5 million from $81.4 million. Sales for
the Fibers Group increased due to higher polyester fiber selling prices which
more than offset slightly lower sales volumes. Sales for the RPG increased
due to higher sales at WIL resulting from increased polyester fiber selling
prices which more than offset slightly lower sales volumes. PPG sales
increased in 1995 due to the second quarter expansion of PET resin production
capacity and, to a lesser extent, higher selling prices.
14
<PAGE>
Gross profit increased 5.3% to $222.6 million in 1995 versus $211.3 million
in 1994. The gross profit margin for 1995 was 20.1% compared to 22.6% for
1994. Gross profit increased primarily due to increased gross profit at
WIL, primarily due to higher polyester fiber selling prices, and the
aforementioned PET resin expansion. Despite the increase in gross profit,
gross profit margin declined primarily because selling prices increased
during the period while unit gross profit remained relatively unchanged.
Selling, general and administrative expenses amounted to $89.7 million in
1995, or 8.1% of sales, compared to $89.5 million in 1994, or 9.6% of sales.
As a result of the foregoing, operating income increased to $132.9 million in
1995 versus $121.7 million in 1994.
Net interest expense for 1995 decreased to $11.7 million from $13.7 million
for 1994. Interest expense was favorably impacted by a decrease in average
outstanding borrowings and higher interest income, which were partially
offset by an increase in the average cost of variable rate borrowings.
For the year ended December 31, 1995, the Company recorded a pretax loss of
$5.5 million related to the sale of a subsidiary (resulting in a decrease in
net earnings of $3.4 million, or $0.10 per share). For additional
information regarding this loss, see note 3 to the consolidated financial
statements.
The effective tax rate of 36% in 1995 versus 40% in 1994 reflects the
positive impact of strong Irish earnings since the Irish tax rate for
manufacturing operations is significantly lower than the U.S. federal and
state tax rates and, to a lesser extent, there was also the favorable effect
of strong domestic earnings which lessened the effect of nondeductible items
as a relative percentage.
As a result of the foregoing, net earnings for 1995 were $74.1 million, or
$2.20 per share, compared to $64.8 million, or $1.94 per share, in 1994.
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 takes a proactive approach in addressing
the applicability of these laws and regulations as they relate to its
manufacturing operations and in proposing and implementing any remedial plans
that may be necessary. The Company has identified certain situations that
will require future capital and non-capital expenditures to maintain or
improve compliance with current environmental laws and regulations as well as
to support planned future expansion. The majority of the identified
situations are found at the Company's largest manufacturing facilities and
primarily deal with groundwater remediation, quality of air emissions and
wastewater treatment processes.
The Company's policy is to expense 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 $13.3 million and $29.2 million. In connection with these
expenditures, the Company has accrued management's best estimate of probable
non-capital environmental expenditures. These amounts include approximately
$4.6 million accrued for preacquisition environmental contingencies relative
to the acquisition discussed in note 2 to the consolidated financial
15
<PAGE>
statements. In addition, future capital expenditures aggregating $10.0
million to $36.7 million may be required related to environmental matters.
These non-capital and capital expenditures are estimated to be incurred
during 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. During 1996 and 1995, costs associated with environmental
remediation and ongoing assessment were not significant. See notes 1 and 8
to the consolidated financial statements.
The measurement of liability is based on an evaluation of currently
available facts with respect to each individual situation and takes into
consideration factors such as existing technology, presently enacted laws and
regulations and prior experience in remediation of contaminated sites. As
assessments and remediation progress at individual sites, these liabilities
are reviewed periodically and adjusted to reflect additional technical and
legal information which becomes available.
The Company believes it is either in material compliance with all currently
applicable regulations or is operating in accordance with the appropriate
variances and compliance schedules or similar arrangements.
Actual costs to be incurred for identified situations in future periods
may vary from the estimates, given inherent uncertainties in evaluating
environmental exposures due to unknown conditions, changing government
regulations and legal standards regarding liability and evolving related
technologies. Subject to the imprecision in estimating future environmental
costs, the Company believes that compliance with current laws and
regulations will not require significant capital expenditures or have a
material adverse effect on its consolidated financial position or results of
operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated cash from operations of $151.9 million in 1996 compared
to $118.8 million in 1995. The increase in cash from operations is
attributable to a net decrease in working capital items which was partially
offset by a decrease in net earnings. The working capital ratio was
approximately 2.8 to 1 and 2.5 to 1 at December 31, 1996 and 1995,
respectively.
Net cash used in investing activities amounted to $135.2 million in 1996
compared to $151.0 million in 1995. Capital spending amounted to $126.0
million in 1996 and $104.7 million in 1995, reflecting the Company's ongoing
capital investment program. The Company spent $14.3 million in 1996 and
$64.2 million in 1995 related to an acquisition of a PET resins business in
Europe. Proceeds from the sale of a subsidiary amounted to $4.2 million in
1996 and $16.2 million in 1995.
Net cash used in financing activities amounted to $18.4 million in 1996
versus net cash provided by financing activities of $14.5 million in 1995.
In 1996, the Company completed the repurchase of treasury stock totaling
$49.5 million. Net borrowings (line of credit with bank and long-term debt)
were $40.3 million in 1996 compared to $22.6 million in 1995.
The Company is currently engaged in a long-term capital investment program
to expand its polyester production capacity and estimates that capital
expenditures could aggregate approximately $400 million over the four-year
period from 1997 through 2000. The capital program includes a domestic PET
resins capacity expansion expected to be completed in the second quarter of
1997 and construction of a new domestic polyester production facility
16
<PAGE>
budgeted to cost approximately $400 million and to be operational in phases
beginning in late 1998. To receive certain incentives provided by the state
of Mississippi, the Company expects to issue Rural Economic Development
Bonds. The Company believes these bonds, coupled with internally generated
funds, its bank facility and other long term financing are expected to
provide adequate liquidity in the future.
The Company's long-term capital investment program includes approximately
$250.0 million in planned expenditures in 1997. The exact amount and timing
of the capital spending is difficult to predict since certain projects may
extend into 1998 or beyond depending upon equipment delivery and construction
schedules. Significant 1997 capital expenditures include the design and
construction of the new production facility discussed in the preceding
paragraph. See "Item 1. Business - Products and Markets and - Capital
Investment Program".
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 December
31, 1996, 2.5 million shares had been repurchased at a cost of $49.5 million.
The Company's financing agreements contain normal financial and restrictive
covenants. The most restrictive of these covenants permits a maximum
leverage ratio of 55%, requires EBIT to exceed 2.5 times interest expense and
the Company to maintain a certain net worth. Approximately $235 million of
retained earnings at December 31, 1996 is not restricted as to the payment of
dividends. The Company believes that it has the financial resources
available to it to meet its foreseeable working capital, capital expenditure
and dividend payment requirements.
The Company entered into forward interest rate swaps to reduce (hedge) the
impact of interest rate changes for variable rate borrowings associated with
planned capital expenditures over the next four years. The agreements have
an aggregate notional amount of $200 million at December 31, 1996, forward
starting dates ranging from June 1997 to May 1998 and maturity dates of at
least 5 years thereafter. The Company will pay fixed rates of interest
ranging from 6.10% to 6.20%. The Company estimates it would have had to pay
approximately $.5 million at December 31, 1996 to terminate the agreements.
The Company entered into forward foreign currency contracts to exchange Dutch
guilders for U.S. dollars with an aggregate notional amount of $48.8 million
at December 31, 1996 in order to reduce the related impact of foreign
currency translation adjustments. This has the effect of converting a
portion of U.S. debt to local currency (guilder) debt. The Company has
designated these contracts as a hedge of a net investment in a foreign
entity. At December 31, 1996, the Company estimates it would receive
approximately $2.8 million if these contracts were terminated.
During 1996, the Company entered into forward foreign currency contracts to
exchange U.S. dollars for German marks with an aggregate notional amount of
$33.6 million at December 31, 1996. These contracts are designed to reduce
(hedge) the impact of foreign currency fluctuations relative to fixed asset
purchase commitments and have maturity dates ranging from March 1997 through
November 1998. At December 31, 1996, the Company would have had to pay
approximately $1.9 million to terminate these contracts.
The Company's European businesses utilize foreign currency debt and forward
currency contracts to hedge certain of their accounts receivable and
accounts payable denominated in other foreign currencies. At December 31,
1996, the notional amount of such contracts was $21.6 million and the cost to
terminate these contracts was immaterial.
17
<PAGE>
The Company's estimates with respect to the values of its derivative
instruments are based on readily available dealer quotes.
NEW ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 123 "Accounting for Stock-Based
Compensation". This Statement defines a fair value method of accounting for
an employee stock option or similar equity instrument and encourages adoption
of that method. The Statement also requires that an employer's financial
statements include certain disclosures about stock-based compensation
arrangements regardless of the method used to account for them. The
Statement is effective for fiscal years beginning after December 15, 1995.
The Company adopted the financial statement disclosure requirement of SFAS
No. 123 and will continue to account for stock-based compensation under the
provisions of Accounting Principles Board Statement No. 25. See note 10 to
the consolidated financial statements.
FORWARD LOOKING STATEMENTS
Statements contained in this Form 10-K 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 1997 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, levels of production capacity and announced changes thereto,
changes in interest rates and foreign currency exchange rates, work
stoppages, natural disasters, U.S., European and global economic conditions
and changes in laws and regulations, 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.
18
<PAGE>
Item 8. Financial Statements and Supplementary Data
- ------ -------------------------------------------
WELLMAN, INC.
Index to Consolidated Financial Statements and Consolidated Financial
Statement Schedules
Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994 20
Consolidated Balance Sheets as of December 31, 1996 and 1995 21
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1996, 1995 and 1994 22
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 23
Notes to Consolidated Financial Statements 24
Report of Independent Auditors 39
Consolidated financial statement schedules for the years ended
December 31, 1996, 1995 and 1994:
II -- Valuation and qualifying accounts 40
All other schedules are omitted since the required information is not present
or is not present in amounts sufficient to require submission of the
schedules, or because the information required is included in the
consolidated financial statements and notes thereto.
19
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Years Ended December 31,
------------------------
(In thousands, except per share data) 1996 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . .$1,098,804 $1,109,398 $936,133
Cost of sales. . . . . . . . . . . . . . . . 941,693 886,817 724,874
--------- -------- --------
Gross profit . . . . . . . . . . . . . . . . 157,111 222,581 211,259
Selling, general and administrative expenses 88,987 89,704 89,518
---------- ---------- --------
Operating income . . . . . . . . . . . . . . 68,124 132,877 121,741
Interest expense, net. . . . . . . . . . . . 13,975 11,666 13,741
Loss on divestitures.. . . . . . . . . . . . -- (5,500) --
---------- ---------- --------
Earnings before income taxes . . . . . . . . 54,149 115,711 108,000
Income taxes . . . . . . . . . . . . . . . . 27,620 41,657 43,200
---------- ---------- --------
Net earnings . . . . . . . . . . . . . . . .$ 26,529 $ 74,054 $ 64,800
========== ========== ========
Net earnings per common share. . . . . . . $ 0.81 $ 2.20 $ 1.94
========== ========== ========
Average common shares. . . . . . . . . . . . 32,774 33,699 33,417
========== ========== ========
See notes to consolidated financial statements.
</TABLE>
20
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31,
(In thousands, except share data) 1996 1995
- ----------------------------------------------------------------------------
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents. . . . . . . . . . . . $ 2,120 $ 3,893
Accounts receivable, less allowance of $ 2,611
in 1996 and $5,335 in 1995. . . . . . . . . . . . . 132,296 145,572
Inventories. . . . . . . . . . . . . . . . . . . . . 158,685 200,224
Prepaid expenses and other current assets. . . . . . 3,947 14,614
---------- ----------
Total current assets. . . . . . . . . . . . . . . 297,048 364,303
Property, plant and equipment, at cost:
Land, buildings and improvements . . . . . . . . . . 122,047 127,555
Machinery and equipment. . . . . . . . . . . . . . . 771,624 648,639
---------- ----------
893,671 776,194
Less accumulated depreciation. . . . . . . . . . . . 296,043 248,638
---------- ----------
Property, plant and equipment, net. . . . . . . . 597,628 527,556
Cost in excess of net assets acquired, net . . . . . . 290,450 295,062
Other assets, net. . . . . . . . . . . . . . . . . . . 18,823 23,752
---------- ----------
$1,203,949 $1,210,673
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . .$ 64,019 $ 89,104
Accrued liabilities. . . . . . . . . . . . . . . . . 41,320 50,368
Line of credit with bank . . . . . . . . . . . . . . -- 6,216
Current portion of long-term debt. . . . . . . . . . 159 147
---------- ----------
Total current liabilities . . . . . . . . . . . . 105,498 145,835
Long-term debt . . . . . . . . . . . . . . . . . . . . 319,407 272,867
Deferred income taxes and other liabilities. . . . . . 155,116 141,625
---------- ----------
Total liabilities . . . . . . . . . . . . . . . . 580,021 560,327
Stockholders' equity:
Common stock, $0.001 par value; 55,000,000
shares authorized, 33,612,464 shares issued
in 1996, 33,441,391 in 1995. . . . . . . . . . . . . 34 33
Class B common stock, $0.001 par value; 5,500,000
shares authorized; no shares issued . . . . . . . . -- --
Paid-in capital. . . . . . . . . . . . . . . . . . . 233,665 230,008
Foreign currency translation adjustments . . . . . . 9,853 6,849
Retained earnings. . . . . . . . . . . . . . . . . . 429,900 413,456
Less common stock in treasury at cost:
2,500,000 shares at December 31, 1996 . . . . . . . (49,524) --
---------- ----------
Total stockholders' equity. . . . . . . . . . . . 623,928 650,346
---------- ----------
$1,203,949 $1,210,673
========== ==========
</TABLE>
See notes to consolidated financial statements.
21
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
<CAPTION>
COMMON STOCK ISSUED CURRENCY
--------------- PAID-IN TRANSLATION RETAINED TREASURY
SHARES AMOUNT CAPITAL ADJUSTMENTS EARNINGS STOCK TOTAL
------ ------ ------- ----------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 32,780 $ 33 $ 215,179 $ 96 $ 291,198 $ --- $ 506,506
Net earnings 64,800 64,800
Cash dividends ($0.23 per share) (7,593) (7,593)
Exercise of stock options 235 4,047 4,047
Issuance of common stock to
employee benefit plans 176 3,936 3,936
Issuance of restricted stock 1 23 23
Tax effect of exercise of stock
options 1,167 1,167
Currency translation adjustments 4,687 4,687
------ ---- --------- ------- --------- ---------
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 26,529 26,529
Cash dividends ($0.31 per share) (10,085) (10,085)
Exercise of stock options 49 861 861
Issuance of common stock to
employee benefit plans 121 1 2,669 2,670
Issuance of restricted stock 1 26 26
Tax effect of exercise of stock
options 101 101
Currency translation adjustments 3,004 3,004
Purchase of treasury stock (49,524) (49,524)
------ ---- -------- -------- -------- ------- ---------
Balance at December 31, 1996 33,612 $ 34 $ 233,665 $ 9,853 $ 429,900 $(49,524) $ 623,928
====== ==== ======== ======== ======== ======= =========
</TABLE>
See notes to consolidated financial statements.
22
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Years Ended December 31,
(In thousands) 1996 1995 1994
Cash flows from operating activities: ----- ----- ----
<S> <C> <C> <C>
Net earnings. . . . . . . . . . . .. $ 26,529 $ 74,054 $ 64,800
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation . . . . . . . . . . . 56,260 53,522 45,201
Amortization . . . . . . . . . . . 11,685 11,863 14,322
Deferred income taxes. . . . . . . 8,496 9,435 5,878
Common stock issued for stock plans 2,696 4,224 3,959
Loss on divestitures . . . . . . . -- 5,500 --
Changes in assets and liabilities, net
of effects from businesses acquired
and divested:
Accounts receivable. . . . . . . 15,760 (11,474) (20,528)
Inventories. . . . . . . . . . . 32,783 (59,602) 12,439
Prepaid expenses and other current
assets. . . . . . . . . . . . . 620 (7,200) (7,132)
Other assets . . . . . . . . . . (2,347) (727) 1,332
Accounts payable and accrued liabilities (9,657) 35,444 7,031
Other liabilities. . . . . . . . 1,514 (138) (984)
Other. . . . . . . . . . . . . . 7,562 3,860 6,079
-------- -------- --------
Net cash provided by operating activities 151,901 118,761 132,397
-------- -------- --------
Cash flows from investing activities:
Additions to property, plant and equipment. (126,009) (104,696) (74,310)
Decrease in restricted cash. . . . . 879 1,680 4,779
Businesses acquired. . . . . . . . . (14,250) (64,249) --
Proceeds from divestitures . . . . . 4,184 16,230 --
-------- -------- --------
Net cash used in investing activities (135,196) (151,035) (69,531)
-------- -------- --------
Cash flows from financing activities:
Borrowings under long-term debt. . . 46,519 16,618 --
Repayments of long-term debt . . . . -- (200) (56,791)
Purchase of treasury stock (49,524)
Increase(decrease) in line of credit
with bank . . . . . . . . . . . . . (6,216) 6,216 --
Dividends paid on common stock . . . (10,085) (9,003) (7,593)
Exercise of stock options. . . . . . 861 846 4,047
-------- -------- --------
Net cash provided by (used in) financing
activities . . . . . . . . . .. . (18,445) 14,477 (60,337)
-------- -------- --------
Effect of exchange rate changes on cash and
cash equivalents . . . . . . . . . . . (33) 134 276
-------- -------- --------
Increase (decrease) in cash and
cash equivalents . . . . . . . . . . . (1,773) (17,663) 2,805
Cash and cash equivalents at beginning of year 3,893 21,556 18,751
-------- -------- --------
Cash and cash equivalents at end of year $ 2,120 $ 3,893 $ 21,556
======== ======== ========
Supplemental cash flow data:
Cash paid during the year for:
Interest (net of amounts capitalized) $ 15,273 $ 14,320 $ 15,115
Income taxes. . . . . . . . . . . . $ 8,994 $ 35,263 $ 37,487
</TABLE>
See notes to consolidated financial statements.
23
<PAGE>
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Wellman, Inc. (the Company) is an international manufacturing company
operating primarily in the United States, Ireland and the Netherlands. The
Company's principal line of business is the manufacture of high-quality
polyester products, including Fortrel(R) brand polyester textile fibers,
polyester fibers made from recycled raw materials and PermaClear(TM) PET
(polyethylene terephthalate) packaging resin. Total polyester fiber sales
represented approximately 67% of the Company's 1996 sales. The principal
markets for polyester fibers are apparel, home furnishings, carpet and
industrial manufacturers in the United States and Europe. The principal
markets for PET resin are United States and Europe-based manufacturers of
various types of plastic packaging products.
Basis of Presentation
The consolidated financial statements include the accounts of Wellman,
Inc. and its subsidiaries. All material intercompany transactions have been
eliminated.
Certain 1995 and 1994 amounts have been reclassified to conform to the
1996 presentation.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
Sales to customers are recorded when goods are shipped.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the last-in, first-out (LIFO) method for approximately $98,000 and
$122,000 of inventory at December 31, 1996 and 1995, respectively, and the
first-in, first-out (FIFO) method for the remainder.
Property, Plant and Equipment
Property, plant and equipment is carried at cost. Depreciation is
provided based on the estimated useful lives of the related assets and is
computed on the straight-line method. Estimated useful lives for buildings
and improvements are 15 to 30 years and 5 to 13 years for machinery and
equipment.
Cost in Excess of Net Assets Acquired
Cost in excess of net assets acquired is amortized on the straight-line
method over periods ranging from 20 to 40 years. Accumulated amortization
amounted to approximately $64,391 and $55,054 at December 31, 1996 and 1995,
respectively.
24
<PAGE>
The Company's accounting policy regarding the assessment of the
recoverability of the carrying value of goodwill and other intangibles is to
review the carrying value of goodwill and other intangibles if the facts and
circumstances suggest that they may be impaired. If this review indicates
that goodwill and other intangibles will not be recoverable, as determined
based on undiscounted future cash flows of the Company, the carrying value of
goodwill and other intangibles will be reduced to estimated fair value. No
impairments were noted in 1996.
Other Assets
Other assets are comprised of deferred charges related to certain of the
Company's debt agreements and other intangible assets that are amortized over
periods ranging from one to 20 years. Additionally, other assets include
cash restricted for use obtained from borrowings under economic development
revenue bonds in the amount of approximately $5,000 and $5,900 at December
31, 1996 and 1995, respectively (see note 6).
Impairment of Long-Lived Assets
The Company accounts for the impairment of long-lived assets under FASB
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of" (FAS 121). FAS 121 requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets' carrying
amount. The adoption of FAS 121 did not impact the consolidated financial
statements of the Company.
Income Taxes
Income taxes have been provided using the liability method. Under this
method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities. Deferred income taxes resulting from such differences are
recorded based on the enacted tax rates that will be in effect when the
differences are expected to reverse.
Environmental Expenditures
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Liabilities are recorded when environmental
assessments and/or remedial efforts are probable and the costs can be
reasonably estimated. Expenditures that relate to an existing
condition caused by past operations, and which do not contribute to current
or future revenue generation, are expensed or charged to the aforementioned
liability.
Derivative Financial Instruments
The Company has limited involvement with derivative financial instruments
and does not use them for trading purposes. They are used as hedges to
manage well-defined interest rate (see note 6) and foreign currency risks
(see notes 2 and 12). There is currently no accounting required for the
forward interest rate swaps due to the forward starting dates and designation
as a hedge. The gain or loss from forward foreign currency contracts related
to the hedge of a net investment in a foreign entity is accounted for as a
component of foreign currency translation adjustments. Discounts or premiums
on forward contracts (the difference between the current spot exchange rate
and the forward exchange rate at inception of the contract) are amortized to
25
<PAGE>
income over the contract lives using the straight-line method. Gains and
losses on hedges of receivables denominated in foreign currencies are
recognized in income and offset the foreign exchange gains and losses on the
underlying transactions. Gains and losses on contracts which hedge foreign
currency denominated commitments, primarily purchases of fixed assets, are
deferred and included in the basis of the transactions underlying the
commitments.
Foreign Currency Translation
The financial statements of foreign entities have been translated into
U.S. dollar equivalents in accordance with the Financial Accounting Standards
Board's (FASB) Statement No. 52, "Foreign Currency Translation." Adjustments
resulting from the translation of the financial statements of foreign
entities are excluded from the determination of earnings and accumulated in a
separate component of stockholders' equity.
Research and Development Costs
Research and development costs are expensed as incurred. Such costs were
approximately $18,500, $16,900 and $16,100 for 1996, 1995 and 1994,
respectively.
Grant Accounting
The Company's manufacturing facility under construction in Mississippi has
received various grants from the state of Mississippi and other local
authorities. These grants include capital and operating grants. The capital
grants are recorded as deferred revenue and amortized into income as the
requirements stipulated in the grant are satisfied. The operating grants are
recorded as a reduction of operating expenses in the period the reduction
occurs. The impact of grants on the 1996, 1995, and 1994 consolidated
financial statements was immaterial.
Stock Based Compensation
The Company grants stock options for a fixed number of shares to employees
and directors with an exercise price equal to or greater than the fair value
of the shares at the date of grant. The Company accounts for stock option
grants in accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and, accordingly, recognizes no compensation expense for the
stock option grants.
Earnings Per Common Share
Earnings per common share is based on the weighted average number of
common and common equivalent shares outstanding.
Cash and Cash Equivalents
The Company considers all short-term investments purchased with a maturity
of three months or less to be cash equivalents for purposes of the
consolidated statements of cash flows.
2. ACQUISITION
On December 31, 1995, the Company acquired the Netherlands-based PET resins
business (the Business) of Akzo Nobel (Akzo) for a purchase price of
approximately $78,500. The acquisition has been accounted for under the
purchase method and the results of the operations of the acquired business
26
<PAGE>
have been included in the consolidated financial statements since the date
of acquisition. The purchase price was allocated based on estimated fair
values at the date of the acquisition. The excess of the purchase price over
assets acquired (goodwill) will be amortized on a straight-line basis over 30
years.
Although unlikely, the Company may be required to make contingent payments to
Akzo based on contribution margin as defined in the agreement. The cost of
any subsequent payments will be allocated to goodwill.
The pro forma effects of the acquisition for 1995 have not been presented due
to the immaterial impact of operations of the Business on the Company's
consolidated financial statements.
In connection with this acquisition, the Company entered into a contract to
purchase PET resin under a take or pay arrangement. The Company purchased
75,000 pounds in 1996. The contract requires that 134,000 pounds be
purchased on a declining basis during the period from 1997 to 2000. The
purchase price of these volumes is essentially the cost of the raw materials
to produce the product plus a processing fee. During 1996 the Company
incurred operating losses with respect to this contract and has accrued
approximately $3,000 as its best estimate of probable future losses with
respect to this contract in the first half of 1997. The Company cannot
reasonably estimate losses, if any, beyond that period. It is reasonably
possible that the Company's estimate of future losses with respect to this
contract will change in the near term.
Also, in conjunction with this acquisition, the Company has entered into
forward foreign currency contracts to exchange Dutch guilders for U.S.
dollars in order to reduce the related impact of foreign currency translation
adjustments (see note 12).
3. DIVESTITURES
In the first quarter of 1996, the Company sold its polyester bonded
batting and needle-punched fabric operations located in Charlotte, NC and
Commerce, CA for their approximate book value. In August 1995, the Company
sold substantially all of the businesses of its New England CRInc. (CRInc.)
subsidiary for approximately $16,230. The Company recorded a pretax loss on
the sale of $5,500, which decreased 1995 net earnings by approximately
$3,400, or $0.10 per share. The operating results of the divested businesses
have not had a material impact on the Company's consolidated financial
statements.
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
1996 1995
------ ------
<S> <C> <C>
Raw materials . . . . . . . . . . . $ 65,552 $ 85,318
Finished and semi-finished goods. . 78,280 101,435
Supplies. . . . . . . . . . . . . . 14,853 13,471
-------- --------
$158,685 $200,224
======== ========
</TABLE>
At December 31, 1996 and 1995, the excess of current replacement cost over
the carrying value of inventories costed using the LIFO method amounted to
approximately $-0- and $24,878, respectively.
27
<PAGE>
5. ACCRUED LIABILITIES
<TABLE>
Accrued liabilities consist of the following:
<CAPTION>
December 31,
1996 1995
------ ------
<S> <C> <C>
Payroll and other compensation. . . $ 7,573 $11,069
Retirement plans. . . . . . . . . . 5,176 8,215
Property and other taxes. . . . . . 4,841 3,947
Interest. . . . . . . . . . . . . . 3,065 2,419
Other . . . . . . . . . . . . . . . 20,665 24,718
------- -------
$41,320 $50,368
======= =======
</TABLE>
6. BORROWING ARRANGEMENTS
<TABLE>
Long-term debt consists of the following:
<CAPTION>
December 31,
1996 1995
------ ------
<S> <C> <C>
Revolving credit loan facility and competitive
bid loans . . . . . . . . . . . . . $ 75,000 $ 75,000
Uncommitted lines of credit . . . . 59,699 13,000
Serialized senior unsecured notes,
9.02% - 9.26%, due 1997-1999 . . . 100,000 100,000
Economic development revenue bonds, at variable
interest rates, due 2010-2022. . . 54,500 54,500
8.41% senior unsecured note, due 2000 30,000 30,000
Other . . . . . . . . . . . . . . . 367 514
-------- --------
319,566 273,014
Less current portion . . . . . 159 147
-------- --------
$319,407 $272,867
======== ========
</TABLE>
On February 8, 1995, the Company entered into an unsecured $330,000
Revolving Credit Loan (the Facility) maturing in February 2000 that replaced
a reducing revolving loan facility. The terms of the Facility provide the
Company the ability to borrow under competitive bid loans (CBLs) which reduce
the availability under the Facility and bear interest at the offering bank's
prevailing interest rate. The Facility has no scheduled principal repayments
and any borrowings under non-CBLs bear interest, at the Company's option, at
(1) the higher of (a) the prime rate or (b) the federal funds rate plus
0.50%, (2) the LIBOR rate plus applicable margin or (3) the CD rate plus
applicable margin. At December 31, 1996, the average interest rate on
borrowings under the Facility was approximately 5.75%.
Terms, rates and maturity dates for the uncommitted lines of credit are
agreed upon by the Bank and the Borrower at each borrowing date. At December
31, 1996, the maturities on the outstanding borrowings ranged from 62 to 154
days with interest rates ranging from 5.54% to 5.77%. At year-
end, the Company had $115,000 available under these lines.
The economic development revenue bonds (the Bonds) are tenderable by the
holders and are secured by letters of credit aggregating approximately
$55,800 at December 31, 1996. The average interest rate on the Bonds at
December 31, 1996 was approximately 3.73%.
28
<PAGE>
The Bonds and borrowings under the Facility, serialized senior unsecured
notes, CBLs and uncommitted lines of credit are classified as long-term in
accordance with the Company's intention and ability to refinance such
obligations on a long-term basis.
During June 1995, the Company entered into forward interest rate swaps to
reduce (hedge) the impact of interest rate changes for variable rate
borrowings associated with planned capital expenditures over the next four
years. The agreements include an aggregate notional amount of $200,000 at
December 31, 1996, forward starting dates ranging from June 1997 to May 1998
and maturity dates of at least 5 years thereafter. The Company will pay
fixed rates of interest ranging from 6.10% to 6.20%. The Company estimates
it would have had to pay approximately $500 and $7,200, at December 31, 1996
and 1995, respectively, to terminate the agreements.
The Company's financing agreements contain normal financial and
restrictive covenants. Based on the net worth covenant, approximately
$235,000 of retained earnings at December 31, 1996 is not restricted as to
the payment of dividends.
Aggregate maturities of long-term debt for the next five years are as
follows: 1997 -- $159; 1998 -- $40,193; 1999 -- $40,015; 2000 -- $239,199
and 2001 -- $0.
The carrying amounts of the Company's borrowings under its variable rate
credit agreements approximate their fair value. The fair values of the
Company's fixed rate credit agreements are estimated using discounted cash
flow analyses based on the Company's current incremental borrowing rates for
similar types of borrowing arrangements. The fair value of the Company's
fixed rate debt exceeded the carrying value by approximately $5,800 at
December 31, 1996. Prepayment of the fixed rate debt could result in
significant penalties.
During 1996, 1995 and 1994, the Company capitalized interest of $4,755,
$3,125 and $2,920, respectively, as part of the cost of capital projects
under construction. Interest expense (net) includes interest income of
$2,935, $2,563 and $2,000 for 1996, 1995 and 1994, respectively.
7. INCOME TAXES
<TABLE>
For financial reporting purposes, earnings (loss) before income taxes are
as follows:
<CAPTION>
Years Ended December 31,
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
United States. . . . . . . . . . . . . $68,463 $ 83,206 $ 89,073
Foreign. . . . . . . . . . . . . . . . (14,314) 32,505 18,927
------- -------- --------
$54,149 $115,711 $108,000
======= ======== ========
</TABLE>
29
<PAGE>
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Current:
Federal. . . . . . . . . . . . . . . $17,625 $24,900 $30,208
State. . . . . . . . . . . . . . . . 955 3,847 5,129
Foreign. . . . . . . . . . . . . . . 544 3,475 1,985
------- ------- -------
$19,124 $32,222 $37,322
------- ------- -------
Deferred:
Federal. . . . . . . . . . . . . . . $ 7,846 $ 8,085 $ 5,239
State. . . . . . . . . . . . . . . . 1,098 1,205 680
Foreign. . . . . . . . . . . . . . . (448) 145 (41)
------- ------- -------
8,496 9,435 5,878
------- ------- -------
$27,620 $41,657 $43,200
======= ======= =======
</TABLE>
The difference between the provision for income taxes and income taxes
computed at the statutory income tax rate is explained as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Computed at statutory rate. . . . . . . 35.0% 35.0% 35.0%
State taxes, net of federal benefit . . 2.5 2.9 3.5
Differences in income tax rates between
the United States and foreign countries (1.2) (6.3) (3.4)
Amortization of cost in excess of net
assets acquired. . . . . . . . . . . . 5.7 2.7 2.9
Foreign losses for which no tax benefit
has been provided. . . . . . . . . . . 10.5 -- --
Other, net . . . . . . . . . . . . .. . (1.5) 1.7 2.0
---- ---- ----
Effective tax rate. . . . . . . . . . . 51.0% 36.0% 40.0%
==== ==== ====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
30
<PAGE>
reporting purposes and the amounts used for income tax purposes. The tax
effects of these differences are as follows:
<TABLE>
<CAPTION>
December 31,
1996 1995
---- ----
<S> <C> <C>
Inventory . . . . . . . . . . . . . . . $ 5,170 $ 6,580
Depreciation. . . . . . . . . . . . . . 100,872 91,702
Foreign . . . . . . . . . . . . . . . . 3,956 4,364
Other . . . . . . . . . . . . . . . . . 10,060 9,503
-------- -------
Total deferred tax liabilities. . . . . 120,058 112,149
-------- -------
Pension . . . . . . . . . . . . . . . . 3,009 3,521
State deferred benefits . . . . . . . . 4,695 4,291
Long-term liabilities . . . . . . . . . 7,277 7,178
Foreign net operating loss carry forward 5,693 --
Other . . . . . . . . . . . . . . . . . 9,115 9,693
-------- -------
Total deferred tax assets . . . . . . . 29,789 24,683
Valuation allowance . . . . . . . . . . 5,693 --
-------- -------
Net deferred tax assets . . . . . . . . 24,096 24,683
-------- -------
Net deferred tax liabilities. . . . . . $ 95,962 $ 87,466
======== =======
</TABLE>
Deferred taxes have not been provided for approximately $99,763 of
undistributed earnings of foreign subsidiaries. The Company intends to
reinvest such undistributed earnings for an indefinite period except for
distributions upon which incremental taxes would not be material. If all
such earnings were distributed, the Company would be subject to both U.S.
income taxes (subject to an adjustment for foreign tax credits) and foreign
withholding taxes. Determination of the amount of unrecognized deferred U.S.
income tax liability is not practicable because of the complexities
associated with its hypothetical calculation.
At December 31, 1996, the Company had foreign net operating loss
carryforwards (NOLs) of approximately $16,266 for income tax purposes that
may be carried forward indefinitely. The NOLs resulted from operations of
its European PET resin business. The use of the NOLs is limited to future
taxable income of the European PET resin business. For financial reporting
purposes, no tax benefit (a deferred tax asset) has been provided for these
losses.
8. 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. As discussed in note 1, the Company's policy is to
expense 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 approximately
$13,300 and $29,200. In connection with these expenditures, the Company has
accrued management's best estimate of probable non-capital environmental
expenditures. This amount includes approximately $4,600 accrued for
preacquisition environmental contingencies relative to the acquisition
discussed in note 2. In addition, future capital expenditures aggregating
approximately $10,000 to $36,700 may be required related to environmental
31
<PAGE>
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.
9. RETIREMENT PLANS
The Company has defined benefit and defined contribution pension plans
that cover substantially all employees. The Company also has an employee
stock ownership plan (the ESOP) covering substantially all domestic
employees. The defined contribution plan and the ESOP provide for Company
contributions based on the earnings of eligible employees. Expense related
to the defined contribution plan amounted to approximately $7,481, $8,351 and
$7,840 for the years ended December 31, 1996, 1995 and 1994, respectively.
Expense related to the ESOP amounted to approximately $2,369, $2,253 and
$2,354 for the years ended December 31, 1996, 1995 and 1994, respectively.
Benefits under the Wellman International Limited (WIL) and PET Resins-
Europe defined benefit plan are based on employees' compensation and length
of service, while benefits under defined benefit plans covering domestic
employees are based on employees' compensation and length of service or at
stated amounts based on length of service. The Company's policy is to fund
amounts which are actuarially determined to provide the plans with sufficient
assets to meet future benefit payment requirements. Assets of the plans are
invested primarily in equity securities and commingled trust funds. The
pension costs (benefits) of the domestic and foreign defined benefit plans
consist of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Service cost. . . . . . . . . . . . . $ 598 $ 646 $ (479)
Interest cost on projected benefit
obligations. . . . . . . . . . . . . 4,761 4,659 3,938
Actual return on plan assets. . . . . (6,587) (9,772) (621)
Net amortization and deferral . . . . 481 5,356 (3,030)
------ ------ ------
$ (747) $ 889 $ (192)
====== ====== ======
</TABLE>
The following table sets forth the funded status and amounts included in
the Company's consolidated balance sheets at December 31, 1996 and 1995 for
the domestic and foreign defined benefit pension plans:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Actuarial present value of benefit obligations: ---- -----
Vested benefit obligations. . . . . . $62,039 $47,191
======= =======
Accumulated benefit obligations . . . $62,338 $47,335
======= =======
Projected benefit obligations . . . . $71,469 $60,453
Plan assets at fair market value. . . . 75,745 59,974
------- -------
Funded status . . . . . . . . . . . . . 4,276 (479)
Unrecognized net gain . . . . . . . . . (8,940) (6,901)
Unrecognized net (asset) liability at transition 489 (79)
Unrecognized prior service cost . . . . (1,070) (1,169)
------- --------
Accrued pension costs . . . . . . . . . $(5,245) $(8,628)
======= ========
</TABLE>
32
<PAGE>
Assumptions used in determining the projected benefit obligation as of
December 31 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
Domestic plans ------ ------- ------
<S> <C> <C> <C>
Discount rate 7.25% 7.25% 8.25%
Future compensation increase 4.25% 4.25% 4.75%
Rate of return on plan assets 9.0% 9.0% 8.0%
WIL
Discount rate 7.0% 7.5% 9.0%
Future compensation increase 4.5% 5.0% 6.5%
Rate of return on plan assets 7.0% 7.5% 9.0%
PET Resins-Europe
Discount rate 6.0%
Future compensation increase 3.0%
Rate of return on plan assets 6.0%
</TABLE>
10. STOCKHOLDERS' EQUITY
The Company has stock option plans (the Plans) which authorize the grant of
non-qualified stock options (NQSOs). The maximum number of common shares
authorized for grant under the Plans is 3,588,000. For substantially all
options granted in connection with the Plans, the option period extends for
11 years from the date of grant with the shares vesting at 20% per year over
the first five years. The option price for such options is equal to the fair
value of the Company's common stock at the date of grant.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options at least
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized. The alternative fair value accounting
provided for under FASB Statement No. 123, "Accounting for Stock-Based
Compensation," requires use of option valuation models for determining
compensation expense.
Pro forma information regarding net earnings and earnings per common share is
required by Statement 123, which also requires that the information be
determined as if the Company has accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method of that
Statement. The fair value for these options was estimated as of the date of
grant using a Black-Scholes option pricing model with the following
assumptions for 1996 and 1995, respectively: risk-free interest rate of
6.33% and 5.63%; a dividend yield of .84% and .75%; volatility factors of
the expected market price of the Company's common stock of .433 and .447;
and a weighted-average expected life of the option of 7 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input
of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
employee stock options.
33
<PAGE>
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows:
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Pro forma net earnings $25,889 $74,037
Pro forma earnings per common share $ 0.79 $ 2.20
</TABLE>
Because Statement 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until
2000.
A summary of the Company's stock option activity and related information for
the three years ended December 31, 1996 follows:
<TABLE>
<CAPTION>
Weighted
Average
Price
Shares Per Share
------ ---------
<S> <C> <C>
Outstanding December 31, 1993. . . . . . . . . . 1,782,397 $19.63
Granted. . . . . . . . . . . . . . . . . . . . 400,900 29.25
Exercised. . . . . . . . . . . . . . . . . . . (235,116) 17.21
Cancelled. . . . . . . . . . . . . . . . . . . (80,550) 22.24
--------- ------
Outstanding December 31, 1994. . . . . . . . . . 1,867,631 21.89
Granted. . . . . . . . . . . . . . . . . . . . 428,000 22.75
Exercised. . . . . . . . . . . . . . . . . . . (89,597) 9.44
Cancelled. . . . . . . . . . . . . . . . . . . (57,560) 23.35
--------- ------
Outstanding December 31, 1995. . . . . . . . . . 2,148,474 22.54
Granted. . . . . . . . . . . . . . . . . . . . 643,900 17.00
Exercised. . . . . . . . . . . . . . . . . . . (49,386) 17.44
Cancelled. . . . . . . . . . . . . . . . . . . (31,490) 25.32
--------- ------
Outstanding December 31, 1996. . . . . . . . . . 2,711,498 $21.28
========= ======
</TABLE>
At December 31, 1996, options for 1,326,595 shares were exercisable and
59,514 shares were available for future option grants. The weighted-average
fair value of options granted in 1996 and 1995 was $8.62 and $11.59,
respectively. The following summarizes information related to stock options
outstanding at December 31, 1996:
Range of exercise prices $11.63 to $19.88 $20.63 to $34.38
---------------- ----------------
Number outstanding at December 31, 1996 1,468,715 1,242,783
Weighted average remaining contractual life 8.3 years 8.2 years
Weighted average exercise price of
options outstanding $17.49 $25.77
Number exercisable at December 31, 1996 697,575 629,020
Weighted average exercise price of
options exercisable $17.96 $26.65
On August 6, 1991, the Board of Directors declared a dividend of one
common stock purchase right (a Right) for each outstanding share of common
stock. Each Right, when exercisable, will entitle the registered holder to
purchase from the Company one share of common stock at an exercise price of
$90 per share (the Purchase Price), subject to certain adjustments. The
34
<PAGE>
Rights are not represented by separate certificates and are only exercisable
when a person or group of affiliated or associated persons acquires or
obtains the right to acquire 20% or more of the Company's outstanding common
shares (an Acquiring Person) or announces a tender or exchange offer that
would result in any person or group beneficially owning 20% or more of the
Company's outstanding common shares. In the event any person becomes an
Acquiring Person, the Rights would give holders the right to buy, for the
Purchase Price, common stock with a market value of twice the Purchase Price.
The Rights expire on August 5, 2001, unless extended by the Board of
Directors or redeemed earlier by the Company at a redemption price of $0.01
per Right.
Although the Rights should not interfere with a business combination
approved by the Board of Directors, they may cause substantial dilution to a
person or group that attempts to acquire the Company on terms not approved by
the Board, except pursuant to an offer conditioned on a substantial number of
Rights being acquired.
11. COMMITMENTS AND CONTINGENCIES
Approximate minimum rental commitments under noncancelable leases
(principally for buildings and equipment) during each of the next five years
and thereafter are as follows: 1997 -- $3,057; 1998 -$2,713; 1999 -- $1,243;
2000 -- $1,038; 2001 -- $903; and thereafter -- $1,378.
Rent expense for cancelable and noncancelable operating leases was $6,059,
$5,778 and $6,548 for the years ended December 31, 1996, 1995 and 1994,
respectively.
The Company has made certain commitments to expand its polyester
production capacity, including the construction of its new polyester resin
and fiber facility in Mississippi, with the first stage expected to be
completed in late 1998. The anticipated cost to complete this facility at
December 31, 1996 is approximately $365,000.
See notes 2, 6 and 8 for information related to the take or pay
arrangement, outstanding letters of credit and environmental matters,
respectively.
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of the matters will not have a material adverse effect, if any,
on the Company's consolidated financial position or results of operations.
12. FINANCIAL INSTRUMENTS
The Company has entered into forward foreign currency contracts to
exchange Dutch guilders for U.S. dollars with an aggregate notional amount of
$48,800 and $57,700 at December 31, 1996 and 1995, respectively, in order to
reduce the related impact of foreign currency translation adjustments. The
Company has designated these contracts as a hedge of a net investment in a
foreign entity.
During 1996, the Company entered into forward foreign currency contracts
to exchange U.S. dollars for German marks with an aggregate notional amount
of $33,600 at December 31, 1996. These contracts are designed to reduce
(hedge) the impact of foreign currency fluctuations relative to fixed asset
purchase commitments and have maturity dates ranging from March 1997 through
November 1998.
35
<PAGE>
The Company's European businesses utilize foreign currency debt and
forward currency contracts to hedge certain of their accounts receivable and
accounts payable denominated in other foreign currencies. The notional
amount of such contracts was $21,600 and $7,500 at December 31, 1996 and
1995, respectively.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of foreign currency and
interest rate contracts described above and in notes 2 and 6 and temporary
cash investments and trade accounts receivable. The counterparties to the
off-balance sheet contractual arrangements are a diverse group of major
financial institutions with which the Company also has other financial
relationships. The Company is exposed to credit loss in the event of
nonperformance by these counterparties. However, the Company does not
anticipate nonperformance by the other parties, and no material loss would be
expected from nonperformance by any one of such counterparties. The Company
places its temporary cash investments with high credit quality institutions.
Concentration of credit risk with respect to trade accounts receivable is
managed by an in-house professional credit staff or is insured. The Company
performs periodic credit evaluations of its customers' financial condition
and generally does not require collateral.
Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments.
Cash and cash equivalents, accounts receivable and accounts payable: The
carrying amounts reported in the consolidated balance sheets approximate
their fair value.
Borrowing arrangements: See note 6.
Forward interest rate swaps: The fair value of interest rate instruments
is the estimated amounts that the Company would receive or pay to terminate
the agreements at the reporting date, taking into account current interest
rates and the current creditworthiness of the counterparties.
All of the Company's estimates of fair value and termination cost/benefit
for its derivative financial instruments are based on readily available
dealer quotes as to the amounts the Company would receive or pay to terminate
the contracts.
The following table summarizes the carrying amounts and estimated fair
values of the Company's financial instruments at December 31, 1996 and 1995:
36
<PAGE>
<TABLE>
<CAPTION>
1996 1995
------------------ -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
Nonderivatives
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 2,120 $ 2,120 $ 3,893 $ 3,893
Accounts receivable 132,296 132,296 145,572 145,572
Accounts payable 64,019 64,019 89,104 89,104
Borrowing arrangements 319,566 325,325 279,230 289,230
Derivatives-receive (pay):
Forward interest rate swaps -- (487) -- (7,200)
Forward foreign currency
contracts -- 932 -- --
</TABLE>
13. BUSINESS SEGMENT AND GEOGRAPHIC AREAS
The Company operates in one business segment: principally the manufacture
and sale of polyester products, including Fortrel(R) brand polyester textile
fibers, polyester fibers made from recycled raw materials and PermaClear(TM)
PET packaging resins.
Net sales and operating income for the years ended December 31, 1996, 1995
and 1994 and identifiable assets at the end of each year, classified by the
major geographic areas in which the Company operates, are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Net sales
U.S. . . . . . . . . . . . . . . . . $ 885,193 $ 952,663 $ 824,034
Europe . . . . . . . . . . . . . . . 213,611 156,735 112,099
---------- ---------- ----------
$1,098,804 $1,109,398 $ 936,133
========== ========== ==========
Operating income
U.S. . . . . . . . . . . . . . . . . $ 83,390 $ 101,623 $ 103,909
Europe . . . . . . . . . . . . . . . (15,266) 31,254 17,832
---------- ---------- ----------
$ 68,124 $ 132,877 $ 121,741
========== ========== ==========
Identifiable assets
U.S. . . . . . . . . . . . . . . . . $1,082,077 $1,011,952 $ 940,957
Europe . . . . . . . . . . . . . . . 121,872 198,721 103,505
---------- ---------- ----------
$1,203,949 $1,210,673 $1,044,462
========== ========== ==========
</TABLE>
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial information for the years ended December 31, 1996 and
1995 is summarized as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31, Total
Quarter ended 1996 1996 1996(2) 1996 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 301,001 $ 283,850 $ 265,383 $ 248,570 $1,098,804
Gross profit 44,647 45,341 29,081 38,042 157,111
Net earnings (loss) 11,709 11,729 (2,830) 5,921 26,529
Net earnings per
common share (loss) $0.35 $0.35 $(0.09) $0.19 $0.81
37
- -----------------------------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31, Total
Quarter ended 1995 1995(1) 1995 1995 1995
- -----------------------------------------------------------------------------
Net sales $276,066 $293,971 $274,586 $264,775 $1,109,398
Gross profit 62,072 66,620 57,759 36,130 222,581
Net earnings 22,736 21,599 21,134 8,585 74,054
Net earnings per
common share $0.67 $0.64 $0.63 $0.26 $2.20
(1) Quarterly net earnings reflect a pretax loss of $5,500, which
decreased net earnings by approximately $3,400 ($0.10 per share),
related to the sale of CRInc.
(2) Quarterly net earnings reflect a pretax inventory charge of $7,000
resulting from declining raw material costs and selling prices which
decreased net earnings by approximately $4,300 ($0.13 per share), and an
additional $4,400 ($0.14 per share) in income taxes related to a change
in estimate to reflect a higher than expected tax rate for the year.
</TABLE>
38
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Wellman, Inc.
We have audited the accompanying consolidated balance sheets of Wellman,
Inc. as of December 31, 1996 and 1995, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1996. Our audits also included
the financial statement schedules listed in the Index at Item 8. These
consolidated financial statements and schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and schedules based on our audits. We did
not audit the financial statements and schedules of a wholly owned subsidiary
of the Company, which statements reflect total assets constituting 7% in 1996
and 9% in 1995 and total revenues constituting 10% in 1996, 14% in 1995 and
12% in 1994 of the related consolidated totals. Those financial statements
and schedules were audited by other auditors whose report has been furnished
to us, and our opinion, insofar as it relates to data included for such
wholly-owned subsidiary, is based solely on the report of other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audits and the report
of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Wellman, Inc. at
December 31, 1996 and 1995, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December
31, 1996, in conformity with generally accepted accounting principles. Also,
in our opinion, based on our audits and the report of other auditors, the
related financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
ERNST & YOUNG LLP
Charlotte, North Carolina
February 12, 1997
39
<PAGE>
SCHEDULE II
<TABLE>
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1996, 1995 and 1994
(In thousands)
<CAPTION>
Balance at Charged to Balance
Beginning Costs and at End
Description of Year Expenses Other Deductions of Year
----------- --------- -------- ----- ---------- -------
Allowance for doubtful
accounts receivable:
<S> <C> <C> <C> <C> <C>
Year ended
December 31, 1996 $5,335 $1,813 $ (961)(a) $3,576(b) $ 2,611
====== ====== ====== ====== =======
Year ended
December 31, 1995 $4,733 $1,391 $1,301(a) $2,090(b) $ 5,335
====== ====== ====== ====== =======
Year ended
December 31, 1994 $4,232 $1,101 $ 155 (a) $ 755(b) $ 4,733
====== ====== ====== ====== =======
(a) Primarily foreign currency translation adjustments, except for 1996 and
1995, which include purchase accounting adjustments of approximately ($930)
and $1,250, respectively, related to the acquisition discussed in note 2 to
the consolidated financial statements.
(b) Accounts written off.
</TABLE>
40
<PAGE>
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
- ------- --------------------------------------------------
"Election of Directors" and "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Company's Proxy Statement for the 1997 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission on or
before April 30, 1997 are hereby incorporated by reference herein.
Item 11. Executive Compensation
- ------- ----------------------
"Compensation of Directors and Officers" in the Company's Proxy Statement
for the 1997 Annual Meeting of Stockholders to be filed with the Securities
and Exchange Commission on or before April 30, 1997 is hereby incorporated by
reference herein. Such incorporation by reference shall not be deemed to
specifically incorporate by reference the information referred to in Item
402(a)(8) of Regulation S-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------- --------------------------------------------------------------
"Introduction" and "Election of Directors" in the Company's Proxy
Statement for the 1997 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission on or before April 30, 1997 are hereby
incorporated by reference herein.
Item 13. Certain Relationships and Related Transactions
- ------- ----------------------------------------------
"Compensation of Directors and Officers" in the Company's Proxy Statement
for the 1997 Annual Meeting of Stockholders to be filed with the Securities
and Exchange Commission on or before April 30, 1997 is hereby incorporated by
reference herein.
41
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- ------- ----------------------------------------------------------------
(a) 1. Financial Statements
--------------------
The consolidated financial statements included in Item 8 are filed
as part of this annual report.
2. Financial Statement Schedules
-----------------------------
The consolidated financial statement schedule included in Item 8
are filed as part of this annual report.
3. Exhibits
--------
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.
Exhibit Number Description
- -------------- -----------
3(a)(1) Restated Certificate of Incorporation (Exhibit 3.1 of the
Company's Registration Statement on Form S-1, File No. 33-13458,
refiled as Exhibit 3(a)(1) of the Company's Form 10-K for the year
ended December 31, 1993, incorporated by reference herein)
3(a)(2) Certificate of Amendment to Restated Certificate of Incorporation
(Exhibit 3(a)(2) of the Company's Registration Statement on Form
S-4, File No. 33-31043, refiled as Exhibit 3(a)(2) of the
Company's Form 10-K for the year ended December 31, 1993,
incorporated by reference herein)
3(a)(3) Certificate of Amendment to Restated Certificate of Incorporation
(Exhibit 28 of the Company's Registration Statement on Form S-8,
File No. 33-38491, refiled as Exhibit 3(a)(3) of the Company's
Form 10-K for the year ended December 31, 1993, incorporated by
reference herein)
3(a)(4) Certificate of Amendment to Restated Certificate of Incorporation
(Exhibit 3(c)(4) of the Company's Form 10-K for the year ended
December 31, 1993 incorporated by reference herein)
3(b) By-Laws, as amended (Exhibit 3(b) of the Company's Form 10-K for
the year ended December 31, 1993 incorporated by reference herein)
4(a) Loan Agreement dated February 8, 1995 by and between the Company
and Fleet National Bank, as agent, and certain other financial
institutions (Exhibit 4(a) of the Company's Form 10-K for the year
ended December 31, 1994 incorporated by reference herein)
42
<PAGE>
4(b) Loan Agreement between the Authority and the Company, dated as of
December 1, 1992 (Exhibit 4(w) of the Company's Form 10-K for the
year ended December 31, 1992 incorporated by reference herein)
4(c) Promissory Note dated May 15, 1992 of the Company to the City of
Florence, SC (Exhibit 4(x) of the Company's Form 10-K for the year
ended December 31, 1992 incorporated by reference herein)
4(d) Registration Rights Agreement dated as of August 12, 1985 by and
among the Company, Thomas M. Duff and others (Exhibit 4.7 of the
Company's Registration Statement on Form S-1, File No. 33-13458,
incorporated by reference herein)
4(e) Loan Agreement between South Carolina Jobs - Economic Development
Authority (the "Authority") and the Company dated as of December
1, 1990 (Exhibit 4(n) of the Company's Form 10-K for the year
ended December 31, 1990 incorporated by reference herein)
4(f) First Supplemental Loan Agreement between the Authority and the
Company dated as of April 1, 1991 (Exhibit 4(a) of the Company's
Form 10-Q for the quarter ended June 30, 1991 incorporated by
reference herein)
4(g) Note Purchase Agreement dated as of June 14, 1991 between the
Company and the Purchasers named in Schedule I thereto (Exhibit
4(b) of the Company's Form 10-Q for the quarter ended June 30,
1991 incorporated by reference herein)
4(h)(1) Rights Agreement dated as of August 6, 1991 between the Company
and First Chicago Trust Company of New York, as Rights Agent
(Exhibit 1 of the Company's Form 8-K dated as of August 6, 1991
incorporated by reference herein)
4(h)(2) Amendment to Rights Agreement dated February 26, 1996 between the
Company and Continental Stock Transfer and Trust Company (Exhibit
4.1 of the Company's Form 8-K dated February 28, 1996 incorporated
by reference herein)
4(i) Loan Agreement between the Authority and the Company dated as of
June 1, 1992 (Exhibit 4(u) of the Company's Form 10-Q for the
quarter ended June 30, 1992 incorporated by reference herein)
4(j) Note Purchase Agreement between the Company and Teachers Insurance
and Annuity Association of America dated July 28, 1992 (Exhibit
4(v) of the Company's Form 10-Q for the quarter ended June 30,
1992 incorporated by reference herein)
43
<PAGE>
Executive Compensation Plans and Arrangements
- ---------------------------------------------
10(a) Wellman, Inc. 1985 Amended and Restated Incentive Stock Option Plan
(Exhibit 4 of the Company's Registration Statement on Form S-8/S-3,
File No. 33-54077, incorporated by reference herein)
10(b)(1) Employment Agreement dated as of January 1, 1990 between the
Company and Thomas M. Duff (Exhibit 10(b)(1) of the Company's Form
10-K for the year ended December 31, 1994 incorporated by reference
herein)
10(b)(2) Second Amendment to Employment Agreement dated as of January 1,
1995 between the Company and Thomas M. Duff (Exhibit 10(b)(2) of
the Company's Form 10-K for the year ended December 31, 1994
incorporated by reference herein)
10(c) Employment Agreement dated as of December 1, 1994 between the
Company and Clifford J. Christenson (Exhibit 10(c) of the Company's
Form 10-K for the year ended December 31, 1994 incorporated by
reference herein)
10(d) Service Agreement dated as of June 26, 1991 between Wellman
International Investments Limited and Charles William Beckwith
(Exhibit 10(g) of the Company's Form 10-K for the year ended
December 31, 1991 incorporated by reference herein)
10(e) Employment Agreement dated as of December 1, 1994 between the
Company and Keith R. Phillips (Exhibit 10(e) of the Company's Form
10-K for the year ended December 31, 1994 incorporated by reference
herein)
10(f) Employment Agreement dated as of December 1, 1994 between the
Company and James P. Casey (Exhibit 10(f) of the Company's Form
10-K for the year ended December 31, 1994 incorporated by reference
herein)
10(g) Employment Agreement dated as of December 1, 1994 between the
Company and Paul D. Apostol (Exhibit 10(g) of the Company's Form
10-K for the year ended December 31, 1994 incorporated by reference
herein)
10(h) Employment Agreement dated as of January 1, 1996 between the
Company and Mark Tashjian (Exhibit 10(b) of the Company's Form 10-K
for the year ended December 31, 1995 incorporated by reference
herein)
10(i) Employment Agreement dated as of May 21, 1996 between the Company
and John R. Hobson (Exhibit 10(a) of the Company's Form 10-Q for
the period ended June 30, 1996 incorporated by reference herein)
10(j) Directors Stock Option Plan dated as of December 2, 1991
(Exhibit 4(a) of the Company's Registration Statement on Form S-8,
File No. 33-44822, incorporated by reference herein)
10(k) Management Incentive Compensation Plan (Exhibit 10(h) of the
Company's Form 10-K for the year ended December 31, 1993
incorporated by reference herein)
44
<PAGE>
10(l) Summary of Executive Life Insurance Plan (Exhibit 10.22 of the
Company's Registration Statement on Form S-1, File No. 33-13458,
incorporated by reference herein)
10(m) Description of Directors' Restricted Stock Plan (Exhibit 10(k)
of the Company's Form 10-K for the year ended December 31, 1994
incorporated by reference herein)
10(n) Directors Deferred Compensation Plan (Exhibit 10(l) of the
Company's Form 10-K for the year ended December 31, 1994
incorporated by reference herein)
10(o) Amended and Restated Directors' Retirement Plan (Exhibit 10(m)
of the Company's Form 10-K for the year ended December 31, 1994
incorporated by reference herein)
10(p) Executive Retirement Restoration Plan (Exhibit 10(n) of the
Company's Form 10-K for the year ended December 31, 1994
incorporated by reference herein)
Other Material Agreements
- -------------------------
10(q) Environmental Agreement dated as of August 8, 1985, by and among
the Company, Arthur O. Wellman, Jr., and Edward R. Sacks (Exhibit
10.12 of the Company's Registration Statement on Form S-1, File No.
33-13458, incorporated by reference herein)
10(r) Post-Closing Escrow Agreement dated August 12, 1985 by and among
the Company, Arthur O. Wellman, Jr., Edward R. Sacks and certain
other parties (Exhibit 10.2 of the Company's Registration Statement
on Form S-1, File No. 33-13458, incorporated by reference herein)
10(s) Letter Agreement, relating to certain environmental matters, dated
August 17, 1987, by and among Fiber Industries, Inc. (FI), Hoechst
Celanese Corp. (HCC) and Celanese Fibers Inc. (Celanese) (Exhibit
10.3 of FI's Registration Statement on Form S-1, File No. 33-20626,
incorporated herein by reference)
10(t) Trademark Assignment and License, dated January 28, 1988, by and
among FI, HCC and Celanese (Exhibit 10.14 of FI's Registration
Statement on Form S-1, File No. 33-20626, incorporated herein by
reference)
10(u) Inducement Agreement dated April 16, 1996, by and among Wellman of
Mississippi, Inc., the Mississippi Department of Economic and
Community Development acting for and on behalf of the State of
Mississippi, the Mississippi Business Financial Corporation and
certain other parties
10(v) PET Supply Agreement, dated December 28, 1995 by and among Wellman
B.V. and Akzo Nobel Fibers, B.V., as amended by letter dated August
23, 1996
21 Subsidiaries
23(a) Consent of Ernst & Young LLP
23(b) Consent of KPMG
28(a) Report of KPMG
45
<PAGE>
(b) Reports on Form 8-K
-------------------
None.
46
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on March 24,
1997.
WELLMAN, INC.
By /s/ Thomas M. Duff
------------------------------
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities indicated on March 24, 1997.
Signatures Title
---------- -----
/s/ Thomas M. Duff
- -------------------------- President, Chief Executive Officer and
Thomas M. Duff Director (Principal Executive Officer)
/s/ Keith R. Phillips
- -------------------------- Vice President, Chief Financial Officer and
Keith R. Phillips Treasurer (Principal Financial Officer)
/s/ Mark J. Rosenblum
- -------------------------- Vice President, Chief Accounting Officer and
Mark J. Rosenblum Controller (Principal Accounting Officer)
/s/ James B. Baker
- -------------------------- Director
James B. Baker
/s/ C. William Beckwith Director
- --------------------------
C. William Beckwith
/s/ Clifford J. Christenson Director
- --------------------------
Clifford J. Christenson
/s/ Peter H. Conze Director
- --------------------------
Peter H. Conze
/s/ Allan R. Dragone Director
- --------------------------
Allan R. Dragone
/s/ Richard F. Heitmiller Director
- --------------------------
Richard F. Heitmiller
/s/ Jonathan M. Nelson Director
- -------------------------
Jonathan M. Nelson
47
<PAGE>
/s/ James E. Rogers Director
- -------------------------
James E. Rogers
/s/ Raymond C. Tower Director
- -------------------------
Raymond C. Tower
/s/ Roger A. Vandenberg Director
- -------------------------
Roger A. Vandenberg
48
Exhibit 10(u)
INDUCEMENT AGREEMENT
WELLMAN OF MISSISSIPPI, INC.
This Inducement Agreement (the "Agreement") is made and entered into as of
the latest date referenced on the signature pages hereof, by and among the
Mississippi Department of Economic and Community Development ("MDECD") acting
for and on behalf of the State of Mississippi (the "State"), the Mississippi
Business Finance Corporation ("MBFC"), the Mississippi Major Economic Impact
Authority (the "Authority"), the Mississippi Department of Education ("DOE"),
Hancock County, Mississippi (the "County"), Hancock County Tax Assessor (the
"Tax Assessor"), Hancock County Port and Harbor Commission (the "Port
Commission"), Pearl River Community College (the "College") and Wellman of
Mississippi, Inc. (the "Company").
WITNESSETH:
WHEREAS, the parties hereto wish to set forth their collective commitment
to enter into individual binding agreements concerning the acquisition, by
construction or otherwise, and equipping of a manufacturing facility in the
Port Bienville Industrial Park in Hancock County, Mississippi (the
"Project") and the actions to be taken by the MDECD, the MBFC, the Authority,
DOE, the County, the Tax Assessor, the Port Commission and the College
(collectively, the "Inducers") in support of the development of the Project;
and
WHEREAS, as used herein, the term "Project" shall be deemed to relate to a
"project" under the Impact Act (as hereinafter defined), as well as all
Facilities Related to the Project (as defined in the Act); and
WHEREAS, the Project will constitute a "project" as that term is defined
in the Mississippi Major Economic Impact Act, appearing as Section 57-75-1 et
seq., Mississippi Code of 1972, as amended (the "Impact Act"), requiring an
initial capital investment of not less than Three Hundred Million Dollars
($300,000,000); the Project constitutes a manufacturing facility having an
estimated 600,000 square feet under roof; the Project will be located on an
approximately 488 acre parcel of land (the "Site"); and approximately 250
people will be employed (as such term is used in Section 5 herein) at the
Project within three (3) years after the Project is completed; and
WHEREAS, the Company presently expects to expand the Project following its
completion, in two or more additional phases and that the Project, as so
expanded and in full operation, will result in the employment of
approximately seven hundred (700) people and will require a total capital
investment of approximately One Billion Dollars ($1,000,000,000); and
WHEREAS, all eligible costs paid or incurred by the Company from and after
February 27, 1996 with respect to the Project shall be deemed to constitute a
portion of the initial capital investment for the Project pursuant to the
Impact Act and the parties acknowledge that all such costs have been made in
reliance upon and in response to the inducements hereinafter described; and
1
<PAGE>
WHEREAS, the Site and the improvements thereon to be financed with
proceeds of the Impact Bonds or the County Bonds (both as hereinafter
defined) will be leased by the Port Commission to the Company; and
WHEREAS, as used in this Agreement, the Company refers to the Company or
any of its existing or future affiliates, domestic or foreign, and the
Company may, in its sole discretion, assign, including any conveyance, by
lease or sublease, any or all of its interests hereunder or with respect to
the Project to such affiliates; and
WHEREAS, pursuant to the provisions of the Impact Act, the State,
acting through the State Bond Commission, will agree herein to issue taxable
General Obligation Bonds (the "Impact Bonds") in a principal amount that is
necessary to provide not less than Thirty-five Million Dollars ($35,000,000)
for the purposes of, inter alia, defraying all or any portion of the
eligible costs incurred with respect to acquisition, planning, design,
construction, installation, rehabilitation, improvement, and relocation of
the Project and any Facility Related to the Project (as that term is defined
in the Impact Act), and costs associated with mitigation of environmental
impacts, all as provided in Section 57-75-15(4) of the Impact Act and as
hereinafter set forth; and
WHEREAS, pursuant to the provisions of Section 57-10-401, et seq.,
Mississippi Code of 1972, as amended (the "RED Act"), the MDECD, acting
through the MBFC, will agree herein to issue one or more series of Industrial
Development Revenue Bonds (the "RED Bonds") in a principal amount presently
anticipated not to exceed in the aggregate Four Hundred Million Dollars
($400,000,000) in order to finance a portion of the Project; and
WHEREAS, the MBFC has determined that the portion of the Project to be
financed with the RED Bonds constitutes an Economic Development Project, as
that term is defined in the RED Act; and
WHEREAS, each of the Inducers (i) recognizes that the Company can locate
the Project in other locations, (ii) wants to encourage the Company to locate
the Project in the County for the benefit of the citizens of the State and
the constituents of each of the Inducers, and (iii) enters into this
Agreement in consideration of and as an inducement to the Company to locate
the Project in the County and in consideration of the economic benefits to
be realized by the parties hereto, including but not limited to, the economic
impact, the increased tax revenues and other benefits to be received by the
Inducers and the general public; and
WHEREAS, each of the Inducers recognizes that the Company would not locate
the Project in the County without the inducements provided herein by each of
them for the entire period for which such inducements are available (pursuant
to existing law, as presently interpreted and construed); and
WHEREAS, each of the Inducers will exercise its best efforts to maintain
the inducements provided for herein with respect to each respective Inducer
(in the manner and amounts authorized by existing law, as presently
2
<PAGE>
interpreted and construed) for the entire period referenced herein,
recognizing that the Company has relied upon such inducements and the
maintenance thereof for such periods in connection with its decision to
locate the Project in the County; and
WHEREAS, the Inducers and the Company have set forth the obligations each
of them agrees to undertake in connection with the Project in an Inducement
Package, a copy of which is attached hereto and is hereby incorporated by
reference herein, including all attachments thereto (the "Inducement
Package"), and all terms set forth in the Inducement Package are hereby
approved by all of the parties hereto, as such terms may be applicable to
each respective Inducer; and
WHEREAS, the agreements contained herein have been the subject of arm's
length negotiations between the Company and each of the Inducers, and each of
the Inducers acknowledges that the obligations set forth herein are the valid
and binding obligations of such party, enforceable against such party in
accordance with the terms hereof.
NOW, THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS:
Section 1. Inducers' and Company's Obligations. Each of the Inducers
hereby agrees that, in consideration of the Company locating the Project in
Hancock County, Mississippi, it will provide the respective inducements or
services to be provided by it as set forth herein, including the obligations
set forth in the Inducement Package. The Company hereby agrees that, in
consideration of the Inducers providing said inducements or services, it will
locate its Project in Hancock County, Mississippi.
Section 2. No Additional Cost to the Company. The inducements
referenced herein and in the Inducement Package shall be provided for the
express purpose of benefitting the citizens of the State and the constituents
of each of the Inducers, in consideration of the economic benefit to be
realized by the Inducers, at no additional cost to the Company except as
specifically provided in the Inducement Package.
Section 3. Severability. If any clause, provision or section of this
Agreement be held illegal or invalid by any court, the invalidity of such
clause, provision or section shall not affect any of the remaining clauses,
provisions or sections hereof, and this Agreement shall be construed and
enforced as if such illegal or invalid clause, provision or section had not
been contained herein. Notwithstanding the above, the parties recognize that
the obligation of the Company to proceed with the construction of the Project
is dependent upon the fulfillment of each element of the Inducement Package
by the Inducers. If, following the expenditure of the proceeds of the Impact
Bonds as provided herein, the Company fails to proceed with the Project, the
Company will reimburse the MDECD as provided in Section 5 herein.
Section 4. Impact Bonds. Each Inducer acknowledges that Company
representatives have described the operations that are expected to be
performed at the Site and the improvements and machinery that will be
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<PAGE>
required to be acquired and constructed on the Site in order to complete the
Project. The MDECD and the Authority hereby agree, represent and warrant
that the items specified in the Inducement Package to be financed with the
proceeds of the Impact Bonds constitute lawful applications of such proceeds.
Section 5. Remedies for Failure to Perform. In the event any of the
Inducers or the Company fail to meet any obligation set forth herein for any
reason (subject to force majeure, as provided herein), the Company or
Inducers may proceed against such party, but only against that party, in such
manner as it determines advisable, either at law or in equity, including, but
not limited to, suits for specific performance or damages (excluding
consequential damages). The Company shall not be obligated to proceed with
the construction of the Project by reason of the failure of one or more of
the Inducers to fulfill any of its or their material obligations under the
Inducement Package, and the Company shall not be liable for any costs or
losses incurred by any other Inducer in its endeavor to fulfill its
obligations under the Inducement Package. For purposes of this Section 5,
the term "material obligations" shall mean the availability of the proceeds
of the Impact Bonds and the County Bonds and the exercise by the MBFC of all
appropriate procedural requirements in connection with the issuance of the
RED Bonds and the availability of the tax incentives reference in paragraphs
1, 2, 4 and 5 of the "Tax Benefits" section of the Inducement Package and
paragraphs 2 and 5 of the "Other Tax Benefits" section of the Inducement
Package.
The Company agrees that if the proceeds of the Impact Bonds are expended
as set forth in the Inducement Package, the Company will reimburse the MDECD
the following amounts if the Company fails to meet the following standards
and the MDECD demands such reimbursement (or funding as provided in IA
below):
I. Standards
A. If, by the fifth anniversary of the ground breaking for the
Project, there has not been capitalized expenditures of at least Three
Hundred Million Dollars ($300,000,000) with respect to the Project, the
Company will deposit in a trust account an amount equal to the greater of the
difference between (i) Three Hundred Million Dollars ($300,000,000) and the
amount of capital expenditures made with respect to the Project and (ii)
Thirty-five Million Dollars ($35,000,000). The amounts in such account shall
be available for and only for the completion of the Project or additions
thereto in satisfaction of the Company's obligation to make an initial
capital investment of at least Three Hundred Million Dollars ($300,000,000)
for the Project; provided, that if amounts deposited by the Company in such
account are not expended for eligible Project costs within twelve (12) months
of the date such amounts were deposited therein, the Company and the MDECD
agree to negotiate an appropriate amount of time by which such amounts must
be expended with respect to the Project; provided further, that if the MDECD
determines, after good faith negotiations with the Company, taking into
account the factors that led to a delay in the expenditure by the Company,
that no extension is appropriate, either at the end of such twelve (12) month
4
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period or following any agreed upon extension, the Company shall be required
to reimburse to the MDECD (the State) the amounts required pursuant to law,
not to exceed Thirty-five Million Dollars ($35,000,000). Upon making such
reimbursement, all amounts remaining on deposit in the trust account shall
be returned to the Company. In any event, once the Company expends Three
Hundred Million Dollars ($300,000,000) with respect to the Project, all
amounts on deposit in the trust account shall be promptly repaid to the
Company.
If the Company is required to reimburse the MDECD any amounts
pursuant to (A) above, the provisions set forth in (B), (C) and (D) below
shall be automatically and immediately terminated and shall be deemed null
and void.
B. If fewer than 150 people are employed at the Project in the First
Measurement Period, the Company will reimburse MDECD $8,000,000.
C. If fewer than 150 people are employed at the Project in the Second
Measurement Period, the Company will reimburse MDECD $7,000,000.
D. If fewer than 150 people are employed at the Project in the Third
Measurement Period, the Company will reimburse MDECD $6,000,000.
II. Definitions
For the purposes of this Section 5:
A. A person shall be deemed "employed at the Project" if such person
is compensated (whether by the Company or by or through a third party, i.e.
contract labor) for more than 1820 hours (calculated on the basis of an
average of 35 hours per week times 52 weeks) at the Site during the
applicable Measurement Period.
B. A Measurement Period is defined as a 365-day period.
C. As a general rule the Measurement Periods will be as follows:
1. The First Measurement Period will begin when the Project has
reached Production Capacity.
2. The Second Measurement Period will commence immediately after
the First Measurement Period is complete.
3. The Third Measurement Period will commence immediately after
the Second Measurement Period is complete.
D. The following special rules modify the general rules set forth in C
above:
1. The Measurement Period is automatically suspended for any
force majeure, which include, but are not limited to, acts of God, shortages
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of raw material supplies, equipment breakdown, transportation delays or a
force majeure affecting any customer to whom the Company sells over one
million pounds of product per year.
2. Production Capacity is defined as the date following (i) the
expenditure by the Company of not less than Three Hundred Million Dollars
($300,000,000) (not including the value of any inducements referenced in this
Agreement) at the Site, and (ii) the equipment installed at the Site has an
annual instantaneous production capacity of at least six hundred million
(600,000,000) pounds of first quality product and such equipment has been
producing first quality product for three (3) consecutive months at its
stated capacity.
3. If in any one Measurement Period more than 150 people are
employed at the Project, the number of employees in excess of 150 may be
carried either forward or back to another Measurement Period, except that no
more than 85% of the 150 person employment requirement in any Measurement
Period may be satisfied by carryovers.
4. Notwithstanding anything herein to the contrary, the Company
shall not be liable for any reimbursement to the MDECD if the MDECD does not
satisfy all of its obligations under the Inducement Package.
In the event the Company does not proceed with the Project and the County
or Port Commission has expended amounts with respect to the Project, the only
obligation of the Company to reimburse such entities shall be governed by the
terms of the letter agreement between the Company and the Port Commission,
dated December 21, 1995, a copy of which is attached hereto and incorporated
by reference herein.
Section 6. Conditions Precedent. This Agreement shall not be binding
upon the Company unless and until the following conditions precedent have
been met to the satisfaction of the Company:
a. The operating contracts referenced in the Inducement Package under
the heading, "Project Operations," have been executed.
b. An agreement is executed between the Company and the Tax Assessor
pertaining to the determination of the assessed value of the Project,
depreciation schedules and the identification of the date on which the
Project is complete for purposes of ad valorem taxation.
c. The Mississippi State Tax Commission and the Attorney General of
the State of Mississippi each provides a ruling or opinion regarding the
inducements set forth in this Agreement.
d. The State Bond Commission authorizes the issuance of the Impact
Bonds, and the use of the investment earnings on the proceeds of the Impact
Bonds for eligible Project costs as described herein.
e. The County has met all statutory requirements pertaining to the
issuance of the County Bonds.
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f. The MBFC has met all statutory requirements pertaining to the
issuance of the RED Bonds.
g. An agreement by the applicable Inducers and the Company pertaining
to the Fee in Lieu of Taxes provided by Section 27-31-104, Mississippi Code
of 1972, as amended.
h. Each of the environmental reports, endangered species report,
wetlands report, archeological, cultural and historical report, geotechnical
and topographical report has been submitted to and approved by the Company,
both in terms of form and content. The Company acknowledges that the County
will not issue the County Bonds and the State will not issue the Impact Bonds
until the Company provides the County and the State with written evidence of
its approval of such reports and its acceptance of the Site.
i. The Port Commission and/or the County has entered into a binding
contract for the purchase of the Site and the Remaining Land (as defined in
the Inducement Package) at a price (including closing costs) not in excess of
Two Million Six Hundred Fifty Thousand Dollars ($2,650,000).
j. The Company determines that title to the Site is acceptable for the
purposes of completing and operating the Project.
The Inducers expect to have all of these conditions precedent satisfied by
May 15, 1996.
Section 7. Waivers. The Company, and only the Company, may waive any of
the obligations of one or more of the Inducers set forth in this Agreement.
No delay or omission to exercise any right or power by any party shall be
construed to be a waiver thereof. In the event any provision contained herein
shall be waived by the Company, such waiver shall not be deemed to waive any
other provision hereunder. To the extent that any party's performance is
subject to any regulatory or governing body approvals or requires approval by
qualified electors under applicable law, that party or those parties shall
have no obligation to perform and shall not be liable for non-performance,
unless and until such regulatory or governing body approves or authorizes
such performance, or such approval of the qualified electors is obtained;
provided, however, all parties affected thereby shall use their best
reasonable efforts to secure such approval or authorization.
Section 8. Confidentiality. The Inducers acknowledge that the existence
of this Agreement and the terms hereof are highly confidential and each of
them agrees not to divulge any of such information to any third person unless
such disclosure is approved by the Company or is required by law. None of
the Inducers will make any public announcement, written or oral, regarding
the Project without the prior written consent of the Company.
Section 9. Time is of the Essence. The Inducers acknowledge that a
delay in the completion of the Project will cost the Company substantial
amounts of money and therefore, time is of the essence as to all terms and
conditions of this Agreement. It is the intent of the parties that the
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<PAGE>
construction portion of the Project will proceed so that it will be
substantially ready for the installation of equipment by March 31, 1997,
unless otherwise agreed to by all of the parties. All parties agree that
they will use good faith in their attempt to have the Project proceed on that
schedule. The provisions of this Section 9 are subject to acts of God,
including epidemics, landslides, lightning, earthquakes, fires, hurricanes,
tornadoes, storms, floods, washouts and droughts. All contracts entered into
by any of the Inducers which pertain to the acquisition, by construction or
otherwise, of the Project shall contain clauses satisfactory to the Company
which penalize the other party in the event of late performance.
Section 10. Amendments. Any amendments to this Agreement shall be in
writing and signed by all parties who are affected by such amendment or their
respective successors and assigns.
Section 11. Applicable Law, Arbitration and Forum Selection. This
Agreement shall be governed by the laws of the State of Mississippi
notwithstanding the fact that one or more of the parties to this Agreement
may be or become a resident or a citizen of, or be or become domiciled in, a
different state. Any and all disputes under or in any way concerning this
Agreement (whether based upon contract, tort or otherwise) or the actions or
failures to act of one or more of the parties in the negotiation,
administration, performance or enforcement hereof, shall be submitted to
binding arbitration in Hinds County, Mississippi under the rules of the
American Arbitration Association concerning commercial disputes, and the
parties agree to be bound by any decision reached under such rules. Venue
for any legal action arising from this Agreement, including enforcement of
any arbitration award, shall be in Hinds County, Mississippi. For purposes
of this Section, the Inducers hereby acknowledge that the Company is managed
and controlled from its corporate headquarters in New Jersey.
Section 12. Counterparts. This Agreement may be executed in two or more
counterparts, each and all of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
Section 13. Headings. The use of captions and headings in this
Agreement and in the Inducement Package are solely for convenience and shall
have no legal effect in construing the provisions of this Agreement.
Section 14. Gender; Number. Whenever the context of this Agreement
requires, the gender of all words herein shall include the masculine,
feminine and neuter, and the number of all words herein shall include the
singular and plural.
Section 15. Successors. Except for benefits provided pursuant to the
RED Act, all the provisions herein contained shall be binding upon and for
the benefit of the respective successors and assigns of the parties hereto,
to the same extent as if each successor and assign were in each case named as
a party to this Agreement. RED Act benefits may be assigned by the Company
with the written consent of the MBFC, provided however, the MBFC agrees that
it will consent to any assignment to a Permitted Transferee as such term is
defined in the Miscellaneous Section of the Inducement Package.
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<PAGE>
Section 16. Entire Agreement. This Agreement, including the Inducement
Package, constitutes the essential terms of the agreement between the Company
and the Inducers for the purposes stated herein, and no other offers,
agreements, understandings, warranties, or representations exist between the
Company and the Inducers. The parties intend that the leases, project
operation agreements, tax payment agreements and other agreements to which
reference is made herein and which shall be prepared and executed after the
date of execution of this Agreement (the "Additional Agreements") shall
contain the terms and conditions described in this Agreement. The Company
shall not be required to enter into any agreements other than the Additional
Agreements or to pay amounts in excess of the amounts described herein
pursuant to the Additional Agreements contemplated herein.
IN WITNESS WHEREOF, the Inducers and the Company have executed this
Agreement on the dates set forth opposite their respective names.
State of Mississippi
By: Department of Economic
and Community Development
Date: 4-16-96 By: /s/ James B. Heidel
---------------------- --------------------------
Executive Director
Mississippi Business Finance Corporation
Date: 4-16-96 By: /s/
---------------------- --------------------------
Executive Director
Mississippi Major Economic Impact
Authority
Date: 4-16-96 By: /s/ James B. Heidel
---------------------- --------------------------
Executive Director
Mississippi Department of Education
Date: 4-16-96 By: /s/ Nancy Alley
---------------------- --------------------------
Title: Director, Industrial Services
Pearl River Community College
Pearl River Community College
Date: 4-16-96 By: /s/ Ted J. Alexander
---------------------- --------------------------
President
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Hancock County, Mississippi
Date: 4-16-96 By: /s/ Phillip Moran
---------------------- --------------------------
President, Board of Supervisors
Date: 4-16-96 Timothy A. Kellar
---------------------- --------------------------
(SEAL) Clerk, Board of Supervisors
Hancock County Tax Assessor
Date: 4-16-96 By: /s/ Edwards
---------------------- --------------------------
President
Hancock County Port and Harbor
Commission
Date: 4-16-96 By: /s/ David N. McDonald
---------------------- --------------------------
Chairman
Wellman of Mississippi, Inc.
Date: 4-17-96 By: /s/ Keith R. Phillips
---------------------- --------------------------
Title: Treasurer
Guaranty
--------
Wellman, Inc. hereby guarantees all of the obligations of Wellman of
Mississippi, Inc. under this Inducement Agreement.
Wellman, Inc.
Date: 4-17-96 By: /s/ Keith R. Phillips
---------------------- --------------------------
Title: Chief Financial Officer
10
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INDUCEMENT PACKAGE*
WELLMAN OF MISSISSIPPI, INC.
, 1996
- -----------
MISSISSIPPI MAJOR ECONOMIC IMPACT AUTHORITY BOND FINANCING
The State of Mississippi, acting through the State Bond Commission, will
issue General Obligation Bonds under the Mississippi Major Economic Impact
Act, (appearing as Section 57-75-1 et seq.), in a principal amount of Thirty-
five Million Dollars ($35,000,000), (less the reasonable costs of issuance
pertaining to the Impact Bonds which are anticipated not to exceed Forty
Thousand Dollars ($40,000)), shall be segregated in an account specifically
earmarked for costs associated with the Project. The amounts in such account
shall be invested in accordance with applicable law. The amounts initially
deposited in such account, together with interest earmarked thereon, shall be
utilized to finance the costs associated with each of the following portions
of the Project (as such term is defined in the Impact Act), including costs
associated with engineering and design which are incurred by the Company
provided such engineering and design costs are specifically related to the
inducements set forth in this Section of the Inducement Package:
(1) Site Preparation including, but not limited to, the following:
- clearing, grubbing, cutting, and filling;
- topsoil stripping, stockpiling, respreading
and fine grading;
- hydro seeding, swales and landscaping;
- storm drainage grading and piping;
- equalization basin and retention pond; and
- perimeter fencing around Site and perimeter fencing
surrounding the manufacturing facilities
- cost of mitigation of wetlands (if requested by the Company)
The plans for these site preparation activities will be subject to approval
of the Company in order to ensure that the activities will be carried out in
a manner consistent with the Company's master plan for the Site.
(2) Permanent and Construction On-Site Roads and Parking: In order to
enhance the Site, the State and County will build construction and permanent
roads and parking (gravel, asphalt and concrete) that the Company specifies
it needs on the Site. Where possible, construction roads and parking will be
combined with roads and parking required for the training center (number 10
below), the fiber warehouse (number 8 below) and the resin storage facility
(number 3 below).
* All statutory references refer to Mississippi Code of 1972, as amended.
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(3) Logistical Support:
(a) Through its own rail system, the Port Commission will provide
rail ingress and egress to and from the Site, on site storage tracks for raw
materials and finished goods and off-site storage (at location mutually
agreeable to Company and Port Commission) and "wye" tracks at the CSX
interchange ( the cost of the wye track is expected to be provided by CSX)
for raw materials, intermediate product and finished goods. In addition to
this rail support, the Port Commission will provide "logistical support
services" including the operation of on-site switching at standard published
rates.
(b) "Logistic support" also includes an on-site resin handling
facility including resin storage silos, on-site rail and truck loading docks
from those silos, resin bagging and storage facilities (which resin bagging
and storage facilities will be approximately 20,000 square feet), all of
which will be located in a facility that is connected to the Company's
manufacturing building via resin conveying pipelines. The facility and silos
will be designed by the Company. The resin handling facilities will also be
available for construction storage and offices during the construction of the
Project.
(4) Ethylene Glycol Storage Tanks and Delivery System: Construction
(at location mutually agreeable to Company and Port Commission) of a system
of storage tanks, pumps and a pipeline (which pipeline will be both off-site
and on-site) capable of providing ethylene glycol to the Company's
manufacturing facility from barge delivery. Port Commission will maintain
industrial barge canal and port to a depth of twelve (12) feet mean sea
level. The Port Commission will also provide barge dock improvements
pursuant to designs furnished by the Company. The Company will be
responsible for any environmental damage caused by the Company.
(5) Water Tank and Pipe Loop: At the option of the Company,
construction of a water tank (at location designated by the Company) and on
- -site piping loop to provide the Company with the water it needs for its
processes and the fire protection requested by the Company. The tank and
piping loop will be designed to the Company's specifications and entire
capacity will be held exclusively for the Company. In case of emergency,
the water tank and pipe loop system will be available to the Port
Commission.
(6) Water Well and Tap Fee: Based upon specifications provided by the
Company, a water well will provide the amount of water requested by the
Company for the Company's processes and fire protection which well will be
constructed at a location mutually agreed to by the Company and the Port
Commission. Not more than Four Hundred Thousand Dollars ($400,000) of the
Thirty-five Million Dollars ($35,000,000) provided from the proceeds of the
Impact Bonds shall be allocated to this item without the prior written
consent of the Company. While the Company will pay a fee for the water from
this well, since the cost of construction of the well will be provided from
proceeds of the Impact Bonds, no capital charge or tap fee will be included
in the water fee.
(7) Waste Water Treatment, Connection and Effluent Line: Construction
(at location mutually agreeable to Company and Port Commission) of wastewater
treatment facility designed to process the Company's wastewater. Not more
than Seven Million Two Hundred Thousand Dollars ($7,200,000) of the Thirty
- -five Million Dollars ($35,000,000) provided from the proceeds of the Impact
Bonds shall be allocated to this item without the prior written consent of
the Company. The wastewater treatment facility (excluding the effluent
pipeline) may not be used by any other party (except for sanitary wastewater)
without the prior written consent of the Company which consent shall not be
unreasonably withheld; provided, that such consent may be conditioned upon
the Company entering into a mutual indemnity agreement satisfactory to the
Company, which agreement will provide, inter alia, for the indemnification of
the Company for any loss which may result from such use of the wastewater
treatment facility. The wastewater treatment capital costs include all of
the lift stations and pipelines (both on site and off site) to connect the
Company to the wastewater treatment facility and pumping stations and
pipeline required to take the effluent from the facility to the Pearl River.
(8) Fiber Warehouse: Construction of an on-site fiber warehouse
(containing approximately 60,000 square feet) adjacent to the Company's fiber
processing facility to be used for the Company's fiber storage and excess
spare parts storage. The warehouse will also be available for construction
storage and construction offices. Not more than Two Million Five Hundred
Thousand Dollars ($2,500,000) of the Thirty-five Million Dollars
($35,000,000) provided from the proceeds of the Impact Bonds shall be
allocated to this item without the prior written consent of the Company.
(9) Access Road: The construction of an additional access road, which
shall meet or exceed the standards for State Aid Road construction and
standards set by the Company, from Ansley Road to Calgon Road (behind the
Company's property and between the Site and the neighboring site). Not more
than One Million Five Hundred Thousand Dollars ($1,500,000) of the Thirty-
five Million Dollars ($35,000,000) provided from the proceeds of the Impact
Bonds shall be allocated to this item without the prior written consent of
the Company.
(10) Training Center: Construction of an off-site (at location
mutually agreeable to Company and Port Commission) training center which will
have an estimated 15,000 square feet. Initially, the training center will be
used for temporary offices for the Company and the construction contractors
and the training center will be held for the exclusive use of the Company and
its employees through start-up of the Project. After initial start-up of the
Project, the training center will be available for other users, with the
Company to be provided priority during the first three years after start-up
of the Project. The Company will be subject to standard user fees for the
use of the Training Center. Not more than One Million Dollars ($1,000,000)
of the Thirty-five Million Dollars ($35,000,000) provided from the proceeds
of the Impact Bonds shall be allocated to this item without the prior written
consent of the Company.
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(11) Fire Station: Construction and equipping of an off-site (at
location mutually agreeable to Company and Port Commission) fire station
(including acquisition of one or more fire trucks) that meets the Company's
requirements.
(12) Temporary Offices and Construction Storage Rental: Office trailers
to be provided by the MDECD as needed by the Company during construction.
During the construction period, training center, resin bagging and storage
facility and fiber warehouse will be made available to the Company to use for
temporary offices and construction storage at no charge.
All portions of the Inducement Package to be financed with proceeds of Impact
Bonds will be in accordance with designs submitted by or on behalf of the
Company. With respect to the effluent line referenced in paragraph (7)
above, the access road referenced in paragraph (9) above, the training center
referenced in paragraph (10) above and the fire station referenced in
paragraph (11) above, such designs shall not be considered final without the
approval of the Port Commission, which approval will not be unreasonably
withheld or delayed. The Company shall participate in the award of any
contracts pertaining to the Project and the Company shall be deemed expert in
the selection of the most qualified contractors. The Company shall have the
right to inspect the Project during each phase of construction in order to
assure compliance with the contract documents and the Company may reject any
work not deemed acceptable by the Company. If the Company rejects any such
work and, as a result of such rejection, a legal action is brought against
the Port Commission and/or the County, the Company will indemnify and defend
(and pay any judgment resulting in any litigation) the Port Commission and
the County, as appropriate, in connection with any such legal action. In
such event, the Company shall control the defense in any such action. This
indemnification shall apply equally to the State and the MDECD in the event
that either is a defendant in such litigation.
With respect to the selection of contractors, vendors, suppliers and other
persons who are to be selected in accordance with public bidding procedures,
the Company may include in the bid specifications, standards which must be
met by all bidders in order to be eligible for consideration. Prior to the
award of any such contract, the Company shall be given the opportunity to
advise the Port Commission or the County that a bid submitted by an eligible
bidder that is lower than all other bids received for such work is
nevertheless not the best bid (based upon the Company's good faith
determination). The County or Port Commission shall not accept such bid if
the Company provides the County or Port Commission with detailed calculations
and narrative summary showing that such bid should be rejected, all in
accordance with Section 31-7-13(d). If, following the submission by the
Company of such calculations and summary, the Port Commission or the County
follows the recommendation of the Company and rejects the lowest bid, the
Company will indemnify, defend and pay any judgment resulting in any
litigation for any loss the Port Commission or the County, as appropriate,
may incur as a result of the rejection of the low bid and the award of such
job to another qualified bidder; provided, that the Company, as the real
party in interest in such case, shall control the defense in any such action.
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This indemnification shall apply equally to the State and the MDECD in the
event that either is a defendant in such litigation.
With respect to costs associated with the Project relating to expenditures
under the Impact Act, the State, the County and the Port Commission will
assist the Company in structuring those purchases so as to incur the least
possible amount of contractors' and/or sales tax.
The proceeds of the Impact Bonds (including investment earnings thereon)
shall be disbursed pursuant to requisitions (in form to be provided to the
Company by the Authority) submitted to the MDECD and approved by the
Executive Director. Each requisition must be accompanied by a certificate
executed by authorized representatives of the Company and the Port Commission
certifying that the work or item for which payment or reimbursement is
requested is to the signatory's knowledge, satisfactory. Payment will be
made by or on behalf of the State within ten business days after the
submission of complete requisitions and certificates. Payments may be made
to the Company, the County, the Port Commission or contractors, as directed
in the requisition.
It is the intention of the parties that the Project shall be financed, in
part, with Thirty-five Million Dollars ($35,000,000) of proceeds under the
Impact Act, together with investment earnings thereon as set forth herein.
In the event the cost of acquiring, by construction or otherwise, the items
listed in this Section of the Inducement Package is less, in the aggregate,
than the amount of the proceeds of the Impact Bonds, the amount remaining on
deposit shall be expended to pay for the cost of acquiring, by construction
or otherwise, one or more of the following at the option of the Company:
terephthalic acid unloading facility, terephthalic acid storage tanks,
ethylene glycol rail unloading facility, guard houses, PIA unloading
facility, fire protection pump house, underground utilities for cooling
water, pipe racks and any other improvement designated by the Company which
may lawfully be financed with the proceeds of Impact Bonds, provided,
however, investment earnings on the proceeds of the Impact Bonds shall be
used only with the approval of the Executive Director for any lawful purpose
under the Act within Hancock County, Mississippi.
All amounts reflected as capitalized costs relating to the Project on the
Company's books which are maintained in accordance with Generally Accepted
Accounting Principles will be included in the computation of the initial
capital investment being made with respect to the Project.
Benefits of Impact Act: The parties intend that the Company shall be entitled
to all benefits that are available under the Impact Act as the same is
presently interpreted and construed (including the rulings provided by the
Mississippi State Tax Commission and the Attorney General of the State of
Mississippi). In the event the Impact Act is amended or construed or
interpreted and such amendment, construction or interpretation restricts or
limits any of the benefits presently available thereunder, the Company shall
be deemed to be "grand fathered" with respect to such benefits, to the extent
consistent with applicable law. In the event such amendment, construction or
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interpretation results in the loss by the Company of any benefit which the
Company is entitled to receive thereunder and under this Agreement, the
Inducers shall use their best efforts, including, without limitation,
attempting to persuade the Mississippi Legislature to take actions as will
provide the Company with such additional inducements and benefits which will
be of substantially equivalent value as such lost benefits. In the event the
Impact Act is amended and such amendment broadens or expands any of the
benefits presently available thereunder, the Company shall be permitted to
take advantage of such additional or increased benefits, to the extent
consistent with applicable law.
To the extent the same is permissible under applicable law, any amounts
expended with respect to the Project in excess of Three Hundred Million
Dollars ($300,000,000) shall be considered as part of any expansion (in
order to calculate the initial capital investment with respect to an
expansion) for purposes of meeting the standard set forth in Section
57-75-5(f)(i) (regarding the required expenditure of not less than Three
Hundred Million Dollars ($300,000,000)). At the present time, the Company
has not made any determination as to the timing of its long-term expansion
plans.
HANCOCK COUNTY TAX INCREMENT BOND FINANCING
Hancock County, Mississippi, acting by and through its Board of Supervisors,
will issue Tax Increment Bonds (the "County Bonds") in the principal amount
of Five Million Dollars ($5,000,000), the proceeds of which shall be utilized
to pay the reasonable costs of issuance associated with the issuance of the
County Bonds (which amount is anticipated not to exceed Fifty Thousand
Dollars ($50,000)) and to finance the costs associated with the following
portions of the Project:
(1) Purchase of Site (approximately 488 acres): The parties
acknowledge that the approximately 488 acre parcel on which the improvements
will be located (the "Site") is to be purchased by the County or the Port
Commission with the proceeds of the County Bonds. Part of the Site is being
purchased from a third party as a part of the purchase of a larger parcel of
land. The parties hereto acknowledge and agree that the true value of the
Site is approximately One Million Eight Hundred Seventy-eight Thousand
Dollars ($1,878,000). Title to the Site and to all improvements located
thereon which are financed with the proceeds of the Impact Bonds or the
County Bonds shall be held by the Port Commission and the same shall be
leased to the Company for an initial term of twenty (20) years. The Company
shall pay rent for the Site at a rate of One Hundred Sixty Thousand Dollars
($160,000) per year. The Company shall pay rent for the improvements
located on the Site at a rate of One Dollar ($1.00) per year. The Company
shall have an option to purchase the Site and all improvements located
thereon which are financed with the proceeds of the Impact Bonds or the
County Bonds at the end of such twenty (20) year term for One Thousand
Dollars ($1000). If the ethylene glycol unloading and transfer system
described in paragraph (4) under the Mississippi Major Economic Impact
Authority Bond Financing Section of this Inducement Package is located off-
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site, then the land on which it is located will be leased to the Company by
the Port Commission for an initial term of twenty (20) years at a rent based
upon the value of the unimproved land. At the end of such twenty (20) year
term, the Company and the Port Commission will renegotiate the rent payable
with respect to such land based upon appraised value calculated by a mutually
agreed upon appraiser or appaisers.
(2) Site Preparation: including clearing, grubbing, cutting and
filling; topsoil stripping, stockpiling, respreading and fine grading; hydro
seeding, swales and landscaping; storm drainage grading and piping;
equalization basin and retention pond; environmental reports (phase I and all
such additional phases or other work as requested by the Company), endangered
species report, wetlands report, archeological, cultural and historical
report; geotechnical and topographical report. Plans for all site
improvements will be subject to prior review by and approval of the Company
in order to ensure that the improvements will be consistent with the
Company's master plan for the Site. If the findings set forth in any of such
reports are deemed unacceptable by the Company, the Company shall have the
right to any one or more of the following: remediation of such
unsatisfactory condition (at no cost to the Company and without diminution of
proceeds of the Impact Bonds or the County Bonds, except if the Company
approves costs associated with wetlands mitigation); termination of this
Inducement Agreement and any agreements entered into to consummate the terms
hereof (without any obligation by the Company to reimburse MDECD or the
County for amounts expended with respect to the Project, notwithstanding
anything contained in Section 5 of the Inducement Agreement). The Company
acknowledges that if the Company is responsible for any violations of any
environmental laws pertaining to the Site, the Company will be responsible
for remediating such condition and the Company will not seek contribution
from the Port Commission or the County, absent evidence that such entity was
responsible, in whole or in part, for such condition.
The Company agrees that it will provide reasonable assistance to the County
with regard to the marketing of the County Bonds.
The County and Port Commission agree that they will advise the Company
regarding any proposed use of all or any portion of the land not included in
the Site which is being purchased from International Paper Company together
with a portion of the Site ( the "Remaining Land") prior to making any
commitment with any person (the "Potential User") in connection with the
disposition or use of the Remaining Land. Upon receipt of such advice, the
Company or such third party as is designated by the Company shall have the
right and option to purchase (or lease, depending upon the nature of the
interest that the Potential User had been offered) that portion of the
Remaining Land which is the subject of such potential disposition, upon
substantially the same terms and conditions and for the same price as that
under consideration with the Potential User, subject to the following
conditions: (i) The Company must show that it reasonably anticipates that
such property will be developed for use (by the Company or by a third party)
in approximately the same amount of time as such property would have been
developed by the Potential User, and (ii) The Company reasonably anticipates
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that the use of the Remaining Land by the Company or such third party will
result in a comparable number of jobs as that which could reasonably be
expected to be created by the Potential User. This option may be assigned
by the Company to such third party. The County and the Port Commission each
agree that they will not lower any existing standards pertaining to the use
of the Remaining Land or amend or repeal any restrictive covenants that
pertain to the same without the consent of the Company.
In the event the cost of these items to be financed with the proceeds of the
County Bonds is less than Five Million Dollars ($5,000,000), the County and
Port Commission agree that they will work with the Company to determine
additional uses for such proceeds in connection with the Project, subject to
applicable law, it being the intent of the parties that the County and Port
Authority will contribute Five Million Dollars ($5,000,000) to the cost of
the Project.
MISSISSIPPI BUSINESS FINANCE CORPORATION RURAL ECONOMIC DEVELOPMENT BONDS
The MBFC will issue up to Four Hundred Million Dollars ($400,000,000) of
revenue bonds under Section 57-10-401, et seq. to finance improvements,
machinery and equipment included in the Project. The items so financed may
be owned by and title may by held by an entity (which may be a foreign
corporation, partnership or other entity) acting as lessor under one or more
leases and the Company will pay or cause to be paid, rent to such lessor
under the lease. All benefits that are available for an "approved company"
under the RED Act will be made available for the Company notwithstanding the
existence of such lease. Subject to the requirements of applicable law, the
terms of the revenue bonds and the agreements entered into with respect to
the revenue bonds will be subject to negotiations between the Company and the
purchaser thereof.
MISSISSIPPI BUSINESS INVESTMENT ACT BONDS
The State and the County agree that, upon the request of the Company, they
will make available up to Two Million One Hundred Thousand Dollars
($2,100,000) of proceeds of bonds issued pursuant to the Mississippi Business
Investment Act. appearing as Section 57-61-1 et seq. (the "MBIA"). The
amount of MBIA proceeds loaned to the Company will be subject to repayment
with interest at a rate of two percent (2%) per annum and such loan will be
amortized over fifteen years (or such shorter time as requested by the
Company). This inducement, if not requested by the Company in connection
with the Project, shall be made available in connection with any future
expansions of the Project, provided such funding is available under
applicable law at such time. For purposes of calculating the number of net
full-time equivalent jobs created by the Project, a job shall be deemed
created if a person is "employed at the Project." A person shall be deemed
"employed at the Project" if such person is compensated (whether by the
Company or by or through a third party, i.e. contract labor for more than
1820 hours (calculated on the basis of an average of 35 hours per week times
52 weeks) at the Site during a 365-day period.
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TAX BENEFITS
RED Act Benefits: The parties intend that the Company shall be entitled to
all benefits that are available under the RED Act as the same is presently
interpreted and construed. In the event the RED Act is amended or construed
or interpreted and such amendment, construction or interpretation restricts
or limits any of the benefits presently available thereunder, the Company
shall be deemed to be "grandfathered" with respect to such benefits, to the
extent consistent with applicable law. In the event such amendment,
construction or interpretation results in the loss by the Company of any
benefit which the Company is entitled to receive thereunder and under this
Agreement, the Inducers shall use their best efforts, including, without
limitation, attempting to persuade the Mississippi Legislature to take
actions as will provide the Company with such additional inducements and
benefits which will be of substantially equivalent value as such lost
benefits. In the event the RED Act is amended and such amendment broadens or
expands any of the benefits presently available thereunder, the Company shall
be permitted to take advantage of such additional or increased benefits, to
the extent consistent with applicable law.
(1) Dollar for dollar credit against all State corporate income taxes
on the Company for all principal and interest payments and associated fees on
RED Act bonds, subject to statutory limitations.
(2) RED Act benefits shall be applicable to the Company and its
successors and assigns (assignment subject to MBFC approval as provided in
Section 15 of the Inducement Agreement).
(3) RED Act benefits to be interpreted in accordance with a ruling of
Mississippi State Tax Commission or MBFC provided specifically for the
Project.
(4) Purchases made with respect to the Project and the Project itself
are exempt from all State sales tax, subject to applicable law and the rules
and regulations of the Mississippi State Tax Commission.
(5) The Company will not take advantage of the ten (10) year ad
valorem tax exemption provided in the RED Act. Instead, the Company will pay
a Fee in Lieu of Taxes pursuant to the terms and conditions of an agreement
to be entered into between the Company and MDECD as provided for by Section
27-31-104 (the "Fee in Lieu Agreement"). Such Fee in Lieu of Taxes shall be
equal to one-third of the ad valorem levy for the Project, including ad
valorem taxes for school district purposes. The amount paid under the Fee in
Lieu Agreement shall be apportioned between the County and the school
districts in the following manner. First, an amount shall be apportioned to
the school districts which shall be equal to the school districts' pro rata
share based upon the proportion that the millage imposed for the school
districts by the appropriate levying authority bears to the millage imposed
by such levying authority for all other county or municipal purposes. The
remaining fee in lieu payment amount (beyond the school tax portion) shall be
retained by the County; provided, however, that it is agreed and understood
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that such retained amount shall be applied in full to pay debt service on the
County Bonds.
The Company expects the Project to consist of three separate
production lines ("Production Lines"), and the aggregate cost of the Project
will exceed the minimum capital investment required by Section 27-31-104.
The Fee in Lieu Agreement shall include the following provisions:
(a) The term of the Fee in Lieu Agreement shall commence on the
First Assessment Date. For purposes of this Agreement, the term "First
Assessment Date" shall mean the earliest January 1 by which both of the
following events have occurred: (i) The Tax Assessor and the Company have
determined that at least eighty percent (80%) of the real and/or personal
property which is attributable to the first Production Line and subject to ad
valorem assessment is in place and ready to operate, and (ii) the Company has
met the $100,000,000.00 minimum capital investment required by Section
27-31-104. (As hereinafter used, the term "First Assessment Year" shall
mean the period beginning with the First Assessment Date, and ending on
December 31 of the same year.)
(b) The Company and MDECD further agree that in addition to the
First Assessment Year, the Fee in Lieu Agreement shall also include each of
the four (4) calendar years succeeding the First Assessment Year (the
"Succeeding Assessment Years"). For each Succeeding Assessment Year the
Agreement shall cover all of the real and personal property acquired by the
Company and placed or used in the Project during the prior calendar year.
(c) The Company shall pay the Fee in Lieu of Taxes for a term of
ten (10) consecutive years with respect to property subject to the Fee in
Lieu Agreement as described immediately above. This means that said ten (10)
year period shall commence on the First Assessment Date with respect to
property described in subparagraph (a) above, and on January 1 of each
Succeeding Assessment Year with respect to property described in subparagraph
(b) above. (For example, if the 80%/$100,000,000 requirements under
subparagraph (a) are met on November 15, 1998, the First Assessment Date will
be January 1, 1999, the First Assessment Year will be the 1999 calendar year,
and the first Succeeding Assessment Year will be calendar year 2000.
Beginning January 1, 2000, the Company would pay a Fee in Lieu of Taxes for
10 consecutive years with respect to the Project property subject to ad
valorem assessment at January 1, 1999 (the First Assessment Date). Beginning
January 1, 2001, the Company would pay a Fee in Lieu of Taxes for 10
consecutive years with respect to the property acquired by the Company and
placed or used in the Project during the 1999 calendar year. The same
approach would be employed for the three remaining Succeeding Assessment
Years).
Notwithstanding any other provision in this Agreement, it is
understood and agreed that there shall be no ad valorem assessment or payment
of the Fee in Lieu of Taxes with respect to any portion of the Project prior
to the First Assessment Date. The Tax Assessor hereby acknowledges the
existence and terms of the Fee in Lieu Agreement described herein and agrees
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to abide by such terms as they involve or require his acquiescence or
approval.
With respect to the calculation of the assessed valuation of the
Project, if adequate justification is provided by the Company and subject to
approval by the Mississippi State Tax Commission if required, the Tax
Assessor will enter into an agreement with the Company providing, inter alia,
for an accelerated depreciation schedule for certain personal property based
upon special circumstances pertaining to the Company's manufacturing
processes. The Tax Assessor also hereby agrees that the initial assessment
of each Production Line (on the Assessment Date) shall not exceed the cost
thereof.
(6) The Company may utilize a job development assessment fee to be
applied by the Company to repayment of debt service on Bonds pursuant to
provisions of Section 57-10-413. Amount assessed employees shall constitute
a nonrefundable credit against those employees' state individual income tax.
The Company may take advantage of any amendments made to the job development
assessment portion of the RED Act made by the Mississippi Legislature in the
1996 Legislative Session.
OTHER TAX BENEFITS
(1) On a best efforts basis, the Inducers will provide for the
extension of Foreign Trade Zone. Application to be made by the Port
Commission based upon information to be provided by the Company.
(2) County, the Tax Assessor, and MDECD to agree to provide maximum
statutory tax exemptions and fee in lieu of taxes treatment for future
additions and improvements to the Project upon the same basis as such
inducements are provided herein upon proper application of Company for said
exemptions or fee in lieu of taxes treatment pursuant to applicable law, it
being understood that the present Board of Supervisors, Tax Assessor, or
Executive Director of MDECD may not obligate a future Board of Supervisors,
Tax Assessor, or Executive Director of MDECD; however, said officials who are
a party to this Agreement shall use their best efforts to assure the
availability of maximum exemptions and comparable fee in lieu of taxes
treatment for future additional improvements. Said exemptions include, but
are not limited to, ad valorem exemptions on real and personal property, raw
materials, work in process, furniture and fixtures, machinery and equipment
(including computer hardware and software), finished goods, and freeport
warehouse exemptions.
(3) Income tax credit (to be applied before income tax credit under
RED Act) of $500 per net new full time job created at Project for five (5)
year period (credit applied in years two (2) through six (6), pursuant to
Section 57-73-21). The credit taken in any one tax year must be limited to
an amount not greater than fifty percent (50%) of the Company's state income
tax liability which is attributable to income derived from operations in the
state for that year.
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(4) Income tax credit equal to twenty-five percent (25%) applied
(pursuant to the provisions of Section 57-73-25) to qualified training
expenses related to instructors, instructional materials and equipment and
the construction and maintenance of facilities by community college
designated for training purposes. The credit shall not exceed fifty percent
(50%) of the income tax liability in a tax year and may be carried forward
for the five (5) successive years if the amount allowable as credit exceeds
the income tax liability in a tax year.
(5) Upon receipt of complete Company application, appropriate
governing authorities to grant ad valorem tax exemption (not including State
and school taxes) for the maximum statutory term on finished goods
manufactured in state that are held for sale or shipment to other than final
consumers (Section 27-31-7).
(6) Upon receipt of complete Company application, appropriate
governing authorities of the Inducers will take all necessary action to
provide a freeport warehouse exemption (ad valorem exemption on goods moving
in interstate commerce through the State) on finished goods (Section
27-31-51) for the life of the Project.
(7) Upon receipt of complete Company application, appropriate
governing authorities of the Inducers to grant ad valorem tax exemption (not
including State and school taxes) for the maximum statutory term on all
eligible property, including raw materials and work-in-process inventory
related to the Project (Section 27-31-101).
(8) County and State agree that upon receipt of complete Company
application, if same is required by applicable statutes, each of them will
approve and provide any additional tax exemptions and/or credits hereafter
provided by Mississippi law which may be provided by, or subject to the
approval of, the County and State.
(9) County Tax Assessor to assess real and personal property based
upon values in accordance with general State guidelines and the pertinent
provisions of Paragraph (5) under "RED Act Benefits" of the "TAX BENEFITS"
section of this Agreement. Based on life expectancy of certain equipment or
other special factors, use of accelerated depreciation schedules will be
granted.
(10) To the extent the same is lawfully available to the Company, the
Company shall be permitted to take full advantage of and the County (and any
other Inducer who is required to approve the same) will approve all ad
valorem tax exemptions and credits and other tax incentives, including, but
not limited to, the following: (i) national/regional headquarters credit,
(ii) research and development credits (Section 57-73-21(6) ), (iii) port
income handling charge tax credits (Section 27-7-22.9). If any of the
exemptions or credits listed in this paragraph expire pursuant to statute,
the Company shall be "grandfathered" to the extent permissible under
applicable law.
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EMPLOYEE SELECTION/TRAINING ASSISTANCE
The State of Mississippi (the "State"), the Mississippi Employment Security
Commission (the "Commission"), the Mississippi Department of Education (the
"DOE") and Pearl River Community College (the "College") will assist the
Company in the recruiting, pre-screening, pre-employment training, post-
employment training and retraining of Company employees as follows:
(1) The State, through the State Department of Education and the College,
will assist the Company in preparing and submitting the overall Training
Plan. A Training Memorandum will be prepared annually in a joint effort
between the Company and the College to support the Training Plan. The
Training Memorandum will outline, on an annual basis, plans and procedures to
be utilized to support and assist the Company in the execution of their
Training Plan. These documents will be submitted annually prior to the end
of fiscal year.
(2) The DOE will cause the Commission to use job descriptions provided by
the Company to recruit and prescreen applicants and refer them to a selection
process and pre-employment training program developed specifically by the
College for the Company.
(3) The State, through the State Department of Education and the College,
will provide for profiling jobs selected by the Company and assess applicants
using ACT Work Keys to insure they have the level of basic skills required to
perform the job function being hired by the Company. The Company and the
College will work in partnership to insure individuals provided are capable
of meeting the job skills required to be hired by the Company. The College
will design and conduct a pre-employment basic skills enhancement training
program for these individuals (up to one hundred twenty (120) hours per
person). The pre-employment training may incorporate information on the
nature of the specific job opportunities and the working environment of the
Company. The individual class size and schedule will be adjusted to meet the
training requirements of the candidates.
(4) The State, through the State Department of Education and the College,
after completion of these assessments and pre-employment training, will refer
to the Company the candidates that it believes meets all the requirements for
the specific job descriptions provided by the Company. The Company will then
make hiring decisions.
(5) The State, through the State Department of Education and the College,
with input from the Company, will design a job specific, post-employment
training program for all company personnel employed in process related jobs.
This may include the preparation of training materials, including the
production of specific training manuals, aids and video tapes specifically
created for the Company's needs.
(6) The State, through the State Department of Education and the College,
will provide post-employment and customized on-the-job training for hourly
and salaried employees. The trainers may, at the Company's option, be
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company employees, and, if so, the Company will be reimbursed for the wages
of the trainers up to a maximum of Fifteen Dollars ($15) per hour. The
number of hours of this post-employment training provided per trainee is not
set, but will be mutually agreed upon between the College and the Company.
This training phase may include reimbursement for training supplies. This
post-employment training may also include some technical training at vendor
sites, requested and approved in advance by the College and the Company, for
employees directly involved with process training as well as on-the-job
training, once the Project begins operation.
(7) The State, through the State Department of Education and the College,
after start-up of operations, will continue to provide the training services
described in Items 5 and 6 above as equipment and processes are modified and
upgraded and retraining of existing employees is required.
(8) The inducements set forth in this Employee Selection/Training
Assistance Section are further set forth in the letter of Dexter Holloway of
the DOE to Mr. Bill Dorsey, dated October 4, 1995, a copy of which is
attached hereto and incorporated by reference herein.
PROJECT OPERATIONS
The Port Bienville Industrial Park will be improved to provide services to
the Company as outlined in this Agreement which are not currently available
at the Park. The Company will pay the Port Commission for all services
provided to the Company by the Port Commission under one or more service
contracts that will provide for the reimbursement of the Port Commission for
operational and overhead costs involved with providing the services. The
Company will be required to pay standard fees for such services exclusive of
any capital costs. In addition, the Company will be charged a fee for
capital costs incurred by the Port Commission to construct assets that are
used to provide services to the Company except that no capital reimbursement
will be charged to the Company for assets that are funded with proceeds of
the Impact Bonds or the County Bonds as described herein.
The Company shall have the option to enter into operations service contracts
with the Port Commission for the following Project components (list not
exclusive):
(a) Rail system
(b) Water tank and well systems
(c) Waste water treatment plant
(d) Training center
Fire Station: The Port Commission and/or the County will have the
responsibility of coordinating the operations of the fire station and the
volunteers operating the same.
Contracts for the services mentioned above will include customary provisions
that will ensure quality service on a continuous basis. The Company shall be
obligated to provide for the maintenance of and property insurance with
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respect to (1) all portions of the Project which are situated on Site, and
(2) the Ethylene Glycol Storage Tanks and Delivery System described in
paragraph (4) under the Mississippi Major Impact Authority Bond Financing
Section of this Inducement Package. Except with respect to the Ethylene
Glycol Storage Tanks and Delivery System, the County and/or the Port
Commission, as appropriate, shall be responsible for the maintenance of and
property insurance with respect to all portions of the Project which are
situated off Site. The parties recognize that the cost of maintaining the
off Site portions of the Project and providing property insurance in
connection therewith shall be charged to the Company and other users thereof
as a component of customary usage fees and/or leasing arrangements. Each
service contract (excluding any contract relating to the Rail system) will
provide that the Company, if the Company deems it advisable so to do, may use
its own labor force to provide such services, or to require the engagement of
one or more third parties by the Port Commission (with the Company to provide
any required additional payments) for the provision of such services.
Notwithstanding the above provisions of this Project Operations Section, the
Company shall receive an annual credit for the first One Hundred Sixty
Thousand Dollars ($160,000) of services provided under the service contracts
(collectively) during the initial term of the lease pertaining to the Site.
MISCELLANEOUS
The County will use its best efforts to assist Company representatives in
connection with permanent and temporary transfers.
The County and Port Commission will use their best efforts to provide
advantageous financing to be made available to employees of the Company for
relocation expenses and the purchase of homes in Hancock County.
The County and Port Commission will use their best efforts to assist
employees of the Company with respect to placement of children of such
employees in appropriate schools and school programs.
The County and Port Commission will use their best efforts to have programs
adopted or expanded to encourage the relocation of employees to Hancock
County.
The County and Port Commission will use their best efforts to expedite all
permitting and licensing required with respect to the Project.
The Company agrees to provide timely information with respect to designs and
requirements to the County and the Port Commission in order to enable the
County and the Port Commission to perform their respective obligations
hereunder.
In order to provide the Company and its affiliates with the flexibility to
organize their corporate structure to maximize profitability, the Company and
its affiliates shall have the ability to transfer all or any portion of the
interests in the Company and/or the Project and/or this Agreement (including,
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without limitation, the Inducements referenced herein) to any one or more
entities (foreign or domestic, existing or future) which are controlled by
the Company or its affiliates (a "Permitted Transferee"). Transfer is broadly
defined and includes, without limitation, mergers, liquidations, sales,
leases, subleases, service contracts and contributions to other companies and
any other type of reorganizations.
Given the current philosophy and commitment to the State of Mississippi
exhibited by the Company's ultimate corporate parent, Wellman, Inc., all of
the Inducers acknowledge that it is important to the State and the other
Inducers that Wellman, Inc. maintain its current business and growth
philosophies. A change in such philosophies could jeopardize the benefits
the Inducers expect to derive for the citizens of the State of Mississippi
over the life of the Project. Therefore, the Inducers desire to provide the
benefits to be obtained by the Company only if there is no hostile takeover
of Wellman, Inc., which takeover could, among other adverse events, result in
a change of business philosophy, excess debt levels, restructuring, growth
and requests for wage increases. Wellman, Inc. has a Shareholder Rights
Agreement (the "Plan") which was established in August 1991 (and which has
been amended subsequent to that date and which may be amended in the future),
which causes substantial equity dilution in the event there is an attempt to
acquire Wellman, Inc. on terms not approved by the Board of Directors of
Wellman, Inc. In order to protect the interests of the Inducers, in the
event the Rights are triggered (i.e., become exercisable under the Plan), the
Company will be required to repay to the Inducers an amount equal to the
value of all of the inducements provided herein.
It is the intent of the Inducers that the Company should not be liable for
damages or loss by reason of the acceptance of the inducements referenced
herein. To the extent permitted by applicable law, each of the Inducers
agrees that it will, in good faith, attempt to minimize or eliminate any loss
which the Company may incur by virtue of its execution of this Agreement and/
or the Company's acceptance of any of the inducements provided for herein.
The obligations set forth in this paragraph shall be limited as to each
Inducer solely to the inducements provided by such entity.
26
Exhibit 10(v)
PET RESIN SUPPLY AGREEMENT
THIS PET RESIN SUPPLY AGREEMENT ("Agreement") is made this 28th day of
December 1995 by and among AKZO NOBEL FIBERS B.V., a company with limited
liability incorporated under the laws of The Netherlands and having its
registered office at Velperweg 76, 6824 BM Arnhem ("Supplier"), and
WELLMAN B.V., a company with limited liability incorporated under the laws
of The Netherlands and having its seat (statutaire zetel) at Emmen
("Wellman").
WHEREAS, Wellman has agreed to purchase a portion of the assets and
business of Supplier pursuant to and as described in the Agreement for the
Sale and Purchase of a Business among Wellman B.V. and Supplier dated 22
December 1995 (the "Asset Purchase Agreement");
WHEREAS, the assets so purchased by Wellman from Supplier include all of
the continuous polymerization and continuous post condensation assets at
Akzo's Emmen facility, which plant produces PET Resin;
WHEREAS, Wellman and Supplier have agreed that Wellman shall purchase
certain quantities of PET Resin manufactured at Akzo's locations at Emmen
and Oberbruch and Supplier is willing to sell such PET Resin to Wellman on
the terms and conditions set forth in this Agreement; and
WHEREAS, this Agreement is being executed and delivered at Completion
pursuant to the obligations of the parties under the Asset Purchase
Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and in the Asset Purchase Agreement and with the
intention of being legally bound, Wellman and Supplier hereby agree as
follows:
Article 1. Definitions
1.1 Unless otherwise stated in this Agreement, the following terms shall
have the following meanings, the following definitions to be equally
applicable to both the singular and plural forms of any of the terms
herein defined:
"Additives": all substances other than Raw Materials used by Supplier
to produce Product on its batch polymerization units.
<PAGE>
"Asset Purchase Agreement": as defined in the recitals of this
Agreement.
"Average Exchange Rate": the weighted arithmetic average of the daily
closing mid-point exchange rates between NLG and each Raw Material
Currency as published by the London Financial Times.
"Base Polymer": as defined in Article 2.7 hereof.
"Capital and Expense Estimate": as defined in Article 2.3 (C) hereof.
"DDP" (Delivery Duty Paid): has the meaning given to it in INCOTERMS
(1990).
"Delivery Schedule": as defined in Article 2.4 hereof.
"DMT": dimethyl terephthalate.
"EG": ethylene glycol.
"Energy Costs": the energy costs incurred by Supplier in the
manufacture of a Product, calculated pursuant to Article 2.6.
"Energy Rate Movement": the increase or decrease (stated as a
percentage) of the "P" value for the calculation of natural gas prices as
published by the Dutch Gas Board (N.V. Nederlandse Gasunie), using the "P"
value as at 31 December 1994 as the base value.
"Fixed Charge": as defined in Article 2.5 hereof.
"Fixed Costs": the fixed costs incurred by Supplier in the
manufacture of a Product, calculated pursuant to Article 2.6.
"Fixed Quote": as defined in Article 2.3 (C).
"General Rate Movement": the increase or decrease (stated as a
percentage) in general retail prices in The Netherlands as reflected in
the index figures for all households (consumentenprijsindex - alle
huishoudens) published by the Netherlands' Central Office of Statistics
(Centraal Bureau voor de Statistiek), using such index figure as at 31
December 1994 as the base figure.
"Labor Costs": the labor costs incurred by Supplier in the
manufacture of a Product, calculated pursuant to Article 2.6.
"Labor Rate Movement": the average increase or decrease (stated as a
percentage) in hourly wages for the chemical industry in The Netherlands
as reflected in the index figures therefor (indexcijfers van de
regelingslonen van volwassen werknemers; jaargemiddelde voor de lonen per
uur voor de chemische industrie) published by the Netherlands' Central
Office of Statistics (Centraal Bureau voor de Statistiek), using such
index figure as at 31 December 1994 as the base figure.
"Monthly Quantity": in respect of an order in a Delivery Schedule for
any calendar month, such total quantity of Product which results from
dividing by three hundred and sixty-five (365) and then multiplying by the
number of days in such month the total quantity of Product that must be
sold and purchased pursuant to Article 2.1 for the Year in which such
month falls.
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<PAGE>
"NLG": Dutch Guilders.
"Other Costs": all costs incurred by Supplier in the manufacture of a
Product, other than the Energy Costs, Fixed Costs and Labor Costs of such
Product, calculated pursuant to Article 2.6.
"PET Resin": polyethylene terephthalate resin for packaging resin
purposes, including C-PET resin and A-PET resin.
"Product": PET Resin of a type and conforming to a product
specification and the associated process control limits set forth in the
attached Exhibit PS 1 (and such exhibit as it may be amended in accordance
with this Agreement).
"Product Change": as defined in Article 2.3 (B) hereof.
"Product Change Estimate": as defined in Article 2.3 (C) hereof.
"Product Change Notification": as defined in Article 2.3 (B) hereof.
"Product Change Response": as defined in Article 2.3 (C) hereof.
"Q Grade Product": a Product the manufacture of which involves the
use of a crystalliser.
"Raw Material": EG, DMT and paraxylene or any of them.
"Raw Material Charge": as defined in Article 2.5 hereof.
"Raw Material Currency": each currency in which any supplier of Raw
Materials or Additives to Supplier invoices Supplier.
"Relevant Month": the month during which Product is delivered to
Wellman pursuant to Article 5 hereof.
"RM Notification": as defined in Article 3.1 hereof.
"Specialty Grade Product": a Product of the grade AO6-700, A06-300 or
AX4-706, as listed in Exhibit PS 1, or of such other type as shall apply
pursuant to Article 2.3.
"Supplier": as defined in the opening paragraph of this Agreement.
"Ton": a metric ton of one thousand kilograms (1,000 kg).
"Wellman": as defined in the opening paragraph of this Agreement.
"Year": a calendar year.
1.2 Capitalized terms used herein without definition shall have the
meanings assigned to them in the Asset Purchase Agreement.
3
<PAGE>
Article 2 Availability of Product and Purchase and Sale of Same
2.1 Subject to the other terms of this Agreement, Supplier agrees to
manufacture at its facilities at Oberbruch, Germany and/or Emmen, The
Netherlands and to sell to Wellman, and Wellman agrees to purchase from
Supplier, for delivery in each of the Years specified below, the
quantities of Product specified in relation thereto:
1996 37,000 Tons
1997 31,000 Tons
1998 21,000 Tons
1999 11,000 Tons
2000 1,000 Tons
To determine whether the above quantities have been delivered during
the relevant Year, only quantities delivered during that Year pursuant to
this Article 2, and excluding quantities delivered pursuant to Article 4,
shall be taken into account.
Supplier may at any time change the place of production of a specific
Product type, provided that Supplier gives at least 30 days' written
notice of such change to Wellman.
2.2 Wellman shall in each Delivery Schedule elect the type or types of
Product it wishes to purchase which shall be from among the types
specified in Exhibit PS 1 or such other types as shall apply pursuant to
Article 2.3 hereof, and Supplier shall sell Product to Wellman in
accordance with such election, provided that the quantities described in
Article 2.1 in respect of each of the Years 1996, 1997, 1998, and 1999
shall not include less than 1,000 Tons nor more than 6,000 Tons of
Specialty Grade Product. If the crystalliser for any Q Grade Product
ordered by Wellman does not work Supplier may supply Wellman with such
Product without the benefit of a crystalliser, provided Supplier shall
promptly inform Wellman thereof and keep such Product in separate batches
with separate lot numbers and provided further that the non-crystallised
Product is acceptable to Wellman's customer therefor and that Wellman may
consequently adjust the volumes of individual types of Product ordered in
the relevant Delivery Schedule; if all of the foregoing is satisfied, no
adjustment to the price to be paid by Wellman for any such non-
crystallised Product shall be made.
2.3 (A) Supplier and Wellman acknowledge that those specifications of
each Product and those process control limits for the Emmen and Oberbruch
facilities set out in the attached Exhibit PS 1 are agreed but are
incomplete. Exhibit PS 1 lists each item that remains to be agreed for
each Product. The parties hereby agree to use their best efforts to agree
the specifications and process control limits of all the incomplete items
by 31 March 1996. Upon reaching such agreement the parties shall sign an
amendment to the attached Exhibit PS 1 listing the complete specifications
for each Product and listing (or cross-referencing other documents which
4
<PAGE>
list) all the process control limits for the Emmen and Oberbruch
facilities.
(B) Wellman may from time to time by reasonable advance written
notice to Supplier add further types and/or specifications of Product or
change the types and/or specifications of Product, to any other type or
specification of PET Resin, whereupon the other type or specification
shall be included in the definition of "Product" herein. Each type or
specification change so made by Wellman is hereinafter called a "Product
Change". Each written notice of any Product Change (hereinafter referred
to as a "Product Change Notification") shall contain a revised Product
specification sheet in the same format as detailed in the attached Exhibit
PS 1 (and such exhibit as it may be amended in accordance with this
Agreement) and a general description of the new Product.
(C) Supplier shall accept the Product Change described in the
Product Change Notification unless Supplier can demonstrate that Supplier
is unable to make such Product Change due to technical or other reasons
which Supplier cannot overcome by taking reasonable measures. Within 45
(forty-five) days after receipt of the Product Change Notification,
Supplier shall provide a written response to Wellman (a "Product Change
Response") by either accepting the Product Change as described in the
Product Change Notification subject to agreement on items (i) through (iv)
below, or informing and demonstrating to Wellman that pursuant to the
preceding sentence Supplier is not obliged to accept such Product Change.
If pursuant to the preceding paragraph Supplier does not accept the
Product Change, and if and to the extent such non-acceptance would lead to
Wellman not being able to sell the Products specified in Exhibit PS 1 at
commercial rates, Wellman may elect to reduce the annual quantities of
Product specified in Article 2.1 which it is required to purchase and take
delivery of by such quantities of Product which equal the quantities of
Product in respect of which Supplier has not accepted such Product Change.
If Supplier accepts the Product Change, then the Product Change
Response shall include the following estimates (the "Product Change
Estimates"):
(i) Supplier's best estimate of the up-front capital costs and
developmental expenses, together with minimum and maximum figures
therefor, to be incurred by Supplier to make the Product Change (the
"Capital and Expense Estimate");
(ii) Supplier's best estimate of the Fixed Charge applicable to
the new Product, which shall be based on the Fixed Charge of the most
similar Product listed in the attached Exhibit PS 1 (and such exhibit as
it may be amended in accordance with this Agreement) plus or minus
Supplier's best estimate of the difference, if any, between Supplier's
labor costs and overheads with respect to the new Product and Supplier's
labor costs and overheads with respect to such most similar Product;
(iii) Supplier's estimate of any increase or loss of throughput
on Supplier's batch polymerization and post-condensation units resulting
from the Product Change; and
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<PAGE>
(iv) Supplier's best estimate of the time required before the
Product Change can be accomplished, taking into account any possible time
for any necessary construction of relevant tangible assets.
Within 7 (seven) days after receipt of a Product Change Response,
Wellman may elect to send a written notice to Supplier requiring Supplier
to furnish Wellman within fourteen (14) days thereafter with a fixed quote
for the up-front capital costs and developmental expenses to be incurred
by Supplier to make the Product Change (a "Fixed Quote"). If Wellman makes
such election the Fixed Quote shall replace the Capital and Expense
Estimate. Within 14 (fourteen) days after receipt of the Product Change
Response or (if applicable) the Fixed Quote, Wellman shall send a written
notice to Supplier informing Supplier whether Wellman accepts the Product
Change Estimates and (if applicable) the Fixed Quote. If Wellman accepts
the Product Change Estimates and (if applicable) the Fixed Quote an
amendment to Exhibit PS 1 shall be signed by both parties. If there is a
Fixed Quote, Wellman shall reimburse Supplier for any up-front capital
costs and expenses up to but not exceeding the Fixed Quote. If there is no
Fixed Quote, the parties shall agree on a time frame for the project to be
performed and on appropriate information reporting and estimating
procedures; Wellman shall reimburse Supplier for all up-front capital
costs and expenses agreed to pursuant to such procedures. All
reimbursements shall be made within 30 days after the later of the date on
which Supplier incurred such costs or expenses and the date of receipt by
Wellman of Supplier's invoice therefor.
Furthermore, in the event that a Product Change results in an
increase or loss of throughput, the amount that Supplier is obligated to
produce and make available to Wellman in any month or Year (as stated in
Article 2.1), shall be either increased or decreased by the amount of the
change of throughput as a result of the Product Change. Supplier shall
begin to produce the new Product for Wellman no later than the sum of (i)
Supplier's estimate of the time required to make the Product Change as
detailed in the Product Change Response and (ii) 30 days.
Following the implementation of a Product Change on the basis of a
Product Change Estimate, Wellman shall have the right to have an internal
or external auditor examine Supplier's pertinent records for the purpose
of establishing the actual amounts of those costs incurred by Supplier
which were the subject of the Product Change Estimates.
In the event that Wellman informs Supplier that Wellman does not
accept the Product Change Estimates or (if applicable) the Fixed Quote,
then the parties agree that they will diligently consult in order to agree
upon alternative appropriate estimates/quotations.
(D) The parties agree that if after the date hereof different types
and/or specifications of Product are required pursuant to any change in
any law or regulation of the European Union or of any European country in
which Wellman sells Product, such different types and/or specifications
shall constitute a Product Change. If such Product Change is not
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<PAGE>
technically capable of being manufactured on Supplier's batch
polymerization and post-condensation units then Wellman may terminate this
Agreement with immediate effect.
(E) The parties agree that Supplier shall have the right to cease
manufacturing a Product after a Product Change if Supplier determines in
good faith that as a result of the Product Change the Product or the only
process to produce the Product on Supplier's production units infringes
any third party patent or other proprietary rights. If such an event shall
occur, Wellman shall provide Supplier a Product Change Notification within
seven (7) days after the Supplier has informed Wellman in writing that it
needs a Product Change. All terms and conditions detailed in this Article
2.3 for Product Change shall then apply.
2.4 On or before the 20th day of each calendar month during the term of
this Agreement, and on the understanding that prior thereto Wellman will
have taken into account (and if necessary consulted with Supplier
regarding) Supplier's limited flexibility in its production of bulk
Products and Specialty Grade Products, Wellman shall furnish Supplier with
a written schedule setting forth (a) the firm delivery schedule of
Wellman's weekly purchase requirements for Product under this Article 2
for the next calendar month, specifying the volume of each Product type
required, the date of delivery and the manner of delivery in accordance
with Article 5.1, and (b) its best estimates of its purchase requirements
hereunder for the next two succeeding calendar months, specifying the
volume of each Product type estimated to be required. Each such firm
delivery schedule furnished to Supplier pursuant to this Article 2.4 is
hereinafter referred to as a "Delivery Schedule" and will upon being so
furnished be binding on both parties. Except with Supplier's concurrence
or in the event of an impediment as referred to in Article 14.1 hereof,
each Delivery Schedule shall order for the relevant calendar month the
Monthly Quantity, provided that Wellman may in each Delivery Schedule
order up to 5% more or less of the Monthly Quantity.
2.5 The price payable by Wellman to Supplier for Product delivered shall
be the sum of the fixed charge with respect to such Product specified in
Article 2.6 (the "Fixed Charge") and the raw materials charge with respect
to such Product specified in Article 2.7 (the "Raw Material Charge").
2.6 The Fixed Charge for each Product specified below shall be the total
of the Fixed Costs, Labor Costs, Energy Costs and Other Costs of such
Product. The Fixed Costs of each Product shall be, and shall remain
throughout the term of this Agreement, the amount per Ton specified in
relation thereto in the following table. The initial Labor Costs, Energy
Costs, Other Costs and Fixed Charge of each Product shall be the amounts
per Ton specified in relation thereto in the following table:
7
<PAGE>
<TABLE>
<CAPTION>
Product Fixed Labor Energy Other Fixed
Type Costs Costs Costs Costs Charge
(NLG per (NLG per (NLG per (NLG per (NLG per
Ton) Ton) Ton) Ton) Ton)
<S> <C> <C> <C> <C> <C> <C> <C>
D04 300 (Q) 220 220 60 100 600
D02 300 (Q) 220 220 60 100 600
A06 700 580 400 100 120 1,200
A06 300 (Q) 240 240 .65 105 650
AX4 706 235 150 .45 70 500
M03 300 (Q) See Article 2.10
</TABLE>
Labor Costs of each Product type shall be adjusted annually by 80% of
the Labor Rate Movement for the preceding Year. Labor Costs shall be
deemed to include labor costs incurred in packaging a Product to Wellman's
order pursuant to Article 5.2 but only to the extent that, on an annual
basis, the total quantity of all packaged Products sold hereunder does not
exceed 25% of the total quantity of Products sold hereunder.
Energy Costs and Other Costs of each Product type shall be adjusted
annually by the same respective percentages as the Energy Rate Movement
and the General Rate Movement for the preceding Year.
Changes to the Fixed Charge shall only be made once yearly with
effect from 1 January, to take into account increases and/or decreases in
Labor Costs, Energy Costs and/or Other Costs in the preceding Year.
Supplier shall give notice of its intention to change the Fixed Charge
and, except in 1995, will provide Wellman with an estimate of the Fixed
Charge for the next year no later than 1 November of the Year preceding
the increase or decrease. No later than 1 March of such Year or within 5
days after the relevant index is published, Supplier will advise Wellman
of the increase or decrease of the Fixed Charge determined in accordance
with this Article. Any adjustment resulting from a difference between the
estimated increase or decrease and the actual increase or decrease shall,
if found by Wellman to be correct, be charged or credited as the case may
be in the next following invoice.
2.7 The Raw Material Charge shall be in NLG and calculated as follows:
a. the cost of Raw Material used by Supplier in the manufacture of
Product which has not been post-condensated ("Base Polymer").
The cost of Raw Material used by Supplier in the manufacture of
Base Polymer shall be calculated and based on the average cost (excluding
freight costs only where these are separately stated) per Ton paid or
payable by Supplier for all Raw Material delivered to any of its European
fiber operations during the Relevant Month, after taking into account all
discounts, rebates, allowances or other price reductions. The total cost
of Raw Materials used by Supplier in the manufacture of Base Polymer shall
be calculated as set out in Exhibit PS 5.
plus
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<PAGE>
b. the cost of all Additives used by Supplier in the manufacture of
Base Polymer.
The cost of Additives used by Supplier in the manufacture of Base
Polymer shall be calculated based on the average cost (excluding freight
costs only when these are separately stated) paid or payable by Supplier
for all additives delivered to Supplier at its sites in Emmen and/or
Oberbruch during the Relevant Month, after taking into account all
discounts, rebates, allowances or other price reductions. The total cost
of Additives used by Supplier in the manufacture of Base Polymer shall be
calculated as set out in Exhibit PS 5.
plus
c. freight costs.
Freight costs shall be the actual costs of freight, provided these
are separately stated, for delivery of those Raw Materials and Additives
used by Supplier in the manufacture of Base Polymer from the supplier
thereof to the site where such Raw Materials and Additives are processed.
The total costs of such freight shall be calculated as set out in Exhibit
PS 5.
less
d. an amount to reflect the value of methanol recovered in the
process of manufacturing Base Polymer.
The value of methanol shall be calculated on the basis of the average
actual price received by Supplier for sales of methanol by Supplier during
the Relevant Month. The total value of such methanol shall be calculated
as set out in Exhibit PS 5.
plus
e. for Product A06 700 only, the additional cost of Raw Materials
which are necessary in the compounding process.
Such additional costs shall be calculated and based on the average
cost (excluding freight costs only where these are separately stated) per
Ton paid or payable by Supplier for all such Raw Materials delivered to
any of its European fiber operations during the Relevant Month, after
taking into account all discounts, rebates, allowances or other price
reductions.
The cost of Raw Material used by Supplier in the process of post-
condensation of the Product includes 3% off-specification material. If the
wastage factor in the post-condensation process exceeds 3% in any Relevant
Month, then the kilograms of Base Polymer used for the calculation of the
Base Polymer Raw Material cost shall be adjusted to 97% of the Base
Polymer produced.
9
<PAGE>
In calculating the various costs and prices referred to in a. through
e. above, the exchange rates between NLG and each Raw Material Currency
applied by Supplier for its internal accounting purposes during the
Relevant Month will be used, provided that if Wellman can demonstrate that
the total amount of such costs and prices is more than 2% greater than the
amount thereof would have been had the Average Exchange Rate during such
month been used, such Average Exchange Rate shall be used in respect
thereof instead.
2.8 Supplier will invoice Wellman on or about the tenth day of each
calender month for:
a. as an advance payment, 1/12 (one twelfth) of the Fixed Charge
for the annual quantity of Product type D04 300 (Q) specified in Article
2.1 times 95%; plus
b. the Raw Material Charge for the actual quantities of each type
of Product delivered during the preceding month; plus
c. the Fixed Charge for the actual quantities of each type of
Product delivered during the preceding month in excess of the advance
payments under a; plus
d. any costs of packaging of Products which are for Wellman's
account pursuant to Article 5.2.
Wellman will pay each invoice which is in accordance with this
Agreement by the end of the month in which such invoice is received.
2.9 All waste generated in the process of post-condensation, including
material not conforming to a specification set forth in the attached
Exhibit PS 1 (and such exhibit as it may be amended in accordance with
this Agreement), produced by Supplier in the manufacturing of Product
hereunder up to the 3% limitation set out in Article 2.7 shall be owned by
Wellman and shall be delivered by Supplier to Wellman at such place as
Wellman may direct no later than 30 days after its date of manufacture,
Wellman reimbursing Supplier for all freight costs and all costs of
packaging material incurred in connection therewith.
Supplier shall offer (a) any waste generated in the process of post-
condensation including such off-specification material in excess of the
said 3% limitation and (b) any waste generated in the process of
polymerization to Wellman for purchase at the Raw Material Charge in
respect of such waste calculated in accordance with Article 2.7; such
waste including such off-specification material shall be delivered to
Wellman at such place as Wellman shall direct no later than 30 days after
its date of manufacture, Wellman reimbursing Supplier for all freight
costs and all costs of packaging material incurred in connection
therewith.
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<PAGE>
2.10 Upon Wellman's request, Supplier shall, if possible, deliver the
Product type MO3 300 (Q). It is understood by Wellman that the delivery of
this Product type may result in a reduction of through-put and/or require a
change in mix, thereby reducing the amount that Supplier is obligated to
produce and make available to Wellman in any month or Year, as stated in
Article 2.1.
The Fixed Charge for Product type MO3 300(Q) will be based on the cost
of Product type DO4 300 (Q) plus any additional expenses incurred. For
greater certainty, Wellman understands that the Fixed Charge for MO3 300(Q)
may be greater than the Fixed Charge for DO4 300(Q).
Article 3 Special Provisions relating to Raw Material and Additives
3.1 If at any time Wellman wishes to purchase and supply Supplier with
any EG and/or Additives to be used by Supplier in the manufacture of
Product, then Wellman shall have the right to notify Supplier in writing
(the "RM Notification") of its election to supply Supplier, for the period
(not less than one year), in the quantities and on the other terms
specified, EG and/or Additives to be used by Supplier in the manufacture
of Product to be delivered pursuant to Article 2 hereof, all without cost
to Supplier. Within sixty (60) days of receipt of the RM Notification,
Supplier shall notify Wellman of Supplier's election to either (i) accept
such RM Notification, in which event Wellman shall be obligated to supply
EG and/or Additives to Supplier in the quantities, for the period and on
the other terms specified in such RM Notification or (ii) reject such RM
Notification, in which event Supplier shall charge to Wellman as cost of
EG and/or Additives the same cost as if Supplier had acquired EG and/or
Additives from Wellman for the period, in the quantities and on the other
terms set forth in such RM Notification. If Wellman so supplies EG and/or
Additives to Supplier, then the Raw Material Charge shall not include a
charge for the EG and/or Additives supplied by Wellman nor for associated
freight costs.
3.2 Wellman represents and agrees that all EG and Additives supplied by
it to Supplier under this Article 3 will meet the specifications as
contained in Exhibit PS 2 hereto. Supplier will inspect any such EG and/or
Additives upon receipt and will advise Wellman if the quantity or quality
of the EG and/or Additives supplied does not conform to the RM
Notification.
Article 4. Additional Quantities
4.1 During the Years 1997 and 1998, Supplier shall use its best efforts
to manufacture at its facilities and sell to Wellman quantities of Product
additional to those set out in Article 2.1 above.
4.2 Supplier shall notify Wellman at least sixty (60) days prior to the
beginning of each calendar quarter whether or not it will be able to
manufacture and sell to Wellman any additional quantities during the
calendar quarter. At least thirty (30) days after receipt of Supplier's
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<PAGE>
notification, Wellman will notify Supplier if and to what extent it will
purchase such of the additional quantities so offered.
4.3 The price payable by Wellman for additional quantities of Product is
to be negotiated between the parties from time to time.
4.4 Supplier's obligation under Article 4.1 shall be limited to offering
Wellman the right to purchase 4,000 additional Tons of Product (in the
Year 1997) and 14,000 Tons of Product (in the Year 1998), but only if and
to the extent that Supplier has first satisfied those of its contractual
obligations existing at the date hereof and demand for products from
within the Akzo Nobel group of companies. If and to the extent that
Wellman does not purchase any additional Tons of Product so offered,
Supplier shall be free to offer and sell the same to whomever it chooses.
Article 5. Delivery of Product
5.1 Product purchased by Wellman hereunder will, as Wellman may elect in
a Delivery Schedule,:
(i) be delivered and loaded by Supplier at the Emmen site onto a
vehicle designated by Wellman or pneumatically transferred by Supplier to
such a vehicle; or
(ii) packed in big bags and/or octabins and delivered for storage to
a warehouse at the Emmen site designated by Wellman.
5.2 Supplier shall load or pack Product in accordance with applicable
regulations and as reasonably instructed by Wellman. The costs of
packaging of Products shall only be for Wellman's account if such
packaging was ordered by Wellman, in which case such costs shall be
invoiced to Wellman separately, save with respect to certain labor costs
incurred in packaging as provided in Article 2.6. Prior to loading or
packing Product, Supplier will arrange for testing and analysis as
required by Exhibit PS 3.
5.3 Title and risk to a Product shall pass to Wellman upon delivery
pursuant to Article 5.1.
5.4 In the event that Wellman indicates in a Delivery Schedule that it
will fail to take delivery of at least 95% of the Monthly Quantity, then,
save for in the circumstances provided for in Article 14, Wellman shall
pay Supplier the Fixed Charge in respect of those quantities of Product
not taken for delivery which are less than 95% of the Monthly Quantity
plus any actual costs incurred by Supplier if in excess of such amount.
5.5 In the event that Wellman fails to take delivery of at least 95% of
the Monthly Quantity and Wellman did not indicate in the relevant Delivery
Schedule that it would so fail, then, save for in the circumstances
provided for in Article 14, Wellman shall pay Supplier the Fixed Charge
and the Raw Material Charge in respect of those quantities of Product not
taken for delivery which are less than 95% of the Monthly Quantity plus
any actual costs incurred by Supplier if in excess of such amount.
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<PAGE>
5.6 For the avoidance of doubt, Wellman shall have no liability in
respect of its obligations under Article 2.1 provided that in each Year
specified in such Article Wellman orders and is willing to take delivery
of at least 95% of the quantity of Product specified in such Article for
such Year.
Article 6. Weights and Claims
6.1 Claims on account of quantity, quality, loss or destruction of
Product shall be made in writing within 30 days after delivery or, in the
case of a hidden defect, within 30 days after discovery of the defect but
no later than 6 months after delivery. All such claims shall be reasonably
supported by relevant findings. Variations in quantity of Product
delivered in vehicles or bags of 1% or less from the quantity specified by
Supplier, will not give Wellman the right to reject the delivery or to
claim damages. Supplier agrees to send Wellman a well-reasoned written
response to any claim hereunder within 30 days after receipt of such
claim.
6.2 In the event that any Product delivered hereunder does not conform to
the specifications and process control limits for such Product listed in
the attached Exhibit PS 1 (and such exhibit as it may be amended in
accordance with this Agreement), Supplier shall:
(a) at Wellman's option, either (i) replace the Product, if
replacement is requested or claimed by Wellman's customer for such
Product, and pay any freight charges incurred in relation to the defective
Product (if returned, in which case Wellman shall return it to Supplier)
and the replacement Product, or (ii) refund to Wellman such part of the
price of such Product already paid by Wellman plus the cost of any freight
charges incurred by Wellman in relation to the defective Product; and
(b) pay to Wellman 50% of the compensation, excluding compensation
for management time or loss of profits, paid by Wellman to Wellman's
customer in relation to the defective Product, which amount in aggregate
in relation to all defective Products over the five year term of this
Agreement shall not exceed NLG 2,000,000.
(c) The parties agree that if any of Wellman's customers makes any
claim for defective Product delivered by Supplier to Wellman between 1
January 1996 and 31 March 1996, then Supplier shall be liable pursuant to
Article 6.2 towards Wellman in respect of all such claims as if such
finalised Exhibit PS 1 had been so finalised on the date hereof.
Article 7. Warranties; Product Identity
7.1 Supplier warrants that any Product delivered by Supplier (a) shall
conform to the applicable specifications and process control limits
contained in the attached Exhibit PS 1 (and such exhibit as it may be
amended in accordance with this Agreement), and (b) has been handled and
put-up in accordance with good industry practice.
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<PAGE>
7.2 Supplier will not make any change to its standard operating
conditions as attached hereto in Exhibit PS 4 except with Wellman's prior
written approval and will promptly advise Wellman of any accident or other
event which may result in the standard operation conditions not being
maintained.
7.3 Wellman shall be entitled to use Wellman's trademark or tradename in
connection with the Product and to require Supplier to mark any packaging
of Products with such trademark or tradename. If the costs incurred by
Supplier in so marking such packaging exceed NLG 1,000 in any one month
Wellman shall reimburse the difference to Supplier.
7.4 Supplier represents and warrants that the Products do not infringe
the rights including valid patent and other intellectual property rights
of Supplier or any third party.
7.5 Supplier shall indemnify and hold harmless Wellman from and against
any and all damages, losses, liabilities, costs and expenses including but
not limited to legal fees whether or not awarded by a court as judicial
costs (gerechtelijke kosten) resulting directly or indirectly from any
claim by a third party that the Products infringe the rights of such third
party. Wellman shall promptly notify Supplier of any such claim being made
against Wellman and Supplier agrees at Supplier's expense to defend or
settle any such claim.
Article 8. Reports and Audits
8.1 Wellman shall have the right, on not less than 30 days written notice
to Supplier, to have an external or internal auditor examine Supplier's
pertinent records for the preceding Year for the purpose of examining the
accuracy of the records, the accounting methodology (including consistency
of application) and the calculations used by Supplier in determining the
amount of any charges previously invoiced to Wellman. The examination
shall be conducted during normal business hours at times convenient to
Supplier. The results of any such examination shall be notified to
Supplier. If on the basis of such examination Wellman determines that an
adjustment is required and Supplier agrees the amount thereof, payment of
such amount shall be made within 15 days after notice of such
determination is given together with interest at a rate per annum equal to
the interest rate applied by the Netherlands Central Bank from time to
time for advances to commercial banks ("voorschotrente") as published in
Het Financieele Dagblad plus 1.5 percent calculated in respect of each
adjustment from the date on which the invoice subject to adjustment was
due until the date on which the adjustment is paid.
If Supplier does not accept the adjustment determined by Wellman, the
adjustment shall be determined by an independent accounting firm appointed
jointly by the parties or, failing agreement between the parties,
appointed by the Chairman for the time being of the Netherlands Institute
of Registered Accountants (NIVRA).
14
<PAGE>
8.2 Supplier shall during normal working hours and following reasonable
advance notice permit personnel of Wellman and of Wellman's customers to
enter Supplier's facilities accompanied by a representative of Supplier.
Article 9. Price Reduction
9.1 If, for any reason other than by reason of an impediment as referred
to in Article 14.1, Supplier fails to deliver to Wellman in any calendar
month during the term of this Agreement at least 95% of the Monthly
Quantity, then without prejudice to Wellman's other rights the total price
of the Products delivered to Wellman during such month shall be reduced by
an amount equal to the product of (i) the number of kilograms of Product
set forth in the applicable Delivery Schedule for the month minus the
number of kilograms of Product delivered in conformity with such Delivery
Schedule during such month and (ii) NLG 1.
9.2 Any reduction due pursuant to this Article shall be credited against
the next following invoice or if not so credited within 30 (thirty) days
shall be paid by Supplier to Wellman forthwith.
9.3 If Supplier fails to deliver to Wellman any quantity of Product
required by Wellman set forth in the applicable Delivery Schedule,
Wellman's obligation to take delivery of the quantity not delivered shall
terminate unless Supplier and Wellman shall have agreed that the quantity
or part thereof shall be delivered at a later date.
Article 10. Term and Termination
10.1 The term of this Agreement shall commence on 1 January 1996 and,
unless sooner terminated as herein provided, shall continue until 31
December 2000.
10.2 This Agreement may be terminated in the event that either party
materially breaches the terms of this Agreement. In such event, the non-
efaulting party may without prejudice to its other rights give to the
defaulting party not less than thirty (30) days written notice of its
intention to terminate the Agreement by a termination date specified in
the notice and describing the breach, and if the breach is capable of
remedy, requiring the other party to remedy its breach before the
specified termination date. On the specified termination date, this
Agreement shall terminate without a further notice or default notice
(ingebrekestelling) being required, unless the defaulting party shall
before such date have remedied all of the breaches described in the
notice.
10.3 Without prejudice to the right of Wellman to terminate this
Agreement pursuant to Article 10.2, if, for any reason other than by
reason of an impediment as referred to in Article 14.1, Supplier fails to
deliver to Wellman for a period of three consecutive calendar months at
least 95% of the Monthly Quantity, Supplier shall be in default without
any default notice (ingebrekestelling) being required and Wellman shall be
15
<PAGE>
entitled without prejudice to its other rights to terminate this Agreement
with immediate effect. In the event this Agreement is terminated pursuant
to this Article 10.3, Supplier shall pay Wellman, in full and final
settlement, within 15 days of the date of termination, the product of (i)
the number of kilograms of Product which Supplier failed to deliver during
he three month period preceding the termination date plus the number of
kilograms of Product which Supplier would otherwise have been obliged to
deliver under Article 2.1 from the date of termination through 31 December
2000 and (ii) 1 NLG. Upon termination, price reductions imposed on
Supplier for failure to deliver the Product during such periods under
Article 9.1 shall not apply.
10.4 Without prejudice to the right of Supplier to terminate this
Agreement pursuant to Article 10.2, if, for any reason other than by
reason of an impediment as referred to in Article 14.1, Wellman fails for
a period of three consecutive calendar months to take delivery from
Supplier of at least 95% of the quantities of Product requested by Wellman
for such three-month period pursuant to Article 2.4, Wellman shall be in
default without any default notice being required and Supplier shall be
entitled without prejudice to its other rights to terminate this Agreement
with immediate effect. In the event this Agreement is terminated pursuant
to this Article 10.4, then Wellman shall pay Supplier, in full and final
settlement, within 15 days of the date of termination, the product of (i)
the number of Tons of Product which Wellman failed to take delivery of
from Supplier during the three month period preceding the termination date
plus the number of Tons of Product which Wellman would otherwise have been
obliged to take delivery of under Article 2.1 from the date of termination
through 31 December 2000 and (ii) NLG 600. Upon termination, penalties
imposed on Wellman for failure to take delivery of Product during such
periods under Articles 5.4 and 5.5 shall not apply.
10.5 Each party may without prejudice to its other rights terminate this
Agreement with immediate effect in the event the other party is declared
bankrupt or applies for suspension of payment (surseance van betaling).
Article 11. Extension
During the year 2000 and beyond, Supplier will use its best efforts to
make available 5,000 Tons per Year of C-PET and A-PET Specialty Grade
Product to Wellman on terms to be agreed.
Article 12. Taxes
Wellman shall assume liability for and pay, and shall indemnify and hold
harmless Supplier from, all value added taxes or other turnover taxes and
customs and excise duties imposed by any governmental authority in respect
of the sale of Product hereunder. Wellman shall be entitled to the benefit
of any tax credits or refunds attributable to all taxes and duties for
which Wellman has assumed liability hereunder.
16
<PAGE>
Article 13. Confidential Information
Each party agrees to treat as confidential information all specifications,
formulae, quality control standards, process conditions, and other types
of proprietary information or data provided by or received or learnt from
the other party in connection with the Product or developed therefrom.
This obligation of confidentiality shall not apply to any such information
or data which is or becomes during the term of this Agreement through no
fault of either party generally available to the public, which is revealed
to the receiving party by a third party not under an obligation of secrecy
to the disclosing party in respect of such information or data, or which
the receiving party can show, by its written records, it possessed prior
to receipt from the disclosing party. All such confidential information is
considered to be the disclosing party's proprietary information, and as
such, is to be used by the receiving party solely and exclusively in
connection with the performance of this Agreement. Such confidential
information is not to be disclosed to any person or persons other than
employees of the receiving party who have need for access thereto in
connection with this Agreement or the transactions herein contemplated,
and is to be returned to the disclosing party upon request or when the
receiving party's need therefore in connection with this Agreement
terminates. Each party's obligations under this Agreement to maintain the
confidentiality of and not to disclose or utilize the other party's
confidential information shall continue for a period of ten years after
the date of termination of this Agreement.
Article 14. Force Majeur (Overmacht)
14.1 A non-performing party is not liable for a failure to perform any of
its obligations hereunder if the failure was caused by an impediment
beyond its control which was not attributable to it, and which the non-
erforming party could not reasonably be expected to have taken into
account at the time of concluding this Agreement or to have avoided or
overcome and the consequences of which the non-performing party could not
have avoided or overcome by alternative measures at reasonable cost.
14.2 The relief provided by this Article shall only have effect for the
period during which the impediment exists.
14.3 The party which fails to perform, as soon as it becomes aware of the
impediment in question, must give immediate notice thereof to the other
party, detailing the impediment and its effects on its ability to perform.
14.4 Supplier shall not be authorised to suspend deliveries of Product
hereunder in connection with normal maintenance, repair or replacement of
its facilities and normal maintenance, repair or replacement of Supplier's
facilities shall not constitute an impediment as referred to in Article
14.1 unless explicitly agreed upon and taken into account in the
applicable Delivery Schedule.
17
<PAGE>
14.5 A shortage of Raw Material shall only constitute an impediment as
referred to in Article 14.1 if Supplier has allocated for the manufacture
of Product hereunder an amount of Raw Material in at least the same
proportion as the total quantity of Product required to be delivered
hereunder bears to the total of products manufactured from Raw Material by
Supplier for all of its European fiber operations, and only to the extent
that such amount is insufficient to deliver the quantities of Product
required by Wellman and provided the other requirements set out in Article
14.1 are met.
14.6 If because of an impediment as referred to in Article 14.1,
Supplier's ability to manufacture polyester resin on its batch polymer
units shall be limited to less than current capacity, Supplier will
apportion its available production capacity, taking into account technical
limitations, on a pro rata basis amongst its customers, including Wellman,
taking into account the quantities purchased annually by each customer.
14.7 If because of an impediment as referred to in Article 14.1 at its
Emmen site, Supplier is unable to deliver any quantities of post-
condensated Product, Supplier shall deliver to Wellman, upon Wellman's
request, the same quantities of amorphous Product DDP to Wellman's plant
in Emmen from Supplier's Oberbruch or Emmen site at the price set out
herein less an amount to reflect the cost of post-condensation at the
Emmen site, which shall be such proportion of the Fixed Charge as equals
the proportion which the cost of post-condensation at the Emmen site bears
to the combined cost of polymerization at the Oberbruch and Emmen sites
and of post-condensation at the Emmen site.
14.8 Supplier's obligation to sell and Wellman's obligation to purchase
the quantities of Product as set out in Article 2.1 shall be reduced by
any quantity which Wellman is prevented from using or of which any of
Wellman's customers is unable to take delivery by reason of an impediment
as referred to in Article 14.1.
14.9 If for a period of three consecutive calendar months, Wellman fails
to take delivery from Supplier of, or Supplier fails to deliver to
Wellman, at least 95% of the quantities of Product as set forth in the
applicable Delivery Schedules, and such failure is caused by an impediment
as referred to in Article 14.1, then either party may by written notice to
the other terminate this Agreement with immediate effect.
14.10 In the event of a reduction in market demand for packaging resin
products of at least 20% over at least a 3 month period compared to the
average market demand therefor in the preceding 12 months, Wellman may by
written notice to Supplier elect that Wellman's obligation to purchase
the quantities of Product set out in Article 2.1 be reduced by the same
percentage, provided that with such notice Wellman furnishes Supplier with
convincing evidence of such reduction in market demand.
14.11 For greater certainty, the parties confirm that if as a result of
an impediment under this Article 14 either Supplier is relieved from its
obligation to deliver and does not deliver, or Wellman is relieved from
18
<PAGE>
its obligation to take delivery of and does not take delivery of, any
Product, Wellman shall have no obligation to pay Supplier either the Fixed
Charge, the Raw Materials Charge or any other amount in respect of such
Product.
Article 15. General
15.1 This Agreement shall be binding on and inure to the benefit of the
parties and their respective successors and assigns, provided that none of
the parties hereto may transfer any of its rights or obligations pursuant
hereto, without the prior written consent of the other party.
15.2 The applicability of any other conditions, including any sales
conditions of Supplier and any purchase conditions of Wellman, is hereby
expressly excluded.
15.3 This Agreement shall be governed by and construed in accordance with
the laws of The Netherlands. Save as expressly provided otherwise in this
Agreement, any conflict arising out of or in connection with this
Agreement shall be submitted to the District Court
(Arrondissementsrechtbank) of Amsterdam, subject to appeal and appeal in
the second instance (cassatie).
15.4 This Agreement is not intended to create, nor shall it be construed
to create, any partnership, joint venture, association or any other
relationship by which a party is liable for the obligations, acts or
omissions of the other party.
15.5 This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
15.6 Any notice, demand or other communication required to be given or
made under this Agreement shall be in writing and be deemed duly given or
made if delivered or sent by prepaid registered mail with return receipt
requested or by telefax to the following addresses, and, except in the
case of routine communications such as Delivery Schedules, copied to the
following additional addresses:
If to Supplier: Akzo Nobel Fibers B.V.
Eerste Bokslootweg 17
P.O. Box 2008
7801 CA Emmen
Attention: Mr G. Wegenaar
Faxnumber: 00-31-591-62939
with a copy to: Akzo Nobel Fibers B.V.
Velperweg 76
P.O. Box 9300
6800 SB Arnhem
Attention: Legal Department
faxnumber: 00-31-26-3663240
19
<PAGE>
If to Wellman: Wellman B.V.
Eerste Bokslootweg 17
P.O. Box 2008
7801 CA Emmen
Attention: Plant Manager
faxnumber: 00-31-591-692960
with a copy to: Wellman, Inc.
1040 Broad Street Suite 302
Shrewsbury, New Jersey 07702
United States of America
Attention: Chief Financial Officer
faxnumber: 00-1-908-935 7338
and Vice President of the
Packaging Products Group
faxnumber: 00-1-908-542 9344
with a further copy to: Clifford Chance
Attention: Mr J.J.B.M. Hengst
P.O. Box 7301
1007 JH Amsterdam
faxnumber: 00-31-20-6769 326
A party may change its address for the purpose of this Agreement by giving
notice of such change to the other pursuant to the provisions of this
paragraph. Any notice, demand or other communication sent by mail shall be
deemed to have been received by the party to whom it was sent at the end
of the day shown as the day of receipt on the return receipt sent with the
same. Any notice, demand or other communication sent by hand delivery
shall be deemed, in the absence of proof of the contrary, to have been
received when delivered. Any notice, demand or other communication sent by
telefax shall be deemed, in the absence of proof of the contrary, to have
been received by the party to whom it was sent on the date of despatch.
15.7 Each party will promptly and duly execute and deliver to the other
party such documents and assurances and take such further action as such
other party may from time to time reasonably request in order to carry out
more effectively the intent and purpose of this Agreement.
15.8 This Agreement may not be amended, nor may the provisions of this
Agreement be waived, except by written instruments signed by the party to
be bound thereby.
15.9 It is expressly understood and agreed that if a court of competent
jurisdiction holds any provision of this Agreement to be invalid, illegal
or unenforceable, the remainder of this Agreement shall continue to be
fully effective, operative and enforceable, save to the extent that such
remainder would clearly no longer meet the intentions, on the date hereof,
of the parties.
20
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first above written.
WELLMAN B.V.
/s/ Keith R. Phillips
- ----------------------------
By: Keith R. Phillips
Title: Authorized Representative
AKZO NOBEL FIBERS B.V.
/s/ L. Janse /s/ M. A. Menalda
- ----------------------------- -----------------------------
By: L. Janse By: M. A. Menalda
Title: Authorized Representative Title: Authorized Representative
22
<PAGE>
23 August 1996
Akzo Nobel Fibers B.V.
Attn. Mr M.A. Menalda
P.O. Box 9300
6800 SB ARNHEM
Dear Mr Menalda,
Agreement for the Sale and Purchase of a Business between Akzo Nobel Fibers
B.V. ("Akzo Nobel") and Wellman B.V. ("Wellman") dated 22 December 1995 (the
"S&P Agreement")
PET Resin Supply Agreement between Akzo Nobel and Wellman dated 28 December
1995 (the "PET Agreement")
Based on extensive discussions the parties hereby agree as follows:
1. In Article 2.1 of the PET Agreement the figure for the Year 1996 of
37,000 Tons, as revised to 36,600 Tons in the letter of 9 July, 1996
shall be further revised to 34,600 Tons.
2. (a) During 1997 Wellman shall continue to be entitled under Paragraph 7
of the letter agreement between Wellman and Akzo Nobel N.V. dated
1996-07-09 to require Akzo Nobel to supply Wellman with 400 additional
Tons of Product without any Fixed Charge being payable.
(b) During the Years 1997 and 1998 Akzo Nobel may request Wellman, upon
90 days written notice, to accept delivery of Product additional to that
specified in Article 2.1. of the PET Agreement, provided that the total
amount of additional Product under this paragraph and paragraph (c) below
does not exceed 2,000 Tons during such two Year period. Wellman shall
not be obligated to accept any such additional Product, but shall respond
within 30 days.
(c) If Wellman requests all of the additional Product available under
(a) above and Akzo Nobel delivers it to Wellman, during the Years 1997
and 1998 Wellman may request Akzo Nobel, upon 90 days, written notice, to
deliver further Product additional to that specified in Article 2.1. of
the PET Agreement, provided that the total amount of additional Product
under this paragraph and paragraph (b) above does not exceed 2,000 Tons
during such two Year period. Akzo Nobel shall not be obligated to
deliver any such additional Product, but shall respond within 30 days.
(d) If Wellman does accept or request additional Product under (b)
and/or (c) above, and Akzo Nobel delivers it to Wellman, Wellman shall be
23
<PAGE>
required to pay the Fixed Charge in respect thereof. These additional
volumes in 1997 and 1998 are valid for D04 300 (Q) for which in 1995 a
Fixed Charge of six hundred Netherlands Guilders (NLG 600) per ton
applied. In respect of Product to which a different Fixed Charge
applies, the volume of Product or the fee will be adjusted accordingly.
Wellman shall advise Akzo Nobel in the applicable Delivery Schedule as
outlined in Article 2.4 of the PET Agreement as to what Product it wishes
to accept delivery of in order to satisfy its requirements with regards
to these additional volumes.
(e) If Wellman accepts or requests the 2,000 Tons of additional Product
available under (b) and/or (c) above, Akzo Nobel's obligations under
Article 4 of the PET Agreement shall continue to apply.
3. Article 14.10 of the PET Agreement shall be amended to read as
follows:
(a) In the event of a reduction in European market demand for packaging
resin products of at least 20% (the percentage reduction being the
"Reduced Demand Percentage") over at least a 3 month period (calculated
by averaging the months) starting no earlier than 1 November 1996 (the
actual period being the "Reduced Demand Period") compared to the average
market demand therefor in the preceding 12 month period (starting no
earlier than 1 November 1995), Wellman may by written notice to Supplier
elect that Wellman's obligation to purchase quantities of Product set out
in Article 2.1 for certain months following notification be reduced by
(b) below, provided that with such notice Wellman furnishes Supplier with
convincing evidence of such reduction in market demand. The parties
agree that in any event furnishing data published by A.C. Fiduciare (more
commonly known as "FIDES") for "sales to customers" of rigid containers
shall constitute "convincing evidence" of "European market demand for
packaging resin products".
The Reduced Demand Period can only include a period in 1996 if the period
in 1996 equals at least 90% of the volume for the corresponding period
in 1995.
(b) if Wellman makes the election in (a) above, Wellman's obligation to
purchase the quantities of Product set out in Article 2.1 shall be
reduced by the Reduced Demand Percentage for a "Reduced Take Period"
equal to the number of months in the Reduced Demand Period which fall
during 1997 & 1998.
(c) Each Reduced Take Period shall be taken as soon as reasonably
practicable after Wellman has made its election under (a) above giving
consideration to Akzo's production scheduling.
(d) If Wellman makes an election under (a) above, any month included in
the relevant Reduced Demand Period may not form part of any subsequent
Reduced Demand Period pursuant to a subsequent election by Wellman under
(a) above.
2
<PAGE>
4. The parties agree that Article 5.4 of the PET Agreement shall not apply
to 1996 provided that for 1996 Wellman complies with Article 5.6 thereof.
5. The parties agree that the Working Capital as defined in the S&P
Agreement shall be NLG 67,070,288. Pursuant to Article 5.4(b) of the S&P
Agreement the Basic Purchase Price shall therefore be increased by NLG
47,070,288.
Concurrent with signature of this letter, Akzo Nobel shall sign and deliver
to Wellman and Moret Ernst & Young a Letter of Representation in the agreed
form.
For the avoidance of further doubt, Articles 5.5 and 5.6 of the S&P Agreement
(regarding Trade Receivables) shall remain in effect.
6. This letter shall not affect any of Wellman's or Akzo Nobel's rights
under any representation or warranty made by either Wellman or Akzo Nobel in
the S&P Agreement.
7. In all other respects, the S&P Agreement and the PET Agreement will
remain unchanged. In the event of any conflict between the provisions of
this letter and any provision of the S&P Agreement or the PET Agreement or
any agreement made in furtherance thereof, the provisions of this letter
shall prevail. For the avoidance of doubt, it is hereby confirmed that
Wellman's and Akzo Nobel's right pursuant to the above paragraphs will not be
affected by any subsequent variation or application of the PET Agreement or
the S&P Agreement.
Unless otherwise specified, capitalized terms used above shall have the
meanings assigned to them in the S&P Agreement or the PET Agreement, as
appropriate.
If you agree with the above, please have the enclosed copy of this letter
duly signed on behalf of Akzo Nobel.
Yours faithfully,
Wellman B.V.
/s/ Keith R. Phillips
- ----------------------------
Name: Keith R. Phillips
Title: Authorized Representative
For agreement by Akzo Nobel Fibers B.V.:
/s/ Lourens /s/ Menalda
- ------------------------------- -------------------------------
Name: Lourens Name: Menalda
Title: Authorized Representative Title: Authorized Representative
3
EXHIBIT 21
Subsidiaries
------------
Company Name Jurisdiction of Incorporation
------------ -----------------------------
Fiber Industries, Inc. Delaware
Prince, Inc. Delaware
Warehouse Associates, Inc. South Carolina
Josdav, Inc. Delaware
Creative Forming, Inc. Wisconsin
Wellman Voluntary Employees Benefit
Association South Carolina
Wellman Scholarship Foundation, Inc. South Carolina
Wellman PAC New Jersey
ALG, Inc. Delaware
MRF, Inc. Delaware
Wellman International Investments, Limited Ireland
KRP, Ltd. Bermuda
CJC, Ltd. Bermuda
JCT, Ltd. Bermuda
CWB, Ltd. Bermuda
Wellman Exports VI, Inc. US Virgin Islands
Wellman UK Holdings Ltd. United Kingdom
Wellman Fibres Ltd. United Kingdom
Wellman Polymers, Ltd. United Kingdom
Middlewich Limited Ireland
Shobara Limited Ireland
Wellman International Limited Ireland
Wellman International Handelsgesellschaft mbh Germany
DRS Holdings NV Netherlands Antilles
Wellman BV Netherlands
Wellman Finance CV Netherlands
Wellman France Recyclage SARL France
Wellman PET Resins Europe BV Netherlands
Resins Finance BV Netherlands
Wellman Resins LLC Delaware
Wellman of Mississippi, Inc. Delaware
Matherials Recovery of California, Inc. Massachusetts
EXHIBIT 23(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statements (Form
S-8, Nos. 33-17196, 33-44822, 33-44877, 33-44876, 33-22459, 33-38491,
33-54075, 33-54079, 33-54077 and Form S-3, No. 33-36001) pertaining to various
stock option and employee savings plans of Wellman, Inc. of our report dated
February 12, 1997, with respect to the consolidated financial statements and
financial statement schedules included in this Annual Report (Form 10-K) of
Wellman, Inc.
Ernst & Young LLP
Charlotte, North Carolina
March 21, 1997
EXHIBIT 23(b)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statements (Form
S-8, Nos. 33-17196, 33-44822, 33-44877, 33-44876, 33-22459, 33-38491,
33-54075, 33-54079, 33-54077 and Form S-3, No. 33-36001) pertaining to various
stock option and employee savings plans of Wellman, Inc. of our report dated
30 January 1997, with respect to the consolidated financial statements of
Wellman International Limited and subsidiaries at 31 December 1996 and 1995,
and for each of the three years in the period ended 31 December 1996, included
in this Annual Report (Form 10-K) of Wellman, Inc.
KPMG
Chartered Accountants
Registered Auditors
Dublin, Ireland
20 March 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ART. 5 FDS for fiscal year 10-K
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,120
<SECURITIES> 0
<RECEIVABLES> 134,907
<ALLOWANCES> 2,611
<INVENTORY> 158,685
<CURRENT-ASSETS> 297,048
<PP&E> 893,671
<DEPRECIATION> 296,043
<TOTAL-ASSETS> 1,203,949
<CURRENT-LIABILITIES> 105,498
<BONDS> 319,407
<COMMON> 34
0
0
<OTHER-SE> 623,894
<TOTAL-LIABILITY-AND-EQUITY> 1,203,949
<SALES> 1,098,804
<TOTAL-REVENUES> 1,098,804
<CGS> 941,693
<TOTAL-COSTS> 941,693
<OTHER-EXPENSES> 88,987
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,975
<INCOME-PRETAX> 54,149
<INCOME-TAX> 27,620
<INCOME-CONTINUING> 26,529
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,529
<EPS-PRIMARY> 0.81
<EPS-DILUTED> 0.81
</TABLE>
EXHIBIT 28(a)
REPORT OF INDEPENDENT AUDITORS TO THE MEMBERS OF WELLMAN INTERNATIONAL LIMITED
- ------------------------------------------------------------------------------
We have audited the accompanying consolidated balance sheets of Wellman
International Limited and subsidiaries at 31 December 1996 and 1995, and the
related consolidated profit and loss accounts, retained earnings, and changes
in financial position for each of the three years in the period ended 31
December 1996, all expressed in Irish pounds (not presented separately
herewith). These financial statements are the responsibility of the Company's
directors. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, expressed in Irish
pounds, present fairly, in all material respects, the consolidated financial
position of Wellman International Limited and subsidiaries at 31 December 1996
and 1995, and the consolidated results of operations and changes in financial
position for each of the three years in the period ended 31 December 1996 in
conformity with accounting principles generally accepted in the United States
of America.
KPMG
Chartered Accountants
Registered Auditors
Dublin, Ireland
30 January 1997
