-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K9dYQaWpIYLOI5u2Eh9mRkgcyT6lMjxUORdjjQgH17lGnQqK30M0hLoFEFYYdl0O ftzuLTPainvsE+s/7eUVUA== 0000045370-99-000007.txt : 19990323 0000045370-99-000007.hdr.sgml : 19990323 ACCESSION NUMBER: 0000045370-99-000007 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990322 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANNA M A CO/DE CENTRAL INDEX KEY: 0000045370 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS PLASTIC PRODUCTS [3080] IRS NUMBER: 340232435 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-05222 FILM NUMBER: 99569809 BUSINESS ADDRESS: STREET 1: STE 36 5000 STREET 2: 200 PUBLIC SQUARE CITY: CLEVELAND STATE: OH ZIP: 44114-2304 BUSINESS PHONE: 2165894000 FORMER COMPANY: FORMER CONFORMED NAME: HANNA MINING CO DATE OF NAME CHANGE: 19850523 10-K405 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Fiscal year ended December 31, 1998 Commission file number 1-5222 M. A. HANNA COMPANY (Exact name of Registrant as specified in its charter) STATE OF DELAWARE 34-0232435 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) SUITE 36-5000, 200 PUBLIC SQUARE, CLEVELAND, OHIO 44114-2304 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code 216-589-4000 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered Common Stock, $1 par value New York Stock Exchange Chicago Stock Exchange Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES X NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] Aggregate market value of the voting stock held by nonaffiliates of the Registrant, computed by reference to the price at which the stock was sold as of February 17, 1999: $517,948,141. Common Shares outstanding as of February 17, 1999: 49,623,774. DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents are incorporated by reference into the designated parts of this Form 10-K: (1) Registrant's definitive proxy statement distributed to stockholders dated March 18, 1999, filed with the Commission pursuant to Regulation 14A and incorporated by reference into Parts I and III of this Form 10-K; and (2) Registrant's Annual Report distributed to stockholders for the fiscal year ended December 31, 1998, incorporated by reference into Parts I and II of this Form 10-K. With the exception of the information specifically incorporated by reference, neither the Registrant's proxy statement nor the 1998 Annual Report to stockholders is deemed to be filed as part of this Form 10-K. Except as otherwise stated, the information contained in this report is given as of December 31, 1998, the end of the Registrant's last fiscal year. PART I ITEM 1. BUSINESS (a) Acquisitions and Dispositions In February 1998, the Registrant announced the completion of its previously announced acquisition of Melos Carl Bosch GmbH + Co., a German rubber and plastic compounder. With a plant in Melle, Germany, the company produces rubber and thermoplastic elastomer compounds for the wire and cable, sport and recreation and automotive markets. In March 1998, the Registrant announced that it had acquired Exxon Chemical's business in halogen-free, flame retardant plastic compounds for the wire and cable industry. In June 1998, the Registrant announced the formation of a global joint venture with UBE Industries, Ltd., Japan's largest producer of nylon resins and compounds for the plastics industry. The new venture will manufacture and sell nylon 6, nylon 6/6 and nylon 12 plastic compounds in North America, Europe and China. In August 1998, the Registrant announced a profit improvement plan, which called for closure of five of its manufacturing facilities and elimination of approximately 300 jobs. Registrant's manufacturing operations at five of those plants, all in Registrant's custom formulated color business unit, had been closed or sold as of February 1, 1999. In December 1998, the Registrant announced the completion of a previously announced joint venture with Bifan S.A., a holding company that controls So.F.teR S.p.A., a leading Italian producer of thermoplastic elastomers. The Registrant holds a majority interest in the venture and the balance is held by So.F.teR, which is one of the largest independent plastic compounders in Europe and a leader in the fast-growing market for thermoplastic elastomers, serving the wire and cable, automotive, electrical and electronic, and shoe markets. (b) See the financial information regarding the Registrant's business segments set forth at pages 20 to 21 of the Registrant's Annual Report distributed to stockholders for the fiscal year ended December 31, 1998, which information is incorporated herein by this reference. (c) (1) (i) (a) Rubber Processing Through its rubber compounding businesses, M.A. Hanna Rubber Compounding, Chase Elastomer and Melos Carl Bosch, Registrant engages in the custom compounding of rubber materials to the specifications of manufacturers of rubber products throughout North America and Europe. Registrant's Harwick Chemical Manufacturing produces rubber colorants and additives in the United States for the rubber industry worldwide. (b) Plastic Processing The Registrant, through its custom plastic compounding businesses, Th. Bergmann, Compounding Technology Europe, DH Compounding Company, Hanna SuXing (Suzhou) Plastics Compounding Co., Ltd., M.A. Hanna Engineered Materials, MACH-1 Compounding, So.F.teR, Southwest Chemical Services, UBE-Hanna Compounding, LLC and Victor International Plastics, Ltd. business units, engages in the custom compounding of plastic materials to the specifications of manufacturers of molded plastic products for customers located throughout North America, Europe and Asia. Through its custom formulated color and additives businesses, M.A. Hanna Color, Hanna Polimeros, Victor International Plastics, Ltd., Wilson Color, Hanna Wilson Polymer (Shanghai) Limited and Techmer PM, LLC, the Registrant manufactures custom formulated colorants in the form of color concentrates, liquid dispersions, dry colorants, and additives for customers in the plastics industry throughout North America, Europe, South America and Asia. M.A. Hanna Color also produces specialty colorants and additives for the automobile, vinyl building products and textile industries. Enviro Care Compounds, M.A. Hanna Color, MACH-I, Wilson Color and Hanna Wilson Polymer (Shanghai) Limited also produce specialty colorants, additives and compounds for the wire and cable industry worldwide. (c) Distribution Through its M.A. Hanna Resin Distribution and Hanna de Mexico business units, the Registrant distributes thermoplastic and thermoset resins and glass-reinforced materials in North America for major resin producers. Through its Cadillac Plastic business unit, Registrant engages in the worldwide distribution of engineered plastic sheet, rod, tube, and film products to industrial and retail customers as well as cutting and machining plastic products to customers' specifications and thermoforming plastic into products such as skylights and signs. (d) Other Through its Diversified Polymer Products business unit, Registrant manufactures molded sponge automotive parts for customers located throughout the United States and Canada. (1) (iii) In Registrant's plastic and rubber compounding businesses, the primary raw materials required are natural and synthetic rubbers, resins, and chemicals, all of which are available in adequate supply. The primary raw materials required by Registrant's color businesses are resins, chemicals, and organic and inorganic pigments, all of which are available in adequate supply. (1) (iv) Registrant's business units own numerous patents and trademarks, which are important in that they protect the Registrant's corresponding inventions and product names against infringement by others and thereby enhance Registrant's position in the marketplace. The patents vary in duration of up to 20 years, and the trademarks have an indefinite life which is based upon continued use. (1) (x) The custom compounding of rubber materials and the manufacture of rubber colorants and additives are highly competitive, with product quality, price and service to customers being principal factors affecting competition. Registrant believes it is the largest independent custom compounder of rubber in North America and Europe. The custom compounding of plastics and the manufacture of custom-formulated color and additive systems for the plastics industry is highly competitive, with product quality, price and service to customers being principal factors affecting competition. Registrant believes it is a leading independent compounder of plastics in North America and Europe and one of the leading producers of custom formulated color and additive systems in the United States and Europe. The distribution and fabrication of engineered plastic sheet, rod, tube and film products, and polymer resins is highly competitive, with product quality, price and service to customers being principal factors affecting competition. Registrant believes it is one of the leading distributors of engineered shapes in the world and one of the leading distributors of plastic resins in North America. The manufacture of molded sponge automotive parts is highly competitive, with quality, price and service to customers being principal factors affecting competition. Information generally available indicates that Registrant is among the leading suppliers of such parts in the United States. (1) (xii) At each of its operations the Registrant, its subsidiaries, and associated companies are governed by laws and regulations designed to protect the environment, and in this connection Registrant has adopted a corporate policy which directs compliance with the various requirements of these laws and regulations. The Registrant believes that it, its subsidiaries and associated companies are in substantial compliance with all such laws and regulations, although it recognizes that these laws and regulations are constantly changing. There are presently no material estimated capital expenditures for further environmental control facilities projected by the Registrant or its subsidiaries for any of its operations. (1) (xiii) Registrant employs 7,130 persons at its consolidated operations (7,016 in 1997). (d) (1) See information regarding Registrant's international operations at page 21 of Registrant's Annual Report distributed to stockholders for the fiscal year ended December 31, 1998, which page is incorporated herein by this reference. (2) The international operations owned directly by Registrant and in which the Registrant and its subsidiaries have equity interests, may be affected from time to time by foreign political and economic developments, laws and regulations, increases or decreases in costs in such countries and changes in the relative values of the various currencies involved. ITEM 2. PROPERTIES The table below sets forth the principal plants and properties owned or leased by the Registrant's business units. For properties which are leased, the date of expiration of the current term of the lease is indicated. Properties which are shown as owned are owned in fee simple. Some properties may be subject to minor encumbrances of a nature which do not materially affect the Registrant's operations. In addition, Registrant's Cadillac Plastic, M.A. Hanna Resin Distribution and Hanna de Mexico business units lease floor space at various locations within North America. They are used for sales offices, for the distribution of Registrant's products, for fabrication, and for warehousing. These are short-term leases. Registrant's Cadillac Plastic business unit also leases space in various locations outside the United States, including Australia, Canada, China, England, France, Germany, Korea, Malaysia, Netherlands, New Zealand, Singapore, Spain, Taiwan and Vietnam. Location Facility Owned/Leased Approximate Size (sq. ft.) Burton, M.A. Hanna Rubber Owned 160,000 Ohio Compounding Macedonia, MACH-1 Compounding Owned 87,000 Ohio Tillsonburg, M.A. Hanna Rubber Owned 60,000 Ontario Compounding Jonesboro, M.A. Hanna Rubber Owned 69,000 Tennessee Compounding Location Facility Owned/Leased Approximate Size (sq. ft.) DeForest, M.A. Hanna Rubber Owned 130,000 Wisconsin Compounding Santa Fe Springs, M.A. Hanna Rubber Leased 13,231 California Compounding 1999 Chicago, Chase Elastomer Leased 31,000 Illinois 2001 Kennedale, Chase Elastomer Owned 80,000 Texas Broadview Heights, M.A. Hanna Color Owned 61,000 Ohio Phoenix, M.A. Hanna Color Owned 20,500 Arizona Vonore, M.A. Hanna Color Owned 47,000 Tennessee San Fernando, M.A. Hanna Color Leased 45,000 California 2000 Vancouver, M.A. Hanna Resin Leased 35,000 Washington Distribution 2002 Facility Owned/Leased Approximate Location Size (sq. ft.) Troy, Cadillac Plastic Leased 34,655 Michigan (headquarters and 2007 call center) Coppell, Cadillac Plastic Leased 101,016 Texas (area distribution 2006 and call center) Naperville, Cadillac Plastic Leased 88,910 Illinois (area distribution 2007 center) Austell, Cadillac Plastic Leased 88,500 Georgia (area distribution 2008 center) Fresno, Cadillac Plastic Leased 50,960 California (area distribution 2007 center) Middletown, Cadillac Plastic Leased 61,620 Pennsylvania (area distribution 2008 center) Lemont, M.A. Hanna Resin Leased 103,000 Illinois Distribution 2008 (headquarters) Location Facility Owned/Leased Approximate Size (sq. ft.) Seattle, M.A. Hanna Resin Leased 44,520 Washington Distribution 2005 Kingstree, M.A. Hanna Rubber Owned 156,174 South Carolina Compounding and Southwest Chemical Services Dyersburg, M.A. Hanna Owned 862,399 Tennessee Engineered Materials, M.A. Hanna Rubber Compounding and Diversified Polymer Products Bethlehem, M.A. Hanna Leased Pennsylvania Engineered 2004 82,000 Materials 1999 25,400 Norcross M.A. Hanna Leased 27,814 Georgia Engineered 2002 Materials (headquarters and technical center) Suwanee, M.A. Hanna Color Owned 20,000 Georgia (headquarters) Location Facility Owned/Leased Approximate Size (sq. ft.) Suwanee, M.A. Hanna Color Owned 44,022 Georgia (technical center) Somerset, M.A. Hanna Color Owned 44,300 New Jersey Florence, M.A. Hanna Color Owned 30,000 Kentucky Eagan, M.A. Hanna Resin Leased 51,600 Minnesota Distribution 2002 Gastonia, M.A. Hanna Color Owned 43,992 North Carolina Elk Grove Village, M.A. Hanna Color Owned 51,870 Illinois St. Peters, M.A. Hanna Color Owned 32,480 Missouri Fort Worth, M.A. Hanna Color Owned 75,080 Texas Norwalk, M.A. Hanna Color Owned 94,000 Ohio Location Facility Owned/Leased Approximate Size (sq. ft.) Bethlehem, M.A. Hanna Color Owned 58,672 Pennsylvania LaPorte, Southwest Chemical Owned 200,000 Texas Services Ayer, M.A. Hanna Resin Leased 53,250 Massachusetts Distribution 2002 Houston, M.A. Hanna Leased Texas Engineered 2002 88,000 Materials 2002 44,120 Statesville, M.A. Hanna Resin Leased 48,240 North Carolina Distribution 2002 Corona, M.A. Hanna Leased 32,000 California Engineered 2001 Materials Clinton, Techmer PM, LLC Owned 151,000 Tennessee Rancho Dominguez, Techmer PM, LLC Leased 119,000 California 1999 Gainesville, Techmer PM, LLC Leased 36,374 Georgia 2005 Location Facility Owned/Leased Approximate Size (sq. ft.) Massillon, Harwick Chemical Owned 100,000 Ohio Manufacturing Wynne, Harwick Chemical Owned 119,000 Arkansas Manufacturing Toluca, Hanna Polimeros Owned 37,978 Mexico Assesse, Wilson Color Owned 120,976 Belgium Tossiat, Wilson Color Owned 87,188 France Bendorf, Wilson Color Owned 72,086 Germany Angered, Wilson Color Owned 22,259 Sweden Saint Ouen(Paris), Wilson Color Owned 46,285 France Coventry, Victor Leased 52,750 England International 2000 Manchester, Victor Owned 58,890 England International Location Facility Owned/Leased Approximate Size (sq. ft.) Gaggenau, Th. Bergmann Owned 241,114 Germany Barbastro, Polibasa Owned 71,042 Spain (Bergmann) Jurong, Compounding Leased 43,000 Singapore Technology, 1999 Pte. Ltd. Saint Etienne, Compounding Owned 35,000 France Technology Euro, S.A. Pudong (Shanghai), Hanna Wilson Owned 30,400 China Polymer Glostrup, Wilson Color Owned 7,545 Denmark Melle, Melos Carl Bosch Owned 69,225 Germany Forli, So.F.teR Owned 753,480 Italy Location Facility Owned/Leased Approximate Size (sq. ft.) Civitanova/ So.F.teR Owned 32,292 Porto S. Elpidio Italy Lecco, So.F.teR Owned 43,056 Italy Registrant's combined annual plastic and rubber compounding capacity and colorant manufacturing capacity, based on the estimated design capacities of Registrant's plants, amounts to approximately 766 million pounds of compounded rubber products, approximately 1 billion pounds of compounded plastic products and approximately 311 million pounds of colorants. A variation in the mix of products produced at a given plant results in a corresponding increase or decrease in the quantity of products that can be produced at full capacity. Beyond these estimated capacities for Registrant's rubber processing and plastic processing manufacturing properties, there are no comparative measurement units of production capacity that reasonably can be ascribed to Registrant's other properties in the processing segment. Registrant's 50 percent-owned partnership, DH Compounding Company, owns and operates an engineering plastics compounding plant in Clinton, Tennessee. The 150,000 square foot plant has an annual design capacity of 150 million pounds. ITEM 3. LEGAL PROCEEDINGS Registrant, directly and indirectly through wholly-owned subsidiaries, is obligated for costs of environmental remediation measures taken and to be taken in connection with certain operations that have been sold or discontinued. These include the clean-up of a Superfund site and participation with other companies in the clean-up of hazardous waste disposal sites, several of which have been closed. Registrant has established reserves for these anticipated liabilities for environmental remediation, which do not reflect potential insurance recoveries and which management believes are adequate to cover Registrant's ultimate exposure. Registrant believes that these liabilities will not have a material adverse effect on the Registrant's results of operations, financial position or cash flows. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. _______ EXECUTIVE OFFICERS OF THE REGISTRANT The following table lists information as of March 1, 1999, as to each executive officer of the Registrant, including his position with the Registrant as of that date and other positions held by him during at least the past five years: M. D. Walker Chairman and Chief Executive Age - 66 Officer, September 1986 to December 1996 and October 1998 to date. L. L. Beach Vice President, Human Resources, Age - 54 April 1995 to date. Vice President, Human Resources of Kraft Foods International (manufacturer and distributor of consumer products) 1991 to April 1995. K. J. Darragh Senior Vice President, Operations, Age - 52 May 1997 to date. President - Cadillac Plastic, February 1995 to May 1997. Vice President Operations - Cadillac Plastic, February 1991 to January 1995. M. S. Duffey Senior Vice President, Finance and Age - 44 Administration, August 1998 to date. Vice President and Chief Financial Officer, August 1996 to August 1998. Vice President, Chief Financial Officer and Treasurer of Registrant, April 1995 to August 1996. Treasurer of the Registrant, July 1994 - April 1995. Vice President and Treasurer, Foote, Cone & Belding Communications, Inc. (advertising agency) 1992 - July 1994. A. F. Pizzelanti Vice President, Information Age - 60 Technology, January 1997 to date. Vice President, Management Information Systems, Premier Farnell (industrial and electronics distributor) 1995 to 1996; Chief Information Officer and Vice President, Information Technology, James River Corp. (paper products manufacturer) 1993 to 1995. J. R. Gwinnell Vice President, Corporate Age - 43 Development and Strategy, February 4, 1998 to date. Senior Engagement Manager, McKinsey & Company, Inc., (management consultants), 1989 to 1996. Vice President, Strategy, Westinghouse Electric Corporation (electrical equipment manufacturer), 1996 to February 1998. G. W. Henry Executive Vice President, Worldwide Age - 53 Plastics, August 1998 to date. Senior Vice President, International Operations, May 1997 to August 1998. Vice President - Operations, 1992 - 1994; Vice President, International Operations, 1994 - May 1997. J. S. Pyke, Jr. Vice President, General Counsel and Age - 60 Secretary, 1979 to date. D. R. Schrank Senior Vice President, Operations, Age - 50 May 1997 to date. Vice President and Chief Financial Officer of the Registrant, September 1993 - April 1995; Vice President, North American Plastics Operations, April 1995 to May 1997. C. R. Sachs Treasurer, August 1996 to date. Age - 46 Treasurer Outboard Marine Corporation (manufacturer of recreational boats and marine engines) 1992-1996. T. E. Lindsey Controller, July 1990 to date. Age - 48 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS See the tables regarding Registrant's stock price data at page 25 and Shareholder Information at the bottom of page 26 of Registrant's Annual Report distributed to stockholders for the fiscal year ended December 31, 1998, which tables and information are incorporated herein by this reference. ITEM 6. SELECTED FINANCIAL DATA See Selected Financial Data at pages 26 and 27 of Registrant's Annual Report distributed to stockholders for the fiscal year ended December 31, 1998, which Selected Financial Data is incorporated herein by this reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS See pages 28 through 30 of Registrant's Annual Report distributed to stockholders for the fiscal year ended December 31, 1998, which pages are incorporated herein by this reference. ITEM 7.A QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. See the paragraphs captioned "Concentrations of Credit Risk" and "Derivative Financial Instruments" on page 17, and "Financial Instruments," "Cash and Cash Equivalents," "Long and Short-Term Debt," and "Foreign Exchange Contracts" and the corresponding table on pages 22 to 23, and the paragraph captioned "Market Risk" on page 29 of the Registrant's Annual Report distributed to stockholders for the fiscal year ended December 31, 1998, which paragraphs and table are incorporated herein by this reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See pages 13 through 25 and the bottom of page 30 of Registrant's Annual Report distributed to stockholders for the fiscal year ended December 31, 1998, which pages are incorporated herein by this reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Directors See the table listing nominees for directors on page 2 of Registrant's definitive proxy statement distributed to stockholders dated March 18, 1999, filed with the Commission pursuant to Regulation 14A, which table is incorporated herein by this reference. Executive Officers See the item captioned "Executive Officers of the Registrant" in Part I of this Form 10-K, which item is incorporated herein by this reference. Section 16(a) Beneficial Ownership Reporting Compliance See the paragraph bearing the foregoing caption on page 5 of Registrant's definitive proxy statement distributed to stockholders dated March 18, 1999, filed with the Commission pursuant to Regulation 14A, which paragraph is incorporated herein by this reference. ITEM 11. EXECUTIVE COMPENSATION See the section captioned "Executive Compensation" at pages 5 through 13 of Registrant's definitive proxy statement distributed to stockholders dated March 18, 1999, filed with the Commission pursuant to Regulation 14A, which section is incorporated herein by this reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Security Ownership of Certain Beneficial Owners: See the section captioned "Holdings of Shares of the Company's Common Stock" at page 5 of Registrant's definitive proxy statement distributed to stockholders dated March 18, 1999 filed with the Commission pursuant to Regulation 14A, which section is incorporated herein by this reference. (b) Security Ownership by Management: See the table, and footnotes thereto, regarding beneficial ownership of the Registrant's Common Stock by management, at page 3 of Registrant's definitive proxy statement distributed to stockholders dated March 18, 1999 filed with the Commission pursuant to Regulation 14A, which table and footnotes are incorporated herein by this reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. and 2. The response to this portion of Item 14 is submitted as a separate section commencing on page F-1 of this Form 10-K. 3. List of Exhibits. [Those documents listed below that are incorporated herein by reference to Registrant's earlier periodic reports were filed with the Commission under Registrant's File No. 1-5222.] (i) Exhibits filed pursuant to Regulation S-K (Item 601): (3) Articles of Incorporation and By-laws. (a) Registrant's Articles of Incorporation (as amended and restated as of May 1, 1996, and currently in effect), filed as Exhibit 3(a) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 and incorporated herein by this reference. (b) Registrant's by-laws (as adopted as of November 5, 1997 and currently in effect), filed as Exhibit 3(ii) to Registrant's Current Report on Form 8-K dated November 10, 1997, and incorporated herein by this reference. (4) Instruments Defining the Rights of Security Holders: (a) Indenture dated November 9, 1996, between the Registrant and NBD Bank, as trustee, governing Registrant's Medium Term Notes, a form of which was filed as Exhibit 4.1 to Registrant's Form S-3 filed on June 12, 1996 and incorporated herein by this reference. (b) Credit and Guarantee Agreement, dated January 31, 1997 between the Registrant, Bank of America, N.T. & N.A. and the other banks signatory thereto, a copy of which will be provided to the Commission upon request. (c) Indenture dated September 15, 1991 between the Registrant and Ameritrust Company, National Association, Trustee relating to Registrant's $150,000,000 aggregate principal amount of 9 3/8% Senior notes due 2003, filed as Exhibit 4 to the Registrant's Form S-3 filed on September 18, 1991, and incorporated herein by this reference. (d) Associates Ownership Trust Agreement dated September 12, 1991, between Registrant and Wachovia Bank of North Carolina, filed as Exhibit 28.3 to Registrant's Current Report on Form 8-K dated September 12, 1991, and incorporated herein by this reference. (10) Material Contracts: *(a) 1988 Long-Term Incentive Plan, and forms of Grants of Stock Options, Grants of Appreciation Rights and Grants of Long-Term Incentive Units thereunder, filed as Exhibit 10(e) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1988, and incorporated herein by this reference. Also forms of 1989 Stock Option Agreement, 1989 Grant of Appreciation Rights and 1989 Grant of Long- Term Incentive Units, filed as Exhibit 10(e) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1989 and incorporated herein by this reference. Also 1990 Amendment to the Plan, filed as Exhibit 10(e) to Registrant's Form 10-K for the fiscal year ended December 31, 1990 and incorporated herein by this reference and forms of 1990 Stock Option Agreement, 1990 Grant of Appreciation Rights and 1990 Grant of Long-Term Incentive Units, filed as Exhibit 10(e) to Registrant's Form 10-K for the fiscal year ended December 31, 1990 and incorporated herein by this reference. Also 1991 Amendment to the Plan, filed as Exhibit 10(f) to Registrant's Form 10-K for the fiscal year ended December 31, 1991, and incorporated herein by this reference. Also 1994 Amendment to the Plan, filed as Exhibit A to Registrant's definitive proxy statement distributed to stockholders dated March 17, 1994 and incorporated herein by this reference. Also forms of Stock Option Agreement, Performance Share Award Agreement and Restricted Stock Agreement entered into by all participants in the Plan, filed as Exhibit 10(a) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and incorporated herein by this reference. *(b) Form of Supplemental Deferred Compensation agreement in which any of the five most highly compensated executive officers of the Registrant participates, filed as Exhibit 10(e) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated herein by this reference. *(c) Form of Supplemental Death Benefits agreement in which any of the five most highly compensated executive officers of the Registrant participates, filed as Exhibit 10(f) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated herein by this reference. *(d) Form of Amended and Restated Employment Agreement dated as of August 5, 1998 between Registrant and certain of Registrant's executive officers filed herewith. *(e) Description of Directors' compensation and retirement benefit, set forth in the section captioned "Directors' Compensation" on page 14 of Registrant's definitive proxy statement dated March 18, 1999, as distributed to stockholders and filed with the Commission pursuant to Regulation 14A, which section is incorporated herein by this reference. *(f) Excess Benefit Plan in which any of the five most highly compensated executive officers of the Registrant participates, filed as Exhibit 10(j) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992 and incorporated herein by this reference. *(g) Supplemental Retirement Benefit Plan in which any of the five most highly compensated executive officers of the Registrant participates, filed as Exhibit 10(k) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992 and incorporated herein by this reference. Also, Amendment and Restatement of M.A. Hanna Company Supplemental Retirement Plan dated as of January 1, 1999, filed herewith. *(h) Voluntary Non-Qualified Deferred Compensation Plan in which any of the five most highly compensated executive officers of the Registrant participates, filed as Exhibit A to the Registrant's definitive proxy statement distributed to stockholders dated March 20, 1995 filed with the Commission pursuant to Regulation 14A, which Exhibit A is incorporated herein by this reference. (i) Termination Agreement and Release between Registrant and its former Chairman of the Board and Chief Executive Officer, D. J. McGregor, dated as of October 7, 1998, filed herewith. [*- Identifies management contract or compensation plans or arrangements filed pursuant to Item 601(b) (10) (iii) (A) ] (11) Computation of per share earnings, filed herewith. (13) Registrant's Annual Report as distributed to stockholders for the fiscal year ended December 31, 1998, filed herewith. (18) Letter regarding Change in Accounting Principles, filed herewith. (21) Subsidiaries of the Registrant, filed herewith. (23) Consent of Independent Accountants, filed herewith. (24) Powers of Attorney of certain Directors of Registrant, filed herewith. (27) Financial Data Schedule, filed herewith. (ii) Other exhibits: Financial statements (and consent of independent accountants) pursuant to Form 11-K and Rule 15D-21 for the year ended December 31, 1998, for the Capital Accumulation Plan for Salaried Employees of M. A. Hanna Company and Associated Companies, and for stock purchase/savings plans of Registrant's subsidiaries and divisions will be filed as exhibits to the Form 10-K under a Form 10-K/A amendment not later than June 29, 1999. (b) Since September 30, 1998, Registrant has filed no report on Form 8-K. (c) The response to this portion of Item 14 is submitted as a separate Section commencing on page X-1 of this Form 10-K. (d) The response to this portion of Item 14 is submitted as a separate section commencing on page F-1 of this Form 10-K. Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. M. A. HANNA COMPANY (Registrant) Date: March 22, 1999 By /s/J. S. Pyke, Jr. J. S. Pyke, Jr. Vice President, General Counsel and Secretary Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Date: March 22, 1999 By /s/M. D. Walker _____ M. D. Walker Chairman and Chief Executive Officer (Principal Executive Officer) and Director Date: March 22, 1999 By /s/M. S. Duffey M. S. Duffey Senior Vice President Finance and Administration (Principal Financial Officer) Date: March 22, 1999 By /s/T. E. Lindsey T. E. Lindsey Controller (Principal Accounting Officer) C. A. Cartwright, Director W. R. Embry, Director J. T. Eyton, Director R. A. Garda, Director By /s/T. E. Lindsey G. D. Harnett, Director T. E. Lindsey Attorney-In Fact G. D. Kirkham, Director Date: March 22, 1999 D. B. Lewis, Director M. L. Mann, Director R. W. Pogue, Director FORM 10-K ITEM 14(a)(1) and (2) FINANCIAL STATEMENTS AND SCHEDULES M.A. HANNA COMPANY The following consolidated financial statements of the Registrant and its consolidated subsidiaries, included in the annual report of the Registrant to its stockholders for the year ended December 31, 1998, are incorporated herein by reference in Item 8: Summary of accounting policies Consolidated balance sheets - December 31, 1998 and 1997 Consolidated statements of income, stockholders' equity and cash flows - years ended December 31, 1998, 1997 and 1996 Notes to financial statements The following consolidated financial information, together with the report of the independent accountants, are included in Item 14(d): Schedule II - Valuation and qualifying accounts All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. Financial statements of unconsolidated subsidiaries or 50% or less owned persons accounted for by the equity method have been omitted because they do not, considered individually or in the aggregate, constitute a significant subsidiary. F-1 Report of Independent Accountants on Financial Statement Schedule To the Board of Directors of M.A. Hanna Company Our audits of the consolidated financial statements referred to in our report dated January 27, 1999 appearing on page 30 of the 1998 Annual Report to Stockholders of M.A. Hanna Company (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 14(a) of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PricewaterhouseCoopers LLP Cleveland, Ohio January 27, 1999 F-2 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS M. A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES COL. A COL. B COL. C ADDITIONS (1) (2) Charged Charged Balance to Costs to Other at Beginning and Accounts DESCRIPTION of Period Expenses - Describe Year ended December 31, 1998: Deducted from asset accounts: Allowance for doubtful accounts $ 8,649,000 $ 2,596,000 $ 49,000(a) Reserve for Profit Improvement Plan - 29,800,000 - Year ended December 31, 1997: Deducted from asset accounts: Allowance for doubtful accounts 7,572,000 4,073,000 84,000(a) Year ended December 31, 1996: Deducted from asset accounts: Allowance for doubtful accounts 11,034,000 3,362,000 934,000(a) COL. A COL. D COL. E Deductions - Balance at End Describe of Period DESCRIPTION Year ended December 31, 1998: Deducted from asset accounts: Allowance for doubtful accounts $ 1,537,000(b) $ 9,757,000 Reserve for Profit Improvement Plan 19,601,000(c) 10,199,000 Year ended December 31, 1997: Deducted from asset accounts: Allowance for doubtful accounts 3,080,000(b) 8,649,000 Year ended December 31, 1996: Deducted from asset accounts: Allowance for doubtful accounts 7,758,000(b) 7,572,000 (a) Reserves of companies acquired and translation impact of foreign reserves. (b) Uncollectible amounts written off. (c) Asset write-offs, severance payments and plant closure costs. F-3 ITEM 14(c) EXHIBIT LIST Sequential Page No. (i) Exhibits filed pursuant to Regulation S-K (Item 601): (3) Articles of Incorporation and By-laws. (a) Registrant's Articles of Incorporation (as amended and restated as of May 1, 1996, and currently in effect), filed as Exhibit 3(a) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 and incorporated herein by this reference. (b) Registrant's by-laws (as adopted as of November 5, 1997 and currently in effect), filed as Exhibit 3(ii) to Registrant's Current Report on Form 8-K dated November 10, 1997, and incorporated herein by this reference. (4) Instruments Defining the Rights of Security Holders: (a) Indenture dated November 9, 1996, between the Registrant and NBD Bank, as trustee, governing Registrant's Medium Term Notes, a form of which was filed as Exhibit 4.1 to Registrant's Form S-3 filed on June 12, 1996 and incorporated herein by this reference. (b) Credit and Guarantee Agreement, dated January 31, 1997 between the Registrant, Bank of America, N.T. & N.A. and the other banks signatory thereto, a copy of which will be provided to the Commission upon request. (c) Indenture dated September 15, 1991 between the Registrant and Ameritrust Company, National Association, Trustee relating to Registrant's $150,000,000 aggregate principal amount of 9 3/8% Senior notes due 2003, filed as Exhibit 4 to the Registrant's Form S-3 filed on September 18, 1991, and incorporated herein by this reference. (d) Associates Ownership Trust Agreement dated September 12, 1991, between Registrant and Wachovia Bank of North Carolina, filed as Exhibit 28.3 to Registrant's Current Report on Form 8-K dated September 12, 1991, and incorporated herein by this reference. (10) Material Contracts: *(a) 1988 Long-Term Incentive Plan, and forms of Grants of Stock Options, Grants of Appreciation Rights and Grants of Long-Term Incentive Units thereunder, filed as Exhibit 10(e) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1988, and incorporated herein by this reference. Also forms of 1989 Stock Option Agreement, 1989 Grant of Appreciation Rights and 1989 Grant of Long-Term Incentive Units, filed as Exhibit 10(e) to Registrant's Annual Report on Form 10- K for the fiscal year ended December 31, 1989 and incorporated herein by this reference. Also 1990 Amendment to the Plan, filed as Exhibit 10(e) to Registrant's Form 10-K for the fiscal year ended December 31, 1990 and incorporated herein by this reference and forms of 1990 Stock Option Agreement, 1990 Grant of Appreciation Rights and 1990 Grant of Long-Term Incentive Units, filed as Exhibit 10(e) to Registrant's Form 10-K for the fiscal year ended December 31, 1990 and incorporated herein by this reference. Also 1991 Amendment to the Plan, filed as Exhibit 10(f) to Registrant's Form 10- K for the fiscal year ended December 31, 1991, and incorporated herein by this reference. Also 1994 Amendment to the Plan, filed as Exhibit A to Registrant's definitive proxy statement distributed to stockholders dated March 17, 1994 and incorporated herein by this reference. Also forms of Stock Option Agreement, Performance Share Award Agreement and Restricted Stock Agreement entered into by all participants in the Plan, filed as Exhibit 10(a) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and incorporated herein by this reference. *(b) Form of Supplemental Deferred Compensation agreement in which any of the five most highly compensated executive officers of the Registrant participates, filed as Exhibit 10(e) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated herein by this reference. *(c) Form of Supplemental Death Benefits agreement in which any of the five most highly compensated executive officers of the Registrant participates, filed as Exhibit 10(f) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated herein by this reference. *(d) Form of Amended and Restated Employment Agreement dated as of August 5, 1998 between Registrant and certain of Registrant's executive officers, filed herewith. 39 *(e) Description of Directors' compensation and retirement benefit, set forth in the section captioned "Directors' Compensation" on page 14 of Registrant's definitive proxy statement dated March 18, 1999, as distributed to stockholders and filed with the Commission pursuant to Regulation 14A, which section is incorporated herein by this reference. *(f) Excess Benefit Plan in which any of the five most highly compensated executive officers of the Registrant participates, filed as Exhibit 10(j) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992 and incorporated herein by this reference. *(g) Supplemental Retirement Benefit Plan in which any of the five most highly compensated executive officers of the Registrant participates, filed as Exhibit 10(k) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992 and incorporated herein by this reference. Also, Amendment and Restatement of M.A. Hanna Company Supplemental Retirement Plan dated as of January 1, 1999, filed herewith. 59 *(h) Voluntary Non-Qualified Deferred Compensation Plan in which any of the five most highly compensated executive officers of the Registrant participates, filed as Exhibit A to the Registrant's definitive proxy statement distributed to stockholders dated March 20, 1995 filed with the Commission pursuant to Regulation 14A, which Exhibit A is incorporated herein by this reference. (i) Termination Agreement and Release between Registrant and its former Chairman of the Board and Chief Executive Officer, D. J. McGregor, dated as of October 7, 1998, filed herewith. 80 [*- Identifies management contract or compensation plans or arrangements filed pursuant to Item 601(b) (10) (iii) (A) ] (11) Computation of per share earnings, filed herewith. 90 (13) Registrant's Annual Report as distributed to stockholders for the fiscal year ended December 31, 1998, filed herewith. 91 (18) Letter regarding Change in Accounting Principles, filed herewith. 127 (21) Subsidiaries of the Registrant, filed herewith. 128 (23) Consent of Independent Accountants, filed herewith. 129 (24) Powers of Attorney of certain Directors of Registrant, filed herewith. 130 (27) Financial Data Schedule, filed herewith. 140 (ii) Other exhibits: Financial statements (and consent of independent accountants) pursuant to Form 11-K and Rule 15D-21 for the year ended December 31, 1998, for the Capital Accumulation Plan for Salaried Employees of M. A. Hanna Company and Associated Companies, and for stock purchase/savings plans of Registrant's subsidiaries and divisions will be filed as exhibits to the Form 10-K under a Form 10-K/A amendment not later than June 29, 1999. (b) Since September 30, 1998, Registrant has filed no report on Form 8-K. (c) The response to this portion of Item 14 is submitted as a separate Section commencing on page X-1 of this Form 10- K. (d) The response to this portion of Item 14 is submitted as a separate section commencing on page F-1 of this Form 10- K. EX-10 2 Item 14(c) Exhibit (i) (10) (d) AMENDED AND RESTATED EMPLOYMENT AGREEMENT This Amended and Restated Employment Agreement (this "Agreement"), dated as of August 5, 1998, by and between M.A. HANNA COMPANY, a Delaware corporation (the "Company") and (the "Executive"); WITNESSETH: WHEREAS, the Executive is an executive officer of the Company and has made and is expected to continue to make major contributions to the short- and long-term profitability, growth and financial strength of the Company; WHEREAS, the Company recognizes that, as is the case for most publicly held companies, the possibility of a Change in Control (as that term is hereafter defined) exists; WHEREAS, the Company desires to assure itself of both present and future continuity of management in the event of a Change in Control and, having established certain employment rights of its key executive officers applicable in the event of a Change in Control, now desires to include the Executive among the key senior executives with such employment rights; WHEREAS, the Company wishes to ensure that its executive officers are not practically disabled from discharging their duties in respect of a proposed or actual transaction involving a Change in Control; WHEREAS, this Agreement is not intended to alter materially the compensation and benefits which the Executive could reasonably expect to receive from the Company absent a Change in Control and, accordingly, although effective and binding as of the date hereof, this Agreement shall become operative only upon the occurrence of a Change in Control; WHEREAS, the Executive is willing to render services to the Company on the terms and subject to the conditions set forth in this Agreement; and WHEREAS, the Company desires to take action to provide additional inducement for the Executive to continue to remain in the ongoing employ of the Company; NOW, THEREFORE, the Company and the Executive agree as follows: 1. Operation of Agreement: (a) This Agreement shall be effective and binding immediately upon its execution, but, anything in this Agreement to the contrary notwithstanding, this Agreement shall not become operative unless and until a Change in Control occurs. For purposes of this Agreement, a "Change in Control" shall have occurred if at any time during the Term (as that term is hereafter defined) any of the following events shall occur: (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 15% or more of either: (A) the then-outstanding shares of common stock of the Company (the "Company Common Stock") or (B) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors ("Voting Stock"); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company, (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary of the Company, or (D) any acquisition by any Person pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) of this Section 1(a); or (ii) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason (other than death or disability) to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be considered as though such individual were a member of the Incumbent Board, but excluding for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest (within the meaning of Rule 14a-11 of the Exchange Act) with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Company Common Stock and Voting Stock immediately prior to such Business Combination beneficially own, directly or indirectly, more than 66.6% of, respectively, the then-outstanding shares of common stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions relative to each other as their ownership, immediately prior to such Business Combination, of the Company Common Stock and Voting Stock of the Company, as the case may be, (B) no Person (excluding any entity resulting from such Business Combination or any employee benefit plan (or related trust) sponsored or maintained by the Company or such entity resulting from such Business Combination) beneficially owns, directly or indirectly, 15% or more of, respectively, the then- outstanding shares of common stock of the entity resulting from such Business Combination, or the combined voting power of the then-outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (iv) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. (b) Upon the occurrence of a Change in Control at any time during the Term, without further action, this Agreement shall become immediately operative. (c) The period during which this Agreement shall be in effect (the "Term") shall commence as of the date hereof and shall expire as of the later of (i) the close of business on December 31, 2001 and (ii) the expiration of the Period of Employment (as that term is hereafter defined), provided, however, that (A) commencing on the first day of the first calendar year after the year in which this Agreement is executed and each January 1 thereafter, the term of this Agreement shall automatically be extended for an additional year unless, not later than September 30 of the immediately preceding year, the Company or the Executive shall have given written notice that it or he, as the case may be, does not wish to have the Term extended, and (B) subject to Section 10 hereof, if, prior to a Change in Control, the Executive ceases for any reason to be an officer of the Company or any Subsidiary, thereupon the Term, without further action, shall be deemed to have expired and this Agreement shall immediately terminate and be of no further effect. 2. Employment; Period of Employment: (a) Subject to the terms and conditions of this Agreement, upon the occurrence of a Change in Control, the Company shall continue the Executive in its employ and the Executive shall remain in the employ of the Company for the period set forth in Section 2(b) hereof (the "Period of Employment"), in the position and with substantially the same duties and responsibilities that he had immediately prior to the Change in Control, or to which the Company and the Executive may hereafter mutually agree in writing. Throughout the Period of Employment, the Executive shall devote substantially all of his time during normal business hours (subject to vacations, sick leave and other absences in accordance with the policies of the Company as in effect for senior executives immediately prior to the Change in Control) to the business and affairs of the Company, but nothing in this Agreement shall preclude the Executive from devoting reasonable periods of time during normal business hours to (i) serving as a director, trustee or member of or participant in any organization or business as long as such activity would not constitute Competitive Activity if conducted by the Executive after the Executive's Termination Date, (ii) engaging in charitable and community activities, or (iii) managing his personal investments. For purposes of this Agreement, the term "Competitive Activity" shall mean the Executive's participation in the management of any business enterprise if such enterprise engages in substantial and direct competition with the Company. "Competitive Activity" shall not include the mere ownership of securities in any such enterprise and the exercise of rights appurtenant thereto. (b) The Period of Employment shall commence on the date of an occurrence of a Change in Control and, subject only to the provisions of Sections 1(b) and 5 hereof, shall continue until the earlier of (i) the expiration of the third anniversary of the occurrence of the Change in Control, (ii) the Executive's death, or (iii) the Executive's attainment of age 65; provided, however, that commencing on each anniversary of the Change in Control, the Period of Employment shall automatically be extended for an additional year unless, not later than 90 calendar days prior to such anniversary date, either the Company or the Executive shall have given written notice to the other that the Period of Employment shall not be so extended. 3. Compensation During Period of Employment: (a) For his services pursuant to Section 2(a) hereof, upon the occurrence of a Change in Control, the Executive shall receive during the Period of Employment (i) annual base salary at the highest rate in effect in the twelve months prior to the occurrence of the Change in Control (payable monthly or otherwise as in effect for senior executives of the Company immediately prior to the occurrence of the Change in Control) or such higher rate as may be determined from time to time by the Board of Directors of the Company (the "Board") or the Compensation and Organization Committee thereof (the "Committee") (which base salary at such rate is herein referred to as "Base Pay") and (ii) an annual amount equal to not less than the average aggregate annual bonus, incentive or other payments of cash compensation in addition to the amounts referred to in clause (i) above made or to be made in regard to services rendered during the three calendar years immediately preceding the year in which the Change in Control occurred pursuant to any bonus, short-term incentive, profit-sharing, performance, discretionary pay or similar policy, plan, program or arrangement of the Company or any successor thereto ("Incentive Pay"), provided, however, that, (x) with the prior written consent of the Executive, nothing herein shall preclude a change in the mix between Base Pay and Incentive Pay so long as the aggregate cash compensation received by the Executive in any one calendar year is not reduced in connection therewith or as a result thereof, (y) the aggregate of the Executive's Base Pay and Incentive Pay may be reduced as provided in Section 6(a)(iii) hereof, and (z) in no event shall any increase in the Executive's aggregate cash compensation or any portion thereof in any way diminish any other obligations of the Company under this Agreement. (b) For his services pursuant to Section 2(a) hereof, during the Period of Employment the Executive shall be a full participant in, and shall be entitled to the perquisites, benefits and service credit for benefits as provided under any and all employee retirement income and welfare benefit policies, plans, programs or arrangements in which senior executives of the Company were entitled to participate immediately prior to the Change in Control, including without limitation any stock option, stock purchase, stock appreciation, savings, pension, supplemental executive retirement or other retirement income or welfare benefit, deferred compensation, long-term incentive compensation, group and/or other executive life, health, medical/hospital or other insurance (whether funded by actual insurance or self-insured by the Company), disability, salary continuation, expense reimbursement and other policies, plans, programs or arrangements providing perquisites, benefits and service credit for benefits at least as great as are payable thereunder prior to a Change in Control (collectively, "Employee Benefits"), provided, however, that except as expressly provided in, and subject to the terms of, Sections 6(b)(ii) and (iii) hereof, the Executive's rights thereunder shall be governed by the terms thereof and shall not be enlarged hereunder or otherwise affected hereby. Subject to the proviso in the immediately preceding sentence, if and to the extent such perquisites, benefits or service credit for benefits are not payable or provided under any such policy, plan, program or arrangement as a result of the amendment or termination thereof, then the Company shall itself pay or provide therefor. Nothing in this Agreement shall preclude improvement or enhancement of any such Employee Benefits, provided that no such improvement shall in any way diminish any other obligation of the Company under this Agreement. 4. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding, in the event that this Agreement shall become operative and it shall be determined (as hereafter provided) that any payment or distribution by the Company or any of its affiliates to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise pursuant to or by reason of any other agreement, policy, plan, program or arrangement, including without limitation any stock option, stock appreciation right or similar right, or the lapse or termination of any restriction on or the vesting or exercisability of any of the foregoing (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") (or any successor provision thereto) by reason of being considered "contingent on a change in ownership or control" of the Company, within the meaning of Section 280G of the Code (or any successor provision thereto) or to any similar tax imposed by state or local law, or any interest or penalties with respect to such tax (such tax or taxes, together with any such interest and penalties, being hereafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment or payments (collectively, a "Gross-Up Payment"); provided, however, that no Gross-up Payment shall be made with respect to the Excise Tax, if any, attributable to (i) any incentive stock option, as defined by Section 422 of the Code ("ISO") granted prior to the execution of this Agreement, or (ii) any stock appreciation or similar right, whether or not limited, granted in tandem with any ISO described in clause (i). The Gross-Up Payment shall be in an amount such that, after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment. (b) Subject to the provisions of Section 4(f) hereof, all determinations required to be made under this Section 4, including whether an Excise Tax is payable by the Executive and the amount of such Excise Tax and whether a Gross-Up Payment is required to be paid by the Company to the Executive and the amount of such Gross-Up Payment, if any, shall be made by a nationally recognized accounting firm (the "Accounting Firm") selected by the Executive in his sole discretion. The Executive shall direct the Accounting Firm to submit its determination and detailed supporting calculations to both the Company and the Executive within 30 calendar days after the Termination Date, if applicable, and any such other time or times as may be requested by the Company or the Executive. If the Accounting Firm determines that any Excise Tax is payable by the Executive, the Company shall pay the required Gross-Up Payment to the Executive within five business days after receipt of such determination and calculations with respect to any Payment to the Executive. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall, at the same time as it makes such determination, furnish the Company and the Executive an opinion that the Executive has substantial authority not to report any Excise Tax on his federal, state or local income or other tax return. As a result of the uncertainty in the application of Section 4999 of the Code (or any successor provision thereto) and the possibility of similar uncertainty regarding applicable state or local tax law at the time of any determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (an "Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts or fails to pursue its remedies pursuant to Section 4(f) hereof and the Executive thereafter is required to make a payment of any Excise Tax, the Executive shall direct the Accounting Firm to determine the amount of the Underpayment that has occurred and to submit its determination and detailed supporting calculations to both the Company and the Executive as promptly as possible. Any such Underpayment shall be promptly paid by the Company to, or for the benefit of, the Executive within five business days after receipt of such determination and calculations. (c) The Company and the Executive shall each provide the Accounting Firm access to and copies of any books, records and documents in the possession of the Company or the Executive, as the case may be, reasonably requested by the Accounting Firm, and otherwise cooperate with the Accounting Firm in connection with the preparation and issuance of the determinations and calculations contemplated by Section 4(b) hereof. Any determination by the Accounting Firm as to the amount of the Gross-Up Payment shall be binding upon the Company and the Executive. (d) The federal, state and local income or other tax returns filed by the Executive shall be prepared and filed on a consistent basis with the determination of the Accounting Firm with respect to the Excise Tax payable by the Executive. The Executive shall make proper payment of the amount of any Excise Payment, and at the request of the Company, provide to the Company true and correct copies (with any amendments) of his federal income tax return as filed with the Internal Revenue Service and corresponding state and local tax returns, if relevant, as filed with the applicable taxing authority, and such other documents reasonably requested by the Company, evidencing such payment. If prior to the filing of the Executive's federal income tax return, or corresponding state or local tax return, if relevant, the Accounting Firm determines that the amount of the Gross-Up Payment should be reduced, the Executive shall within five business days pay to the Company the amount of such reduction. (e) The fees and expenses of the Accounting Firm for its services in connection with the determinations and calculations contemplated by Section 4(b) hereof shall be borne by the Company. If such fees and expenses are initially paid by the Executive, the Company shall reimburse the Executive the full amount of such fees and expenses within five business days after receipt from the Executive of a statement therefor and reasonable evidence of his payment thereof. (f) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service or any other taxing authority that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification shall be given as promptly as practicable but no later than 10 business days after the Executive actually receives notice of such claim and the Executive shall further apprise the Company of the nature of such claim and the date on which such claim is requested to be paid (in each case, to the extent known by the Executive). The Executive shall not pay such claim prior to the earlier of (i) the expiration of the 30-calendar-day period following the date on which he gives such notice to the Company and (ii) the date that any payment of amount with respect to such claim is due. If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) provide the Company with any written records or documents in his possession relating to such claim reasonably requested by the Company; (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including without limitation accepting legal representation with respect to such claim by an attorney competent in respect of the subject matter and reasonably selected by the Company; (iii) cooperate with the Company in good faith in order effectively to contest such claim; and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including interest and penalties) incurred in connection with such contest and shall indemnify and hold harmless the Executive, on an after-tax basis, for and against any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limiting the foregoing provisions of this Section 4(f), the Company shall control all proceedings taken in connection with the contest of any claim contemplated by this Section 4(f) and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim (provided, however, that the Executive may participate therein at his own cost and expense) and may, at its option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay the tax claimed and sue for a refund, the Company shall advance the amount of such payment to the Executive on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income or other tax, including interest or penalties with respect thereto, imposed with respect to such advance; and provided further, however, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which the contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of any such contested claim shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (g) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 4(f) hereof, the Executive receives any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 4(f) hereof) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after any taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 4(f) hereof, a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial or refund prior to the expiration of 30 calendar days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of any such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid by the Company to the Executive pursuant to this Section 4. 5. Termination Following a Change in Control: In the event of the occurrence of a Change in Control, the Executive's employment may be terminated by the Company during the Period of Employment and the Executive shall be entitled to the damages provided by Section 6(b) hereof unless such termination is solely the result of the occurrence of one or more of the following events: (a) The Executive's death; (b) If the Executive shall become permanently disabled within the meaning of, and begins actually to receive disability benefits pursuant to, the long-term disability plan in effect for senior executives of the Company immediately prior to the Change in Control; or (c) "Cause", which for purposes of this Agreement shall mean that, prior to any termination pursuant to Section 5 hereof, the Executive shall have committed: (i) an intentional act of fraud, embezzlement or theft in connection with his duties or in the course of his employment with the Company; (ii) intentional wrongful damage to property of the Company; (iii) intentional wrongful disclosure of proprietary or confidential information of the Company; or (iv) intentional wrongful engagement in any Competitive Activity; and any such act shall have been materially harmful to the Company. "Cause" shall also mean that, prior to such termination, the Executive shall have been convicted for a crime involving moral turpitude, which conviction if appealed shall have been sustained on appeal. For purposes of this Agreement, no act, or failure to act, on the part of the Executive shall be deemed "intentional" if it was due primarily to an error in judgment or negligence, but shall be deemed "intentional" only if done, or omitted to be done, by the Executive not in good faith and without reasonable belief that his action or omission was in, or not opposed to, the best interest of the Company. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for "Cause" hereunder unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the Board then in office at a meeting of the Board called and held for such purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with his counsel (if the Executive chooses to have counsel present at such meeting), to be heard before the Board, finding that, in good faith opinion of the Board, the Executive had committed an act constituting "Cause" as herein defined and specifying the particulars thereof in detail. Nothing herein shall limit the right of the Executive or his beneficiaries to contest the validity or propriety of any such determination. 6. Damages for Breach by Company: (a) Each and every term of Executive's employment set forth in Sections 2, 3 and 4 hereof is deemed to be a material term of this Agreement, and any failure by the Company to perform any term thereof precisely as provided herein shall be deemed a material breach of this Agreement and a rejection of an offer by the Executive to work for the Company on the terms provided in this Agreement, entitling Executive to repudiate this Agreement and to cease performing any services for the Company, and thereupon Executive shall be entitled to the damages provided in Section 6(b) hereof. Without limiting the generality of the foregoing, the taking of any of the following actions by the Company during the Period of Employment, following the occurrence of a Change in Control, shall be a material breach of this Agreement by the Company: (i) Any termination by the Company of the employment of the Executive prior to the date upon which the Executive shall have attained age 65, which termination shall be for any reason other than for Cause or as a result of the death of the Executive or by reason of the Executive's permanent disability and the actual receipt of disability benefits in accordance with Section 6(b) hereof; (ii) Failure to elect, reelect or otherwise maintain the Executive in the office or position, or a substantially equivalent office or position, of or with the Company or a Subsidiary which the Executive held immediately prior to a Change in Control, or the removal of the Executive as a Director of the Company (or any successor thereto) if the Executive shall have been a Director of the Company immediately prior to the Change in Control; (iii) Action effecting a significant adverse change in the nature or scope of the authorities, powers, functions, responsibilities or duties attached to the position with the Company which the Executive held prior to the Change in Control, a reduction in the aggregate of the Executive's Base Pay and Incentive Pay received from the Company, if such reduction does not affect all senior executives of the Company proportionately (such Base Pay and Incentive Pay shall be the higher of (x) the Base Pay and Incentive Pay at the time of the Change in Control and (y) the Base Pay and Incentive Pay at the date of the Executive's termination), or the termination or denial of the Executive's rights to Employee Benefits to which he was entitled immediately prior to the Change in Control or a significant reduction in scope or value thereof, any which situation is not remedied within 10 calendar days after receipt by the Company of written notice from the Executive; (iv) A determination by the Executive (which determination shall be conclusive and binding upon the parties hereto provided that it was made in good faith and in all events shall be presumed to have been made in good faith unless otherwise shown by the Company by clear and convincing evidence) that a change in circumstances has occurred following a change in control, including without limitation, a change in the scope of the business or other activities for which the Executive was responsible immediately prior to the Change in Control, a substantial reduction in any of the authorities, powers, functions, responsibilities or duties attached to the position held by the Executive immediately prior the Change in Control, or a significant hindrance to the Executive's ability to perform his duties, any which situation is not remedied within 10 calendar days after receipt by the Company of written notice of such determination from the Executive; (v) The liquidation, dissolution, merger, consolidation or reorganization of the Company or transfer of all or a significant portion of its business and/or assets, unless the successor or successors (by liquidation, merger, consolidation, reorganization, transfer or otherwise) to which all or a significant portion of its business and/or assets have been transferred (directly or by operation of law) shall have assumed all duties and obligations of the Company under this Agreement pursuant to Section 12 hereof; (vi) The Company shall relocate its principal executive offices, or require the Executive to have his principal location of work changed, to any location which is in excess of 25 miles from the location thereof immediately prior to the Change in Control or the Company shall require the Executive to travel away from his office in the course of discharging his responsibilities or duties hereunder significantly more (in terms of either consecutive days or aggregate days in any calendar year when annualized for purposes of comparison to any prior year) than was required of him prior to the Change in Control without, in either case, his prior written consent; or (vii)Without limiting the generality or effect of the foregoing, any other material breach of this Agreement by the Company or any successor thereto. (b) If, following the occurrence of a Change in Control, the Company shall terminate the Executive's employment during the Period of Employment other than pursuant to Section 5 hereof, or if there shall be a material breach of this Agreement by the Company as provided in Section 6(a) hereof, the Company shall pay or provide to the Executive the following, as liquidated damages: (i) the amount specified below within five business days after the date (the "Termination Date") that the Executive's employment is terminated (the effective date of which shall be the date of termination or such other date that may be specified by the Executive if the termination is pursuant to Section 6(a) hereof): In lieu of any further payments to the Executive for periods subsequent to the Termination Date, but without affecting the rights of the Executive referred to in Section 6(b)(ii) or 6(b)(iii) hereof, a lump sum payment (the "Lump Sum Damages") in an amount equal to the present value (using a discount rate prescribed for purposes of valuation computations under Section 280G of the Code or any successor provision thereto (the "Discount Rate")) of the sum of (A) Base Pay (at the highest rate in effect for any year prior to the Termination Date), which the Executive would have received had such termination or breach not occurred, for the longer of (1) 18 months or (2) the remainder of the Period of Employment, plus (B) Incentive Pay (based upon the average amount of Incentive Pay earned in the three fiscal years immediately preceding the year in which the Change in Control occurred), which the Executive would have received pursuant to this Agreement during or with respect to the longer of (1) 18 months or (2) the remainder of the Period of Employment, had such termination or breach not occurred; and (ii) For the longer of (A) 18 months or (B) the remainder of the Period of Employment (the "Continuation Period"), Employee Benefits that are health or welfare benefits (but not stock option, stock purchase, stock appreciation or similar compensatory benefits) substantially similar to those which the Executive was receiving or entitled to receive immediately prior to the Termination Date. If and to the extent that such benefits shall not or cannot be paid or provided under any policy, plan, program or arrangement of the Company, then the Company shall itself pay or provide for the payment to the Executive, his dependents and beneficiaries, such Employee Benefits. Notwithstanding the foregoing, or any other provision of the Agreement, for purposes of determining the period of continuation coverage to which the Executive or any of his dependents is entitled pursuant to Section 4980B of the Code (or any successor provision thereto) under the Company's medical, dental and other group health plans, or successor plans, the Executive's "qualifying event" shall be the termination of the Continuation Period and the Executive shall be considered to have remained actively employed on a full- time basis through that date. Without otherwise limiting the purposes or effect of Section 7 hereof, Employee Benefits payable to the Executive pursuant to this Section 6(b)(ii) by reason of any "welfare benefit plan" of the Company (as the term "welfare benefit plan" is defined in Section 3(l) and any successor provision thereto of the Employee Retirement Income Security Act of 1974, as amended) shall be reduced to the extent comparable welfare benefits are actually received by the Executive from another employer during such period following the Executive's Termination Date until the expiration of the Continuation Period and any such benefits actually received by the Executive shall be reported to the Company. (iii) The Executive shall also be entitled to receive from the Company, within five business days after the Termination Date, a lump sum payment equal to the sum of (I) the present value (determined using a discount rate prescribed for purposes of valuation computations under Section 280G of the Code in any successor provision thereto) of the excess of (X) what the Executive's aggregate accrued benefits under all of the Company's defined benefit plans in which the Executive participates, whether or not such plans are intended to be qualified under Section 401(a) of the Code (including without limitation the M.A. Hanna Company Salaried Employees Retirement Income Plan and the M.A. Hanna Company Supplemental Retirement Benefit Plan (the "Supplemental Plan")), would be if determined after the Executive was given service credit thereunder (at the rate of pay provided for in Section 3(a)) for the 36-month period following the Termination Date over (Y) the Executive's actual aggregate accrued benefit under such plans as of the Termination Date, plus (II) the aggregate employer contributions that the Company would be required to make to the Executive's accounts under all of the Company's defined contribution plans in which the Executive participates, whether or not such plans are intended to be qualified under Section 401(a) of the Code (including, without limitation, the M.A. Hanna Company Capital Accumulation Plan and the Supplemental Plan), for the 36-month period following the Termination Date if (1) the Executive remained employed by the Company for such period, (2) the Executive continued during such period to authorize his own elective contributions to such plans at the highest rate selected by the Executive during either the three- year period preceding the Termination Date or the three- year period preceding the Change in Control and (3) the rate at which the Company made matching, discretionary or nondiscretionary employer contributions to such plans during such period was at the highest rate for each such type of contribution that was in effect at any time during either the three-year period preceding the Termination Date or the three-year period preceding the Change in Control. (c) A termination by the Company pursuant to Section 5 or 6(a)(i) hereof or by the Executive pursuant to Section 6(a) hereof shall not affect any rights which the Executive may have pursuant to any agreement, policy, plan, program or arrangement of the Company providing Employee Benefits, which rights shall be governed by the terms thereof. If this Agreement or the employment of the Executive is terminated under circumstances in which the Executive is not entitled to any payments under this Agreement, the Executive shall have no further obligation or liability to the Company hereunder with respect to his prior or any future employment by the Company. (d) Upon written notice given by the Executive to the Company prior to the occurrence of a Change in Control, the Executive, at his sole option, without reduction to reflect the present value of such amounts as aforesaid, may elect to have all or any of the Lump Sum Damages payable pursuant to Section 6(b)(i) hereof paid to him on a quarterly or monthly basis during the remainder of the Period of Employment. (e) There shall be no right of set-off or counterclaim in respect of any claim, debt or obligation against any payment to or benefit for the Executive provided for in this Agreement. (f) Without limiting the rights of the Executive at law or in equity, if the Company fails to make any payment required to be made hereunder on a timely basis, the Company shall pay interest on the amount thereof at an annualized rate of interest equal to the then applicable interest rate prescribed by the Pension Benefit Guarantee Corporation for benefit valuations in connection with non- multiemployer pension plan terminations assuming the immediate commencement of benefit payments. Such interest shall be payable as it accrues on demand. 7. Mitigation: In the event that this Agreement or the employment of the Executive by the Company hereunder is terminated other than by the Company pursuant to Section 5 hereof, the Executive shall use reasonable efforts to mitigate his damages by seeking other employment, provided, however, that in no event shall the Executive be required hereby to accept a position of less importance or dignity or of substantial different character than the position held as of the Termination Date or a position that would call upon the Executive to engage in Competitive Activity (as that term is hereafter defined), nor shall he be required hereby to accept a position other than in a location within 25 miles of his principal location of work immediately prior to the Change in Control. Subject to the foregoing provisions of this Section 7, in the event that the Executive secures other permanent employment with another Person, he shall promptly pay over to the Company, as received by him in his new employment, an amount equal to the lesser of (i) the total cash compensation actually paid to him in his new employment during the period of Employment, and (ii) the amount of Lump Sum Damages received by him pursuant to Section 6(b)(i) hereof (plus interest thereon using the Discount Rate as in effect when the payment was made under Section 6(b)(i) hereof as the annualized interest rate) or Section 6(d) hereof in respect of the comparable period. Except as otherwise expressly provided in this Section 7, the Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise. 8. Competitive Activity: If the Executive shall have received or shall be receiving benefits under Section 6(b) or 6(d) hereof, then for the longer of (i) one year, or (ii) the period of time that the Executive receives benefits under Section 6(b) or 6(d) hereof, the Executive shall not engage in any Competitive Activity. For purposes of this Agreement, the term "Competitive Activity" shall mean the Executive's participation in the management of any business enterprise if such enterprise engages in substantial and direct competition with the Company. "Competitive Activity" shall not include the mere ownership of securities in any such enterprise and the exercise of rights appurtenant thereto. 9. Legal Fees and Expenses: (a) It is the intent of the Company that the Executive not be required to incur the expenses associated with the enforcement of his rights under this Agreement by litigation or other legal action because the cost and expense thereof would substantially detract from the benefits intended to be extended to the Executive hereunder. Accordingly, if it should appear to the Executive that the Company has failed to comply with any of its obligations under this Agreement or in the event that the Company or any other Person takes any action to declare this Agreement void or unenforceable, or institutes any litigation to deny, or to recover from, the Executive the benefits intended to be provided to the Executive hereunder, the Company irrevocably authorizes the Executive from time to time to retain counsel of his choice, at the expense of the Company as hereafter provided, to represent the Executive in connection with the initiation or defense of any litigation or other legal action, whether by or against the Company or any Director, officer, stockholder or other person affiliated with the Company, in any jurisdiction. Notwithstanding any existing or prior attorney-client relationship between the Company and such counsel, the Company irrevocably consents to the Executive's entering into an attorney-client relationship with such counsel, and in that connection the Company and the Executive agree that a confidential relationship shall exist between the Executive and such counsel. The Company shall pay or cause to be paid and shall be solely responsible for any and all attorneys' and related fees and expenses incurred by the Executive as a result of the Company's failure to perform this Agreement or any provision thereof or as a result of the Company or any Person contesting the validity or enforceability of this Agreement or any provision hereof as aforesaid. (b) Without limiting the obligations of the Company pursuant to this Agreement, in the event a Change in Control occurs, the performance of the Company's obligations under this Agreement shall be secured by amounts deposited or to be deposited in trust pursuant to certain trust agreements to which the Company shall be a party, providing, among other things for the payment of severance compensation to the Executive pursuant to Section 6 hereof, and the Gross- Up Payment to the Executive pursuant to Section 4 hereof, and providing that the reasonable fees and related expenses of one or more professionals selected from time to time by the Executive pursuant to Section 9(a) hereof shall be paid, or reimbursed to the Executive if paid by the Executive, either in accordance with the terms of such trust agreements, or, if not so provided, on a regular, periodic basis upon presentation by the Executive to the trustee of a statement or statements prepared by such professional in accordance with its customary practices. Any failure by the Company to satisfy any of its obligations under this Section 9(b) shall not limit the rights of the Executive hereunder. Upon the earlier to occur of (i) a Change in Control or (ii) a declaration by the Board that a Change in Control is imminent, the Company shall promptly to the extent it has not previously done so, and in any event within five business days: (A) transfer to trustees of such trust agreements to be added to the principal of the trusts a sum equal to (I) the present value on the date of the Change in Control (or on such fifth business day if the Board has declared a Change in Control to be imminent) of the payments to be made to the Executive under the provisions of Sections 6 and 4 hereof, less (II) the balance in the Executive's accounts provided for in such trust agreements as of the most recent completed valuation thereof, as certified by the trustee under each trust agreement; provided, however, that if the trustee under any trust agreement, respectively, does not so certify by the end of the fourth business day after the earlier of such Change in Control or declaration, then the balance of such respective account shall be deemed to be zero. Any payments of severance compensation or other benefits hereunder by the trustee pursuant to any trust agreement shall, to the extent thereof, discharge the Company's obligation to pay severance compensation and other benefits hereunder, it being the intent of the Company that assets in such trusts be held as security for the Company's obligation to pay severance compensation and other benefits under this Agreement; and (B) transfer to the trustees to be added to the principal of the trusts under the trust agreements the sum of one hundred thousand dollars ($100,000), less any principal in such trusts, on such fifth business day dedicated to the payment of the Company's obligations under Section 9(a) hereof. Any payments of the Executive's reasonable professional fees and related expenses by the trustees pursuant to the trust agreements shall, to the extent thereof, discharge the Company's obligation hereunder, it being the intent of the Company that assets in such trust be held as security for the Company's obligation under Section 9(a) hereof. The Executive understands and acknowledges that the corpus of the trust, or separate portion thereof, dedicated to the payment of the Company's obligations under Section 9(a) hereof will be $100,000 and that such amount will be available to discharge not only the obligations of the Company to the Executive under Section 9(a) hereof, but also similar obligations of the Company to other executives and employees under similar provisions of other agreements. (c) Subject to the foregoing, the Executive shall have the status of a general unsecured creditor of the Company and shall have no right to, or security interest in, any assets of the Company or any Subsidiary. 10. Employment Rights: Nothing expressed or implied in this Agreement shall create any right or duty on the part of the Company or the Executive to have the Executive remain in the employment of the Company prior to any Change in Control, provided, however, that any termination of employment of the Executive or the removal of the Executive from the office or position in the Company following the commencement of any discussion with a third Person that ultimately results in a Change in Control shall be deemed to be a termination or removal of the Executive after a Change in Control for purposes of this Agreement. 11. Withholding of Taxes: The Company may withhold from any amounts payable under this Agreement all federal, state, city or other taxes as shall be required pursuant to any law or government regulation or ruling. 12. Successors and Binding Agreement: (a) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent the Company would be required to perform if no such succession had taken place. This Agreement shall be binding upon and inure to the benefit of the Company and any successor to the Company, including without limitation any Persons acquiring directly or indirectly all or substantially all of the business and/or assets of the Company whether by purchase, merger, consolidation, reorganization or otherwise (and such successor shall thereafter be deemed the "Company" for the purposes of this Agreement), but shall not otherwise be assignable, transferable or delegable by the Company. (b) This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees and/or legatees. (c) This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign, transfer or delegate this Agreement or any rights or obligations hereunder except as expressly provided in Sections 11(a) and 11(b) hereof. Without limiting the generality of the foregoing, the Executive's right to receive payments hereunder shall not be assignable, transferable or delegable, whether by pledge, creation of a security interest or otherwise, other than by a transfer by his will or by the laws of descent and distribution and, in the event of any attempted assignment or transfer contrary to this Section 12(c), the Company shall have no liability to pay any amount so attempted to be assigned, transferred or delegated. (d) The Company and the Executive recognize that, except as provided in Section 6 hereof, each party will have no adequate remedy at law for breach by the other of any of the agreements contained herein and, in the event of any such breach, the Company and the Executive hereby agree and consent that the other shall be entitled to a decree of specific performance, mandamus or other appropriate remedy to enforce performance of this Agreement. 13. Notice: For all purposes of this Agreement, all communications including without limitation notices, consents, requests or approvals provided for herein shall be in writing and shall be deemed to have been duly given when delivered or five business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed to the Company (to the attention of the Corporate Secretary of the Company) at its principal executive office and to the Executive at his principal residence, or to such other address as any party may have furnished to the other in writing and in accordance herewith, except that notices of change of address shall be effective only upon receipt. 14. Governing Law: The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Ohio, without giving effect to the principles of conflict of laws of such State. 15. Validity: If any provision of this Agreement or the application of any provision hereof to any Person or circumstances is held invalid, unenforceable or otherwise illegal, the remainder of this Agreement and the application of such provision to any other Person or circumstances shall not be affected, and the provision so held to be invalid, unenforceable or otherwise illegal shall be reformed to the extent (and only to the extent) necessary to make it enforceable, valid and legal. 16. Miscellaneous: No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto or compliance with any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, expressed or implied with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. Whenever the context requires or permits, the masculine gender shall include the feminine gender. 17. Counterparts: This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same agreement. 18. Prior Agreement: This Agreement amends and restates the Employment Agreement, dated as of __________ ("Prior Agreement"), between the Company and the Executive, which Prior Agreement shall, without further action, be superseded as of the date first above written. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the date first above written. M.A. HANNA COMPANY By:___________________________ Chairman and Chief Executive Officer ___________________________ Executive EX-10 3 Item 14(c) Exhibit (i) (10) (g) AMENDMENT AND RESTATEMENT OF THE M. A. HANNA COMPANY SUPPLEMENTAL RETIREMENT BENEFIT PLAN WHEREAS, M. A. Hanna Company ("Hanna") and certain other employers have established a qualified defined benefit pension plan now known as the M. A. Hanna Company Salaried Employees Retirement Income Plan ("SERIP"); and WHEREAS, Hanna and certain other employers previously established a qualified defined contribution pension plan known as the Capital Accumulation Plan for Salaried Employees of M. A. Hanna Company and Associated Companies ("CAP"); and WHEREAS, effective December 31, 1998, Hanna amended SERIP to cease benefit accruals as of such date and, effective December 31, 1998, merged CAP with and into the M.A. Hanna Company 401(k) and Retirement Plan and Trust (the "Retirement Plan"); and WHEREAS, SERIP and the Retirement Plan, pursuant to Sections 401(a)(17), 401(k), 401(m), 402(g) and 415 of the Code, place certain restrictions on the amount of benefits and contributions that would otherwise be provided thereunder for certain participants therein; and WHEREAS, Hanna has previously established and restated this M. A. Hanna Company Supplemental Retirement Benefit Plan to provide certain SERIP and CAP participants with benefits and contributions they would have received under SERIP and CAP except for limitations described in the preceding paragraph (and certain limitations previously contained in CAP), in consideration of services performed and to be performed by each; and WHEREAS, Hanna now desires to amend and restate the Plan to provide certain Retirement Plan and SERIP participants with benefits and contributions they would have received under SERIP (prior to its amendment to cease benefit accruals effective as of December 31, 1998) and the Retirement Plan (as in effect after Hanna merged CAP with and into the Retirement Plan, effective December 31, 1998) except for the limitations described in the second preceding paragraph, in consideration of services performed and to be performed by each. NOW, THEREFORE, pursuant to the order of the Board, Hanna hereby amends and restates this Plan, effective as of January 1, 1999, as hereinafter set forth. 1. Definitions. A. Certain words and phrases used herein are defined in Article I of SERIP and/or the Retirement Plan and shall have the respective meanings set forth therein, unless otherwise specifically defined in this Plan or unless the context clearly indicates otherwise. B. "Beneficiary" shall mean such person or persons (natural or otherwise) as may be designated by the Participant as his Beneficiary under this Plan. Such a designation may be made, and may be revoked or changed (without the consent of any previously designated Beneficiary), only by an instrument (in a form acceptable to CEBA) signed by the Participant and filed with CEBA prior to the Participant's death. In the absence of such a designation and at any other time when there is no existing Beneficiary designated by the Participant to whom payment is to be made pursuant to his designation, his Beneficiary shall be his beneficiary as determined under SERIP or the Retirement Plan, whichever is applicable to the Supplemental Retirement Benefit involved. A person designated by a Participant as his Beneficiary who or which ceases to exist shall not be entitled to any part of any payment thereafter to be made to the Participant's Beneficiary unless the Participant's designation specifically provided to the contrary. If two or more persons designated as a Participant's Beneficiary are in existence, the amount of any payment to the Beneficiary under the Plan shall be divided equally among such persons unless the Participant shall have designated otherwise in the instrument filed with CEBA pursuant to this subparagraph, and any action permitted to be taken by a Beneficiary pursuant to any provision of this Plan shall not be effective unless such action is taken by all such persons other than any contingent Beneficiary who is not entitled to any payment under this Plan until after another then existing Beneficiary ceases to exist. C. "Board" shall mean the Board of Directors of Hanna. D. "CAP" shall mean the qualified defined contribution pension plan known as the Capital Accumulation Plan for Salaried Employees of M. A. Hanna Company and Associated Companies, effective as of October 1, 1985, which was merged with and into the Retirement Plan effective December 31, 1998. E. "Change in Control" shall mean: (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 15% or more of either: (I) the then-outstanding shares of common stock of Hanna (the "Hanna Common Stock") or (II) the combined voting power of the then-outstanding voting securities of Hanna entitled to vote generally in the election of directors ("Voting Stock"); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change in Control: (w) any acquisition directly from Hanna, (x) any acquisition by Hanna, (y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by Hanna or any of its subsidiaries, or (z) any acquisition by any Person pursuant to a transaction which complies with clauses (I), (II) and (III) of subsection (iii) of this Section 1(E); or (ii) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason (other than death or disability) to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by Hanna's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of Hanna in which such person is named as a nominee for director, without objection to such nomination) shall be considered as though such individual were a member of the Incumbent Board, but excluding for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest (within the meaning of Rule 14a-11 of the Exchange Act) with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of Hanna (a "Business Combination"), in each case, unless, following such Business Combination, (I) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of Hanna Common Stock and Voting Stock immediately prior to such Business Combination beneficially own, directly or indirectly, more than 66 % of, respectively, the then- outstanding shares of common stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns Hanna or all or substantially all of Hanna's assets either directly or through one or more subsidiaries) in substantially the same proportions relative to each other as their ownership, immediately prior to such Business Combination, of Hanna Common Stock and Voting Stock of Hanna, as the case may be, (II) no Person (excluding any entity resulting from such Business Combination or any employee benefit plan (or related trust) sponsored or maintained by Hanna or such entity resulting from such Business Combination) beneficially owns, directly or indirectly, 15% or more of, respectively, the then- outstanding shares of common stock of the entity resulting from such Business Combination, or the combined voting power of the then-outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (III) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (iv) Approval by the shareholders of Hanna of a complete liquidation or dissolution of Hanna. F. "Code" shall mean the Internal Revenue Code of 1986, as the same may from time to time be amended and as interpreted by all valid rulings, regulations and other interpretations. G. "Controlled Group" shall mean Hanna and any other trade or business that would be treated, together with Hanna, as a single employer pursuant to Section 414(b) or 414(c) of the Code, if the phrase "at least 50 percent" was substituted for the phrase "at least 80 percent" each place it appears in Section 1563(a)(1)of the Code. H. "Employer" shall mean Hanna or any corporation or business organization which has adopted this Plan pursuant to paragraph 6. I. "Hanna" shall mean M. A. Hanna Company, a Delaware corporation, or its successor or successors in interest. J. "Limitations of the Code" shall mean the limitations imposed by Sections 401(a)(17), 401(k), 401(m) and 415 of the Code, or any successor provisions thereto, on (i) the amount of benefits which may be payable to a Participant from SERIP or (ii) the amount of contributions which may be made to the Retirement Plan by or for a Participant. K. "Participant" shall mean each individual who is (i) a participant in SERIP or the Retirement Plan, (ii) designated by the Board (or a committee thereof authorized to make such designations) as a Participant in this Plan and (iii), as a result of participation in this Plan, is entitled to a Supplemental Retirement Benefit under this Plan. Each individual who is so designated as a Participant under this Plan shall be notified in writing of such fact by CEBA, which also shall deliver a copy of the Plan to such individual. L. "Plan" shall mean this M.A. Hanna Company Supplemental Retirement Benefit Plan, as the same is hereby amended and restated and may hereafter be amended or restated from time to time. The provisions of the Plan, as amended and restated effective as of January 1, 1999, shall apply only to Participants who are actively employed by the Employer on or after January 1, 1999. The rights and benefits of Participants who retired or otherwise terminated employment with the Employer before January 1, 1999 and who are not rehired thereafter shall be governed by the provisions of the Plan in effect at the relevant time or times of or preceding such retirement or other termination of employment. M. "Potential Change in Control" shall mean the occurrence of any of the following events: (i) Hanna enters into a letter of intent, agreement in principle or other agreement, the consummation of which would constitute a Change in Control; (ii) The Board approves actions which, if consummated, would constitute a Change in Control; (iii) The Board determines that a Change in Control is likely to occur; or (iv) A Change in Control has occurred. N. "Retirement Plan" shall mean the qualified defined contribution plan known as the M.A. Hanna Company 401(k) and Retirement Plan and Trust, as the same has been or may hereafter be amended or restated from time to time. O. "SERIP" shall mean the qualified defined benefit pension plan previously known as The Hanna Mining Company Group Annuity Plan and now known as M. A. Hanna Company Salaried Employees Retirement Income Plan, as amended and restated as of January 1, 1994, as the same has been or may hereafter be amended or restated from time to time. P. "Supplemental Employer Contributions" shall have the meaning assigned thereto in paragraph 3. Q. "Supplemental Member Contributions" shall mean contributions made to the Plan at the direction of a Participant pursuant to subparagraph C of paragraph 3, as a result of the reduction of Associate Pre-Tax Contributions made to the Retirement Plan due to the Limitations of the Code. R. "Supplemental Retirement Benefit" shall mean the Supplemental Retirement Plan Benefit and the Supplemental SERIP Benefit and each of them. S. "Supplemental Retirement Plan Account" shall mean the account established for a Participant pursuant to subparagraph B of paragraph 3. T. "Supplemental Retirement Plan Benefit" shall mean a retirement benefit determined as provided in paragraph 3. U. "Supplemental SERIP Benefit" shall mean a retirement benefit determined as provided in paragraph 2. V. The masculine wherever used herein shall include the feminine. 2. Determining the Supplemental SERIP Benefit. A. Each Participant (or his Beneficiary, in the event of the Participant's death) who is employed by the Controlled Group on December 31, 1998 and whose benefits under SERIP are reduced due to the Limitations of the Code or the reduction in such Participant's Compensation pursuant to subparagraph C of paragraph 3 or whose accrual of benefits under SERIP ceased as a result of the amendment to SERIP which became effective as of December 31, 1998, shall be entitled to a Supplemental SERIP Benefit, which shall be determined as hereinafter provided. The Supplemental SERIP Benefit of a Participant or Beneficiary shall be a monthly amount equal to the difference between (i) the amount of the monthly pension benefit that would be payable in the normal form under SERIP to the Participant or his Beneficiary, commencing on the earliest date on which the Participant or Beneficiary could receive a monthly pension benefit under SERIP without reduction for early commencement, if the amount of such monthly pension benefit under SERIP was calculated (a) without regard to (I) any reduction in the Participant's Compensation pursuant to subparagraph C of paragraph 3 and (II) the provisions of SERIP implementing the Limitations of the Code and (b) by treating the provisions of SERIP implementing the cessation of benefit accruals under SERIP which are effective as of December 31, 1998 as if such provisions were effective as of December 31, 2003, and (ii) the monthly pension benefit in fact payable in the normal form under SERIP to the Participant or his Beneficiary commencing on the earliest date on which the Participant or Beneficiary could receive a monthly pension benefit under SERIP without reduction for early commencement. The Supplemental SERIP Benefit payable with respect to a Participant shall be paid to him (or his Beneficiary) as provided in subparagraph A of paragraph 4. The determination of the amount of Supplemental SERIP Benefit shall be made by CEBA pursuant to the provisions hereof, and the decision of CEBA, if reasonable and made in good faith, shall be final and conclusive on the Participant, his Employer, his Beneficiary and all other persons. B. Notwithstanding subparagraph A of paragraph 2, if a Participant terminates his employment with the Controlled Group and is subsequently reemployed by the Controlled Group following the receipt of all or part of his Supplemental SERIP Benefit, (i) the payment of his Supplemental SERIP Benefit under this Plan shall be suspended upon such reemployment and (ii) the amount of his Supplemental SERIP Benefit shall be calculated upon his subsequent termination of employment with the Controlled Group in accordance with subparagraph A of paragraph 2, with such adjustments as CEBA shall determine in its sole discretion to be appropriate and equitable after taking into account the previous payment of all or part of the Participant's Supplemental SERIP Benefit. 3. Determining the Supplemental Retirement Plan Benefit. Each Participant shall be entitled to a Supplemental Retirement Plan Benefit, if any, equal to (x) the Participant's Supplemental CAP Benefit under the Plan as of December 31, 1998 plus (y) for each Participant whose additions to the Retirement Plan for any year commencing on or after January 1, 1999 are reduced due to the Limitations of the Code, the amount determined as hereinafter provided. A. Each Employer shall (i) calculate for each Plan Year the amount of any and all Company Match Contributions and Retirement Contributions (hereinafter referred to as "Supplemental Employer Contributions") which would have been contributed to the Retirement Plan during such Plan Year but which, due to the Limitations of the Code, cannot be allocated and credited to the Account maintained under the Retirement Plan for a Participant, and (ii) credit the amount of such Supplemental Employer Contributions to the Participant's Supplemental Retirement Plan Account as hereinafter provided. B. Each such Employer shall establish and maintain on its books an account for each such Participant (the "Supplemental Retirement Plan Account") which shall contain, in a subaccount thereunder, the following entries: (i) Credits, effective as of the dates any Supplemental Employer Contribution described in subparagraph A of this paragraph 3 would have been made to the Retirement Plan except for the Limitations of the Code, in the amount of such Supplemental Employer Contributions credited to the Participant from time to time pursuant to clause (ii) of subparagraph A of this paragraph 3; and (ii) Charges for amounts paid to the Participant or his Beneficiary from time to time pursuant to the terms hereof and charged against such subaccount by CEBA pursuant to subparagraph B of paragraph 4; and (iii) Credits or charges (including expenses, gains, losses and earnings) equal to the amounts which would have been attributable to the Supplemental Employer Contributions described in this subparagraph B if such Contributions had been properly credited to the Participant's Account under the Retirement Plan, had been invested on a tax deferred basis and had been credited with gains, losses and earnings based on investment deferral crediting options and procedures determined by CEBA quarterly. The entries provided by this clause (iii) shall continue to be made until an amount equal to the entire subaccount maintained pursuant to this subparagraph B has been distributed to, or received by, the Participant and/or his Beneficiary pursuant to subparagraph B of paragraph 4 or subparagraph B of paragraph 5. C. Each Participant (or person who has been notified he is to become a Participant commencing with the first day of the next calendar year) whose contributions to the Retirement Plan are reduced due to Limitations of the Code may, within 30 days after the Plan becomes effective as to him and prior to December 31 of each calendar year thereafter, by written notice to CEBA on a form provided by it, direct his Employer (i) to reduce (in accordance with rules established by CEBA) his Compensation for the balance of the calendar year in which the Plan becomes effective as to him or for the next succeeding calendar year by any or all of the amounts which he could have contributed to the Retirement Plan pursuant to the applicable provisions of the Retirement Plan (calculated for purposes of this Plan without regard to any reduction in the Participant's Compensation pursuant to this subparagraph C) as Associate Pre- Tax Contributions except for the Limitations of the Code, and (ii) to credit the amount of such Supplemental Member Contributions to the Participant's Supplemental Retirement Plan Account as hereinafter provided. The Employer of each Participant who so directs that his Compensation be reduced shall establish and maintain a separate subaccount under the Supplemental Retirement Plan Account of each such Participant which shall contain the following entries: (a) Credits, effective as of the dates any Supplemental Member Contributions described in this subparagraph C would have been made to the Retirement Plan except for the Limitations of the Code, in the amount of Supplemental Member Contributions credited to the Participant from time to time pursuant to clause (ii) of this subparagraph C; and (b) Credits (hereinafter referred to as "Supplemental Employer Contributions") equal to the amounts which would have been contributed by the Employers to the Retirement Plan for such Participant, from time to time, as Supplemental Employer Contributions if the Participant's Supplemental Member Contributions had been properly contributed by him pursuant to the applicable provisions of the Retirement Plan (notwithstanding the Limitations of the Code); and (c) Charges for amounts paid to the Participant or his Beneficiary from time to time pursuant to the terms hereof and charged against such subaccount by CEBA pursuant to subparagraph B of paragraph 4; and (d) Credits or charges (including expenses, gains, losses and earnings) equal to the amounts which would have been attributable to the Participant's Supplemental Member Contributions and Supplemental Employer Contributions described in this subparagraph C if such contributions had been properly credited to the Participant's Account under the Retirement Plan and had been invested on a tax deferred basis and had been credited with gains, losses and earnings based on investment deferral crediting options and procedures determined by CEBA quarterly. The entries provided by this subclause (d) shall continue to be made until an amount equal to the entire subaccount maintained pursuant to this subparagraph C has been distributed to, or received by, the Participant and/or his Beneficiary pursuant to subparagraph B of paragraph 4 or subparagraph B of paragraph 5. 4. Payment of Supplemental Benefits. A. (i) Except as hereinafter provided, the Employers shall pay the Supplemental SERIP Benefit to a Participant or his Beneficiary entitled thereto in the form of benefit elected by the Participant or his Beneficiary under SERIP, provided, however, that if the election described in clause (ii) of this subparagraph A is made, the Supplemental SERIP Benefit shall be paid as provided in the following provisions of this subparagraph A. The Supplemental SERIP Benefit may commence to be paid at any time after the later of the Participant's termination of employment with the Controlled Group or the first date on which the Participant or Beneficiary is entitled to commence receiving a pension benefit under SERIP, provided, however, that if the Supplemental SERIP Benefit commences before the earliest date on which the Participant could commence receiving a monthly pension benefit under SERIP without reduction for early commencement, the Supplemental SERIP Benefit shall be reduced for early commencement in accordance with the reduction factors set forth in SERIP, and if the Supplemental SERIP Benefit is paid in a form other than the normal form applicable to such Participant under SERIP, the Supplemental SERIP Benefit shall be adjusted to reflect the form of payment using the applicable adjustment factor under SERIP. (ii) At the election of a person who shall become a Participant made in the calendar year prior to the calendar year in which he shall have accrued any Supplemental SERIP Benefit or at a time permitted by the last sentence of this clause (ii), a Participant's (or his Beneficiary's) Supplemental SERIP Benefit (calculated as provided in paragraph 2, but reduced for early commencement, if applicable, pursuant to clause (i) of this subparagraph A) shall be converted at the time of his termination of employment with the Controlled Group into a lump sum amount of equivalent actuarial value when computed at the interest rate and on basis of the other actuarial factors, assumptions and procedures adopted by CEBA for such purpose (the "SERIP Lump Sum Amount"), and the Participant's former Employer shall establish and maintain on its books an account (the "Supplemental SERIP Account") for such Participant or his Beneficiary which shall contain the following entries: (a) A credit equal to the SERIP Lump Sum Amount: (b) Charges for amount paid to the Participant or his Beneficiary from time to time pursuant to the terms hereof and attributable to the Participant's Supplemental SERIP Account; and (c) Credits or charges (including expenses, gains, losses and earnings) equal to the amounts which would have been attributable to such SERIP Lump Sum Amount if such Amount had been invested on a tax deferred basis and had been credited with gains, losses and earnings based on investment deferral crediting options and procedures determined by CEBA quarterly. The entries provided by this subclause (c) shall continue to be made until an amount equal to the Participant's entire Supplemental SERIP Account has been distributed to, or received by, the Participant or his Beneficiary as hereinafter provided. A Participant may revoke a prior election made under this clause (ii) or make an election under this clause (ii) at any time, and from time to time; provided, however, that any election made less than one year prior to any payment of any benefits under the Plan shall not be valid, and in such case, payment shall be made in accordance with the latest valid election of such Participant, if any. (iii) The amount of the Participant's (or his Beneficiary's) Supplemental SERIP Account shall be paid to him or his Beneficiary in ten annual installments (or such lesser number of installments or one installment as shall be selected by the Participant in any valid election referred to in clause (ii) of this Subparagraph A, or in any separate election made at any time permitted for a valid election under clause (ii) of this Subparagraph A) with each installment being based on the value of the Participant's (or his Beneficiary's) Supplemental SERIP Account on the day immediately preceding the date such installment is to be paid and being a fraction of such value in which the numerator is one and the denominator is the total 0umber of remaining installments to be paid. The first such annual installment payment (or the only such installment payment if the Participant elects to receive his SERIP Lump Sum Account in one installment) shall be made to the Participant or Beneficiary on the first day of the second month following the month in which the Participant's termination of employment with the Controlled Group occurs, and each subsequent installment (if any) shall be made to the Participant or his Beneficiary on the anniversary of such date. However, CEBA may at any time, upon written request of the Participant or his Beneficiary, cause to be paid to such Participant (or his Beneficiary) an amount equal to all or any part of the remaining balance credited to the Participant's (or his Beneficiary's) Supplemental SERIP Account if CEBA determines, in its absolute discretion based on such reasonable evidence that it shall require, that such a payment or payments is necessary for the purpose of alleviating the consequences of an unforeseeable emergency occurring with respect to the Participant (or his Beneficiary). For the purposes hereof the term "unforeseeable emergency" means an event which results (or will result) in severe financial hardship to the Participant (or his Beneficiary) as a consequence of unexpected illness or accident or loss of the Participant's (or Beneficiary's) property due to casualty or other similar extraordinary or unforeseen circumstances out of the control of the Participant (or Beneficiary). Payments by CEBA of amounts because of an unforeseeable emergency will be permitted only to the extent reasonably necessary to satisfy the emergency need. B. A Participant's (or his Beneficiary's) Supplemental Retirement Plan Account shall be paid to the Participant or his Beneficiary pursuant to the method described in clause (iii) of subparagraph A of this paragraph. CEBA shall determine in its sole discretion the subaccount or subaccounts under the Participant's Supplemental Retirement Plan Account against which any such payment shall be charged pursuant to the terms hereof. C. Notwithstanding any other provision of this Plan, upon or following the occurrence of a Change in Control, a Participant (or his Beneficiary) shall be permitted to make an election to receive, payable as soon as practicable after such election is received by Hanna, his entire Supplemental Retirement Benefit in the form of a lump sum payment. If a Participant or Beneficiary so elects, the amount to be paid to him shall be the sum of his Supplemental Retirement Plan Benefit and the sum of his Supplemental SERIP Benefit at the time of such election (assuming in the case of a Participant or Beneficiary whose Supplemental SERIP Benefit had not previously been converted into a SERIP Lump Sum Amount that such Supplemental SERIP Benefit was converted into a SERIP Lump Sum Amount at the time of such election), reduced by ten percent. The remaining ten percent of the Participant's Supplemental Retirement Plan Benefit and Supplemental SERIP Benefit shall be forfeited. 5. General. A. The entire cost of the Plan shall be paid from the general assets of one or more of the Employers. It is the intent of the Employers to so pay benefits under the Plan as they become due; provided, however, that Hanna may, in its sole discretion, establish or cause to be established a trust account for any or each Participant pursuant to an agreement, or agreements, with a bank and direct that under certain circumstances amounts payable to or for a Participant under the Plan be paid from the general assets of his Employer which are transferred to the custody of such bank to be held by it in such trust account as property of the Employer subject to the claims of the Employer's general creditors until such time as benefit payments pursuant to the Plan are made from such assets in accordance with such agreement, and provided further that until such payment is so made, neither the Plan nor any Participant or Beneficiary shall have any preferred claim on, or any beneficial ownership interest in, such assets. No liability for the payment of benefits under the Plan shall be imposed upon any officer, director, employee, or stockholder of Hanna or any other Employer, or upon CEBA or any member thereof. B. To the extent permitted by law, no right or interest of a Participant or his Beneficiary under the Plan shall be transferable or assignable (either at law or in equity), nor shall any such right or interest be subject to alienation, anticipation, encumbrance, attachment, garnishment, levy, execution or other legal or equitable process of any kind, voluntary or involuntary, or in any manner be liable for or subject to the debts of any Participant or Beneficiary. If the Participant or Beneficiary (other than the surviving spouse of the Participant) shall attempt to or shall transfer, assign, alienate, anticipate, sell, pledge or otherwise encumber his benefits hereunder or any part thereof, or if by reason of his bankruptcy or other event happening at any time such benefits would devolve upon anyone else or would not be enjoyed by him, then Hanna, in its discretion, may terminate his interest in any such benefit to the extent Hanna considers necessary or advisable to prevent or limit the effects of such occurrence. C. Employment rights shall not be enlarged or affected hereby. The Employers shall continue to have the right to discharge a Participant, with or without cause. D. Each Participant's rights under the Plan are not greater than those of an unsecured creditor. E. In the event of the occurrence of a Potential Change in Control, Hanna shall: (i) As soon as practicable, but not later than 30 days following the occurrence of such an event, establish a trust described in subparagraph A of paragraph 5, if such trust has not previously been established (any such trust, including such a trust established prior to the Potential Change in Control, being hereinafter referred to as the "Trust"). (ii) As soon as practicable, but not later than 30 days following the occurrence of a Potential Change in Control, make a contribution to the Trust of cash and/or a letter of credit in an amount sufficient, taking into account the assets (if any) of the Trust prior to such contribution, if any, to provide for the payment of 100% of all benefits provided under the Plan (assuming, for purposes of calculating this amount, that all such benefits shall be payable on the date the Potential Change in Control occurs, and that all Supplemental SERIP Benefits are to be converted into SERIP Lump Sum Amounts on such date) and any other amounts payable or reimbursable pursuant to the terms of the Trust (including not less than $100,000 to pay for the expenses of the trustee of the Trust). Any letter of credit deposited with the trustee of the Trust pursuant to this subparagraph shall be issued by a reputable commercial bank having combined capital and surplus of at least $500 million, shall be irrevocable and shall entitle the trustee of the Trust to draw all amounts payable thereunder immediately upon the occurrence of a Change in Control. (iii) Within 30 days following the occurrence of a Change in Control and the end of any calendar year ending following the occurrence of a Change in Control, Hanna shall make a contribution to the Trust in cash that is sufficient, taking into account the assets of the Trust, including the undrawn amount of any letter of credit, prior to such contribution, to provide for the payment of 100% of all benefits provided under the Plan and any other amounts payable or reimbursable pursuant to the terms of the Trust. 6. Adoption of the Plan. Any other Employer under SERIP or the Retirement Plan may become a party hereto with the consent of the Board, if such other Employer executes an instrument evidencing its adoption of the Plan on the order of its board of directors or other governing body and files a copy thereof with Hanna and CEBA. Such instrument of adoption may be subject to such terms and conditions as Hanna requires or approves. 7. Interpretation. CEBA shall interpret where necessary, in its reasonable and good faith judgment, the provisions of the Plan, shall make factual findings with respect to any issue arising under the Plan, and shall determine the rights and status of Participants and Beneficiaries hereunder (including, without limitation, the amount of any Supplemental Retirement Benefit to which a Participant or Beneficiary may be entitled under the Plan). Except to the extent federal law controls, all questions pertaining to the construction, validity and effect of the provisions hereof are to be determined in accordance with the laws of the State of Ohio. 8. Amendment and Termination. A. The Board has reserved and does hereby reserve the right to amend, at any time, any or all of the provisions of the Plan, without the consent of any other Employer who shall have adopted the Plan pursuant to paragraph 6 or of any Participant, Beneficiary or any other person. Any such amendment shall be expressed in an instrument executed by Hanna upon the order of its Board and shall become effective as of the date designated in such instrument or, if no such date is specified, on the date of its execution. B. The Board has reserved, and does hereby reserve, the right to terminate the Plan at any time, without the consent of any other Employer who shall have adopted the Plan pursuant to paragraph 6 or of any Participant, Beneficiary or any other person. Such termination shall be expressed in an instrument executed by Hanna upon the order of its Board and shall become effective as of the date designated in such instrument or, if no date is specified, on the date of its execution. Any other Employer which shall have adopted the Plan may elect separately to withdraw from the Plan and such withdrawal shall constitute a termination of the Plan as to it, but it shall continue to be an Employer for the purposes hereof as to the Participants or Beneficiaries to whom it owes obligations hereunder. Any such withdrawal (and resulting termination) shall be expressed in an instrument executed by the withdrawing Employer on authority of its board of directors or other governing body and shall become effective as of the date designated in such instrument or, if no date is specified, on the date of its execution. C. Notwithstanding the foregoing provisions of this paragraph, no amendment or termination of the Plan shall, without the consent of the Participant (or where applicable the Beneficiary), adversely affect (i) the benefit under the Plan of any Participant or his Beneficiary then entitled to receive a benefit under the Plan or (ii) the right of any other Participant to receive upon termination of his employment with the Controlled Group (or the right of his Beneficiary to receive upon such Participant's death) that benefit which would have been received under the Plan if the Participant's said employment had terminated immediately prior to the amendment or termination of the Plan. No amendment to the Plan shall increase the obligations hereunder, without its consent, of any corporation or other business organization which is or at any time has been an Employer under the Plan. 9. Effective Date. This restated Plan shall be effective as of January 1, 1999. IN WITNESS WHEREOF, M. A. Hanna Company, pursuant to the order of its Board, has executed this restated Plan at Cleveland, Ohio, as of January 1, 1999, but actually executed on this ____ day of _____________, 1998. M. A. HANNA COMPANY By: ____________________________ Title And: _____________________________ Title EX-10 4 Item 14(c) Exhibit (i) 10 (i) TERMINATION AGREEMENT AND RELEASE This TERMINATION AGREEMENT AND RELEASE ("Agreement") is made and entered into as of October 7, 1998 between the M.A. HANNA COMPANY, a Delaware corporation (the "Company") and DOUGLAS J. McGREGOR ("Executive"). WITNESSETH: WHEREAS, Executive has advised the Company he wishes to terminate his employment as a full-time executive of the Company and retire; WHEREAS, in connection with the foregoing, the parties desire to make provision for (a) granting a leave of absence to the Executive; (b) the payments and benefits that Executive is entitled to receive prior to and after his termination of employment and retirement, (c) a covenant by the Executive not to compete with the Company and (d) a release of any claims Executive may have against the Company; NOW, THEREFORE, in consideration of the promises and agreements contained herein and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, and intending to be legally bound, the Company and the Executive agree as follows: 1. Executive elects to resign the positions of Chairman of the Board and Chief Executive Officer June 30effective October 7, 1998 (the "Resignation Date") and to remain as an employee of the Company until January 3, 2001 (the "Retirement Date"), at which time the Executive shall retire. The Company hereby accepts Executive's resignation and consents to his retirement on the Retirement Date. The Company hereby grants the Executive a leave of absence from October 7, 1998 through January 3, 2001. During the leave of absence Executive's duties and responsibilities shall be to assist the Company in defense of any litigation or proceeding relating to matters in which Executive was involved prior to October 7, 1998 and to undertake such other tasks as the parties shall mutually agree 2. On the Resignation Date all of Executive's rights to payments and benefits from the Company shall terminate except as specifically provided herein. A. The Company shall continue payment of Executive's salary at the annual rate in effect on the Resignation Date for six months after the Resignation Date and shall make a severance payment to the Executive in the amount of $590,000 in January, 1999, all subject to the required withholdings. B. Until the Retirement Date Executive and his dependents shall continue to have a right to participate in the Company's medical benefits and dental plans pursuant to the terms of those plans, as they may be amended from time to time. The Executive agrees that, in the event he fails to make his semi-monthly participant contribution to such plans, the Company may deduct such contribution from the payments yet to be made pursuant to subsection A. above. After the Retirement Date Executive and his dependents shall participate in the Company's salaried retiree health care plan in accordance with the terms of that plan, as it may be amended from time to time. C. In accordance with the respective Stock Option Agreements entered into between the Company and the Executive, the options granted to the Executive will continue to vest under the terms prescribed in such Agreements until the close of business on November 5, 2000, and Executive may exercise the options granted to him to purchase the Company's Common Stock for up to the earlier of (i) the expiration date of each grant or (ii) three (3) or five (5) years as prescribed by the respective Stock Option Agreement. D. For purposes of the awards of LTIP Units under the M. A. Hanna Company 1988 Long-Term Incentive Plan for the 1996-'97-'98, 1997-`98-'99 and 1998-`99-2000 performance periods, the Executive shall have the right to payouts at the same time and same payout percentage as the corporate executive officers, pro-rated to reflect the Executive's service in the respective performance periods from the beginning of the periods to the Resignation Date E. The restricted stock agreements entered into between the Company and the Executive will continue to be in full force and effect and operate in accordance with the terms thereof and on the Retirement Date any shares which are still restricted will become vested and free of restrictions. F. The Executive's accounts in the Company's Voluntary Non-Qualified Deferred Compensation Plan and the Deferral of Stock Options Gain Plan shall be paid out after the Retirement Date in accordance with the terms of the Plans and the Executive's elections thereunder. G. The Executive may continue to participate in the Company's split-dollar insurance and retirement program, in accordance with the terms of that program, and may make his scheduled premium payments in 1999 and 2000, and if he so participates, the Company will make available to him the benefits prescribed by such program. H. The Executive's rights to any additional contributions to the Company's Capital Accumulation Plan shall terminate on the Resignation Date and all other rights under such Plan will continue in accordance with the terms and provisions of such Plan as such Plan may be amended from time to time. I. The Executive shall have the right to convert his Company-provided life insurance coverage on the Retirement Date to a whole life policy in the principal amount of $550,000. J. After the Resignation Date the Executive shall continue to participate as a deferred vested participant in the Salaried Employees Retirement Income Plan according to the terms of the Plan, as amended as of November 4, 1998, and as may be amended from time to time in the future, and upon attaining age 65 shall be eligible for benefits thereunder as prescribed by the Plan, as amended. K. The Executive shall cease participation in the Supplemental Retirement Benefit Plan effective on the Resignation Date and shall be paid a lump sum SERIP benefit under the Plan of $1,814,000 on the effective date of this Agreement, as defined in Section 7 hereof, and a CAP benefit under the Plan of $2,037,679 in ten annual installments commencing on January 1, 1999. L. The Company shall provide third-party financial counseling services to the Executive in accordance with its program for executive officers, as that program may be amended from time to time, through Executive's 1999 tax year. 3. In consideration of the promises, agreements and the payments described herein, the parties agree that except as otherwise specifically provided herein, all of the agreements, arrangements or understandings between the Company and the Executive are hereby terminated and canceled and shall be of no further force or effect whatsoever. 4. Executive acknowledges and confirms that the Agreement between the Company and the Executive dated August 5, 1996 with respect to intellectual property rights is binding and in full force and effect and after the Resignation Date will continue to be binding and in full force and effect. 5. Unless he receives written waiver from the Chief Executive Officer of the Company, Executive agrees that prior to January 3, 2001 he shall not, whether directly as an individual or on his own account, or indirectly as a partner, joint venturer, employee, agent, sales representative, consultant, officer, director or stockholder of any firm or corporation, directly or indirectly engage in any or all of the following activities within North America: (a) enter into or engage in any business which competes with the Company's business, as defined below; (b) promote or assist, financially or otherwise, any person, firm, association or corporation engaged in any business which competes with the Company's business, as defined below; (c) solicit customers and/or sources of referral for the same, business, patronage or orders for, or sell, any products or services in competition with, or for any business that competes with the Company's business, as defined below; or (d) divert, entice, or take away any customers and/or sources of referral for the same, business, patronage or orders of the Company's business, as defined below, or attempt to do so; provided, however, that neither beneficial ownership by Executive of not more than five percent (5%) of the outstanding equity securities of any publicly traded company or Executive's investment in Metapoint Partners shall be deemed to be a violation of this Section 5. For purposes of this Section 5, the Company's business is defined as the compounding of plastics and rubber, the manufacture and sale of color and additive systems and the distribution of resin and engineered plastic shapes. 6. Executive acknowledges that his obligations under this Agreement are reasonable in the context of the nature of the business of the Company and the competitive injuries likely to be sustained by the Company if Executive violated such obligations. Executive acknowledges and agrees that the remedy at law available to the Company for breach of any of Executive's obligations under this Agreement would be inadequate, and agrees and consents that in addition to any other rights or remedies which the Company may have at law or in equity, including offsetting any amounts due hereunder or terminating any additional payments due hereunder, temporary and permanent injunctive relief may be granted in any proceeding which may be brought to enforce any provision contained in this Agreement without the necessity of proof of actual damage. 7. (a) In consideration of the promises, agreements and the payments described herein to which Executive would not otherwise be entitled by virtue of his leave of absence, termination of employment and retirement, Executive will execute and deliver to the Company upon the execution of this Agreementon the Termination Date a release substantially in the form of Exhibit A hereto (the "Release"). Failure to deliver the Release as prescribed shall operate to release the Company from any obligation hereunder to pay compensation and benefits to which Executive would not otherwise be entitled by virtue of his termination of employment. (b) Executive further agrees and acknowledges that: (i) He has been advised by the Company to consult with legal counsel prior to executing the Agreement and the release provided for in this Section; has had an opportunity to consult with and has been advised by legal counsel of his choice, fully understands the terms of this Agreement, enters into this Agreement freely and voluntarily and intending to be legally bound. (ii) He has received in exchange for this Agreement and for the release consideration above and beyond that to which he otherwise would be entitled, including but not limited to, a portion of the payments described in Section 2.A. hereof and the payments described in Section 2.K. hereof. (iii) He may have available to him a period of twenty-one (21) days to review and consider the terms of this Agreement, and the release contained herein, prior to its execution and that he may use as much of the twenty-one (21) days period as he desires. (iv) He may, within seven (7) days after his execution hereof, which 7-day period may not be shortened, revoke this Agreement. Revocation shall be made by delivering a written notice of revocation to John S. Pyke, Jr., Vice President, General Counsel and Secretary of the Company. For such revocation to be effective, written notice must be actually delivered to Mr. Pyke's office by no later than the close of business on the seventh (7th) day after Executive executes this Agreement. If Executive exercises his right to revoke this Agreement, all of the terms and conditions of the Agreement shall be of no force and effect, including, but not limited to, the obligation of the Company to make any payments to Executive pursuant to the Agreement. (v) This Agreement shall not become effective and enforceable until after expiration of the seven (7) day revocation period described above and Executive's delivery to the Vice President, General Counsel and Secretary of the Company of a certificate in the form of Exhibit B hereto (the "Certificate") executed by Executive after such time, if there has been no revocation of the Agreement, and upon delivery of the executed Certificate, the Company shall become obligated to make the payments to Executive provided for in this Agreement and this Agreement shall be fully enforceable and effective. 8. For all purposes of this Agreement, all communications provided for herein shall be in writing and shall be deemed to have been duly given when delivered, addressed to the Company (to the attention of the Vice President, General Counsel and Secretary) at Suite 36-5000, 200 Public Square, Cleveland, OH 44114-2304, and to the Executive at his principal residence, 6 Country Lane, Pepper Pike, Ohio 44124, or to such other address as any party may have furnished to the other in writing and in accordance herewith. Notices of change of address shall be effective only upon receipt. 9. The validity, interpretation, construction and performance of this Agreement (and every other issue arising hereunder) shall be governed by the laws of the State of Ohio, without giving effect to the principles of conflict of laws of such state. 10. Any dispute arising out of or relating to this Agreement or the breach, termination or validity thereof, shall be settled by arbitration in accordance with the then- current Center for Public Resouces Rules for Non- Administered Arbitration of Business Disputes by a panel of three (3) arbitrators. Each party shall appoint an arbitrator and the Center for Public Resouces shall appoint the third arbitrator. The arbitration shall be governed by the United States Arbitration Act, U.S.C. 1-16, and judgment upon the award rendered by the arbitration panel may be entered by any court having jurisdiction thereof. The place of arbitration shall be Cleveland, Ohio. The arbitrators are not empowered to award damages in excess of compensatory damages and each party hereby waives any right to recover such damages with respect to any dispute resolved by arbitration. The parties shall equally share the fees and costs of the arbitrators. 11. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by Executive and the Company. No waiver by any party hereto at any time of any breach by any other party hereto or compliance with any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, expressed or implied with respect to the subject matter hereof have been made by any of the parties that are not set forth expressly in this Agreement and every one of them (if, in fact, there have been any) is hereby terminated without liability or any other legal effect whatsoever. 12. This Agreement together with its Exhibits shall constitute the entire agreement among the parties hereto with respect to the subject matter hereof and shall supersede all prior verbal or written agreements, covenants, communications, understandings, commitments, representations or warranties, whether oral or written, by any party hereto or any of its representatives pertaining to such subject matter. IN WITNESS WHEREOF, the parties have entered into this Agreement as of the first date written above. M. A. HANNA COMPANY By:____________________________ Vice President _______________________________ Douglas J. McGregor EXHIBIT A TO TERMINATION AGREEMENT AND RELEASE DATED AS OF OCTOBER 7, 1998 RELEASE This RELEASE is made and entered into pursuant to a certain TERMINATION AGREEMENT AND RELEASE dated as of October 7, 1998 between M. A. HANNA COMPANY and DOUGLAS J. McGREGOR (the "Agreement"). 1. The terms defined in the Agreement shall have the same meaning herein, unless the context otherwise requires. 2. Executive for himself and his dependents, successors, assigns, heirs, executors and administrators (and his and their legal representatives of every kind), hereby releases, dismisses and forever discharges the Company and its successors and assigns and its directors, officers, agents and employees in their capacities as such (collectively, the "Released Parties") from any and all arbitrations, claims, demands, damages, suits, actions and/or causes of action of any kind and every description, whether known or unknown, which now has or may have had, or may have in the future, for, upon, or by reason of any cause whatsoever arising out of fact or events occurring prior to the Termination Date (except that this release shall not apply to the obligations of the Company arising under the Agreement, and certain claims specifically excepted in clause (v) below), against any of the Released Parties, including, but not limited to: (i) any and all claims, including claims for attorneys' fees, causes of action, suits, proceedings, damages or demands arising out of or relating to any agreements, arrangements or understandings between the Executive and the Company (other than certain claims specifically excepted in clause (v) below); (ii) any and all claims, including claims for attorneys' fees, causes of action, suits, proceedings, damages or demands arising out of or relating to Executive's employment by and/or service with the Company, in any capacity, and his termination from the Company; (iii) any and all claims, including claims for attorneys' fees, demands, and causes of action, including all claims of discrimination, including, but not limited to, claims of sex, race, age, national origin, religious and/or handicapped discrimination, including, specifically, but without limiting the generality of the foregoing, any claims under the Age Discrimination in Employment Act, as amended, 29 U.S.C. 621 to 634, Title VII of the Civil Rights Act of 1964, as amended, and the Americans with Disabilities Act of 1990, as amended; (iv) any and all claims, demands, causes of action, including, but not limited to, claims of wrongful or unjust discharge or breach of any contract or promise, express or implied; and (v) any and all claims, demands or causes of action, including claims for attorneys' fees, under the Employee Retirement Income Security Act of 1974, as amended, or relating to any and all employee benefit plans, programs or arrangements of the Company, other than claims incurred and properly payable under the terms of the Company's health benefit plan or under the terms of any other benefits plan specified in Section 3 of the Agreement. _________________________ Douglas J. McGregor Dated: 199_ EXHIBIT B TO TERMINATION AGREEMENT AND RELEASE DATED AS OF OCTOBER 7, 1998 I hereby certify that I have not revoked and/or canceled my obligations pursuant to that certain Termination Agreement and Release between M. A. Hanna Company and Douglas J. McGregor entered into as of October 7, 1998. __________________________ Douglas J. McGregor Dated: 199_ EX-11 5 Item 14(c) Exhibit (i) (11) M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE Year Ended December 31 1998 1997 1996 (Dollars in thousands except per share data) Basic Income from continuing operations before extraordinary charge and cumlative effect of a change in accounting principle $ 30,342 $ 64,601 $ 59,162 Extraordinary charge - - (5,352) Cumulative effect of a change in accounting principle (2,059) - - Net income $ 28,283 $ 64,601 $ 53,810 Average common shares outstanding 44,573,436 45,167,937 45,789,136 Income(loss) per share Continuing operations $ .68 $ 1.43 $ 1.29 Extraordinary charge - - (.11) Cumulative effect of a change in accounting principle (.04) - - Net income $ .64 $ 1.43 $ 1.18 Diluted Income from continuing operations before extraordinary charge $ 30,342 $ 64,601 $ 59,162 Extraordinary charge - - (5,352) Cumulative effect of a change in accounting principle (2,059) - - Net income $ 28,283 $ 64,601 $ 53,810 Average common shares outstanding 44,573,436 45,167,937 45,789,136 Effect of dilutive stock options 463,240 1,103,920 1,034,365 Total 45,036,676 46,271,857 46,823,501 Income(loss) per share Continuing operations $ .67 $ 1.40 $ 1.26 Extraordinary charge - - (.11) Cumulative effect of a change in accounting principle (.04) - - $ .63 $ 1.40 $ 1.15 EX-13 6 Item 14(c) Exhibit (i) (13) CONSOLIDATED STATEMENTS OF INCOME M.A. Hanna Company and Consolidated Subsidiaries Year Ended December 31 Dollars in thousands except per share data 1998 1997 1996 Net Sales $2,285,882 $2,200,345 $2,066,248 Costs and Expenses Cost of goods sold 1,883,344 1,781,736 1,685,167 Selling, general and administrative 295,267 271,894 243,505 Interest on debt 33,915 23,751 20,033 Amortization of intangibles 16,167 14,204 14,313 Other - net 22,161 (1,669) 339 2,250,854 2,089,916 1,963,357 Income Before Income Taxes, Extraordinary Charge and Cumulative Effect of a Change in Accounting Principle 35,028 110,429 102,891 Income taxes 4,686 45,828 43,729 Income Before Extraordinary Charge and Cumulative Effect of a Change in Accounting Principle 30,342 64,601 59,162 Extraordinary charge - - (5,352) Cumulative effect of a change in accounting principle (2,059) - - Net Income $ 28,283 $ 64,601 $ 53,810 Net Income Per Share Basic Income before extraordinary charge and cumulative effect of a change in accounting principle $ .68 $ 1.43 $ 1.29 Extraordinary charge - - (.11) Cumulative effect of a change in accounting principle (.04) - - Net income $ .64 $ 1.43 $ 1.18 Diluted Income before extraordinary charge and cumulative effect of a change in accounting principle $ .67 $ 1.40 $ 1.26 Extraordinary charge - - (.11) Cumulative effect of a change in accounting principle (.04) - - Net income $ .63 $ 1.40 $ 1.15 See summary of accounting policies and notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS M.A. Hanna Company and Consolidated Subsidiaries Year Ended December 31 Dollars in thousands 1998 1997 1996 Cash Provided from (Used for) Operating Activities Net income $ 28,283 $ 64,601 $ 53,810 Depreciation and amortization 59,735 52,639 50,116 Companies carried at equity: Income (4,558) (4,546) (6,058) Dividends received 3,459 5,420 7,104 Changes in operating assets and liabilities: Receivables 2,795 (37,153) 3,743 Inventories (4,161) (30,746) 3,197 Prepaid expenses (701) (3,193) (2,450) Trade payables and accrued expenses (33,841) 43,380 (1,978) Gain from sales of assets (1,009) (6,340) - Restructuring payments (10,576) (8,239) (13,157) Restructuring charges 29,800 6,140 - Cumulative effect of a change in accounting principle 3,460 - - Extraordinary charge - - 8,774 Other 2,939 7,487 8,248 Net operating activities 75,625 89,450 111,349 Cash Provided from (Used for) Investing Activities Capital expenditures (66,424) (52,604) (49,532) Acquisitions of businesses, less cash acquired (76,045) (96,512) (58,439) Acquisition payments (207) (14,965) (1,805) Sales of assets 5,635 13,048 11,928 Investments in associated and other companies - (22,071) (2,862) Return of cash from associated and other companies - 851 8,170 Other (11,810) 2,468 7 Net investing activities (148,851)(169,785) (92,533) CONSOLIDATED STATEMENTS OF CASH FLOWS M.A. Hanna Company and Consolidated Subsidiaries Year Ended December 31 1998 1997 1996 Cash Provided from (Used for) Financing Activities Cash dividends paid (20,370) (19,176) (18,291) Proceeds from the sale of common stock 3,036 4,333 8,027 Purchase of shares for treasury (16,944) (17,972) (28,830) Increase in debt 233,066 227,523 110,872 Reduction in debt (134,567) (99,161) (172,218) Net financing activities 64,221 95,547 (100,440) Effect of exchange rate changes on cash (103) (3,810) 417 Cash and Cash Equivalents Increase(decrease) (9,108) 11,402 (81,207) Beginning of year 41,430 30,028 111,235 End of year $ 32,322 $ 41,430 $ 30,028 Cash Paid During Year Interest $ 34,304 $ 22,836 $ 22,938 Income taxes 25,527 36,992 31,731 See summary of accounting policies and notes to consolidated financial statements CONSOLIDATED BALANCE SHEETS M.A. Hanna Company and Consolidated Subsidiaries December 31 Dollars in thousands 1998 1997 Assets Current Assets Cash and cash equivalents $ 32,322 $ 41,430 Receivables Trade (less allowance of $9,757 in 1998 and $8,649 in 1997) 339,721 322,975 Other 10,381 9,372 350,102 332,347 Inventories Finished products 169,830 161,731 Raw materials and supplies 66,703 65,430 236,533 227,161 Prepaid expenses 9,937 10,976 Deferred income taxes 25,554 31,005 Total current assets 654,448 642,919 Property, Plant and Equipment Land 21,549 19,285 Buildings 141,569 118,413 Machinery and equipment 435,455 385,571 598,573 523,269 Less accumulated depreciation 258,986 234,956 339,587 288,313 Other Assets Goodwill and other intangibles 467,577 420,696 Investments and other assets 91,277 87,608 Deferred income taxes 41,008 29,469 599,862 537,773 Total assets $1,593,897 $1,469,005 December 31 1998 1997 Liabilities and Stockholders' Equity Current Liabilities Notes payable to banks $ 3,391 $ 2,919 Trade payables and accrued expenses 358,081 393,925 Current portion of long-term debt 2,611 2,149 Total current liabilities 364,083 398,993 Other Liabilities 210,476 205,480 Long-term Debt Senior notes 87,775 124,960 Medium-term notes 160,000 120,000 Other 233,111 80,267 480,886 325,227 Stockholders' Equity Preferred stock, without par value; authorized 5,000,000 shares: issued and outstanding 0 shares in 1998 and 1997 - - Common stock, par value $1.00 per share: authorized 100,000,000 shares; issued 66,059,298 shares in 1998 and 65,749,570 shares in 1997 66,059 65,750 Capital surplus 293,613 358,145 Retained earnings 470,566 462,653 Accumulated translation adjustment (12,327) (11,964) Associates ownership trust (5,249,721 shares in 1998 and 5,545,273 shares in 1997) (65,255) (144,213) Cost of treasury stock (16,439,467 shares in 1998 and 15,272,602 shares in 1997) (214,204) (191,066) Total stockholders' equity 538,452 539,305 Total liabilities and stockholders' equity $ 1,593,897 $ 1,469,005 See summary of accounting policies and notes to consolidated financial statements CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY M.A. Hanna Company and Consolidated Subsidiaries Dollars in thousands except per share data Preferred Common Capital Retained Stock Stock Surplus Earnings Balance January 1, 1996 $ - $ 43,274 $ 324,273 $ 381,709 Comprehensive income: Net income 53,810 Translation adjustment Minimum pension adjustment Total comprehensive income Cash dividends - $.402 per share (18,291) Exercise of stock options 309 4,532 Purchase of shares for treasury Sale of common stock (193,058 shares) 42 2,005 Payment of incentive compensation awards and associate benefits 866 Three-for-two common stock split 21,637 (21,637) Adjustment to market value 19,504 Balance December 31, 1996 - 65,262 329,543 417,228 Comprehensive income: Net income 64,601 Translation adjustment Minimum pension adjustment Total comprehensive income Cash dividends - $.4275 per share (19,176) Exercise of stock options 449 7,047 Purchase of shares for treasury Sale of common stock (49,356 shares) 39 976 Transfer of shares (300,000 shares) Payment of incentive compensation awards and associate benefits 1,779 Adjustment to market value 18,800 Balance December 31, 1997 - 65,750 358,145 462,653 Comprehensive income: Net income 28,283 Translation adjustment Total comprehensive income Cash dividends - $.4575 per share) (20,370) Exercise of stock options 244 3,302 Purchase of shares for treasury Sale of common stock (65,319 shares 65 989 Transfer of shares (200,151 shares) Payment of incentive compensation awards and associate benefits Adjustment to market value (68,823) Balance December 31, 1998 $ - $ 66,059 $293,613 $ 470,566 Accumulated Other Comprehensive Income Minimum Pension Accumulated Associates Liability Translation Ownership Adjustment Adjustment Trust Balance January 1, 1996 $ (7,522) $ 1,588 $ (121,363) Comprehensive income: Net income Translation adjustment 59 Minimum pension adjustment 2,504 Total comprehensive income Cash dividends - $.402 per share Exercise of stock options Purchase of shares for treasury Sale of common stock (193,058 shares) 4,041 Payment of incentive compensation awards and associate benefits 2,122 Three-for-two common stock split Adjustment to market value (19,504) Balance December 31, 1996 (5,018) 1,647 (134,704) Comprehensive income: Net income Translation adjustment (13,611) Minimum pension adjustment 5,018 Total comprehensive income Cash dividends - $.4275 per share Exercise of stock options Purchase of shares for treasury Sale of common stock (49,356 shares) 220 Transfer of shares (300,000 shares) 6,166 Payment of incentive compensation awards and associate benefits 2,905 Adjustment to market value (18,800) Balance December 31, 1997 - (11,964) (144,213) Comprehensive income: Net income Translation adjustment (363) Total comprehensive income Cash dividends - $.4575 per share Exercise of stock options Purchase of shares for treasury Sale of common stock (65,319 shares Transfer of shares (200,151 shares) 4,797 Payment of incentive compensation awards and associate benefits 5,338 Adjustment to market value 68,823 Balance December 31, 1998 $ - $ (12,327) $ (65,255) Total Treasury Stockholders' Stock Equity Balance January 1, 1996 $ (137,181) $ 484,778 Comprehensive income: Net income Translation adjustment Minimum pension adjustment Total comprehensive income 56,373 Cash dividends - $.402 per share (18,291) Exercise of stock options (817) 4,024 Purchase of shares for treasury (28,830) (28,830) Sale of common stock (193,058 shares) 6,088 Payment of incentive compensation awards and associate benefits 1,153 4,141 Three-for-two common stock split - Adjustment to market value - Balance December 31, 1996 (165,675) 508,283 Comprehensive income: Net income Translation adjustment Minimum pension adjustment Total comprehensive income 56,008 Cash dividends - $.4275 per share (19,176) Exercise of stock options (3,069) 4,427 Purchase of shares for treasury (17,972) (17,972) Sale of common stock (49,356 shares) 1,235 Transfer of shares (300,000 shares) (6,166) - Payment of incentive compensation awards and associate benefits 1,816 6,500 Adjustment to market value - Balance December 31, 1997 (191,066) 539,305 Comprehensive income: Net income Translation adjustment Total comprehensive income 27,920 Cash dividends - $.4575 per share (20,370) Exercise of stock options (1,397) 2,149 Purchase of shares for treasury (16,944) (16,944) Sale of common stock (65,319 shares 1,054 Transfer of shares (200,151 shares) (4,797) - Payment of incentive compensation awards and associate benefits 5,338 Adjustment to market value - Balance December 31, 1998 $ (214,204) $ 538,452 See summary of accounting policies and notes to consolidated financial statements SUMMARY OF ACCOUNTING POLICIES M.A. Hanna Company and Consolidated Subsidiaries Dollars in thousands except per share data PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of M.A. Hanna Company and all majority-owned subsidiaries. Investments in less than majority-owned companies are carried at cost adjusted for undistributed earnings and losses since acquisition, or at cost. All significant intercompany accounts and transactions have been eliminated. REVENUE RECOGNITION Revenues are recognized when a product is shipped or a service is performed. NET INCOME PER SHARE Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the year. Shares of common stock held by the Associates Ownership Trust (AOT) enter into the determination of the average number of shares outstanding when the shares are released from the AOT to fund obligations under certain associate compensation and benefit plans. Basic weighted average shares outstanding for the years ended December 31, 1998, 1997 and 1996 were 44,573,436, 45,167,937 and 45,789,136, respectively. For diluted earnings per share, the number of shares used for basic earnings per share are increased by the common stock equivalents which would arise from the exercise of stock options. Weighted average shares outstanding (diluted) for the years ended December 31, 1998, 1997 and 1996, were 45,036,676, 46,271,857 and 46,823,501, respectively. CASH EQUIVALENTS Cash equivalents are highly liquid investments with an original purchased maturity of three months or less. Cash equivalents are stated at cost, which approximates fair value. CONCENTRATIONS OF CREDIT RISK Financial instruments which potentially subject the Company to credit risk are trade accounts receivable and foreign exchange contracts. Concentration of credit risk with respect to trade accounts receivable is limited due to the large number of customers comprising the Company's customer base and their distribution among many different industries and geographic locations. The Company is exposed to credit risk with respect to forward foreign exchange contracts in the event of nonperformance by the counterparties to these financial instruments, which are major financial institutions. Management believes the risk of incurring material losses related to this credit risk is remote. INVENTORIES Inventories are stated at the lower of cost or market. Prior to 1998, a majority of the domestic inventories were valued by the last-in, first-out (LIFO) cost method. Effective January 1, 1998, the Company changed its method of accounting for all domestic inventories to the LIFO cost method. The change in accounting was made to better match acquisition costs against sales, conform to the LIFO election made for income tax purposes and to provide greater consistency in inventory valuations across domestic business units. The effect of this change was not significant to 1998 reported results. Inventories of international subsidiaries are valued by the first-in, first-out (FIFO) method. The excess of current cost over LIFO cost was $8,143 and $8,794 at December 31, 1998 and 1997, respectively. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Depreciation is computed principally by the straight-line method. Estimated asset lives are: Building and improvements 20 - 40 years Machinery and equipment 5 - 10 years Computer software and hardware 5 years Property items retired or otherwise disposed of are removed from the property and related accumulated depreciation accounts, and any gain or loss is included in operating results. GOODWILL AND OTHER INTANGIBLES Goodwill is amortized over 40 years on a straight-line basis. Net other intangibles of $22,065 and $10,675 at December 31, 1998 and 1997, respectively, are amortized on a straight-line basis over 5 to 40 years. Accumulated amortization at December 31, 1998 and 1997 was $127,588 and $111,747, respectively. The carrying value of goodwill and other intangibles is evaluated if circumstances indicate a possible impairment in value. If undiscounted cash flows over the remaining amortization period indicate that goodwill and other intangibles may not be recoverable, the carrying value will be reduced by the estimated shortfall of cash flows on a discounted basis. INCOME TAXES Deferred tax liabilities and assets are determined based on the differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rate and laws that are currently in effect. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the reported financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. FOREIGN CURRENCY TRANSLATION Assets and liabilities of international affiliates are translated at the exchange rates as of the balance sheet date. Related translation adjustments are reported as a component of stockholders' equity. Revenues and expenses are translated at the average rates in effect during the period. DERIVATIVE FINANCIAL INSTRUMENTS The Company limits its use of derivative financial instruments to forward foreign exchange contracts to hedge certain foreign currency receivables, payables and intercompany lending transactions. Gains and losses on foreign currency transaction hedges are recognized in other income or expense and offset the foreign exchange gains and losses on the underlying transactions. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133 "Accounting for Derivative Instruments and Hedging Activities." The Company is analyzing the impact of this Statement and will adopt it in 2000. CHANGE IN ACCOUNTING PRINCIPLE Effective January 1, 1998, the Company adopted the AICPA's Statement of Position 98-5 "Reporting on the Costs of Start- up Activities" which requires all pre-operating costs to be expensed as incurred. Adoption of this Statement resulted in a one-time charge of $2,059 (net of taxes of $1,401) for previously capitalized costs. This charge was reported as a cumulative effect of a change in accounting principle in 1998 earnings. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS M.A. Hanna Company and Consolidated Subsidiaries Dollars in thousands except per share data PROFIT IMPROVEMENT PLAN In 1998, the Company completed a review of its business and implemented a plan which would lower the Company's overall cost structures. This plan included consolidating manufacturing operations and improving customer service capabilities through more efficient production facilities and more focused sales, marketing and technical support. As part of the profit improvement plan, the Company has closed four plants and is in negotiations to sell a fifth plant. The Company will continue to incur facility costs including lease payments, utilities and taxes until the various leases expire or properties are sub-leased. The plan included the elimination of approximately 300 jobs, of which half were eliminated in 1998 and half will be eliminated in early 1999. These actions resulted in a pre-tax charge of $29,800 in the third quarter of 1998. The charge included $4,300 related to inventory valuations, which was charged to cost of goods sold, $1,700 related to accounts receivable, which was charged to selling, general and administrative costs and $23,800 related to involuntary severances, fixed asset write- downs and plant closings which was charged to other-net. The one-time charge on an after-tax basis was $17,731 or $.39 per share on a diluted basis. Details of the charge and its utilization as of December 31, 1998 are as follows: 1998 Utilized Remaining Charge In 1998 Accrual Inventory valuations $ 4,300 $ 4,300 $ - Accounts receivable 1,700 1,700 - Associate costs 9,206 3,949 5,257 Asset write-downs 12,046 9,267 2,779 Plant closures 2,548 385 2,163 $29,800 $19,601 $10,199 ACQUISITIONS In January 1998, the Company acquired a majority interest in Melos Carl Bosch GmbH + Co. based in Melle, Germany. Melos produces rubber, thermoplastic elastomer and plastic compounds for the wire and cable, sport recreation and automotive markets. In March 1998, the Company acquired a line of halogen free, low-smoke flame retardant compounds from Exxon. These products will compliment the halogen-free flame retardant plastic compounds currently marketed by the Company's subsidiary, Enviro Care Compounds, based in Norway. Enviro Care Compounds was acquired by the Company in February 1997. In December 1998, the Company formed a joint venture with Bifan S. A., which controls So.F.teR S.p.A., an Italian producer of thermoplastic elastomers. During 1997, the Company purchased the former Sadolin Masterbatch, a plastic color and additive concentrate business based in Denmark; and the manufacturing business of Harwick Chemical Manufacturing Corporation, a supplier of chemical dispersions, specialty colorants and other specialty products for the rubber industry, and specialty color pigment dispersions and dry colorants for plastics. In November 1997, the Company formed a joint venture alliance with Techmer PM to produce color and additive concentrates for the film and fiber markets. The Company contributed cash and the assets of its fiber colorant business for a 51% interest in the joint venture. These acquisitions were accounted for using the purchase method of accounting. Had the acquisitions and the formation of joint ventures been made at the beginning of 1997, reported pro forma results of operations for 1998 and 1997 would not be materially different. INCOME TAXES Income taxes consist of the following: 1998 1997 1996 Current Federal $(1,280) $26,693 $24,613 State 1,519 5,663 4,022 Foreign 8,153 8,675 8,505 8,392 41,031 37,140 Deferred Federal (4,913) 2,297 4,055 State (893) 8 759 Foreign 2,100 2,492 1,775 (3,706) 4,797 6,589 $ 4,686 $45,828 $43,729 The provision for income taxes differs from the amount computed by applying the U.S. statutory federal income tax rate as follows: 1998 1997 1996 Amount Percent Amount Percent Amount Percent Provision at statutory tax rate $12,260 35.0% $38,650 35.0% $36,012 35.0% State income taxes 407 1.1 3,686 3.3 3,108 3.0 Goodwill amortization 3,213 9.2 2,869 2.6 2,811 2.7 Adjustment to reserves (9,500)(27.1) - - - - Other - net (1,694) (4.8) 623 .6 1,798 1.8 $ 4,686 13.4% $45,828 41.5% $43,729 42.5% During 1998, the Company recorded a one-time reduction of income tax reserves of $9,500 in connection with reaching an agreement with the Internal Revenue Service relative to an examination of previously filed tax returns. Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company has not provided deferred taxes on undistributed earnings of international subsidiaries and joint ventures as these earnings are considered indefinitely reinvested. The Company may consider repatriating these earnings, if at some future time the distribution results in no incremental tax cost. Significant components of the Company's deferred tax assets (liabilities) are as follows: 1998 1997 Basis differences from purchase accounting $(6,188) $(7,471) Property, plant and equipment (11,245) (12,490) Other postretirement benefits 34,035 32,948 Associate benefits 19,463 18,012 Foreign net operating losses and tax credit carryforwards 7,336 6,776 Restructuring and plant closedown costs 5,510 4,926 Environmental costs 6,582 6,869 Inventory and receivable allowances 3,062 4,082 Other 7,594 7,816 66,149 61,468 Valuation allowance (7,336) (6,776) Net deferred income tax asset $58,813 $54,692 At December 31, 1998, the Company has foreign net operating loss carryforwards the majority of which expire by 2003 and foreign tax credit carryforwards the majority of which expire in 2000. The Company has recorded a valuation allowance for these carryforwards as it is not anticipated that they will be utilized before expiration. Income from continuing operations before income taxes includes $27,392, $35,343, and $26,980 in 1998, 1997, and 1996, respectively, from international operations. LONG-TERM DEBT Long-term debt at December 31 consists of the following: 1998 1997 9.375% Senior notes due 2003 $ 87,775 $ 87,775 9% Senior notes due 1998 - 37,185 Medium-term notes - interest rates from 6.52% to 7.16% with a weighted average rate of 6.85% - due between 2004 and 2011 160,000 120,000 Bank borrowings 214,625 77,197 Capital lease obligations 3,839 - Other 17,258 5,219 483,497 327,376 Less current portion 2,611 2,149 $480,886 $325,227 Annual maturities of long-term debt for the next five years are: 1999--$2,611; 2000--$2,734; 2001--$2,594; 2002--$2,834; and 2003--$305,490. The Company has a revolving credit agreement which provides for borrowings up to $200 million through January 2003 with interest rates determined at the time of the borrowing based on a choice of formulas specified in the agreement. There were no borrowings under this agreement at December 31, 1998 or 1997. Bank borrowings include committed and uncommitted borrowings. At December 31, 1998, the Company had $103,940 of borrowings from uncommitted bank lines and $27,172 from committed bank lines at interest rates ranging from 3.35% to 10.50% and a weighted average interest rate of 5.98%. Bank borrowings from uncommitted bank lines include $9,485 of debt assumed as part of the acquisition of So.F.teR S.p.A. During 1998, the Company entered into a five-year, 5.1% fixed rate borrowing for 90,000 DM ($53,687 as of December 31, 1998) and a three- month, 3.93% rate borrowing of 50,000 DM ($29,826 as of December 31, 1998). It is the Company's policy to classify these bank borrowings as long-term debt since the Company has the ability, under the revolving credit agreement, and the intent to maintain these obligations longer than one year. Other debt at December 31, 1998 and 1997, consists primarily of mortgages, industrial revenue bonds and notes. Other debt at December 31, 1998, also includes mortgages assumed as part of the acquisition of So.F.teR S.p.A. totaling $14,014. These obligations mature in various installments through 2007 and are at interest rates ranging from 3.46% to 7.00%. The Company had $3,391 and $2,919 of outstanding notes payable to banks at December 31, 1998 and 1997, at weighted average interest rates of 8.99% and 8.62%, respectively. In 1996, the Company repurchased $102,310 principal amount of Senior Notes in the open market, resulting in an extraordinary charge of $8,774 ($5,352 after tax). The Senior Note agreement contains certain restrictions and conditions among which are limitations on cash dividends and other payments. Under the most restrictive of these agreements, approximately $236,318 of retained earnings was free of such limitations at December 31, 1998. STOCKHOLDERS' EQUITY The Associates Ownership Trust (AOT) acquired shares of common stock from the Company in 1991 for a promissory note in the amount of $100,049. The shares acquired are released from the AOT on an annual basis to fund a portion of the Company's obligations under certain of its associate compensation and associate benefit plans for the 15-year term of the AOT and to meet annual principal payments on the promissory note. Shares remaining in the AOT are adjusted at each balance sheet date to their respective market value with an offsetting adjustment to capital surplus. Under the Company's Stock Purchase Rights Plan, each Right entitles the holder of common stock to buy from the Company one one-hundredth of a share of Cumulative Series A Preferred Stock, without par value for $95, subject to adjustment. The Rights become exercisable if certain triggering events occur, including the acquisition of 15% or more of the Company's common stock. The Company is entitled to redeem the Rights at $.01 per Right at any time until ten days after any person or group has acquired 20% of the Company's common stock and in certain circumstances thereafter. If a party owning 20% or more of the Company's common stock merges with the Company or engages in certain other transactions with the Company, each Right, other than the Rights held by the acquiring party, entitles the holder to purchase that number of additional common shares having a market value of two times the exercise price of the Right. The Rights expire on December 16, 2001. The Company's 1988 Long-Term Incentive Plan provides for the granting of options, including options to non-associate directors, up to 6,426,038 shares. The exercise price of each option equals the market price of the Company's stock on the date of grant; options have a life of ten years. Options vest according to a graded vesting schedule of one-third one year from the date of grant, one-third two years from the date of grant and one-third three years from the date of grant. The Company applies the intrinsic value-based method of accounting prescribed by APB Opinion No. 25 for this plan. Accordingly, no compensation expense has been recognized for its fixed stock option plan as options are granted at fair market value. Had compensation expense for the Company's stock-based compensation plan been determined based on the fair value at the grant dates for awards under that plan consistent with the method of SFAS No. 123, the Company's net income, basic earnings per share and diluted earnings per share amounts would have been restated as follows: Proforma 1998 1997 1996 Net income $26,499 $62,392 $53,065 Basic earnings per share .59 1.38 1.16 Diluted earnings per share .59 1.35 1.13 The imputed fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions. 1998 1997 1996 Dividend yield 3.20% 2.00% 2.08% Expected price volatility 27.00% 25.00% 22.60% Risk free interest rate 4.75% 5.75% 6.25% Expected option life 8 years 8 years 10 years The following table summarizes the changes in the outstanding options for the three years ended December 31: 1998 1997 1996 Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price Outstanding at beginning of year 2,905,524 $16.21 2,951,234 $14.14 2,821,484 $12.39 Granted 737,760 15.03 470,026 23.92 456,521 21.15 Exercised (244,409) 11.46 (446,958) 10.31 (309,131) 8.39 Canceled or expired (16,370) 22.70 (68,778) 18.01 (17,640) 15.49 Outstanding at end of year 3,382,505 16.26 2,905,524 16.21 2,951,234 14.14 Options exercisable at end of year 2,298,819 2,177,233 1,862,317 Weighted-average fair value of options granted during the year $3.98 $7.96 $7.54 The following table summarizes information about options outstanding at December 31, 1998: Options Outstanding Options Exercisable Weighted Average Weighted Weighted Range of Options Remaining Average Options Average Exercise Prices Outstanding Contractual Exercise Exercisable Exercise Life Price Price $ 7.40 to 12.99 715,970 3.2 years $10.81 597,699 $10.61 13.00 to 16.99 1,381,553 6.6 years 14.55 823,917 14.25 17.00 to 26.81 1,284,982 7.8 years 21.12 877,203 20.13 3,382,505 2,298,819 At December 31, 1998, 820,133 shares were available for future grants. BUSINESS SEGMENTS In 1998, the Company adopted SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information," which changes the way the Company reports information about its operating segments. Segment information for 1997 and 1996 has been restated to conform with the new presentation. The Company has three reportable segments - rubber processing, plastic processing and distribution. The reportable segments are business units that offer different products and services. Additionally, the manufacturing processes for rubber processing and plastic processing are different. Rubber processing includes the manufacture of custom rubber compounds and additives. Plastic processing includes the production of custom plastic compounds and custom formulated colorants and additives. Distribution includes distribution of engineered plastic shapes and thermoplastic and thermoset resins and fiberglass materials. Other operations include the Company's Diversified Polymer Products business, its marine and insurance operations and management fees. The Company evaluates performance and allocates resources on operating income before interest and income taxes. The accounting policies of the reportable segments are the same as those described in the summary of accounting policies. NOTES TO FINANCIAL STATEMENTS --Continued M.A. Hanna Company and Consolidated Subsidiaries Rubber Plastic Processing Processing Distribution 1998 Net sales from external customers $528,513 $833,091 $910,057 Intersegment sales 2,483 25,032 7,834 Depreciation and amortization 17,855 33,499 6,586 Operating income 47,816 (1) 28,286 (2) 13,457 (3) Assets 390,197 670,324 372,798 Capital expenditures 23,955 35,444 5,573 1997 Net sales from external customers $448,488 $768,683 $961,222 Intersegment sales 3,347 22,637 7,118 Depreciation and amortization 13,556 31,175 6,167 Operating income 44,381 63,460 (5) 42,767 (6) Assets 326,107 616,097 376,681 Capital expenditures 11,672 34,283 6,022 1996 Net sales from external customers $388,400 $723,537 $921,838 Intersegment sales 4,064 14,417 4,392 Depreciation and amortization 11,425 31,235 5,909 Operating income 35,440 61,251 40,497 Assets 219,845 538,469 360,564 Capital expenditures 10,826 31,952 6,140 Other Operations Corporate Total 1998 Net sales from external customers $ 14,221 $ - $2,285,882 Intersegment sales - - 35,349 Depreciation and amortization 785 1,010 59,735 Operating income 1,358 (21,974)(4) 68,943 Assets 18,678 141,900 1,593,897 Capital expenditures 699 753 66,424 1997 Net sales from external customers $ 21,952 $ - $2,200,345 Intersegment sales - - 33,102 Depreciation and amortization 825 916 52,639 Operating income 10,552 (7) (26,980) 134,180 Assets 16,471 133,649 1,469,005 Capital expenditures 420 207 52,604 1996 Net sales from external customers $ 32,473 $ - $2,066,248 Intersegment sales - - 22,873 Depreciation and amortization 746 801 50,116 Operating income 10,507 (24,771) 122,924 Assets 7,926 123,975 1,250,779 Capital expenditures 157 457 49,532 (1) Includes $4,251 of charges from the profit improvement plan (2) Includes $16,372 of charges from the profit improvement plan (3) Includes $5,640 of charges from the profit improvement plan (4) Includes $3,537 of charges from the profit improvement plan (5) Includes $5,140 of restructuring charges (6) Includes $1,000 of restructuring charges (7) Includes $6,340 gain from the sale of assets Net sales, which are attributed to countries based on the location of the business unit recognizing the sale, and long- lived assets by geographic area are as follows: 1998 1997 1996 Net sales United States $1,775,373 $1,722,373 $1,637,252 Europe 291,007 251,720 234,263 Asia/Pacific 144,011 154,897 137,407 Other 75,491 71,355 57,326 $2,285,882 $2,200,345 $2,066,248 Long-lived assets United States $636,553 $ 642,077 $ 519,332 Europe 211,063 102,699 110,359 Asia/Pacific 45,748 46,858 45,825 Other 5,077 4,983 5,107 $898,441 $ 796,617 $ 680,623 PENSION AND OTHER POSTRETIREMENT BENEFITS The Company has noncontributory defined benefit plans covering certain of its associates which comply with federal funding requirements. Benefits for these plans are based primarily on years of service and qualifying compensation during the final years of employment. Plan assets include marketable equity securities (including stock of the Company), money market funds and fixed income securities. The Company also sponsors defined contribution plans for certain of its associates, which provide for Company contributions of a specified percentage of each associate's total compensation. A summary of the components of net periodic pension cost for the defined benefit plans and the total contributions charged to expense for the defined contribution plans follows: 1998 1997 1996 Defined benefit plans Service cost $ 480 $ 411 $ 430 Interest cost on projected benefit obligation 5,477 5,979 5,911 Return on plan assets (7,760) (8,941) (6,933) Net amortization and deferral (58) 2,673 1,735 Net pension cost (1,861) 122 1,143 Defined contribution plans 6,822 5,464 5,213 $4,961 $5,586 $6,356 The following table sets forth the funded status of the Company's defined benefit plans: 1998 1997 Change in projected benefit obligation Benefit obligation at beginning of year $ 81,009 $79,367 Service and interest cost 5,957 6,390 Plan amendments (1,178) - Actuarial losses 3,430 2,248 Benefits paid (6,982) (6,996) Benefit obligation at year end 82,236 81,009 Change in plan assets Fair value of plan assets at beginning of year 100,711 86,706 Actual return on plan assets 11,774 20,915 Employer contributions 484 86 Benefits paid (6,982) (6,996) Fair value of plan assets at end of year 105,987 100,711 Funded Status 23,751 19,702 Unrecognized actuarial gains (9,257) (7,814) Unrecognized net transition obligation 159 758 Net amount recognized $ 14,653 $12,646 The projected benefit obligation was determined using an assumed discount rate of 6.75% and 7.50% in 1998 and 1997, respectively, an assumed long-term rate of increase in compensation of 5% for both years and an assumed long-term rate of return on plan assets of 8.5% for both years. Effective December 31, 1998, the Company amended the Salaried Employees Retirement Income Plan, freezing the benefits earned under the Plan. In accordance with SFAS No. 88 "Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits", the Company recorded a $1,457 net curtailment loss. Additionally, this plan amendment resulted in a $1,178 decrease in the projected benefit obligation. Prior to 1997, the Company had recorded a minimum pension liability representing the excess of the accumulated benefit obligation over the fair value of plan assets and accrued pension liabilities. The liability had been offset by intangible assets to the extent possible. Because the intangible assets recognized may not exceed the amount of unrecognized prior service cost plus unrecognized obligations at transition that remain at December 31 each year, the balance of the liability at the end of 1996 was reported as a separate reduction of stockholders' equity, net of applicable deferred income taxes. In addition to providing pension benefits, the Company provides certain contributory and noncontributory health care and life insurance benefits for certain retired associates. Certain associates of the Company may become eligible for these postretirement benefits if they reach retirement age while working for the Company. The status of the Company's plans, which are unfunded, at December 31, 1998 and 1997, is as follows: 1998 1997 Change in benefit obligation Benefit obligation at the beginning of the year $65,773 $63,484 Service and interest cost 5,605 5,641 Benefits paid (4,233) (4,701) Actuarial losses 3,149 1,349 Benefit obligation at the end of the year $70,294 $65,773 Funded status Unfunded obligation $70,294 $65,773 Unrecognized actuarial gain 14,447 18,677 Accrued liability recognized at year end $84,741 $84,450 Net periodic postretirement benefit cost includes the following components: 1998 1997 1996 Service cost $ 972 $ 834 $ 1,060 Interest cost 4,633 4,807 4,863 Amortization of unrecognized actuarial gain (1,081) (781) (425) Net periodic postretirement benefit cost $ 4,524 $ 4,860 $ 5,498 The weighted-average assumed rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) is assumed to be 8.5% at December 31, 1998 and 1997, respectively, and decreasing gradually to 5.25% in 2005 and remaining at that level thereafter. A one percentage point change in the assumed health care cost trend rates would have the following effects: One One percentage percentage point point increase decrease Change in service and interest $ 772 $ (656) cost components of annual expense Change in postretirement benefit obligation $8,138 $(7,114) A discount rate of 6.75% and 7.50% in 1998 and 1997, respectively, was used in determining the accumulated benefit obligation. FINANCIAL INSTRUMENTS The Company transacts business in various foreign currencies and is subject to financial exposure from foreign exchange rate movement between the date a foreign currency transaction is recorded and the date it is consummated. To mitigate this risk, the Company enters into foreign exchange contracts. Gains and losses on these contracts generally offset gains or losses on the assets and liabilities being hedged and are recorded as other income or expense. Additionally, the Company enters into intercompany lending transactions. The Company also enters into foreign exchange contracts related to this foreign exchange exposure. Realized and unrealized gains and losses on these contracts are recorded as other income or expense. The Company does not hold or issue financial instruments for trading purposes. The table below summarizes by currency the contractual amounts of the Company's foreign exchange contracts at December 31, 1998. Foreign currency amounts are translated at exchange rates as of December 31, 1998. The "Buy" amounts represent the U.S. dollar equivalent of commitments to purchase foreign currencies, and the "Sell" amounts represent the U.S. dollar equivalent of commitments to sell foreign currencies. Buy Sell Currency U.S. dollar $59,605 $19,892 British pound sterling 17,770 10,098 French franc 1,060 68,104 German deutschmark 7,200 1,494 Belgian franc 6,407 - Canadian dollar 4,248 - Dutch guilder 4,350 - Australian dollar - 3,424 Other 3,506 983 The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments: Cash and Cash Equivalents: The carrying amounts reported in the balance sheet approximate fair value. Long and Short-Term Debt: The carrying amount of the Company's short-term borrowings approximates fair value. The fair value of the Company's Senior and Medium-term Notes is based on quoted market prices. The carrying amount of the Company's borrowings under its variable interest rate long- term revolving credit agreements and other long-term borrowings approximates fair value. Foreign Exchange Contracts: The fair value of short-term foreign exchange contracts is based on exchange rates at December 31, 1998. The fair value of long-term foreign exchange contracts is based on quoted market prices for contracts with similar maturities. The carrying amounts and fair values of the Company's financial instruments at December 31, 1998 and 1997, are as follows: 1998 1997 Carrying Fair Carrying Fair Amount Value Amount Value Cash and cash equivalents $32,322 $32,322 $41,430 $41,430 Notes payable to banks 3,391 3,391 2,919 2,919 Long-term debt 9.375% Senior notes 87,775 99,291 87,775 100,055 9% Senior notes - - 37,185 37,910 Medium-term notes 160,000 163,637 120,000 122,545 Bank borrowings 214,625 214,625 77,197 77,197 Other 21,097 21,097 5,219 5,219 Foreign exchange contracts 166 166 663 663 LEASE COMMITMENTS The Company leases certain manufacturing facilities, warehouses, transportation equipment and data processing and office equipment under capital and operating leases. Rent expense for operating leases was $21,530, $21,009 and $18,646 for the years ending December 31, 1998, 1997 and 1996, respectively. Certain of the Company's leases have options to renew, and there are no significant contingent rentals. At December 31, 1998, future minimum lease commitments for noncancelable leases are as follows: Operating Capital Leases Leases 1999 $15,844 $ 758 2000 11,733 815 2001 9,753 808 2002 7,954 836 2003 5,706 1,170 Thereafter 15,076 - Total $66,066 4,387 Less: Interest 548 Present value of minimum lease payments $3,839 CONTINGENCIES Claims have been made against subsidiaries of the Company for the costs of environmental remediation measures taken or to be taken in connection with operations that have been sold or closed. These include the clean-up of Superfund sites and participation with other companies in the clean-up of hazardous waste disposal sites, several of which have been designated as Superfund sites. Reserves for such liabilities have been established and no insurance recoveries have been anticipated in the determination of the reserves. In management's opinion, the aforementioned claims will be resolved without material adverse effect on the financial position, results of operations or cash flows of the Company. LITIGATION The Company is engaged in legal proceedings arising in the ordinary course of business. The Company believes that the ultimate outcome of these proceedings will not have material adverse impact on the Company's financial position, results of operations or cash flows. OTHER - NET Other - net includes the following: 1998 1997 1996 Interest and dividends $(1,010) $ (589) $(1,578) Gain on sale of assets (1,009) (6,340) - Expenses of closed facilities 1,291 3,166 4,160 Profit improvement plan charges 23,800 6,140 - Foreign exchange gain (3,249) (2,800) (2,558) Minority interest 4,706 - - Other (2,368) (1,246) 315 $22,161 $(1,669) $ 339 DETAIL OF CURRENT AND OTHER LIABILITIES Trade payables and accrued expenses and other liabilities at December 31 are principally comprised of the following items: 1998 1997 Trade payables and accrued expenses Trade payables $222,993 $247,778 Salaries and wages 10,732 12,466 Associate benefits 39,657 42,847 Restructuring and acquisition costs 18,350 10,164 Other postretirement benefits 4,912 4,763 Other liabilities Plant closedown costs 8,718 11,420 Environmental costs 13,687 14,641 Associate benefits 31,924 27,544 Other postretirement benefits 79,829 79,687 Minority interest 33,091 25,708 Associate benefit accruals include employee health, life and disability insurance, profit sharing and incentive compensation, pension expense, workers' compensation costs and vacation pay. SUPPLEMENTAL CASH FLOW DATA The following is a summary of noncash investing and financing activities. 1998 1997 1996 Acquisition of businesses Assets acquired $129,674 $103,369 $130,712 Liabilities assumed 52,096 6,520 68,574 Cash paid 77,578 96,849 62,138 Less cash acquired 1,533 337 3,699 $ 76,045 $ 96,512 $ 58,439 Debt of companies acquired $ 27,338 - $ 19,106 Payment of incentive compensation awards with treasury and AOT stock $ 1,042 $ 3,293 $ 2,019 Payment of stock options exercised with shares of common stock $ 1,396 $ 3,069 $ 817 Release of common stock held by Associates Ownership Trust $ 5,033 $ 8,134 $ 2,122 Transfer of common stock released from Associates Ownership Trust to treasury stock $ (4,797) $ (6,166) - Quarterly Financial and Stock Price Data M.A. Hanna Company and Consolidated Subsidiaries Dollars in thousands except per share data Summarized unaudited quarterly financial and stock price data for 1998 and 1997 are as follows: First Second Third Fourth Quarter Quarter Quarter Quarter 1998 Net sales $ 591,501 $ 595,613 $ 564,539 $ 534,229 Gross margin 114,229 109,573 92,861 85,875 Income before cumulative effect of change in accounting principl 15,407 12,969 (145) 2,111 Cumulative effect of change in accounting principle (2,059) - - - Net income 13,348 12,969 (145) 2,111 Net income per common share (diluted) Income before cumulative effect of a change in accounting principle .34 .29 - 0.05 Cumulative effect of a change in accounting principle (.05) - - - Net Income .29 .29 - 0.05 Price range High 25.56 24.69 18.25 15.94 Low 19.75 17.88 9.75 10.56 Cash dividends paid .1125 .1125 .1125 .1200 1997 Net sales $ 527,629 $ 555,382 $ 561,418 $ 555,916 Gross margin 101,477 106,020 103,907 107,205 Net income 15,228 17,104 16,631 15,638 Net income per common share (dilu .33 .37 .36 .34 Price range High 24.63 30.00 28.75 27.25 Low 19.75 20.38 24.63 23.63 Cash dividends paid .105 .105 .105 .1125 Income per share calculations for each of the quarters are based on the weighted average number of shares outstanding for each quarter, and the sum of the quaters may not be necessarily be equal to the full year income per share amount. SELECTED FINANCIAL DATA M. A. Hanna Company and Consolidated Subsidiaries Dollars in thousands except per share data 1998 1997 1996 Summary of Operations Net sales $2,285,882 $2,200,345 $2,066,248 Cost of goods sold 1,883,344 1,781,736 1,685,167 Selling, general and administrative 295,267 271,894 243,505 Amortization of intangibles 16,167 14,204 14,313 Interest on debt 33,915 23,751 20,033 Income(loss) from continuing operations before income taxes, extraordinary charge and cumulative effect of changes in accounting principles 35,028 110,429 102,891 Income taxes 4,686 45,828 43,729 Income(loss) from continuing operations before extraordinary charge and cumulative effect of changes in accounting principles 30,342 64,601 59,162 Net income 28,283 64,601 53,810 Per share of common stock (basic) Income(loss) from continuing operations .68 1.43 1.29 Net income .64 1.43 1.18 Dividends paid .46 .43 .40 Cash dividends paid on Common stock 20,370 19,176 18,291 Preferred stock - - - Balance Sheet Current assets $ 654,448 $ 642,919 $ 533,539 Current liabilities 364,083 398,993 351,939 Working capital 290,365 243,926 181,600 Property, plant and equipment - net 339,587 288,313 254,407 Other assets 599,862 537,773 462,833 Net long-term assets of discontinued operations - - - Other liabilities (210,476) (205,480) (182,852) Long-term debt (480,886) (325,227) (207,705) Total stockholders' equity $ 538,452 $ 539,305 $ 508,283 Shares of common stock outstanding 49,619,831 50,476,968 50,989 815 Average diluted shares outstanding 45,036,676 46,271,857 46,823,501 Book value per share of common stock $ 10.85 $ 10.68 $ 9.97 1995 1994 1993 Summary of Operations Net sales $1,901,954 $1,719,356 $1,412,071 Cost of goods sold 1,552,643 1,393,036 1,146,191 Selling, general and administrative 218,823 213,318 179,228 Amortization of intangibles 13,969 12,458 12,006 Interest on debt 26,278 28,549 32,258 Income(loss) from continuing operations before income taxes, extraordinary charge and cumulative effect of changes in accounting principles 98,821 66,222 37,654 Income taxes 42,119 29,218 16,357 Income(loss) from continuing operations before extraordinary charge and cumulative effect of changes in 56,702 37,004 21,297 accounting principles Net income 102,039 43,294 2,018 Per share of common stock (basic) Income(loss) from continuing operations 1.22 .80 .46 Net income 2.19 .93 .05 Dividends paid .37 .34 .32 Cash dividends paid on Common stock 16,962 15,688 14,003 Preferred stock - - - Balance Sheet Current assets $ 574,612 $ 565,615 $ 405,782 Current liabilities 335,251 337,491 259,680 Working capital 239,361 228,124 146,102 Property, plant and equipment - net 227,021 204,135 184,296 Other assets 429,963 445,410 438,628 Net long-term assets of discontinued operations - - 94,904 Other liabilities (179,580) (173,888) (176,422) Long-term debt (231,987) (288,869) (322,052) Total stockholders' equity $ 484,778 $ 414,912 $ 365,456 Shares of common stock outstanding 51,964,377 53,541,141 53,417,283 Average diluted shares outstanding 47,412,297 47,203,412 46,283,262 Book value per share of common stock $ 9.33 $ 7.75 $ 6.84 1992 1991 1990 Summary of Operations Net sales $1,188,541 $1,006,638 $ 960,228 Cost of goods sold 961,925 797,892 749,071 Selling, general and administrative 152,366 147,998 137,674 Amortization of intangibles 11,069 10,146 9,704 Interest on debt 32,509 23,221 18,301 Income(loss) from continuing operations before income taxes, extraordinary charge and cumulative effect of changes in accounting principles 27,005 (16,195) 44,023 Income taxes 8,819 8,225 12,830 Income(loss) from continuing operations before extraordinary charge and cumulative effect of changes in 18,186 (24,420) 31,193 accounting principles Net income 19,025 1,875 55,871 Per share of common stock (basic) Income(loss) from continuing operati .42 (.48) .50 Net income .44 .01 .90 Dividends paid .29 .28 .25 Cash dividends paid on Common stock 12,630 15,267 15,175 Preferred stock - 1,031 - Balance Sheet Current assets $ 416,739 $ 275,060 $ 276,711 Current liabilities 229,327 195,610 181,471 Working capital 187,412 79,450 95,240 Property, plant and equipment - net 195,117 184,877 183,536 Other assets 440,873 443,702 458,394 Net long-term assets of discontinued operations 99,836 121,374 129,869 Other liabilities (174,558) (118,082) (161,674) Long-term debt (350,737) (330,863) (137,691) Total stockholders' equity $ 397,943 $ 380,458 $ 567,674 Shares of common stock outstanding 52,650,162 51,367,613 59,906,358 Average diluted shares outstanding 44,332,720 54,472,086 63,136,015 Book value per share of common stock $ 7.56 $ 7.41 $ 9.47 1989 Summary of Operations Net sales $ 918,276 Cost of goods sold 718,636 Selling, general and administrative 135,741 Amortization of intangibles 8,886 Interest on debt 21,128 Income(loss) from continuing operations before income taxes, extraordinary charge and cumulative effect of changes in accounting principles 44,797 Income taxes 7,608 Income(loss) from continuing operations before extraordinary charge and cumulative effect of changes in 37,189 accounting principles Net income 86,920 Per share of common stock (basic) Income(loss) from continuing operati .61 Net income 1.49 Dividends paid .20 Cash dividends paid on Common stock 11,812 Preferred stock 2,125 Balance Sheet Current assets $ 264,772 Current liabilities 167,272 Working capital 97,500 Property, plant and equipment - net 173,477 Other assets 444,479 Net long-term assets of discontinued operations 137,304 Other liabilities (175,310) Long-term debt (134,834) Total stockholders' equity $ 542,616 Shares of common stock outstanding 62,524,211 Average diluted shares outstanding 63,399,335 Book value per share of common stock $ 8.68 Shareholder Information M.A. Hanna Company common stock is listed on the New York and Chicago stock exchanges under the symbol MAH. At December 31, 1998, the number of shareholders of record of the Company's common stock was 4,625. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS The Company faced strategic and tactical challenges in 1998 that were driven by both external and internal factors. The Company's performance was impacted by the economic crises in Asia and Russia, softness in certain industrial markets, a work stoppage at General Motors and a downward trend in resin prices, all of which put pressures on gross margins. Executing integration plans in the Company's domestic plastic colorant and compounding businesses was more difficult than anticipated. Installation of new information technology systems also consumed a substantial amount of energy of management and associates. In addition, the conversion to a hub and spoke distribution system with call centers in the shapes distribution business increased costs and negatively impacted this business's ability to service customers. During 1998, the Company completed a review of its business and implemented a plan that will lower the Company's overall cost structures. The Company expects between $12 million and $14 million in benefits from these actions in 1999, mostly from reduced headcount and lower fixed overhead costs. The plan includes consolidating manufacturing operations and improving customer service capabilities through more efficient production facilities and more focused sales, marketing and technical support. These actions resulted in a pre-tax charge of $29.8 million. The charge includes $4.3 million related to inventory valuations which was charged to cost of goods sold and $1.7 million related to accounts receivable which was charged to selling, general and administrative expenses. The remainder of the charge related to involuntary severances, the write down of fixed assets and provisions for closing of five manufacturing facilities, and was charged to other-net. The breakdown of the total cost of the plan by business segment is as follows: rubber processing - - $4.3 million; plastic processing - $16.4 million; distribution - $5.6 million; and corporate - $3.5 million. As of December 31, 1998, the Company had closed four of the manufacturing facilities and, subsequent to year end, sold the fifth facility. The Company will continue to incur facility costs until leases expire or the facilities are subleased. The plan included the elimination of approximately 300 jobs, of which half were eliminated in 1998 and half will be eliminated in early 1999. A number of other actions were taken in 1998 to set a more solid footing for the future. The Company expanded its geographic reach and broadened its products through acquisitions and joint ventures. It gained its first international presence in rubber compounding with the acquisition of a majority interest in Melos Carl Bosch GmbH + Co. Key product lines were established through the acquisition of Exxon Chemical's halogen-free, flame retardant business. A joint venture agreement was also reached with Bifan S.A., a holding company that controls So.F.teR S.p.A, a leading Italian producer of thermoplastic elastomers. Finally, another joint venture was formed with Ube Industries for the manufacture of nylon compounds in North America, Europe and Asia. These acquisitions and joint ventures were accounted for as a purchase and resulted in approximately $55 million of additional goodwill in 1998. Further actions in 1998, led to two new facilities which are under construction - a rubber colorant and additives plant in Ohio and a rubber compounding facility in Mexico. Expansion of two additional facilities - a plastic colorant and compounding plant in Texas and the Melos facility in Germany - - is also under way. During 1998, the Company opened a plastic compounding plant in China and a colorants plant in Hungary. 1998 COMPARED WITH 1997 Revenues from rubber processing businesses increased from $448.5 million to $528.5 million in 1998 due to acquisitions and higher volumes, partially offset by lower pricing. Plastic processing revenues increased 8.4% over 1997 levels to $833.1 million; acquisitions made in 1998 and 1997 account for all of the growth with unit volumes, pricing and a stronger U.S. dollar partially offsetting the growth. Revenues from the distribution businesses decreased $51.2 million to $910.1 million due to lower unit volumes, lower pricing and the stronger U.S. dollar. Revenues from other operations were $14.2 million in 1998 compared with $21.9 million in 1997 due to lower volume and pricing. Gross margins were 17.6% in 1998 compared with 19.0% in 1997. Gross margins in the rubber processing business improved over 1997 levels due to acquisitions. Plastic processing margins deteriorated from 1997 levels due to lower volume and pricing without a corresponding decrease in cost structures. Gross margins in the distribution businesses also fell from 1997 levels due in part to lower volume and pricing and the problems converting to the hub and spoke distribution system in the shapes distribution business. A reduction in LIFO reserves also improved gross margins in 1997. Selling, general and administrative expenses increased $23.4 million in 1998 to $295.3 million. Acquisitions accounted for $20.3 million and incremental costs for the Company's information technology systems were $6.0 million. As a percentage of sales, selling, general and administrative expenses were 12.9% in 1998 and 12.4% in 1997 and reflect lower revenues without a corresponding reduction in expenses. Interest on debt increased from $23.8 million in 1997 to $33.9 million in 1998 due to increased borrowings to fund acquisitions made in 1998 and 1997, higher levels of working capital and capital expenditure programs. Other-net in 1998 includes a $23.8 million provision related to the profit improvement plan announced during 1998. The provision included costs for asset write downs, plant closings and severance. Other - net in 1997 included gains of $6.3 million from the sale of the Company's remaining interest in the Iron Ore Company of Canada sales agency and its interest in Hollinger Hanna. Additionally, in 1997 the Company recorded a $5.1 million charge related to plastic processing businesses for plant closings, facilities rationalization and start up costs for a new plant and a $1.0 million charge for the reengineering of its resin distribution business. The Company's effective tax rate in 1998 was 13.4% compared with 41.5% in 1997. Included in tax expense in 1998 is a one- time benefit of $9.5 million as a result of an agreement with the Internal Revenue Service regarding an examination for the years 1990 through 1992. Without the one time benefit, the effective tax rate for 1998 would have been 40.5%. The Company continues to explore tax planning strategies that will enable it to sustain or lower the current tax rate in the future. 1997 COMPARED WITH 1996 Revenues from rubber processing businesses increased 15.5% over 1996 levels to $448.5 million due to acquisitions and higher unit volumes and pricing. Plastic processing revenues increased from $723.5 million in 1996 to $768.7 million in 1997. Acquisitions in both plastic colorants and compounding and higher unit volumes were partially offset by lower pricing and the impact of foreign exchange. Distribution revenues increased 4.3% from 1996 levels to $961.2 million. Increases in unit volume and product mix were partially offset by lower pricing and the stronger U.S. dollar. Sales from other operations were down $10.5 million from 1996 levels. 1996 revenues included revenues from the management of Iron Ore Company of Canada (IOC), management of a bulk unloading facility in Cleveland and the Company's ownership interest in the IOC sales agency. No revenues were generated during 1997 from these operations due to the expiration of the management contracts and the sale of the Company's ownership interest in the sales agency. Gross margins were 19.0% in 1997 compared with 18.4% in 1996. Gross margins in the rubber processing businesses improved over 1996 levels due to higher unit volumes and acquisitions made in 1997. Plastic processing margins also improved over 1996 levels due to acquisitions and higher unit volumes. Gross margins from distribution businesses were favorably impacted in 1997 by higher unit volumes and reductions in LIFO reserves. Selling, general and administrative expenses increased from $243.5 million in 1996 to $271.9 million in 1997. The increase was due to higher levels of sales, acquisitions and higher costs associated with the development of HannaLinkT, the Company's enterprise-wide information system. Acquisitions accounted for $10.2 million while the incremental cost of HannaLinkT was $8.2 million. As a percent of sales, selling, general and administrative expenses were 12.4% in 1997 compared with 11.8% in 1996. Interest on debt increased $3.7 million in 1997 to $23.8 million. The increase in interest expense resulted from increased borrowings to fund acquisitions, the formation of a joint venture and increased working capital levels. Other - net included gains of $6.3 million from the sale of the Company's remaining interest in the Iron Ore Company of Canada sales agency and its interest in Hollinger Hanna. Additionally, the Company recorded a $5.1 million charge related to its plastic processing businesses for plant closings, facilities rationalization and start up costs for a new plant and a $1.0 million charge for the reengineering of its resin distribution business. The Company's effective tax rate was 41.5% in 1997 compared with 42.5% in 1996. LIQUIDITY AND SOURCES OF CAPITAL Cash flows from operating activities provided $75.6 million in 1998. Working capital used $35.9 million, reflecting an increase in days sales outstanding primarily in the distribution businesses and a reduction in days supply in trade payables over 1997 levels. Inventory turns were flat with 1997 levels with improvement in the plastic processing businesses being offset by deterioration in the rubber processing and distribution businesses. Payments related to restructuring activities used $10.6 million in cash in 1998. Investing activities used $148.9 million and included $66.4 million for capital expenditures and $76.0 million for acquisitions and formation of joint ventures. The Company's capital budget for 1999 is $77.0 million. Financing activities generated $64.2 million. Dividends used $20.4 million and the repurchase of 876,000 shares for treasury used $16.9 million. The Company issued $40.0 million of medium-term notes in 1998 under a shelf registration statement filed with the Securities and Exchange Commission in 1996. During 1998, the Company entered into a five year fixed rate borrowing for 90.0 million DM. Funds from this agreement were used to refinance borrowings incurred earlier in the year to acquire a majority interest in Melos Carl Bosch GmbH + Co. The Company has a revolving credit facility which provides for borrowing up to $200 million and expires in 2003. The agreement provides for interest rates to be determined at the time of borrowing based on a choice of formulas specified in the agreement. The current ratio was 1.8:1 on December 31, 1998, compared with 1.6:1 on December 31, 1997. Long-term debt to capital was 47.2% and 37.6% on December 31, 1998 and 1997, respectively. MARKET RISK The Company is exposed to foreign currency exchange risk in the ordinary course of business. Management has examined the Company's exposure to this risk and has concluded that the Company's exposure in this area is not material to fair values, cash flows or earnings. The Company's products are sold in numerous countries. The collection of revenues and the payment of certain expenses may give rise to currency exposure. The Company also enters into intercompany lending transactions. Foreign exchange contracts are entered into as a result of this foreign currency exposure. ENVIRONMENTAL MATTERS The Company is subject to various laws and regulations concerning environmental matters. The Company is committed to a long-term environmental protection program that reduces releases of hazardous materials into the environment as well as the remediation of identified existing environmental concerns. Claims have been made against subsidiaries of the Company for costs of environmental remediation measures taken or to be taken in connection with operations that have been sold or closed. These include the clean-up of Superfund sites and participation with other companies in the clean-up of hazardous waste disposal sites. Several of these sites have been designated as Superfund sites. Reserves for such liabilities have been established and no insurance recoveries have been anticipated in the determination of reserves. While it is not possible to predict with certainty, management believes that the aforementioned claims will be resolved without material adverse effect on the financial position, results of operations or cash flows of the Company. YEAR 2000 READINESS DISCLOSURE The Company is addressing the issue of computer programs and embedded computer chips being unable to distinguish between the year 1900 and the year 2000. It has undertaken various initiatives intended to ensure that its computer programs and embedded computer chips will perform as intended regardless of date and that all data including dates can be accessed and processed with expected results. The Company expects to be year 2000 compliant by June 30, 1999. Beginning in 1995 the Company began a multi-year project to (i) replace 22 legacy systems which resulted from acquisitions made since 1986, (ii) introduce enterprise-wide information technology systems from SAP America, Inc., Oracle Corporation and J.D. Edwards in order to consolidate and standardize its information technology systems and (iii) install other enterprise-wide software in order to serve customers better and operate more efficiently. An important benefit of this project is that new systems and software will be year 2000 compliant. It is expected that the new systems and software will be installed, tested and operating no later than June 30, 1999. When installed the new systems and software will comprise at least 95% of the systems and software being operated by the Company worldwide. In connection with the introduction of the new systems and software, the Company has identified the legacy systems being retained that are not currently year 2000 compliant, and has put in place programs to bring them to a state of year 2000 compliance by the middle of 1999 through upgrading or replacement, as appropriate. In addition, the Company has implemented a program to identify and test date sensitive chips to ensure year 2000 functionality, with a formal monthly reporting procedure. The Company has also been engaged in the process of identifying and prioritizing critical suppliers and customers at the direct interface level, and communicating with respect to their state of year 2000 readiness. Evaluations of the most critical third parties have commenced and will be followed by the development of contingency plans. A significant portion of the costs to implement the new systems and software have already been incurred and are being amortized or charged to expense in current operations. The historical costs of remediating the non-compliant systems has been included in the Company's information technology cost reporting and are not material to its financial position, results of operations or cash flows. The Company does not believe that future costs associated with the new systems and software and the required modifications of the legacy systems to become year 2000 compliant will be material to its financial position, results of operations or cash flows. The Company has formulated a general contingency plan for dealing with the most serious year 2000 compliance failures as they may occur and expects to fund the contingency plan efforts from operating funds. During 1999, the Company will develop more detailed contingency plans. The failure to correct a material year 2000 problem could result in an interruption in, or a failure of, certain normal business activities or operations. Such failure could materially and adversely affect the Company's results of operations, liquidity and financial condition or adversely affect the Company's relationships with its suppliers, customers or other third parties. Due to the general uncertainty inherent in the year 2000 problem, resulting in part from the uncertainty of the year 2000 readiness of suppliers and customers, the Company is unable to determine at this time whether the consequences of year 2000 failures will have a material impact on its financial position, results of operations or cash flows. The Company believes that the scheduled completion of the implementation of the new systems and software prior to June 30, 1999, should reduce the possibility of significant interruptions of normal operations. CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS Any forward-looking statements included in this annual report are based on current expectations with respect to the future performance of the Company and may constitute "forward- looking statements" within the meaning of federal securities laws. Any statements in this annual report that are not historical in nature are forward-looking statements. Actual results may differ materially depending on the business conditions and growth in the plastics and rubber industries, the general economy, foreign, political and economic developments, foreign exchange rates, availability and pricing of plastic resins, supplies and raw materials, changes in product mix, shifts in market demand, year 2000 compliance issues and changes in prevailing interest rates. On behalf of M.A. Hanna management, /s/ Michael S. Duffey Senior Vice President, Finance and Administration EX-18 7 Item 14(c) Exhibit (i) (18) January 27, 1999 To the Board of Directors M.A. Hanna Company Dear Directors: We have audited the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998 and issued our report thereon dated January 27, 1999. The notes to the consolidated financial statements describe a change in the Company's method of determining the cost of inventories from the first- in, first-out method to the last-in, first-out method. It should be understood that the preferability of one acceptable method of inventory accounting over another has not been addressed in any authoritative accounting literature and in arriving at our opinion expressed below, we have relied on management's business planning and judgement. Based on our discussions with management and the stated reasons for the change, we believe that such change represents, in your circumstances, the adoption of a preferable alternative accounting principle for inventories in conformity with Accounting Principles Board Opinion No, 20. Yours very truly, /s/ PricewaterhouseCoopers LLP EX-21 8 Item 14(c) Exhibit (i) (21) SUBSIDIARIES OF THE REGISTRANT: Where Incorporated Name (or formed) Burton Rubber Compounding, L.P. Delaware (a limited partnership) Burton Rubber Processing, Ltd. Ontario Bifan S.A. Italy Cadillac Plastic Group, Inc. Michigan Compounding Technology, Euro S.A. France Compounding Technology Pte. Ltd. Singapore DH Compounding Company Delaware (a general partnership) Enviro Care Compounds AS Norway Hanna France SARL France Hanna Hamilton Holdings Company Delaware Hanna International Corporation Delaware Hanna Polimeros, S.A. de C.V. Mexico Hanna Su Xing Plastics Compounding (Suzhou) Company Limited China Hanna-Wilson Polymer Feldolgozo Kft Hungary Hanna Wilson Polymer (Shanghai) Limited China Harwick Chemical Manufacturing Company Delaware M. A. Hanna Export Services Company Barbados M. A. Hanna International Financial Services Company Ireland M. A. Hanna de Mexico, S.A. de C.V. Mexico M. A. Hanna Resin Distribution Company Delaware MAH Plastics Company Delaware Melos Carl Bosch GmbH & Co. Germany Monmouth Plastics Company Delaware Poliamidas Barbastro, S.A. Spain So.F.teR S.p.A. Italy Techmer PM, LLC Delaware The Pennsylvania Tidewater Dock Company Delaware Theodor Bergmann GmbH & Co. Kunststoffwerk KG Germany UBE-Hanna Compounding Company, LLC Delaware UBE-Hanna Compounding GmbH Germany Victor International Plastics, Ltd. England Wilson Color S.A. Belgium Wilson Color GmbH Germany Wilson Color S.A. France Wilson Color AB Sweden The Registrant has other unconsolidated subsidiaries and 50 percent or less owned persons accounted for by the equity method, which in the aggregate do not constitute a significant subsidiary. EX-23 9 Item 14(c) Exhibit (i) (23) Consent of Independent Accountants We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statement on Form S-3 and the Registration Statements on Form S-8 (appearing on Exhibit 1) of M.A. Hanna Company of our report dated January 27, 1999 appearing on page 30 of the Annual Report to Stockholders which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears on page F-2 of this Form 10-K. /s/ PricewaterhouseCoopers LLP Cleveland, Ohio March 22, 1999 EX-24 10 Item 14(c) Exhibit (i) (24) POWERS OF ATTORNEY OF CERTAIN DIRECTORS OF REGISTRANT POWER OF ATTORNEY The undersigned, Director of the corporation named herein opposite her signature, hereby appoints T. E. Lindsey, J. S. Pyke, Jr., and M. S. Duffey, or any of them, her attorney or attorneys in fact, with full power of substitution, to sign the Annual Report on Form 10-K for the fiscal year ended December 31, 1998, being filed with the Securities and Exchange Commission by M.A. Hanna Company, and any and all amendments to such Annual Report, with full power and authority to take any and all such action as may be necessary or advisable in the premises. Capacity in which Annual Report on Form 10-K is to be signed Signature Date /s/C.A. Cartwright Director of M.A. Hanna March 3, 1999 C. A. Cartwright Company POWER OF ATTORNEY The undersigned, Director of the corporation named herein opposite his signature, hereby appoints T. E. Lindsey, J. S. Pyke, Jr., and M. S. Duffey, or any of them, his attorney or attorneys in fact, with full power of substitution, to sign the Annual Report on Form 10-K for the fiscal year ended December 31, 1998, being filed with the Securities and Exchange Commission by M.A. Hanna Company, and any and all amendments to such Annual Report, with full power and authority to take any and all such action as may be necessary or advisable in the premises. Capacity in which Annual Report on Form 10-K is to be signed Signature Date /s/W. R. Embry Director of M.A. Hanna March 3, 1999 W. R. Embry Company POWER OF ATTORNEY The undersigned, Director of the corporation named herein opposite his signature, hereby appoints T. E. Lindsey, J. S. Pyke, Jr., and M. S. Duffey, or any of them, his attorney or attorneys in fact, with full power of substitution, to sign the Annual Report on Form 10-K for the fiscal year ended December 31, 1998, being filed with the Securities and Exchange Commission by M.A. Hanna Company, and any and all amendments to such Annual Report, with full power and authority to take any and all such action as may be necessary or advisable in the premises. Capacity in which Annual Report on Form 10-K is to be signed Signature Date /s/J. T. Eyton Director of M.A. Hanna March 3, 1999 J. T. Eyton Company POWER OF ATTORNEY The undersigned, Director of the corporation named herein opposite his signature, hereby appoints T. E. Lindsey, J. S. Pyke, Jr., and M. S. Duffey, or any of them, his attorney or attorneys in fact, with full power of substitution, to sign the Annual Report on Form 10-K for the fiscal year ended December 31, 1998, being filed with the Securities and Exchange Commission by M.A. Hanna Company, and any and all amendments to such Annual Report, with full power and authority to take any and all such action as may be necessary or advisable in the premises. Capacity in which Annual Report on Form 10-K is to be signed Signature Date /s/R. A. Garda Director of M.A. Hanna March 3, 1999 R. A. Garda Company POWER OF ATTORNEY The undersigned, Director of the corporation named herein opposite his signature, hereby appoints T. E. Lindsey, J. S. Pyke, Jr., and M. S. Duffey, or any of them, his attorney or attorneys in fact, with full power of substitution, to sign the Annual Report on Form 10-K for the fiscal year ended December 31, 1998, being filed with the Securities and Exchange Commission by M.A. Hanna Company, and any and all amendments to such Annual Report, with full power and authority to take any and all such action as may be necessary or advisable in the premises. Capacity in which Annual Report on Form 10-K is to be signed Signature Date /s/G. D. Harnett Director of M.A. Hanna March 3, 1999 G. D. Harnett Company POWER OF ATTORNEY The undersigned, Director of the corporation named herein opposite his signature, hereby appoints T. E. Lindsey, J. S. Pyke, Jr., and M. S. Duffey, or any of them, his attorney or attorneys in fact, with full power of substitution, to sign the Annual Report on Form 10-K for the fiscal year ended December 31, 1998, being filed with the Securities and Exchange Commission by M.A. Hanna Company, and any and all amendments to such Annual Report, with full power and authority to take any and all such action as may be necessary or advisable in the premises. Capacity in which Annual Report on Form 10-K is to be signed Signature Date /s/G. D. Kirkham Director of M.A. Hanna March 3, 1999 G. D. Kirkham Company POWER OF ATTORNEY The undersigned, Director of the corporation named herein opposite his signature, hereby appoints T. E. Lindsey, J. S. Pyke, Jr., and M. S. Duffey, or any of them, his attorney or attorneys in fact, with full power of substitution, to sign the Annual Report on Form 10-K for the fiscal year ended December 31, 1998, being filed with the Securities and Exchange Commission by M.A. Hanna Company, and any and all amendments to such Annual Report, with full power and authority to take any and all such action as may be necessary or advisable in the premises. Capacity in which Annual Report on Form 10-K is to be signed Signature Date /s/D. B. Lewis Director of M.A. Hanna March 3, 1999 D. B. Lewis Company POWER OF ATTORNEY The undersigned, Director of the corporation named herein opposite his signature, hereby appoints T. E. Lindsey, J. S. Pyke, Jr., and M. S. Duffey, or any of them, his attorney or attorneys in fact, with full power of substitution, to sign the Annual Report on Form 10-K for the fiscal year ended December 31, 1998, being filed with the Securities and Exchange Commission by M.A. Hanna Company, and any and all amendments to such Annual Report, with full power and authority to take any and all such action as may be necessary or advisable in the premises. Capacity in which Annual Report on Form 10-K is to be signed Signature Date /s/M. L. Mann Director of M.A. Hanna March 3, 1999 M. L. Mann Company POWER OF ATTORNEY The undersigned, Director of the corporation named herein opposite his signature, hereby appoints T. E. Lindsey, J. S. Pyke, Jr., and M. S. Duffey, or any of them, his attorney or attorneys in fact, with full power of substitution, to sign the Annual Report on Form 10-K for the fiscal year ended December 31, 1998, being filed with the Securities and Exchange Commission by M.A. Hanna Company, and any and all amendments to such Annual Report, with full power and authority to take any and all such action as may be necessary or advisable in the premises. Capacity in which Annual Report on Form 10-K is to be signed Signature Date /s/R. W. Pogue Director of M.A. Hanna March 3, 1999 R. W. Pogue Company EX-27 11
5 Item 14(c) Exhibit (i) (27) 1,000 12-MOS DEC-31-1998 DEC-31-1998 32,322 0 359,859 9,757 236,533 654,448 598,573 258,986 1,593,897 364,083 480,886 0 0 66,059 472,393 1,593,897 2,285,882 2,285,882 1,883,344 1,883,344 0 2,596 33,915 35,028 4,686 30,342 0 0 (2,059) 28,283 .64 .63
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