-----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, NjXXFxODm60FPDzlyEQ27RVJnoI7POEH4QgrgJuqG9paxMnh1A7Ze0SN1r6r0cn1 2tpRMr8bO8U03k2Y1b/n2Q== 0000950135-02-002063.txt : 20020422 0000950135-02-002063.hdr.sgml : 20020422 ACCESSION NUMBER: 0000950135-02-002063 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020514 FILED AS OF DATE: 20020422 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WELLMAN INC CENTRAL INDEX KEY: 0000812708 STANDARD INDUSTRIAL CLASSIFICATION: PLASTIC MAIL, SYNTH RESIN/RUBBER, CELLULOS (NO GLASS) [2820] IRS NUMBER: 041671740 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: 1934 Act SEC FILE NUMBER: 001-10033 FILM NUMBER: 02616567 BUSINESS ADDRESS: STREET 1: 595 SHREWSBURY AVENUE CITY: SHREWSBURY STATE: NJ ZIP: 07702 BUSINESS PHONE: (732)212-3300 MAIL ADDRESS: STREET 1: P.O. BOX 31331 CITY: CHARLOTTE STATE: NC ZIP: 28231 DEF 14A 1 b41222dfdef14a.txt NOTICE AND PROXY DATED 5/14/02 SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ) FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ] - -------------------------------------------------------------------------------- Check the appropriate box: [ ] Preliminary Proxy Statement [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12 [ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) Wellman, Inc. (Name of Registrant as Specified In Its Charter) (Name of Person(s) Filing Proxy Statement) PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX): [X] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. 1) Title of each class of securities to which transaction applies: 2) Aggregate number of securities to which transaction applies: 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): 4) Proposed maximum aggregate value of transaction: 5) Total fee paid: [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. 1) Amount Previously Paid: 2) Form, Schedule or Registration Statement No.: 3) Filing Party: 4) Date Filed: - -------------------------------------------------------------------------------- WELLMAN, INC. 595 SHREWSBURY AVENUE SHREWSBURY, NEW JERSEY 07702 NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TUESDAY, MAY 21, 2002 OYSTER POINT HOTEL, 146 BODMAN PLACE, RED BANK, NEW JERSEY 10:00 AM, EASTERN DAYLIGHT TIME To the Stockholders of Wellman, Inc. You are cordially invited to attend the 2002 Annual Meeting of the Stockholders of Wellman, Inc. to: - Elect directors. - Conduct other business properly brought before the meeting. Your vote is important. Whether you plan to attend or not, please sign, date, and return the enclosed proxy card in the envelope provided. If you attend the meeting and prefer to vote in person, you may do so. Sincerely yours, DAVID K. DUFFELL Secretary April 22, 2002 WELLMAN, INC. 595 SHREWSBURY AVENUE SHREWSBURY, NEW JERSEY 07702 PROXY STATEMENT This Proxy Statement and the accompanying proxy card are being mailed, beginning April 22, 2002, to owners of shares of Wellman, Inc. Common Stock in connection with the solicitation of proxies by the Board of Directors for the 2002 Annual Meeting of Stockholders. This proxy procedure is necessary to permit all Wellman, Inc. stockholders, many of whom live throughout the United States and are unable to attend the Annual Meeting, to vote. The Board of Directors encourages you to read this document thoroughly and to take this opportunity to vote on the matters to be decided at the Annual Meeting. - -------------------------------------------------------------------------------- CONTENTS
PAGE ---- Voting Procedures........................................... 3 Corporate Governance........................................ 7 Election of Directors (Item 1 on Proxy Card)................ 8 Ratification of Selection of Independent Auditors (Item 2 on Proxy Card)............................................... 10 Finance and Audit Committee Report.......................... 11 Executive Compensation...................................... 12 Other Matters............................................... 19
2 VOTING PROCEDURES YOUR VOTE IS VERY IMPORTANT. Your shares can only be voted at the Annual Meeting if you are present or represented by proxy. Whether or not you plan to attend the Annual Meeting, you are encouraged to vote by proxy to assure that your shares will be represented. You may revoke this proxy at any time before it is voted by written notice to the Chairman of Wellman, by submission of a proxy bearing a later date, or by casting a ballot at the Annual Meeting. Properly executed proxies that are received before the Annual Meeting's adjournment will be voted in accordance with the directions provided. If no directions are given, your shares will be voted as recommended by the Board of Directors. WHO CAN VOTE? Stockholders as of the close of business on March 29, 2002 are entitled to vote. On that day, approximately 31,842,657 shares of Common Stock were outstanding and eligible to vote. Each share is entitled to one vote on each matter presented at the Annual Meeting. HOW DO I VOTE? Whether you plan to attend the Annual Meeting and vote in person or not, we urge you to complete, sign and date the enclosed proxy card and return it in the postage-paid envelope provided. Returning the proxy card will not affect your right to attend the Annual Meeting and vote. HOW ARE VOTES COUNTED? The Annual Meeting will be held if a quorum, consisting of a majority of the outstanding shares of Common Stock entitled to vote, is represented. Broker non-votes, votes withheld and abstentions will be counted for purposes of determining whether a quorum is present at the Annual Meeting. If your shares are held in your broker's name, your broker may vote those shares only on matters deemed routine by the New York Stock Exchange, such as the election of Directors and ratification of the selection of independent auditors, without receiving instructions from you. As a result, broker non-votes will have no effect on the outcome of these two proposals. WHO IS THE PROXY SOLICITOR? First Union National Bank has been retained by Wellman to assist in the distribution of proxy materials by mail and tabulation of votes for a nominal fee plus reimbursement of out-of-pocket expenses. WHICH STOCKHOLDERS OWN AT LEAST 5% OF WELLMAN? The following table shows, as of March 29, 2002, all persons we know to be "beneficial owners"(1) of more than 5% of Wellman's Common Stock. This information is based on reports on Schedule 13G filed with the Securities and Exchange Commission ("SEC") by the firms listed in the table below. If you wish, you may obtain copies of these reports from the SEC. 3
NAME AND ADDRESS NUMBER OF SHARES PERCENT - ---------------- ---------------- ------- Wellington Management Company, LLP........................ 3,173,240(2) 9.97% 75 State Street Boston, MA 02109 Dimensional Fund Advisors Inc............................. 2,733,400(3) 8.59% 1299 Ocean Avenue Santa Monica, CA 90401 AXA Financial, Inc........................................ 2,107,707(4) 6.6% 1290 Avenue of the Americas New York, NY 10104(5)
- --------------- (1) "Beneficial ownership" is a technical term broadly defined by the SEC to mean more than ownership in the usual sense. So, for example, you "beneficially" own Wellman Common Stock not only if you hold it directly, but also if you indirectly (through a relationship, a position as a director or trustee, or a contract or understanding) have or share the power to vote the stock, or to sell it, or you have the right to acquire it within 60 days. (2) Wellington Management Company, LLP has shared voting power over 1,843,040 shares and shared investment power over 3,173,240 shares. (3) Dimensional Fund Advisors Inc. has sole voting and investment power over the shares listed in its role as investment advisor or manager of various investment companies, commingled group trusts and separate accounts. Dimensional Fund Advisors, Inc. disclaims beneficial ownership of these securities. (4) AXA Financial, Inc. has sole voting power over 1,061,505 shares, shared voting power over 13,675 shares and sole investment power over 1,239,007 shares. Four French mutual insurance companies, AXA Assurances I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle, AXA Conseil Vie Assurance Mutuelle and AXA Coutage Assurance Mutuelle, as a group, and AXA, and their subsidiaries, have sole voting power over 1,618,805 shares, shared voting power over 13,675 shares, sole investment power over 1,239,007 shares and shared investment power over 868,700 shares. (5) The address of the four mutual insurance companies is 370, rue St. Honore, 75001 Paris, France. The address of AXA is 25, Avenue Matignon, 75008 Paris, France. 4 HOW MUCH STOCK IS OWNED BY DIRECTORS AND EXECUTIVE OFFICERS? The following table shows, as of March 29, 2002, the Wellman Common Stock owned beneficially by Wellman's directors and executive officers. Except for Mr. Duff, Wellman's Chairman, Chief Executive Officer and a director, and Mr. Christenson, Wellman's President and Chief Operating Officer, no director or executive officer owns beneficially 1% or more of the outstanding shares of Wellman Common Stock. All directors and executive officers of Wellman as a group beneficially own 6.7% of the outstanding shares of Wellman Common Stock.
AMOUNT PERCENTAGE OF BENEFICIALLY COMMON NAME OWNED(1)(2)(3) STOCK - ---- -------------- ------------- Thomas M. Duff......................................... 824,320 2.6% James B. Baker......................................... 37,148 -- Clifford J. Christenson................................ 354,686 1.1% Richard F. Heitmiller.................................. 25,752 -- Gerard J. Kerins....................................... 8,255 -- James E. Rogers........................................ 27,936 -- Marvin O. Schlanger.................................... 10,927 -- Roger A. Vandenberg.................................... 48,743 -- John R. Hobson......................................... 172,186 -- Keith R. Phillips...................................... 172,863 -- Joseph C. Tucker....................................... 152,213 -- All Directors and Executive Officers as a Group (15 persons)............................................. 2,199,481 6.7%
- --------------- (1) Each of the directors and executive officers listed has sole voting and investment power over the shares listed, except for Mr. Baker. Of the shares listed for Mr. Baker, 200 are owned by his wife. (2) The number of shares shown for each non-employee director includes the 2,000 restricted shares of Wellman Common Stock that were granted to each director at the time he was first elected to the board. These restricted shares vest over a three-year period. Each of the 2,000 restricted shares of Messrs. Baker, Heitmiller, Rogers, Schlanger and Vandenberg have vested. Mr. Kerins has 1,333 vested restricted shares and 667 restricted shares that will vest on August 30, 2002. For more information on these restricted shares, see "Corporate Governance -- Director Compensation" on page 7. The number of shares shown for each non-employee director also includes the following shares that may be acquired upon exercise of stock options that were exercisable as of March 29, 2002 or that will become exercisable within 60 days of that date: Mr. Baker, 7,000; Mr. Heitmiller, 10,000; Mr. Kerins, 2,000; Mr. Rogers, 8,000; Mr. Schlanger, 3,000; and Mr. Vandenberg, 10,000. For more information on directors' stock options, see "Corporate Governance -- Director Compensation" on page 7. The number of shares shown for each non-employee director also includes the following restricted shares that were awarded under the Deferred Compensation and Restricted Stock Plan: Mr. Baker, 27,072; Mr. Heitmiller, 11,418; Mr. Kerins, 3,255; Mr. Rogers, 14,936 ; Mr. Schlanger, 4,427; and Mr. Vandenberg, 34,767. For more information on the 5 Deferred Compensation and Restricted Stock Plan, see "Corporate Governance -- Director Compensation" on page 7. (3) The number of shares shown for each executive officer includes the following shares that may be acquired upon exercise of stock options that were exercisable as of March 29, 2002 or that will become exercisable within 60 days of that date: Mr. Duff, 365,960; Mr. Christenson, 260,360; Mr. Hobson, 144,440; Mr. Phillips, 138,960; and Mr. Tucker, 118,840. The number of shares shown for each executive officer also includes the following restricted shares that were acquired under the Deferred Compensation and Restricted Stock Plan: Mr. Duff, 41,346; Mr. Christenson, 34,603; Mr. Hobson, 11,596; Mr. Phillips, 21,554 ; and Mr. Tucker, 17,325. For more information on the Deferred Compensation and Restricted Stock Plan, see "Executive Compensation -- Report of the Compensation Committee on Executive Compensation" on page 12. The number of shares shown for each executive officer also includes the number of shares of Wellman Common Stock owned indirectly as of March 29, 2002 by such officer in Wellman's Employee Stock Ownership Plan and Retirement Plan: Mr. Duff, 4,110 and 33,904 ; Mr. Christenson, 4,201 and 55,522; Mr. Hobson, 4,709 and 11,441; Mr. Phillips, 3,444 and 8,905; and Mr. Tucker, 4,408 and 10,749. Wellman has adopted a stock ownership policy for its directors and executive officers. Under this policy, directors and executive officers are required to beneficially own targeted amounts of Wellman Common Stock. These targets are based on compensation levels, with increasing amounts of stock required to be owned by the higher-paid executives. Under the terms of this policy, as of December 31, 2001, the non-employee directors and executive officers were required to own approximately $5 million worth of Wellman Common Stock. Pursuant to the policy, they actually owned approximately $15 million on that date. 6 CORPORATE GOVERNANCE In accordance with Delaware General Corporation Law and the Wellman Certificate of Incorporation and Bylaws, Wellman's business, property and affairs are managed under the direction of the Board of Directors. Although Directors are not involved in the day-to-day operating details, they are kept informed of Wellman's business through written reports and documents provided to them regularly, as well as by operating, financial and other reports presented by the Chief Executive Officer and other officers of the Company at meetings of the Board of Directors and committees of the Board. MEETING OF THE BOARD. The Board of Directors held nine meetings in 2001. Each of the incumbent Directors attended at least 75% of the Board and committee meetings to which the Director was assigned. COMMITTEES OF THE BOARD. The Board of Directors has established three standing committees. Directors' committee memberships are included in their biographical information beginning on page 8. Finance and Audit Committee -- monitors the auditing, accounting, methods of financing and financial reporting of the Company. The committee makes recommendations to the Board concerning the accounting firm to be employed as the independent auditors and consults with these auditors with regard to the adequacy of internal controls, the scope and results of their audits and Wellman's financial statements. The committee met seven times in 2001. Compensation Committee -- responsible for overseeing Wellman's compensation programs, including recommending compensation for senior management and the granting of stock options. The committee met six times in 2001. Corporate Governance Committee -- responsible for reviewing the composition, size and organization of the Board and its committees, and for reviewing and making recommendations with regard to director compensation. This committee is also charged with the responsibility of responding to major shareholder issues, assessing Board performance and reviewing candidate qualifications for Board membership and recommending director nominations. The committee met four times in 2001. DIRECTOR COMPENSATION. Each non-employee director receives fees of $35,000 per year, plus $1,500 for each board or committee meeting attended in person and $750 for each telephonic meeting attended. Each chairperson of the Board committees also receives an annual fee of $4,000. In accordance with the Deferred Compensation and Restricted Stock Plan, 50% of the annual retainer fee is paid in restricted stock. In addition, the Plan allows directors to defer up to 50% of any other cash remuneration due to them. Restricted stock awards are granted for such deferred compensation. Prior to 2000, at the time of his election to the Board, each non-employee director received 2,000 shares of Wellman's Common Stock which vested over a period of three years commencing on the election date, provided he continuously served as a director for the preceding twelve months. This plan was discontinued in 2000. Each non-employee director also receives annually options to acquire 1,000 shares of Wellman's Common Stock. Employee directors receive no compensation for their Board service. 7 ELECTION OF DIRECTORS ITEM 1 ON PROXY CARD Under the terms of the Bylaws, the Wellman Board consists of eight members. The eight nominees named on the following pages were renominated by the Board to serve as directors for an additional one-year term. Each nominee has consented to stand for election and the Board does not anticipate that any nominee will be unavailable to serve. In the event that one or more of the nominees should become unavailable to serve at the time of the Annual Meeting, the shares represented by proxy will be voted for the remaining nominees and any substitute nominee(s) designated by the Board. If no substitute nominee(s) are designated, the size of the Board will be reduced. Director elections are determined by a plurality of the votes cast. The following biographies provide a brief description of each nominee's principal occupation and business experience, age (as of March 29, 2002), directorships held in other public corporations and Board committee memberships. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR EACH OF THE LISTED NOMINEES.
PRINCIPAL OCCUPATION DURING DIRECTOR NAME AND AGE THE PAST FIVE YEARS SINCE ------------ --------------------------- -------- Thomas M. Duff, 54............ Chairman since 1999 and Chief Executive Officer August, 1985 and director of Wellman since its inception in 1985. President from 1985 to 1999. James B. Baker, 56............ Managing Partner of River Associates, LLC August, 1994 (private equity investment fund) since 1993. Prior to 1993, President and Chief Operating Officer (1991-1992) and Senior Vice President (1987-1991) of CONSTAR International, Inc. (plastic container manufacturer). Chair of the Finance and Audit Committee and member of the Governance Committee. Clifford J. Christenson, 52... President of Wellman since 1999, Executive Vice November, 1995 President of Wellman from 1993 to 1999 and Chief Operating Officer since 1995. Richard F. Heitmiller, 73..... President of Richard F. Heitmiller, Inc. November, 1988 (consulting firm) since 1982. Chairman of the Board of Radici Spandex from 2001 to March 31, 2002. Vice Chairman, Chief Executive Officer and President of Globe Manufacturing from 1998 to 2001. From 1971 until 1982, various executive positions with Arthur D. Little, Inc. (management consultants) and Vice President of its Decision Resources subsidiary. Chair of the Governance Committee and member of the Finance and Audit Committee. Gerard J. Kerins, 54.......... Chairman of the Board, Insulair, Inc. (producer August, 1999 of paper packaging) since March 2000. President, CEO and director of Continental PET Technologies, Inc. (producer of PET containers) from 1983 to 1998. Member of the Finance and Audit Committee and the Compensation Committee.
8
PRINCIPAL OCCUPATION DURING DIRECTOR NAME AND AGE THE PAST FIVE YEARS SINCE ------------ --------------------------- -------- James E. Rogers, 56........... President of SCI Investors, Inc. (investment September, 1993 company) since 1993. From 1991 until 1993, President and Chief Executive Officer of Specialty Coatings International Inc. (a manufacturer). Prior to 1991, Senior Vice President and Group Executive of James River Corporation (a paper manufacturer). Mr. Rogers is also a director and member of the Compensation Committee of Owens & Minor, Inc. (a medical and surgical supplies distributor), a director and member of the Compensation and Audit Committees of Caraustar Industries, Inc. (a paper manufacturer), a director and member of the Audit Committee and Compensation Committee of Chesapeake Corp. (a packaging manufacturer), and a director and member of the Compensation and Audit Committees of Cadmus Communications Corporation (an integrated graphic communications provider). Member of the Finance and Audit Committee and the Compensation Committee. Marvin O. Schlanger, 53....... Principal of Cherry Hill Chemical Investments, January, 1999 LLC (a chemical and allied industries management services firm) since 1998. Chairman of Resolution Performance Products, Inc. (a specialty chemicals company) since 2000. President and Chief Executive Officer of ARCO Chemical Company in 1998; Executive Vice President and Chief Operating Officer of ARCO Chemical Company from 1994 to 1998; prior to 1994, Chief Financial Officer and director. Also a director and member of the Audit and Finance Committee of UGI Corporation (utility holding company), and a director and member of the Compensation Committee of OreChem Ltd. (an internet provider of services to chemical industry). Chair of the Compensation Committee and member of the Governance Committee. Roger A. Vandenberg, 54....... President of Cariad Capital, Inc. (investment August, 1985 advisor) since its inception in 1992. Managing Director of Narragansett Capital, Inc. (investment advisor) since its inception in 1986. Also a general partner of the general partner of Narragansett Capital Partners-A and -B, L.P. (venture capital funds) and a general partner of the general partner of Narragansett First Fund (a venture capital fund). Mr. Vandenberg is also a director, member of the Compensation Committee and chairman of the Audit Committee of Monaco Coach Corporation (a manufacturer of motor homes). Member of the Finance and Audit Committee and the Compensation Committee.
9 RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS ITEM 2 ON PROXY CARD Subject to stockholder ratification, the Board of Directors, acting upon the recommendation of the Finance and Audit Committee, has reappointed the firm of Ernst & Young LLP as independent auditors to examine the financial statements of Wellman for the fiscal year 2002. Ratification requires the affirmative vote of a majority of eligible shares present and voting at the Annual Meeting, in person or by proxy. If this appointment is not ratified by stockholders, the Audit Committee may reconsider its recommendation. One or more representatives of Ernst & Young LLP are expected to be at the Annual Meeting. They will have an opportunity to make a statement and will be available to respond to appropriate questions. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR RATIFICATION. AUDIT FEES The aggregate fees billed by Ernst & Young LLP for professional services rendered for the audit of Wellman's annual financial statements for the year ended December 31, 2001 and for the reviews of the financial statements included in Wellman's Quarterly Reports on Form 10-Q for that fiscal year were $438,000. ALL OTHER FEES The aggregate fees billed by Ernst & Young LLP for services rendered to Wellman, other than the services described above under "Audit Fees," for the year ended December 31, 2001 were $427,000. This amount includes audit-related services of $227,000 as well as tax and other services. 10 FINANCE AND AUDIT COMMITTEE REPORT The Finance and Audit Committee operates under a written charter that was last amended and restated on March 21, 2001. As set forth in the charter, the role of the Committee is to assist the Board of Directors in its oversight of Wellman's financial reporting process. In the Board of Director's judgment, all of the members of the Committee are "independent" as required by the listing standards of the New York Stock Exchange. Management is responsible for the preparation, presentation and integrity of Wellman's financial statements, its accounting and financial reporting principles, and the internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. The independent auditors are responsible for auditing the financial statements and expressing an opinion as to their conformity with generally accepted accounting principles. The Committee's responsibility is generally to monitor and oversee these processes. In the performance of its oversight function, the Committee: - Reviewed and discussed the audited financial statements for the year ended December 31, 2001 with management and the independent auditors; - Discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit Committees, as currently in effect; - Received from the independent auditors written affirmation of their independence as required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees, as currently in effect. The members of the Committee are not professionally engaged in the practice of auditing or accounting and are not experts in the fields of accounting or auditing, including in respect of auditor independence. Members of the Committee rely without independent verification on the information provided to them and on the representations made by management and the independent auditors. As a result, the Committee's oversight does not provide an independent basis to determine that management has maintained appropriate accounting and financial reporting principles or appropriate internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. In addition, the Committee's considerations and discussions referred to above do not assure that the audit of the financial statements has been carried out in accordance with generally accepted auditing standards, that the financial statements are presented in accordance with generally accepted accounting principles or that the auditors are in fact independent. Based upon the reports and discussions described in this report, and subject to the limitations on the role and responsibilities of the Committee referred to above and in its charter, the Committee recommended to the Board that the audited financial statements be included in Wellman's Annual Report on Form 10-K for the year ended December 31, 2001 filed with the SEC. FINANCE AND AUDIT COMMITTEE James B. Baker (Chairman) Richard F. Heitmiller Gerard J. Kerins James E. Rogers Roger A. Vandenberg 11 EXECUTIVE COMPENSATION REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION The Compensation Committee of the Board of Directors (the "Committee"), which is composed entirely of non-employee directors, met six times during fiscal 2001. The Committee has responsibility for administering the annual Management Incentive Compensation Plan, the stock option plans and the Deferred Compensation and Restricted Stock Plan. The Committee is also responsible for making compensation recommendations to the Board with respect to the five executive officers whose fiscal 2001 compensation is disclosed on the Summary Compensation Table on page 15 of this proxy statement. In this capacity, the Committee determines the salary, management incentive plan awards and stock option grants for those executive officers, following administrative policies and practices that it establishes from time to time in accordance with the terms and provisions of the plans. This Committee Report describes the executive compensation program strategy, the components of the compensation program, and the manner in which 2001 compensation determinations were made by the Committee with respect to the Chairman and Chief Executive Officer, Thomas M. Duff, whose compensation is determined by the Committee meeting in executive session without Mr. Duff or other members of management being present. Similar determinations were made by the Committee with respect to the other four executive officers, after taking into consideration the recommendations submitted by Mr. Duff. Stock Ownership Policy. In February 1998 the Board of Directors, at the recommendation of the Compensation Committee, adopted a Statement of Policy which requires directors and executive officers to beneficially own targeted levels of Wellman Common Stock based on their compensation levels. The Board believes that increasing management's ownership of the Common Stock will more closely align the interests of management and the stockholders and will motivate management to manage Wellman for long-term growth and profitability. In order to implement the Statement of Policy, Wellman adopted the Deferred Compensation and Restricted Stock Plan. Under this Plan, executives are required to defer any amounts payable under the Management Incentive Compensation Plan over their target percentage and may elect to defer up to 50% of any other cash compensation payable to them. Restricted stock awards are granted for such deferred compensation. The number of shares of restricted stock issued is equal to the cash value of the compensation earned divided by 85% of the average of the highest and lowest sales prices of Wellman Common Stock reported on the New York Stock Exchange for a specified 31 day period at the end of the quarter. Compensation Strategy. The Committee endeavors to maintain an officer compensation program which is competitive with the practices of public corporations of similar revenue size. The structure for the compensation of the executive officers consists of three primary components: base salary, the Management Incentive Plan and stock options. The Committee believes a substantial component of executive officer total compensation should be based on Wellman's financial performance. The Management Incentive Plan compensates executive officers commensurate with Wellman's financial performance and other strategic goals, and annual stock option grants ensure that longer-term incentive compensation is directly related to increases in the market value of Wellman's Common Stock. The remainder of this Committee Report describes the components of Wellman's officer compensation program and the manner in which these were administered in 2001. 12 Base Salary. Base salary forms the foundation of the officer compensation program. The Committee has periodically engaged compensation consultants to survey market practices to ensure executive officer salaries remain competitive in a manner which properly reflects the performance of the incumbent officers. Such surveys have considered the practices of some, but by no means all, of the companies included in the peer groups shown on the Stock Performance Graph. Mr. Duff's 2001 annual salary shown in the Summary Compensation Table falls within the second quartile of competitive practice for corporations with revenues of comparable size. The second quartile is defined as above the 25(th) percentile and below the 50(th) percentile. The average 2001 salaries of the other executive officers approximated the second quartile of competitive practice for their peers in corporations with revenues of comparable size. Management Incentive Plan. Under the Management Incentive Plan ("MIP"), annual bonuses earned by the executive officers and other plan participants are directly related to achieving targets established for corporate and/or operating unit profit and achieving individual strategic objectives established early in the year. The Committee establishes for each participant in the MIP a maximum targeted award based on a percentage of base salary and the portion of that target award which is to be based upon achieving strategic goals. Mr. Duff's target MIP award for 2001 was 65% of base salary; 30% of the target award was based upon achieving strategic objectives and 70% was based upon achieving financial objectives. The target awards for the other executive officers ranged from 50% to 65% of base salary; 35% to 50% of the target awards were based upon achieving strategic objectives and 50% to 65% was based upon achieving financial objectives. Based on his performance in 2001, the Committee recommended the payment of an annual bonus of $200,043 to Mr. Duff (which constitutes 28% of his base salary). Stock Options. Annual stock option grants represent the third component of Wellman's executive compensation program. All stock options are granted with exercise prices equal to the average of fair market value of the stock on the 20 days preceding the date of grant so that optionees share in the future growth in market value of Wellman's Common Stock. To ensure stock options provide a longer-term stockholder value-based incentive, 20% of the options granted in a year become exercisable (i.e., the optionee can purchase the option shares) on the first through fifth anniversaries of the grant date, provided the optionee remains an employee. The Chief Executive Officer submits proposed stock option grants for the executive officers (other than himself) to the Committee for approval. In making the final determination of option grants, the Committee considers the individual executive's scope of responsibility, individual performance, the levels of profits and return on assets of the corporation and of its operating divisions (with no specific target levels being established), competitive levels of option grants, and the aggregate number of options awarded to the executive to date. The Committee, in its discretion, assigns relative weights to these factors as it deems appropriate. The Option Grants Table on page 16 shows the terms and size of 2001 option grants made to the executive officers named in the Summary Compensation Table below. The values shown under the "Grant Date Value" column of this table represent an estimate of the potential value of these grants. These projections should not be construed as a forecast of future stock price or the compensation that will be realized from the actual exercise of these options. 13 Unless the future price of Wellman's stock is higher than $16.61 per share, the exercise price of the 2001 options, these options will have no value. The Committee believes that the compensation paid by the Corporation to the executive officers will be fully deductible. This report has been provided by the Compensation Committee. Marvin O. Schlanger (Chairman) Gerard Kerins James E. Rogers Roger Vandenberg 14 COMPENSATION TABLES The following table summarizes the compensation for the years ended December 31, 2001, 2000 and 1999 of Wellman's chief executive officer and the four other most highly compensated executive officers. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS -------------------------------------- -------------------------------------------- SECURITIES OTHER RESTRICTED UNDERLYING ANNUAL STOCK OPTIONS ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS(1) COMPENSATION(2) AWARDS(1)(3) (4) COMPENSATION(5) - --------------------------- ---- --------- -------- --------------- ------------- ---------- --------------- Thomas M. Duff............ 2001 $720,000 $200,043 $73,734 $ 0 86,000 $171,379 Chairman, CEO 2000 $720,000 $154,160 $73,734 $ 0 85,000 $170,701 1999 $715,000 $445,693 $73,075 $ 3,162 84,600 $176,920 Clifford J. Christenson... 2001 $431,250 $149,702 $42,635 $15,095 76,000 $102,137 President, COO 2000 $413,125 $ 83,179 $41,402 $11,030 75,000 $101,318 1999 $389,375 $243,925 $40,102 $15,014 48,600 $ 95,860 John R. Hobson............ 2001 $273,750 $ 51,762 $27,600 $ 2,442 40,000 $ 66,761 Vice President 2000 $270,000 $ 82,251 $27,600 $ 6,658 35,000 $ 65,856 Fibers and Recycled 1999 $253,958 $165,416 $26,194 $14,461 29,400 $ 59,189 Products Group Keith R. Phillips......... 2001 $261,250 $107,658 $25,476 $12,971 40,000 $ 55,859 Vice President 2000 $244,375 $ 76,082 $23,915 $11,101 35,000 $ 54,881 Chief Financial 1999 $225,625 $122,447 $22,218 $13,551 26,600 $ 54,078 Officer and Treasurer Joseph C. Tucker.......... 2001 $234,500 $ 75,676 $24,158 $ 7,094 35,000 $ 51,246 Vice President 2000 $224,625 $ 73,627 $23,474 $ 7,399 30,000 $ 50,320 Corporate Development 1999 $215,625 $113,688 $22,896 $11,834 24,400 $ 50,768
- --------------- (1) Under the Deferred Compensation and Restricted Stock Plan, employees may elect to defer specified amounts of salary, bonus and other cash compensation. Restricted stock awards are granted for such deferred amounts for 2001. The amounts of salary and bonus set forth include the following deferred amounts: Mr. Duff, $0 and $0; Mr. Christenson, $18,000 and $50,000; Mr. Hobson, $12,000 and $0; Mr. Phillips, $30,000 and $30,000; and Mr. Tucker, $18,000 and $15,000. The shares of restricted stock issued in connection with these deferred amounts are reflected in the Restricted Stock Awards column above. (2) Includes Wellman's contributions to life insurance premiums or payments in lieu thereof (Mr. Duff, $73,734; Mr. Christenson, $42,635; Mr. Hobson, $27,600; Mr. Phillips, $25,476; and Mr. Tucker, $24,158 in 2001). (3) These amounts are the dollar values of restricted stock awards granted under the Deferred Compensation and Restricted Stock Plan. Each value is determined by multiplying the number of shares in each award by the closing market price of Wellman Common Stock on the date of grant and subtracting the consideration paid by the Named Executive Officer. Holders of restricted stock receive the same cash dividends as other stockholders owning Wellman Common Stock. 15 (4) None of the options granted were options with tandem SARs and no free-standing SARs were granted. (5) Consists of Wellman's contributions to employee retirement (Mr. Duff, $18,683; Mr. Christenson, $18,779; Mr. Hobson, $18,750; Mr. Phillips, $18,789; and Mr. Tucker, $18,764 in 2001), supplemental retirement (Mr. Duff, $149,296; Mr. Christenson, $79,958; Mr. Hobson, $44,611; Mr. Phillips, $33,670; and Mr. Tucker, $29,082 in 2001), and savings plans ($3,400 for each of Messrs. Duff, Christenson, Hobson, Phillips, and Tucker in 2001). The aggregate number of all restricted stock and net value at December 31, 2001 (determined by taking the number of shares issued at December 31, 2001 multiplied by the closing market price on December 31, 2001, net of any consideration paid) are shown below. The aggregate amount paid for these shares was $1,671,026. Amounts shown do not include the restricted shares issued in connection with the bonuses for 2001 since such bonuses were not paid until March 2002.
AGGREGATE RESTRICTED SHARES NET VALUE ---------- --------- Mr. Duff.......................................... 41,346 $ 63,757 Mr. Christenson................................... 34,603 $100,116 Mr. Hobson........................................ 11,596 $ 12,185 Mr. Phillips...................................... 21,554 $ 56,736 Mr. Tucker........................................ 17,167 $ 52,041
OPTION GRANTS IN LAST FISCAL YEAR The following table sets forth certain information relating to option grants pursuant to the Option Plan in the year ended December 31, 2001 to the individuals named in the Summary Compensation Table above.
OPTION GRANTS IN LAST FISCAL YEAR INDIVIDUAL GRANTS ----------------------------------------------------------------- NUMBER OF % OF TOTAL SECURITIES OPTIONS EXERCISE UNDERLYING GRANTED TO OR BASE OPTIONS EMPLOYEES IN PRICE EXPIRATION GRANT DATE NAME GRANTED(1)(2) FISCAL YEAR ($/SH) DATE VALUE(3) - ---- ------------- ------------ -------- ---------- ---------- Thomas M. Duff............. 86,000 14.9% 16.61 2/15/12 $882,360 Clifford J. Christenson.... 76,000 13.2% 16.61 2/15/12 $779,760 John R. Hobson............. 40,000 6.9% 16.61 2/15/12 $410,400 Keith R. Phillips.......... 40,000 6.9% 16.61 2/15/12 $410,400 Joseph C. Tucker........... 35,000 6.1% 16.61 2/15/12 $359,100
- --------------- (1) None of the options granted were options with tandem SARs and no free-standing SARs were granted. (2) All options granted to the named executives were granted on February 15, 2001 pursuant to the Option Plan. The options generally become exercisable in 20% increments on 16 February 15, 2002, 2003, 2004, 2005 and 2006. If a Change of Control (as defined in the Option Plan) occurs, these options would immediately become exercisable. (3) Based on the Black-Scholes option pricing model. The use of this model should not be construed as an endorsement of its accuracy at valuing options. The actual value, if any, an executive may realize will depend on the excess of the stock price over the exercise price on the date the option is exercised, so there is no assurance the actual value realized will be at or near the value estimated by the Black-Scholes model. The estimated values under that model are based on the following assumptions: Stock price at February 15, 2001........ $19.05 Exercise price.......................... $16.61 Expected option term.................... 8 years Stock price volatility.................. .470 Dividend yield.......................... 1.29% Risk-free interest rate................. 4.96%
FY-END OPTION VALUES The following table sets forth certain information as of December 31, 2001 with respect to unexercised options to purchase Wellman Common Stock granted under the Option Plan to the individuals named in the Summary Compensation Table above. No options were exercised in 2001 by such individuals.
NUMBER OF SECURITIES VALUE OF UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS AT FY-END OPTIONS AT FY-END ---------------------------- ---------------------------- NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---- ----------- ------------- ----------- ------------- Thomas M. Duff................... 304,840 224,760 $197,964 $296,946 Clifford J. Christenson.......... 213,440 179,160 $113,724 $170,586 John R. Hobson................... 118,560 95,640 $ 68,796 $103,194 Keith R. Phillips................ 114,640 91,960 $ 62,244 $ 93,366 Joseph C. Tucker................. 96,960 81,640 $ 57,096 $ 85,644
17 STOCK PERFORMANCE GRAPH The following graph compares the five-year cumulative total return for Wellman Common Stock with the Standard & Poor's ("S&P") 500 Stock Index and the S&P Midcap 400 Index. Due to the unique nature of its operations, Wellman believes there exists no appropriate or comparable line of business or industry index, nor could one be constructed, which would render a meaningful or accurate performance comparison. Wellman believes that its mix of operations is unique and cannot be compared to major publicly-owned competitors. [STOCK PERFORMANCE GRAPH]
- ------------------------------------------------------------------------------------------------------ Dec. 96 Dec. 97 Dec. 98 Dec. 99 Dec. 00 Dec. 01 - ------------------------------------------------------------------------------------------------------ Wellman, Inc. $100.00 $115.91 $ 61.97 $116.42 $ 90.41 $101.45 - ------------------------------------------------------------------------------------------------------ S&P 500 Index $100.00 $133.36 $171.48 $207.56 $188.66 $166.24 - ------------------------------------------------------------------------------------------------------ S&P Mid-Cap 400 Index $100.00 $132.25 $157.52 $180.71 $212.35 $196.42 - ------------------------------------------------------------------------------------------------------
The above graph assumes $100 invested on December 31, 1996 in Wellman Common Stock and $100 invested at that time in each of the two indices. The comparison assumes that all dividends are reinvested. EMPLOYMENT AGREEMENTS Wellman has entered into change of control employment agreements with Messrs. Duff, Christenson, Hobson, Phillips and Tucker, as well as certain other executive officers. These agreements are intended to encourage these executives to remain in Wellman's employ by providing them with greater security and to reinforce and encourage continued attention and dedication to their duties without distraction in the face of the potentially disturbing circumstances arising from the possibility of a change in control. A change of control is defined to include the acquisition by any person or group of 20% or more of Wellman's then outstanding stock, a change in the majority of its Board of Directors or approval of a reorganization, merger or consolidation by Wellman's stockholders. 18 The employment agreements (which include provisions for renewal and for automatic extension upon a change of control) provide for employment as officers of Wellman at base salaries determined by the Board of Directors, plus participation in the executive bonus plan. Provided there has been no change in control, the employment agreements of the executives other than Mr. Duff provide the executive's employment may be terminated upon 30 days notice. Mr. Duff's agreement provides that, provided there has been no change in control, his employment may be terminated at any time but that he will be entitled to one year's compensation in the event of termination other than for cause or disability. In addition, the executives are eligible to participate in all incentive, savings, retirement and welfare benefit plans applicable to other Wellman executives and shall receive reimbursement for expenses and automobiles. The agreements provide that if the executive is terminated after a change of control, other than for cause, death or disability, or if the executive terminates for good reason (as defined in the agreements), the executive is entitled to receive his salary and bonus through the date of termination and a lump sum severance payment equal to three times the sum of his base salary and annual bonus (and certain other benefits). Further, an additional payment is required in an amount such that after the payment of all taxes, income and excise, the executive will be in the same after-tax position as if no excise tax under Section 4999 of the Internal Revenue Code had been imposed. OTHER MATTERS Management does not know of any matters which will be brought before the Annual Meeting other than those specified in the meeting notice. However, if any other matters properly come before the Annual Meeting, it is intended that the persons named in the form of proxy, or their substitutes acting thereunder, will vote therein in accordance with their best judgment. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934 requires Wellman's officers and directors, and persons who own more than 10% of a registered class of its equity securities ("insiders"), to file reports of ownership and changes in ownership with the SEC. Insiders are required by SEC regulation to furnish Wellman with copies of all Section 16(a) forms they file. Based solely on review of the copies of such forms furnished to Wellman, it believes that during 2001 all Section 16(a) filing requirements applicable to its insiders were complied with. 19 FORM 10-K A copy of Wellman's Annual Report on Form 10-K filed with the SEC is available to stockholders without charge upon written request to Dennis Sabourin, Investor Relations Officer, Wellman, Inc., 595 Shrewsbury Avenue, Shrewsbury, New Jersey 07702. STOCKHOLDER PROPOSALS FOR 2003 ANNUAL MEETING Under the regulations of the SEC, a record or beneficial owner of shares of Wellman's Common Stock may submit proposals to be included in the proxy statement on proper subjects for action at the 2003 Annual Meeting of Stockholders. All such proposals must be mailed to the Investor Relations Manager at Wellman at 595 Shrewsbury Avenue, Shrewsbury, New Jersey 07702 and must be received at that address on or before December 23, 2002, in order to be included in the proxy relating to the 2003 Annual Meeting. A record or beneficial owner of shares of Wellman's Common Stock may also submit proposals on proper subjects for action at the 2003 Annual Meeting without including such proposals in the proxy statement for such meeting. Wellman must be notified of such owner's intention to do this no later than April 20, 2003. By order of the Board of Directors, DAVID K. DUFFELL Secretary New York, New York April 22, 2002 20 WELLMAN, INC. PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE CORPORATION FOR ANNUAL MEETING MAY 21, 2002 The undersigned hereby appoints THOMAS M. DUFF, CLIFFORD J. CHRISTENSON and DAVID K. DUFFELL, or any one or more of them, attorneys, with full power of substitution to each for and in the name of the undersigned, with all powers the undersigned would possess if personally present to vote the Common Stock of the undersigned in Wellman, Inc. at the Annual Meeting of its Stockholders to be held May 21, 2002 or at any adjournment thereof. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU INSTRUCT THE PROXIES TO VOTE FOR PROPOSALS 1 AND 2. 1. ELECTION OF DIRECTORS: [ ] FOR all nominees (Except as [ ] WITHHOLD AUTHORITY to vote marked to the contrary below) for all nominees listed below
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.) James B. Baker Clifford J. Christenson Thomas M. Duff Richard F. Heitmiller Gerard J. Kerins James E. Rogers Marvin O. Schlanger Roger A. Vandenberg - -------------------------------------------------------------------------------- 2. PROPOSAL TO RATIFY THE SELECTION OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS OF WELLMAN FOR THE FISCAL YEAR ENDING DECEMBER 31, 2002. [ ] FOR [ ] AGAINST [ ] ABSTAIN 3. In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting or any adjournment thereof. (Continued from other side) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES, SEE REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE PROXIES CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3. Dated: ......................., 2002 .................................... .................................... SIGNATURE(S) NOTE: JOINT OWNERS SHOULD EACH SIGN. WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. -----END PRIVACY-ENHANCED MESSAGE-----