<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 7, 1999.
REGISTRATION STATEMENT NO. 333-74789
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------------------------
SPARTECH CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
DELAWARE 43-0761773
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
</TABLE>
120 SOUTH CENTRAL AVENUE, SUITE 1700, CLAYTON, MISSOURI 63105 (314) 721-4242
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
------------------------------------
RANDY C. MARTIN
VICE PRESIDENT -- FINANCE AND CHIEF FINANCIAL OFFICER
SPARTECH CORPORATION
120 SOUTH CENTRAL AVENUE, SUITE 1700, CLAYTON, MISSOURI 63105
(314) 721-4242
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
------------------------------------
WITH COPIES TO:
<TABLE>
<S> <C>
JEFFREY D. FISHER, ESQ. THOMAS J. MURPHY, ESQ.
ARMSTRONG TEASDALE LLP MCDERMOTT, WILL & EMERY
ONE METROPOLITAN SQUARE, SUITE 2600 227 WEST MONROE STREET
ST. LOUIS, MISSOURI 63102-2740 CHICAGO, ILLINOIS 60606-5096
(314) 621-5070 (312) 372-2000
</TABLE>
------------------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [ ]
- ---------
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
The information contained in this preliminary prospectus is not complete
and may be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective.
This preliminary prospectus is not an offer to sell these securities and it
is not soliciting an offer to buy these securities in any jurisdiction
where the offer or sale is not permitted.
SUBJECT TO COMPLETION
MAY 7, 1999
2,328,968 SHARES
SPARTECH CORPORATION
LOGO COMMON STOCK
The selling stockholders named in this prospectus under "Principal and Selling
Stockholders" are offering 2,328,968 shares of common stock with this
prospectus. Spartech will not receive any proceeds from the sale of shares by
the selling stockholders.
Our common stock is listed on the New York Stock Exchange under the symbol
"SEH." On May 6, 1999, the closing sale price of the common stock on the New
York Stock Exchange was $24 1/16 per share.
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 6.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----------
<S> <C> <C>
Public offering price.................................... $ $
Underwriting discount.................................... $ $
Proceeds to the selling stockholders..................... $ $
</TABLE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Spartech has granted an over-allotment option to the underwriters. Under this
option, the underwriters may elect to purchase a maximum of 345,000 shares of
common stock from Spartech within 30 days following the date of this prospectus
to cover over-allotments.
------------------------------------
The underwriters are severally underwriting the shares of common stock being
offered. The underwriters expect to deliver the shares against payment in New
York, New York on , 1999.
FIRST ANALYSIS SECURITIES CORPORATION
EVEREN SECURITIES, INC.
JANNEY MONTGOMERY SCOTT INC.
------------------------------------
Prospectus dated , 1999.
<PAGE> 3
[MAP OF SPARTECH LOCATIONS]
[OPERATING SEGMENTS FLOW CHART]
This prospectus contains registered service marks, trademarks and trade
names of Spartech Corporation, including the Spartech name and logo.
2
<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights information contained in other parts of this
prospectus. It is not complete and may not contain all of the information that
you should consider before investing in the shares. You should read the entire
prospectus carefully.
ABOUT SPARTECH
GENERAL
We are a leading intermediary processor of thermoplastics. Thermoplastics
are plastics capable of being formed and reformed by heating. We convert base
polymers, or resins, from commodity suppliers into extruded plastic sheet and
rollstock, color concentrates and blended resin compounds, and injection molded
and profile extruded products. The plastics industry is large and has
historically grown faster than the U.S. gross domestic product, due partly to
the continuing substitution of plastics for traditional materials such as metal,
fiberglass and wood. We refer to this process of substitution as product
transformations.
We have recorded 29 consecutive quarters of earnings improvement over the
comparable prior year's quarter. From fiscal 1994 to 1998, our net sales
increased from $256.6 million to $653.9 million, a compound annual growth rate
of 26%, and diluted earnings per share grew from $0.46 to $1.18, a compound
annual growth rate of 27%. During the same period, our volume of product sold
grew from 310 million pounds to 902 million pounds, a compound annual growth
rate of 31%. Our leading market share position in extruded sheet and rollstock,
improving margins and ability to capitalize on the plastics industry's
consolidation and product transformation trends position us to sustain strong
growth into the future.
We provide value through formulation and processing technology, our cost
efficient operations, our broad range of problem-solving products and
capabilities, and our locations close to customers' manufacturing facilities. We
are organized into three lines of business, or operating groups: Extruded Sheet
& Rollstock, representing 70% of our 1998 net sales, Color & Specialty
Compounds, representing 24% of our 1998 net sales, and Molded & Profile
Products, representing 6% of our 1998 net sales.
Our principal executive offices are located at 120 South Central Avenue,
Suite 1700, Clayton, Missouri 63105. Our telephone number is (314) 721-4242. Our
web site address is http://www.spartech.com. INFORMATION CONTAINED ON OUR WEB
SITE IS NOT PART OF THIS PROSPECTUS.
COMPETITIVE STRENGTHS
Our competitive strengths include:
- Leading Market Position. We are the largest extruder of custom rigid
plastic sheet and rollstock in North America, and have a growing market
position in color and specialty compounds.
- Diversified Customer Base and Geographic Presence. We sell our products
to over 4,500 customers in a broad range of end markets. Our 39 plants
are strategically located in 35 cities throughout the United States as
well as in eastern Canada and France.
- Low-Cost Supplier. Our size helps us obtain volume discounts on raw
materials, and the strategic location of our plants saves shipping costs
and reduces delivery times to our customers.
- Decentralized Management Structure. Our day-to-day operating decisions
are made at each of our operating locations. This promotes operating
efficiency and timely decision making and facilitates integration of the
businesses we acquire.
3
<PAGE> 5
- Commitment to Customer Service. We seek to differentiate ourselves from
our competitors by emphasizing consistent product quality, outstanding
customer service, and innovative technical solutions for our customers.
GROWTH STRATEGY
In late 1991, we began building a new senior management team with the
appointment of our current chief executive officer. Concurrently with this
management transition, we began to develop and implement a comprehensive growth
strategy. This strategy has two components, which complement each other. The
first, our Four Cornerstones for Growth, emphasizes volume growth through
internal means and strategic acquisitions. We pursue an aggressive but
disciplined acquisition program and have successfully integrated numerous
acquisitions that have all contributed to profitable growth. The second, our
Pyramids of Productivity, emphasizes earnings growth through ongoing cost
containment and productivity improvement efforts.
RECENT DEVELOPMENTS
On May 4, 1999 we entered into an agreement to acquire the net assets of
the Alltrista Plastic Packaging Division of Alltrista Corporation, an extruded
sheet and rollstock manufacturer in Muncie, Indiana. See "Business --
Acquisition History -- Pending Acquisition."
THE OFFERING
Unless otherwise stated, all information contained in this prospectus
assumes no exercise of the over-allotment option granted to the underwriters.
Shares offered by the
selling stockholders....... 2,328,968 shares
Shares outstanding after
the offering............... 26,914,282 shares
Use of proceeds............ We will not receive any proceeds from the sale of
shares by the selling stockholders. If the
underwriters exercise their over-allotment option,
we intend to use the net proceeds from the sale of
those shares to repay borrowings under our bank
credit facility.
Dividend policy............ We currently pay quarterly cash dividends at the
annual rate of $0.28 per share.
Risk factors............... For a discussion of specific risks you should
consider before investing in the shares, see "Risk
Factors" beginning on page 6.
NYSE symbol................ SEH
4
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(in thousands, except ratios and per share data)
The information below should be read in conjunction with our consolidated
financial statements, and the sections captioned "Selected Consolidated
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------
JAN. 31, JAN. 30,
1994 1995 1996(A) 1997 1998 1998 1999
-------- -------- -------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net Sales.................... $256,593 $352,273 $391,348 $502,715 $653,855 $133,081 $167,801
Gross Profit................. 36,998 49,879 60,572 82,215 111,215 22,480 30,197
Depreciation and
Amortization............... 4,422 5,798 7,211 11,548 18,530 3,546 5,667
Operating Earnings........... 16,410 24,604 34,492 49,701 69,728 13,778 19,075
Interest Expense............. 3,125 4,960 5,062 8,393 13,602 2,345 3,851
Net Earnings................. 10,835 14,534 18,317 25,493 33,720 7,021 9,157
Diluted Earnings Per Share... $ 0.46 $ 0.60 $ 0.74 $ 0.92 $ 1.18 $ 0.25 $ 0.32
Dividends Per Share.......... $ -- $ 0.09 $ 0.15 $ 0.20 $ 0.24 $ 0.06 $ 0.07
OTHER DATA:
Return on Equity (b)......... 20.8% 22.3% 20.0% 21.2% 23.9% 21.7% 23.2%
Gross Margin................. 14.4% 14.2% 15.5% 16.4% 17.0% 16.9% 18.0%
Operating Margin............. 6.4% 7.0% 8.8% 9.9% 10.7% 10.4% 11.4%
EBITDA (c)................... $ 20,832 $ 30,402 $ 41,703 $ 61,249 $ 88,258 $ 17,324 $ 24,742
EBITDA Margin................ 8.1% 8.6% 10.7% 12.2% 13.5% 13.0% 14.7%
Net Cash Provided By (Used
For):
Operating Activities....... $ 13,358 $ 16,487 $ 23,160 $ 48,390 $ 64,546 $ 5,155 $ 14,550
Investing Activities....... (14,164) (33,537) (76,505) (83,877) (146,185) (5,119) (15,373
Financing Activities....... 1,109 18,803 54,486 36,997 82,930 (1,109) (404)
Increase (Decrease) In Cash
and Equivalents............ 303 1,753 1,180 1,373 1,189 (1,131) (1,223)
Capital Expenditures......... $ 8,152 $ 10,015 $ 9,566 $ 12,172 $ 17,859 $ 2,056 $ 4,956
Effective Tax Rate........... 18% 26% 38% 38% 40% 39% 40%
</TABLE>
<TABLE>
<CAPTION>
AT JAN. 31, AT JAN. 30,
1998 1999
----------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Working Capital............................................. $ 71,523 $ 78,124
Total Assets................................................ 355,659 542,994
Total Long-Term Debt, Less Current Maturities............... 144,245 246,919
Total Stockholders' Equity.................................. 130,763 161,632
</TABLE>
- ---------------
(a) Our fiscal year ends on the Saturday closest to October 31. Fiscal year 1996
included 53 weeks compared to 52 weeks for all other fiscal years presented.
(b) Represents net earnings divided by average equity.
(c) "EBITDA," which means net income before interest expense, income taxes,
depreciation and amortization, is not a measure of performance under
generally accepted accounting principles, or GAAP. EBITDA should not be
considered in isolation or as a substitute for net income, cash flows from
operating activities or other cash flow statement data prepared in
accordance with GAAP, or as a measure of profitability or liquidity. EBITDA
differs from net cash provided by operating activities in that it excludes
cash used to service debt requirements and does not reflect the effects of
changes on working capital or deferred income tax items. It therefore does
not reflect funds available for dividends or other discretionary uses. We
are showing EBITDA here because it is a widely accepted financial indicator
of a leveraged company's ability to service and/or incur indebtedness and
because we believe it is a relevant measure of our ability to generate cash
without regard to our capital structure. EBITDA is not necessarily
comparable to similarly titled measures for other companies. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a discussion of other measures of performance determined in
accordance with GAAP.
5
<PAGE> 7
RISK FACTORS
The principal risks of this offering are described below. You should
carefully consider these risks before deciding to invest in our common stock.
These risks could materially and adversely affect our business, financial
condition and results of future operations. If that were to happen, the trading
price of our common stock could decline, and you could lose all or part of your
investment. The risks described below are not the only ones we face.
WE OPERATE IN A HIGHLY COMPETITIVE INDUSTRY, AND OUR FAILURE TO COMPETE
EFFECTIVELY COULD HURT OUR PROFITS
Our continued profitability depends on our ability to meet competition. Our
industry is competitive in several ways:
- The plastics intermediary industry is characterized by a large number of
companies and by periodic oversupply of base resins, resulting in intense
price competition. If we are unable to meet our competitors' prices, our
sales could be reduced. On the other hand, if we meet the competition but
are not able to do so in a cost-efficient way, our margins could
decrease. In either event, our profits could be reduced or we could incur
writedowns to inventory values.
- Because plastics intermediaries are consolidating, our competitors may
become larger, which could make them more efficient, reducing their cost
of materials and permitting them to be more price competitive. Increased
size could also permit them to operate in wider geographic areas and
enhance their ability to compete in other areas such as research and
development and customer service, which could reduce our profitability.
- We may experience increased competition from companies offering products
based on alternative technologies and processes that may be competitive
or better in price or performance, causing us to lose customers, sales
volume and profits.
- Some of our customers may be or become large enough to justify developing
in-house production capabilities. Any material reduction in orders to us
by our customers as a result of a shift to in-house production could
adversely affect our sales and profits.
WE MAY NOT BE ABLE TO CONTINUE TO MAKE THE ACQUISITIONS NECESSARY FOR US TO
REALIZE OUR GROWTH STRATEGY
Acquiring businesses that complement or expand our operations has been and
continues to be an important element of our business strategy. This strategy
depends on our ability to continue to identify, complete and manage acquisitions
profitably. However, several factors may impair our ability to continue this
strategy.
- Some of our major competitors have or could initiate similar growth
strategies, and the overall plastics intermediary segment is continuing
to consolidate. As a result, competition for suitable acquisition
candidates is increasing. We may not be able to acquire additional
companies in our industry on terms favorable to us.
- We have generally financed our acquisitions from bank borrowings or the
placement of debt securities, or from the issuance of capital stock, and
we expect to derive the consideration used for future acquisitions from
the same sources. However, we may not be able to obtain this financing in
the future on economically feasible or acceptable terms, or at all. Our
consolidated long-term indebtedness was approximately $255.7 million at
January 30, 1999, or approximately 61% of our total consolidated
capitalization.
- Integrating acquired businesses requires a significant amount of
management time and skill and may place significant demands on our
operations and financial resources. We may not be successful in
integrating acquired businesses into our operations.
If we are unable to continue our acquisition strategy, or if we fail to
effectively integrate future acquisitions into our operations, it could have a
material adverse effect on our business, financial
6
<PAGE> 8
condition and results of operations. Further, even if we continue to
successfully complete acquisitions, there is a risk that our net income may be
impacted by increasing goodwill amortization and interest costs from future
acquisitions being in excess of the income derived from the acquired operations.
LARGE INCREASES IN THE COSTS OF RAW MATERIALS OR SUBSTANTIAL DECREASES IN THEIR
AVAILABILITY COULD MATERIALLY AND ADVERSELY AFFECT OUR OPERATING PROFIT
- The costs of raw materials used in our manufacturing processes
represented approximately 76% of cost of goods sold in 1998. These raw
materials include resins that are affected by changes in supply and
demand conditions within the commodity resins market. Prices for these
raw materials could increase significantly.
- In addition, any major disruptions in the availability of petroleum or
natural gas to our suppliers could adversely impact the availability of
the resins used in our manufacturing process.
Either of these factors could cause us to lose orders or customers and have
a material adverse effect on our sales and operating profit.
WE OPERATE IN CYCLICAL MARKETS AND HAVE EXPOSURE TO ECONOMIC DOWNTURNS
Our products are sold in a number of end markets which tend to be cyclical
in nature, including transportation, building and construction, bath/pool and
spa, and electronics and appliances. A downturn in one or more of these end
markets could have a material adverse effect on our sales and operating profit.
OUR STOCK PRICE IS VOLATILE AND MAY DECLINE
The trading price of our common stock has fluctuated widely, ranging
between $14 3/4 and $25 3/8 per share over the past 52 weeks. The overall market
and the price of our common stock may continue to be volatile. The trading price
of our common stock may be significantly affected by various factors, including:
- Variations in our quarter to quarter operating results;
- Changes in investors' and analysts' perceptions of the business risks and
conditions of our business;
- The relative size of our market capitalization; and
- The limited float of our common stock.
OUR PRINCIPAL STOCKHOLDER COULD INFLUENCE OUR MANAGEMENT AND POLICIES, AND COULD
ALSO BE A POTENTIAL COMPETITOR
As of January 30, 1999, Vita International Limited, of Manchester, England,
held approximately 44.4% of the outstanding shares of our common stock. Two of
our directors, Calvin J. O'Connor and Alan R. Teague, serve on our board as
representatives of Vita.
- Vita's representation on the board and its large percentage of stock
ownership means Vita could be in a position to effectively control our
management and policies if it were supported by a relatively small
percentage of the other stockholders or if a relatively small percentage
of the other shareholders did not choose to exercise their voting rights.
In addition, under our certificate of incorporation, Vita's current
representation on the board together with its current share ownership are
sufficient to give it the power to block significant business
combinations with any other 10% shareholder, of which there are none at
present, unless the board approves the business combination before the
other shareholder acquires its 10% ownership.
- Vita is a manufacturer and distributor of cellular polymers, engineered
thermoplastics, fibers and fabrics, primarily in Europe. Although we do
not currently compete with Vita in any material respect, there can be no
assurance that our growth and business strategies will not
7
<PAGE> 9
conflict with or be affected by those of Vita at some time in the future. In
that event, Vita could act in its interests at the expense of Spartech's
interests.
OUR INABILITY TO OBTAIN OR MAINTAIN REQUIRED REGULATORY OR ENVIRONMENTAL PERMITS
COULD HURT OUR PROFITS
- We operate under numerous federal, state, local and non-U.S. laws and
regulations controlling the discharge of materials into the environment
or otherwise relating to the protection of the environment. In
particular, our operations are subject to laws and regulations governing
industrial waste water and storm water discharges, public notice or
"community right-to-know" requirements concerning the hazardous materials
located or used at our facilities, and the disposal of solid waste from
our facilities, some of which is considered special waste within the
meaning of these laws and regulations. Some of these laws require us to
obtain permits in order to conduct our operations. If we were to violate
these laws or regulations we might have to pay substantial fines and our
permits could be suspended or revoked in which case we might have to
suspend operations at one or more of our manufacturing facilities. We may
also not be able to acquire new permits which we would need in order to
expand our operations.
- The Food and Drug Administration regulates the material content of
medical and direct-contact food and beverage containers and packages and
periodically examines our operations. We must also adhere to FDA
regulations governing "good manufacturing practices," including testing,
quality control, and manufacturing and documentation requirements. If
violations of these regulations are noted during inspections of our
manufacturing facilities by public health regulatory officials, we may be
required to cease manufacturing until the violation is corrected or to
recall products that were manufactured under improper conditions.
Any of these circumstances could have a material adverse effect on the
continued marketing of our products and on our business, financial condition and
results of operations.
YEAR 2000 PROBLEMS OF OUR SIGNIFICANT CUSTOMERS, SUPPLIERS OR UTILITIES MAY
IMPAIR OUR OPERATIONS
We may experience lost revenues if any of our major customers experience
Year 2000 problems which cause them to order less product from us, or which
cause them financial difficulties resulting in a breach of their payment
obligations to us. A mass interruption to our supply chain resulting from the
lack of readiness of our suppliers could result in lost profits, breach of
contract claims against us, or other adverse consequences. In addition, our
customers or suppliers or our own production capabilities could also be
adversely affected in similar ways due to disruptions to the transportation
network or public utilities. For more information about our Year 2000 compliance
efforts, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000."
FORWARD LOOKING STATEMENTS
This prospectus also contains forward-looking statements, primarily in the
sections captioned "Prospectus Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business." Forward-looking statements represent our judgment relating to, among
other things, future results of operations, growth plans, sales, capital
requirements and general industry and business conditions applicable to us. They
are based largely on our current expectations. Our actual results could differ
materially from the information contained in the forward-looking statements due
to a number of factors, including the risks described below, changes in the
economy or the plastics industry in general, and other unanticipated events that
may prevent us from competing successfully in existing or new markets, and our
ability to manage our growth effectively.
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<PAGE> 10
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of shares by the
selling stockholders. If the underwriters fully exercise their over-allotment
option, we would receive approximately $ in proceeds from the sale of
those 345,000 shares, after deducting the underwriting discount and the expenses
of the offering. We will pay all expenses incurred in the offering, except the
expenses of the selling stockholders' counsel and any underwriting discounts or
commissions on the selling stockholders' shares.
We intend to use any net proceeds from the sale of the shares to repay
borrowings under our bank credit facility. This facility has been used primarily
to fund our acquisitions. See "Business -- Acquisition History." It matures on
March 31, 2003, and at April 30, 1999 it had an outstanding balance of $60.0
million with an average interest rate of 5.78%. Any repayment of borrowings and
corresponding savings in interest expense may be temporary, subject to future
working capital needs and the need for cash for future acquisitions. See, for
example, "Business -- Acquisition History -- Pending Acquisition."
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
Our common stock is traded on the New York Stock Exchange under the symbol
"SEH." The following table shows the high and low sales prices per share of the
common stock as reported by the New York Stock Exchange and the dividends
declared per share for the periods indicated.
<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW DECLARED
-------- -------- ---------
<S> <C> <C> <C>
FISCAL YEAR ENDED NOVEMBER 2, 1996
First Quarter....................................... $ 7 3/8 $ 6 $ .03
Second Quarter...................................... 10 1/4 6 7/8 .04
Third Quarter....................................... 12 8 7/8 .04
Fourth Quarter...................................... 11 9 1/2 .04
FISCAL YEAR ENDED NOVEMBER 1, 1997
First Quarter....................................... $11 1/2 $ 9 3/8 $ .05
Second Quarter...................................... 13 3/4 10 5/8 .05
Third Quarter....................................... 16 11 1/2 .05
Fourth Quarter...................................... 18 15 .05
FISCAL YEAR ENDED OCTOBER 31, 1998
First Quarter....................................... $17 9/16 $14 3/4 $ .06
Second Quarter...................................... 23 1/8 16 3/8 .06
Third Quarter....................................... 22 7/8 19 1/16 .06
Fourth Quarter...................................... 19 14 3/4 .06
FISCAL YEAR ENDING OCTOBER 30, 1999
First Quarter....................................... $24 3/8 $17 5/8 $ .07
Second Quarter...................................... 25 3/8 20 .07
Third Quarter, to May 6, 1999....................... 24 1/8 23 1/4 --
</TABLE>
On May 6, 1999, the closing sale price of the common stock on the New York
Stock Exchange was $24 1/16 per share. As of May 6, 1999, there were
approximately 5,500 holders of record of our common stock.
Dividends are declared and paid on the common stock at the discretion of
our board of directors and depend upon our profitability, financial condition,
capital needs, future prospects and other factors deemed relevant by the board.
Our current policy is to pay dividends on a quarterly basis.
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<PAGE> 11
CAPITALIZATION
The following table shows our capitalization as of January 30, 1999.
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Short-Term Debt:
Current maturities of long-term debt...................... $ 8,817
========
Long-Term Debt, less current portion:
7.0% Senior Notes......................................... $ 60,000
7.62% Guaranteed Senior Notes............................. 30,000
7.21% Senior Unsecured Notes.............................. 42,857
Unsecured Bank Credit Facility............................ 102,100
Other Long-Term debt...................................... 11,962
Stockholders' Equity:
Common stock; $0.75 par value, 45,000,000 shares
authorized, 27,550,107 shares issued (a)............... 20,663
Contributed capital....................................... 97,654
Retained earnings......................................... 57,459
Treasury stock, at cost, 604,725 shares................... (10,081)
Cumulative translation adjustments........................ (4,063)
--------
Total stockholders' equity............................. $161,632
--------
Total Capitalization........................................ $417,368
========
</TABLE>
- ---------------
(a) Does not include 3,458,000 shares of common stock issuable upon exercise of
outstanding stock options.
The above table does not reflect our issuance on March 5, 1999 of
$50,000,000 of 6.5% convertible subordinated debentures and related convertible
preferred securities of Spartech Capital Trust, and the application of the
proceeds to repay borrowings under our unsecured bank credit facility. This
issuance is described under "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources--Financing
Arrangements."
10
<PAGE> 12
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
The following table sets forth, for the periods and dates indicated,
selected financial data derived from the Consolidated Financial Statements of
Spartech for the five-year period ended October 31, 1998. The selected
historical financial data for the three months ended January 31, 1998 and
January 30, 1999 are unaudited and, in the opinion of management, include all
adjustments which are of a normal recurring nature necessary for a fair
presentation. The information for interim periods may not be indicative of a
full year's results. The Consolidated Financial Statements of Spartech for the
five-year period ended October 31, 1998 were audited by Arthur Andersen LLP.
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and the related Notes included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------
JAN. 31, JAN. 30,
1994 1995 1996(A) 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Net Sales..................... $256,593 $352,273.. $391,348 $502,715 $653,855 $133,081 $167,801
Cost of sales................. 219,595 302,394 330,776 420,500 542,640 110,601 137,604
Selling, general and
administrative.............. 19,966 24,545 25,184 31,019 38,257 8,161 10,125
Amortization of intangibles... 622 730 896 1,495 3,230 541 997
-------- -------- -------- -------- -------- -------- --------
Operating Earnings............ 16,410 24,604 34,492 49,701 69,728 13,778 19,075
Interest...................... 3,125 4,960 5,062 8,393 13,602 2,345 3,851
Earnings Before Income
Taxes....................... 13,285 19,644 29,430 41,308 56,126 11,433 15,224
Income taxes.................. 2,450 5,110 11,113 15,815 22,406 4,412 6,067
-------- -------- -------- -------- -------- -------- --------
Net Earnings.................. $ 10,835 $ 14,534 $ 18,317 $ 25,493 $ 33,720 $ 7,021 $ 9,157
======== ======== ======== ======== ======== ======== ========
Net Earnings Per Common Share:
Basic....................... $ 1.06 $ .84 $ .77 $ .96 $ 1.26 $ .27 $ .34
======== ======== ======== ======== ======== ======== ========
Diluted..................... $ .46 $ .60 $ .74 $ .92 $ 1.18 $ .25 $ .32
======== ======== ======== ======== ======== ======== ========
Weighted Average Number
of Common Shares:
Basic....................... 8,239 15,956 23,714 26,418 26,807 26,398 26,896
======== ======== ======== ======== ======== ======== ========
Diluted..................... 23,434 24,111 24,874 27,838 28,609 28,101 28,748
======== ======== ======== ======== ======== ======== ========
Dividends Per Share........... -- $0.09.... $ 0.15 $ 0.20 $ 0.24 $ 0.06 $ 0.07
======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AT AT
JAN. 31, JAN. 30,
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total Assets.................. $135,720 $178,329 $288,960 $358,803 $533,309 $355,659 $542,994
Total Long-Term Debt,
Less Current Maturities..... 36,419 59,510 97,471 141,693 245,272 144,245 246,919
</TABLE>
- ---------------
(a) Fiscal year 1996 included 53 weeks compared to 52 weeks for all other fiscal
years presented.
11
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read this discussion together with the financial statements and
other financial information in this prospectus.
OVERVIEW
Our business is comprised of three operating lines of business, the largest
of which is the Extruded Sheet & Rollstock group. Due to our new product
development and acquisition programs, color and specialty compounds have become
a more significant line of business, and we have added a molded and profile
products group.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED JANUARY 30, 1999 AND JANUARY 31, 1998
The following table shows the net sales of each of our operating groups for
the first three months of 1998 and 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
JANUARY 31, 1998 JANUARY 30, 1999
---------------------- ----------------------
NET SALES % OF TOTAL NET SALES % OF TOTAL
--------- ---------- --------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Extruded Sheet & Rollstock........................... $103.0 77% $105.0 63%
Color & Specialty Compounds.......................... 19.6 15 50.5 30
Molded & Profile Products............................ 10.5 8 12.3 7
------ ---- ------ ----
Total................................................ $133.1 100% $167.8 100%
====== ==== ====== ====
</TABLE>
Net sales increased 26%, from $133.1 million to $167.8 million. Net sales
of the Extruded Sheet & Rollstock group increased 2%, from $103.0 million to
$105.0 million. This was due primarily to a 7% increase in pounds sold and a 2%
increase in sales related to acquisitions, offset in part by a negative 7% price
and product mix change. The negative price change was primarily due to a decline
in overall raw material prices. Sales to the growing packaging and recreation
and leisure markets were the primary factor in the increase in pounds sold for
the sheet group. Net sales of the Color & Specialty Compounds group increased
158%, from $19.6 million to $50.5 million. This was primarily the result of our
1998 midyear acquisitions of Polycom Huntsman, Inc. and Prismaplast Canada Ltd.,
commonly known as Plasticolour. Pounds sold increased by 8% while price and
product mix changes had a negative 12% effect on sales. The negative price
change mostly reflected a decline in overall raw material prices and an increase
in our tolling business, which is the value-added processing and conversion of
customer-owned material. Sales for the Molded & Profile Products group increased
17%, from $10.5 million to $12.3 million, primarily as a result of our October
1998 acquisition of Anjac-Doron Plastics, Inc.
Cost of sales increased from $110.6 million to $137.6 million, but as a
percentage of net sales decreased from 83.1% to 82.0%. The more favorable cost
of sales percentage in 1999 was primarily due to a decline in overall raw
material prices and improved production efficiencies, partially offset by an
increase in depreciation as a result of our capital expenditures during the last
24 months.
Selling, general and administrative expenses increased from $8.2 million to
$10.1 million, but as a percentage of net sales decreased from 6.1% to 6.0%.
Operating earnings increased 38%, from $13.8 million to $19.1 million.
Operating earnings as a percentage of net sales also increased from 10.4% to
11.4%. These gains in operating earnings were
12
<PAGE> 14
achieved through the increased sales levels, improved production efficiencies
and the declines in raw material prices, discussed above.
Interest expense increased 64%, from $2.3 million to $3.9 million, as a
result of borrowings related to the Polycom, Plasticolour, and Anjac-Doron
acquisitions.
Our effective tax rate increased from 38.6% to 39.9%, due primarily to the
impact of non-deductible goodwill resulting from the Polycom acquisition.
COMPARISON OF FISCAL YEARS 1998 AND 1997
The following table shows the net sales of each of our operating groups for
1997 and 1998.
<TABLE>
<CAPTION>
1997 1998
---------------------- ----------------------
NET SALES % OF TOTAL NET SALES % OF TOTAL
--------- ---------- --------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Extruded Sheet & Rollstock.......................... $375.8 75% $455.1 70%
Color & Specialty Compounds......................... 84.0 17 158.2 24
Molded & Profile Products........................... 42.9 8 40.6 6
------ ---- ------ ----
Total............................................... $502.7 100% $653.9 100%
====== ==== ====== ====
</TABLE>
Net sales increased 30%, from $502.7 million to $653.9 million. This was
primarily due to an increase in pounds sold from 535 million to 902 million.
This growth in sales volume included a 10% increase in pounds sold excluding
acquisitions and the effect of our late 1997 acquisition of the Preferred
Plastic Sheet Division of Echlin, Inc. and our 1998 acquisitions of Polycom and
Plasticolour.
Our Extruded Sheet & Rollstock group's net sales increased 21%, from $375.8
million to $455.1 million. This increase resulted from a 10% increase in pounds
sold excluding the effect of acquisitions and a 15% increase in sales related to
the August 1997 acquisition of Preferred Plastics. Price and product mix changes
had a negative 4% impact on sales. The increase in Extruded Sheet & Rollstock
pounds sold reflected strong sales of sign and specialty packaging products. The
Color & Specialty Compounds group's sales increased 88%, from $84.0 million to
$158.2 million. This was primarily the result of the $75.0 million in revenues
generated and approximately 240 million pounds sold by our 1998 acquisitions.
The nearly 14% growth in base volume for the Color & Specialty Compounds group
was offset in part by price and mix changes due to the increase in our tolling
business. Molded & Profile Products group sales decreased 5%, from $42.9 million
to $40.6 million, primarily due to the sale of our housewares business early in
1998.
Cost of sales increased from $420.5 million to $542.6 million, but
decreased from 83.6% of net sales to 83.0% of net sales. The more favorable cost
of sales percentage in 1998 represents a mix of higher margin product sales
generated by our new alloy plastics and product transformations and improved
production efficiencies, partially offset by an increase in depreciation as a
result of our capital expenditures during the last 24 months.
Selling, general, and administrative expenses increased from $31.0 million
to $38.3 million. However, selling, general, and administrative expenses as a
percentage of net sales decreased from 6.2% to 5.9%, primarily as a result of
continued cost containment efforts in 1998, ongoing synergies from acquisitions,
and the effect of the overall increase in sales volume on the fixed portion of
the costs.
Operating earnings increased 40%, from $49.7 million to $69.7 million.
Operating earnings as a percentage of net sales also increased from 9.9% to
10.7%. These gains in operating earnings were
13
<PAGE> 15
achieved through increased sales levels, improved production efficiencies, cost
containment efforts, and the new product sales discussed above.
Interest expense increased 62%, from $8.4 million to $13.6 million, as a
result of borrowings related to the Preferred Plastics and Polycom acquisitions.
Our effective tax rate increased from 38.3% to 39.9%, due primarily to the
impact of non-deductible goodwill resulting from the Polycom acquisition.
COMPARISON OF FISCAL YEARS 1997 AND 1996
Our fiscal year ends on the Saturday closest to October 31. Fiscal years
1998 and 1997 each represented 52 weeks while fiscal 1996 consisted of 53 weeks.
The discussion below describes the effect of the extra week in 1996 where
appropriate.
Net sales increased 28%, from $391.3 million to $502.7 million. Excluding
acquisitions, this growth in sales represented a 7% increase in pounds sold
offset in part by a 3% decrease from changes in price and mix of products sold
as well as a 2% decline related to the extra week in 1996. The Extruded Sheet &
Rollstock group's sales increased 18%, from $319.2 million to $375.8 million,
representing an 8% increase in pounds shipped excluding the effect of
acquisitions and a 15% increase in sales related to acquisitions, while price
and product mix changes and the extra week in 1996 had a negative impact on
sales. Net sales in the Color & Specialty Compounds group increased 23%, from
$68.2 million to $84.0 million, resulting from a 5% increase in pounds sold
excluding the effect of acquisitions and a 27% increase in sales from our late
1996 acquisition of the Hamelin Group, Inc. and an affiliated company, net of
declines from changes in prices, mix of products sold, and the extra week in
1996. The Molded & Profile Products group contributed $42.9 million in net sales
in its first full year as a market segment for us and benefitted from our late
1997 acquisition of Preferred Plastics' profile extruded products operation.
Cost of sales decreased from 84.5% of net sales to 83.6% of net sales. The
more favorable cost of sales percentage in 1997 reflected improved production
efficiencies and a decline in some raw material prices, partially offset by an
increase in depreciation as a result of our capital expenditures during the last
18 months.
Selling, general and administrative expenses decreased from 6.4% of net
sales to 6.2% of net sales. The decrease reflected continued cost containment
efforts and economies of scale obtained through our acquisitions and sales
growth.
Operating earnings increased 44% from $34.5 million to $49.7 million.
Operating earnings as a percentage of net sales also increased from 8.8% to
9.9%. The gains in operating earnings were achieved through our increased sales
levels, improved production efficiencies, and cost containment efforts.
Interest expense increased 66%, from $5.1 million to $8.4 million,
reflecting additional borrowings related to our acquisitions of Portage
Industries Corporation, Hamelin and Preferred Plastics, net of paydowns
throughout the year on our bank credit facility. In addition, we borrowed, and
subsequently paid down, $9.7 million in connection with our acquisition of
Hamelin.
Our effective tax rate increased from 37.8% to 38.3%.
ENVIRONMENTAL AND INFLATION
We operate under various laws and regulations governing employee safety and
the quantities of specified substances that may be emitted into the air,
discharged into waterways, or otherwise disposed of on and off our properties.
We do not anticipate that future expenditures for compliance
14
<PAGE> 16
with these laws and regulations will have a material effect on our capital
expenditures, earnings, or competitive position.
The plastic resins we use in our production process are crude oil or
natural gas derivatives which are available from a number of domestic and
foreign suppliers. Accordingly, our raw materials are only somewhat affected by
supply, demand and price trends of the petroleum industry. The pricing of resins
tends to be independent of crude oil or natural gas prices except in periods of
anticipated or actual shortages. We are not aware of any trends in the petroleum
industry which will significantly affect our sources of raw materials in 1999.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
Our primary sources of liquidity have been cash flows from operating
activities and borrowings from third parties. Our principal uses of cash have
been to support our operating activities, invest in capital improvements, and
finance strategic acquisitions. Our cash flows for the periods indicated are
summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------
JANUARY 31, JANUARY 30,
1996 1997 1998 1998 1999
------ ------ ------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net cash provided by operating activities.... $ 23.2 $ 48.4 $ 64.5 $ 5.2 $ 14.6
Net cash used for investing activities....... (76.5) (83.9) (146.2) (5.1) (15.4)
Net cash provided by financing activities.... 54.5 37.0 82.9 (1.1) (0.4)
Increase (decrease) in cash and
equivalents................................ 1.2 1.4 1.2 (1.1) (1.2)
</TABLE>
We continue to generate strong cash flows from operations, due in part to
the continuing increases in our net earnings. Operating cash flows provided by
changes in working capital were a positive $1.1 million in 1998 as a result of
consistent management of accounts receivable and inventories during periods of
revenue growth and higher days payables outstanding. Operating cash flows used
for changes in working capital totaled $1.2 million in the first quarter of 1999
due primarily to a reduction in accounts payable.
Our primary investing activities are capital expenditures and acquisitions
of businesses in the plastics industry. Capital expenditures are primarily
incurred to maintain and improve productivity, as well as to modernize and
expand facilities. Capital expenditures were $12.2 million for 1997 and $17.9
million for 1998. Our capital expenditures for the first quarter of 1999 were
$5.0 million compared to $2.1 million for the first quarter of 1998. We
anticipate total capital expenditures of approximately $22 million for 1999.
The net cash purchase price for Polycom, in March 1998, was approximately
$129 million, including estimated costs of the transaction and net of cash
acquired of $3 million. The acquisition was funded through our bank credit
facility and the issuance of $10 million of our common stock to Polycom
stockholders. In addition, we completed two other acquisitions in fiscal 1998
which, when combined with the Polycom purchase, totaled $132.6 million of cash
paid for acquired businesses. We continue to evaluate value-added acquisition
opportunities that meet our stringent acquisition criteria.
Our cash flows provided by financing activities were $82.9 million for
1998. The primary activities were bank borrowings of $132.6 million for
acquisitions, repayment of debt of $33.5 million, purchases of treasury stock of
$13.2 million, and proceeds from stock options exercised of $4.3 million.
15
<PAGE> 17
Our cash flows used by financing activities were $0.4 million for the first
quarter of 1999. The primary activities were a bank borrowing of $10.4 million
for our January 1999 acquisition of Lustro Plastics Company, L.L.C., repayment
of debt of $9.0 million, and cash dividend payments of $1.9 million.
We paid common stock dividends of $6.4 million or $0.24 per share in 1998,
and at its December 1998 meeting our board of directors raised the dividend to
an annual rate of $0.28 per share.
FINANCING ARRANGEMENTS
In conjunction with the Polycom acquisition, on March 31, 1998 we increased
our $40 million bank credit facility to an aggregate availability of $150
million. The facility is unsecured and has a five-year term, with interest
payable at a rate chosen by us of either prime or LIBOR plus 0.5% to 1.0%. It
consists of a $50 million term loan, which has equal quarterly payments due of
$2.5 million over five years, and a $100 million revolving facility. At January
30, 1999, our total borrowings under the facility were $102.1 million at a
weighted average rate of 6.4%.
On March 5, 1999 we issued $50 million of 6.5% convertible subordinated
debentures to Spartech Capital Trust, a Delaware trust we control. We used the
proceeds to repay borrowings under our bank credit facility. The debentures are
the sole asset of the Trust and eliminate in consolidation. The Trust purchased
the debentures with the proceeds of a $50 million private placement of 6.5%
convertible preferred securities of the Trust having an aggregate liquidation
preference of $50 million and guaranteed by Spartech. The debentures:
- Are convertible along with the Trust preferred securities, at the option
of the preferred security holders, into shares of our common stock at a
conversion price equivalent to $30.55 per share of common stock, for a
total of 1,636,661 shares;
- Are redeemable along with the Trust preferred securities, at Spartech's
option on or after March 1, 2002, at a price equal to 104.56% of the
principal amount plus accrued interest, declining annually to a price
equal to the principal amount plus accrued interest by March 1, 2009;
and
- Mature and are payable, along with the Trust preferred securities, on
March 1, 2014 if they have not been previously redeemed or converted.
We anticipate that cash flow from operations, together with the borrowings
under our bank credit facility and the proceeds from our debenture financing,
will satisfy our working capital needs, regular quarterly dividends, and planned
capital expenditures for the next year.
YEAR 2000
We have instituted a plan to help ensure that we have no material business
interruptions related to Year 2000 issues. The plan consists of evaluation,
prioritization, analysis, testing, correction, and contingency planning. We have
completed the testing and correction phases with regard to substantially all of
our systems. Our current state of readiness is:
- Major Business Systems. Our major business systems include all
financial, sales, purchasing, product manufacturing, inventory
management, and logistics modules. We have performed formal testing on
all of these major business systems with no transitional problems being
identified. We will continue to monitor these systems for any new,
unforeseen issues that may arise.
- Information Technology (IT) Systems Infrastructure. We have completed
over 90% of the evaluation and upgrade of our existing IT systems
infrastructure company-wide. Areas that
16
<PAGE> 18
we have evaluated include workstations, servers, network hardware,
operating software, and application software. We have not identified any
significant issues to date, and our target completion date is July 1999.
- Non-IT Systems. We are over 90% complete in evaluations of compliance
with respect to non-IT systems such as process control equipment,
analytical equipment, quality systems, HVAC systems, security systems
and material handling systems. We have not identified any significant
issues to date, and our target completion date is July 1999.
- Third Party Issues. We have surveyed our key supply chain business
partners including key raw material suppliers, process control equipment
providers, and key providers of utilities, telecommunications, waste
management and transportation. We are over 90% complete with this
process, with no indications that the supply of key materials or
services will be interrupted by Year 2000 related problems. The
surveying process is expected to be complete by August 1999.
We have not incurred, nor do we expect to incur, any material costs related
to our Year 2000 compliance efforts. Amounts spent on information technology,
and non-IT equipment upgrades, have been planned in accordance with continual
efforts to upgrade our capabilities.
At this time, we believe that all major Year 2000 software, hardware, and
business-related issues have been identified. In addition, substantially all
internal Year 2000 necessary actions have occurred though normal maintenance and
upgrade plans. However, due to the general uncertainty inherent in the Year 2000
issue we are unable to determine with certainty whether the consequences of Year
2000 failures will have a material impact on our financial position, results of
operations or cash flows. We believe the upgrades to systems and software that
have occurred should reduce the possibility of significant interruptions of
normal operations. However, we may experience problems due to Year 2000
difficulties of others, as described under "Risk Factors."
We are in the process of developing contingency plans for the critical
aspects of our business. These plans will consist of manual back-up in case of
internal IT or non-IT systems failures, identification of alternative suppliers
for our key supply chain channels, providing IT disaster recovery resources, and
ensuring extra staffing is available near and over the Year 2000 transition.
These plans will be completed and available for final testing and implementation
by September 1999.
17
<PAGE> 19
BUSINESS
We are a leading intermediary processor of thermoplastics. We convert base
polymers, or resins, from commodity suppliers into extruded plastic sheet and
rollstock, color concentrates and blended resin compounds, and injection molded
and profile extruded products. We sell our products to over 4,500 original
equipment manufacturers and other customers in a wide range of end markets. We
operate 38 production facilities in North America and one in Europe, and are
organized into three operating lines of business: Extruded Sheet & Rollstock;
Color & Specialty Compounds; and Molded & Profile Products. We have recorded 29
consecutive quarters of earnings improvement over the comparable prior year's
quarter.
INDUSTRY OVERVIEW
The plastics industry is large and has historically grown faster than the
U.S. gross domestic product, due partly to the continuing substitution of
plastics for traditional materials such as metal, fiberglass and wood. The
Society of Plastics Industry estimates that the U.S. plastics industry produced
over 90 billion pounds of plastic in 1997 and grew at a 6% compound annual
growth rate from 1992 to 1997. The intermediary processor segment of the
plastics industry is fragmented, with over 2,000 plastic processing companies
that generally operate in one or more of the following areas:
- Sheet and rollstock extrusion,
- Specialty compounding,
- Color concentrates,
- Pipe and profile extrusion,
- Injection molding,
- Thermoforming,
- Blow molding, and
- Rotational molding.
Each of these processing methods involves different production capabilities,
operating costs and equipment and requires a different level of capital
expenditure and operating expertise.
A large percentage of the plastics intermediaries in the United States are
small, regional operations that generate less than $50 million in annual sales
and are continuing to undergo consolidation. We believe that several current
trends contribute to this consolidation, including:
- Customers seeking to deal with fewer suppliers;
- The potential to achieve economies of scale;
- Increased capital and technical capabilities necessary to increase
production efficiencies and expand capacity; and
- Greater focus on management transition issues by plastics entrepreneurs.
Due to the size and breadth of our operations, we believe we are well positioned
to increase our market share through selective acquisitions.
18
<PAGE> 20
OUR OPERATING GROUPS
EXTRUDED SHEET & ROLLSTOCK
- - Products. Our Extruded Sheet & Rollstock group, which operates under the
name Spartech Plastics, processes a variety of plastic materials into single
layer or multilayer sheets or rollstock. Our customers then further process
the material into products such as food and medical packaging, signs, spas
and showers, vehicle interiors, boats and appliances. This group's 1998 net
sales were $455.1 million, or 70% of our total 1998 net sales.
- - New Product Development. This group is actively involved in the development
of new proprietary products, which we call "alloy plastics." These products
are engineered sheets using multiple layers of materials, often of different
plastics and often using proprietary mixtures of plastic compounds. They
offer end-product manufacturers a variety of solutions to design high
performance and environmentally-friendly products with cost effective
benefits. We currently offer 15 alloy plastics, five of which were introduced
in April 1999.
- - Manufacturing and Production. This group operates 18 facilities in North
America. The principal raw materials used in manufacturing extruded sheet and
rollstock are plastic resins in pellet form. We extrude a wide variety of
plastic resins, including ABS (acrylonitrile butadiene styrene),
polycarbonate, polypropylene, acrylic, PET (polyethylene terephthalate),
polystyrene, polyethylene, PVC (polyvinyl chloride), and PETG (polyethylene
terephthalate glycol).
We produce plastic sheet of up to seven layers using a multi-extrusion
process. This process combines the materials in distinct layers as they are
extruded through a die into sheet form, providing improved and sometimes
unique properties compared to single layer extrusions. More than half of our
plastic sheet is produced using this multi-extrusion process. The remainder
is produced in a single layer using conventional extrusion processes. In some
cases, we will coat a plastic sheet or laminate sheets together to achieve
performance characteristics desired by customers for particular applications.
- - Marketing, Sales and Distribution. The custom sheet and rollstock extrusion
business has generally been a regional business supplying manufacturers
within an estimated 500 mile radius of each production facility. This is due
to shipping costs for rigid plastic material and the need for prompt response
to customer requirements and specifications. The outdoor sign and spa
markets, however, are slightly more national in scope.
We sell extruded sheet and rollstock products principally through our own
sales force, but also use a limited number of independent sales
representatives. During 1998, we sold products of the Extruded Sheet &
Rollstock group to over 2,500 customers, including Sub-Zero Freezer Company,
John Deere & Company, Jacuzzi Incorporated, Igloo Corporation, and Fleetwood
Enterprises, Inc.
COLOR & SPECIALTY COMPOUNDS
- - Products. The Color & Specialty Compounds group manufactures color
concentrates, proprietary or custom-designed plastic compounds, and
calendered film for a large group of manufacturing customers who produce
footwear, appliance components, lawn and garden equipment, cosmetics and
medical packaging, vehicle components and numerous other products. The
group's 1998 net sales were $158.2 million, or 24% of our total 1998 net
sales. The group operates under three business names:
-- Spartech Polycom produces its own line of proprietary compounds and also
provides toll compounding services for engineered resins, flame
retardants and other specialty compounds.
19
<PAGE> 21
-- Spartech Color, the largest color supplier in Canada, is focused on
service-oriented color concentrate applications for film and molding.
-- Spartech Vy-Cal Plastics operates a vinyl calendering machine, supplying
finished PVC film to manufacturers of such products as loose-leaf
binders, decorator-grade wallcoverings and packaging products for the
medical industry.
Customers of the Color & Specialty Compounds group range from major
integrated manufacturers to sole-proprietor subcontractors that use injection
molding, extrusion, blow molding and blown and cast film processes.
- - New Product Development. This group has well-equipped laboratory facilities,
particularly the Spartech Polycom Technical Center in Donora, Pennsylvania.
These laboratories operate testing and simulated end-use process equipment as
well as small scale versions of our production equipment to ensure accurate
scale-up from development to production. We create new specialty compounds by
adding reinforcements and other additives to the base resins, in order to
offer end-product manufacturers a variety of solutions for the design of
high-performance and environmentally friendly products on a cost-efficient
basis. In addition to compounding technology, the group has developed
enhanced capabilities to produce color concentrates and additives.
- - Manufacturing and Production. This group operates 14 manufacturing
facilities in North America and one in Europe. The principal raw materials
used in manufacturing specialty plastic compounds and color concentrates are
plastic resins in powder and pellet form, primarily polypropylene,
polyethylene, polystyrene, ABS and PVC. We also use colorants, mineral and
glass reinforcements and other additives to impart specific performance and
appearance characteristics to the compounds. The raw materials are mixed in a
blending process and then fed into an extruder and formed into pellets.
- - Marketing, Sales and Distribution. We generate most of the Color & Specialty
Compounds group's sales in the United States and Canada but also sell to
customers in Europe and Mexico. We sell the group's products principally
through our own sales force, but also use independent sales representatives.
During 1998, we sold products of the Color & Specialty Compounds group to
over 1,500 customers, including The Black & Decker Corporation,
DaimlerChrysler Corporation, First Brands Corporation and Tenneco Inc. The
group also supplies approximately $15 million worth of color concentrates
annually for internal use by the Extruded Sheet & Rollstock group.
MOLDED & PROFILE PRODUCTS
- - Products. Our Molded & Profile Products group manufactures a wide range of
injection molded and profile extruded products for a large group of
intermediate and end-user customers. The group's 1998 net sales were $40.6
million, or 6% of our total 1998 net sales. The group operates under three
business names:
-- GenPak produces thin-walled, printed plastic food packaging and industrial
containers for a large group of dairy, deli and industrial supply
companies.
-- Hamelin Industries manufactures plastic tire and wheel assemblies for the
lawn and garden, refuse container and toy markets.
-- Spartech Profiles manufactures products for various industries, including
the bedding and construction markets.
- - New Product Development. This group brings unique, recognized capabilities
to our customers such as print graphics and package design, patented
tread-cap wheel technologies and special fabrication of profile products. In
addition, this group's creativity, engineering and design
20
<PAGE> 22
principles enable us to effectively respond to customer needs in the niche
markets in which we participate.
- - Manufacturing and Production. This group operates six manufacturing
facilities in North America. The principal raw materials used in our
manufacturing of molded and profile products are polyethylene, polypropylene
and PVC. Products are produced either through injection molding or profile
extrusion.
- - Marketing, Sales and Distribution. GenPak markets most of its products to
customers located in North America, as well as the Caribbean. Hamelin
Industries markets its products throughout North America. Spartech Profiles
markets its products throughout the United States. We sell the group's
products principally through our own sales force, but also use independent
sales representatives. During 1998, we sold products of the Molded & Profile
Products group to approximately 500 customers, including MTD Products, Dannon
Company, Select Comfort Corporation, The Toro Company and Waste Management,
Inc.
GROWTH STRATEGY
In late 1991, we began building a new senior management team with the
appointment of our current chief executive officer. Concurrently with this
management transition, we began to develop and implement a comprehensive growth
strategy. This strategy has two components: our Four Cornerstones for Growth,
which emphasizes volume growth, and our Pyramids of Productivity, which
emphasizes earnings growth. Our Four Cornerstones for Growth are:
- - Business Partnerships. We are committed to building business partnerships
with customers and suppliers to develop new markets and applications for our
products. These partnerships provide long-term growth opportunities and
enhance customer relationships by broadening product lines and lowering the
cost of technological efforts. They foster shared technology and design
improvements to offer customers state-of-the-art products, and have
significantly contributed to strengthening our leading market position in the
plastics intermediary segment. In an effort to exceed customer expectations,
we have designed several continuous improvement initiatives such as the Total
Transaction Quality, Growth Through Training and Total Customer Satisfaction
programs. These programs involve customer contact and survey processes,
ISO9000 and QS9000 quality system certifications, customer training offerings
and quality management reviews. See "Business -- ISO9000" for more
information about ISO9000 and QS9000 compliance.
- - Strategic Expansions. As a result of our size and breadth of operations, we
believe that we are well positioned for continued expansion through selective
acquisitions in the consolidating plastics intermediary segment. In
evaluating acquisition opportunities, we look for acquisition candidates that
provide us with one or more of the following:
-- Potential for market share growth,
-- New or expanded product lines and process technologies, with emphasis on
companies producing specialty or value-added plastic products,
-- Increased geographic presence, and
-- Operational synergies through increased purchasing volume, longer
production runs and enhanced customer service.
For example, our acquisition of Polycom expanded two product lines,
polypropylene compounds and black color concentrates, added eight
state-of-the-art manufacturing facilities in the U.S., a manufacturing
facility in France, our first outside North America, and a technical center,
and provided additional cost saving opportunities in purchasing and
administrative expenses.
- - Product Transformations. A key element of our internal growth is the ongoing
transition of products previously made from wood, metal or fiberglass to
thermoplastics. These products provide
21
<PAGE> 23
our customers with solutions that are custom formable, are recyclable, or are
less expensive, more durable or lighter weight than the materials they
replace. Thin gauge plastics continue to replace paper and glass for food and
other packaging applications. Heavier gauge plastics are increasingly
replacing sizeable metal, glass and fiberglass specialty components in the
agricultural equipment and transportation markets, where advanced plastics
can meet more demanding specifications for durability and weather resistance.
We utilize the experience of our sales and production personnel, partnerships
with suppliers, and relationships with customers to identify and develop new
applications for our products. Product transformations have been, and should
continue to be, a key contributor to our internal growth.
- - Alloy Plastics. We aggressively develop new alloy plastics, which combine
advanced engineered thermoplastic compounds and additives with new
manufacturing techniques implemented by experienced operating personnel.
Alloy plastics represent advancements in formulation and production
technologies, such as the ability to extrude new products that combine the
virtues of several polymers into a single sheet or to create new specialty
compounds by adding reinforcements such as talc, calcium carbonate and glass
fibers to base resins. Our alloy plastics offer end-product manufacturers a
variety of solutions for the design of high performance and
environmentally-friendly products with cost efficient benefits. They not only
permit product transformations in areas where plastics were formerly not
feasible, but can in some cases accelerate the development of new proprietary
products.
The Pyramids of Productivity component of our strategy emphasizes ongoing
cost containment and productivity improvement efforts to increase operating
earnings and further enhance stockholder returns. Its three initiatives are
results-driven communication, lean manufacturing, and supply chain management.
COMPETITIVE STRENGTHS
The ability to realize our growth strategy is supported by our various
competitive strengths, including:
- - Leading Market Position. We are the largest extruder of custom rigid plastic
sheet and rollstock in North America according to the Plastics News 1998
annual ranking of sheet manufacturers. We use our leading market position to
drive new product development and product transformation initiatives through
partnerships with both customers and suppliers and to obtain economies of
scale, particularly in the areas of raw material purchasing and longer
production runs. Our growing presence in the color and specialty compounds
business provides long-term growth opportunities through access to a new,
incremental customer base and additional product, technology and
manufacturing capabilities. Each of these two business groups provides our
customers with comprehensive capabilities that include broad product
offerings and technological expertise.
- - Diversified Customer Base and Geographic Presence. We sell our products to
over 4,500 customers, no single one of which accounts for more than 5% of our
sales. Our customers are located throughout North America and in Europe, and
operate in a broad range of end markets. Our 39 plants are strategically
located in 35 cities throughout the United States as well as in eastern
Canada and France. This allows us to provide efficient product delivery and
continuous customer contact.
- - Low-Cost Supplier. We strive to be a low-cost supplier. Our size helps us
obtain volume discounts on raw materials, and the strategic location of our
plants saves shipping costs and reduces delivery times to our customers. Our
commitment to reduce expenses has contributed to improvements in gross
margins from 14.4% in 1994 to 17.0% in 1998. We made substantial investments
in new equipment over that period to expand capacity, improve productivity
and
22
<PAGE> 24
reduce manufacturing labor and overhead costs. During the same period, we
reduced our selling and administrative expenses as a percentage of sales from
7.8% to 5.9%. The December 1998 issue of CFO Magazine identified us as one of
the five most successful companies in the rubber and plastic products
industry in controlling selling, general and administrative expenses as a
percentage of net sales for the 1994-1997 period.
- - Decentralized Management Structure. Our day-to-day operating decisions are
made at each of our operating locations. This promotes operating efficiency
and timely decision making by the persons who have direct contact with
customers and suppliers and facilitates integration of the businesses we
acquire. Our corporate management team develops strategic direction,
identifies and assists in implementing business investment opportunities,
provides oversight of operating performance, and performs other functions
that are more cost effective on a centralized basis. In addition, our
operating management meets monthly with corporate management to exchange
ideas on operating improvements and to review financial performance.
- - Commitment to Customer Service. We work closely with our customers to
provide products which meet their evolving needs and seek to differentiate
ourselves from our competitors by emphasizing consistent product quality and
superior customer service. We drive internal sales growth through broad
interaction with our customers at all levels of the organization. Members of
our production, customer service and senior management teams regularly visit
customers' facilities to better understand each customer's needs. We
capitalize on the technical expertise of our personnel to provide cost
effective, innovative solutions for our customers. We believe our customer
service philosophy, focus on product quality, and ability to provide
solutions, such as new product transformations and alloy plastics
applications, create growth and diversification opportunities for existing
and potential customers.
- - Proven Acquisition Strategy. We pursue an aggressive but disciplined
acquisition program and have successfully integrated numerous acquisitions
that have all contributed to profitable growth. A key element of our
expansion strategy is to continue to acquire plastics intermediary companies
with profitable operations that will expand our geographic presence and
product offerings and make our operations more efficient.
ACQUISITION HISTORY
OVERVIEW
Since 1993, we have acquired ten businesses which have strengthened our
market position in extruded sheet and rollstock, added critical mass in color
and specialty compounds and initiated our presence in molded and profile
products. The following table summarizes these acquisitions.
23
<PAGE> 25
<TABLE>
<CAPTION>
DATE ACQUIRED BUSINESS ACQUIRED SALES LEVEL(A) LINE OF BUSINESS ACQUIRED BENEFITS
- -------------- ------------------- -------------- ---------------------------- ------------------------
<S> <C> <C> <C> <C>
January 1999 Lustro Plastics $ 28 million Extruded sheet and rollstock PETG material, national
distribution network
October 1998 Anjac-Doron $ 9 million Profile products West Coast facility,
expanded capacity
April 1998 Plasticolour $ 10 million Color concentrates Quick color match,
Quebec market
March 1998 Polycom $115 million Color and specialty Polypropylene capacity,
compounds technical center,
European production
August 1997 Preferred Plastics $ 75 million Extruded sheet and Polyethylene expansion
rollstock, profile products and profile products
September 1996 Hamelin $ 80 million Extruded sheet and Canadian and
rollstock, color Northeastern U.S.
concentrates, molded markets, new business
products lines
May 1996 Portage Industries $ 35 million Extruded sheet and rollstock Thin-gauge and
multi-layer packaging
November 1994 Pawnee Industries $ 58 million Extruded sheet and Initial color, Central
rollstock, color U.S. market
concentrates
February 1994 Product Components $ 30 million Extruded sheet and rollstock Polyethylene, Midwestern
U.S. market
January 1993 Penda Corporation $ 12 million Extruded sheet and rollstock PET and other thin-gauge
materials
</TABLE>
- ---------------
(a) Management's estimate of annualized net sales of acquired businesses at time
of acquisition.
RECENT ACQUISITIONS
- - Lustro Plastics. On January 7, 1999 we completed our purchase of the net
assets of Lustro Plastics Company, L.L.C., a custom extruder of sheet and
rollstock, particularly PETG. The cash purchase price was approximately $10.4
million, including estimated costs of the transaction. The acquisition was
funded through our existing bank credit facility.
- - Anjac-Doron. On October 30, 1998 we completed our acquisition of all of the
stock of Anjac-Doron Plastics, Inc., a custom profile extruder. The
acquisition price of approximately $6.7 million was funded through our
existing bank credit facility.
- - Plasticolour. On April 26, 1998, we completed our purchase of the net assets
of Prismaplast Canada Ltd. of Montreal. Prismaplast, commonly known as
Plasticolour, produces color concentrates and specialty compounds. The
acquisition price for Plasticolour was approximately $5 million, which was
financed through operating cash flow and our bank credit facility.
Plasticolour added product offerings in color additives, such as flame
retardants and UV stabilizers, techniques in the quick matching of custom
colors, and additional geographic reach.
- - Polycom. On March 31, 1998, we completed our acquisition of all of the stock
of Polycom Huntsman, Inc., a leading supplier of proprietary polymer
compounds, color and additive concentrates, and toll compounding services.
The net cash purchase price was approximately
24
<PAGE> 26
$129 million, including estimated costs of the transaction and net of cash
acquired of $3 million. The acquisition was funded through our bank credit
facility and the issuance of 633,913 shares of our common stock to Polycom
stockholders. The acquisition of Polycom added nine strategically located
manufacturing plants in the United States and France to our Color & Specialty
Compounds group. This acquisition significantly expanded the group's
geographic coverage, added strong technological leadership, including a fully
staffed and equipped technical center, expanded product capabilities and
operating techniques, particularly in filled and reinforced polypropylene
compounds, and provided operating efficiencies throughout the Color &
Specialty Compounds group.
We primarily fund our acquisitions through a combination of debt and equity
financings. To fund these recent acquisitions we incurred a total of $141
million in bank debt and issued 633,913 shares of our common stock.
PENDING ACQUISITION
On May 4, 1999 we entered into an agreement to acquire the net assets of
the Alltrista Plastic Packaging Division of Alltrista Corporation, a
well-established manufacturer of extruded sheet and rollstock packaging
materials based in Muncie, Indiana. This operation, which has annual sales
approaching $30 million, would be added to our Extruded Sheet & Rollstock group,
giving it 19 production facilities. We expect that this acquisition will
significantly increase our thin-gauge extrusion capacity, broaden our product
and service capabilities in the high-barrier, co-extruded rollstock markets, and
add a packaging technical laboratory to better serve our customers in this
segment of the plastics industry. We expect to finance this purchase through our
bank credit facility.
RAW MATERIALS
We use large amounts of plastic resin in our manufacturing processes. These
resins are crude oil or natural gas derivatives and are to some extent affected
by supply, demand and price trends in the petroleum industry. We seek to
maintain our operating margins by matching cost increases with corresponding
price increases and have generally been successful in doing so. We do business
with most of the major resin manufacturers and have enjoyed good relationships
with our suppliers over the past several years. We have been able to adequately
obtain all of our required raw materials to date and expect to be able to
continue to satisfy our requirements in the foreseeable future.
COMPETITION
Since we manufacture a wide variety of products, we compete in different
areas with many other companies, some of which are much larger than we are and
have more extensive production facilities, larger sales and marketing staffs and
substantially greater financial resources. We compete generally on the basis of
price, product performance and customer service. Important competitive factors
in each of our businesses include the ability to manufacture consistently to
required quality levels, meet demanding delivery times, exercise skill in raw
material purchasing, and achieve production efficiencies to process our products
profitably. We believe we are competitive in each of these key areas.
EMPLOYEES
We have approximately 2,800 employees. Approximately 2,200 of these are
production personnel at our 39 plants, and approximately 30% of these production
employees are covered by collective bargaining agreements. We have 11 separate
collective bargaining agreements that each cover from 25 to 120 employees and
expire at various dates from September 1999 through August 2005. One
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<PAGE> 27
additional agreement, covering 48 employees, which expired April 30, 1999, is
currently under negotiation and we expect it to be successfully resolved within
the next 30 days. We have not experienced any strikes or work stoppages in the
past five years. Our management consists of approximately 600 supervisory and
clerical employees, none of whom are unionized. We believe that all of our
employee and union relations are satisfactory.
PROPERTIES
We have 39 operating facilities aggregating approximately 2,987,000 square
feet of space in 35 cities throughout the United States and in eastern Canada
and France. We lease approximately 1,203,000 square feet of plant and office
space and own the remaining 1,784,000 square feet. We also lease approximately
5,500 square feet of office facilities in St. Louis, Missouri and approximately
5,000 square feet of office facilities in Montreal, Quebec.
Our plants are equipped with 95 sheet extrusion lines, 65 supplementary
co-extruders, 31 profile extrusion lines, 40 general compounding lines, 20 color
compounding lines, 63 injection molding machines, five compression molding
machines, 20 printing machines, a calendering line, cutting and grinding
machinery, resin storage facilities, warehouse equipment and quality
laboratories at all locations.
We continuously evaluate our equipment under preventive maintenance
programs and promptly repair equipment. We generally expect to spend
approximately 50% of our capital expenditures on the maintenance of our
equipment and facilities and the balance on capital expansion and productivity
enhancements. We anticipate that cash flows from operations, together with
available borrowings under our bank credit facility, will be sufficient for
necessary and planned capital expenditures, after the satisfaction of our
working capital needs and regular quarterly dividend payments. Our anticipated
capital expenditures for 1999 are $22 million.
ISO 9000
The ISO 9000 series is an international quality management standard
sanctioned by the International Organizations for Standardization based in
Geneva, Switzerland. This organization promotes global standards throughout a
wide variety of industries. Over 90% of our facilities are currently certified
to the ISO 9001 and ISO 9002 standards.
The ISO 9001 and ISO 9002 standards each encompass twenty provisions for
developing, implementing, and maintaining an effective quality management
system. Companies that implement quality systems based upon the ISO 9000 series,
can then become certified after being assessed using an accredited third party
registration firm. Once a company has become certified, its registrar
continually reassesses its quality systems to determine ongoing compliance with
the ISO 9000 standard and assure continuous improvements are taking place.
The QS 9000 quality management standard is similar in structure to the ISO
9000 series, but was developed by the United States automotive industry and
sanctioned by General Motors, Ford, and DaimlerChrysler. The primary difference
between the ISO 9000 and QS 9000 series is that QS 9000 certification is more
specifically focused on the automotive industry, and has been mandated for first
tier automotive suppliers. We have obtained QS 9000 certification where we have
a presence in the automotive supply chain.
GOVERNMENT REGULATION
Our operations are regulated by various laws governing employee safety and
environmental matters. We believe we are in material compliance with all these
laws and do not anticipate large expenditures to comply with any applicable
regulations. We are subject to federal, state, local and
26
<PAGE> 28
non-U.S. laws and regulations governing the quantity of specified substances
that may be emitted into the air, discharged into interstate and intrastate
waters and otherwise disposed of on and off our properties. We have not incurred
significant expenditures to comply with these laws and regulations, and we do
not anticipate continued compliance to materially affect our earnings or
competitive position.
LEGAL PROCEEDINGS
We are subject to various claims, lawsuits and administrative proceedings
arising in the ordinary course of our business with respect to commercial,
product liability, employment and other matters, several of which claim
substantial amounts of damages. While we cannot estimate with certainty our
ultimate legal and financial liability with respect to these claims, lawsuits
and administrative proceedings, we do not believe that the outcome of these
matters will have a material adverse effect on our business, financial position
or results of operations. We are not involved in any litigation with respect to
any environmental matters.
27
<PAGE> 29
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table provides information about our directors and executive
officers.
<TABLE>
<CAPTION>
NAME AGE DIRECTOR SINCE POSITION
- ---- --- -------------- --------
<S> <C> <C> <C>
Bradley B. Buechler............ 50 1984 Chairman of the Board, President, Chief
Executive Officer and Director
David B. Mueller............... 45 1994 Executive Vice President, Chief Operating
Officer, Secretary and Director
Randy C. Martin................ 36 -- Vice President--Finance and Chief Financial
Officer
David G. Pocost................ 38 -- Vice President--Engineering, Quality and
Management Information Systems
Daniel J. Yoder................ 57 -- Vice President--Materials and Technology
Ralph B. Andy.................. 54 1998 Director
Thomas L. Cassidy.............. 70 1986 Director
W.R. Clerihue.................. 75 1990 Director
John R. Kennedy................ 68 1997 Director
Calvin J. O'Connor............. 46 1998 Director
Jackson W. Robinson............ 57 1993 Director
Alan R. Teague................. 51 1997 Director
</TABLE>
Mr. Buechler is a CPA and was with Arthur Andersen & Co. before becoming
the Corporate Controller of Spartech in 1981. He was Corporate Controller and
Vice President, Finance of Spartech from 1981 to 1984 and Chief Financial
Officer from 1983 to 1987. He became Chief Operating Officer of Spartech in
1985, President in 1987, Chief Executive Officer in 1991 and Chairman of the
Board in March, 1999. Mr. Buechler is a member of the Executive Committee of the
Sheet Producers Division of the Society of Plastics Industry, and is also a
member of the National Board of Directors of the SPI.
Mr. Mueller is a CPA and was with Arthur Andersen & Co. from 1974 to 1981.
He was Corporate Controller of Apex Oil Company from 1981 to 1988. He became
Vice President and Chief Financial Officer of Spartech in 1988, Secretary in
1991 and Executive Vice President and Chief Operating Officer in 1996.
Mr. Martin is a CPA and was with KPMG Peat Marwick LLP from 1984 to 1995.
He became Corporate Controller of Spartech in 1995, and Vice President--Finance
and Chief Financial Officer in 1996.
Mr. Pocost was previously with Moog Automotive as Division Quality
Assurance Manager and Senior Materials Engineer for eight years. He was
Spartech's Director of Quality and Environmental Affairs from 1994 to 1996, when
he became a Vice President.
Mr. Yoder was General Manager of Spartech Plastics' Central Region from
1986 to 1990, when he became a Vice President. From 1983 to 1986 he was Vice
President of Manufacturing for Atlas Plastics Corp., before its acquisition by
Spartech.
Mr. Andy founded Polycom in 1977. Before then, he held positions ranging
from Salesman and Plant Manager to Vice President of Washington Penn Plastics.
He was the Chairman of the Board of Directors and President of Polycom before
its acquisition by Spartech.
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<PAGE> 30
Mr. Cassidy has been a Managing Director of Trust Company of the West and a
senior partner of TCW Capital since 1984. Before then, he was a Managing
Director of The First Boston Corporation. Mr. Cassidy serves on the boards of
directors of DeVlieg--Bullard, Inc. and Reunion Industries, Inc.
Mr. Clerihue was Chairman of the Board from 1991 until March, 1999. Prior
to becoming Chairman of the Board, he had retired from Celanese Corporation,
where he last served as Executive Vice President and Chief of Staff. Mr.
Clerihue also serves on the board of directors of Reunion Industries, Inc.
Mr. Kennedy retired in 1996 as President and Chief Executive Officer of
Federal Paper Board Company, Inc., where he had been employed in various
capacities since 1952. Mr. Kennedy serves on the boards of directors of
International Paper Company, DeVlieg-Bullard, Inc., Chase Brass Industries, Inc.
and Holnam Inc. and is Chairman of the Georgetown University board of directors.
Mr. O'Connor is a Chartered Accountant in the United Kingdom. He was
appointed to the board of directors of British Vita PLC in June 1996 and became
the Finance Director of British Vita in November 1996. Before joining British
Vita, he was the Group Financial Controller at Courtaulds Textiles, PLC.
Mr. Robinson is President of Winslow Management Company, an operating
division of Eaton Vance Management in Boston, having held that position since
1983. He is also a director of Jupiter International Green Investment Trust and
Jupiter-European Investment Trust, and a Trustee of Suffield Academy.
Mr. Teague has been a director of Vita International Limited since 1997 and
has been the Secretary of British Vita PLC since 1986.
29
<PAGE> 31
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth, as of April 30, 1999, information
concerning the beneficial ownership of our common stock by:
- Each director,
- The Chief Executive Officer and each other executive officer whose total
annual compensation exceeded $100,000 for 1998,
- All directors and executive officers as a group,
- Each stockholder who is known by us to own beneficially in excess of 5%
of the outstanding common stock, and
- The other selling stockholder.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP NUMBER OF BENEFICIAL OWNERSHIP
BEFORE OFFERING SHARES OF AFTER OFFERING
--------------------- COMMON ---------------------
NUMBER PERCENT STOCK SOLD IN NUMBER PERCENT
NAME OF BENEFICIAL OWNER OF SHARES OF CLASS THE OFFERING OF SHARES OF CLASS
- ------------------------ ---------- -------- ------------- ---------- --------
<S> <C> <C> <C> <C> <C>
Directors and named executive
officers:
Calvin J. O'Connor and Alan R.
Teague(a)........................ 11,987,712 44.7% -- 11,987,712 44.7%
Thomas L. Cassidy(b)............... 2,012,011 7.5% 2,012,011 -- --
Bradley B. Buechler(c)............. 1,043,447 3.8% -- 1,043,447 3.8%
David B. Mueller(d)................ 460,935 1.7% -- 460,935 1.7%
Ralph B. Andy(e)................... 286,761 1.1% -- 286,761 1.1%
Daniel J. Yoder(f)................. 69,266 * -- 69,266 *
W.R. Clerihue(g)................... 60,000 * -- 60,000 *
John R. Kennedy(h)................. 40,000 * -- 40,000 *
David G. Pocost(i)................. 31,078 * -- 31,078 *
Randy C. Martin(j)................. 29,762 * -- 29,762 *
Jackson W. Robinson(k)............. 26,000 * -- 26,000 *
All directors and executive
officers as a group(l)........... 16,046,972 56.8% 2,012,011 14,034,961 49.7%
Beneficial owners in excess of 5%
of the outstanding common stock:
Vita International Limited (a)..... 11,987,712 44.7% -- 11,987,712 44.7%
Oldham Road
Middleton, Manchester
M24 2DB England
The TCW Group, Inc.(b)............. 2,012,011 7.5% 2,012,011 -- --
865 South Figueroa Street, Suite
1800
Los Angeles, CA 90017
FMR Corp.(m)....................... 1,636,500 6.1% -- 1,636,500 6.1%
Fidelity Management & Research
Company
82 Devonshire Street
Boston, MA 02109
Other Selling Stockholder:
Huntsman International
Corporation(n)................... 316,957 1.2% 316,957 -- --
</TABLE>
- ---------------
* Represents less than 1% of the common stock outstanding.
(footnotes on following page)
30
<PAGE> 32
(a) Messrs. O'Connor and Teague, each a Director of Spartech, are also directors
of Vita International Limited. As such, these amounts represent common
stock owned by Vita International Limited.
(b) The TCW Group, Inc. is comprised of TCW Special Placements Fund I, TCW
Special Placements Fund II, California limited partnerships, and TCW
Capital, a California general partnership. Mr. Cassidy, a director, is
Managing Director of Trust Company of the West and is a Senior Partner of
TCW Capital; as such, this amount represents the common stock owned by The
TCW Group, Inc. The shares of common stock are held beneficially by TCW
Special Placements Fund I (1,591,461 shares), TCW Special Placements Fund
II (408,221 shares), and TCW Capital (12,329 shares), as Investment
Manager, under an Investment Management Agreement dated as of June 30,
1987. The TCW Group, Inc. owns 100% of the stock of TCW Asset Management
Company ("TAMCO"). TAMCO is the managing general partner of TCW Capital.
TCW Capital is the general partner of TCW Special Placements Fund I and TCW
Special Placements Fund II. An Investment Committee of TAMCO, of which Mr.
Cassidy is a member, controls the investment decisions and voting of the
shares of common stock beneficially owned by the TCW Group, Inc.; we do not
know the identities of the other members of the investment committee.
(c) Includes 860,000 shares issuable upon exercise of options presently
exercisable.
(d) Includes 425,000 shares issuable upon exercise of options presently
exercisable.
(e) Includes 1,500 shares owned by Mr. Andy's daughter, and 285,261 shares owned
by RBA Partners, L.P. Mr. Andy is the sole stockholder of RBA Investments,
Inc., a 0.1% general partner of RBA Partners, L.P. As such, Mr. Andy,
through RBA Investments, Inc. has investment and voting power over the
shares owned by RBA Partners, L.P.
(f) Includes 50,750 shares issuable upon exercise of options presently
exercisable.
(g) Includes 30,000 shares issuable upon exercise of options presently
exercisable.
(h) Includes 35,000 shares issuable upon exercise of options presently
exercisable.
(i) Includes 24,750 shares issuable upon exercise of options presently
exercisable.
(j) Includes 24,000 shares issuable upon exercise of options presently
exercisable.
(k) Includes 15,000 shares issuable upon exercise of options presently
exercisable.
(l) Includes 1,464,500 shares issuable upon exercise of options presently
exercisable.
(m) Based on information presented as of December 31, 1998 in FMR Corp.'s latest
available Schedule 13G, FMR Corp. beneficially owned 1,636,500 shares of
common stock including 1,077,500 shares beneficially owned by Fidelity
Management & Research Company as a result of it serving as investment
advisor to various investment companies and other funds and 559,000 shares
beneficially owned by Fidelity Management Trust Company as trustee or
managing agent for various private investment accounts and other funds. FMR
Corp. has sole voting power with respect to the 559,000 shares and sole
investment power with respect to all 1,636,500 shares.
(n) These shares are being sold under contractual registration rights arising
from Spartech's purchase of Polycom.
31
<PAGE> 33
UNDERWRITING
Spartech and the selling stockholders have entered into an underwriting
agreement with the underwriters named below. First Analysis Securities
Corporation, EVEREN Securities, Inc. and Janney Montgomery Scott Inc. are acting
as representatives for the underwriters.
The underwriting agreement provides for each underwriter to purchase the
number of shares of common stock shown opposite its name below, subject to the
terms and conditions of the underwriting agreement. The underwriters'
obligations are several, which means that each underwriter is required to
purchase the specified number of shares, but is not responsible for the
commitment of any other underwriter to purchase shares.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------- ---------
<S> <C>
First Analysis Securities Corporation.......................
EVEREN Securities, Inc. ....................................
Janney Montgomery Scott Inc. ...............................
---------
Total....................................................... 2,328,968
=========
</TABLE>
This is a firm commitment underwriting, which means that the underwriters
have agreed to purchase all of the shares offered by this prospectus if they
purchase any shares, other than those covered by the over-allotment option
described below. The underwriting agreement provides that if one or more
underwriters default in their commitment to purchase shares, the commitments of
non-defaulting underwriters will be proportionately increased unless the
defaulted commitment is greater than 10% of the total commitment, in which case
the underwriting agreement may be terminated by the underwriters.
Spartech and the selling stockholders have agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, and to contribute to payments the underwriters may be
required to make to satisfy any liabilities that Spartech and the selling
stockholders have agreed to indemnify against.
The representatives have advised Spartech and the selling stockholders that
the underwriters propose to offer the shares directly to the public at the
public offering price that appears on the cover page of this prospectus. In
addition, the underwriters may offer some of the shares to selected securities
dealers at the public offering price less a concession of $ per share.
The underwriters may also allow, and these dealers may reallow, a concession not
in excess of $ per share to other dealers. After the shares are
released for sale to the public, the underwriters may change the offering price
and other selling terms at various times.
Spartech has granted the underwriters an over-allotment option. This
option, which is exercisable for up to 30 days after the date of this
prospectus, permits the underwriters to purchase a maximum of 345,000 additional
shares from Spartech to cover over-allotments. If the underwriters exercise all
or part of this option, they will purchase shares covered by the option at the
initial public offering price that appears on the cover page of this prospectus,
less the underwriting discount. The underwriters have severally agreed that, to
the extent the over-allotment option is exercised, they will each purchase a
number of additional shares proportionate to their initial commitment reflected
in the table above.
The following table shows the underwriting fees to be paid to the
underwriters by Spartech and the selling stockholders in connection with this
offering. The fees to be paid by Spartech and the
32
<PAGE> 34
selling stockholders are shown assuming both no exercise and full exercise of
the underwriters' over-allotment option.
<TABLE>
<CAPTION>
PAID BY SELLING
PAID BY COMPANY STOCKHOLDERS
-------------------- --------------------
NO EXERCISE FULL NO EXERCISE FULL
----------- ---- ----------- ----
<S> <C> <C> <C> <C>
Per share.................................. $ $ $ $
Total...................................... $ $ $ $
</TABLE>
We will pay the offering expenses, estimated to be $ .
Vita and Spartech's officers and directors have agreed to a 90-day "lockup"
with respect to the shares of common stock and other Spartech securities that
they beneficially own or have the right to acquire upon exercise of options.
Spartech has agreed to a similar lockup with respect to previously-unissued or
treasury shares. This means that for a period of 90 days after the date of this
prospectus, Spartech, Vita and these officers and directors generally may not
offer, sell, pledge or otherwise dispose of Spartech common stock without the
prior written consent of First Analysis. As of the date of this prospectus, we
have not been advised by Vita or any of our officers and directors that they
intend to ask for this consent, and we do not intend to do so either.
The rules of the Securities and Exchange Commission may limit the ability
of the underwriters to bid for or purchase shares before the distribution of the
shares is completed. However, the underwriters may engage in the following
activities under the rules:
- Stabilizing transactions--The underwriters may make bids or purchases
for the purpose of pegging, fixing or maintaining the price of shares and
may discontinue these bids or purchases at any time.
- Over-allotments and syndicate covering transactions--The underwriters
may create a short position in the shares by selling more shares than are
shown on the cover page of this prospectus. If a short position is
created in connection with the offering, the representatives may engage
in syndicate covering transactions by purchasing shares in the open
market. The representatives may also elect to reduce any short position
by exercising all or part of the over-allotment option.
LEGAL MATTERS; EXPERTS
The validity of the shares of common stock offered by this prospectus will
be passed upon for Spartech by Armstrong Teasdale LLP, St. Louis, Missouri, a
partnership including professional corporations. McDermott, Will & Emery,
Chicago, Illinois has represented the underwriters in connection with this
offering.
Our consolidated financial statements as of November 1, 1997 and October
31, 1998 and for each of the three years in the period ended October 31, 1998
included in this prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included in this prospectus in reliance upon the authority of
that firm as experts in accounting and auditing in giving said report.
The consolidated financial statements of Polycom as of March 31, 1997 and
1998 and for each of the years then ended, included in our Current Report on
Form 8-K/A filed with the Commission on June 15, 1998, have been audited by
Ernst & Young LLP, independent public accountants, as indicated in their report
with respect thereto, and are incorporated in this prospectus by reference in
reliance upon the authority of that firm as experts in accounting and auditing
in giving its report.
33
<PAGE> 35
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-3 with the Securities and
Exchange Commission in connection with this offering. In addition, we file
annual, quarterly and periodic reports, proxy statements and other information
with the Securities and Exchange Commission. You may read and copy the
registration and any other documents filed by us at the Securities and Exchange
Commission's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on the Public Reference Room. Our Securities and Exchange
Commission filings are also available to the public at the Securities and
Exchange Commission's Internet site at http://www.sec.gov.
This prospectus is part of the registration statement and does not contain
all of the information included in the registration statement. You should refer
to the registration statement and its exhibits for further information.
The Securities and Exchange Commission allows us to "incorporate by
reference" into this prospectus the information we file with it, which means
that we can disclose important information to you by referring you to those
documents. Information incorporated by reference is part of this prospectus.
Later information filed with the Securities and Exchange Commission will update
and supersede this information.
We incorporate by reference the documents listed below and any documents we
subsequently file with the Securities and Exchange Commission under Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until this
offering is completed:
- Our annual report on Form 10-K for the year ended October 31, 1998,
- Our quarterly report on Form 10-Q for the quarter ended January 30,
1999,
- Our current report on Form 8-K filed April 14, 1998, as amended on June
15, 1998,
- Our current report on Form 8-K filed March 18, 1999, and
- The description of our common stock in our Registration Statement on
Form 8-A dated November 28, 1994, filed with the Commission on December
1, 1994 under the Securities Exchange Act of 1934.
You may request a copy of these filings, at no cost, by contacting us at:
Spartech Corporation
120 South Central Avenue, Suite 1700
Clayton, Missouri 63105
Attention: Secretary
Our telephone number for copy requests is (314) 721-4242.
34
<PAGE> 36
SPARTECH CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SPARTECH CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Public Accountants............... F-2
Consolidated Balance Sheet as of November 1, 1997 and
October 31, 1998...................................... F-3
Consolidated Statement of Operations for the Years
Ended November 2, 1996, November 1, 1997 and October
31, 1998.............................................. F-4
Consolidated Statement of Shareholders' Equity as of
November 2, 1996, November 1, 1997 and October 31,
1998.................................................. F-5
Consolidated Statement of Cash Flows for the Years
Ended November 2, 1996, November 1, 1997 and October
31, 1998.............................................. F-6
Notes to Consolidated Financial Statements............. F-7
CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS:
Consolidated Condensed Balance Sheet (Unaudited) as of
October 31, 1998 and January 30, 1999................. F-17
Consolidated Condensed Statement of Operations
(Unaudited) for the Three Months Ended January 31,
1998 and January 30, 1999............................. F-18
Consolidated Condensed Statement of Cash Flows
(Unaudited) for the Three Months Ended January 31,
1998 and January 30, 1999............................. F-19
Notes to Consolidated Financial Statements............. F-20
</TABLE>
F-1
<PAGE> 37
REPORT OF INDEPENDENT ACCOUNTANTS
TO SPARTECH CORPORATION
We have audited the accompanying consolidated balance sheet of Spartech
Corporation (a Delaware Corporation) and subsidiaries as of October 31, 1998 and
November 1, 1997, and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the three fiscal years in the
period ended October 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Spartech Corporation and
subsidiaries as of October 31, 1998 and November 1, 1997, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended October 31, 1998 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
St. Louis, Missouri
December 4, 1998
F-2
<PAGE> 38
CONSOLIDATED BALANCE SHEET
(in thousands, except share amounts)
<TABLE>
<CAPTION>
NOVEMBER 1, OCTOBER 31,
1997 1998
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents...................................... $ 6,058 $ 7,247
Receivables, net of allowances of $2,212 in 1997 and
$2,430 in 1998......................................... 74,271 91,631
Inventories............................................... 55,851 64,859
Prepayments and other..................................... 4,517 9,459
-------- --------
TOTAL CURRENT ASSETS...................................... 140,697 173,196
PROPERTY, PLANT AND EQUIPMENT, NET.......................... 129,362 206,887
GOODWILL.................................................... 83,565 148,668
OTHER ASSETS................................................ 5,179 4,558
-------- --------
$358,803 $533,309
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt...................... $ 921 $ 8,948
Accounts payable.......................................... 47,221 59,578
Accrued liabilities....................................... 29,126 32,466
-------- --------
TOTAL CURRENT LIABILITIES................................. 77,268 100,992
-------- --------
LONG-TERM DEBT, LESS CURRENT MATURITIES..................... 141,693 245,272
OTHER LIABILITIES........................................... 11,453 33,449
-------- --------
TOTAL LONG-TERM LIABILITIES............................... 153,146 278,721
-------- --------
SHAREHOLDERS' EQUITY
Common stock, 26,628,154 and 27,550,107 shares issued in
1997 and 1998, respectively............................ 19,971 20,663
Contributed capital....................................... 89,301 99,407
Retained earnings......................................... 22,912 50,185
Treasury stock, at cost, 147,691 shares in 1997 and
688,917 shares in 1998................................. (2,127) (11,875)
Cumulative translation adjustments........................ (1,668) (4,784)
-------- --------
TOTAL SHAREHOLDERS' EQUITY................................ 128,389 153,596
-------- --------
$358,803 $533,309
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 39
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
NET SALES................................................ $391,348 $502,715 $653,855
-------- -------- --------
COSTS AND EXPENSES
Cost of sales.......................................... 330,776 420,500 542,640
Selling, general and administrative.................... 25,184 31,019 38,257
Amortization of intangibles............................ 896 1,495 3,230
-------- -------- --------
356,856 453,014 584,127
-------- -------- --------
OPERATING EARNINGS....................................... 34,492 49,701 69,728
Interest............................................... 5,062 8,393 13,602
-------- -------- --------
EARNINGS BEFORE INCOME TAXES............................. 29,430 41,308 56,126
Income taxes........................................... 11,113 15,815 22,406
-------- -------- --------
NET EARNINGS............................................. $ 18,317 $ 25,493 $ 33,720
======== ======== ========
NET EARNINGS PER COMMON SHARE:
Basic.................................................. $ .77 $ .96 $ 1.26
======== ======== ========
Diluted................................................ $ .74 $ .92 $ 1.18
======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
Basic.................................................. 23,714 26,418 26,807
======== ======== ========
Diluted................................................ 24,874 27,838 28,609
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 40
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
RETAINED CUMULATIVE TOTAL
COMMON CONTRIBUTED EARNINGS TREASURY TRANSLATION SHAREHOLDERS'
STOCK CAPITAL (DEFICIT) STOCK ADJUSTMENTS EQUITY
------- ----------- --------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 28, 1995......... $17,523 $66,771 $(12,099) $ (67) $ -- $ 72,128
------- ------- -------- -------- ------- --------
Common stock issuance........... 2,250 23,632 -- -- -- 25,882
Stock options exercised......... 184 305 -- 2,127 -- 2,616
Cash dividends.................. -- -- (3,515) -- -- (3,515)
Treasury stock purchases........ -- -- -- (4,121) -- (4,121)
Net earnings.................... -- -- 18,317 -- -- 18,317
Translation adjustments......... -- -- -- -- 1,088 1,088
------- ------- -------- -------- ------- --------
BALANCE, NOVEMBER 2, 1996......... $19,957 $90,708 $ 2,703 $ (2,061) $ 1,088 $112,395
------- ------- -------- -------- ------- --------
Stock options exercised......... 14 (1,407) -- 4,335 -- 2,942
Cash dividends.................. -- -- (5,284) -- -- (5,284)
Treasury stock purchases........ -- -- -- (4,401) -- (4,401)
Net earnings.................... -- -- 25,493 -- -- 25,493
Translation adjustments......... -- -- -- -- (2,756) (2,756)
------- ------- -------- -------- ------- --------
BALANCE, NOVEMBER 1, 1997......... $19,971 $89,301 $ 22,912 $ (2,127) $(1,668) $128,389
------- ------- -------- -------- ------- --------
Common stock issuance........... 476 9,524 -- -- -- 10,000
Stock options exercised......... 216 582 -- 3,459 -- 4,257
Cash dividends.................. -- -- (6,447) -- -- (6,447)
Treasury stock purchases........ -- -- -- (13,207) -- (13,207)
Net earnings.................... -- -- 33,720 -- -- 33,720
Translation adjustments......... -- -- -- -- (3,116) (3,116)
------- ------- -------- -------- ------- --------
BALANCE, OCTOBER 31, 1998......... $20,663 $99,407 $ 50,185 $(11,875) $(4,784) $153,596
======= ======= ======== ======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 41
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------------
1996 1997 1998
--------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings...................................... $ 18,317 $ 25,493 $ 33,720
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization................ 7,211 11,548 18,530
Change in current assets and liabilities, net
of effects of acquisitions
Receivables............................... 365 1,072 (2,383)
Inventories............................... (8,458) 1,296 (2,268)
Prepayments and other..................... (21) 538 1,314
Accounts payable.......................... (3,034) 2,902 4,257
Accrued liabilities....................... 6,146 (311) 151
Other, net................................ 2,634 5,852 11,225
--------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES...... 23,160 48,390 64,546
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures.............................. (9,566) (12,172) (17,859)
Business acquisitions............................. (67,285) (71,920) (132,590)
Dispositions of assets............................ 346 215 4,264
--------- -------- --------
NET CASH USED FOR INVESTING ACTIVITIES......... (76,505) (83,877) (146,185)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Bank borrowings for business acquisitions......... 21,104 11,920 132,590
Net borrowings (payments) on bank credit
facility....................................... (14,914) (27,320) (32,190)
Payments on bonds and leases...................... (1,210) (409) (1,272)
Issuance of 7.0% Senior Notes..................... -- 60,000 --
Issuance of 7.62% Guaranteed Senior Notes......... 30,000 -- --
Issuance of common stock.......................... 25,882 -- --
Debt issuance costs............................... (444) (451) (801)
Cash dividends on common stock.................... (3,515) (5,284) (6,447)
Stock options exercised........................... 1,704 2,942 4,257
Treasury stock acquired........................... (4,121) (4,401) (13,207)
--------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES...... 54,486 36,997 82,930
--------- -------- --------
Effect of exchange rate changes on cash and
equivalents.................................... 39 (137) (102)
--------- -------- --------
INCREASE IN CASH AND EQUIVALENTS.................... 1,180 1,373 1,189
CASH AND EQUIVALENTS AT BEGINNING OF YEAR........... 3,505 4,685 6,058
--------- -------- --------
CASH AND EQUIVALENTS AT END OF YEAR................. $ 4,685 $ 6,058 $ 7,247
========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
1) SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect reported amounts and related
disclosures. Actual results could differ from those estimates. Certain prior
year amounts have been reclassified to conform to the current year presentation.
The Company's fiscal year ends on the Saturday closest to October 31. Fiscal
year 1998 and 1997 each consisted of 52 weeks, while 1996 included 53 weeks.
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
statements include the accounts of Spartech Corporation and its wholly-owned
subsidiaries. All significant intercompany transactions and balances have been
eliminated.
FOREIGN CURRENCY TRANSLATION - Assets and liabilities of the Company's
Non-U.S. operations are translated from their functional currency to U.S.
dollars using exchange rates in effect at the balance sheet date. Results of
operations are translated using average rates during the period. Adjustments
resulting from the translation process are included as a separate component of
shareholders' equity. The Company may periodically enter into foreign currency
contracts to manage exposures to market risks from prospective changes in
exchange rates. No such contracts were outstanding as of October 31, 1998.
CASH EQUIVALENTS - Cash equivalents consist of highly liquid investments
with original maturities of three months or less.
INVENTORIES - Inventories are valued at the lower of cost (first-in,
first-out) or market. Finished goods include the costs of material, labor, and
overhead.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are carried
at cost. Depreciation is provided on a straight-line basis over the estimated
useful lives of the related assets as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and leasehold improvements........................ 25
Machinery and equipment..................................... 12-16
Furniture and fixtures...................................... 5-10
</TABLE>
Major renewals and betterments are capitalized. Maintenance and repairs are
expensed as incurred. Upon disposition, the net book value is eliminated from
the accounts, with the resultant gain or loss reflected in operations.
GOODWILL - Goodwill, representing the excess of the purchase price over the
fair value of net assets acquired, is charged against operations on a
straight-line basis over the periods estimated to be benefited, not exceeding 40
years. Goodwill amortization totaled $896, $1,495, and $3,230 in 1996, 1997, and
1998, respectively. Accumulated amortization at October 31, 1998 totaled
$10,472.
The Company reviews goodwill and other long-lived assets for impairment
whenever events and changes in business circumstances indicate the carrying
value of the assets may not be recoverable. It recognizes impairment losses if
expected future cash flows of the related assets are less than their carrying
value. The Company did not recognize any impairment losses for the periods
presented.
F-7
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Dollars in thousands, except per share amounts)
FINANCIAL INSTRUMENTS - The Company uses the following methods and
assumptions in estimating the fair value of financial instruments:
Cash, accounts receivable, accounts payable, and accrued liabilities - the
carrying value of these instruments approximates fair value due to their
short-term nature; and
Long-term debt, including bank credit facility - based on borrowing rates
currently available for debt instruments with similar terms and maturities, the
carrying value of these instruments approximates fair value.
REVENUE RECOGNITION - The Company manufactures products for specific
customer orders and for standard stock inventory. Revenues are recognized and
billings are rendered as the product is shipped to the customer.
INCOME TAXES - Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to temporary differences between the
financial statement carrying amounts of assets and liabilities and their
respective tax bases. Deferred tax assets are also recognized for credit
carryforwards based on an assessment which includes anticipating future income
in determining the likelihood of realization. Deferred tax assets and
liabilities are measured using the rates expected to apply to taxable income in
the years in which the temporary differences are expected to reverse and the
credits are expected to be used. The effect of a change in tax rates on deferred
tax assets and liabilities is recognized in income in the period that includes
the enactment date.
2) ACQUISITIONS
On March 31, 1998, the Company completed its acquisition of all the stock
of Polycom Huntsman, Inc., a manufacturer of color & specialty compounds. The
net cash purchase price was approximately $129,000 (including estimated costs of
the transaction and net of cash acquired of $3,000). The acquisition was funded
through the Company's bank credit facility and the issuance of $10,000 in
Spartech common stock to Polycom shareholders. The fair value of the assets
acquired was $171,000 which included, approximately $65,000 in goodwill, and the
fair value of the liabilities assumed was $39,000, which consisted of accounts
payable, accrued liabilities, lease liabilities, and industrial revenue bonds.
For its fiscal year ended March 31, 1998, Polycom's color, specialty, and toll
compounding businesses generated annual sales of approximately $115,000.
On April 26, 1998, the Company completed the purchase of the net assets of
Prismaplast Canada Ltd. of Montreal. Prismaplast, commonly known as
Plasticolour, produces color concentrates and specialty compounds with net sales
for 1997 of approximately $10,000. The acquisition price for Plasticolour
approximated $5,000, which was financed through operating cash flow and our bank
credit facility.
On October 30, 1998, the Company completed its purchase of all the stock of
Anjac-Doron Plastics, Inc., a custom profile extruder with annual sales of
approximately $9,000. The acquisition price of approximately $6,700 was financed
through our bank credit facility.
On August 22, 1997, the Company completed the acquisition of the net assets
of the Preferred Plastic Sheet Division of Echlin Inc. The purchase of the
extruded plastic sheet and profile extruded product operations included four
manufacturing facilities with annual sales of approximately $75,000. The
purchase price for the net assets acquired from Preferred was $65,074 in cash,
including costs of the transaction. The fair value of assets acquired was
$73,517, which included $39,199 of goodwill, and the fair value of the
liabilities assumed was $8,443, which included accounts payable and accrued
F-8
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Dollars in thousands, except per share amounts)
liabilities. The purchase price and related costs of the acquisition were funded
by a $60,000 private placement of debt with a fixed interest rate of 7.0% and
borrowings on the Company's existing bank credit facility.
On May 9, 1996, the Company completed its acquisition of Portage Industries
Corporation and pursuant to the Agreement and Plan of Merger, each share of
Portage common stock was converted into the right to receive $6.60 in cash. The
price for all outstanding shares of Portage's stock, including exercisable
options, totaled approximately $17,600 in cash, including estimated costs of the
transaction. The fair value of assets acquired was $27,200, which included
$9,500 of goodwill, and the fair value of the liabilities assumed was $9,600.
The purchase price was funded by the Company's existing bank credit facility.
On September 27, 1996, the Company completed the purchase of substantially
all of the net assets of the extrusion, color, and molding divisions of Hamelin
Group Inc. in accordance with an Asset Purchase and Sale Agreement. Hamelin was
a leading manufacturer of extruded plastic sheet, color concentrate materials,
molded food packaging products, and injection molded wheels, based in Montreal,
Canada. Consolidated sales for the seven facilities were approximately $80,000
for Hamelin's fiscal year ended April 30, 1996. The purchase price for the net
assets acquired from Hamelin was $59,400 in cash, including costs of the
transaction. The fair value of assets acquired was $70,900, which included
$13,500 of goodwill, and the fair value of the liabilities assumed was $11,500,
which consisted of lease liabilities, accounts payable, and accrued liabilities.
The purchase price was financed through a combination of a common stock offering
of 3 million shares and a private placement of $30,000 in debt.
All these acquisitions have been accounted for by the purchase method, and
accordingly, the results of operations were included in the Company's
Consolidated Statement of Operations from their respective date of acquisition.
The purchase price has been allocated to the assets and liabilities (on a
preliminary basis for the 1998 acquisitions), and the excess of cost over the
fair value of net assets acquired is being amortized over a forty-year period on
a straight-line basis.
The following summarizes unaudited pro forma consolidated results of
operations for fiscal year 1998 assuming the Polycom, Plasticolour, and Anjac
acquisitions had occurred at the beginning of the fiscal year. The results are
not necessarily indicative of what would have occurred had these transactions
been consummated as of the beginning of the fiscal year presented, or of future
operations of the consolidated companies.
<TABLE>
<CAPTION>
PRO FORMA
(UNAUDITED)
FISCAL YEAR
1998
-----------
<S> <C>
Net Sales................................................... $712,999
========
Earnings Before Income Taxes................................ $ 60,257
========
Net Earnings................................................ $ 36,252
========
Net Earnings Per Common Share--Diluted...................... $ 1.26
========
</TABLE>
F-9
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Dollars in thousands, except per share amounts)
3) INVENTORIES
Inventories at November 1, 1997 and October 31, 1998 are comprised of the
following components:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Raw materials............................................... $37,832 $42,016
Finished goods.............................................. 18,019 22,843
------- -------
$55,851 $64,859
======= =======
</TABLE>
4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at November 1,
1997 and October 31, 1998:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Land........................................................ $ 5,264 $ 6,369
Buildings and leasehold improvements........................ 31,825 45,312
Machinery and equipment..................................... 132,895 205,124
Furniture and fixtures...................................... 3,759 6,821
-------- --------
173,743 263,626
Less accumulated depreciation............................... 44,381 56,739
-------- --------
Property, plant and equipment, net.......................... $129,362 $206,887
======== ========
</TABLE>
5) LONG-TERM DEBT
Long-term debt is comprised of the following at November 1, 1997 and
October 31, 1998:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
7.0% Senior Notes........................................... $ 60,000 $ 60,000
7.62% Guaranteed Senior Notes............................... 30,000 30,000
7.21% Senior Unsecured Notes................................ 50,000 50,000
Bank Credit Facility........................................ 300 100,700
Other....................................................... 2,314 13,520
-------- --------
142,614 254,220
Less current maturities..................................... 921 8,948
-------- --------
Total long-term debt........................................ $141,693 $245,272
======== ========
</TABLE>
On March 31, 1998, the Company amended its unsecured bank credit facility
to an aggregate availability of $150,000 for a new five-year term. The bank
credit facility consists of a $50,000 term loan, which has equal quarterly
payments due of $2,500 that reduce this availability over the five-year term,
and a $100,000 revolving facility. At October 31, 1998, total availability under
the bank credit facility was $145,000. Of the $100,700 outstanding, $45,000 was
under the facility's term loan and $55,700 was under the facility's revolver,
all of which is classified as long term as no paydowns of the aggregate facility
are required within the next year. Interest on the bank credit facility is
payable at a rate chosen by the Company of either prime or LIBOR plus .5% to
1.0%. At October 31, 1998, the
F-10
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Dollars in thousands, except per share amounts)
Company had fixed LIBOR loans outstanding under the bank credit facility of
$88,500 at 6.19% for a one-month period. The remaining bank credit facility was
at the current prime rate which was 8.50% at November 1, 1997 and 8.00% at
October 31, 1998.
On August 22, 1997, the Company completed a Private Placement of 7.0%
Senior Notes consisting of $45,000 designated as Series A and $15,000 designated
as Series B. The Series A 1997 Notes require equal annual principal payments of
approximately $6,429 commencing on August 22, 2001 and the Series B 1997 Notes
do not require principal payments before becoming due on August 22, 2004.
Interest on the 1997 Notes is payable semiannually on February 22 and August 22
of each year.
On September 27, 1996, the Company completed a $30,000 Private Placement of
7.62% Guaranteed Senior Notes which have a ten-year term. The 1996 Notes require
equal annual principal payments of approximately $4,286 commencing on September
27, 2000. Interest on the 1996 Notes is payable semiannually on March 27 and
September 27 of each year.
On August 15, 1995, the Company completed a $50,000 Private Placement of
7.21% Senior Unsecured Notes which have a ten-year term. The 1995 Notes require
equal annual principal payments of approximately $7,143 commencing on August 15,
1999. Interest on the 1995 Notes is payable semiannually on February 15 and
August 15 of each year.
The other debt consists of industrial revenue bonds, capital leases, and
other term notes utilized to finance capital expenditures. These financings
mature between 1999 and 2015 and have interest rates ranging from 2.00% to
9.38%.
Scheduled maturities of long-term debt for the next five fiscal years are:
1999-$8,948; 2000-$13,008; 2001-$18,733; 2002-$18,524; and 2003-$78,770.
The long-term debt contains certain covenants which, among other matters,
require the Company to restrict the incurrence of additional indebtedness,
satisfy certain ratios and net worth levels, and limit both the sale of assets
and acquisition transactions.
6) INCOME TAXES
The provision for income taxes for fiscal years 1996, 1997, and 1998 is
comprised of the following:
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Federal:
Current................................................... $ 7,758 $ 8,698 $14,844
Deferred.................................................. 1,480 3,631 3,483
State....................................................... 1,760 1,819 2,697
Foreign..................................................... 115 1,667 1,382
------- ------- -------
Provision for income taxes................................ $11,113 $15,815 $22,406
======= ======= =======
</TABLE>
F-11
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Dollars in thousands, except per share amounts)
Earnings before income taxes for 1996, 1997, and 1998 include $384, $4,924,
and $4,383, respectively from Non-U.S. operations. The income tax provision on
earnings of the Company differs from the amounts computed by applying the U.S.
Federal tax rate of 35% as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Federal income taxes at statutory rate...................... $10,301 $14,458 $19,644
State income taxes, net of applicable Federal income tax
benefits.................................................. 1,144 1,182 1,753
Other....................................................... (332) 175 1,009
------- ------- -------
$11,113 $15,815 $22,406
======= ======= =======
</TABLE>
At November 1, 1997 and October 31, 1998, the Company's principal
components of deferred tax assets and liabilities consisted of the following:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Deferred tax assets:
Tax carryforwards......................................... $ 1,019 $ 486
Bad debt reserves......................................... 712 675
Inventories............................................... 445 780
Accrued liabilities....................................... 4,137 6,571
------- -------
$ 6,313 $ 8,512
======= =======
Deferred tax liabilities:
Depreciation.............................................. $13,705 $34,531
Other..................................................... 520 1,295
------- -------
$14,225 $35,826
======= =======
</TABLE>
At November 1, 1997 and October 31, 1998, the net current deferred tax
asset was $3,541 and $5,969, respectively, and the net noncurrent deferred tax
liability was $11,453 and $33,283, respectively.
7) SHAREHOLDERS' EQUITY & STOCK OPTIONS
The authorized capital stock of the Company consists of 45 million shares
of $.75 par value common stock and 4 million shares of $1 par value preferred
stock.
The Company has an Incentive Stock Option Plan and Restricted Stock Option
Plan for executive officers and key employees. The minimum option price is the
fair market value per share at the date of grant, which may be paid upon
exercise in Company shares. The Incentive Plan had 598,040 shares outstanding at
October 31, 1998. The maximum number of shares issuable annually under the
Restricted Plan is limited to 10% of the Company's outstanding common shares,
excluding treasury shares at each year end through 2001. Notwithstanding the
foregoing, the Board of Directors has resolved that at no time will the total
unexercised options issued to employees be in excess of 10% of the then
outstanding common shares. The options granted and common shares purchased under
the Restricted Plan may not be sold or disposed of for a period of three years
from the date of option grant. Subject to the limitations discussed above, the
number of shares issued, or options granted, pursuant to these plans is at the
discretion of the Compensation Committee of the Board of Directors. The
Restricted Plan had 2,460,600 shares outstanding at October 31, 1998. Additional
F-12
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Dollars in thousands, except per share amounts)
options, which have been issued outside the Incentive and Restricted plans
discussed above, totaled 234,000 at October 31, 1998.
A summary of the combined activity for the Company's stock options for
fiscal years 1996, 1997, and 1998 follows (shares in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
----------------------- ----------------------- -----------------------
SHARES WEIGHTED SHARES WEIGHTED SHARES WEIGHTED
UNDER AVERAGE UNDER AVERAGE UNDER AVERAGE
OPTION EXERCISE PRICE OPTION EXERCISE PRICE OPTION EXERCISE PRICE
------ -------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
year....................... 2,267 $3.85 2,074 $4.37 3,015 $ 6.88
Granted...................... 315 $7.07 1,414* $9.84 793 $16.11
Exercised.................... (508) $3.70 (473) $4.74 (515) $ 5.29
----- ----- -----
Outstanding, end of year..... 2,074 $4.37 3,015 $6.88 3,293 $ 9.36
===== ===== =====
Weighted average fair value
of options granted......... $2.49 $3.95 $5.00
----- ----- -----
----- ----- -----
</TABLE>
- ---------------
* Amount includes an option for 900 shares issued in conjunction with the
settlement of litigation with a former employee-see note (11).
Information with respect to options outstanding at October 31, 1998, all of
which are presently exercisable, follows (shares in thousands):
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES UNDER REMAINING WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES OPTION CONTRACTUAL LIFE EXERCISE PRICE
- ------------------------ ------------ ---------------- ----------------
<S> <C> <C> <C>
$ 1.25 - 5.38............................. 956 3.1 years $ 3.90
$ 6.75 - 9.00............................. 1,125 5.7 years $ 8.55
$10.88 - 13.50............................. 414 5.8 years $11.12
$15.88 - 21.94............................. 798 8.0 years $16.11
-----
3,293
=====
</TABLE>
The Company follows Accounting Principles Board Opinion No. 25 "Accounting
for Stock Issued to Employees," in accounting for its employee stock options.
Under APB 25, if the exercise price of the stock option equals the market price
of the underlying stock on the issuance date, no compensation expense is
recognized. The Company is required by Statement of Financial Accounting
Standards No. 123 "Accounting for Stock-Based Compensation" to provide pro forma
disclosures under an alternative fair value method of accounting. The weighted
average fair values of options granted were estimated using the Black-Scholes
option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Expected Dividend Yield........................ 1.25% 1.25% 1.30%
Expected Volatility............................ 35% 35% 31%
Risk-Free Interest Rates....................... 5.77-5.81% 5.77-5.81% 4.52-4.83%
Expected Lives................................. 5 Years 5 Years 5 Years
</TABLE>
Had compensation expense been recognized based on these hypothetical values
the Company's net income for 1996, 1997, and 1998 would have been $17,830,
$23,020, and $31,330, respectively, and diluted earnings per share for 1996,
1997, and 1998 would have been $.72, $.83, and $1.10,
F-13
<PAGE> 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Dollars in thousands, except per share amounts)
respectively. As a result of changing assumptions, these hypothetical
calculations are not necessarily representative of future results.
8) EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 "Earnings Per Share" which specifies
the computation, presentation and disclosure requirements for earnings per
share. Basic earnings per share excludes any dilution and is computed by
dividing net income available to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity. All earnings per share data has been calculated in accordance with SFAS
128.
Earnings used in the computations of both basic and diluted earnings per
share represent net earnings as reported. The weighted average number of common
shares used in the computations of basic and diluted earnings per share for
1996, 1997, and 1998 follows:
<TABLE>
<CAPTION>
1996 1997 1998
------ ------- ------
<S> <C> <C> <C>
Basic earnings per share.................................. 23,714 26,418 26,807
Effect of stock options................................... 1,160 1,420 1,802
------ ------- ------
Diluted earnings per share................................ 24,874 27,838 28,609
====== ======= ======
</TABLE>
The effect of stock options represents the shares resulting from the
assumed exercise of outstanding stock options calculated using the treasury
stock method.
9) EMPLOYEE BENEFITS
The Company sponsors or contributes to various retirement benefit and
savings plans covering substantially all employees. The total cost of such plans
for fiscal years 1996, 1997, and 1998 was $698, $1,057, and $1,856,
respectively.
10) CASH FLOW INFORMATION
Supplemental information on cash flows for fiscal years 1996, 1997, and
1998 was as follows:
<TABLE>
<CAPTION>
1996 1997 1998
-------- ------- --------
<S> <C> <C> <C>
CASH PAID DURING THE YEAR FOR:
Interest................................................ $ 4,558 $ 7,470 $ 14,535
======== ======= ========
Income taxes............................................ $ 10,846 $11,245 $ 15,642
======== ======= ========
SCHEDULE OF BUSINESS ACQUISITIONS:
Fair value of assets acquired........................... $ 98,062 $73,517 $183,073
Liabilities assumed..................................... (21,076) (8,443) (43,434)
Non-cash consideration and holdback payments............ (9,701) 6,846 (7,049)
-------- ------- --------
Total cash paid for the net assets acquired............. $ 67,285 $71,920 $132,590
======== ======= ========
</TABLE>
F-14
<PAGE> 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Dollars in thousands, except per share amounts)
11) COMMITMENTS AND CONTINGENCIES
The Company conducts certain of its operations in facilities under
operating leases. Rental expense for 1996, 1997, and 1998 was $2,807, $3,780,
and $5,408, respectively.
Future minimum lease payments under non-cancelable operating leases, by
fiscal year, are: 1999--$3,979; 2000--$3,113; 2001--$2,507; 2002--$1,084;
2003--$944; and $1,289 thereafter.
In 1992 and 1996, a former Director, Chairman of the Board, and Chief
Executive Officer of the Company, filed lawsuits against the Company and certain
of its Directors and major shareholders. In the suits, it was claimed that the
Company should adjust his existing stock options, provide for the issuance of
additional shares of common stock, and award to him attorney's fees and
interest. In February 1997, the Company settled both lawsuits. The settlement
resolved all claims and terminated all disputes between the respective parties
and general releases were executed to prevent further action on such disputes.
The settlement was reflected in the Company's 1997 financial statements and,
after consideration of amounts previously accrued, did not result in a net
charge to earnings.
At October 31, 1998, there were no other known contingent liabilities,
including guarantees, pending litigation, and environmental claims, that, in the
opinion of management, are expected to be material in relation to the Company's
financial position or results of operations, nor were there any material
commitments outside the normal course of business.
12) SEGMENT INFORMATION
The Company operates in one industry segment as a producer of engineered
thermoplastics, polymeric compounds, and molded and profile products for a wide
spectrum of manufacturing customers. The Company operates from 38 plants in 35
cities throughout the United States, Canada, and Europe and its customer base is
diverse--no one customer represents greater than 5% of total sales. The
Company's customers supply product to a broad range of markets, including
sign/advertising, transportation, recreation & leisure, building & construction,
medical, and packaging.
The Company operates in three reportable geographic areas--the United
States, Canada, and Europe. Geographic financial information for fiscal years
1996, 1997, and 1998 was as follows:
<TABLE>
<CAPTION>
OPERATING TOTAL
NET SALES EARNINGS ASSETS
------------------------------ --------------------------- ------------------------------
1996 1997 1998 1996 1997 1998 1996 1997 1998
-------- -------- -------- ------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States........ $384,334 $427,530 $572,676 $33,856 $41,957 $61,807 $221,542 $295,511 $460,897
Canada............... 7,014 75,185 75,970 636 7,744 7,506 67,418 63,292 63,898
Europe............... -- -- 5,209 -- -- 415 -- -- 8,514
-------- -------- -------- ------- ------- ------- -------- -------- --------
$391,348 $502,715 $653,855 $34,492 $49,701 $69,728 $288,960 $358,803 $533,309
======== ======== ======== ======= ======= ======= ======== ======== ========
</TABLE>
F-15
<PAGE> 51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Dollars in thousands, except per share amounts)
13) QUARTERLY FINANCIAL INFORMATION
Certain unaudited quarterly financial information for the fiscal years
ended November 1, 1997 and October 31, 1998 was as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------- FISCAL
JAN APRIL JULY OCT YEAR
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1997
Net Sales.......................... $113,387 $129,815 $123,170 $136,343 $502,715
Gross Profit....................... 18,079 21,187 20,435 22,514 82,215
Net Earnings....................... 5,479 6,675 6,731 6,608 25,493
Net Earnings Per Share:
Basic............................ .21 .25 .25 .25 .96
Diluted.......................... .20 .24 .24 .23 .92
1998
Net Sales.......................... $133,081 $165,707 $177,702 $177,365 $653,855
Gross Profit....................... 22,480 27,918 30,190 30,627 111,215
Net Earnings....................... 7,021 8,863 9,020 8,816 33,720
Net Earnings Per Share:
Basic............................ .27 .33 .33 .33 1.26
Diluted.......................... .25 .31 .31 .31 1.18
</TABLE>
F-16
<PAGE> 52
SPARTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(in thousands, except share amounts)
<TABLE>
<CAPTION>
OCT. 31, JAN. 30,
1998 1999
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents...................................... $ 7,247 $ 6,024
Receivables, net.......................................... 91,631 92,430
Inventories............................................... 64,859 69,417
Prepayments and other..................................... 9,459 10,036
-------- --------
TOTAL CURRENT ASSETS................................... 173,196 177,907
PROPERTY, PLANT AND EQUIPMENT............................... 263,626 271,094
Less accumulated depreciation............................. 56,739 61,527
-------- --------
NET PROPERTY, PLANT AND EQUIPMENT...................... 206,887 209,567
GOODWILL.................................................... 148,668 150,599
OTHER ASSETS................................................ 4,558 4,921
-------- --------
$533,309 $542,994
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt...................... $ 8,948 $ 8,817
Accounts payable.......................................... 59,578 58,049
Accrued liabilities....................................... 32,466 32,917
-------- --------
TOTAL CURRENT LIABILITIES.............................. 100,992 99,783
-------- --------
LONG-TERM DEBT, LESS CURRENT MATURITIES..................... 245,272 246,919
OTHER LIABILITIES........................................... 33,449 34,660
-------- --------
TOTAL LONG-TERM LIABILITIES............................ 278,721 281,579
-------- --------
SHAREHOLDERS' EQUITY
Common stock, 27,550,107 shares issued in 1998 and 1999... 20,663 20,663
Contributed capital....................................... 99,407 97,654
Retained earnings......................................... 50,185 57,459
Treasury stock, at cost, 688,917 shares in 1998 and
604,725 shares in 1999................................. (11,875) (10,081)
Cumulative translation adjustments..................... (4,784) (4,063)
-------- --------
TOTAL SHAREHOLDERS' EQUITY............................. 153,596 161,632
-------- --------
$533,309 $542,994
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-17
<PAGE> 53
SPARTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(Unaudited and in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------
JAN. 31, JAN. 30,
1998 1999
-------- --------
<S> <C> <C>
NET SALES................................................... $133,081 $167,801
-------- --------
COSTS AND EXPENSES
Cost of sales............................................. 110,601 137,604
Selling and administrative................................ 8,161 10,125
Amortization of intangibles............................... 541 997
-------- --------
119,303 148,726
-------- --------
OPERATING EARNINGS.......................................... 13,778 19,075
Interest.................................................. 2,345 3,851
-------- --------
EARNINGS BEFORE INCOME TAXES................................ 11,433 15,224
Income Taxes.............................................. 4,412 6,067
-------- --------
NET EARNINGS................................................ $ 7,021 $ 9,157
======== ========
NET EARNINGS PER COMMON SHARE:
Basic..................................................... $ .27 $ .34
======== ========
Diluted................................................... $ .25 $ .32
======== ========
WEIGHTED AVERAGE NUMBER OF SHARES USED IN COMPUTING NET
EARNINGS PER COMMON SHARE:
Basic..................................................... 26,398 26,896
======== ========
Diluted................................................... 28,101 28,748
======== ========
DIVIDENDS PER COMMON SHARE.................................. $ .06 $ .07
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE> 54
SPARTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Unaudited and in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------
JAN. 31, JAN. 30,
1998 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings.............................................. $ 7,021 $ 9,157
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization.......................... 3,546 5,667
Change in current assets and liabilities............... (6,089) (1,171)
Other, net................................................ 677 897
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES.............. 5,155 14,550
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures...................................... (2,056) (4,956)
Business acquisitions..................................... (3,095) (10,437)
Retirement of assets...................................... 32 20
-------- --------
NET CASH USED FOR INVESTING ACTIVITIES................. (5,119) (15,373)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Bank Borrowings for Business Acquisitions................. 3,095 10,437
Net borrowings (payments) on revolving credit
facilities............................................. 55 (8,037)
Payments on bonds and leases.............................. (658) (962)
Cash dividends on common stock............................ (1,589) (1,883)
Stock options exercised................................... 329 480
Treasury stock acquired................................... (2,341) (439)
-------- --------
NET CASH USED FOR FINANCING ACTIVITIES................. (1,109) (404)
-------- --------
Effect of exchange rate changes on cash and equivalents... (58) 4
-------- --------
DECREASE IN CASH AND EQUIVALENTS............................ (1,131) (1,223)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD................. 6,058 7,247
-------- --------
CASH AND EQUIVALENTS AT END OF PERIOD....................... $ 4,927 $ 6,024
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-19
<PAGE> 55
SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited and dollars in thousands)
NOTE A--BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Spartech Corporation and its wholly owned subsidiaries. These financial
statements have been prepared on a condensed basis and, accordingly, certain
information and note disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, the financial statements
contain all adjustments (consisting solely of normal recurring adjustments) and
disclosures necessary to make the information presented therein not misleading.
These financial statements should be read in conjunction with the consolidated
audited financial statements and accompanying footnotes thereto included in this
prospectus.
The Company's fiscal year ends on the Saturday closest to October 31.
Operating results for the first quarter are traditionally seasonal in nature and
are not necessarily indicative of the results expected for the full year.
NOTE B -- INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out) or
market. Inventories at October 31, 1998 and January 30, 1999 are comprised of
the following components:
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Raw materials............................................... $42,016 $45,987
Finished goods.............................................. 22,843 23,430
------- -------
$64,859 $69,417
======= =======
</TABLE>
NOTE C -- CASH FLOW INFORMATION
Supplemental information on cash flows and noncash transactions for the
quarter ended January 31, 1998 and January 30, 1999 is as follows:
<TABLE>
<CAPTION>
1998 1999
---- ------
<S> <C> <C>
Cash paid for:
Interest.................................................. $ 61 $1,579
==== ======
Income taxes.............................................. $304 $ 312
==== ======
</TABLE>
NOTE D -- COMMITMENTS AND CONTINGENCIES
The Company currently has no litigation with respect to any environmental
matters.
NOTE E -- COMPREHENSIVE INCOME
On November 1, 1998 the Company adopted Statement of Financial Accounting
Standards No. 130--"Reporting Comprehensive Income". Comprehensive Income is an
entities change in equity during the period from transactions, events and
circumstances from non-owner sources. A summary of the components of Total
Comprehensive Income follows:
F-20
<PAGE> 56
SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited and dollars in thousands)--(continued)
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------
JAN. 31, JAN. 30,
1998 1999
-------- --------
<S> <C> <C>
Net Earnings................................................ $7,021 $9,157
Foreign currency translation adjustments.................... (1,046) 721
------ ------
Total Comprehensive Income................................ $5,975 $9,878
====== ======
</TABLE>
The Company's other comprehensive income consists solely of foreign
currency translation adjustments. Accumulated other comprehensive income is
represented on the balance sheet as cumulative translation adjustments as of
October 31, 1998 and January 30, 1999, respectively.
NOTE F -- ACQUISITIONS
On January 7, 1999 the Company completed its acquisition of the net assets
of Lustro Plastics Company, a custom sheet and rollstock extruder with annual
sales of approximately $28,000. The total purchase price was approximately
$10,400, including estimated costs of the transaction. The fair value of assets
acquired was $13,900 including $2,800 of goodwill, and the fair value of
liabilities assumed was $3,500. The acquisition was funded through the Company's
existing bank credit facility.
F-21
<PAGE> 57
Alloy Plastics & Product Transformations Applications
EXTRUDED SHEET & ROLLSTOCK
<TABLE>
<S> <C> <C>
[Picture] [Picture] [Picture]
TWA serves breakfast cereals and This new Shell service station sign, Sub-Zero Freezer Company, Inc. has
juices packaged in Spartech Plastics fabricated out of Spartech Plastics used Spartech Plastics co-extruded
new PackAlloy MLB. extruded sheet, is replacing the sheet in their refrigerators for
older metal post signs, like the one more than 15 years.
shown in the background.
COLOR & SPECIALTY COMPOUNDS
[Picture] [Picture] [Picture]
Black & Decker's DeWalt line of Mega Blacks utilize color DaimlerChrysler's Jeep Grand
power tools are packaged in cases concentrates produced at Spartech Cherokee utilizes a new compound
manufactured from specialty Colors Montreal, Canada facility. manufactured at Spartech Polycom's
compounds produced by Spartech St. Clair Michigan facility for its
Polycom. cargo compartment load floor.
MOLDED & PROFILE PRODUCTS
[Picture] [Picture] [Picture]
Our profile extruded products are a Cub Cadet riding mowers utilize GenPak's plastic lids are used by
part of Select Comfort's sleep products manufactured at our Hamelin customers to package their ice cream
systems. Industries' Warsaw, Indiana products.
facility.
</TABLE>
<PAGE> 58
The following trademarks appear above: TWA -- a registered trademark of
Trans World Airlines, Inc. Shell -- a registered trademark of Shell Oil Company.
Sub-Zero -- a registered trademark of Sub-Zero Freezer Company, Inc. DeWalt and
Black & Decker -- registered trademarks of Black & Decker, Inc. Mega Bloks -- a
registered trademark of Ritvik Holdings, Inc. Jeep Grand Cherokee -- a
registered trademark of DaimlerChrylser Corporation. Select Comfort -- a
registered trademark of Select Comfort Retail Corporation. Cub Cadet -- a
registered trademark of MTD Products, Inc. Haagen-Dazs -- a registered trademark
of Haagen-Dazs Co., Inc.
<PAGE> 59
- ----------------------------------------------------------
- ----------------------------------------------------------
You should rely only on the information contained in this prospectus. spartech
has not authorized anyone to provide you with information different from that
contained in this prospectus. This prospectus is not an offer to sell, and it
does not seek an offer to buy, these securities in any jurisdiction where the
offer or sale is not permitted. The information in this prospectus is correct
only as of the date of this prospectus, regardless of when this prospectus is
delivered to you or these securities are sold.
----------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................... 3
Risk Factors............................. 6
Forward Looking Statements............... 8
Use of Proceeds.......................... 9
Price Range of Common Stock and
Dividends.............................. 9
Capitalization........................... 10
Selected Consolidated Financial Data..... 11
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 12
Business................................. 18
Management............................... 28
Principal and Selling Stockholders....... 30
Underwriting............................. 32
Legal Matters; Experts................... 33
Where You Can Find More Information...... 34
Index to Consolidated Financial
Statements............................. F-1
</TABLE>
- ----------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
2,328,968 SHARES
LOGO
SPARTECH CORPORATION
COMMON STOCK
----------------------
PROSPECTUS
----------------------
FIRST ANALYSIS
SECURITIES CORPORATION
EVEREN SECURITIES, INC.
JANNEY MONTGOMERY SCOTT INC.
, 1999
- ----------------------------------------------------------
- ----------------------------------------------------------
<PAGE> 60
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 18,083
National Association of Securities Dealers, Inc. Fee........ 7,005
New York Stock Exchange Listing Fee......................... 1,500
Printing Expenses........................................... 50,000
Legal Fees and Expenses..................................... 100,000
Auditors' Fees and Expenses................................. 25,000
Transfer Agent and Registrar Fees........................... 10,000
Miscellaneous Expenses...................................... 8,412
--------
Total....................................................... $220,000
========
</TABLE>
- ---------------
* To be filed by Amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware
provides generally and in pertinent part that a Delaware corporation may
indemnify its directors and officers against expenses, judgments, fines and
settlements actually and reasonably incurred by them in connection with any
civil suit or action, except actions by or in the right of the corporation, or
any administrative or investigative proceeding if, in connection with the
matters in issue, they acted in good faith and in a manner they reasonably
believed to be in, or not opposed to, the best interest of the corporation, and
in connection with any criminal suit or proceeding, if in connection with the
matters in issue, they had no reasonable cause to believe their conduct was
unlawful. Section 145 further permits a Delaware corporation to grant its
directors and officers additional rights of indemnification through bylaw
provisions and otherwise and to purchase indemnity insurance on behalf of its
directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 16. EXHIBITS
A list of exhibits is set forth in the Exhibit Index appearing elsewhere in
this Registration Statement and is incorporated herein by reference.
ITEM 17. UNDERTAKINGS.
A. The undersigned registrant hereby undertakes that for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to
II-1
<PAGE> 61
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
B. The undertaking required by Item 512(h) of Regulation S-K is set forth
in the last paragraph of Item 15 above.
C. The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act of 1933 shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has grounds to believe that it meets all of the requirements
for filing on Form S-3 and has duly caused this Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the County of St. Louis and State of Missouri on the 6th day of
May, 1999.
SPARTECH CORPORATION
/s/ BRADLEY B. BUECHLER
By:
--------------------------------------
Bradley B. Buechler
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
II-2
<PAGE> 62
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ BRADLEY B. BUECHLER Chairman of the Board, President, Chief May 6, 1999
- --------------------------------------------- Executive Officer and Director
Bradley B. Buechler
/s/ DAVID B. MUELLER Executive Vice President, Chief Operating May 6, 1999
- --------------------------------------------- Officer, Secretary and Director
David B. Mueller
/s/ RANDY C. MARTIN Vice President--Finance and Chief May 6, 1999
- --------------------------------------------- Financial Officer (Principal Accounting
Randy C. Martin Officer)
/s/ RALPH B. ANDY* Director
- ---------------------------------------------
Ralph B. Andy
/s/ THOMAS L. CASSIDY* Director
- ---------------------------------------------
Thomas L. Cassidy
/s/ W. R. CLERIHUE* Director
- ---------------------------------------------
W. R. Clerihue
/s/ JOHN R. KENNEDY* Director
- ---------------------------------------------
John R. Kennedy
/s/ CALVIN J. O'CONNOR* Director
- ---------------------------------------------
Calvin J. O'Connor
/s/ JACKSON W. ROBINSON* Director
- ---------------------------------------------
Jackson W. Robinson
/s/ ALAN R. TEAGUE* Director
- ---------------------------------------------
Alan R. Teague
</TABLE>
*By: /s/ BRADLEY B. May 6, 1999
BUECHLER
-------------------------
Bradley B. Buechler,
attorney in fact
II-3
<PAGE> 63
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Restated Certificate of Incorporation of registrant,
incorporated by Reference to Exhibit 3.1 to Registration
Statement No. 333-60381, filed July 31, 1998
3.2 By-Laws of Registrant, as amended, incorporated by reference
to Exhibit 3.2 to Registration Statement No. 333-60381,
filed July 31, 1998
5.1 Opinion of Armstrong Teasdale LLP as to the legality of the
shares
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Armstrong Teasdale LLP (included in Exhibit 5.1)
24.1 Power of Attorney (previously filed)
</TABLE>
II-4
<PAGE> 1
EXHIBIT 1.1
2,328,968 Shares
SPARTECH CORPORATION
Common Stock
UNDERWRITING AGREEMENT
______________, 1999
FIRST ANALYSIS SECURITIES CORPORATION
EVEREN SECURITIES, INC.
JANNEY MONTGOMERY SCOTT INC.
As Representatives of the Several Underwriters,
c/o First Analysis Securities Corporation,
233 South Wacker Drive, Suite 9500,
Chicago, IL 60606
Dear Sirs:
1. Introductory. The stockholders listed in Schedule A hereto ("Selling
Stockholders") of Spartech Corporation, a Delaware corporation ("Company")
propose severally to sell 2,328,968 shares of outstanding Common Stock of the
Company ("Securities") (such 2,328,968 shares of Securities being hereinafter
referred to as the "Firm Securities"). The Company also proposes to issue and
sell to the Underwriters, at the option of the Underwriters, an aggregate of not
more than 345,000 additional shares of the Company's Securities (such 345,000
additional shares being hereinafter referred to as the "Optional Securities").
The Firm Securities and the Optional Securities are herein collectively called
the "Offered Securities." TCW Special Placements Fund I, TCW Special Placements
Fund II and TCW Capital, as investment manager pursuant to an Investment
Management agreement dated as of June 30, 1987 are collectively called "The TCW
Group." The Company and the Selling Stockholders hereby agree with the several
Underwriters named in Schedule B hereto ("Underwriters") as follows:
2. Representations and Warranties of the Company and the Selling
Stockholders.
(a) The Company represents and warrants to, and agrees with,
the several Underwriters and the Selling Stockholders that:
(i) A registration statement (No. 333-74789) relating to
the Offered Securities, including a form of prospectus, has been
filed with the Securities and Exchange Commission ("Commission")
and either (A) has been declared effective under the Securities
Act of 1933 ("Act") and is not proposed to be amended or (B) is
proposed to be amended by amendment or post-effective amendment.
If such
<PAGE> 2
registration statement (the "initial registration statement") has
been declared effective, either (A) an additional registration
statement (the "additional registration statement" relating to the
Offered Securities may have been filed with the Commission
pursuant to Rule 462(b) ("Rule 462(b)") under the Act and, if so
filed, has become effective upon filing pursuant to such Rule and
the Offered Securities all have been duly registered under the Act
pursuant to the initial registration statement and, if applicable,
the additional registration statement or (B) such an additional
registration statement is proposed to be filed with the Commission
pursuant to Rule 462(b) and will become effective upon filing
pursuant to such Rule and upon such filing the Offered Securities
will all have been duly registered under the Act pursuant to the
initial registration statement and such additional registration
statement. If the Company does not propose to amend the initial
registration statement or if an additional registration statement
has been filed and the Company does not propose to amend it, and
if any post-effective amendment to either such registration
statement has been filed with the Commission prior to the
execution and delivery of this Agreement, the most recent
amendment (if any) to each such registration statement has been
declared effective by the Commission or has become effective upon
filing pursuant to Rule 462(c) ("Rule 462(c)") under the Act or,
in the case of the additional registration statement, Rule 462(b).
For purposes of this Agreement, "Effective Time" with respect to
the initial registration statement or, if filed prior to the
execution and delivery of this Agreement, the additional
registration statement means (A) if the Company has advised the
Representatives that it does not propose to amend such
registration statement, the date and time as of which such
registration statement, or the most recent post-effective
amendment thereto (if any) filed prior to the execution and
delivery of this Agreement, was declared effective by the
Commission or has become effective upon filing pursuant to Rule
462(c), or (B) if the Company has advised the Representatives that
it proposes to file an amendment or post-effective amendment to
such registration statement, the date and time as of which such
registration statement, as amended by such amendment or
post-effective amendment, as the case may be, is declared
effective by the Commission. If an additional registration
statement has not been filed prior to the execution and delivery
of this Agreement but the Company has advised the Representatives
that it proposes to file one, "Effective Time" with respect to
such additional registration statement means the date and time as
of which such registration statement is filed and becomes
effective pursuant to Rule 462(b). "Effective Date" with respect
to the initial registration statement or the additional
registration statement (if any) means the date of the Effective
Time thereof. The initial registration statement, as amended at
its Effective Time, including all material incorporated by
reference therein, including all information contained in the
additional registration statement (if any) and deemed to be a part
of the initial registration statement as of the Effective Time of
the additional registration statement pursuant to the General
Instructions of the Form on which it is filed and including all
information (if any) deemed to be a part of the initial
registration statement as of its Effective Time pursuant to Rule
430A(b) ("Rule 430A(b)")
2
<PAGE> 3
under the Act, is hereinafter referred to as the "Initial
Registration Statement." The additional registration statement, as
amended at its Effective Time, including the contents of the
initial registration statement incorporated by reference therein
and including all information (if any) deemed to be a part of the
additional registration statement as of its Effective Time
pursuant to Rule 430A(b), is hereinafter referred to as the
"Additional Registration Statement." The Initial Registration
Statement and the Additional Registration are hereinafter referred
to collectively as the "Registration Statements" and individually
as a "Registration Statement," The form of prospectus relating to
the Offered Securities, as first filed with the Commission
pursuant to and in accordance with Rule 424(b) ("Rule 424(b)")
under the Act or (if no such filing is required) as included in a
Registration Statement, including all material incorporated by
reference in such prospectus, is hereinafter referred to as the
"Prospectus." No document has been or will be prepared or
distributed in reliance on Rule 434 under the Act.
(ii) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this
Agreement: (A) on the Effective Date of the Initial Registration
Statement, the Initial Registration Statement conformed in all
respects to the requirements of the Act and the rules and
regulations of the Commission ("Rules and Regulations") and did
not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary
to make the statements therein not misleading, (B) on the
Effective Date of the Additional Registration Statement (if any),
each Registration Statement conformed or will conform, in all
respects to the requirements of the Act and the Rules and
Regulations and did not include, or will not include, any untrue
statement of a material fact and did not omit, or will not omit,
to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and (C)
on the date of this Agreement, the Initial Registration Statement
and, if the Effective Time of the Additional Registration
Statement is prior to the execution and delivery of this
Agreement, the Additional Registration Statement each conforms,
and at the time of filing of the Prospectus pursuant to Rule
424(b) or (if no such filing is required) at the Effective Date of
the Additional Registration Statement in which the Prospectus is
included, each Registration Statement and the Prospectus will
conform, in all respects to the requirements of the Act and the
Rules and Regulations, and neither of such documents includes, or
will include, any untrue statement of a material fact or omits, or
will omit, to state any material fact required to be stated
therein or necessary to make the statements therein not
misleading. If the Effective Time of the Initial Registration
Statement is subsequent to the execution and delivery of this
Agreement: on the Effective Date of the Initial Registration
Statement, the Initial Registration Statement and the Prospectus
will conform in all respects to the requirements of the Act and
the Rules and Regulations, neither of such documents will include
any untrue statement of a material fact or will omit to state any
material fact required to be stated therein or necessary to make
the statements therein not misleading, and no Additional
Registration Statement has
3
<PAGE> 4
been or will be filed. The two preceding sentences do not apply to
statements in or omissions from a Registration Statement or the
Prospectus based upon written information furnished to the Company
by any Underwriter through the Representatives specifically for
use therein, it being understood and agreed that the only such
information is that described as such in Section 7(c).
(iii) The Company has been duly incorporated and is an
existing corporation in good standing under the laws of the State
of Delaware, with power and authority (corporate and other) to own
its properties and conduct its business as described in the
Prospectus; and the Company is duly qualified to do business as a
foreign corporation in good standing in all other jurisdictions in
which its ownership or lease of property or the conduct of its
business requires such qualification except where the failure to
qualify would not have a material adverse effect on the Company
and its subsidiaries, taken as a whole.
(iv) Each subsidiary of the Company has been duly
incorporated and is an existing corporation in good standing under
the laws of the jurisdiction of its incorporation, with power and
authority (corporate and other) to own its properties and conduct
its business as described in the Prospectus; and each subsidiary
of the Company is duly qualified to do business as a foreign
corporation in good standing in all other jurisdictions in which
its ownership or lease of property or the conduct of its business
requires such qualification except where the failure to qualify
would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole; all of the issued and outstanding
capital stock of each subsidiary of the Company has been duly
authorized and validly issued and is fully paid and nonassessable;
and the capital stock of each subsidiary owned by the Company,
directly or through subsidiaries, is owned free from liens,
encumbrances and defects.
(v) The Offered Securities and all other outstanding
shares of capital stock of the Company have been duly authorized
and validly issued, fully paid and nonassessable and conform to
the description thereof contained in the Prospectus; and the
stockholders of the Company have no preemptive rights with respect
to the Securities.
(vi) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings between the Company and
any person that would give rise to a valid claim against the
Company or any Underwriter for a brokerage commission, finder's
fee or other like payment in connection with the Offered
Securities.
(vii) Except for (A) the Registration Rights Agreement dated
as of March 1, 1999 between the Company and the holders of the
6.50% Convertible Preferred Securities of Spartech Capital Trust,
and (B) the Registration Agreement dated as of March 31, 1998
between the Company and RBA Partners,
4
<PAGE> 5
L.P., Banbury Associates, L.P. and Huntsman Compounding Company,
LC, there are no contracts, agreements or understandings between
the Company and any person granting such person the right to
require the Company to file a registration statement under the Act
with respect to any securities of the Company owned or to be owned
by such person or to require the Company to include such
securities in the securities registered pursuant to a Registration
Statement or in any securities being registered pursuant to any
other registration statement filed by the Company under the Act.
(viii) The Common Stock of the Company is listed and the
Optional Securities have been approved for listing subject to
notice of issuance on the New York Stock Exchange.
(ix) No consent, approval, authorization, or order of, or
filing with, any governmental agency or body or any court is
required to be obtained or made by the Company for the
consummation of the transactions contemplated by this Agreement in
connection with the sale of the Offered Securities, except such as
have been obtained and made under the Act and such as may be
required under state securities laws.
(x) The execution, delivery and performance of this
Agreement, and the consummation of the transactions herein
contemplated will not result in a breach or violation of any of
the terms provisions of, or constitute a default under, any
statute, any rule, regulation or order of any governmental agency
or body or any court, domestic or foreign, having jurisdiction
over the Company or any subsidiary of the Company or any of their
properties, or any agreement or instrument to which the Company or
any such subsidiary is a party or by which the Company or any such
subsidiary is bound or to which any of the properties of the
Company or any such subsidiary is subject, or the charter or
by-laws of the Company or any such subsidiary except where such
breach or violation would not have a material adverse effect on
the Company or any of its subsidiaries.
(xi) This Agreement has been duly authorized, executed and
delivered by the Company.
(xii) Except as disclosed in the Prospectus, the Company and
its subsidiaries have good and marketable title to all real
properties and all other properties and assets owned by them, in
each case free from liens, encumbrances and defects that would
have a material adverse effect on the Company or any of its
subsidiaries; and except as disclosed in the Prospectus, the
Company and its subsidiaries hold any leased real or personal
property under valid and enforceable leases with no exceptions
that would have a material adverse effect on the Company or any of
its subsidiaries.
5
<PAGE> 6
(xiii) The Company and its subsidiaries possess adequate
certificates, authorities or permits issued by appropriate
governmental agencies or bodies necessary to conduct the business
now operated by them and have not received any notice of
proceedings relating to the revocation or modification of any such
certificate, authority or permit that, if determined adversely to
the Company or any of its subsidiaries, would individually or in
the aggregate have a material adverse effect on the Company and
its subsidiaries taken as a whole.
(xiv) No labor dispute with the employees of the Company or
any subsidiary exists or, to the knowledge of the Company, is
imminent that might have a material adverse effect on the Company
and its subsidiaries taken as a whole.
(xv) The Company and its subsidiaries own, possess or can
acquire on reasonable terms, adequate trademarks, trade names and
other rights to inventions, know-how, patents, copyrights,
confidential information and other intellectual property
(collectively, "intellectual property rights") necessary to
conduct the business now operated by them, or presently employed
by them, and have not received any notice of infringement of or
conflict with asserted rights of others with respect to any
intellectual property rights that, if determined adversely to the
Company or any of its subsidiaries, would individually or in the
aggregate have a material adverse effect on the Company and its
subsidiaries taken as a whole.
(xvi) Except as disclosed in the Prospectus, neither the
Company nor any of its subsidiaries is in violation of any
statute, any rule, regulation, decision or order of any
governmental agency or body or any court, domestic or foreign,
relating to the use, disposal or release of hazardous or toxic
substances or relating to the protection or restoration of the
environment or human exposure to hazardous or toxic substances
(collectively, "environmental laws"), owns or operates any real
property contaminated with any substance that is subject to any
environmental laws, is liable for any off-site disposal or
contamination pursuant to any environmental laws, or is subject to
any claim relating to any environmental laws, which violation,
contamination, liability or claim would individually or in the
aggregate have a material adverse effect on the Company and its
subsidiaries taken as a whole; and the Company is not aware of any
pending investigation which might lead to such a claim.
(xvii) Except as disclosed in the Prospectus, there are no
pending actions, suits or proceedings against or affecting the
Company, any of its subsidiaries or any of their respective
properties that, if determined adversely to the Company or any of
its subsidiaries, would individually or in the aggregate have a
material adverse effect on the financial condition, business,
properties or results of operations of the Company and its
subsidiaries taken as a whole, or would materially and adversely
affect the ability of the Company to perform its obligations under
this Agreement, or which are otherwise material in the context
6
<PAGE> 7
of the sale of the Offered Securities; and no such actions, suits
or proceedings are threatened or, to the Company's knowledge,
contemplated.
(xviii) The financial statements of the Company included in
each Registration Statement and the Prospectus present fairly the
financial position of the Company and its consolidated
subsidiaries as of the dates shown and their results of operations
and cash flows for the periods shown, and such financial
statements have been prepared in conformity with the generally
accepted accounting principles in the United States applied on a
consistent basis; and the assumptions used in preparing the pro
forma financial information included in each Registration
Statement and the Prospectus provide a reasonable basis for
presenting the significant effects directly attributable to the
transactions or events described therein, the related pro forma
adjustments give appropriate effect to those assumptions, and the
pro forma columns therein reflect the proper application of those
adjustments to the corresponding historical financial statement
amounts.
(xix) The financial statements of Polycom Huntsman, Inc.
("Polycom"), included in each Registration Statement and the
Prospectus present fairly the financial position of Polycom and
its consolidated subsidiary as of the dates shown and their
results of operations and cash flows for the periods shown, and
such financial statements have been prepared in conformity with
generally accepted accounting principles in the United States
applied on a consistent basis.
(xx) Except as disclosed in the Prospectus, since the date
of the latest audited financial statements included in the
Prospectus there has been no material adverse change, nor any
development or event involving a prospective material adverse
change, in the financial condition, business, properties or
results of operations of the Company and its subsidiaries taken as
a whole, and, except as disclosed in or contemplated by the
Prospectus, there has been no dividend or distribution of any kind
declared, paid or made by the Company on any class of its capital
stock.
(xxi) The Company is not and, after giving effect to the
offering and sale of the Offered Securities and the application of
the proceeds thereof as described in the Prospectus, will not be
an "investment company" as defined in the Investment Company Act
of 1940.
(b) Each Selling Stockholder severally represents and warrants
to, and agrees with, the several Underwriters that such Selling Stockholder has
and on each Closing Date hereinafter mentioned will have valid and unencumbered
title to the Offered Securities to be delivered by such Selling Stockholder on
such Closing Date and full right, power and authority to enter into this
Agreement and to sell, assign, transfer and deliver the Offered Securities to be
delivered by such Selling Stockholder on such Closing Date hereunder; and upon
the delivery of and payment for the Offered Securities on each Closing Date
hereunder assuming the
7
<PAGE> 8
Underwriters are purchasing such Offered Securities in good faith and without
notice of any adverse claim, the several Underwriters will acquire valid and
unencumbered title to the Offered Securities to be delivered by such Selling
Stockholder on such Closing Date.
3. Purchase, Sale and Delivery of Offered Securities. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, each Selling Stockholder agrees,
severally and not jointly, to sell to each Underwriter, and each Underwriter
agrees, severally and not jointly, to purchase from each Selling Stockholder, at
a purchase price of $__________ per share, that number of Firm Securities
(rounded up or down, as determined by First Analysis Securities Corporation
("First Analysis") in its discretion, in order to avoid fractions) obtained by
multiplying the number of Firm Securities set forth opposite the name of such
Selling Stockholder in Schedule A hereto by a fraction the numerator of which is
the number of Firm Securities set forth opposite the name of such Underwriter in
Schedule B hereto and the denominator of which is the total number of Firm
Securities.
The Selling Stockholders will deliver the Firm Securities to the
Representatives for the accounts of the Underwriters against payment of the
purchase price by official bank check or checks in Federal Reserve (same day)
funds or wire transfer to a bank acceptable to First Analysis drawn to the order
of TCW Special Placements Fund I in the case of 1,591,461 shares of Firm
Securities, to TCW Special Placements Fund II in the case of 408,221 shares of
Firm Securities, to TCW Capital, as investment manager pursuant to an Investment
Management Agreement dated as of June 30, 1987, in the case of 12,329 shares of
Firm Securities and to Huntsman International Corporation in the case of 316,957
shares of Firm Securities, at the office of ______________________________, at
9:00 A.M., New York time, on___________ __, 1999, or at such other time not
later than seven full business days thereafter as First Analysis and the Selling
Stockholders determine, such time being herein referred to as the "First Closing
Date." The certificates for the Firm Securities so to be delivered will be in
definitive form, in such denominations registered in such names as First
Analysis requests and will be made available for checking and packaging at the
office of The Depository Trust Company at least 24 hours prior to the First
Closing Date.
In addition, upon written notice from First Analysis given to the
Company not more than once, and not more than 30 days subsequent to the date of
the Prospectus, the Underwriters may purchase all or less than all of the
Optional Securities at the purchase price per Security to be paid for the Firm
Securities. The Company agrees to issue and sell to the Underwriters the number
of Optional Securities specified in such notice, and the Underwriters agree,
severally and not jointly, to purchase such Optional Securities. Such Optional
Securities shall be purchased for the account of each Underwriter in the same
proportion as the number of Firm Securities set forth opposite such
Underwriter's name bears to the total number of Firm Securities (subject to
adjustment by First Analysis to eliminate fractions) and may be purchased by the
Underwriters only for the purpose of covering over-allotments made in connection
with the sale of the Firm Securities. No Optional Securities shall be sold or
delivered unless the Firm Securities previously have been, or simultaneously
are, sold and delivered. The right to purchase the Optional Securities or any
portion thereof may be exercised from time to time and to the extent
8
<PAGE> 9
not previously exercised, may be surrendered and terminated at any time upon
notice by First Analysis to the Company.
The time for the delivery of and payment for the Optional Securities,
being herein referred to as an "Optional Closing Date," which may be the First
Closing Date (the First Closing Date and each Optional Closing Date, if any,
being sometimes referred to as a "Closing Date"), shall be determined by First
Analysis but shall be not later than five full business days after written
notice of election to purchase Optional Securities is given. The Company will
issue and deliver the Optional Securities being purchased on The Optional
Closing Date to the Representatives for the accounts of the several Underwriters
against payment of the purchase price therefor by certified or official bank
check or checks in Federal Reserve (same day) funds or wire transfer to a bank
acceptable to First Analysis drawn to the order of the Company. The certificates
for the Optional Securities being purchased on each Optional Closing Date will
be in definitive form, in such denominations and registered in such names as
First Analysis requests upon reasonable notice prior to such Optional Closing
Date and will be made available for checking and packaging at the office of The
Depository Trust Company at a reasonable time in advance of such Optional
Closing Date.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Offered Securities for sale to the public as
set forth in the Prospectus.
5. Certain Agreements of the Company and the Selling Stockholders.
The Company agrees with the several Underwriters and the Selling Stockholders
that:
(a) If the Effective Time of the Initial Registration Statement
is prior to the execution and delivery of this Agreement, the Company will file
the Prospectus with the Commission pursuant to and in accordance with
subparagraph (1) (or, if applicable and if consented to by First Analysis,
subparagraph (4)) of Rule 424(b) not later than the earlier of (A) the second
business day following the execution and delivery of this Agreement or (B) the
fifteenth business day after the Effective Date of the Initial Registration
Statement. The Company will advise First Analysis promptly of any such filing
pursuant to Rule 424(b). If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement an additional
registration statement is necessary to register a portion of the Offered
Securities under the Act but the Effective Time thereof has not occurred as of
such execution and delivery, the Company will file the additional registration
statement or, if filed, will file a post-effective amendment thereto with the
Commission pursuant to and in accordance with Rule 462(b) on or prior to 10:00
P.M., New York time, on the date of this Agreement or, if earlier, on or prior
to the time the Prospectus is printed and distributed to any Underwriter, or
will make such filing at such later date as shall have been consented to by
First Analysis.
(b) The Company will advise First Analysis and the Selling
Stockholders promptly of any proposal to amend or supplement the initial or any
additional registration statement as filed or the related prospectus or Initial
Registration Statement, the Additional Registration Statement (if any) or the
Prospectus and will not effect such amendment or supplementation without First
Analysis' consent; and the Company will also advise First
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<PAGE> 10
Analysis promptly of the effectiveness of each Registration Statement (if its
Effective Time is subsequent to the execution and delivery of this Agreement)
and of any amendment or supplementation of a Registration Statement or the
Prospectus and of the institution by the Commission of any stop order
proceedings in respect of a Registration Statement and will use its best efforts
to prevent the issuance of any such stop order and to obtain as soon as possible
its lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with sales by
any Underwriter or dealer, any event occurs as a result of which the Prospectus
as then amended or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, or if it is necessary at any time to amend the Prospectus to comply
with the Act, the Company will promptly notify First Analysis of such event and
will promptly prepare and file with the Commission, at its own expense, an
amendment or supplement which will correct such statement or omission or an
amendment which will effect such compliance. Neither First Analysis' consent to,
nor the Underwriters' delivery of, any such amendment or supplement shall
constitute a waiver of any of the conditions set forth in Section 6.
(d) As soon as practicable, but not later than the Availability
Date (as defined below), the Company will make generally available to its
securityholders an earnings statement covering a period of at least 12 months
beginning after the Effective Date of the Initial Registration Statement (or, if
later, the Effective Date of the Additional Registration Statement) which will
satisfy the provisions of Section 11(a) of the Act. For the purpose of the
preceding sentence, "Availability Date" means the 45th day after the end of the
fourth fiscal quarter following the fiscal quarter that includes such Effective
Date, except that, if such fourth fiscal quarter is the last quarter of the
Company's fiscal year, "Availability Date" means the 90th day after the end of
such fourth fiscal quarter.
(e) The Company will furnish to the Representatives and the
Selling Stockholders copies of each Registration Statement (three and two of
which will be signed and will include all exhibits), each related preliminary
prospectus, and, so long as a prospectus relating to the Offered Securities is
required to be delivered under the Act in connection with sales by any
Underwriter or dealer, the Prospectus and all amendments and supplements to such
documents, in each case in such quantities as First Analysis and the Selling
Stockholders request. The Prospectus shall be so furnished on or prior to 3:00
P.M., New York time, on the business day following the later of the execution
and delivery of this Agreement or the Effective Time of the Initial Registration
Statement. All other such documents shall be so furnished as soon as available.
The Company and the Selling Stockholders will pay the expenses of printing and
distributing to the Underwriters all such documents.
(f) The Company will arrange for the qualification of the Offered
Securities for sale under the laws of such jurisdictions as First Analysis
designates and will continue such qualifications in effect so long as required
for the distribution.
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<PAGE> 11
(g) During the period of 5 years hereafter, the Company will
furnish to the Representatives and, upon request, to each of the other
Underwriters, as soon as practicable after the end of each fiscal year, a copy
of its annual report to stockholders for such year; and the Company will furnish
to the Representatives (i) as soon as available, a copy of each report and any
definitive proxy statement of the Company filed with the Commission under the
Securities Exchange Act of 1934 or mailed to stockholders, and (ii) from time to
time, such other information concerning the Company as First Analysis may
reasonably request.
(h) For a period of 90 days after the date of the initial public
offering of the Offered Securities, the Company will not offer, sell, contract
to sell, pledge or otherwise dispose of, directly or indirectly, or file with
the Commission a registration statement under the Act relating to, any
additional shares of its Securities or securities convertible into or
exchangeable or exercisable for any shares of its Securities, or publicly
disclose the intention to make any such offer, sale, pledge, disposal or filing,
without the prior written consent of First Analysis, except (i) grants of
employee stock options pursuant to the terms of a plan in effect on the date
hereof, (ii) issuances of Securities pursuant to the exercise of such options or
the exercise of any other stock options of the Company outstanding on the date
hereof or issuances of Securities upon the conversion by the holders thereof in
accordance with their terms of the 6.50% Convertible Subordinated Debentures of
the Company and the 6.50% Convertible Preferred Securities of Spartech Capital
Trust outstanding on the date hereof.
(i) Prior to the first Closing Date, the Company will furnish to
the Representatives "lock-up" letters, in a form satisfactory to the
Representatives, signed by the officers and directors of the Company and by Vita
International Limited in which each agrees, for a period of 90 days after the
date of the initial public offering of the Offered Securities, not to offer,
sell, contract to sell, pledge or otherwise dispose of (other than pursuant to a
bona fide gift or the surrender or sale of sufficient shares of Securities of
the Company to pay the exercise price and/or taxes due upon the exercise of
stock options of the Company), directly or indirectly, any additional shares of
the Securities of the Company or securities convertible into or exchangeable or
exercisable for any shares of Securities, or publicly disclose the intention to
make any such offer, sale, pledge or disposal, without the prior written consent
of First Analysis.
The Company agrees with the several Underwriters that the Company will
pay all expenses incident to the performance of the obligations of the Company
and each Selling Stockholder, under this Agreement, and will reimburse the
Underwriters (if and to the extent incurred by them) for any filing fees and
other expenses (including fees and disbursements of counsel) incurred by them in
connection with qualification of the Offered Securities for sale under the laws
of such jurisdictions as First Analysis designates and the printing of memoranda
relating thereto for the filing fee of the National Association of Securities
Dealers, Inc. relating to the Offered Securities, for any travel expenses of the
Company's officers and employees and any other expenses of the Company in
connection with attending or hosting meetings with prospective purchasers of the
Offered Securities, for any transfer taxes on the sale by the Selling
Stockholders of the Offered Securities to the Underwriters and for expenses
incurred in distributing preliminary prospectuses and the Prospectus (including
any amendments and supplements thereto) to the Underwriters.
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<PAGE> 12
Each Selling Stockholder agrees to deliver to First Analysis, on or
prior to the First Closing Date a properly completed and executed United States
Treasury Department Form W-9 or Form 8709 (or other applicable form or statement
specified by Treasury Department regulations in lieu thereof).
[Each Selling Stockholder agrees, for a period of 90 days after the
date of the initial public offering of the Offered Securities, not to offer,
sell, contract to sell, pledge or otherwise dispose of, directly or indirectly,
any additional shares of the Securities of the Company or securities convertible
into or exchangeable or exercisable for any shares of Securities, or publicly
disclose the intention to make any such offer, sale, pledge or disposal, without
the prior written consent of First Analysis.]
6. Conditions of the Obligations of the Underwriters. The obligations
of the several Underwriters to purchase and pay for the Firm Securities on the
First Closing Date and the Optional Securities to be purchased on each Optional
Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Company and the Selling Stockholders herein, to
the accuracy of the statements of Company officers made pursuant to the
provisions hereof, to the performance by the Company and the Selling
Stockholders of their obligations hereunder and to the following additional
conditions precedent:
(a) The Representatives shall have received a letter, dated the
date of delivery thereof (which, if the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this Agreement,
shall be on or prior to the date of this Agreement or, if the Effective Time of
the Initial Registration Statement is subsequent to the execution and delivery
of this Agreement, shall be prior to the filing of the amendment or
post-effective amendment to the registration statement to be filed shortly prior
to such Effective Time), of Arthur Andersen LLP confirming that they are
independent public accountants within the meaning of the Act and the applicable
published Rules and Regulations thereunder and stating to the effect that:
(i) in their opinion the financial statements of the
Company examined by them and included or incorporated by reference
in the Registration Statements comply as to form in all material
respects with the applicable accounting requirements of the Act
and the related published Rules and Regulations;
(ii) they have performed the procedures specified by the
American Institute of Certified Public Accountants for a review of
interim financial information as described in Statement of
Auditing Standards No. 71, Interim Financial Information, on the
unaudited financial statements of the Company included in the
Registration Statements;
(iii) on the basis of the review referred to in clause (ii)
above, a reading of the latest available interim financial
statements of the Company, inquiries of officials of the Company
who responsibility for financial and accounting matters
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<PAGE> 13
and other specified procedures, nothing came to their attention
that caused them to believe that:
(A) the unaudited financial statements of the Company
included in the Registration Statements do not comply as to
form in all material respects with the applicable accounting
requirements of the Act and the related published Rules and
Regulations or any material modifications should be made to
such unaudited financial statements for them to be in
conformity with generally accepted accounting principles;
(B) at the date of the latest available balance sheet
of the Company read by such accountants, or at a subsequent
specified date not more than five days prior to the date of
this Agreement, there was any change in the capital stock or
any increase in short-term indebtedness or long-term debt of
the Company and its consolidated subsidiaries or, at the date
of the latest available balance sheet read by such
accountants, there was any decrease in consolidated net
current assets or net assets, as compared with amounts on the
latest balance sheet included in the Prospectus; or
(C) for the period from the closing date of the
latest income statement of the Company included in the
Prospectus to the closing date of the latest available income
statement read by such accountants there were any decreases,
as compared with the corresponding period of the previous
year and with the period of corresponding length ended the
date of the latest income statement included in the
Prospectus, in consolidated net sales or net operating income
in the total or per share amounts of consolidated net income;
except in all cases set forth in clauses (B) and (C) above for
changes, increases or decreases which the Prospectus discloses have
occurred or may occur or which are described in such letter; and
(iv) they have compared specified dollar amounts (or percentages
derived from such dollar amounts) and other financial information
contained in the Registration Statements (in each case to the extent
that such dollar amounts, percentages and other financial information
are derived from the general accounting records of the Company and its
subsidiaries subject to the internal controls of the Company's
accounting system or are derived directly from such records by analysis
or computation) with the results obtained from inquiries, a reading of
such general accounting records and other procedures specified in such
letter and have found such dollar amounts, percentages and other
financial information to be in agreement with such results, except as
otherwise specified in such letter.
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<PAGE> 14
For purposes of this subsection, (i) if the Effective Time of the
Initial Registration Statements is subsequent to the execution and delivery of
this Agreement, "Registration Statements" shall mean the initial registration
statement as proposed to be amended by the amendment or post-effective amendment
to be filed shortly prior to its Effective Time, (ii) if the Effective Time of
the Initial Registration Statements is prior to the execution and delivery of
this Agreement but the Effective Time of the Additional Registration Statement
is subsequent to such execution and delivery, "Registration Statements" shall
mean the Initial Registration Statement and the additional registration
statement as proposed to be filed or as proposed to be amended by the
post-effective amendment to be filed shortly prior to its Effective Time, and
(iii) "Prospectus" shall mean the prospectus included in the Registration
Statements. All financial statements included in material incorporated by
reference into the Prospectus shall be deemed included in the Registration
Statements for purposes of this subsection.
(b) The Representatives shall have received a letter, dated the
date of delivery thereof (which, if the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this Agreement,
shall be on or prior to the date of this Agreement or, if the Effective Time of
the Initial Registration Statement is subsequent to the execution and delivery
of this Agreement, shall be prior to the filing of the amendment or
post-effective amendment to the registration statement to be filed shortly prior
to such Effective Time), of Ernst & Young LLP confirming that they are
independent public accountants within the meaning of the Act and the applicable
published Rules and Regulations thereunder and stating in their opinion the
financial information statements of Polycom examined by them and included or
incorporated by reference in the Registration Statements comply as to form in
all material respects with the applicable accounting requirements of the Act and
the related published Rules and Regulations.
For purposes of this subsection, (i) if the Effective Time of the
Initial Registration Statements is subsequent to the execution and delivery of
this Agreement, "Registration Statements" shall mean the initial registration
statement as proposed to be amended by the amendment or post-effective amendment
to be filed shortly prior to its Effective Time, (ii) if the Effective Time of
the Initial Registration Statements is prior to the execution and delivery of
this Agreement but the Effective Time of the Additional Registration Statement
is subsequent to such execution and delivery, "Registration Statements" shall
mean the Initial Registration Statement and the additional registration
statement as proposed to be filed or as proposed to be amended by the
post-effective amendment to be filed shortly prior to its Effective Time, and
(iii) "Prospectus" shall mean the prospectus included in the Registration
Statements. All financial statements included in material incorporated by
reference into the Prospectus shall be deemed included in the Registration
Statements for purposes of this subsection.
(c) If the Effective Time of the Initial Registration Statement
is not prior to the execution and delivery of this Agreement, such Effective
Time shall have occurred not later than 10:00 P.M., New York time, on the date
of this Agreement or such later date as shall have been consented to by First
Analysis. If the Effective Time of the Additional Registration Statement (if
any) is not prior to the execution and delivery of this Agreement, such
Effective Time have occurred not later than 10:00 P.M., New York time, on the
date of this Agreement or, if earlier, the time the Prospectus is printed and
distributed to any Underwriter, or shall have
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<PAGE> 15
occurred at such later date as shall have been consented to by First Analysis.
If the Effective Time of the Initial Registration Statement is prior to the
execution and delivery of this Agreement, the Prospectus shall have been filed
with the Commission in accordance with the Rules and Regulations and Section
5(a) of this Agreement. Prior to such Closing Date, no stop order suspending the
effectiveness of a Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or, to the knowledge of
any Selling Stockholder, the Company or the Representatives, shall be
contemplated by the Commission.
(d) Subsequent to the execution and delivery of this Agreement,
there shall not have occurred (i) any change, or any development or event
involving a prospective change, in the financial condition, business, properties
or results of operations of the Company or its subsidiaries which, in the
judgment of a majority in interest of the Underwriters including the
Representatives, materially impairs the investment quality of the Offered
Securities; (ii) any downgrading in the rating of any debt securities of the
Company by any "nationally recognized statistical rating organization" (as
defined for purposes of Rule 436(g) under the Act), or any public announcement
that any such organization has under surveillance or review its rating of any
debt securities of the Company (other than an announcement with positive
implications of a possible upgrading, and no implication of a possible
downgrading, of such rating); (iii) any suspension or limitation of trading in
securities generally on the New York Stock Exchange or any setting of minimum
prices for trading on such exchange, or any suspension of trading of any
securities of the Company on any exchange or in the over-the-counter market;
(iv) any banking moratorium declared by U.S. Federal or New York authorities; or
(v) any outbreak or escalation of major hostilities in which the United States
is involved, any declaration of war by Congress or any other substantial
national or international calamity or emergency if, in the judgment of a
majority in interest of the Underwriters including the Representatives, the
effect of any such outbreak, escalation, declaration, calamity or emergency
makes it impractical or inadvisable to proceed with completion of the public
offering or the sale of and payment for the Offered Securities.
(e) The Representatives shall have received an opinion, dated
such Closing Date, of Armstrong Teasdale, LLP counsel for the Company, to the
effect that:
(i) The Company has been duly incorporated and is an
existing corporation in good standing under the laws of the State
of Delaware, with corporate power and authority to own its
properties and conduct its business as described in the
Prospectus; and the Company is duly qualified to do business as a
foreign corporation in good standing in all other jurisdictions in
which its ownership or lease of property or the conduct of its
business requires such qualification, except where the failure to
qualify would not have a material adverse effect on the Company
and its subsidiaries, taken as a whole;
(ii) The Offered Securities delivered on such Closing Date
and all other outstanding shares of the Common Stock of the
Company have been duly authorized and validly issued, are fully
paid and nonassessable and conform to the description thereof
contained in the Prospectus; and, to the knowledge of such
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<PAGE> 16
counsel, the stockholders of the Company have no preemptive rights
with respect to the Securities;
(iii) Except for the agreements described in Section
2(a)(vii), there are no contracts, agreements or understandings
known to such counsel between the Company and any person granting
such person the right to require the Company to file a
registration statement under the Act with respect to any
securities of the Company owned or to be owned by such person or
to require the Company to include such securities in the
securities registered pursuant to the Registration Statement or in
any securities being registered pursuant to any other registration
statement filed by the Company under the Act;
(iv) No consent, approval, authorization or order of, or
filing with, any governmental agency or body or any court is
required to be obtained or made by the Company or any Selling
Stockholder for the consummation of the transactions contemplated
by this Agreement in connection with the sale of the Offered
Securities, except such as have been obtained and made under the
Act and such as may be required under state securities laws;
(v) The execution, delivery and performance of this
Agreement and the consummation of the transactions herein or
therein contemplated will not result in a breach or violation of
any of the terms and provisions of, or constitute a default under,
any order known to such counsel, any statute, any rule, regulation
or any governmental agency or body or any court having
jurisdiction over the Company or any subsidiary of the Company or
any of their properties, or any agreement or instrument identified
in writing by the Company to such counsel as a material contract
or instrument to which the Company or any such subsidiary is a
party or by which the Company or any such subsidiary is bound or
to which any of the properties of the Company or any such
subsidiary is subject, or the charter or by-laws of the Company or
any such subsidiary;
(vi) The Initial Registration Statement was declared
effective under the Act as of the date and time specified in such
opinion, the Additional Registration Statement (if any) was filed
and became effective under the Act as of the date and time (if
determinable) specified in such opinion, the Prospectus either was
filed with the Commission pursuant to the subparagraph of Rule
424(b) specified in such opinion on the date specified therein or
was included in the Initial Registration Statement or the
Additional Registration Statement (as the case may be), and, to
the best of the knowledge of such counsel, no stop order
suspending the effectiveness of a Registration Statement or any
part thereof has been issued and no proceedings for that purpose
have been instituted or are pending or contemplated under the Act,
and each Registration Statement and the Prospectus, and each
amendment or supplement thereto, as of their respective effective
or issue dates, complied as to form in all material respects with
the requirements of the Act and the Rules and Regulations; such
counsel have no reason to believe
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<PAGE> 17
that any part of a Registration Statement or any amendment
thereto, as of its effective date or as of such Closing Date,
contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary
to make the statements therein not misleading; or that the
Prospectus or any amendment or supplement thereto, as of its issue
date or as of such Closing Date, contained any untrue statement of
a material fact or omitted to state any material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; the
descriptions in the Registration Statements and Prospectus of
statutes, legal and governmental proceedings and contracts and
other documents are accurate and fairly present the information
required to be shown; and such counsel do not know of any legal or
governmental proceedings required to be described in a
Registration Statement or the Prospectus which are not described
as required or of any contracts or documents of a character
required to be described in a Registration Statement or the
Prospectus or to be filed as exhibits to a Registration Statement
which are not described and filed as required; it being understood
that such counsel need express no opinion as to the financial
statements or other financial data contained in the Registration
Statements or the Prospectus; and
(vii) This Agreement has been duly authorized, executed and
delivered by the Company.
(f) The Representatives shall have received an opinion, dated
such Closing Date, of O'Melveny & Myers LLP, counsel for The TCW Group, to the
effect that:
(i) Each Selling Stockholder who is a member of The TCW
Group (a "TCW Selling Stockholder") has the power under the
California Uniform Partnership Act or California Revised Limited
Partnership Act, as applicable, and its partnership agreement to
sell, assign, transfer and deliver the Offered Securities
delivered by such Selling Stockholder on such Closing Date
hereunder; and the several Underwriters, assuming they have
acquired the Offered Securities delivered by such Selling
Stockholder on such Closing Date in good faith and without any
actual notice of adverse claims, own the Offered Securities
purchased by them from the TCW Selling Stockholders on such
Closing Date hereunder free of any adverse claims;
(ii) No consent, approval, permit or order of any
California or federal governmental agency or body or any court
that such counsel has, in the exercise of customary professional
diligence, recognized as applicable to a Selling Stockholder or to
transactions of the type contemplated by this Agreement, is
required to be obtained by any TCW Selling Stockholder for the
consummation of the sale of the Offered Securities sold by such
Selling Stockholder, except such as have been obtained and made
under the Act and such as may be required under any state
securities or Blue Sky Laws, or for clearance of the offering with
the NASD;
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<PAGE> 18
(iii) The execution and delivery of this Agreement and
performance of this Agreement and the consummation of the
transactions herein contemplated, on or prior to the date of this
opinion, in connection with the sale of the Offered securities
sold by the TCW Selling Stockholders, do not violate any
California or federal statute or regulation that such counsel has,
in the exercise of customary professional diligence, recognized as
applicable to a Selling Stockholder or to transactions of the type
contemplated by this Agreement, or the partnership agreement of
such TCW Selling Stockholder, or violate, breach or result in a
default under any agreement or instrument known to such counsel to
which any TCW Selling Stockholder is a party or by which any TCW
Selling Stockholder is bound; and
(iv) The execution and delivery of this Agreement and the
sale, assignment, transfer and delivery by each TCW Selling
Stockholder of the Offered Securities sold by such Selling
Stockholder have been duly authorized by all necessary action
under the California Uniform Partnership Act or California Revised
Limited Partnership Act, as applicable, and the partnership
agreement on the part of such Selling Stockholder and this
Agreement has been duly executed and delivered by each TCW Selling
Stockholder.
Such counsel shall express no opinion under Paragraph 6(f)(iii) with respect to
federal or state securities laws, antitrust laws or with respect to the
indemnification or contribution provisions of this Agreement, except as
expressly stated therein.
(g) The Representatives shall have received an opinion, dated
such Closing Date, of Parr, Waddoups, Brown, Gee & Loveless to the effect that:
(i) Huntsman International Corporation, a Utah corporation
("Huntsman") has the corporate power to sell, assign, transfer and
deliver the Offered Securities delivered by it as a Selling
Stockholder on such Closing Date hereunder; and the several
Underwriters, assuming they have acquired the Offering Securities
delivered by Huntsman on such Closing Date in good faith and
without any actual notice of adverse claims, own the Offered
Securities purchased by them from Huntsman on such Closing Date
hereunder free of any adverse claims;
(ii) No consent, approval, permit or order of any Utah or
federal governmental agency or body or any court that such counsel
has, in the exercise of customary professional diligence,
recognized as applicable to Huntsman as a Selling Stockholder or
to transactions of the type contemplated by this Agreement, is
required to be obtained by Huntsman for the consummation of the
sale of the Offered Securities sold by it, except such as have
been obtained and made under the Act and such as may be required
under any state securities or Blue Sky Laws, or for clearance of
the offering with the NASD;
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<PAGE> 19
(iii) The execution and delivery of this Agreement and
performance of this Agreement and the consummation of the
transactions herein contemplated, on or prior to the date of this
opinion, in connection with the sale of the Offered Securities
sold by Huntsman, do not violate any Utah or federal statute or
regulation that such counsel has, in the exercise of customary
professional diligence, recognized as applicable to Huntsman as a
Selling Stockholder or to transactions of the type contemplated by
this Agreement, or the Articles of Incorporation of Huntsman, or
violate, breach or result in a default under any agreement or
instrument known to such counsel to which Huntsman is a party or
by which Huntsman is bound; and
(iv) The execution and delivery of this Agreement and the
sale, assignment, transfer and delivery by Huntsman of the Offered
Securities sold by Huntsman have been duly authorized by all
necessary corporate action on the part of Huntsman and this
Agreement has been duly executed and delivered by Huntsman.
Such counsel shall express no opinion under Paragraph 6(g)(iii)
with respect to federal or state securities laws, antitrust laws
or with respect to the indemnification or contribution provisions
of this Agreement, except as expressly stated therein.
(h) The Representatives shall have received from McDermott, Will
& Emery, counsel for the Underwriters, such opinion or opinions, dated such
Closing Date, with respect to the incorporation of the Company, validity of the
Offered Securities delivered on such Closing Date, Registration Statements, the
Prospectus and other related matters as the Representatives may require, and the
Selling Stockholders and the Company shall have furnished to such counsel such
documents as they request for the purpose of enabling them to pass upon such
matters.
(i) The Representatives shall have received a certificate, dated
such Closing Date, of the President or any Vice-President and a principal
financial or accounting officer of the Company in which such officers, to the
best of their knowledge after reasonable investigation, shall state that: the
representations and warranties of the Company in this Agreement are true and
correct; the Company has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied hereunder at or prior to
such Closing Date; no stop order suspending the effectiveness of any
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are contemplated by the Commission; the Additional
Registration Statement (if any) satisfying the requirements of subparagraphs (1)
and (3) of Rule 462(b) was filed pursuant to Rule 462(b), including payment of
the applicable filing fee in accordance with Rule 111(a) or (b) under the Act,
prior to the time the Prospectus was printed and distributed to any Underwriter;
and, subsequent to the dates of the most recent financial statements in the
Prospectus, there has been no material adverse change, nor any development or
event involving a prospective material adverse change, in the financial
condition, business, properties or results of operations of the Company and its
subsidiaries taken as a whole except as set forth in or contemplated by the
Prospectus or as described in such certificate.
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(j) The Representatives shall have received a letter, dated such
Closing Date, of Arthur Andersen LLP which meets the requirements of subsection
(a) of this Section, except that the specified date referred to in such
subsection will be a date not more than five days prior to such Closing Date for
the purposes of this subsection.
(k) The Representatives shall have received a letter, dated such
Closing Date, of Coopers & Lybrand which meets the requirements of subsection
(b) of this Section, except that the specified date referred to in such
subsection will be a date not more than five days prior to such Closing Date for
the purposes of this subsection.
The Selling Stockholders and the Company will furnish the Representatives with
such conformed copies of such opinions, certificates, letters and documents as
the Representatives reasonably request. First Analysis may in its sole
discretion waive on behalf of the Underwriters compliance with any conditions to
the obligations of the Underwriters hereunder, whether in respect of an Optional
Closing Date or otherwise.
7. Indemnification and Contribution.
(a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any Registration Statement, the Prospectus, or any
amendment or supplement thereto, or any related preliminary prospectus, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such loss, claim, damage, liability or action as
such expenses are incurred; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement in or omission or alleged omission from any of such documents in
reliance upon and in conformity with written information furnished to the
Company by any Underwriter through the Representatives specifically for use
therein, it being understood and agreed that the only such information furnished
by any Underwriter consists of the information described as such in subsection
(c) below.
(b)
(i) The TCW Selling Stockholders, severally and not
jointly, will indemnify and hold harmless each Underwriter against
any losses, claims, damages or liabilities, to which such
Underwriter may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact
contained in any Registration Statement, the Prospectus, or any
amendment or supplement thereto, or any related preliminary
20
<PAGE> 21
prospectus, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, in each case to the extent but only to the extent,
that such untrue statement or alleged untrue statement or omission
or alleged omission was made in reliance upon and in conformity
with written information provided to the Company by such TCW
Selling Stockholder specifically for use therein and will
reimburse each Underwriter for any legal or other expenses
reasonably incurred, it being understood and agreed that the only
such information furnished by any such TCW Selling Stockholder
consists of the information in the Prospectus relating to such TCW
Selling Stockholder appearing under the caption "Principal and
Selling Stockholders"; provided, however, that any such TCW
Selling Stockholder will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out
of or is based upon an untrue statement or alleged untrue
statement in or omission or alleged omission from any of such
documents in reliance upon and in conformity with written
information furnished to the Company by an Underwriter through the
Representatives specifically for use therein, it being understood
and agreed that the only such information furnished by any
Underwriter consists of the information described as such in
subsection (c) below; and provided further, however, that such
indemnity with respect to any preliminary prospectus shall not
inure to the benefit of any Underwriter from whom the person
asserting any such loss, claim, damage or liability purchased
Securities which are the subject thereof to the extent that any
such loss, claim, damage or liability arises out of or is based
upon an untrue statement or omission to state a material fact in
such preliminary prospectus which was corrected in the Prospectus
as amended or supplemented; and provided further, however, that
the obligation and liability of any TCW Selling Stockholder to
provide such indemnity shall be limited to and shall not exceed
the total net proceeds from the Offered Securities received by
such TCW Selling Stockholder.
(ii) Huntsman will indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, to
which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact
contained in any Registration Statement, the Prospectus, or any
amendment or supplement thereto, or any related preliminary
prospectus, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission
or alleged omission was made in reliance upon and in conformity
with written information provided to the Company by Huntsman
specifically for use therein and will reimburse each Underwriter
for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such
loss, claim, damage, liability or action as such expenses are
incurred, it being understood and agreed that the only such
21
<PAGE> 22
information furnished by Huntsman consists of the information in
the Prospectus relating to Huntsman appearing under the caption
"Principal and Selling Stockholders"; provided, however, that
Huntsman will not be liable in any such case to the extent that
any such loss, claim damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement in or
omission or alleged omission from any of such documents in
reliance upon and in conformity with written information furnished
to the Company by an Underwriter through the Representatives
specifically for use therein, it being understood and agreed that
the only such information furnished by any Underwriter consists of
the information described as such in subsection (c) below; and
provided further, however, that such indemnity with respect to any
preliminary prospectus shall not inure to the benefit of any
Underwriter from whom the person asserting any such loss, claim,
damage or liability purchased Securities which are the subject
thereof to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or
omission to state a material fact in such preliminary prospectus
which was corrected in the Prospectus as amended or supplemented;
and provided further, however, that Huntsman's obligation and
liability to provide such indemnity shall be limited to and shall
not exceed the total net proceeds from the Offered Securities
received by Huntsman.
(c) Each Underwriter will severally and not jointly indemnify
and hold harmless the Company and each Selling Stockholder against any losses,
claims, damages or liabilities to which the Company or such Selling Stockholder
may become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any Registration Statement, the Prospectus, or any amendment or
supplement thereto, or any related preliminary prospectus, or arise out of or
are based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished to
the Company by such Underwriter through the Representatives specifically for use
therein, and will reimburse any legal or other expenses reasonably incurred by
the Company and each Selling Stockholder in connection with investigating or
defending any such loss, claim, damage, liability or action as such expenses are
incurred, it being understood and agreed that the only such information
furnished by any Underwriter consists of the following information in the
Prospectus furnished on behalf of each Underwriter: the concession and
reallowance figures appearing in the fifth paragraph under the caption
"Underwriting."
(d) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against an indemnifying party
under subsection (a), (b) or (c) above, notify the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under subsection (a), (b) or (c) above. In case any such action
is brought against any
22
<PAGE> 23
indemnified party and it notifies an indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party (who shall not, except with the consent of the indemnified
party, be counsel to the indemnifying party), and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement of any
pending or threatened action in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party unless such settlement includes an unconditional release of
such indemnified party from all liability on any claims that are the subject
matter of such action.
(e) If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a), (b) or (c) above, then each indemnifying party shall contribute
to the amount paid or payable by such indemnified party as a result of the
losses, claims, damages or liabilities referred to in subsection (a), (b) or (c)
above (i) in such proportion as is appropriate to reflect the relative benefits
received by the Company and the Selling Stockholders on the one hand and the
Underwriters on the other from the offering of the Securities or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
the Selling Stockholders on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Stockholders on the one hand and the Underwriters on the other shall be deemed
to be in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company and the Selling Stockholders bear to
the total underwriting discounts and commissions received by the Underwriters.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company, the Selling Stockholders or the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The amount paid by an
indemnified party as a result of the losses, claims, damages or liabilities
referred to in the first sentence of this subsection (e) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any action or claim which is
the subject of this subsection (e). Notwithstanding the provisions of this
subsection (e), no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Securities
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to
23
<PAGE> 24
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (e) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(f) The obligations of the Company and the Selling Stockholders
under this Section shall be in addition to any liability which the Company and
the Selling Stockholders may otherwise have and shall extend, upon the same
terms and conditions, to each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the Underwriters under
this Section shall be in addition to any liability which the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each director of the Company, to each officer of the Company who
has signed a Registration Statement and to each person, if any, who controls the
Company within the meaning of the Act, to each partner of a Selling Stockholder,
and to each person, if any, who controls a Selling Stockholder within the
meaning of the Act.
8. Default of Underwriters. If any Underwriter or Underwriters
default in their obligations to purchase Offered Securities hereunder on either
the First or the Optional Closing Date and the aggregate number of shares of
Offered Securities that such defaulting Underwriter or Underwriters agreed but
failed to purchase does not exceed 10% of the total number of shares of Offered
Securities that the Underwriters are obligated to purchase on such Closing Date,
First Analysis may make arrangements satisfactory to the Company and the Selling
Stockholders for the purchase of such Offered Securities by other persons,
including any of the Underwriters, but if no such arrangements are made by such
Closing Date, the non-defaulting Underwriters shall be obligated severally, in
proportion to their respective commitments hereunder, to purchase the Offered
Securities that such defaulting Underwriters agreed but failed to purchase on
such Closing Date. If any Underwriter or Underwriters so default and the
aggregate number of shares of Offered Securities with respect to which such
default or defaults occur exceeds 10% of the total number of shares of Offered
Securities that the Underwriters are obligated to purchase on such Closing Date
and arrangements satisfactory to First Analysis, the Company and the Selling
Stockholders for the purchase of such Offered Securities by other persons are
not made within 36 hours after such default, this Agreement will terminate
without liability on the part of any non-defaulting Underwriter, the Company or
the Selling Stockholders, except as provided in Section 9 (provided that if such
default occurs with respect to Optional Securities after the First Closing Date,
this Agreement will not terminate as to the Firm Securities or any Optional
Securities purchased prior to such termination). As used in this Agreement, the
term "Underwriter" includes any person substituted for an Underwriter under this
Section. Nothing herein will relieve a defaulting Underwriter from liability for
its default.
9. Survival of Certain Representations and Obligations. The
respective indemnities, agreements, representations, warranties and other
statements of the Selling Stockholders, of the Company or its officers and of
the several Underwriters set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation, or statement
as to the results thereof, made by or on behalf of any Underwriter, any Selling
Stockholder, the Company or any of their respective representatives, officers or
directors or any controlling person, and will survive delivery of and payment
for the Offered Securities. If this Agreement is
24
<PAGE> 25
terminated pursuant to Section 8 or if for any reason the purchase of the
Offered Securities by the Underwriters is not consummated, the Company and the
Selling Stockholders shall remain responsible for the expenses to be paid or
reimbursed by them pursuant to Section 5 and the respective obligations of the
Company, the Selling Stockholders, and the Underwriters pursuant to Section 7
shall remain in effect, and if any Offered Securities have been purchased
hereunder the representations and warranties in Section 2 and all obligations
under Section 5 shall also remain in effect. If the purchase of the Offered
Securities by the Underwriters is not consummated for any reason other than
solely because of the termination of this Agreement pursuant to Section 8 or
occurrence of any event specified in clause (iii), (iv) or (v) of Section 6(e),
the Company will reimburse the Underwriters for all out-of-pocket expenses
(including fees and disbursements of counsel) reasonably incurred by them in
connection with the offering of the Offered Securities.
10. Notices. All communications hereunder will be in writing and, if
sent to the Underwriters, will be mailed, delivered or telegraphed and confirmed
to the Representatives, c/o First Analysis Securities Corporation, 233 South
Wacker Drive, Suite 9500, Chicago, IL 60606, or, if sent to the Company, will be
mailed, delivered or telegraphed and confirmed to it at 120 South Central, Suite
1700, St. Louis, MO 63105, Attention: Randy C. Martin, or if sent to The TCW
Group, will be mailed, delivered or telegraphed and confirmed to The TCW Group,
c/o Trust Company of the West, Representative Office, 200 Park Avenue, Suite
2200, New York, New York 10166, or, if sent to Huntsman, will be mailed,
delivered or telegraphed and confirmed to Huntsman International Corporation,
500 Huntsman Way, Salt Lake City, Utah 84108, Attention: Sean Douglas; provided,
however, that any notice to an Underwriter pursuant to Section 7 will be mailed,
delivered or telegraphed and confirmed to such Underwriter.
11. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective personal representatives
and successors and the officers and directors and controlling persons referred
to in Section 7, and no other person will have any right or obligation
hereunder.
12. Representation. The Representatives will act for the several
Underwriters in connection with the transactions contemplated by this Agreement,
and any action under this Agreement taken by the Representatives jointly or by
First Analysis will be binding upon all the Underwriters.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS.
25
<PAGE> 26
The Company hereby submits to the non-exclusive jurisdiction of the
Federal and state courts in the City of Chicago, Illinois in any suit or
proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby.
If the foregoing is in accordance with the Representatives'
understanding of our agreement, kindly sign and return to the Company one of the
counterparts hereof, whereupon it will become a binding agreement among the
Selling Stockholders, the Company and the several Underwriters in accordance
with its terms.
Very truly yours,
SPARTECH CORPORATION
By:
----------------------------------
Title:
-------------------------------
TCW SPECIAL PLACEMENTS FUND I
By: TCW Capital, as General Partner
By: TCW Asset Management Company,
its Managing General Partner
By:
----------------------------------
By:
----------------------------------
26
<PAGE> 27
TCW SPECIAL PLACEMENTS FUND II
By: TCW Capital, as General Partner
By: TCW Asset Management Company,
its Managing General Partner
By:
----------------------------------
By:
----------------------------------
TCW CAPITAL, ACTING SOLELY IN ITS
CAPACITY AS AN INVESTMENT MANAGER
PURSUANT TO AN INVESTMENT MANAGEMENT
AGREEMENT DATED AS OF JUNE 30, 1987
By: TCW Asset Management Company,
its Managing General Partner
By:
----------------------------------
By:
----------------------------------
HUNSTMAN INTERNATIONAL CORPORATION
By:
----------------------------------
Title:
-------------------------------
27
<PAGE> 28
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
FIRST ANALYSIS SECURITIES CORPORATION
EVEREN SECURITIES, INC.
JANNEY MONTGOMERY SCOTT INC.
Acting on behalf of themselves and as the Representatives of the several
Underwriters.
By: FIRST ANALYSIS SECURITIES CORPORATION
By:
--------------------------------
Title:
-----------------------------
28
<PAGE> 29
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF FIRM
SECURITIES TO BE SOLD
<S> <C>
Selling Stockholder
TCW Special Placements Fund I 1,591,461
TCW Special Placements Fund II 408,221
TCW Capital, as investment manager 12,329
pursuant to an Investment Management
Agreement dated as of June 30, 1987
Huntsman International Corporation 316,957
---------
Total 2,328,968
=========
</TABLE>
29
<PAGE> 30
SCHEDULE B
<TABLE>
<CAPTION>
Number of
Firm Securities
Underwriter to be Purchased
- ----------- ---------------
<S> <C>
First Analysis Securities Corporation.........................
EVEREN Securities, Inc........................................
Janney Montgomery Scott Inc...................................
Total...............................................2,328,968
=========
</TABLE>
30
<PAGE> 1
EXHIBIT 5.1
ARMSTRONG TEASDALE LLP Attorneys at Law
One Metropolitan Square, Suite 2600
St. Louis, Missouri 63102-2740
Phone: (314) 621-5070
Fax: (314) 621-5065
www.armstrongteasdale.com
May 7, 1999
Spartech Corporation
120 South Central, Suite 1700
Clayton, Missouri 63105
Re: Registration Statement on Form S-3 for up to 2,673,968 Shares of
Common Stock
Ladies and Gentlemen:
In our capacity as counsel for Spartech Corporation, a Delaware
corporation (the "Company") we have examined the Registration Statement on Form
S-3 (the "Registration Statement") as filed by the Company with the Securities
and Exchange Commission on March 22, 1999 in connection with the registration
under the Securities Act of 1933, as amended, of up to an aggregate of 2,673,968
shares of the Company's Common Stock, $0.75 par value per share (the "Common
Stock"), of which 2,328,968 shares are being offered by certain existing
stockholders (the "Selling Stockholders") and up to 345,000 additional shares
may be offered by the Company pursuant to an over-allotment option granted to
the Underwriters as defined in the Registration Statement.
As your counsel, we have examined the Company's Restated Certificate of
Incorporation and By-Laws, each as amended to the date hereof, and the records
of corporate proceedings and other actions taken by the Company in connection
with the authorization, issuance and sale of the Common Stock. Based upon the
foregoing and in reliance thereon, we are of the opinion that:
1. The 2,328,968 shares of Common Stock to be sold by the Selling
Stockholder have been legally issued and are fully paid and nonassessable; and
2. The up to 345,000 additional shares of Common Stock subject to the
Underwriters' over-allotment option, if, when and to the extent issued and sold
pursuant to the exercise of such option, will be legally issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and we further consent to the use of our name under the
caption "Legal Matters; Experts" in the Prospectus forming a part of said
Registration Statement.
Very truly yours,
ARMSTRONG TEASDALE LLP
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
included in this registration statement and to the incorporation by reference in
this registration statement of our reports dated December 4, 1998, incorporated
by reference in Spartech Corporation's Annual Report on Form 10-K for the fiscal
year ended October 31, 1998, and to all references to our firm included in or
made a part of this registration statement.
ARTHUR ANDERSEN LLP
St. Louis, Missouri,
May 6, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference to our firm under the caption
"Experts" in the Registration Statement (Form S-3) of Spartech Corporation and
in the related prospectus of our report dated April 17, 1998, with respect to
the consolidated financial statements of Polycom Huntsman, Inc., included in the
Current Report on Form 8-K/A, as filed with the Securities and Exchange
Commission on June 15, 1998.
Ernst & Young LLP
Pittsburgh, Pennsylvania
May 4, 1999
