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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
FORM 10-K
(Mark One)
[x] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee Required)
For the fiscal year ended August 31, 1997 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from ___________ to _____________.
Commission File No. 0-7459
A. SCHULMAN, INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 34-0514850
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(State of Incorporation) (I.R.S. Employer Identification No.)
3550 West Market Street, Akron, Ohio 44333
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(Address of Principal Executive Offices) (ZIP Code)
Registrant's telephone number, including area code: (330)666-3751
---------------
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $1.00 Par Value
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(Title of Class)
Special Stock Purchase Rights
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or l5(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for at least the past 90 days. Yes X No
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[Cover continued on following page]
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[Cover Continued From Previous Page]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of voting stock held by non-affiliates of the Registrant
on October 17, 1997: $837,767,212.
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practical date:
36,135,193 SHARES OF COMMON STOCK, $1.00 PAR VALUE, AT OCTOBER 17, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K
Document in Which Incorporated
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Portions of the Registrant's Notice
of Annual Meeting and Proxy Statement
Dated November 10, 1997 III and IV
Portions of the Registrant's 1997
Annual Report to Stockholders I and II
Neither the Report of the Compensation Committee on Executive Compensation nor
the Performance Graph contained in the Registrant's Notice of Annual Meeting and
Proxy Statement dated November 10, 1997 shall be deemed incorporated by
reference herein.
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PART I
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ITEM 1. BUSINESS
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A. Schulman, Inc. (the "Company") was organized as an Ohio corporation
in 1928 and changed its state of incorporation to Delaware in 1969.
The Company operates in one industry segment which is the sale of
plastic resins to customers who use the products as raw materials in their
manufacturing operations. For informative purposes, the Company classifies its
activities within its only industry segment as manufacturing, merchant or
distribution. These activities are carried on in all markets and geographic
areas in which the Company operates. The Company purchases plastic resins and
other materials which either can be sold directly to customers or used by the
Company in the manufacture of other products for sale to customers. Because of
their interchangeable nature, inventories are not segregated as to
manufacturing, merchant or distribution activities. All of the products which
the Company sells are used for the same purpose--as raw material to be molded or
extruded by the Company's customers. The Company has one sales force for all of
its products and materials.
The first classification, manufacturing, involves primarily the
formulation and manufacture of proprietary plastic compounds engineered to
fulfill the application requirements of the
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Company's customers. These compounds, also known as engineered products, are
formulated in the Company's laboratories and are manufactured in the Company's
thirteen plastics compounding plants in North America, Europe and Asia. The
Company combines basic resins purchased from plastic resin producers with
various additives in accordance with formulae and specifications developed in
the Company's laboratories. Customers for the Company's proprietary plastic
compounds include manufacturers, custom molders and extruders of a wide variety
of plastic products and parts. Proprietary compounds are produced by the Company
generally on the basis of customer commitments. When necessary, compounds are
produced for future delivery and are stored in Company and public warehouses.
The Company's proprietary plastic compounds are sold to manufacturers
and suppliers in various markets such as consumer products, electrical/
electronics, packaging, office equipment, automotive and agriculture. For
example, these compounds are used in the consumer products industry for such
items as writing instruments, shelving, soft drink coolers, video tape
cassettes, batteries, outdoor furniture, lawn sprinklers, artificial turf,
skateboards, toys, games and plastic parts for various household appliances; in
the electrical/electronics industry for such products as outdoor lighting, parts
for telephones, connector blocks, transformers, capacitor housings and wire and
cable insulation for power generation, distribution and control systems; in the
packaging industry for such products as plastic
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bags and labels and packaging materials for food, soap, fragrances, flowers,
gardening supplies and various household necessities; in the office equipment
industry for such products as cases and housings for computers, folders and
binders, stack trays and panels and drawers for copying machines; in the
automotive industry for such products as grills, body side moldings, bumper
protective strips, window seals, valance panels, bumper guards, air ducts,
steering wheels, fan shrouds and other interior and exterior components; and in
the agriculture industry for such products as greenhouse coverings, protective
film for plants and agricultural mulch.
The Company manufactures various flame retardant engineered compounds,
including Polyman(R), Polyflam(R) and Polyvin(R). These compounds are used in
applications such as telephone system terminal blocks, parts for color
televisions, electrical components and housings for household appliances and
outdoor products.
Papermatch(R), one of the Company's newer product lines, is a plastic
alternative to paper used for packaging, menus, maps and other products.
Papermatch(R) is printable and resistant to tearing, moisture and chemicals.
Schulamid(R), a nylon compound, can be unfilled, reinforced or
impact-modified and is used in applications which require good impact strength
and resistance to high temperatures and chemicals. Typical applications include
under-the-hood automotive components and various building and consumer products.
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The Company manufactures Superohm(R), a specialized elastomer- based
compound for use as insulation for high and medium voltage wire and cable which
may be either flame retardant or resistant to high temperatures. The Company
also manufactures Formion(R), a specialized compound which has good impact
strength, is resistant to abrasion and has performance characteristics which do
not decrease in low temperatures. This product is sold principally to the
transportation industry for use in bumper blocks and protective rub strips.
In addition, the Company manufactures Polytrope(R), a thermoplastic
elastomer which has high resiliency and good impact resistance. Presently, the
principal market for this product is the domestic automotive industry. Typical
applications are valance panels, body side moldings, grills and bumper rub
strips. Parts molded from Polytrope(R) weigh less than equivalent metal parts,
are impact-resistant and may be painted to match adjoining exterior body parts.
Polypur(R), a polyurethane-based compound manufactured by the Company,
has good thermal stability, is easy to mold and can be finished with only one
coat of paint. It presently is used for automotive exterior body components and
trim parts such as body side moldings.
The Company also manufactures Polyfort(R), a reinforced polypropylene
compound for applications which require stiffness and resistance to heat
distortion. Examples of such applications are coffee makers, binders for
computer printouts, seatbacks and
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under-the-hood products for automobiles. Schulink(R), a crosslink
polyethylene-based compound, is used in rotational molding applications
requiring high strength and chemical resistance.
The Company's plastics compounding operations include the manufacture
of Polybatch(R), an additive or color concentrate used for modifying various
plastic resins. An additive concentrate provides various physical properties
required by customers. These properties include slip, anti-slip, UV stabilizers,
etc. A color concentrate is a clear or natural plastic resin into which a
substantial amount of color pigment is incorporated or dispersed. The Company
manufactures its proprietary concentrates using its formulae and purchased prime
natural resins. These concentrates are sold to manufacturers of plastic
products. The Company also manufactures Polyblak(R), a line of black
concentrates. In addition, the Company performs tolling of plastic compounds and
concentrates using resins and formulae supplied by customers.
Concentrates provide specific color and/or other physical properties
used in the manufacture of film for packaging, household goods, toys, automotive
parts, mechanical goods and other plastic items. Black concentrates, which are
resistant to weather and sunlight, are used by wire and cable manufacturers for
insulation coating and in the production of plastic pipe, black film and other
black plastic items.
Tolling, which accounted for less than 5% of the Company's revenues
from manufacturing in its latest fiscal year, involves
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the use of resins and formulae provided by customers. Tolling is done
principally for major plastic resin producers. The Company is compensated on the
basis of an agreed price per pound plus an additional charge for any additives
and packaging supplied by the Company.
In the second classification within its plastics industry segment, the
Company, through its sales offices in North America and Europe, acts as a
merchant which buys prime and off-grade plastic resins and resells these
commodities, without further processing, to a variety of users. The plastic
resins generally are purchased from major producers. Prime resins are purchased
from these producers and usually are sold to small and medium-sized customers.
In addition to prime resins, the Company also purchases supplies of resins
resulting from overruns, changes in customers' specifications and failure to
meet rigid prime specifications. Historically, these materials have been in
continuous supply, generally in proportion to the total industry production of
plastic resins.
In the third classification within its plastics industry segment, the
Company, through its European operations, acts as a distributor for several
major resin producers which include Huels AG, Vestolen GmbH, BASF, Dow Chemical,
Exxon Chemical, and ATOCHEM.
The Company is the exclusive third-party United States, Canada and
Mexico distributor of rotational molding grades of nylon 11 and 12 for Elf
Atochem North America, Inc. Nylon 11 and
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12 are used in the rotational molding business and the extrusion and injection
molding markets. The Company acts as a distributor of polyvinyl chloride
dispersion resin manufactured by Kaneka Delaware Corporation of the United
States.
In addition, the Company acts as United States distributor of
Escorene(R) polypropylene resins and Escorene(R) roto molding resins, both
manufactured by Exxon Chemical. The Company also is a distributor in the United
States for Exxon Chemical of polyethylene used in injection molding, EMA and
EVA. The Company also acts as a distributor of K-Resin(R) in the United States
for Phillips Petroleum and of polypropylene in Canada for Epsilon Products
Company.
Supplemental information regarding net sales and gross profit of the
Company's three classifications within its sole industry segment is set forth on
page 30 of the Company's 1997 Annual Report to Stockholders, which information
is incorporated herein by reference.
The Company's operations outside the United States are an important
part of its business. The Company's foreign subsidiaries manufacture additives,
concentrates, flame retardants and other proprietary and custom plastic
compounds, act as merchants of plastic resins, and distribute certain plastic
resins for prime producers.
Information regarding the amount of sales, operating income and
identifiable assets attributable to each of the Company's geographic areas and
the amount of inter-geographic area sales
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for the last three years is set forth in Note 11 of the Notes to Consolidated
Financial Statements in the Company's 1997 Annual Report to Stockholders, which
information is incorporated herein by reference.
The Company's foreign subsidiaries are as follows:
N.V. A. Schulman Plastics, S.A., a Belgian subsidiary located in
Bornem, manufactures proprietary and custom concentrates and compounds. These
products principally are sold in Germany, France, the Benelux countries, Italy
and the Far East.
A. Schulman, Inc., Limited, a United Kingdom subsidiary located in
South Wales, manufactures proprietary and custom plastic concentrates which are
sold primarily in the United Kingdom.
A. Schulman GmbH, a German subsidiary located in Sindorf, manufactures
proprietary and custom plastic compounds. In addition, a major portion of the
sales volume of this subsidiary is derived from merchant activities consisting
of the purchase and sale of prime and off-grade plastic resins from major
European producers. During the fiscal year ended August 31, 1997, this
subsidiary purchased approximately 25% of the compounds manufactured in the
Bornem, Belgium plant. Approximately 29% of the sales volume of A. Schulman GmbH
during the same period was derived from its distribution activity of selling
plastic resins and compounds of Huels AG and Vestolen GmbH, both members of the
Veba AG group of companies. This
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subsidiary also distributes products for Dow Chemical, Exxon Chemical, Hoechst
and Solvay.
A. Schulman Canada Ltd., a Canadian subsidiary located in St. Thomas,
Ontario, manufactures proprietary and custom plastic compounds, acts as a
merchant of prime and off-grade plastic resins and distributes polypropylene for
Epsilon Products Company. These products are sold primarily in Canada. Its
principal sales office is located in Toronto.
A. Schulman AG, a Swiss subsidiary located in Zurich, is engaged as a
merchant of plastic resins and sells plastic compounds and concentrates
manufactured by other European subsidiaries of the Company.
A. Schulman, S.A., a French subsidiary, has four sales offices in
France and is a distributor in France for ATOCHEM, a merchant of plastic resins,
and sells compounds manufactured by the Company's subsidiaries in Bornem,
Belgium, Sindorf, Germany and Givet, France. Diffusion Plastique is also a
Paris-based distributor of plastic materials. Both A. Schulman, S.A. and
Diffusion Plastique are distributors in France for BASF and Solvay.
A. Schulman Plastics, S.A., another French subsidiary, is located in
Givet, France. This subsidiary produces plastic concentrates for the Company's
European market.
Through its Mexican subsidiary, A. Schulman de Mexico, S.A. de C.V.,
the Company manufactures concentrates for the packaging industry and compounds
for the automotive, construction,
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appliance and consumer products markets.
A. Schulman Polska Sp. z 0.0., located in Warsaw, Poland, is
a wholly-owned subsidiary of A. Schulman GmbH. This Company acts
as distributor and merchant of plastic resins and compounds in
Poland.
The Company owns a 70% partnership interest in The Sunprene Company,
which manufactures a line of PVC thermoplastic elastomers and compounds
primarily for the North American automotive market. The other partner is an
indirect wholly-owned subsidiary of Mitsubishi Chemical MKV Co., one of the
largest chemical companies in Japan. This partnership has two manufacturing
lines at the Company's Bellevue, Ohio facility. The Company's partner provides
technical and manufacturing expertise.
The Company owns a 65% interest in PTA. Schulman Plastics, Indonesia,
an Indonesian joint venture. This joint venture is building a manufacturing
facility with one production line in Surabaya, Indonesia. The other partner is
P.T. Prima Polycon Indah.
As of August 31, 1997, the Company had approximately 1,067 employees in
the United States and approximately 1,114 employees in its foreign operations.
More than 90% of the Company's hourly production employees are represented by
various unions under collective bargaining agreements.
The Company has laboratory facilities at each of its plastics
compounding plants staffed by approximately 260
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technical personnel. The Company's plastic compounding business is, to a degree,
dependent on its ability to hire and retain qualified technical personnel. These
personnel are involved in activities relating to the development of new
compounds and the testing and sampling of material for conformity with product
specifications. The Company has experienced no difficulty in hiring or retaining
such personnel.
A large part of the Company's technical activities relates to the
development of compounds for specific applications of customers. Research
activities relating to the development of new products and the improvement of
existing products are important to the Company; however, the amounts spent
during the last three fiscal years have not been material.
Management believes that compliance with Federal, state and local
provisions regulating the discharge of materials into the environment, or
otherwise relating to the protection of the environment, have not had a material
effect upon the capital expenditures, earnings or competitive position of the
Company.
During the year ended August 31, 1997, the Company's five largest
customers accounted in the aggregate for less than 10% of total sales. In
management's opinion, the Company is not dependent upon any single customer and
the loss of any one customer would not have a materially adverse effect on the
Company's business other than on a temporary basis.
The raw materials required by the Company readily are available from
major plastic resin producers or other suppliers.
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The principal types of plastic resins used in the manufacture of the Company's
proprietary plastic compounds are polypropylene, ABS (acrylonitrile butadiene
styrene), PVC (polyvinyl chloride), polyethylene, polystyrene and polyurethane.
The Company's business is highly competitive. In its manufacturing
classification, the Company competes with producers of the basic plastic resins,
many of which also operate compounding plants, and also competes with other
independent plastic compounders. The producers of basic plastic resins generally
are large producers of petroleum and chemicals, which are much larger than the
Company and have greater financial resources. Although no industry statistics
are available, the Company believes that it is one of the largest of the ten to
fifteen manufacturers of plastic compounds in the United States and Europe which
is not also engaged in the petrochemical industry or as a basic producer of
plastic resins. Certain of these competitors compete with the Company generally
in each such competitor's own local market area, while other competitors compete
with the Company on a global basis.
The Company also competes with other merchants and distributors of
plastic resins and other products. No accurate information is available to the
Company as to the extent of its competitors' sales and earnings in these
classifications, but management believes that the Company has only a small
fraction of the total market.
The principal methods of competition in plastics
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manufacturing and distribution are innovation, quality, service and price. In
the Company's merchant classification, the principal methods of competition are
service and price. The primary competitive advantages of the Company arise from
its financial capabilities, its excellent supplier relationships and its ability
to provide quality plastic compounds at competitive prices.
The Company uses various trademarks and trade names in its business.
These trademarks and trade names protect names of certain of the Company's
products and are significant to the extent they provide a certain amount of
goodwill and name recognition in the industry. Although these trademarks and
trade names contribute to profitability, the Company does not consider a
material part of its business to be dependent on such trademarks and trade
names. The Company also holds some patents in various parts of the world for
certain of its products. The products covered by these patents do not constitute
a material part of the Company's business.
ITEM 2. PROPERTIES
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The Company owns and operates eight plastics compounding plants in
North America, four in Europe and one in Asia. The following Table indicates the
location of each plastics compounding plant and the approximate annual plastics
compounding capacity and approximate floor area, including warehouse space:
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Approximate Approximate
Capacity Floor Area
Location (lbs.)(1) (Square Feet)
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Akron, Ohio 73,000,000 164,000
Bellevue, Ohio 80,000,000(2) 160,000
Sharon Center, Ohio 14,000,000 43,000
Orange, Texas 72,000,000 145,000
Orange, Texas--Texas
Polymer Services, Inc. 145,000,000 182,000
Nashville, Tennessee 70,000,000 131,000
San Luis Potosi, Mexico(3)(a) 25,000,000 78,000
Bornem, Belgium 130,000,000 371,000
Crumlin Gwent, South Wales (3)(b) 54,000,000 99,000
Givet, France(3)(c) 52,000,000 74,000
St. Thomas, Ontario, Canada 62,000,000 111,000
Kerpen, Germany 90,000,000 325,000
Surabaya, Indonesia (4) 12,000,000 68,000
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879,000,000
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(1) The approximate annual plastics compounding capacity set forth in this
Table is based upon several factors, including the daily and shift
operating schedules which are customary in the area where each facility
is located. Another factor is the approximate historical mix of
specific types of plastic compounds manufactured at each plant. A plant
operating at full capacity will produce a greater or lesser quantity
(in pounds) depending upon the specific plastic compound then being
manufactured. The annual poundage of plastic compounds manufactured
does not, in itself, reflect the extent of utilization of the Company's
plants or the profitability of the plastic compounds produced.
(2) Includes capacity of approximately 29 million pounds from two
manufacturing lines owned by The Sunprene Company, a partnership in
which the Company has a 70% partnership interest.
(3) Excludes the following capital projects:
(a) A new manufacturing line is being added to the facility in
Mexico. This line will have an annual capacity of
approximately 15 million pounds, is projected to cost $5.8
million and is scheduled to commence operations in fiscal year
1998.
(b) The Company is replacing an existing manufacturing line which
will increase capacity by approximately 8 million pounds. This
line will cost approximately $4 million and is scheduled to
commence operations in fiscal 1998.
(c) A new manufacturing line will be added to the facility in
Givet. This line will have an annual capacity of approximately
30 million pounds, is projected to cost $11 million and is
scheduled to commence operations in fiscal year 1999.
(4) Scheduled to commence operations December, 1997.
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The Company considers each of the foregoing facilities to be in good
condition and suitable for its purposes.
Public warehouses are used wherever needed to store the Company's
products conveniently for shipment to customers. The number of public warehouses
in use varies from time to time, but a yearly average approximates 35.
The Company owns its corporate headquarters which is located in Akron,
Ohio and which contains approximately 48,000 square feet of usable floor space.
The Company leases sales offices in various locations in the United States,
Canada, Mexico, the United Kingdom, Europe and Asia.
ITEM 3. PENDING LEGAL PROCEEDINGS
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The Company is not a party to any material pending legal proceedings.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended August 31, 1997.
EXECUTIVE OFFICERS OF THE COMPANY
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The age (as of October 17, 1997), business experience during the past
five years and offices presently held by each of the Company's Executive
Officers are reported below. The Company's By-Laws provide that officers shall
hold office until their successors are elected and qualified.
Terry L. Haines: Age 51; President and Chief Executive Officer of the
Company since January, 1991; formerly Chief Operating Officer, 1990-1991 and
Vice President--North American Sales, 1989-1990.
Robert A. Stefanko: Age 54; Chairman of the Board since January, 1991;
Executive Vice President--Finance and Administration of the Company since 1989;
and Chief Financial Officer of the Company since 1979.
Larry A. Kushkin: Age 57; Executive Vice President--International
Automotive Operations of the Company since 1989.
Brian R. Colbow: Age 50; Treasurer of the Company since 1984.
Alain C. Adam: Age 49; Vice President--Automotive Marketing since 1990.
Leonard E. Emge: Age 67; Vice President--Manufacturing since 1993 and
prior to that time General Plant Manager--North America
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since 1985.
Gordon L. Trimmer: Age 53; Vice President--North American Sales and
Marketing since April 1997 and prior to that time Managing Director of A.
Schulman.
James H. Berick: Age 64; Secretary of the Company since 1979 and
Chairman, Berick, Pearlman & Mills Co., L.P.A., Cleveland, Ohio (attorneys).
John M. Myles: Age 54; Vice President--North American Purchasing since
October 1997 and prior to that time General Manager-Operations of Laurel
Industries since 1992.
PART II
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ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
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The Company's Common Stock is traded in the over-the-counter market and
is quoted through the NASDAQ National Market System.
Additional information in response to this Item is set forth on page 1
of the Company's 1997 Annual Report to Stockholders, which information is
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
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Information in response to this Item is set forth on pages 30 and 31 of
the Company's 1997 Annual Report to Stockholders, which information is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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RESULTS OF OPERATIONS
---------------------
Information in response to this Item is set forth on pages 28 and 29 of
the Company's 1997 Annual Report to Stockholders,
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which information is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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(a) Financial Statements
--------------------
The financial statements, together with the report thereon of Price
Waterhouse LLP dated October 14, 1997, appearing on pages 16 through 27 of the
Company's 1997 Annual Report to Stockholders, are incorporated herein by
reference.
(b) Supplementary Data
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Information in response to this Item is set forth in the financial
statement schedules set forth on pages F-1 through F-2 of this Form 10-K.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
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None.
PART III
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
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The information required in response to this Item in respect of
Directors is set forth under the captions "Election of Directors" and
"Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the
Company's proxy statement dated November 10, 1997, previously filed with the
Commission, which information is incorporated herein by reference. The
information required by this Item in respect of Executive Officers is set forth
on pages 16 and 17 of this Form 10-K and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
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Information in response to this Item is set forth under the
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caption "Compensation of Executive Officers" in the Company's proxy statement
dated November 10, 1997, previously filed with the Commission, which information
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- --------------------------------------------------------------
Information in response to this Item is set forth under the
caption "Election of Directors" in the Company's proxy statement
dated November 10, 1997, previously filed with the Commission,
which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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Information in response to this Item is set forth under the caption
"Compensation Committee Interlocks and Insider Participation" in the Company's
proxy statement dated November 10, 1997, previously filed with the Commission,
which information is incorporated herein by reference.
PART IV
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ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
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(a) The following documents are filed as part of this report:
Page
(1) Financial Statements:
---------------------
Report of Independent Accountants 27*
Consolidated Statement of Income for
the three years ended August 31, 1997 16*
Consolidated Balance Sheet at August 31, 18*
1997 and 1996
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Consolidated Statement of Cash Flows for
the three years ended August 31, 1997 20*
Consolidated Statement of Stockholders'
Equity for the three years ended
August 31, 1997 17*
Notes to Consolidated Financial
Statements 21*
- --------------------
*Incorporated by reference from the indicated page of the Company's
1997 Annual Report to Stockholders. With the exception of this information and
the information incorporated in Items 1, 5, 6, 7 and 8, the 1997 Annual Report
to Stockholders is not deemed filed as part of this report.
(2) Financial Statement Schedules:
------------------------------
Report of Independent Accountants
on Financial Statement Schedule F-1
II-Valuation and Qualifying Accounts F-2
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
(3) Exhibits:
---------
Exhibit
Number
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3(a) Restated Certificate of Incorporation (incorporated
by reference to Exhibit 3(a) to the Company's Form
10-K for fiscal year ended August 31, 1990).
3(b) Certificate of Amendment of Certificate of
Incorporation dated December 12, 1985 (incorporated
by reference to Exhibit 2(b) of the Company's
Registration Statement on Form 8-A dated
January 15, 1996).
3(c) Certificate of Amendment of Certificate of
Incorporation dated January 9, 1987 (incorporated by
reference to Exhibit 3(b) to the Company's Form 10-K
for fiscal year ended August 31, 1994).
3(d) Certificate of Amendment of Certificate of
Incorporation dated December 10, 1987
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(incorporated by reference to Exhibit 3(c) to the
Company's Form 10-K for fiscal year ended August 31,
1991).
3(e) Certificate of Amendment of Certificate of
Incorporation dated December 6, 1990 (incorporated by
reference to Exhibit 3(d) to the Company's Form 10-K
for fiscal year ended August 31, 1991).
3(f) Certificate of Amendment of Certificate of
Incorporation dated December 9, 1993 (incorporated by
reference to Exhibit 2(f) to the Company's
Registration Statement on Form 8-A dated January 15,
1996).
3(g) By-Laws dated December 8, 1983 (incorporated by
reference to Exhibit 3(c) to the Company's Form 10-K
for fiscal year ended August 31, 1990).
3(h) Amendment to By-Laws dated October 20, 1986
(incorporated by reference to Exhibit 3(f) to the
Company's Form 10-K for fiscal year ended August 31,
1991).
3(i) Amendment to By-Laws dated January 11, 1996
(incorporated by reference to Exhibit 3.3 to the
Company's Report on Form 8-K dated January 15, 1996).
4(a) Rights Agreement dated as of January 12, 1996,
between the Company and Society National Bank, as
Rights Agent, which includes as Exhibit B thereto the
Form of Rights Certificate (incorporated by reference
to Exhibit 1 to the Company's Registration Statement
on Form 8-A, dated January 15, 1996).
4(b) Amendment No. 1 to Rights Agreement dated as of
November 21, 1997 between the Company, KeyBank
National Association (as successor by merger to
Society National Bank) and First Chicago Trust
Company of New York as successor Rights Agent
(incorporated by reference to Exhibit 1(b) to the
Company's Amendment No. 1 to Registration Statement
on Form 8-A/A).
10(a)* A. Schulman, Inc. 1991 Stock Incentive Plan
(incorporated by reference to Exhibit 10(b) to the
Company's Form 10-K for fiscal year ended August 31,
1991).
10(b)* Amendment to A. Schulman, Inc. 1991 Stock Incentive
Plan (incorporated by reference to Exhibit 10.9 to
-21-
<PAGE> 24
the Company's Form 10-Q for the fiscal quarter ended
February 29, 1996).
10(c)* A. Schulman, Inc. 1992 Non-Employee Directors' Stock
Option Plan (incorporated by reference to Exhibit A
to the Company's Proxy Statement dated November 12,
1992 filed as Exhibit 28 to the Company's Form 10-K
for fiscal year ended August 31, 1992).
10(d)* Amendment to A. Schulman, Inc. 1992 Non-Employee
Directors' Stock Option Plan (incorporated by
reference to Exhibit 10.10 to the Company's Form 10-Q
for the fiscal quarter ended February 29, 1996).
10(e)* Non-Qualified Profit Sharing Plan (incorporated by
reference to Exhibit 10(d) to the Company's Form 10-K
for the fiscal year ended August 31, 1995).
10(f)* Amendment to A. Schulman, Inc. Nonqualified Profit
Sharing Plan (incorporated by reference to Exhibit
10.8 to the Company's Form 10-Q for the fiscal
quarter ended February 29, 1996).
10(g)* Employment Agreement between the Company and Robert
A. Stefanko dated January 31, 1996 (incorporated by
reference to Exhibit 10.2 to the Company's Form 10-Q
for fiscal quarter ended February 29, 1996).
10(h)* Employment Agreement between the Company and Terry L.
Haines dated January 31, 1996 (incorporated by
reference to Exhibit 10.3 to the Company's Form 10-Q
for fiscal quarter ended February 29, 1996).
10(i)* Employment Agreement between the Company and Larry A.
Kushkin dated January 31, 1996 (incorporated by
reference to Exhibit 10.4 to the Company's Form 10-Q
for fiscal quarter ended February 29, 1996).
10(j)* Employment Agreement between the Company and Leonard
E. Emge dated January 31, 1996 (incorporated by
reference to Exhibit 10.5 to the Company's Form 10-Q
for fiscal quarter ended February 29, 1996).
10(k)* Employment Agreement between the Company and Brian R.
Colbow, effective as of May 14, 1997.
10(l)* Employment Agreement between the Company and Alain C.
Adam dated January 31, 1996 (incorporated by
reference to Exhibit 10.6 to the Company's Form 10-Q
for fiscal quarter ended February 29, 1996).
10(m)* Agreement between the Company and Robert A. Stefanko
dated as of August 1, 1985 (incorporated by reference
-22-
<PAGE> 25
to Exhibit 10(h) to the Company's Form 10-K for
fiscal year ended August 31, 1991).
10(n)* Agreement between the Company and Larry A. Kushkin
dated as of August 31, 1985 (incorporated by
reference to Exhibit 10(i) of the Company's Form 10-K
for fiscal year ended August 31, 1991).
10(o)* Agreement between the Company and Robert A. Stefanko
dated as of March 21, 1991 (incorporated by reference
to Exhibit 10(l) to the Company's Form 10-K for
fiscal year ended August 31, 1992).
10(p*) Agreement between the Company and Terry L. Haines
dated as of March 21, 1991 (incorporated by reference
to Exhibit 10(m) to the Company's Form 10-K for
fiscal year ended August 31, 1992).
10(q)* Agreement between the Company and Larry A. Kushkin
dated as of August 31, 1993 (incorporated by
reference to Exhibit 10(n) to the Company's Form 10-K
for fiscal year ended August 31, 1993).
10(r)* Form of Amendment to Deferred Compensation Agreements
between the Company and Robert A. Stefanko, Terry L.
Haines and Larry A. Kushkin (incorporated by
reference to Exhibit 10.1 to the Company's Form 10-Q
for the fiscal quarter ended February 29, 1996).
10(s)* Agreement between the Company and Franz A. Loehr
dated as of August 31, 1994 (incorporated by
reference to Exhibit 10(o) to the Company's Form 10-K
for the fiscal year ended August 31, 1995).
10(t)* Agreement between the Company and Franz A. Loehr
dated as of August 31, 1996 (incorporated by
reference to Exhibit 10(t) to the Company's Form 10-K
for the fiscal year ended August 31, 1996).
10(u)* Employment Agreement between the Company and Gordon
L. Trimmer dated May 14, 1997.
10(v) Credit Agreement between the Company, The Banks and
Society National Bank, individually and as Agent,
dated as of March 13, 1995 (incorporated by reference
to Exhibit 10 of the Company's Form 10-Q for fiscal
quarter ended February 28, 1995).
10(w) First Amendment to Credit Agreement dated February
26, 1996, among the Company and Society National
Bank, individually and as Agent, First National Bank
of Ohio, Union Bank of Switzerland and The First
National Bank of Chicago (incorporated by reference
-23-
<PAGE> 26
to Exhibit 10.11 to the Company's Form 10-Q for the
fiscal quarter ended February 29, 1996).
10(x) Second Amendment to Credit Agreement dated as of
August 14, 1997, among the Company, KeyBank National
Association, individually and as Agent, The First
National Bank of Chicago, National City Bank,
Northeast and Morgan Guaranty Trust Company of New
York.
11 Computation of Earnings Per Common Share
13 Company's 1997 Annual Report to Stockholders
21 Subsidiaries of the Company
23 Consent of Independent Accountants
24 Powers of Attorney
27** Financial Data Schedule
99 Notice of Annual Meeting and Proxy Statement
Dated November 10, 1997
*Management contract or compensatory plan or arrangement
required to be filed as an Exhibit hereto.
**Filed only in electronic format pursuant to Item 601(b)(27)
of Regulation S-K.
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the last quarter of the Company's
fiscal year ended August 31, 1997.
-24-
<PAGE> 27
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
A. SCHULMAN, INC.
By: /s/ Robert A. Stefanko
-----------------------
Robert A. Stefanko
Chairman of the Board of
Directors and Executive Vice
President - Finance and
Administration
Dated: November 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
/s/Terry L. Haines Director and Principal November 26, 1997
- ------------------ Executive Officer
Terry L. Haines
/s/Robert A. Stefanko Director, Principal November 26, 1997
- --------------------- Financial Officer and
Robert A. Stefanko Principal Accounting Officer
James H. Berick* Director
Gordon E. Heffern* Director
Larry A. Kushkin* Director
Franz A. Loehr* Director
Alan L. Ockene* Director
Paul Craig Roberts* Director
Rene C. Rombouts* Director
Robert G. Wallace* Director
Peggy Gordon Elliott* Director
Willard R. Holland* Director
James A. Karman* Director
James S. Marlen* Director
*By: /s/ Robert A. Stefanko November 26, 1997
---------------------
Robert A. Stefanko
Attorney-in-Fact
*Powers of attorney authorizing Robert A. Stefanko to sign this annual
report on Form 10-K on behalf of certain Directors of the Company are being
filed with the Securities and Exchange Commission herewith.
-25-
<PAGE> 28
REPORT OF INDEPENDENT ACCOUNTANTS
October 14, 1997
To the Board of Directors
of A. Schulman, Inc.
We have audited, in accordance with generally accepted auditing standards, the
consolidated balance sheet of A. Schulman, Inc. ("the Company") as of August 31,
1997 and the related consolidated statements of income, shareholders' equity
and cash flows for the year then ended, and have issued our report thereon dated
October 14, 1997.
In conducting our audit, nothing came to our attention that caused us to believe
that the Company was not in compliance with any of the provisions of Articles VI
and VII of the Credit Agreement dated March 13, 1995 and amended February 26,
1996, and August 14, 1997, with Keybank N.A., First National Bank of Chicago,
National City Bank, Northeast, and Morgan Guaranty Trust Company of New York,
insofar as they relate to accounting matters. It should be noted, however, that
our audit was not directed primarily toward obtaining knowledge of such
noncompliance.
This report is intended solely for the information and use of the Board of
Directors and management of A. Schulman, Inc. and the banks participating in the
Credit Agreement.
/s/ Price Waterhouse LLP
F-1
<PAGE> 29
SCHEDULE II
A. SCHULMAN, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to Net Balance at
beginning of cost and write Translation close of
period expenses offs adjustment Other period
----------- ---------- -------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Reserve for doubtful accounts
Year ended August 31, 1997 $5,903,000 $1,098,000 $(1,357,000) $(340,000) $ - $5,304,000
Year ended August 31, 1996 4,859,000 2,490,000 (1,425,000) (21,000) - 5,903,000
Year ended August 31, 1995 4,111,000 1,134,000 (565,000) 163,000 16,000(1) 4,859,000
Valuation allowance - deferred tax assets
Year ended August 31, 1997 3,155,000 - - - 2,782,000 (2) 5,937,000
Year ended August 31, 1996 4,820,000 - - - (1,665,000)(2) 3,155,000
Year ended August 31, 1995 4,197,000 - - - 623,000 (2) 4,820,000
</TABLE>
Note:
(1) Acquisition of assets of Texas Polymer Services.
(2) Represents current year change in valuation allowance for foreign tax
credit carryforward benefits which are not likely to be utilized.
F-2
<PAGE> 1
Exhibit 10(k)
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of this 14th day of May, 1997, by and between A. SCHULMAN, INC., a Delaware
corporation (the "Employer"), and BRIAN R. COLBOW (the "Employee").
WHEREAS, the Board of Directors of the Employer desires to provide for
the continued employment of the Employee as a member of the Employer's
management, in the best interest of the Employer and its stockholders. The
Employee is willing to commit himself continue to serve the Employer, on the
terms and conditions herein provided;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants herein contained, the parties hereto agree as follows:
1. DEFINED TERMS
The definitions of capitalized terms used in this Agreement (unless
stated where first used) are provided in the last Section hereof.
2. EMPLOYMENT
The Employer hereby continues to employ the Employee as Treasurer of
the Employer, and the Employee hereby accepts such continued employment upon the
terms and conditions herein contained.
3. DUTIES AND CONDITIONS OF EMPLOYMENT
3.1 DUTIES. The Employee shall devote his entire business time,
attention and energies to the Employer and shall not engage in any conduct which
shall reflect adversely upon the Companies. The Employee shall perform such
duties for the Companies as may be assigned to one in his executive status and
capacity by the Board. The Employee shall serve diligently and to the best of
his ability.
During his employment by the Employer, the Employee shall not, without
the Employer's prior written consent, be
<PAGE> 2
engaged in any other business activity, whether or not such business activity is
pursued for gain, profit or other pecuniary advantage, except that
notwithstanding the foregoing, he may invest his personal funds for his own
account; provided that such investment shall be passive and not controlling in
any such investment and subject to the provisions of Section 13.2 hereof and
provided further that he will not be required to provide any substantial
services on behalf of such enterprise. Notwithstanding the foregoing, the
Employee may serve on the Boards of Directors of other corporations during the
Term as long as such service does not interfere with the performance of his
duties hereunder.
3.2 CONDITIONS. The Employee shall be provided with suitable office
space, furnishings, secretarial and administrative assistance. Without the
Employee's consent, the Employee shall not be required to report principally to
an office located more than five hundred (500) miles from his principal office
at the date of this Agreement.
4. TERM OF AGREEMENT; TERMINATION OF EMPLOYMENT; ESCROW DURING DISPUTE
4.1 TERM OF AGREEMENT. The Employer hereby employs the Employee for a
Term commencing as of the date hereof and ending May 14, 1999. At the end of
June 1997 and at the end of each calendar month thereafter up to and including
March 31, 2010, this Agreement shall automatically be extended for one (1) month
unless either party shall give notice to the other of non-extension prior to the
end of such calendar month; provided, however, if a Change in Control shall have
occurred during the Term of this Agreement, Sections 7 and 8 and 10 through 20
of this Agreement shall continue in effect until at least the end of the
Change-in-Control Protective Period (whether or not the Term of the Agreement
shall have expired for other purposes).
4.2 TERMINATION OF EMPLOYMENT PRIOR TO A CHANGE IN CONTROL. Prior to
any Change in Control, the Employer may terminate the employment of the Employee
for Cause pursuant to this Agreement. Prior to any Change in Control, the
Employee may terminate his employment pursuant to this Agreement if the Employer
fails to make full and timely payments of all sums provided for in Sections 5
and 6 hereof (subject to Section 7.2 hereof), or otherwise shall breach its
covenants hereunder in any material respect.
2
<PAGE> 3
4.3 ESCROW DURING A TERMINATION DISPUTE. Prior to any Change in
Control, if the Employee shall be terminated for Cause, and, within 30 days of
such termination, shall notify the Employer of his intention to adjudicate such
termination as improper, the Employer agrees that it will deposit with KeyBank
National Association, Cleveland, Ohio, as Escrow Agent the installments of the
Employee's Base Salary (as provided in Section 5 below) as the same would have
become payable but for such termination. In the event of a final adjudication by
a tribunal of competent jurisdiction that such termination was not for Cause,
then the amounts so deposited in escrow, plus any interest earned by the Escrow
Agent thereon, shall be delivered promptly to the Employee. If such adjudication
shall be in favor of the Employer, the Escrow Agent shall return the sums so
deposited, plus such interest, to the Employer.
The escrowed salary shall not be deemed to be liquidated damages but
the Employer shall be entitled to a credit against any such award to the extent
of the sums so delivered to the Employee.
5. COMPENSATION
The Employer agrees to pay to the Employee as compensation for his
services hereunder a Base Salary initially equal to the fixed annual salary
currently being paid to the Employee as shown on the Employer's employment
records, payable in substantially equal weekly, biweekly, bimonthly or monthly
installments, as the case may be, in the manner currently being paid to the
Employee. The Base Salary may be discretionarily increased by the Board from
time to time as the Board deems appropriate in its reasonable business judgment.
The Base Salary in effect from time to time shall not be decreased during the
Term (except as provided in Section 7.2).
It is understood and agreed that the Employee's compensation
may not be limited to his Base Salary and that the Employee may receive an
annual bonus in the amount, if any, determined annually by the Employer.
The Employee shall also participate in employee compensation and
benefit plans available generally to executives of the Employer (including,
without limitation, any tax-qualified profit sharing plan, nonqualified profit
sharing plan, life insurance plan and health insurance plan) on a level
appropriate to his position and shall receive the employee fringe benefits
available generally to executives of the
3
<PAGE> 4
Employer (including, without limitation, the use of a company car).
6. EXPENSES
The Employee is authorized to incur reasonable expenses for promoting
the business of the Employer, including expenses for entertainment, travel and
similar items. The Employer shall reimburse the Employee for all such expenses
upon the presentation by the Employee, from time to time, of an itemized account
of such expenditures.
7. PRE-TERMINATION COMPENSATION; DISABILITY
7.1 NORMAL PRE-TERMINATION COMPENSATION. If the Employee's employment
shall be terminated for any reason during the Term (or, if later, prior to the
end of the Change-in-Control Protective Period), the Employer shall pay the
Employee's Base Salary to the Employee through the Date of Termination at the
rate in effect at the time the Notice of Termination is given (subject to
Section 7.2 hereof), together with all compensation and benefits payable to the
Employee through the Date of Termination under the terms of any compensation or
benefit plan, program or arrangement maintained by the Employer during such
period. Subject to Sections 8, 9, 10 and 11 hereof, after completing the expense
reimbursements required by Section 6 hereof and making the payments and
providing the benefits required by this Section 7, the Employer shall have no
further obligations to the Employee under this Agreement.
7.2 DISABILITY ADJUSTMENT TO BASE SALARY PAYMENTS. During the Term (or,
if later, at any time prior to the end of the Change-in-Control Protective
Period), during any period that the Employee fails to perform the Employee's
full-time duties with the Employer as a result of incapacity due to physical or
mental illness (but in no event for more than twenty-four (24) months), the
Employer shall pay only sixty percent (60%) of the Employee's Base Salary to the
Employee at the rate in effect at the commencement of any such period (less
amounts, if any, payable to the Employee at or prior to the time of any such
Base Salary payment under disability benefit plans of the Employer or under the
Social Security disability insurance program). After six (6) months of
Disability, the Employer shall have the right to terminate the Employee's
employment pursuant to this Agreement and all Base Salary payments (except the
sixty percent (60%) payments pursuant to the foregoing sentence) shall cease.
Except to the extent
4
<PAGE> 5
provided in this Section 7.2, all Base Salary payments to the Employee shall be
abated during the period of Disability. Subject to Sections 8, 9, 10 and 11
hereof, after completing the expense reimbursements required by Section 6 hereof
and making the payments and providing the benefits required by this Section 7,
the Employer shall have no further obligations to the Employee under this
Agreement.
8. NORMAL POST-TERMINATION PAYMENTS; CONTINUATION PAY; TERMINATION PAY;
PROMPT PAYMENT
8.1 NORMAL POST-TERMINATION PAYMENTS. If the Employee's employment
shall be terminated for any reason during the Term of this Agreement (or, if
later, prior to the end of the Change-in-Control Protective Period), the
Employer shall pay the Employee's normal post-termination compensation and
benefits to the Employee as such payments become due. Subject to Section 10
hereof, such post-termination compensation and benefits shall be determined
under, and paid in accordance with, the Employer's retirement, insurance and
other compensation or benefit plans, programs and arrangements (other than this
Agreement).
8.2 CONTINUATION PAY; TERMINATION PAY. Notwithstanding anything to the
contrary in Section 7.2, 9.1 or 10.1(A) hereof, if the laws governing this
Agreement shall require that the Employer continue to pay or otherwise
compensate the Employee for any period of time following termination of the
Employee's employment ("Continuation Pay") or if such laws require certain
amounts of severance pay, termination compensation or the like (collectively,
"Termination Pay"), then to the fullest extent permitted by law any payments to
the Employee pursuant to Section 7.2, 9.1 or 10.1(A) hereof shall be included
in the calculation of Continuation Pay and Termination Pay and such
payments shall be deducted from the amount of Continuation Pay or Termination
Pay due the Employee.
8.3 PROMPT PAYMENT. Any payments due under Section 5, 6, 7 or 9 hereof
or this Section 8 shall be made promptly after the event giving rise to the
obligation and shall be made to the Employee or in accordance with Section 14.2
hereof, as the case may be.
5
<PAGE> 6
9. POST-TERMINATION PAYMENTS UPON TERMINATION (PRIOR TO A CHANGE IN
CONTROL) BY DEATH OR BY THE EMPLOYER WITHOUT CAUSE
9.1 DEATH BENEFIT. If the Employee's employment shall be terminated by
death during the Term (or, if later, prior to the end of the Change-in-Control
Protective Period), then, in addition to the compensation and benefits provided
by Sections 7.1 and 8 hereof, the Employer shall pay a lump sum amount equal to
sixty percent (60%) of the Base Salary for twenty-four (24) months in accordance
with Section 14.2.
9.2 TERMINATION BY THE EMPLOYER WITHOUT CAUSE. If the Employer shall
terminate the Employee's employment during the Term and prior to a Change in
Control, without Cause (and not for Disability or in connection with the
Employee's death), the Employer shall pay the Employee his Base Salary
throughout the remaining Term and annual bonuses during the remaining Term, each
of which bonuses shall be equal to one-half (1/2) times the average annual bonus
paid to the Employee during the most recent five (5) calendar years of the
Employee's employment by any of the Companies (prorated for any partial years
in the remaining Term).
10. SEVERANCE PAYMENTS; DEDUCTIBILITY.
10.1 SEVERANCE PAYMENTS.
Subject to Section 10.2 hereof, the Employer shall pay the Employee the
payments described in this Section 10.1 (the "Severance Payments") upon the
termination of the Employee's employment following a Change in Control and
prior to the end of the Change-in-Control Protective Period, in addition to any
payments and benefits to which the Employee is entitled under Sections 5, 6, 7
and 8.1 hereof, unless such termination is (i) by the Employer for Cause, (ii)
by reason of death or Disability, or (iii) by the Employee without Good Reason.
For purposes of this Agreement, the Employee's employment shall be deemed to
have been terminated by the Employer without Cause following a Change in Control
or by the Employee with Good Reason following a Change in Control, as the case
may be, if (i) the Employee's employment is terminated without Cause prior to a
Change in Control and such termination was at the request or direction of a
Person who has entered into an agreement with the Employer the consummation of
which would constitute a Change in Control, (ii) the Employee terminates his
employment with Good Reason prior to a Change in Control and the circum-
6
<PAGE> 7
stance or event which constitutes Good Reason occurs at the request or
direction of such Person, or (iii) the Employee's employment is terminated by
the Employer without Cause prior to a Change in Control (but following a
Potential Change in Control) and such termination is otherwise in connection
with or in anticipation of a Change in Control which actually occurs. For
purposes of any determination regarding the applicability of the immediately
preceding sentence, any position taken by the Employee shall be presumed to be
correct unless the Employer establishes to the Committee by clear and
convincing evidence that such position is not correct.
(A) In lieu of any further salary payments to the
Employee for periods subsequent to the Date of Termination and in lieu
of any severance benefit otherwise payable to the Employee, the
Employer shall pay to the Employee a lump sum severance payment, in
cash, equal to two (2) times the sum of (i) the higher of the
Employee's Base Salary in effect immediately prior to the occurrence
of the event or circumstance upon which the Notice of Termination is
based or the Employee's Base Salary in effect immediately prior to
the Change in Control, and (ii) the higher of the annual bonus earned
by the Employee in respect of the Employer's fiscal year immediately
preceding that in which the Date of Termination occurs or the average
annual bonus so earned in respect of the three fiscal years
immediately preceding that in which the Change in Control occurs.
(B) Notwithstanding any provision of any annual
incentive plan to the contrary, the Employer shall pay to the Employee
a lump sum amount, in cash, equal to the sum of (i) any annual
incentive compensation which has been allocated or awarded to the
Employee for a completed fiscal year preceding the Date of Termination
and which, as of the Date of Termination, is contingent only upon the
continued employment of the Employee to a subsequent date, and (ii) a
pro rata portion to the Date of Termination of a deemed annual bonus
for the Employer's fiscal year in which the Date of Termination occurs,
calculated by multiplying (i) the higher of the annual bonus earned by
the Employee with respect to the immediately preceding fiscal year or
the average annual bonus earned by the Employee with respect to the
immediately preceding three fiscal years of the Employer by (ii) the
fraction obtained by dividing the number of days in the fiscal year of
the
7
<PAGE> 8
Employer in which termination occurs up to and including the Date of
Termination by 365.
(C) For the twenty-four (24) month period immediately
following the Date of Termination, the Employer shall arrange to
provide the Employee with life, disability, accident and health
insurance benefits substantially similar to those which the Employee
is receiving immediately prior to the Notice of Termination (without
giving effect to any amendment to such benefits made subsequent to a
Change in Control, which amendment adversely affects in any manner the
Employee's entitlement to or the amount of such benefits); PROVIDED,
HOWEVER, that, unless the Employee consents to a different method
(after taking into account the effect of such method on the calculation
of "parachute payments" pursuant to Section 10.2 hereof), such health
insurance benefits shall be provided through a third-party insurer.
Benefits otherwise receivable by the Employee pursuant to this Section
10.1(C) shall be reduced to the extent comparable benefits are actually
received by or made available to the Employee without cost during the
twenty-four (24) month period following the Employee's termination of
employment (and any such benefits actually received by or made
available to the Employee shall be reported to the Employer by the
Employee). If the Severance Payments shall be decreased pursuant to
Section 10.2 hereof, and the Section 10.1(C) benefits which remain
payable after the application of Section 10.2 hereof are thereafter
reduced pursuant to the immediately preceding sentence because of the
receipt or availability of comparable benefits, the Employer shall, at
the time of such reduction, pay to the Employee the least of (a) the
amount of the decrease made in the Severance Payments pursuant to
Section 10.2 hereof, (b) the amount of the subsequent reduction in
these Section 10.1(C) benefits, or (c) the maximum amount which can be
paid to the Employee without being, or causing any other payment to be,
nondeductible by reason of section 280G of the Code.
10.2 DEDUCTIBILITY.
(A) Notwithstanding any other provisions of this Agreement, in the
event that any payment or benefit received or to be received by the Employee in
connection with a Change in Control or the termination of the Employee's
employment (whether pursuant to the terms of this Agreement or any other plan,
8
<PAGE> 9
arrangement or agreement with the Employer, any Person whose actions result in a
Change in Control or any Person affiliated with the Employer or such Person)
(all such payments and benefits, including the Severance Payments, being
hereinafter called "Total Payments") would not be deductible (in whole or part),
by the Employer, an affiliate or Person making such payment or providing such
benefit as a result of section 280G of the Code, then, to the extent necessary
to make such portion of the Total Payments deductible (and after taking into
account any reduction in the Total Payments provided by reason of section 280G
of the Code in such other plan, arrangement or agreement), the cash Severance
Payments shall first be reduced (if necessary, to zero), and the noncash
Severance Payments shall thereafter be reduced (if necessary, to zero);
PROVIDED, HOWEVER, that the Employee may elect (at any time prior to the
delivery of a Notice of Termination hereunder) to have the noncash Severance
Payments reduced (or eliminated) prior to any reduction of the cash Severance
Payments.
(B) For purposes of this limitation, (i) no portion of the Total
Payments the receipt or enjoyment of which the Employee shall have effectively
waived in writing prior to the delivery of a Notice of Termination shall be
taken into account, (ii) no portion of the Total Payments shall be taken into
account which in the opinion of tax counsel (the "Tax Counsel") reasonably
acceptable to the Employee and selected by the accounting firm which was,
immediately prior to the Change in Control, the Employer's independent auditor
(the "Auditor") does not constitute a "parachute payment" within the meaning of
section 280G(b)(2) of the Code, including by reason of section 280G(b)(4)(A) of
the Code, (iii) the Severance Payments shall be reduced only to the extent
necessary so that the Total Payments (other than those referred to in clauses
(i) or (ii)) in their entirety constitute reasonable compensation for services
actually rendered within the meaning of section 280G(b)(4)(B) of the Code or are
otherwise not subject to disallowance as deductions by reason of section 280G of
the Code, in the opinion of the Tax Counsel, and (iv) the value of any noncash
benefit or any deferred payment or benefit included in the Total Payments shall
be determined by the Auditor in accordance with the principles of sections
280G(d)(3) and (4) of the Code.
9
<PAGE> 10
(C) If it is established pursuant to a final determination of a court
or an Internal Revenue Service proceeding that, notwithstanding the good faith
of the Employee and the Employer in applying the terms of this Section 10.2, the
aggregate "parachute payments" paid to or for the Employee's benefit are in an
amount that would result in any portion of such "parachute payments" not being
deductible by reason of section 280G of the Code, then the Employee shall have
an obligation to pay the Employer upon demand an amount equal to the sum of (i)
the excess of the aggregate "parachute payments" paid to or for the Employee's
benefit over the aggregate "parachute payments" that could have been paid to or
for the Employee's benefit without any portion of such "parachute payments"
not being deductible by reason of section 280G of the Code; and (ii) interest on
the amount set forth in clause (i) of this sentence at one hundred twenty
percent (120%) of the rate provided in section 1274(b)(2)(B) of the Code from
the date of the Employee's receipt of such excess until the date of such
payment.
10.3 The payments provided in Sections 10.1(A) and (B) hereof shall be
made not later than the fifth day following the Date of Termination; PROVIDED,
HOWEVER, that if the amounts of such payments, and the limitation on such
payments set forth in Section 10.2 hereof, cannot be finally determined on or
before such day, the Employer shall pay to the Employee on such day an estimate,
as determined in good faith by the Employer, in accordance with Section 10.2
hereof, of the minimum amount of such payments to which the Employee is clearly
entitled and shall pay the remainder of such payments (together with interest
at one hundred twenty percent (120%) of the rate provided in section
1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but
in no event later than the thirtieth (30th) day after the Date of Termination.
In the event that the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall constitute a loan by
the Employer to the Employee, payable on the fifth (5th) business day after
demand by the Employer (together with interest at one hundred twenty percent
(120%) of the rate provided in section 1274(b)(2)(B) of the Code). At the time
that payments are made under this Section, the Employer shall provide the
Employee with a written statement setting forth the manner in which such
payments were calculated and the basis for such calculations including, without
limitation, any opinions or other advice the Employer has received from outside
counsel, auditors or consultants (and any such opinions or advice which are in
writing shall be
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attached to the statement). In the event the Employer should fail to pay when
due the amounts described in Sections 10.1(A), (B) and (C) hereof or in Section
10.2 hereof, the Employee shall also be entitled to receive from the Employer an
amount representing interest on any such unpaid amounts from the due date, as
determined under this Section 10.3 (without regard to any extension of the Date
of Termination pursuant to Section 11.3 hereof), to the date of payment at one
hundred twenty percent (120%) of the rate provided in section 1274(b)(2)(B) of
the Code.
10.4 The Employer also shall pay to the Employee all legal fees and
expenses incurred by the Employee (i) in disputing in good faith any issue
relating to the termination of the Employee's employment following a Change in
Control and prior to the end of the Change-in-Control Protective Period, (ii) in
seeking in good faith to obtain or enforce any benefit or right provided by this
Agreement, or (iii) in connection with any tax audit or proceeding to the extent
attributable to the application of section 4999 of the Code to any payment or
benefit provided hereunder. Such payments shall be made within five (5)
business days after delivery of the Employee's written requests for payment
accompanied with such evidence of fees and expenses incurred as the Employer
reasonably may require.
11. TERMINATION PROCEDURES AND COMPENSATION DURING DISPUTE.
11.1 NOTICE OF TERMINATION. During the Term (and, if longer, until the
end of the Change-in-Control Protective Period), any purported termination of
the Employee's employment (other than by reason of death) shall be communicated
by written Notice of Termination from one party hereto to the other party hereto
in accordance with Section 15 hereof. For purposes of this Agreement, a "Notice
of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Employee's employment under the provision so indicated.
Further, with respect to any purported termination of the Employee's employment
after a Change in Control and prior to the end of the Change-in-Control
Protective Period, a Notice of Termination for Cause is required to include a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters (3/4) of the entire membership of the Board at a meeting of the
Board which was called and held for the purpose of considering such termi-
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nation (after reasonable notice to the Employee and an opportunity for the
Employee, together with the Employee's counsel, to be heard before the Board)
finding that, in the good faith opinion of the Board, the Employee was guilty of
conduct set forth in clause (i) or (ii) of the definition of Cause herein, and
specifying the particulars thereof in detail.
11.2 DATE OF TERMINATION. "Date of Termination," with respect to any
purported termination of the Employee's employment during the Term (and, if
longer, prior to the end of the Change-in-Control Protective Period), shall mean
(i) if the Employee's employment is terminated for Disability, thirty (30) days
after Notice of Termination is given (provided that the Employee shall not have
returned to the full-time performance of the Employee's duties during such
thirty (30) day period), and (ii) if the Employee's employment is terminated for
any other reason, the date specified in the Notice of Termination (which, in the
case of a termination by the Employer, shall not be less than thirty (30) days
(except in the case of a termination for Cause) and, in the case of a
termination by the Employee, shall not be less than fifteen (15) days nor more
than sixty (60) days, respectively, from the date such Notice of Termination is
given).
11.3 DISPUTE CONCERNING TERMINATION. With respect to any purported
termination of the Employee's employment after a Change in Control and prior to
the end of the Change-in-Control Protective Period, if within fifteen (15) days
after any Notice of Termination is given, or, if later, prior to the Date of
Termination (as determined without regard to this Section 11.3), the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be extended
until the date on which the dispute is finally resolved, either by mutual
written agreement of the parties or by a final judgment, order or decree of a
court of competent jurisdiction (which is not appealable or with respect to
which the time for appeal therefrom has expired and no appeal has been
perfected); PROVIDED, HOWEVER, that the Date of Termination shall be extended
by a notice of dispute given by the Employee only if such notice is given in
good faith and the Employee pursues the resolution of such dispute with
reasonable diligence.
11.4 COMPENSATION DURING DISPUTE. If a purported termination occurs
following a Change in Control and prior to the end of the Change-in-Control
Protective Period and the Date of Termination is extended in accordance with
Section 11.3
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hereof, the Employer shall continue to pay the Employee the full compensation
in effect when the notice giving rise to the dispute was given (including, but
not limited to, salary) and continue the Employee as a participant in all
compensation, benefit and insurance plans in which the Employee was
participating when the notice giving rise to the dispute was given, until the
Date of Termination, as determined in accordance with Section 11.3 hereof.
Amounts paid under this Section 11.4 are in addition to all other amounts due
under this Agreement (other than those due under Section 7.1 hereof) and shall
not be offset against or reduce any other amounts due under this Agreement.
12. NO MITIGATION
The Employer agrees that, if the Employee's employment with the
Employer terminates following a Change in Control and prior to the end of the
Change-in-Control Protective Period, the Employee is not required to seek other
employment or to attempt in any way to reduce any amounts payable to the
Employee by the Employer pursuant to Section 10 hereof or Section 11.4 hereof.
Further, the amount of any payment or benefit provided for in this Agreement
(other than Section 10.1(C) hereof) shall not be reduced by any compensation
earned by the Employee as the result of employment by another employer, by
retirement benefits, by offset against any amount claimed to be owed by the
Employee to the Employer, or otherwise.
13. CONFIDENTIALITY; NON-COMPETITION AND NON-SOLICITATION
13.1 CONFIDENTIALITY. The Companies' methods, plans for doing business,
processes, pricing, compounds, customers and supplies are vital to the Companies
and, to the extent not made public by the Companies, constitute confidential
information subject to the Companies' proprietary rights therein. The Employee
covenants and agrees that during the Term and at all times thereafter, the
Employee will not, directly or indirectly, make known, divulge, furnish, make
available or use, otherwise than in the regular course of the Employee's
employment by the Employer, any invention, product, process, apparatus or
design of any of the Companies, or any knowledge or information in respect
thereof (including, but not limited to, business methods and techniques), or
any other confidential or so-called "insider" information of any of the
Companies. This
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covenant shall apply without regard to the time or circumstances of any
termination of the Employee's employment.
13.2 NON-COMPETITION AND NON-SOLICITATION. The Employee covenants and
agrees that during the period of one (1) year following any termination of the
Employee's employment which occurs prior to a Change in Control, the Employee
will not, directly or indirectly, either as an individual for the Employee's own
account or as an investor, or other participant in, or as an employee, agent, or
representative of, any other business enterprise:
(i) solicit, employ, entice, take away or interfere with, or
attempt to solicit, employ, entice, take away or interfere
with, any employee of the Employer or the Companies; or
(ii) engage or participate in or finance, aid or be connected with
any enterprise which competes with the business of the
Companies, or any of them.
The geographical limitations of the foregoing shall include any country in which
the Companies or any of them shall be doing business as of such date of such
termination. This covenant shall apply without regard to the circumstances of
any termination of the Employee's employment which occurs prior to a Change in
Control.
13.3 The Employee acknowledges that the covenants contained in this
Section 13 are of the essence of this Agreement and said covenants shall be
construed as independent of any other provisions of this Agreement. Recognizing
the irreparable nature of the injury that could result from the Employee's
violation of any of the covenants and agreement to be performed and/or observed
by the Employee pursuant to the provisions of this Section 13, and that damages
would be inadequate compensation, it is agreed that any violations by the
Employee of the provisions of this Section 13, shall be the proper subject for
immediate injunctive and other equitable relief to the Employer.
14. SUCCESSORS; BINDING AGREEMENT
14.1 In addition to any obligations imposed by law upon any successor
to the Employer, the Employer will require any successor (whether direct or
indirect, by purchase, merger,
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consolidation or otherwise) to all or substantially all of the business and/or
assets of the Employer to expressly assume and agree to perform this Agreement
in the same manner and to the same extent that the Employer would be required to
perform it if no such succession had taken place. Failure of the Employer to
obtain such assumption and agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle the Employee to
compensation from the Employer in the same amount and on the same terms as the
Employee would be entitled to hereunder if the Employee were to terminate the
Employee's employment for Good Reason after a Change in Control, except that,
for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination. Except as
provided in this Section 14.1, this Agreement shall not be assignable by either
party without the written consent of the other party hereto.
14.2 This Agreement shall inure to the benefit of and be enforceable by
the Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Employee shall
die while any amount would still be payable to the Employee hereunder (other
than amounts which, by their terms, terminate upon the death of the Employee) if
the Employee had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to the
executors, personal representatives or administrators of the Employee's estate.
15. NOTICES
For purposes of this Agreement, notices and all other communications
provided for in the Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States registered mail,
return receipt requested, postage prepaid, addressed, if to the Employee, to the
address shown for the Employee in the personnel records of the Employer and, if
to the Employer, to the address set forth below, or to such other address as
either party may have furnished to the other in writing in accordance herewith,
except that notice of change of address shall be effective only upon actual
receipt:
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To the Employer:
Robert A. Stefanko
Chief Financial Officer and Executive
Vice President-Finance and Administration
A. Schulman, Inc.
P. O. Box 1710
Akron, Ohio 44309-1710
With a copy to:
James H. Berick, Esq.
Berick, Pearlman & Mills Co., L.P.A.
1350 Eaton Center
1111 Superior Avenue
Cleveland, Ohio 44114-2569
16. MISCELLANEOUS
No provision of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing and signed
by the Employee and such officer as may be specifically designated by the Board.
No waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time. This Agreement supersedes the Employment Agreement between the Employer
and the Employee dated as of December 28, 1990 and any other agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof which have been made by either party, except as expressly
set forth in this Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Ohio. All references to sections of the Exchange Act or the Code shall be
deemed also to refer to any successor provisions to such sections. Any payments
provided for hereunder shall be paid net of any applicable withholding required
under federal, state or local law and any additional withholding to which the
Employee has agreed. The obligations of the Employer and the Employee under
this Agreement which by their nature may require (partial or total) performance
after the expiration of the Term or the Change-in-Control Protective Period
(including, without limitation, those under Sections 5 through 11 and Section
13 hereof) shall survive such expiration.
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17. VALIDITY
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
18. COUNTERPARTS
This Agreement may be executed in several counterparts, each
of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
19. SETTLEMENT OF DISPUTES AFTER CHANGE IN CONTROL; ARBITRATION
After a Change in Control and prior to the end of the Change-in-Control
Protective Period, all claims by the Employee for benefits under this Agreement
shall be directed to and determined by the Committee and shall be in writing.
Any denial by the Committee of a claim for benefits under this Agreement shall
be delivered to the Employee in writing and shall set forth the specific reasons
for the denial and the specific provisions of this Agreement relied upon. The
Committee shall afford a reasonable opportunity to the Employee for a review of
the decision denying a claim and shall further allow the Employee to appeal to
the Committee a decision of the Committee within sixty (60) days after
notification by the Committee that the Employee's claim has been denied. Any
further dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in Akron, Ohio, in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction. Notwithstanding any provision of this Agreement to the contrary,
the Employee shall be entitled to seek specific performance of the Employee's
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
20. DEFINITIONS
For purposes of this Agreement, the following terms shall have the
meanings indicated below:
(A) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3
under the Exchange Act.
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(B) "Board" shall mean the Board of Directors of the Employer.
(C) "Cause" for termination by the Employer of the Employee's
employment shall mean the following:
(I) with respect to a termination as to which the Notice of
Termination is duly given prior to a Change in Control, the Employee's
breach of his covenants herein contained, the Employee's gross neglect
of his duties hereunder, the Employee's knowingly committing
misfeasance or knowingly permitting nonfeasance of his duties in any
material respect, or the Employee's committing a felony; and
(II) with respect to a termination as to which the Notice of
Termination is duly given following a Change in Control, (i) the
willful and continued failure by the Employee to substantially perform
the Employee's duties with the Employer (other than any such failure
resulting from the Employee's incapacity due to physical or mental
illness or any such actual or anticipated failure after the issuance of
a Notice of Termination for Good Reason by the Employee pursuant to
Section 11.1 hereof) after a written demand for substantial performance
is delivered to the Employee by the Board, which demand specifically
identifies the manner in which the Board believes that the Employee has
not substantially performed the Employee's duties, or (ii) the willful
engaging by the Employee in conduct which is demonstrably and
materially injurious to the Employer or its subsidiaries, monetarily
or otherwise. For purposes of clauses (i) and (ii) of this definition,
(x) no act, or failure to act, on the Employee's part shall be deemed
"willful" unless done, or omitted to be done, by the Employee not in
good faith and without reasonable belief that the Employee's act, or
failure to act, was in the best interest of the Employer and (y) in the
event of a dispute concerning the application of this provision, no
claim by the Employer that Cause exists shall be given effect unless
the Employer establishes to the Committee by clear and convincing
evidence that Cause exists.
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(D) A "Change in Control" shall be deemed to have occurred if the event
set forth in any one of the following paragraphs shall have occurred:
(I) any Person is or becomes the Beneficial Owner, directly
or indirectly, of securities of the Employer (not including in the
securities beneficially owned by such Person any securities acquired
directly from the Employer or its affiliates other than in connection
with the acquisition by the Employer or its affiliates of a business)
representing 25% or more of either the then outstanding shares of
common stock of the Employer or the combined voting power of the
Employer's then outstanding securities; or
(II) the following individuals cease for any reason to
constitute a majority of the number of directors then serving:
individuals who, on the date hereof, constitute the Board and any new
director (other than a director whose initial assumption of office is
in connection with an actual or threatened election contest, including
but not limited to a consent solicitation, relating to the election of
directors of the Employer) whose appointment or election by the Board
or nomination for election by the Employer's stockholders was approved
by a vote of at least two-thirds (2/3) of the directors then still in
office who either were directors on the date hereof or whose
appointment, election or nomination for election was previously so
approved; or
(III) the stockholders of the Employer approve a merger or
consolidation of the Employer with any other corporation or approve the
issuance of voting securities of the Employer in connection with a
merger or consolidation of the Employer (or any direct or indirect
subsidiary of the Employer) pursuant to applicable stock exchange
requirements, other than (i) a merger or consolidation which would
result in the voting securities of the Employer outstanding immediately
prior to such merger or consolidation continuing to represent (either
by remaining outstanding or by being converted into voting securities
of the surviving entity or any parent thereof), in combination with the
ownership of any trustee or other fiduciary holding securities under an
employee
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benefit plan of the Employer or any subsidiary of the Employer, at
least 75% of the combined voting power of the voting securities of the
Employer or such surviving entity or any parent thereof outstanding
immediately after such merger or consolidation, or (ii) a merger or
consolidation effected to implement a recapitalization of the Employer
(or similar transaction) in which no Person is or becomes the
Beneficial Owner, directly or indirectly, of securities of the Employer
(not including in the securities Beneficially Owned by such Person any
securities acquired directly from the Employer or its subsidiaries
other than in connection with the acquisition by the Employer or its
subsidiaries of a business) representing 25% or more of either the then
outstanding shares of common stock of the Employer or the combined
voting power of the Employer's then outstanding securities; or
(IV) the stockholders of the Employer approve a plan of
complete liquidation or dissolution of the Employer or an agreement for
the sale or disposition by the Employer of all or substantially all of
the Employer's assets, other than a sale or disposition by the Employer
of all or substantially all of the Employer's assets to an entity, at
least 75% of the combined voting power of the voting securities of
which are owned by stockholders in substantially the same proportions
as their ownership of the Employer immediately prior to such sale.
Notwithstanding the foregoing, no "Change in Control" shall be deemed
to have occurred if there is consummated any transaction or series of integrated
transactions immediately following which the record holders of the common stock
of the Employer immediately prior to such transaction or series of transactions
continue to have substantially the same proportionate ownership in an entity
which owns all or substantially all of the assets of the Employer immediately
following such transaction or series of transactions.
Further, notwithstanding the foregoing, any event or transaction which
would otherwise constitute a Change in Control (a "Transaction") shall not
constitute a Change in Control for purposes of this Agreement if, in connection
with the Transaction, the Employee participates as an equity investor in the
acquiring entity or any of its affiliates (the
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"Acquiror"). For purposes of the preceding sentence, the Employee shall not be
deemed to have participated as an equity investor in the Acquiror by virtue of
(i) obtaining beneficial ownership of any equity interest in the Acquiror as a
result of the grant to the Employee of an incentive compensation award under one
or more incentive plans of the Acquiror (including, but not limited to, the
conversion in connection with the Transaction of incentive compensation awards
of the Employer into incentive compensation awards of the Acquiror), on terms
and conditions substantially equivalent to those applicable to other executives
of the Employer immediately prior to the Transaction, after taking into account
normal differences attributable to job responsibilities, title and similar
matters, (ii) obtaining beneficial ownership of any equity interest in the
Acquiror on terms and conditions substantially equivalent to those obtained in
the Transaction by all other stockholders of the Employer, or (iii) passive
ownership of less than three percent (3%) of the stock of the Acquiror.
(E) "Change-in-Control Protective Period" shall mean the period from
the occurrence of a Change in Control until the later of the second anniversary
of such Change in Control or, if such Change in Control shall be caused by the
stockholder approval of a merger or consolidation described in Section
20(E)(III) hereof, the second anniversary of the consummation of such merger or
consolidation.
(F) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(G) "Committee" shall mean (i) the individuals (not fewer than three in
number) who, immediately prior to a Potential Change in Control, constitute the
Compensation Committee of the Board, plus (ii) in the event that fewer than
three individuals are available from the group specified in clause (i) above for
any reason, such individuals as may be appointed by the individual or
individuals so available (including for this purpose any individual or
individuals previously so appointed under this clause (ii)); provided, however,
that the maximum number of individuals constituting the Committee shall not
exceed five.
(H) "Companies" shall mean, collectively, the Employer and each
corporation which is now and hereafter shall become a subsidiary of, or a parent
of, the Employer, together with their respective successors and assigns.
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(I) "Continuation Pay" shall mean those payments so described in
Section 8.2 hereof.
(J) "Date of Termination" shall have the meaning stated in Section 11.2
hereof.
(K) "Disability" shall be deemed the reason for the termination by the
Employer of the Employee's employment, if, as a result of the Employee's
incapacity due to physical or mental illness, the Employee shall have been
absent from the full-time performance of the Employee's duties with the
Employer for a period of six (6) consecutive months, the Employer shall have
given the Employee a Notice of Termination for Disability, and, within thirty
(30) days after such Notice of Termination is given, the Employee shall
not have returned to the full-time performance of the Employee's duties.
(L) "Employee" shall mean the individual named in the first paragraph
of this Agreement.
(M) "Employer" shall mean A. Schulman, Inc. and, except in determining
under Section 20(E) hereof whether or not any Change in Control of the Employer
has occurred, any successor to its business and/or assets which assumes and
agrees to perform this Agreement by operation of law, or otherwise.
(N) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(O) "Good Reason" for termination by the Employee of the Employee's
employment shall mean the occurrence (without the Employee's express prior
written consent) after any Change in Control, or after any Potential Change in
Control under the circumstances described in the second sentence of Section 10.1
hereof (treating all references in paragraphs (I) through (VII) below to a
"Change in Control" as references to a "Potential Change in Control"), of any
one of the following acts by the Employer, or failures by the Employer to act,
unless, in the case of any act or failure to act described in paragraph (I),
(V), (VI) or (VII) below, such act or failure to act is corrected prior to the
Date of Termination specified in the Notice of Termination given in respect
thereof:
(I) the assignment to the Employee of any duties inconsistent
with the Employee's status as an executive officer of the Employer or a
substantial adverse alteration in the nature or status of the
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Employee's responsibilities from those in effect immediately prior to
the Change in Control (other than any such alteration primarily
attributable to the fact that the Employer may no longer be a public
company);
(II) a reduction by the Employer in the Employee's annual base
salary as in effect on the date hereof or as the same may be increased
from time to time except for across-the-board salary reductions
similarly affecting all executives of the Employer and all executives
of any Person in control of the Employer;
(III) the relocation of the Employer's principal executive
offices to a location more than fifty (50) miles from the location of
such offices immediately prior to the Change in Control or the
Employer's requiring the Employee to be based anywhere other than the
Employer's principal executive offices except for required travel on
the Employer's business to an extent substantially consistent with the
Employee's present business travel obligations;
(IV) the failure by the Employer, without the Employee's
consent, to pay to the Employee any portion of the Employee's current
compensation, or to pay to the Employee any portion of an installment
of deferred compensation under any deferred compensation program of the
Employer, within seven (7) days of the date such compensation is due;
(V) the failure by the Employer to continue in effect any
compensation plan in which the Employee participates immediately prior
to the Change in Control which is material to the Employee's total
compensation, including but not limited to the Employer's 1991 Stock
Incentive Plan and Nonqualified Profit Sharing Plan or any substitute
plans adopted prior to the Change in Control, unless an equitable
arrangement (embodied in an ongoing substitute or alternative plan) has
been made with respect to such plan, or the failure by the Employer to
continue the Employee's participation therein (or in such substitute
or alternative plan) on a basis not materially less favorable, both in
terms of the amount of benefits provided and the level of the
Employee's
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participation relative to other participants, as existed at the time of
the Change in Control;
(VI) the failure by the Employer to continue to provide the
Employee with benefits substantially similar to those enjoyed by the
Employee under any of the Employer's pension, life insurance, medical,
health and accident, or disability plans in which the Employee was
participating at the time of the Change in Control, the taking of any
action by the Employer which would directly or indirectly materially
reduce any of such benefits or deprive the Employee of any material
fringe benefit enjoyed by the Employee at the time of the Change in
Control, or the failure by the Employer to provide the Employee with
the number of paid vacation days to which the Employee is entitled on
the basis of years of service with the Employer in accordance with the
Employer's normal vacation policy in effect at the time of the Change
in Control; or
(VII) any purported termination of the Employee's employment
which is not effected pursuant to a Notice of Termination satisfying
the requirements of Section 11.1 hereof; for purposes of this
Agreement, no such purported termination shall be effective.
The Employee's right to terminate the Employee's employment for Good
Reason shall not be affected by the Employee's incapacity due to physical or
mental illness. The Employee's continued employment shall not constitute consent
to, or a waiver of rights with respect to, any act or failure to act
constituting Good Reason hereunder.
For purposes of any determination regarding the existence of Good
Reason, any claim by the Employee that Good Reason exists shall be presumed to
be correct unless the Employer establishes to the Committee by clear and
convincing evidence that Good Reason does not exist.
(P) "Notice of Termination" shall have the meaning stated in Section
11.1 hereof.
(Q) "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except
that such term shall not
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include (i) the Employer or any of its subsidiaries, (ii) a trustee or other
fiduciary holding securities under an employee benefit plan of the Employer or
any of its subsidiaries, (iii) an underwriter temporarily holding securities
pursuant to an offering of such securities, or (iv) a corporation owned,
directly or indirectly, by the stockholders of the Employer in substantially the
same proportions as their ownership of stock of the Employer.
(R) "Potential Change in Control" shall be deemed to have occurred if
the event set forth in any one of the following paragraphs shall have occurred:
(1) the Employer enters into an agreement, the consummation of
which would result in the occurrence of a Change in Control;
(2) the Employer or any Person publicly announces an intention
to take or to consider taking actions which, if consummated, would
constitute a Change in Control;
(3) any Person becomes the Beneficial Owner, directly or
indirectly, of securities of the Employer representing 15% or more of
either the then outstanding shares of common stock of the Employer or
the combined voting power of the Employer's then outstanding
securities; or
(4) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has
occurred.
(S) "Severance Payments" shall mean those payments described in Section
10.1 hereof.
(T) "Term" shall mean the period of time described in Section 4.1
hereof (including any extension or continuation described therein).
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(U) "Termination Pay" shall mean those payments so described in Section
8.2 hereof.
(V) "Total Payments" shall mean those payments described in Section
10.2 hereof.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed (the corporate signatory by the respective officer duly authorized)
as of the day and year first above written.
/s/ Brian R. Colbow
--------------------------------------------
Brian R. Colbow
A. SCHULMAN, INC.
By /s/ James H. Berick
------------------------------------------
James H. Berick, Secretary
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<PAGE> 1
Exhibit 10(u)
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of this 14th day of May, 1997, by and between A. SCHULMAN, INC., a Delaware
corporation (the "Employer"), and GORDON L. TRIMMER (the "Employee").
WHEREAS, the Board of Directors of the Employer desires to provide for
the continued employment of the Employee as a member of the Employer's
management, in the best interest of the Employer and its stockholders. The
Employee is willing to commit himself continue to serve the Employer, on the
terms and conditions herein provided;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants herein contained, the parties hereto agree as follows:
1. DEFINED TERMS
The definitions of capitalized terms used in this Agreement (unless
stated where first used) are provided in the last Section hereof.
2. EMPLOYMENT
The Employer hereby continues to employ the Employee in his existing
management position as Vice President -- North American Sales and Marketing for
the Employer, and the Employee hereby accepts such continued employment upon
the terms and conditions herein contained.
3. DUTIES AND CONDITIONS OF EMPLOYMENT
3.1 DUTIES. The Employee shall devote his entire business time,
attention and energies to the Employer and shall not engage in any conduct which
shall reflect adversely upon the Companies. The Employee shall perform such
duties for the Companies as may be assigned to one in his executive status and
capacity by the Board. The Employee shall serve diligently and to the best of
his ability.
During his employment by the Employer, the Employee shall not, without
the Employer's prior written consent, be
<PAGE> 2
engaged in any other business activity, whether or not such business activity is
pursued for gain, profit or other pecuniary advantage, except that
notwithstanding the foregoing, he may invest his personal funds for his own
account; provided that such investment shall be passive and not controlling in
any such investment and subject to the provisions of Section 13.2 hereof and
provided further that he will not be required to provide any substantial
services on behalf of such enterprise. Notwithstanding the foregoing, the
Employee may serve on the Boards of Directors of other corporations during the
Term as long as such service does not interfere with the performance of his
duties hereunder.
3.2 CONDITIONS. The Employee shall be provided with suitable office
space, furnishings, secretarial and administrative assistance. Without the
Employee's consent, the Employee shall not be required to report principally to
an office located more than five hundred (500) miles from his principal office
at the date of this Agreement.
4. TERM OF AGREEMENT; TERMINATION OF EMPLOYMENT; ESCROW DURING DISPUTE
4.1 TERM OF AGREEMENT. The Employer hereby employs the Employee for a
Term commencing as of the date hereof and ending May 14, 2000. At the end of
June 1997 and at the end of each calendar month thereafter up to and including
the end of the calendar month in which the Employee's 62nd birthday occurs, this
Agreement shall automatically be extended for one (1) month unless either party
shall give notice to the other of non-extension prior to the end of such
calendar month; provided, however, if a Change in Control shall have occurred
during the Term of this Agreement, Sections 7 and 8 and 10 through 20 of this
Agreement shall continue in effect until at least the end of the
Change-in-Control Protective Period (whether or not the Term of the Agreement
shall have expired for other purposes).
4.2 TERMINATION OF EMPLOYMENT PRIOR TO A CHANGE IN CONTROL. Prior to
any Change in Control, the Employer may terminate the employment of the Employee
for Cause pursuant to this Agreement. Prior to any Change in Control, the
Employee may terminate his employment pursuant to this Agreement if the Employer
fails to make full and timely payments of all sums provided for in Sections 5
and 6 hereof (subject to Section 7.2 hereof), or otherwise shall breach its
covenants hereunder in any material respect.
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<PAGE> 3
4.3 ESCROW DURING A TERMINATION DISPUTE. Prior to any Change in
Control, if the Employee shall be terminated for Cause, and, within 30 days of
such termination, shall notify the Employer of his intention to adjudicate such
termination as improper, the Employer agrees that it will deposit with KeyBank
National Association, Cleveland, Ohio, as Escrow Agent the installments of the
Employee's Base Salary (as provided in Section 5 below) as the same would have
become payable but for such termination. In the event of a final adjudication by
a tribunal of competent jurisdiction that such termination was not for Cause,
then the amounts so deposited in escrow, plus any interest earned by the Escrow
Agent thereon, shall be delivered promptly to the Employee. If such adjudication
shall be in favor of the Employer, the Escrow Agent shall return the sums so
deposited, plus such interest, to the Employer.
The escrowed salary shall not be deemed to be liquidated damages but
the Employer shall be entitled to a credit against any such award to the extent
of the sums so delivered to the Employee.
5. COMPENSATION
The Employer agrees to pay to the Employee as compensation for his
services hereunder a Base Salary initially equal to the fixed annual salary
currently being paid to the Employee as shown on the Employer's employment
records, payable in substantially equal weekly, biweekly, bimonthly or monthly
installments, as the case may be, in the manner currently being paid to the
Employee. The Base Salary may be discretionarily increased by the Board from
time to time as the Board deems appropriate in its reasonable business judgment.
The Base Salary in effect from time to time shall not be decreased during the
Term (except as provided in Section 7.2).
It is understood and agreed that the Employee's compensation
may not be limited to his Base Salary and that the Employee may receive an
annual bonus in the amount, if any, determined annually by the Employer.
The Employee shall also participate in employee compensation and
benefit plans available generally to executives of the Employer (including,
without limitation, any tax-qualified profit sharing plan, nonqualified profit
sharing plan, life insurance plan and health insurance plan) on a level
appropriate to his position and shall receive the employee fringe benefits
available generally to executives of the
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<PAGE> 4
Employer (including, without limitation, the use of a company car).
6. EXPENSES
The Employee is authorized to incur reasonable expenses for promoting
the business of the Employer, including expenses for entertainment, travel and
similar items. The Employer shall reimburse the Employee for all such expenses
upon the presentation by the Employee, from time to time, of an itemized account
of such expenditures.
7. PRE-TERMINATION COMPENSATION; DISABILITY
7.1 NORMAL PRE-TERMINATION COMPENSATION. If the Employee's employment
shall be terminated for any reason during the Term (or, if later, prior to the
end of the Change-in-Control Protective Period), the Employer shall pay the
Employee's Base Salary to the Employee through the Date of Termination at the
rate in effect at the time the Notice of Termination is given (subject to
Section 7.2 hereof), together with all compensation and benefits payable to the
Employee through the Date of Termination under the terms of any compensation or
benefit plan, program or arrangement maintained by the Employer during such
period. Subject to Sections 8, 9, 10 and 11 hereof, after completing the expense
reimbursements required by Section 6 hereof and making the payments and
providing the benefits required by this Section 7, the Employer shall have no
further obligations to the Employee under this Agreement.
7.2 DISABILITY ADJUSTMENT TO BASE SALARY PAYMENTS. During the Term (or,
if later, at any time prior to the end of the Change-in-Control Protective
Period), during any period that the Employee fails to perform the Employee's
full-time duties with the Employer as a result of incapacity due to physical or
mental illness (but in no event for more than twenty-four (24) months), the
Employer shall pay only sixty percent (60%) of the Employee's Base Salary to the
Employee at the rate in effect at the commencement of any such period (less
amounts, if any, payable to the Employee at or prior to the time of any such
Base Salary payment under disability benefit plans of the Employer or under the
Social Security disability insurance program). After six (6) months of
Disability, the Employer shall have the right to terminate the Employee's
employment pursuant to this Agreement and all Base Salary payments (except the
sixty percent (60%) payments pursuant to the foregoing sentence) shall cease.
Except to the extent
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<PAGE> 5
provided in this Section 7.2, all Base Salary payments to the Employee shall be
abated during the period of Disability. Subject to Sections 8, 9, 10 and 11
hereof, after completing the expense reimbursements required by Section 6 hereof
and making the payments and providing the benefits required by this Section 7,
the Employer shall have no further obligations to the Employee under this
Agreement.
8. NORMAL POST-TERMINATION PAYMENTS; CONTINUATION PAY; TERMINATION PAY;
PROMPT PAYMENT
8.1 NORMAL POST-TERMINATION PAYMENTS. If the Employee's employment
shall be terminated for any reason during the Term of this Agreement (or, if
later, prior to the end of the Change-in-Control Protective Period), the
Employer shall pay the Employee's normal post-termination compensation and
benefits to the Employee as such payments become due. Subject to Section 10
hereof, such post-termination compensation and benefits shall be determined
under, and paid in accordance with, the Employer's retirement, insurance and
other compensation or benefit plans, programs and arrangements (other than this
Agreement).
8.2 CONTINUATION PAY; TERMINATION PAY. Notwithstanding anything to the
contrary in Section 7.2, 9.1 or 10.1(A) hereof, if the laws governing this
Agreement shall require that the Employer continue to pay or otherwise
compensate the Employee for any period of time following termination of the
Employee's employment ("Continuation Pay") or if such laws require certain
amounts of severance pay, termination compensation or the like (collectively,
"Termination Pay"), then to the fullest extent permitted by law any payments to
the Employee pursuant to Section 7.2, 9.1 or 10.1(A) hereof shall be included
in the calculation of Continuation Pay and Termination Pay and such payments
shall be deducted from the amount of Continuation Pay or Termination Pay due
the Employee.
8.3 PROMPT PAYMENT. Any payments due under Section 5, 6, 7 or 9 hereof
or this Section 8 shall be made promptly after the event giving rise to the
obligation and shall be made to the Employee or in accordance with Section 14.2
hereof, as the case may be.
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<PAGE> 6
9. POST-TERMINATION PAYMENTS UPON TERMINATION (PRIOR TO A CHANGE IN
CONTROL) BY DEATH OR BY THE EMPLOYER WITHOUT CAUSE
9.1 DEATH BENEFIT. If the Employee's employment shall be terminated by
death during the Term (or, if later, prior to the end of the Change-in-Control
Protective Period), then, in addition to the compensation and benefits provided
by Sections 7.1 and 8 hereof, the Employer shall pay a lump sum amount equal to
sixty percent (60%) of the Base Salary for twenty-four (24) months in accordance
with Section 14.2.
9.2 TERMINATION BY THE EMPLOYER WITHOUT CAUSE. If the Employer shall
terminate the Employee's employment during the Term and prior to a Change in
Control, without Cause (and not for Disability or in connection with the
Employee's death), the Employer shall pay the Employee his Base Salary
throughout the remaining Term and annual bonuses during the remaining Term, each
of which bonuses shall be equal to one-half (1/2) times the average annual bonus
paid to the Employee during the most recent five (5) calendar years of the
Employee's employment by any of the Companies (prorated for any partial years
in the remaining Term).
10. SEVERANCE PAYMENTS; DEDUCTIBILITY.
10.1 SEVERANCE PAYMENTS.
Subject to Section 10.2 hereof, the Employer shall pay the Employee the
payments described in this Section 10.1 (the "Severance Payments") upon the
termination of the Employee's employment following a Change in Control and
prior to the end of the Change-in-Control Protective Period, in addition to any
payments and benefits to which the Employee is entitled under Sections 5, 6, 7
and 8.1 hereof, unless such termination is (i) by the Employer for Cause, (ii)
by reason of death or Disability, or (iii) by the Employee without Good Reason.
For purposes of this Agreement, the Employee's employment shall be deemed to
have been terminated by the Employer without Cause following a Change in Control
or by the Employee with Good Reason following a Change in Control, as the case
may be, if (i) the Employee's employment is terminated without Cause prior to a
Change in Control and such termination was at the request or direction of a
Person who has entered into an agreement with the Employer the consummation of
which would constitute a Change in Control, (ii) the Employee terminates his
employment with Good Reason prior to a Change in Control and the circum-
6
<PAGE> 7
stance or event which constitutes Good Reason occurs at the request or
direction of such Person, or (iii) the Employee's employment is terminated by
the Employer without Cause prior to a Change in Control (but following a
Potential Change in Control) and such termination is otherwise in connection
with or in anticipation of a Change in Control which actually occurs. For
purposes of any determination regarding the applicability of the immediately
preceding sentence, any position taken by the Employee shall be presumed to be
correct unless the Employer establishes to the Committee by clear and
convincing evidence that such position is not correct.
(A) In lieu of any further salary payments to the
Employee for periods subsequent to the Date of Termination and in lieu
of any severance benefit otherwise payable to the Employee, the
Employer shall pay to the Employee a lump sum severance payment, in
cash, equal to three (3) times the sum of (i) the higher of the
Employee's Base Salary in effect immediately prior to the occurrence
of the event or circumstance upon which the Notice of Termination
is based or the Employee's Base Salary in effect immediately prior to
the Change in Control, and (ii) the higher of the annual bonus earned
by the Employee in respect of the Employer's fiscal year immediately
preceding that in which the Date of Termination occurs or the average
annual bonus so earned in respect of the three fiscal years
immediately preceding that in which the Change in Control occurs.
(B) Notwithstanding any provision of any annual
incentive plan to the contrary, the Employer shall pay to the Employee
a lump sum amount, in cash, equal to the sum of (i) any annual
incentive compensation which has been allocated or awarded to the
Employee for a completed fiscal year preceding the Date of Termination
and which, as of the Date of Termination, is contingent only upon the
continued employment of the Employee to a subsequent date, and (ii) a
pro rata portion to the Date of Termination of a deemed annual bonus
for the Employer's fiscal year in which the Date of Termination occurs,
calculated by multiplying (i) the higher of the annual bonus earned by
the Employee with respect to the immediately preceding fiscal year or
the average annual bonus earned by the Employee with respect to the
immediately preceding three fiscal years of the Employer by (ii) the
fraction obtained by dividing the number of days in the fiscal year of
the
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<PAGE> 8
Employer in which termination occurs up to and including the Date of
Termination by 365.
(C) For the thirty-six (36) month period immediately
following the Date of Termination, the Employer shall arrange to
provide the Employee with life, disability, accident and health
insurance benefits substantially similar to those which the Employee
is receiving immediately prior to the Notice of Termination (without
giving effect to any amendment to such benefits made subsequent to a
Change in Control, which amendment adversely affects in any manner the
Employee's entitlement to or the amount of such benefits); PROVIDED,
HOWEVER, that, unless the Employee consents to a different method
(after taking into account the effect of such method on the calculation
of "parachute payments" pursuant to Section 10.2 hereof), such health
insurance benefits shall be provided through a third-party insurer.
Benefits otherwise receivable by the Employee pursuant to this Section
10.1(C) shall be reduced to the extent comparable benefits are actually
received by or made available to the Employee without cost during the
thirty-six (36) month period following the Employee's termination of
employment (and any such benefits actually received by or made
available to the Employee shall be reported to the Employer by the
Employee). If the Severance Payments shall be decreased pursuant to
Section 10.2 hereof, and the Section 10.1(C) benefits which remain
payable after the application of Section 10.2 hereof are thereafter
reduced pursuant to the immediately preceding sentence because of the
receipt or availability of comparable benefits, the Employer shall, at
the time of such reduction, pay to the Employee the least of (a) the
amount of the decrease made in the Severance Payments pursuant to
Section 10.2 hereof, (b) the amount of the subsequent reduction in
these Section 10.1(C) benefits, or (c) the maximum amount which can be
paid to the Employee without being, or causing any other payment to be,
nondeductible by reason of section 280G of the Code.
10.2 DEDUCTIBILITY.
(A) Notwithstanding any other provisions of this Agreement, in the
event that any payment or benefit received or to be received by the Employee in
connection with a Change in Control or the termination of the Employee's
employment (whether pursuant to the terms of this Agreement or any other plan,
8
<PAGE> 9
arrangement or agreement with the Employer, any Person whose actions result in a
Change in Control or any Person affiliated with the Employer or such Person)
(all such payments and benefits, including the Severance Payments, being
hereinafter called "Total Payments") would not be deductible (in whole or part),
by the Employer, an affiliate or Person making such payment or providing such
benefit as a result of section 280G of the Code, then, to the extent necessary
to make such portion of the Total Payments deductible (and after taking into
account any reduction in the Total Payments provided by reason of section 280G
of the Code in such other plan, arrangement or agreement), the cash Severance
Payments shall first be reduced (if necessary, to zero), and the noncash
Severance Payments shall thereafter be reduced (if necessary, to zero);
PROVIDED, HOWEVER, that the Employee may elect (at any time prior to the
delivery of a Notice of Termination hereunder) to have the noncash Severance
Payments reduced (or eliminated) prior to any reduction of the cash Severance
Payments.
(B) For purposes of this limitation, (i) no portion of the Total
Payments the receipt or enjoyment of which the Employee shall have effectively
waived in writing prior to the delivery of a Notice of Termination shall be
taken into account, (ii) no portion of the Total Payments shall be taken into
account which in the opinion of tax counsel (the "Tax Counsel") reasonably
acceptable to the Employee and selected by the accounting firm which was,
immediately prior to the Change in Control, the Employer's independent auditor
(the "Auditor") does not constitute a "parachute payment" within the meaning of
section 280G(b)(2) of the Code, including by reason of section 280G(b)(4)(A) of
the Code, (iii) the Severance Payments shall be reduced only to the extent
necessary so that the Total Payments (other than those referred to in clauses
(i) or (ii)) in their entirety constitute reasonable compensation for services
actually rendered within the meaning of section 280G(b)(4)(B) of the Code or are
otherwise not subject to disallowance as deductions by reason of section 280G of
the Code, in the opinion of the Tax Counsel, and (iv) the value of any noncash
benefit or any deferred payment or benefit included in the Total Payments shall
be determined by the Auditor in accordance with the principles of sections
280G(d)(3) and (4) of the Code.
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<PAGE> 10
(C) If it is established pursuant to a final determination of a court
or an Internal Revenue Service proceeding that, notwithstanding the good faith
of the Employee and the Employer in applying the terms of this Section 10.2, the
aggregate "parachute payments" paid to or for the Employee's benefit are in an
amount that would result in any portion of such "parachute payments" not being
deductible by reason of section 280G of the Code, then the Employee shall have
an obligation to pay the Employer upon demand an amount equal to the sum of (i)
the excess of the aggregate "parachute payments" paid to or for the Employee's
benefit over the aggregate "parachute payments" that could have been paid to or
for the Employee's benefit without any portion of such "parachute payments"
not being deductible by reason of section 280G of the Code; and (ii) interest on
the amount set forth in clause (i) of this sentence at one hundred twenty
percent (120%) of the rate provided in section 1274(b)(2)(B) of the Code from
the date of the Employee's receipt of such excess until the date of such
payment.
10.3 The payments provided in Sections 10.1(A) and (B) hereof shall be
made not later than the fifth day following the Date of Termination; PROVIDED,
HOWEVER, that if the amounts of such payments, and the limitation on such
payments set forth in Section 10.2 hereof, cannot be finally determined on or
before such day, the Employer shall pay to the Employee on such day an estimate,
as determined in good faith by the Employer, in accordance with Section 10.2
hereof, of the minimum amount of such payments to which the Employee is clearly
entitled and shall pay the remainder of such payments (together with interest
at one hundred twenty percent (120%) of the rate provided in section
1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but
in no event later than the thirtieth (30th) day after the Date of Termination.
In the event that the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall constitute a loan by
the Employer to the Employee, payable on the fifth (5th) business day after
demand by the Employer (together with interest at one hundred twenty percent
(120%) of the rate provided in section 1274(b)(2)(B) of the Code). At the time
that payments are made under this Section, the Employer shall provide the
Employee with a written statement setting forth the manner in which such
payments were calculated and the basis for such calculations including, without
limitation, any opinions or other advice the Employer has received from outside
counsel, auditors or consultants (and any such opinions or advice which are in
writing shall be
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<PAGE> 11
attached to the statement). In the event the Employer should fail to pay when
due the amounts described in Sections 10.1(A), (B) and (C) hereof or in Section
10.2 hereof, the Employee shall also be entitled to receive from the Employer an
amount representing interest on any such unpaid amounts from the due date, as
determined under this Section 10.3 (without regard to any extension of the Date
of Termination pursuant to Section 11.3 hereof), to the date of payment at one
hundred twenty percent (120%) of the rate provided in section 1274(b)(2)(B) of
the Code.
10.4 The Employer also shall pay to the Employee all legal fees and
expenses incurred by the Employee (i) in disputing in good faith any issue
relating to the termination of the Employee's employment following a Change in
Control and prior to the end of the Change-in-Control Protective Period, (ii) in
seeking in good faith to obtain or enforce any benefit or right provided by this
Agreement, or (iii) in connection with any tax audit or proceeding to the extent
attributable to the application of section 4999 of the Code to any payment or
benefit provided hereunder. Such payments shall be made within five (5)
business days after delivery of the Employee's written requests for payment
accompanied with such evidence of fees and expenses incurred as the Employer
reasonably may require.
11. TERMINATION PROCEDURES AND COMPENSATION DURING DISPUTE.
11.1 NOTICE OF TERMINATION. During the Term (and, if longer, until the
end of the Change-in-Control Protective Period), any purported termination of
the Employee's employment (other than by reason of death) shall be communicated
by written Notice of Termination from one party hereto to the other party hereto
in accordance with Section 15 hereof. For purposes of this Agreement, a "Notice
of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Employee's employment under the provision so indicated.
Further, with respect to any purported termination of the Employee's employment
after a Change in Control and prior to the end of the Change-in-Control
Protective Period, a Notice of Termination for Cause is required to include a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters (3/4) of the entire membership of the Board at a meeting of the
Board which was called and held for the purpose of considering such termi-
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<PAGE> 12
nation (after reasonable notice to the Employee and an opportunity for the
Employee, together with the Employee's counsel, to be heard before the Board)
finding that, in the good faith opinion of the Board, the Employee was guilty of
conduct set forth in clause (i) or (ii) of the definition of Cause herein, and
specifying the particulars thereof in detail.
11.2 DATE OF TERMINATION. "Date of Termination," with respect to any
purported termination of the Employee's employment during the Term (and, if
longer, prior to the end of the Change-in-Control Protective Period), shall mean
(i) if the Employee's employment is terminated for Disability, thirty (30) days
after Notice of Termination is given (provided that the Employee shall not have
returned to the full-time performance of the Employee's duties during such
thirty (30) day period), and (ii) if the Employee's employment is terminated for
any other reason, the date specified in the Notice of Termination (which, in the
case of a termination by the Employer, shall not be less than thirty (30) days
(except in the case of a termination for Cause) and, in the case of a
termination by the Employee, shall not be less than fifteen (15) days nor more
than sixty (60) days, respectively, from the date such Notice of Termination is
given).
11.3 DISPUTE CONCERNING TERMINATION. With respect to any purported
termination of the Employee's employment after a Change in Control and prior to
the end of the Change-in-Control Protective Period, if within fifteen (15) days
after any Notice of Termination is given, or, if later, prior to the Date of
Termination (as determined without regard to this Section 11.3), the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be extended
until the date on which the dispute is finally resolved, either by mutual
written agreement of the parties or by a final judgment, order or decree of a
court of competent jurisdiction (which is not appealable or with respect to
which the time for appeal therefrom has expired and no appeal has been
perfected); PROVIDED, HOWEVER, that the Date of Termination shall be extended
by a notice of dispute given by the Employee only if such notice is given in
good faith and the Employee pursues the resolution of such dispute with
reasonable diligence.
11.4 COMPENSATION DURING DISPUTE. If a purported termination occurs
following a Change in Control and prior to the end of the Change-in-Control
Protective Period and the Date of Termination is extended in accordance with
Section 11.3
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hereof, the Employer shall continue to pay the Employee the full compensation in
effect when the notice giving rise to the dispute was given (including, but not
limited to, salary) and continue the Employee as a participant in all
compensation, benefit and insurance plans in which the Employee was
participating when the notice giving rise to the dispute was given, until the
Date of Termination, as determined in accordance with Section 11.3 hereof.
Amounts paid under this Section 11.4 are in addition to all other amounts due
under this Agreement (other than those due under Section 7.1 hereof) and shall
not be offset against or reduce any other amounts due under this Agreement.
12. NO MITIGATION
The Employer agrees that, if the Employee's employment with the
Employer terminates following a Change in Control and prior to the end of the
Change-in-Control Protective Period, the Employee is not required to seek other
employment or to attempt in any way to reduce any amounts payable to the
Employee by the Employer pursuant to Section 10 hereof or Section 11.4 hereof.
Further, the amount of any payment or benefit provided for in this Agreement
(other than Section 10.1(C) hereof) shall not be reduced by any compensation
earned by the Employee as the result of employment by another employer, by
retirement benefits, by offset against any amount claimed to be owed by the
Employee to the Employer, or otherwise.
13. CONFIDENTIALITY; NON-COMPETITION AND NON-SOLICITATION
13.1 CONFIDENTIALITY. The Companies' methods, plans for doing business,
processes, pricing, compounds, customers and supplies are vital to the Companies
and, to the extent not made public by the Companies, constitute confidential
information subject to the Companies' proprietary rights therein. The Employee
covenants and agrees that during the Term and at all times thereafter, the
Employee will not, directly or indirectly, make known, divulge, furnish, make
available or use, otherwise than in the regular course of the Employee's
employment by the Employer, any invention, product, process, apparatus or
design of any of the Companies, or any knowledge or information in respect
thereof (including, but not limited to, business methods and techniques), or
any other confidential or so-called "insider" information of any of the
Companies. This
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covenant shall apply without regard to the time or circumstances of any
termination of the Employee's employment.
13.2 NON-COMPETITION AND NON-SOLICITATION. The Employee covenants and
agrees that during the period of one (1) year following any termination of the
Employee's employment which occurs prior to a Change in Control, the Employee
will not, directly or indirectly, either as an individual for the Employee's own
account or as an investor, or other participant in, or as an employee, agent, or
representative of, any other business enterprise:
(i) solicit, employ, entice, take away or interfere with, or
attempt to solicit, employ, entice, take away or interfere
with, any employee of the Employer or the Companies; or
(ii) engage or participate in or finance, aid or be connected with
any enterprise which competes with the business of the
Companies, or any of them.
The geographical limitations of the foregoing shall include any country in which
the Companies or any of them shall be doing business as of such date of such
termination. This covenant shall apply without regard to the circumstances of
any termination of the Employee's employment which occurs prior to a Change in
Control.
13.3 The Employee acknowledges that the covenants contained in this
Section 13 are of the essence of this Agreement and said covenants shall be
construed as independent of any other provisions of this Agreement. Recognizing
the irreparable nature of the injury that could result from the Employee's
violation of any of the covenants and agreement to be performed and/or observed
by the Employee pursuant to the provisions of this Section 13, and that damages
would be inadequate compensation, it is agreed that any violations by the
Employee of the provisions of this Section 13, shall be the proper subject for
immediate injunctive and other equitable relief to the Employer.
14. SUCCESSORS; BINDING AGREEMENT
14.1 In addition to any obligations imposed by law upon any successor
to the Employer, the Employer will require any successor (whether direct or
indirect, by purchase, merger,
14
<PAGE> 15
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Employer to expressly assume and agree to perform this Agreement
in the same manner and to the same extent that the Employer would be required to
perform it if no such succession had taken place. Failure of the Employer to
obtain such assumption and agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle the Employee to
compensation from the Employer in the same amount and on the same terms as the
Employee would be entitled to hereunder if the Employee were to terminate the
Employee's employment for Good Reason after a Change in Control, except that,
for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination. Except as
provided in this Section 14.1, this Agreement shall not be assignable by either
party without the written consent of the other party hereto.
14.2 This Agreement shall inure to the benefit of and be enforceable by
the Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Employee shall
die while any amount would still be payable to the Employee hereunder (other
than amounts which, by their terms, terminate upon the death of the Employee) if
the Employee had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to the
executors, personal representatives or administrators of the Employee's estate.
15. NOTICES
For purposes of this Agreement, notices and all other communications
provided for in the Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States registered mail,
return receipt requested, postage prepaid, addressed, if to the Employee, to the
address shown for the Employee in the personnel records of the Employer and, if
to the Employer, to the address set forth below, or to such other address as
either party may have furnished to the other in writing in accordance herewith,
except that notice of change of address shall be effective only upon actual
receipt:
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<PAGE> 16
To the Employer:
Robert A. Stefanko
Chief Financial Officer and Executive
Vice President-Finance and Administration
A. Schulman, Inc.
P. O. Box 1710
Akron, Ohio 44309-1710
With a copy to:
James H. Berick, Esq.
Berick, Pearlman & Mills Co., L.P.A.
1350 Eaton Center
1111 Superior Avenue
Cleveland, Ohio 44114-2569
16. MISCELLANEOUS
No provision of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing and signed
by the Employee and such officer as may be specifically designated by the Board.
No waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time. This Agreement supersedes the Employment Agreement between the Employer
and the Employee dated as of December 28, 1990 and any other agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof which have been made by either party, except as expressly
set forth in this Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Ohio. All references to sections of the Exchange Act or the Code shall be
deemed also to refer to any successor provisions to such sections. Any payments
provided for hereunder shall be paid net of any applicable withholding required
under federal, state or local law and any additional withholding to which the
Employee has agreed. The obligations of the Employer and the Employee under
this Agreement which by their nature may require (partial or total) performance
after the expiration of the Term or the Change-in-Control Protective Period
(including, without limitation, those under Sections 5 through 11 and Section
13 hereof) shall survive such expiration.
16
<PAGE> 17
17. VALIDITY
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
18. COUNTERPARTS
This Agreement may be executed in several counterparts, each
of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
19. SETTLEMENT OF DISPUTES AFTER CHANGE IN CONTROL; ARBITRATION
After a Change in Control and prior to the end of the Change-in-Control
Protective Period, all claims by the Employee for benefits under this Agreement
shall be directed to and determined by the Committee and shall be in writing.
Any denial by the Committee of a claim for benefits under this Agreement shall
be delivered to the Employee in writing and shall set forth the specific reasons
for the denial and the specific provisions of this Agreement relied upon. The
Committee shall afford a reasonable opportunity to the Employee for a review of
the decision denying a claim and shall further allow the Employee to appeal to
the Committee a decision of the Committee within sixty (60) days after
notification by the Committee that the Employee's claim has been denied. Any
further dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in Akron, Ohio, in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction. Notwithstanding any provision of this Agreement to the contrary,
the Employee shall be entitled to seek specific performance of the Employee's
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
20. DEFINITIONS
For purposes of this Agreement, the following terms shall have the
meanings indicated below:
(A) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3
under the Exchange Act.
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<PAGE> 18
(B) "Board" shall mean the Board of Directors of the Employer.
(C) "Cause" for termination by the Employer of the Employee's
employment shall mean the following:
(I) with respect to a termination as to which the Notice of
Termination is duly given prior to a Change in Control, the Employee's
breach of his covenants herein contained, the Employee's gross neglect
of his duties hereunder, the Employee's knowingly committing
misfeasance or knowingly permitting nonfeasance of his duties in any
material respect, or the Employee's committing a felony; and
(II) with respect to a termination as to which the Notice of
Termination is duly given following a Change in Control, (i) the
willful and continued failure by the Employee to substantially perform
the Employee's duties with the Employer (other than any such failure
resulting from the Employee's incapacity due to physical or mental
illness or any such actual or anticipated failure after the issuance of
a Notice of Termination for Good Reason by the Employee pursuant to
Section 11.1 hereof) after a written demand for substantial performance
is delivered to the Employee by the Board, which demand specifically
identifies the manner in which the Board believes that the Employee has
not substantially performed the Employee's duties, or (ii) the willful
engaging by the Employee in conduct which is demonstrably and
materially injurious to the Employer or its subsidiaries, monetarily
or otherwise. For purposes of clauses (i) and (ii) of this definition,
(x) no act, or failure to act, on the Employee's part shall be deemed
"willful" unless done, or omitted to be done, by the Employee not in
good faith and without reasonable belief that the Employee's act, or
failure to act, was in the best interest of the Employer and (y) in the
event of a dispute concerning the application of this provision, no
claim by the Employer that Cause exists shall be given effect unless
the Employer establishes to the Committee by clear and convincing
evidence that Cause exists.
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<PAGE> 19
(D) A "Change in Control" shall be deemed to have occurred if the event
set forth in any one of the following paragraphs shall have occurred:
(I) any Person is or becomes the Beneficial Owner, directly
or indirectly, of securities of the Employer (not including in the
securities beneficially owned by such Person any securities acquired
directly from the Employer or its affiliates other than in connection
with the acquisition by the Employer or its affiliates of a business)
representing 25% or more of either the then outstanding shares of
common stock of the Employer or the combined voting power of the
Employer's then outstanding securities; or
(II) the following individuals cease for any reason to
constitute a majority of the number of directors then serving:
individuals who, on the date hereof, constitute the Board and any new
director (other than a director whose initial assumption of office is
in connection with an actual or threatened election contest, including
but not limited to a consent solicitation, relating to the election of
directors of the Employer) whose appointment or election by the Board
or nomination for election by the Employer's stockholders was approved
by a vote of at least two-thirds (2/3) of the directors then still in
office who either were directors on the date hereof or whose
appointment, election or nomination for election was previously so
approved; or
(III) the stockholders of the Employer approve a merger or
consolidation of the Employer with any other corporation or approve the
issuance of voting securities of the Employer in connection with a
merger or consolidation of the Employer (or any direct or indirect
subsidiary of the Employer) pursuant to applicable stock exchange
requirements, other than (i) a merger or consolidation which would
result in the voting securities of the Employer outstanding immediately
prior to such merger or consolidation continuing to represent (either
by remaining outstanding or by being converted into voting securities
of the surviving entity or any parent thereof), in combination with the
ownership of any trustee or other fiduciary holding securities under an
employee
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<PAGE> 20
benefit plan of the Employer or any subsidiary of the Employer, at
least 75% of the combined voting power of the voting securities of the
Employer or such surviving entity or any parent thereof outstanding
immediately after such merger or consolidation, or (ii) a merger or
consolidation effected to implement a recapitalization of the
Employer (or similar transaction) in which no Person is or becomes the
Beneficial Owner, directly or indirectly, of securities of the
Employer (not including in the securities Beneficially Owned by such
Person any securities acquired directly from the Employer or its
subsidiaries other than in connection with the acquisition by the
Employer or its subsidiaries of a business) representing 25% or more
of either the then outstanding shares of common stock of the Employer
or the combined voting power of the Employer's then outstanding
securities; or
(IV) the stockholders of the Employer approve a plan of
complete liquidation or dissolution of the Employer or an agreement for
the sale or disposition by the Employer of all or substantially all of
the Employer's assets, other than a sale or disposition by the Employer
of all or substantially all of the Employer's assets to an entity, at
least 75% of the combined voting power of the voting securities of
which are owned by stockholders in substantially the same proportions
as their ownership of the Employer immediately prior to such sale.
Notwithstanding the foregoing, no "Change in Control" shall be deemed
to have occurred if there is consummated any transaction or series of integrated
transactions immediately following which the record holders of the common stock
of the Employer immediately prior to such transaction or series of transactions
continue to have substantially the same proportionate ownership in an entity
which owns all or substantially all of the assets of the Employer immediately
following such transaction or series of transactions.
Further, notwithstanding the foregoing, any event or transaction which
would otherwise constitute a Change in Control (a "Transaction") shall not
constitute a Change in Control for purposes of this Agreement if, in connection
with the Transaction, the Employee participates as an equity investor in the
acquiring entity or any of its affiliates (the
20
<PAGE> 21
"Acquiror"). For purposes of the preceding sentence, the Employee shall not be
deemed to have participated as an equity investor in the Acquiror by virtue of
(i) obtaining beneficial ownership of any equity interest in the Acquiror as a
result of the grant to the Employee of an incentive compensation award under
one or more incentive plans of the Acquiror (including, but not limited to, the
conversion in connection with the Transaction of incentive compensation awards
of the Employer into incentive compensation awards of the Acquiror), on terms
and conditions substantially equivalent to those applicable to other executives
of the Employer immediately prior to the Transaction, after taking into
account normal differences attributable to job responsibilities, title and
similar matters, (ii) obtaining beneficial ownership of any equity interest in
the Acquiror on terms and conditions substantially equivalent to those obtained
in the Transaction by all other stockholders of the Employer, or (iii) passive
ownership of less than three percent (3%) of the stock of the Acquiror.
(E) "Change-in-Control Protective Period" shall mean the period from
the occurrence of a Change in Control until the later of the second anniversary
of such Change in Control or, if such Change in Control shall be caused by the
stockholder approval of a merger or consolidation described in Section
20(E)(III) hereof, the second anniversary of the consummation of such merger or
consolidation.
(F) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(G) "Committee" shall mean (i) the individuals (not fewer than three in
number) who, immediately prior to a Potential Change in Control, constitute the
Compensation Committee of the Board, plus (ii) in the event that fewer than
three individuals are available from the group specified in clause (i) above for
any reason, such individuals as may be appointed by the individual or
individuals so available (including for this purpose any individual or
individuals previously so appointed under this clause (ii)); provided, however,
that the maximum number of individuals constituting the Committee shall not
exceed five.
(H) "Companies" shall mean, collectively, the Employer and each
corporation which is now and hereafter shall become a subsidiary of, or a parent
of, the Employer, together with their respective successors and assigns.
21
<PAGE> 22
(I) "Continuation Pay" shall mean those payments so described in
Section 8.2 hereof.
(J) "Date of Termination" shall have the meaning stated in Section 11.2
hereof.
(K) "Disability" shall be deemed the reason for the termination by the
Employer of the Employee's employment, if, as a result of the Employee's
incapacity due to physical or mental illness, the Employee shall have been
absent from the full-time performance of the Employee's duties with the
Employer for a period of six (6) consecutive months, the Employer shall have
given the Employee a Notice of Termination for Disability, and, within thirty
(30) days after such Notice of Termination is given, the Employee shall
not have returned to the full-time performance of the Employee's duties.
(L) "Employee" shall mean the individual named in the first paragraph
of this Agreement.
(M) "Employer" shall mean A. Schulman, Inc. and, except in determining
under Section 20(E) hereof whether or not any Change in Control of the Employer
has occurred, any successor to its business and/or assets which assumes and
agrees to perform this Agreement by operation of law, or otherwise.
(N) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(O) "Good Reason" for termination by the Employee of the Employee's
employment shall mean the occurrence (without the Employee's express prior
written consent) after any Change in Control, or after any Potential Change in
Control under the circumstances described in the second sentence of Section 10.1
hereof (treating all references in paragraphs (I) through (VII) below to a
"Change in Control" as references to a "Potential Change in Control"), of any
one of the following acts by the Employer, or failures by the Employer to act,
unless, in the case of any act or failure to act described in paragraph (I),
(V), (VI) or (VII) below, such act or failure to act is corrected prior to the
Date of Termination specified in the Notice of Termination given in respect
thereof:
(I) the assignment to the Employee of any duties inconsistent
with the Employee's status as an executive officer of the Employer or a
substantial adverse alteration in the nature or status of the
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<PAGE> 23
Employee's responsibilities from those in effect immediately prior to
the Change in Control (other than any such alteration primarily
attributable to the fact that the Employer may no longer be a public
company);
(II) a reduction by the Employer in the Employee's annual base
salary as in effect on the date hereof or as the same may be increased
from time to time except for across-the-board salary reductions
similarly affecting all executives of the Employer and all executives
of any Person in control of the Employer;
(III) the relocation of the Employer's principal executive
offices to a location more than fifty (50) miles from the location of
such offices immediately prior to the Change in Control or the
Employer's requiring the Employee to be based anywhere other than the
Employer's principal executive offices except for required travel on
the Employer's business to an extent substantially consistent with the
Employee's present business travel obligations;
(IV) the failure by the Employer, without the Employee's
consent, to pay to the Employee any portion of the Employee's current
compensation, or to pay to the Employee any portion of an installment
of deferred compensation under any deferred compensation
program of the Employer, within seven (7) days of the date such
compensation is due;
(V) the failure by the Employer to continue in effect any
compensation plan in which the Employee participates immediately prior
to the Change in Control which is material to the Employee's total
compensation, including but not limited to the Employer's 1991 Stock
Incentive Plan and Nonqualified Profit Sharing Plan or any substitute
plans adopted prior to the Change in Control, unless an equitable
arrangement (embodied in an ongoing substitute or alternative plan) has
been made with respect to such plan, or the failure by the Employer to
continue the Employee's participation therein (or in such substitute
or alternative plan) on a basis not materially less favorable, both in
terms of the amount of benefits provided and the level of the
Employee's
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<PAGE> 24
participation relative to other participants, as existed at
the time of the Change in Control;
(VI) the failure by the Employer to continue to provide the
Employee with benefits substantially similar to those enjoyed by the
Employee under any of the Employer's pension, life insurance, medical,
health and accident, or disability plans in which the Employee was
participating at the time of the Change in Control, the taking of any
action by the Employer which would directly or indirectly materially
reduce any of such benefits or deprive the Employee of any material
fringe benefit enjoyed by the Employee at the time of the Change in
Control, or the failure by the Employer to provide the Employee with
the number of paid vacation days to which the Employee is entitled on
the basis of years of service with the Employer in accordance with the
Employer's normal vacation policy in effect at the time of the Change
in Control; or
(VII) any purported termination of the Employee's employment
which is not effected pursuant to a Notice of Termination satisfying
the requirements of Section 11.1 hereof; for purposes of this
Agreement, no such purported termination shall be effective.
The Employee's right to terminate the Employee's employment for Good
Reason shall not be affected by the Employee's incapacity due to physical or
mental illness. The Employee's continued employment shall not constitute consent
to, or a waiver of rights with respect to, any act or failure to act
constituting Good Reason hereunder.
For purposes of any determination regarding the existence of Good
Reason, any claim by the Employee that Good Reason exists shall be presumed to
be correct unless the Employer establishes to the Committee by clear and
convincing evidence that Good Reason does not exist.
(P) "Notice of Termination" shall have the meaning stated in Section
11.1 hereof.
(Q) "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except
that such term shall not
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<PAGE> 25
include (i) the Employer or any of its subsidiaries, (ii) a trustee or other
fiduciary holding securities under an employee benefit plan of the Employer or
any of its subsidiaries, (iii) an underwriter temporarily holding securities
pursuant to an offering of such securities, or (iv) a corporation owned,
directly or indirectly, by the stockholders of the Employer in substantially the
same proportions as their ownership of stock of the Employer.
(R) "Potential Change in Control" shall be deemed to have occurred if
the event set forth in any one of the following paragraphs shall have occurred:
(1) the Employer enters into an agreement, the consummation of
which would result in the occurrence of a Change in Control;
(2) the Employer or any Person publicly announces an intention
to take or to consider taking actions which, if consummated, would
constitute a Change in Control;
(3) any Person becomes the Beneficial Owner, directly or
indirectly, of securities of the Employer representing 15% or more of
either the then outstanding shares of common stock of the Employer or
the combined voting power of the Employer's then outstanding
securities; or
(4) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has
occurred.
(S) "Severance Payments" shall mean those payments described in Section
10.1 hereof.
(T) "Term" shall mean the period of time described in Section 4.1
hereof (including any extension or continuation described therein).
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<PAGE> 26
(U) "Termination Pay" shall mean those payments so described in Section
8.2 hereof.
(V) "Total Payments" shall mean those payments described in Section
10.2 hereof.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed (the corporate signatory by the respective officer duly authorized)
as of the day and year first above written.
/s/ Gordon L. Trimmer
--------------------------------------------
Gordon L. Trimmer
A. SCHULMAN, INC.
By /s/ James H. Berick
------------------------------------------
James H. Berick, Secretary
26
<PAGE> 1
EXHIBIT 10(x)
================================================================================
A. SCHULMAN, INC.
AS BORROWER
THE FINANCIAL INSTITUTIONS NAMED HEREIN
AS BANKS
AND
KEYBANK NATIONAL ASSOCIATION
AS AGENT
---------------------
AMENDMENT NO. 2
DATED AS OF
AUGUST 14, 1997
TO
CREDIT AGREEMENT
DATED AS OF
MARCH 13, 1995
---------------------
================================================================================
<PAGE> 2
AMENDMENT NO. 2 TO CREDIT AGREEMENT
THIS AMENDMENT NO. 2 TO CREDIT AGREEMENT, dated as of August 14, 1997,
among A. SCHULMAN, INC., a Delaware corporation( herein, together with its
successors and assigns, the "BORROWER"); the financial institutions listed on
the signature pages hereof (the "BANKS"); and KEYBANK NATIONAL ASSOCIATION, a
national banking association which is successor by merger to Society National
Bank, as Agent for the Banks under the Credit Agreement:
PRELIMINARY STATEMENTS:
(1) The Borrower entered into the Credit Agreement, dated as of March
13, 1995, and the First Amendment to Credit Agreement, dated as of February 26,
1996 (as so amended, the "CREDIT AGREEMENT"; with the terms defined therein, or
the definitions of which are incorporated therein, being used herein as so
defined).
(2) It is contemplated that on the Effective Date (as hereinafter
defined), (i) two of the Banks named in the Credit Agreement will assign their
entire outstanding Loans and Commitments under the Credit Agreement to one or
more of the other Banks party to the Credit Agreement, and will thereafter have
no further obligations under the Credit Agreement, (ii) certain additional
financial institutions will become parties to the Credit Agreement as Banks, and
(iii) the Commitments of the Banks will be revised and the aggregate Commitments
increased from $75,000,000 to $100,000,000.
(3) In connection with the foregoing, the Borrower has requested the
Banks and the Agent to amend certain of the provisions of the Credit Agreement,
all as more fully set forth below.
NOW, THEREFORE, the parties hereby agree as follows:
SECTION 1. AMENDMENTS.
1.1. COMMITMENT AMOUNTS. Effective on the Effective Date, (i) Annex A
to the Credit Agreement is amended to read in its entirety as set forth in Annex
A hereto; and (ii) the phrase "Seventy-Five Million Dollars ($75,000,000)",
which appears in Section 2.1.A of the Credit Agreement, is changed to "One
Hundred Million Dollars ($100,000,000)".
1.2. EXTENSION OF MATURITY. Effective on the Effective Date, the date
"February 28, 2001", which appears in the definition of the term Termination
Date in Article I of the Credit Agreement and again in the fourth paragraph of
Section 2.1.A of the Credit Agreement, is changed to "August 14, 2002" in both
such instances.
1.3. PRICING. Effective on the Effective Date,
(I) LIBOR MARGIN: the phrase "one-quarter of one percent (1/4
of 1%)", which appears in the definition of the term Libor Margin in
Article I of the Credit Agreement, is changed to "Seventeen and
one-half basis points (17.5 basis points)";
(II) RACD MARGIN: the phrase "three-eighths percent (3/8 of
1%)", which appears in the definition of the term RACD Margin in
Article I of the Credit Agreement, is changed to "Thirty basis points
(30.0 basis points)"; and
(III) FACILITY FEE: the phrase "one-eighth percent (1/8 of
1%)", which appears in Section 2.5 of the Credit Agreement, is changed
to "Seven and one-half basis points (7+1/2 basis points)".
1.4. MINIMUM CONSOLIDATED TANGIBLE NET WORTH. Effective on the
Effective Date, Section 7.2 of the Credit Agreement is amended to read in its
entirety as follows:
<PAGE> 3
SECTION 7.2 MINIMUM CONSOLIDATED TANGIBLE NET WORTH. The
Borrower will not permit its Consolidated Tangible Net Worth as of the
end of any fiscal year end to be less than the sum of (a) $285,000,000,
and (b) 25% of the positive net income for each completed fiscal year
of the Borrower, commencing with the fiscal year beginning September 1,
1996 (there being no reduction in the event the net income for any
fiscal year is a deficit).
1.5. CONSENT TO ASSIGNMENTS. As contemplated by Section 12.9 of the
Credit Agreement, the Borrower and the Agent hereby consent to the assignments
to which reference is made in Preliminary Statement (2) and section 4(c) hereof.
SECTION 2. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants as follows:
2.1. FINANCIAL STATEMENTS, ETC. The Borrower has furnished to the Banks
and the Agent complete and correct copies of (i) the audited consolidated
balance sheet of the Borrower and its consolidated subsidiaries as of August 31,
1996 and the related consolidated statements of income, shareholders' equity and
cash flows of the Borrower and its consolidated subsidiaries for the fiscal year
then ended, all certified without qualification by its independent public
accountants, and (ii) the unaudited consolidated balance sheet of the Borrower
and its consolidated subsidiaries as of May 31, 1997 and the related
consolidated statements of income and cash flows of the Borrower and its
consolidated subsidiaries for the fiscal quarter and nine nonths then ended. All
such financial statements have been prepared in accordance with generally
accepted accounting principles, consistently applied (except as stated therein),
and fairly present the financial position of the Borrower and its consolidated
subsidiaries as of the dates indicated and the consolidated results of their
operations and cash flows for the periods then ended, subject in the case of
such unaudited financial statements to the effect of normal year-end audit
adjustments.
2.2. REPRESENTATIONS AND WARRANTIES IN CREDIT AGREEMENT. The
representations and warranties of the Borrower contained in the Credit
Agreement, as amended hereby, are true and correct on and as of the date hereof
as though made on and as of the date hereof, except to the extent that such
representations and warranties expressly relate to an earlier specified date, in
which case such representations and warranties are hereby reaffirmed as true and
correct when made.
2.3. COMPLIANCE. The Borrower is in compliance in all material respects
with all covenants and agreements contained in the Credit Agreement, as amended
hereby.
2.4. NO EVENT OF DEFAULT, ETC. No condition or event has occurred or
exists which constitutes or which, after notice or lapse of time or both, would
constitute an Event of Default.
SECTION 3. RATIFICATIONS.
The terms and provisions set forth in this Amendment shall modify and
supersede all inconsistent terms and provisions set forth in the Credit
Agreement, and except as expressly modified and superseded by this Amendment,
the terms and provisions of the Credit Agreement are ratified and confirmed and
shall continue in full force and effect.
SECTION 4. CONDITIONS TO THIS AMENDMENT.
This Amendment shall become effective if, and on the date (the
"EFFECTIVE DATE"), on or before August 31, 1997, when all of the following
conditions shall be satisfied:
2
<PAGE> 4
(a) EXECUTION OF AMENDMENT BY BORROWER AND AGENT. This
Amendment shall have been executed by the Borrower and the Agent, and
counterparts hereof as so executed shall have been delivered to the
Agent.
(b) EXECUTION OF AMENDMENT BY BANKS. The Agent shall have been
notified by all of the Banks whose names appear on the signature page
hereof that such Banks have executed this Amendment (which notification
may be by facsimile or other written confirmation of such execution).
(c) TRANSFER OF COMMITMENTS AND LOANS. The Banks which were
original parties to the Credit Agreement but are not named in Annex A
hereto shall have assigned all of their Commitments and Loans to one or
more of the Banks party hereto so that, after giving effect thereto,
the outstanding Syndicated Loans of the Banks party hereto shall be in
the proportions reflected in such Annex.
(d) REPRESENTATIONS AND WARRANTIES CORRECT. The
representations and warranties of the Borrower contained in this
Amendment shall be true and correct on and as of such date as though
made on and as of such date, except to the extent that such
representations and warranties expressly relate to an earlier specified
date, in which case such representations and warranties need only have
been true and correct when made.
(e) CERTIFIED RESOLUTIONS. The Agent shall have received, in
sufficient quantity for the Agent and the Banks, certified copies of
the resolutions of the Board of Directors of the Borrower, approving
the Credit Agreement, this Amendment and each document contemplated
hereby to which the Borrower is a party.
(f) INCUMBENCY CERTIFICATE. The Agent shall have received, in
sufficient quantity for the Agent and the Banks, a certificate of the
Secretary or an Assistant Secretary of the Borrower, certifying the
names and true signatures of the officers of the Borrower authorized to
sign the documents to which the Borrower is a party which may be
executed and delivered in connection herewith.
(g) NOTES. The Agent shall have received, for the account of
the Banks party hereto, a Syndicated Note and a Bid-Option Note for
each such Bank, each duly completed and executed by the Borrower.
(h) OPINION OF COUNSEL. The Agent shall have received, in
sufficient quantity for the Agent and the Banks, an opinion letter of
Berick, Pearlman & Mills Co., L.P.A., special counsel to the Borrower,
dated on or prior to such date, in substantially the form attached
hereto as Exhibit A, and covering such additional matters incident to
the transactions contemplated hereby as the Agent or any Bank may
reasonably request.
The Agent shall notify the Borrower and each Bank in writing of the Effective
Date.
SECTION 5. MISCELLANEOUS.
5.1. SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon and
inure to the benefit of the Borrower, each Bank and the Agent and their
respective permitted successors and assigns.
5.2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made in this Amendment shall survive the execution and delivery
of this Amendment, and no investigation by the Agent or any Bank or any
subsequent Loan shall affect the representations and warranties or the right of
the Agent or any Bank to rely upon them.
5.3. REFERENCE TO CREDIT AGREEMENT. The Credit Agreement and any and
all other agreements, instruments or documentation now or hereafter executed and
delivered pursuant to the terms of the Credit
3
<PAGE> 5
Agreement as amended hereby, are hereby amended so that any reference therein to
the Credit Agreement shall mean a reference to the Credit Agreement as amended
hereby. Whenever reference is made in any such other document to the amount of
the credit facilities provided for in the Credit Agreement, such reference shall
be deemed amended to refer to the amount of the credit facilities provided for
in the Credit Agreement as amended hereby.
5.4. EXPENSES. As provided in the Credit Agreement, but without
limiting any terms or provisions thereof, the Borrower agrees to pay on demand
all costs and expenses incurred by the Agent in connection with the preparation,
negotiation, and execution of this Amendment, including without limitation the
costs and fees of the Agent's special legal counsel, regardless of whether this
Amendment becomes effective in accordance with the terms hereof, and all costs
and expenses incurred by the Agent or any Bank in connection with the
enforcement or preservation of any rights under the Credit Agreement, as amended
hereby.
5.5. SEVERABILITY. Any term or provision of this Amendment held by a
court of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of this Amendment and the effect thereof shall be
confined to the term or provision so held to be invalid or unenforceable.
5.6. APPLICABLE LAW. This Amendment shall be governed by and construed
in accordance with the laws of the State of Ohio.
5.7. HEADINGS. The headings, captions and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
5.8. ENTIRE AGREEMENT. This Amendment is specifically limited to the
matters expressly set forth herein. This Amendment and all other instruments,
agreements and documentation executed and delivered in connection with this
Amendment embody the final, entire agreement among the parties hereto with
respect to the subject matter hereof and supersede any and all prior
commitments, agreements, representations and understandings, whether written or
oral, relating to the matters covered by this Amendment, and may not be
contradicted or varied by evidence of prior, contemporaneous or subsequent oral
agreements or discussions of the parties hereto. There are no oral agreements
among the parties hereto relating to the subject matter hereof or any other
subject matter relating to the Credit Agreement.
5.9. COUNTERPARTS. This Amendment may be executed by the parties hereto
separately in one or more counterparts, each of which when so executed shall be
deemed to be an original, but all of which when taken together shall constitute
one and the same agreement.
[The balance of this page is intentionally blank.]
4
<PAGE> 6
IN WITNESS WHEREOF, this Amendment has been duly executed and delivered
as of the date first above written.
A. SCHULMAN, INC.
BY: /s/ B.R. Colbow
--------------------------------
TITLE: Treasurer
KEYBANK, NATIONAL ASSOCIATION,
INDIVIDUALLY AND AS AGENT
BY: /s/ Frank J. Jancar
--------------------------------
VICE PRESIDENT
NBD BANK, N.A.
BY: /s/ Russell H. Lieberan, Jr.
--------------------------------
VICE PRESIDENT
NATIONAL CITY BANK, NORTHEAST
BY: /s/ Kevin O. Thompson
--------------------------------
SENIOR VICE PRESIDENT
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
BY: /s/ Patricia P. Lunka
--------------------------------
VICE PRESIDENT
5
<PAGE> 7
ANNEX A
<TABLE>
<CAPTION>
Name Maximum Amount Percentage
- ---- -------------- ----------
<S> <C> <C>
KeyBank National Association $50,000,000 50%
The First National Bank
of Chicago $20,000,000 20%
National City Bank, $15,000,000 15%
Northeast
Morgan Guaranty Trust Company
of New York $15,000,000 15%
</TABLE>
<PAGE> 1
Exhibit 11
A. SCHULMAN, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Year ended August 31,
----------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net income $50,744,000 $42,177,000 $53,618,000
Dividends on preferred
stock 53,000 54,000 54,000
----------- ----------- -----------
Net Income applicable
to common stock $50,691,000 $42,123,000 $53,564,000
=========== =========== ===========
Weighted average number
of shares of common
stock outstanding,
net of treasury shares 37,125,345 37,584,561 37,544,408
Net income per share of
common stock $1.37 $1.12 $1.43
===== ===== =====
</TABLE>
11-1
<PAGE> 1
Exhibit 13
A. Schulman Inc.
1997 Annual Report
[PHOTO 1: Blue, yellow and pink compact carrying cases for art and school
supplies; blue, red and yellow markers; and black and white drawing of the
earth and moon for coloring.}
[OUTSIDE FRONT COVER]
<PAGE> 2
[PHOTO 2: Blue and Green compact carrying cases for art and school supplies;
red and green markers, and young girl holding a colored picture of the earth
and moon.]
On The Cover
A. Schulman's Polybatch(R) color concentrates are used in a variety of worldwide
plastic applications, ranging from high-tech industrial and automotive
components to consumer products. These compact carrying cases for art and school
supplies utilize materials of A. Schulman.
The Company's products are marketed globally and are produced by a network
of A. Schulman plants around the world.
[INSIDE FRONT COVER]
<PAGE> 3
It's Papermatch(R) --
This semi-transparent material is A.Schulman's new paper substitute, called
Papermatch(R). It is a plastic material which combines the properties of both
plastic and paper. Papermatch(R) is printable, foldable, exceptionally durable
and resistant to moisture and chemicals. It is ideal for packaging applications,
labels, envelopes and folders.
A. Schulman is a leading international supplier of high-performance plastic
compounds and resins. These materials are fabricated into a wide variety of end
products by manufacturers around the world.
The Company's principal product lines consist of proprietary and
custom-formulated engineered plastic compounds matched to customer product
specifications. A. Schulman also produces specialty color concentrates and
additive masterbatches used in products such as films for plastic packaging,
fibers and other applications.
In addition, the Company's worldwide marketing organization serves as a
distributor and merchant for plastic materials manufactured by major polymer
producers.
A. Schulman's business is highly service oriented, providing timely and
effective response to challenging technical, product performance and customer
delivery requirements.
Headquartered in Akron, Ohio, A. Schulman currently has 13 manufacturing
plants in North America, Europe, Mexico and the Asia-Pacific region. The Company
employs approximately 2,200 people. A. Schulman stock is quoted through the
NASDAQ National Market System (Symbol: SHLM).
<PAGE> 4
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Year Ended August 31,
1997 1996 1995
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net sales ............................................... $ 996,376,000 $ 976,694,000 $ 1,027,458,000
Net Income .............................................. $ 50,744,000 $ 42,177,000 $ 53,618,000
Net income per share of common stock .................... $ 1.37 $ 1.12 $ 1.43
Capital expenditures .................................... $ 27,201,000 $ 18,542,000 $ 58,533,000
Long-term debt and other non-current liabilities ........ $ 44,318,000 $ 73,696,000 $ 106,326,000
Long-term liabilities to capital ........................ 10.1% 14.5% 20.8%
Stockholders' equity .................................... $ 393,401,000 $ 433,110,000 $ 405,218,000
Book value per common share ............................. $ 10.83 $ 11.43 $ 10.75
Number of stockholders .................................. 1,178 1,278 1,352
Cash dividends per share
1st Quarter ............................................. $ .095 $ .085 $ .075
2nd Quarter ............................................. .105 .095 .085
3rd Quarter ............................................. .105 .095 .085
4th Quarter ............................................. .105 .095 .085
---------------- ---------------- ----------------
$ .410 $ .370 $ .330
================ ================ ================
Common stock price range High -- Low High -- Low High -- Low
1st Quarter.............................................. 25 -- 19 1/2 27 3/4 -- 17 1/4 29 3/4 -- 25 3/4
2nd Quarter.............................................. 25 1/8 -- 19 24 1/2 -- 17 1/2 29 1/4 -- 24 1/4
3rd Quarter.............................................. 22 3/8 -- 18 26 1/4 -- 20 32 3/4 -- 28
4th Quarter.............................................. 25 -- 21 1/4 26 1/2 -- 20 1/8 31 1/2 -- 23 1/4
</TABLE>
<TABLE>
<CAPTION>
[GRAPHS INSERTED HERE]
NET SALES
(Dollars in Billions)
88 89 90 91 92 93 94 95 96 97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ $ $ $ $ $ $ $ $ $
NET INCOME
(Dollars in Millions)
88 89 90 91 92 93 94 95 96 97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ $ $ $ $ $ $ $ $ $
CAPITAL EXPENDITURES
(Dollars in Millions)
88 89 90 91 92 93 94 95 96 97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ $ $ $ $ $ $ $ $ $
</TABLE>
<PAGE> 5
To Our Stockholders
We are pleased to report that net income for our fourth quarter ended August 31,
1997 was the highest we have recorded for any fourth quarter, while earnings for
the fiscal year were the second best in the history of A. Schulman.
Fourth quarter earnings of $15,293,000 were 9% higher than the $13,987,000
reported for the 1996 quarter. Net income per share was $.42, an increase of 14%
over per share earnings of $.37 for the same quarter last year. Sales were
$238.2 million, off slightly from sales of $239.1 million in the fourth quarter
last year. The slight decline was due to a $22.1 million adverse translation
effect of the stronger U.S. dollar. This more than offset tonnage gains of 7.5%.
Net income of $50,744,000 for the fiscal year ended August 31, 1997 was up
20% over earnings of $42,177,000 in fiscal 1996. Earnings per share were $1.37,
a gain of 22% over per share earnings of $1.12 last year. Worldwide sales were
$996.4 million, up 2% from 1996 sales of $976.7 million. A $57.5 million adverse
translation effect from the stronger U.S. dollar offset tonnage gains of 8.8%.
Fourth quarter profits reached record levels because of the strength of our
European operations and higher earnings in North America. Gross profit margins
were 16.8% for the current and prior year's quarter, but selling, general and
administrative expenses were down due to the effects of translation and a
reduction in bad debts.
Profits from the Company's European operations were up $4.6 million or 13%
for fiscal 1997. The translation effect of the stronger U.S. dollar had a major
impact on European net income. Earnings were reduced by $1,754,000 or $.05 per
share for the fourth quarter and $3,775,000 or $.10 per share for the 1997 year.
Overall, tonnage was up 10% with especially strong results from the Company's
manufacturing business, where volume was up 14% over last year. European profit
margins for the year were up on utilization rates close to capacity.
Profits in North America increased $4 million or 61% for the 1997 fiscal
year. Volume grew 7% and margins improved moderately, primarily due to better
profits in our manufacturing operations.
Capacity utilization was 84%, up slightly from last year's 83%. Europe was
near 100% capacity levels for all of fiscal 1997, while North America operated
at 75% of capacity, about the same as last year.
A. Schulman's capital expenditures for 1997 were $27.2 million. The major
capital expenditures were $5.4 million for a new Indonesian facility and the
acquisition of the Specialty Compounding operations from Laurel Industries in
November 1996.
We are in the final stages of completing our facility in Indonesia which is
scheduled for start-up in November 1997. This facility, with one production
line, is already virtually sold out.
We are replacing an older production line in our United Kingdom plant. The
new line will cost $4 million and increase capacity by approximately 8 million
pounds. Production is scheduled to start in January 1998. We are also adding a
second production line to our Mexican facility. This line, with a cost of $5.8
million, should go on-stream in March 1998.
On August 1, 1997, we acquired the assets of a distributor and merchant in
Warsaw, Poland. This business includes a customer list and small sales force
which will provide an expanded market for our wide range of products.
Our Board has also approved an increased investment for a new line in our
Givet, France facility which was previously authorized in April 1997. The cost
of this line will be increased from $7 million to $11 million and will double
capacity from 30 million to 60 million pounds annually. It is scheduled for
completion in early January 1999 and will enable us to provide additional
capacity to meet the rapidly growing demand for our products.
During fiscal 1997, we repurchased 1,610,000 of our common shares for $32.2
million under a 3 million share repurchase program authorized by our Board in
April 1997. We plan to repurchase, subject to market conditions during the next
twelve months, the balance
<PAGE> 6
of 1,390,000 shares under the existing program. These purchases will increase
earnings per share and enhance shareholder value.
We strengthened our financial position in 1997 with a $28 million reduction
of long-term debt. We also replaced a $75 million revolving credit agreement
with a five year $100 million agreement. The amended agreement will provide
better rates and enhance our opportunities for the expansion of our worldwide
business.
A new Incentive Plan was adopted for executive officers effective September
1, 1997. The plan provides performance related or target awards for the
achievement of important financial objectives, such as net income and the return
on assets. In addition to target awards, the officers are eligible for a portion
of their award for individual performance. This plan formalizes our
pay-for-performance philosophy.
We continued to strengthen our management team. Gordon L. Trimmer was
promoted to Vice President - North American Sales and Marketing. He has been
with A. Schulman since 1984 and was the Managing Director of our Canadian
operations. In October 1997, we appointed John M. Myles as Vice President -
North American Purchasing. He has over 25 years of experience in the plastics
industry and most recently served as general manager of the Specialty
Compounding Division of Laurel Industries which we acquired in November of last
year.
In January 1997, we increased the cash dividend to an annual rate of $.42
per share, an increase of 11% over last year's rate of $.38. This represents our
fifteenth consecutive annual dividend increase.
We successfully renegotiated multi-year union contracts at our facilities
in Orange, Texas; Nashville, Tennessee; St. Thomas, Ontario, Canada and Akron,
Ohio. These contracts will provide us with continued labor stability and the
ability to maintain reliable service to our many customers.
[PHOTO 3: Robert A. Stefanko and Terry L. Haines.]
It's extremely satisfying to finish our fiscal year with a record fourth
quarter. As we enter our 1998 fiscal year, we see strong demand for our products
throughout our worldwide operations. Our European operations have solid order
levels and continue to operate at or near capacity levels. Pricing is firm, and
we are seeing an overall improvement in the European economies. The strength of
the U.S. dollar, however, should continue to have an adverse effect on our
European operations. Nevertheless, we anticipate improved results over the year
just ended.
In North America, sales and margins have recently improved. We have a good
level of orders, and demand from the automotive industry is stable. We should
see sound overall economic conditions in the months ahead.
We are excited about the prospects for A. Schulman in our 1998 fiscal year
and anticipate continuing earnings growth in the years ahead.
/s/ Terry L. Haines /s/ Robert A. Stefanko
Terry L. Haines Robert A. Stefanko
President and Chairman
Chief Executive Officer
November 5, 1997
3
<PAGE> 7
[PHOTO 4: Man in yellow shirt seated in golf cart with set of golf clubs with
green head covers; and woman in plaid visor and shorts, holding golf club and
leaning on the front of the golf cart.]
<PAGE> 8
Photo caption: The diversified applications for the Company's high-performance
plastics include various recreational activity vehicles, such as this handy golf
cart. Here, the cart's dash panel is molded from a strong, weather-resistant A.
Schulman material which can withstand vibration, impact, and exposure to sun and
moisture. Elsewhere, the Company's quality plastics are typically used in
pleasure boats, surf boards, motorbikes and children's outdoor play equipment.
A. SCHULMAN'S GLOBAL PRESENCE
Global markets today provide significant opportunities for suppliers such as A.
Schulman, who have the international manufacturing, marketing, financial
resources and leading-edge technology sought by customers in key markets around
the world.
The Company's high-performance plastic compounds and resins have rapidly
become the materials of choice for a constantly growing array of product
applications. These range from diverse industrial and automotive equipment
components to construction and home improvement products, packaging materials,
medical and dental supplies, recreational and sports products, appliances, home
and office furnishings, telecommunications and computer equipment, garden tools
and horticultural supplies, patio furniture and quality children's toys.
Various prime polymer producers, recognizing the Company's marketing
ability, also use A. Schulman as a distributor for their specialty resins in
specific geographic areas.
United States and Canada
A. Schulman supplies proprietary and custom formulated high-performance plastic
compounds to processors throughout the U.S. and Canada. These customers include
both major multinational organizations and other end product and component
manufacturers who utilize quality plastics in their production operations.
The Company provides materials for a wide range of products in a broad
array of markets. Prospects for continued expansion of market volumes are
bright, as customer product designers today consider high-performance plastics
their first choice for many applications.
[Photo 5: Satellite view of a colorful world.]
5
<PAGE> 9
A particularly promising North American market for A. Schulman is packaging
materials. Many of the Company's products in this category have been developed
in Europe. The expertise and experience of the European operations are now used
to provide North American customers with technology and processing know-how for
a variety of packaging applications.
In November 1996, the Company acquired the business and assets of the
Specialty Compounding Division of Laurel Industries. This facility, with an
annual capacity of 15 million pounds, has enabled the Company to expand its line
of products used in packaging, industrial and
[PHOTO 6: Man in tennis outfit with tennis racket and ball standing beside a
red convertible with woman seated in passenger side.]
<PAGE> 10
automotive applications. It has also provided the capability to produce smaller
specialized orders.
In North America, the business strategy provides for new product
development, better utilization of additional capacity, and modern marketing
concepts. For example, market segment targeting is an end-user approach that
identifies high opportunity areas.
[PHOTO 7: Satellite view of the earth.]
[PHOTO 6: Man in tennis outfit with tennis racket and ball standing beside a
red convertible with woman seated in passenger side.]
Photo caption: Passenger cars, vans, sports-utility vehicles and trucks are
one of the major markets for high-performance plastic materials, which are used
for interior and exterior applications. This stylish convertible has contoured
rocker panels made of A. Schulman's proprietary Polytrope(R) material. It is
strong, impact and weather resistant, and provides good moldability in component
manufacturing operations.
<PAGE> 11
[PHOTO 8: Woman in black coat leaning on silver motor scooter with red attache
case.]
<PAGE> 12
[Photo 8: Red Attache Case.]
Photo caption: This attractive attache case is designed and produced by one of
Europe's leading luggage makers. It is formed from a strong, colorful,
impact-resistant high-performance plastic supplied by A. Schulman. The case can
be converted from attache to suitcase in mere seconds by removing the sides of
the attache and substituting separate suitcase shell components. The handle,
hinges and locking mechanisms serve both case styles interchangeably.
In addition, the use of vendor-customer cross-functional teams provides a more
structured and effective investment of time and resources.
Europe
This geographic region represents an important part of A. Schulman's business.
Economic conditions in Europe have improved, and the Company's manufacturing
facilities are operating at near-capacity levels. In order to meet strong demand
for its products, new production equipment is being added to the Company's
plants in the U.K. and France. This additional capacity will come on-line from
late 1997 through 1999.
Markets have further expanded in the former Eastern Bloc nations, which are
now recovering their industrial base. Recently, A. Schulman purchased a business
in Poland which will provide marketing and customer service support within this
region. Continued growth is expected as an increased standard of living causes
consumers to demand more quality items which require high-performance plastics.
Within Europe, the packaging industry is A. Schulman's largest market. The
Company is one of the leading suppliers of materials to packaging customers
throughout Europe. Plastic films and wraps are widely used for various
applications, and A. Schulman is known for its innovative solutions to problems.
The non-cyclical nature of this market also provides business stability through
various economic periods.
[Photo 9: Satellite view of the earth.]
European industrial and consumer product markets for the Company's
materials generally parallel those of North America, but with stronger emphasis
on household goods such as small
9
<PAGE> 13
appliances. In fact, some of these appliances for the home are among the most
stylish and innovative in the world.
The Company's paper substitute, Papermatch(R), can be found in various
printing applications, such as service and instructional manuals, catalogs,
financial literature, show cards and other promotional materials where
durability is required. Papermatch(R) is also used in a wide variety of
packaging applications, where freshness and sealability are required.
In Western and Eastern Europe, the prospects for growth in high-performance
plastics are excellent, and A. Schulman expects these markets to remain a strong
area for business both now and in the next century.
[PHOTO 10: Hand-held window steam cleaner.]
<PAGE> 14
[PHOTO 11: Satellite view of the earth.]
Latin America
Today, Latin America is an essential market for any organization striving to be
a world-class global supplier. A. Schulman is well-positioned to serve this
region. The Company has a strong
[PHOTO 10: Hand-held window steam cleaner.]
Photo caption: This unique European-designed window steam cleaner facilitates
fast and easy cleaning of glass in a single stroke. A. Schulman supplies the
special compounds used to form the sculptured housing and water reservoir. The
Company also supplies a scented additive for the reservoir's plastic filler cap.
This additive provides a fresh aroma for the steam.
<PAGE> 15
[PHOTO 12: Black welding mask with welding rods and torch and blue gloves.]
<PAGE> 16
[Photo 12: Black welding mask with welding rods and torch and blue gloves.]
Photo caption: Protective gear is required against sparks and spatters of molten
metal which are typical hazards of modern hand welding operations. This welding
mask is molded from a special A. Schulman high-performance plastic which resists
heat, sparks, spatters and rough usage under often difficult job conditions.
network of marketing agents, and in September 1995 opened a new manufacturing
facility in San Luis Potosi, Mexico. The plant commenced operation with an
annual capacity of approximately 25 million pounds. Due to the growing demand
for its products, along with improved economic conditions, the Company is adding
another production line with a 15 million pound capacity. This line, costing
$5.8 million, will manufacture products for Mexico and other rapidly emerging
Latin American markets.
The Mexican economy, with a population of 90 million, offers significant
potential. The number of consumers, particularly young people, is increasing
rapidly. They are demanding quality-of-life improvements such as ready-to-eat
foods, disposable diapers, small appliances, and electronic goods. These
products often contain high-performance plastic materials and films.
Outside of Mexico, strong year-to-year growth is evident in consumer
product sectors throughout Central and South America. Stable governments and
good growth prospects are attracting large capital investments that create
employment and increase disposable income.
Plastic products also play an important role in Latin American water
management and organic farming operations. Plastic films enable irrigation
systems to be more efficient, reducing the amount of water required for crops.
Other plastic films reduce the need for pesticides. For example, a silver mulch
film made from A. Schulman materials repels crop-damaging insects from plants
and vegetation.
[Photo 13: Satellite view of the earth.]
Finally, the automotive and transportation sector is a significant and
expanding market in Latin America. A. Schulman's strong position as a supplier
of specialty automotive compounds will enable the Company to capitalize on many
prospects for new business.
13
<PAGE> 17
Asia
A. Schulman has supplied the Asian market for decades with products from its
plants in Europe and North America. In order to better service existing
customers and expand its business base, the Company opened an office in
Singapore during 1995. The Company also has a team of dedicated agents
throughout the Asia-Pacific region.
A. Schulman currently is constructing a manufacturing facility in
Indonesia, with an initial capacity of approximately 12 million pounds. This
facility is scheduled to begin production in November 1997. The plant's initial
capacity is virtually sold-out at the present time.
[PHOTO 14: Red plastic plates; black plastic utensils; red, blue and yellow
plastic cups; baseball bat and baseball with Cleveland Indians logo.]
<PAGE> 18
Asia's overall plastics market is expected to grow at an annual rate of
close to 10% for the next three years. As a result, significant market potential
exists for A. Schulman's packaging materials and products used in a broad range
of consumer and electronic applications.
A. Schulman expects this area of the world to continue to present
above-average growth opportunities.
Protective gear is required against sparks and spatters of molten metal which
are typical hazards of modern hand welding operations. This welding mask is
molded from a special A. Schulman high-performance plastic which resists heat,
sparks, spatters and rough usage under often difficult job conditions.
[PHOTO 15: Satellite view of the earth.]
[Photo 14: Red plastic plates; black plastic utensils; red, blue and yellow
plastic cups; baseball bat and baseball with Cleveland Indians logo.]
Photo caption: These attractive plastic plates and cups add color and style to
any picnic or patio meal. Their attractive colors are derived from A. Schulman
concentrates. The Company's quality colors and pre-colored resins also are used
for a variety of other patio furnishings and accessories, as well as in an
array of familiar kitchen and household goods.
<PAGE> 19
A. Schulman, Inc.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended August 31,
--------------- -------------- --------------
1997 1996 1995
<S> <C> <C> <C>
Net Sales .................................... $ 996,376,000 $976,694,000 $1,027,458,000
Interest and Other Income .................... 4,998,000 6,075,000 7,099,000
--------------- ------------ --------------
Total .................................... 1,001,374,000 982,769,000 1,034,557,000
--------------- ------------ --------------
Costs and Expenses:
Cost of sales .............................. 833,345,000 826,076,000 863,409,000
Selling, general and administrative expenses 78,500,000 81,118,000 75,551,000
Interest expense ........................... 3,143,000 4,192,000 5,250,000
Foreign currency transaction losses (gains) (756,000) 57,000 20,000
Minority interest .......................... 860,000 354,000 515,000
--------------- ------------ --------------
915,092,000 911,797,000 944,745,000
--------------- ------------ --------------
Income Before Taxes .......................... 86,282,000 70,972,000 89,812,000
Provision for U.S. and Foreign Income Taxes .. 35,538,000 28,795,000 36,194,000
--------------- ------------ --------------
Net Income ................................... $ 50,744,000 $ 42,177,000 $ 53,618,000
=============== ============ ==============
Earnings per Share of Common Stock ........... $ 1.37 $ 1.12 $ 1.43
=============== ============ ==============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
16
<PAGE> 20
A. Schulman, Inc.
Consolidated Statement of Stockholders' Equity
<TABLE>
<CAPTION>
Cumulative
Foreign Unearned
Currency Stock
Common Other Retained Translation Grant
Stock Capital Earnings Adjustment Compensation
===========================================================================
<S> <C> <C> <C> <C> <C>
Balance at August 31, 1994 ................... $37,902,000 $35,813,000 $256,826,000 $26,570,000 ($1,425,000)
Net income for 1995 .......................... 53,618,000
Cash dividends paid or accrued:
Preferred stock, $5 per share .............. (54,000)
Common stock, $.33 per share ............... (12,411,000)
Foreign currency translation adjustment ...... 15,409,000
Stock options exercised ...................... 120,000 2,256,000
Amortization of restricted stock ............. 361,000
----------- ----------- ------------ ------------ -----------
Balance at August 31, 1995.................... 38,022,000 38,069,000 297,979,000 41,979,000 (1,064,000)
Net income for 1996 .......................... 42,177,000
Cash dividends paid or accrued:
Preferred stock, $5 per share .............. (54,000)
Common stock, $.37 per share ............... (13,931,000)
Foreign currency translation adjustment ...... (5,117,000)
Stock options exercised ...................... 287,000 5,369,000
Grant of restricted stock .................... 1,036,000 (1,036,000)
Amortization of restricted stock ............. 386,000
----------- ----------- ------------ ------------ -----------
Balance at August 31, 1996 ................... 38,309,000 44,474,000 326,171,000 36,862,000 (1,714,000)
Net income for 1997 .......................... 50,744,000
Cash dividends paid or accrued:
Preferred stock, $5 per share .............. (53,000)
Common stock, $.41 per share ............... (15,271,000)
Foreign currency translation adjustment ...... (43,435,000)
Issue of restricted stock .................... 34,000 (62,000)
Amortization of restricted stock ............. 562,000
----------- ----------- ------------ ------------ -----------
Balance at August 31, 1997 ................... $38,343,000 $44,412,000 $361,591,000 ($ 6,573,000) ($1,152,000)
=========== =========== ============ ============ ===========
</TABLE>
17
<PAGE> 21
A. Schulman, Inc.
Consolidated Balance Sheet
<TABLE>
<CAPTION>
August 31, August 31,
1997 1996
============ ============
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ..................................................... $ 69,147,000 $113,555,000
Short-term investments, at cost ............................................... 2,762,000 36,925,000
Accounts receivable, less allowance for doubtful accounts of $5,304,000 in 1997
and $5,903,000 in 1996 ...................................................... 150,192,000 152,342,000
Inventories, average cost or market, whichever is lower ....................... 164,432,000 150,363,000
Prepaids, including tax effect of temporary differences ....................... 17,181,000 13,618,000
------------ ------------
Total Current Assets ........................................................ 403,714,000 466,803,000
------------ ------------
Other Assets:
Cash surrender value of life insurance ........................................ 447,000 411,000
Deferred charges, etc., including tax effect of temporary differences ......... 19,389,000 17,128,000
------------ ------------
19,836,000 17,539,000
------------ ------------
Property, Plant and Equipment, at cost:
Land and improvements ......................................................... 9,995,000 9,312,000
Buildings and leasehold improvements .......................................... 67,129,000 70,907,000
Machinery and equipment ....................................................... 188,777,000 193,190,000
Furniture and fixtures ........................................................ 20,358,000 20,446,000
Construction in progress ...................................................... 9,158,000 1,969,000
------------ ------------
295,417,000 295,824,000
Accumulated depreciation and investment grants of $395,000 in 1997
and $551,000 in 1996 ........................................................ 156,022,000 156,788,000
------------ ------------
139,395,000 139,036,000
------------ ------------
$562,945,000 $623,378,000
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
18
<PAGE> 22
<TABLE>
<CAPTION>
August 31, August 31,
1997 1996
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
<S> <C> <C>
Notes payable .............................................................. $ 3,000,000 $ 7,000,000
Current portion of long-term debt .......................................... 36,000 41,000
Accounts payable ........................................................... 63,095,000 51,816,000
U.S. and foreign income taxes payable ...................................... 12,244,000 10,898,000
Accrued payrolls, taxes and related benefits ............................... 17,139,000 17,921,000
Other accrued liabilities .................................................. 16,227,000 18,281,000
------------- -------------
Total Current Liabilities ................................................ 111,741,000 105,957,000
------------- -------------
Long-term Debt ............................................................. 12,009,000 40,054,000
Other Long-term Liabilities ................................................ 32,309,000 33,642,000
Deferred Income Taxes ...................................................... 9,462,000 8,677,000
Minority Interest .......................................................... 4,023,000 1,938,000
Stockholders' Equity:
Preferred stock, 5% cumulative, $100 par value, authorized,
issued and outstanding - 10,689 shares in 1997 and 10,705 shares in 1996 . 1,069,000 1,071,000
Special stock, 1,000,000 shares authorized, none outstanding ............... -- --
Common stock, $1 par value
Authorized - 75,000,000 shares
Issued - 38,342,867 shares in 1997 and 38,308,805 shares in 1996 ......... 38,343,000 38,309,000
Other capital .............................................................. 44,412,000 44,474,000
Cumulative foreign currency translation adjustment ......................... (6,573,000) 36,862,000
Retained earnings .......................................................... 361,591,000 326,171,000
Treasury stock, at cost, 2,112,674 shares in 1997 and 502,674 shares in 1996 (44,289,000) (12,063,000)
Unearned stock grant compensation .......................................... (1,152,000) (1,714,000)
------------- -------------
Common Stockholders' Equity ................................................ 392,332,000 432,039,000
------------- -------------
Total Stockholders' Equity ............................................... 393,401,000 433,110,000
------------- -------------
$ 562,945,000 $ 623,378,000
============= =============
</TABLE>
19
<PAGE> 23
A. Schulman, Inc.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended August 31,
1997 1996 1995
============= ============= =============
<S> <C> <C> <C>
Provided from (used in) operating activities:
Net income ................................................... $ 50,744,000 $ 42,177,000 $ 53,618,000
Items not requiring the current use of cash:
Depreciation ............................................... 17,800,000 18,130,000 16,834,000
Non-current deferred taxes ................................. 1,266,000 2,410,000 1,870,000
Foreign pension and other deferred compensation ............ 2,284,000 2,654,000 2,871,000
Postretirement benefit obligation .......................... 774,000 820,000 713,000
Changes in working capital:
Accounts receivable ........................................ (16,753,000) (10,190,000) (6,757,000)
Inventories ................................................ (27,794,000) 39,603,000 (49,110,000)
Prepaids ................................................... (4,417,000) (1,126,000) (775,000)
Accounts payable ........................................... 21,849,000 (8,015,000) 1,867,000
Income taxes ............................................... 2,385,000 (4,058,000) 4,657,000
Accrued payrolls and other accrued liabilities ............. 1,199,000 1,381,000 1,610,000
Changes in other assets and other long-term liabilities ...... (3,791,000) (161,000) (2,265,000)
------------- ------------- -------------
Net cash provided from operating activities .............. 45,546,000 83,625,000 25,133,000
------------- ------------- -------------
Provided from (used in) investing activities:
Expenditures for property, plant and equipment ............... (27,201,000) (18,542,000) (58,533,000)
Disposals of property, plant and equipment ................... 1,428,000 529,000 371,000
Purchases of short-term investments .......................... (10,893,000) (173,573,000) (112,044,000)
Proceeds from sales of short-term investments ................ 41,504,000 196,446,000 117,776,000
------------- ------------- -------------
Net cash provided from (used in) investing activities .... 4,838,000 4,860,000 (52,430,000)
------------- ------------- -------------
Provided from (used in) financing activities:
Cash dividends paid .......................................... (15,335,000) (13,958,000) (12,442,000)
Increase (decrease) of notes payable ......................... (4,000,000) (10,800,000) 5,500,000
Reduction of long-term debt .................................. (28,037,000) (35,039,000) (37,000)
Increase of long-term debt ................................... -- -- 52,000,000
Exercise of stock options .................................... -- 5,656,000 2,376,000
Investment grants from foreign countries ..................... -- 255,000 --
Increase (decrease) in minority interest, net of distributions 2,085,000 355,000 (86,000)
Purchase of treasury stock ................................... (32,226,000) (1,225,000) --
Redemption of preferred stock ................................ (2,000) -- --
------------- ------------- -------------
Net cash provided from (used in) financing activities .... (77,515,000) (54,756,000) 47,311,000
------------- ------------- -------------
Effect of exchange rate changes on cash ........................ (17,277,000) (4,171,000) 3,921,000
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents ........... (44,408,000) 29,558,000 23,935,000
Cash and cash equivalents at beginning of year ................. 113,555,000 83,997,000 60,062,000
------------- ------------- -------------
Cash and cash equivalents at end of year ....................... $ 69,147,000 $ 113,555,000 $ 83,997,000
============= ============= =============
Cash paid during the year for:
Interest ..................................................... $ 3,388,000 $ 4,795,000 $ 3,846,000
Income Taxes ................................................. $ 30,760,000 $ 32,227,000 $ 31,093,000
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
20
<PAGE> 24
A. Schulman, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of A. Schulman,
Inc. and its domestic and foreign subsidiaries. All significant intercompany
transactions have been eliminated.
Minority interest represents a 30% equity position of Mitsubishi Chemical
MKV Co. in a partnership with the Company and a 35% equity position of P.T.
Prima Polycon Indah in an Indonesian joint venture with the Company.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
All highly liquid investments purchased with a maturity of three months or
less are considered to be cash equivalents. Such investments amounted to
$61,679,000 at August 31, 1997 and $102,040,000 at August 31, 1996. Investments
with maturities between three and twelve months are considered to be short-term
investments. Investments are placed with numerous financial institutions having
good credit ratings. The recorded amount of these investments approximates fair
value.
DEPRECIATION
It is the Company's policy to depreciate the cost of property, plant and
equipment over the estimated useful lives of the assets generally using the
straight-line method. The estimated useful lives used in the computation of
depreciation are as follows:
Buildings and leasehold improvements 10 to 40 years
Machinery and equipment 5 to 10 years
Furniture and fixtures 10 years
The cost of property sold or otherwise disposed of is eliminated from the
property accounts and the related reserve accounts, with recognition of gain or
loss.
Maintenance and repair costs are charged against income. The cost of
renewals and betterments are capitalized in the property accounts.
INVENTORIES
The Company and its subsidiaries do not distinguish between raw materials
and finished goods because numerous products which can be sold as finished goods
are also used as raw materials in the production of other inventory items.
GOODWILL
Net goodwill of $7,359,000 is being amortized over 5 to 25 years using the
straight-line method and is included in deferred charges.
INCOME TAXES
Income taxes are recognized during the year in which transactions enter
into the determination of financial statement income. Accordingly, deferred
taxes are provided for temporary differences between the book and tax bases of
assets and liabilities.
RETIREMENT PLANS
The Company has several pension plans covering hourly employees in the U.S.
and certain employees in foreign countries. For certain plans in the U.S.,
pension funding is based on an amount paid to trust funds at an agreed rate for
each hour for which employees are paid. For other U.S. plans, the policy is to
fund amounts to cover current cost and amortize prior service costs over
approximately 30 years.
Generally, the foreign plans accrue the current and prior service costs
annually. In certain countries, funding is not required and the liability for
such pensions is included in other long-term liabilities.
The Company also has deferred profit sharing plans for its North American
salaried employees for which contributions are determined at the discretion of
the Board of Directors.
FOREIGN CURRENCY TRANSLATION
The financial position and results of operations of the Company's foreign
subsidiaries are measured using local currency as the functional currency.
Assets and liabilities of these subsidiaries are translated at the exchange rate
in effect at each year-end. Income statement accounts are translated at the
average rate of exchange prevailing during the year. The cumulative foreign
currency translation adjustment account in stockholders' equity includes
primarily translation adjustments arising from the use of different exchange
rates on the balance sheet from period to period.
EARNINGS PER COMMON SHARE
Earnings per common share are based on net income after reduction for
dividends on preferred stock and on the weighted average number of shares of
common stock outstanding during the year. Stock options had no dilutive effect
on earnings per common share.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
STOCK BASED COMPENSATION
Effective September 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS
123"). As provided for under this statement, the Company has elected to continue
to account for stock based compensation under the provisions of Accounting
Principles Boards Opinion No. 25, "Accounting for Stock Issued to Employees."
Compensation cost for stock options is measured as the excess, if any, of the
quoted market price of the Company's stock at the date of the grant over the
amount an employee must pay to acquire the stock. Refer to Note 8.
21
<PAGE> 25
NOTE 2 -- INVESTMENT GRANTS
The Company has received investment grants from various European countries.
These grants have been provided to subsidize a portion of the Company's European
manufacturing facilities. The total cost of the facilitites has been included in
plant and equipment and the amount of the grants has been included with
accumulated depreciation in the financial statements. The entire cost of the
facilities is depreciated over their estimated useful life and the investment
grants are amortized against the related depreciation charges. The amortization
of these grants amounted to $123,000 in 1997, $119,000 in 1996, and $254,000 in
1995.
NOTE 3 -- LONG-TERM DEBT AND CREDIT ARRANGEMENTS
<TABLE>
<CAPTION>
August 31,
1997 1996
------------ ------------
<S> <C> <C>
A. Schulman, Inc.:
Revolving credit loan, 5.815% in 1997
and 5.81% in 1996 ................................ $12,000,000 $40,000,000
Notes payable of foreign subsidiary:
5% through September 1998 .......................... 45,000 95,000
----------- -----------
12,045,000 40,095,000
Less current portion ................................. 36,000 41,000
----------- -----------
$12,009,000 $40,054,000
=========== ===========
</TABLE>
The revolving credit agreement, as amended on August 14, 1997, provides for
borrowings of up to $100,000,000 on a revolving credit basis through August 14,
2002. A facility fee of 71/2 basis points must be paid to the banks. Under the
terms of this agreement, approximately $95,000,000 of retained earnings was
available for the payment of cash dividends at August 31, 1997.
The 5% note for $45,000 is a French Franc obligation which is repayable in
quarterly installments.
Annual maturities of long-term debt for the five years subsequent to August
31, 1997 are $36,000 in 1998, $9,000 in 1999 and $12,000,000 in 2002.
The Company has $34,000,000 of unsecured short-term lines of credit from
various domestic banks. Short-term borrowings of $3,000,000 with a weighted
average interest rate of 5.975% at August 31, 1997 and $7,000,000 with a
weighted average interest rate of 5.81% at August 31, 1996 were outstanding
under these domestic lines.
The Company has $29,650,000 of unsecured short-term foreign lines of credit
available to its subsidiaries at August 31, 1997. No foreign short-term
borrowings were outstanding at August 31, 1997 or 1996.
NOTE 4 -- FOREIGN CURRENCY FORWARD CONTRACTS
The Company enters into forward foreign exchange contracts as a hedge
against amounts due or payable in foreign currencies. These contracts limit the
Company's exposure to fluctuations in foreign currency exchange rates. Any gains
or losses associated with these contracts as well as the offsetting gains or
losses from the underlying assets or liabilities hedged are recognized on the
foreign currency transaction line in the Consolidated Statement of Income. The
Company does not hold or issue foreign exchange contracts for trading purposes.
The following table presents a summary of foreign exchange contracts outstanding
as of August 31, 1997 and August 31, 1996:
<TABLE>
<CAPTION>
1997 1996
---------------------- ------------------------
Contract Fair Contract Fair
Amount Value Amount Value
----------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
Buy Currency $ 2,636,000 $ 2,529,000 $ 390,000 $ 391,000
Sell Currency $50,747,000 $50,315,000 $49,960,000 $50,131,000
</TABLE>
The fair value of foreign exchange contracts was estimated by obtaining
quotes from banks. All of the foreign exchange contracts were in European or
United States currencies and generally have maturities of less than nine months.
Foreign exchange contracts are entered into with several financial institutions
having good credit ratings.
22
<PAGE> 26
NOTE 5 -- INCOME TAXES
Income before taxes is as follows:
<TABLE>
<CAPTION>
Year Ended August 31,
1997 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
Domestic ........... $ 8,470,000 $ 4,876,000 $17,231,000
Foreign ............ 77,812,000 66,096,000 72,581,000
----------- ----------- -----------
$86,282,000 $70,972,000 $89,812,000
=========== =========== ===========
</TABLE>
The provisions for U.S. and foreign income taxes consist of the following:
<TABLE>
<CAPTION>
Year Ended August 31,
1997 1996 1995
------------ ------------ ------------
Current taxes:
<S> <C> <C> <C>
U.S ................ $ 3,402,000 $ 1,764,000 $ 4,244,000
Foreign ............ 32,812,000 26,946,000 29,252,000
------------ ------------ ------------
36,214,000 28,710,000 33,496,000
------------ ------------ ------------
Deferred taxes:
U.S ................ (1,357,000) 72,000 1,868,000
Foreign ............ 681,000 13,000 830,000
------------ ------------ ------------
(676,000) 85,000 2,698,000
------------ ------------ ------------
$ 35,538,000 $ 28,795,000 $ 36,194,000
============ ============ ============
</TABLE>
A reconciliation of the statutory U.S. federal income tax rate with the
effective tax rates of 41.2% in 1997, 40.6% in 1996 and 40.3% in 1995 is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
% of % of % of
Pretax Pretax Pretax
(in thousands) AmountIncome Amount Income Amount Income
------------ ------------- -------------
Statutory U.S.
<S> <C> <C> <C> <C> <C> <C>
tax rate ....... $30,199 35.0% $24,840 35.0% $31,434 35.0%
Amount of
foreign
income taxes
in excess of
U.S. taxes at
statutory
rate ........... 4,751 5.5 4,208 5.9 4,326 4.8
Other, net ....... 588 .7 (253) (.3) 434 .5
------------ ------------- -------------
$35,538 41.2% $28,795 40.6% $36,194 40.3%
============ ============= =============
</TABLE>
Deferred tax assets and (liabilities) consist of the following at August 31,
1997 and August 31, 1996:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
---- ----
<S> <C> <C>
Pensions .................................. $ 2,450 $ 2,426
Inventory reserves ........................ 2,259 1,959
Bad debt reserves ......................... 1,217 1,498
Accruals .................................. 3,181 3,099
Dividend to be received ................... 709 578
Postretirement benefits other than pensions 4,216 3,945
Foreign tax credit carryforwards .......... 5,937 3,155
Alternative minimum tax carryforwards ..... 1,684 --
Other ..................................... 2,715 2,486
-------- --------
Gross deferred tax assets ................. 24,368 19,146
Valuation allowance ....................... (5,937) (3,155)
-------- --------
Total deferred tax assets ................. 18,431 15,991
-------- --------
Depreciation .............................. (15,365) (13,861)
Other ..................................... (143) --
-------- --------
Gross deferred tax liabilities ............ (15,508) (13,861)
-------- --------
$ 2,923 $ 2,130
======== ========
</TABLE>
The valuation allowance is for foreign tax credit carryforward benefits
which are not likely to be utilized. The foreign tax credit carryforwards will
expire in periods from 1998 to 2002.
The tax effect of temporary differences included in prepaids were
$9,996,000 and $9,432,000 at August 31, 1997 and 1996 respectively. Deferred
charges also included $2,389,000 and $1,375,000 from the tax effect of temporary
differences at August 31, 1997 and 1996 respectively.
At August 31, 1997, no taxes have been provided on the undistributed
earnings of certain foreign subsidiaries amounting to $184,922,000 because the
Company intends to reinvest these earnings.
NOTE 6 -- RETIREMENT PLANS
The total expense for all retirement plans was $6,191,000 in 1997, $6,009,000
in 1996, and $5,503,000 in 1995. The components of pension expense are as
follows:
<TABLE>
<CAPTION>
Year Ended August 31,
----------- ----------- -----------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Defined Benefit Plans:
Service cost-benefits earned
during the period ............ $ 1,372,000 $ 1,402,000 $ 1,243,000
Interest accrued on projected
benefit obligation ........... 1,675,000 1,783,000 1,520,000
Actual return on assets ...... (681,000) (414,000) (184,000)
Net amortization and deferral 268,000 242,000 67,000
----------- ----------- -----------
2,634,000 3,013,000 2,646,000
Defined contribution plans ..... 3,557,000 2,996,000 2,857,000
----------- ----------- -----------
Net periodic pension cost ...... $ 6,191,000 $ 6,009,000 $ 5,503.000
=========== =========== ===========
</TABLE>
23
<PAGE> 27
The following table presents the funded status of the defined benefit plans
as of August 31, 1997 and August 31, 1996:
<TABLE>
<CAPTION>
1997 1996
----------------------------- -------------------------------
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits
Benefits Exceed Assets Benefits Exceed Assets
Actuarial present value of benefit obligations:
<S> <C> <C> <C> <C>
Vested benefit obligation ................................. $ 4,551,000 $ 13,765,000 $ 3,289,000 $ 15,391,000
Non-vested benefit obligation ............................. -- 1,929,000 -- 2,317,000
------------ ------------ ------------ ------------
Accumulated benefit obligation ............................ $ 4,551,000 $ 15,694,000 $ 3,289,000 $ 17,708,000
============ ============ ============ ============
Projected benefit obligation ................................ $ 6,165,000 $ 17,668,000 $ 4,472,000 $ 20,067,000
Plan assets at fair value ................................... 4,576,000 1,148,000 3,751,000 1,038,000
------------ ------------ ------------ ------------
Projected benefit obligation in excess of plan assets ....... (1,589,000) (16,520,000) (721,000) (19,029,000)
Unrecognized net liability at date of adoption of SFAS No. 87 342,000 1,341,000 461,000 1,772,000
Unrecognized prior service cost ............................. 49,000 399,000 51,000 431,000
Unrecognized net loss (gain) ................................ 1,055,000 (2,447,000) 182,000 (2,530,000)
Adjustment required to recognize minimum liability .......... -- (716,000) -- (712,000)
------------ ------------ ------------ ------------
Accrued pension cost ........................................ $ (143,000) $(17,943,000) $ (27,000) $(20,068,000)
============ ============ ============ ============
Significant Assumptions: U.S.-1997 Foreign-1997 U.S.-1996 Foreign-1996
- ----------------------- ------------ ------------ ------------ ------------
Discount rate 7.5% 7.0%- 8.0% 7.5% 7.0%- 9.0%
Expected rate of return on assets 9.5% 0.0%-11.0% 9.5% 0.0%-11.0%
Rate of increase in compensation levels -- 3.0%- 7.0% -- 3.0%- 7.0%
</TABLE>
In respect to multiemployer plans in the U.S., ERISA extends the Company's
liability for benefit obligations in the event of termination or withdrawal. The
extent of any potential unfunded liability is not determinable at this time.
The Company has agreements with three current employees that upon
retirement, or death or disability prior to retirement, it shall make ten
payments of $100,000 each to two employees or their beneficiaries for a ten year
period and $75,000 to one employee or his beneficiary for a ten year period.
Under these agreements, $2,000,000 is vested and $750,000 will vest over the
next four to six years. However, vesting and payments may be accelerated under
certain conditions. The Company has provided $131,000 in 1997, $131,000 in 1996
and $182,000 in 1995 to cover the current cost for such agreements. In
connection with such agreements, the Company owns and is the beneficiary of life
insurance policies amounting to $3,500,000. The amounts provided are included in
other long-term liabilities.
NOTE 7 -- POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
The Company provides postretirement health care and life insurance benefits
to certain domestic employees. The postretirement benefit cost includes the
following components:
<TABLE>
<CAPTION>
Year Ended August 31,
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Service cost -- benefits earned
during the period .............. $ 542,000 $ 550,000 $ 509,000
Interest cost on projected benefit
obligation ..................... 607,000 572,000 558,000
Net amortization ................. (152,000) (135,000) (146,000)
-------- -------- --------
$ 997,000 $ 987,000 $ 921,000
========= ========= =========
</TABLE>
The Company's postretirement health care and life insurance plans are not
funded. The status of the plans at August 31, 1997 and August 31, 1996 is as
follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
Actuarial present value of accumulated
postretirement benefit obligation:
<S> <C> <C>
Retirees ................................... $ 2,089,000 $ 2,247,000
Fully eligible active plan participants .... 1,708,000 1,640,000
Other active plan participants ............. 5,030,000 4,329,000
----------- -----------
8,827,000 8,216,000
Unrecognized net gain ........................ 1,447,000 1,149,000
Unrecognized prior service cost .............. 1,773,000 1,908,000
----------- -----------
Net postretirement benefit liability ......... $12,047,000 $11,273,000
=========== ===========
</TABLE>
The net postretirement benefit liability is included in other long-term
liabilities.
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 10% in 1997, 10.5% in 1996 and 11% in
1995, gradually declining to 6% in 2005 and remaining at that level thereafter.
A one-percentage-point increase in the assumed health care cost trend rate for
each year would increase the accumulated postretirement benefit obligation by
$1,153,000 at August 31, 1997 and the postretirement benefit cost by $196,000
for the year then ended.
The discount rate used in determining the accumulated postretirement
benefit obligation at August 31 was 7.5% in 1997 and 1996.
24
<PAGE> 28
NOTE 8 -- INCENTIVE STOCK PLANS
Effective in December 1991, the Company adopted the 1991 Stock Incentive
Plan and authorized 1,875,000 shares for future grants. The 1991 Plan provides
for the grant of incentive stock options, nonqualified stock options and
restricted stock awards. The option price of incentive stock options is the fair
market value of the common shares on the date of grant. In the case of
nonqualified stock options, the Company intends to grant options at fair market
value on the date of grant, however, the Plan does provide that the option price
may not be less than 50% of the fair market value of the common shares on the
date of grant. Stock options may be exercised as determined by the Company, but
in no event prior to six months following the date of grant or after the tenth
anniversary date of grant. At August 31, 1997, there were 818,656 shares
available for issuance under the 1991 Plan.
Effective in October 1992, the Company adopted the 1992 Non-Employee
Directors' Stock Option Plan and authorized 125,000 shares for future grants.
The 1992 Plan provides for the grant of 875 nonqualified stock options to each
non-employee director on the first business day of February of each year. The
option price is the fair market value of the common shares on the first business
day immediately preceding the date of grant. All options become exercisable at
the rate of 25% per year, commencing on the first anniversary of the date of
grant of the option. Each option expires five years from the date of grant. At
August 31, 1997, there were 94,375 shares available for issuance under the 1992
Plan.
The following is a summary with respect to option activity for all of the
plans:
<TABLE>
<CAPTION>
Year Ended August 31,
===============================================
1997 1996
---------------------- ---------------------
Weighted Weighted
Shares Average Shares Average
Under Exercise Under Exercise
Option Price Option Price
<S> <C> <C> <C> <C>
Outstanding at beginning
of year ................ 768,658 $24.86 919,559 $23.54
Granted during the year .. 261,450 18.58 204,025 22.99
Exercised during the year -- (286,563) 19.74
Cancelled during the year (114,413) 25.87 (68,363) 23.03
-------- --------
Outstanding at end of year 915,695 22.94 768,658 24.86
======== ========
Exercisable at end of year 387,221 25.01 331,409 25.49
======== ========
</TABLE>
Under the 1991 Plan, 35,125 shares of restricted stock were granted on
August 18, 1992, 34,000 shares were granted on August 19, 1994, and 43,150
shares were granted on July 11, 1996. The fair market value on the date of grant
in 1992 was $26 per share, 1994 was $26.25 per share and in 1996 was $23 per
share. These shares vest five years following the date of grant so long as the
holder remains employed by the Company. Unearned compensation representing the
fair market value of the shares at the date of grant is charged to income over
the five year vesting period. Compensation expense for restricted stock was
$533,000 in 1997, $387,000 in 1996, and $361,000 in 1995.
The following table summarizes information about options outstanding at
August 31, 1997:
<TABLE>
<CAPTION>
Weighted Average
-----------------------
Grant Options Options Exercise Remaining
Date Outstanding Exercisable Price Life (Years)
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
8/93 149,720 149,720 $24.60 1
8/94 128,250 96,188 26.25 2
8/95 161,550 80,775 25.50 3
7/96 193,150 48,288 23.00 4
4/97 252,400 -- 18.50 4.7
All other 30,625 12,250 23.70 2.8
</TABLE>
No expense has been charged to income relating to stock options. If the
fair value method of accounting for stock options under SFAS 123 had been used,
the after tax expense relating to the stock options would have been $249,000, or
$.01 per share, in 1997 and $28,000, or no impact on earnings per share, in
1996. Pro forma net income would have been $50,495,000 in 1997 and $42,149,000
in 1996. The pro forma amounts listed above do not take into consideration the
pro forma compensation expense related to grants made prior to fiscal 1996. The
weighted average fair value at the date of grant was $5.84 and $7.22 for options
granted in 1997 and 1996.
Under SFAS 123, the fair value of each option grant is estimated on the
date of grant using the Black-Scholes option- pricing model. The following
weighted average assumptions were used for grants in fiscal 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Expected life (years) 5 5
Interest rate 6.7% 6.7%
Volatility 26.9% 27.1%
Dividend yield 1.33% 1.33%
</TABLE>
NOTE 9 -- CAPITAL STOCK AND STOCKHOLDER RIGHTS PLAN
The Special Stock of 1,000,000 shares was authorized with such preferences
or special terms and for such consideration as may be determined at the
discretion of the Board of Directors.
In January 1996, the Company adopted a Shareholder Rights Plan, and
reserved 100,000 shares of Special Stock for use under such Plan. Under this
Plan, one Right shall be attached to each share of Common Stock of the Company.
Initially, the Rights are not exercisable and automatically trade with the
Common Stock. However, 10 days after a person or group acquires 15% or more of
the Company's Common Stock, or 10 business days after a person or group
commences a tender or exchange offer that would result in such person or group
owning 15% or more of the outstanding shares of Common Stock of the Company
(even if no purchases actually occur), whichever is earlier, the Rights will
become exercisable.
25
<PAGE> 29
When the Rights first become exercisable, each Right will entitle the
holder thereof to buy from the Company one share of Special Stock for $85.00
(subject to adjustment thereafter). However, if any person or entity acquires
15% or more of the Company's Common Stock, each Right not owned by a 15%-or-more
stockholder would become exercisable for a certain number of shares of Common
Stock of the Company in lieu of one share of Special Stock. The number of shares
of Common Stock would be that having at that time, a market value of two times
the then current exercise price of the Right. If the Company is involved in a
merger or other business combination with or into another person or entity in
which the Company's Common Stock is changed into or exchanged for common stock
of such other person or entity, or if the Company sells 50% or more of its
assets or earning power to another person or entity, at any time after the
Rights become exercisable, each Right will entitle the holder thereof to buy
such number of shares of common stock of such other person or entity as have a
market value of twice the then current exercise price of each Right.
The Company may redeem the Rights at a price of $.01 per Right at any
time prior to the 10th business day after public announcement of the
acquisition by any person or entity of 15% or more of the Company's Common
Stock. The Rights will expire on January 25, 2006 unless earlier redeemed by
the Company. At no time will the Rights have any voting power.
NOTE 10 -- LEASES
Total rental expense was $3,021,000 in 1997, $2,847,000 in 1996 and
$2,760,000 in 1995. The future minimum rental commitments for non-cancellable
leases excluding obligations for taxes, insurance, etc. are as follows:
<TABLE>
<CAPTION>
Year ended August 31, Minimum rental
<S> <C>
1998 $2,034,000
1999 2,102,000
2000 1,229,000
2001 640,000
2002 232,000
Later years 14,000
-----------
$6,251,000
==========
</TABLE>
NOTE 11 -- BUSINESS SEGMENT INFORMATION
The Company is engaged in the sale of plastic resins in various forms which
are used as raw materials by its customers. The Company considers its business
to be a single industry segment.
A summary of operating information by geographic area for the three years
ended August 31, 1997 is as follows:
<TABLE>
<CAPTION>
Adjustments
North and
(in thousands) America Europe Eliminations Consolidated
------- ------ ------------ ------------
<S> <C> <C> <C> <C>
AUGUST 31, 1997
Sales to unaffiliated
customers ...................................... $ 446,832 $ 549,544 -- $ 996,376
Inter-geographic
sales .......................................... 3,253 497 $ (3,750) --
---------- ---------- ---------- ----------
Total sales .................................. $ 450,085 $ 550,041 $ (3,750) $ 996,376
========== ========== ========== ==========
Operating income ................................. $ 31,676 $ 66,495 $ -- $ 98,171
========== ========== ==========
Interest expense ................................. (3,143)
Corporate expense less revenues .................. (9,502)
Foreign currency transaction gains ............... 756
----------
Income before taxes .............................. $ 86,282
==========
Identifiable assets .............................. $ 280,344 $ 282,533 $ (945) $ 561,932
========== ========== ==========
Corporate assets ................................. 1,013
----------
Total assets ..................................... $ 562,945
==========
AUGUST 31, 1996
Sales to unaffiliated
customers ...................................... $ 415,322 $ 561,372 -- $ 976,694
Inter-geographic
sales .......................................... 2,440 334 $ (2,774) --
---------- ---------- ---------- ----------
Total sales .................................. $ 417,762 $ 561,706 $ (2,774) $ 976,694
========== ========== ========== ==========
Operating income ................................. $ 26,511 $ 55,823 $ -- $ 82,334
========== ========== ==========
Interest expense ................................. (4,192)
Corporate expense less revenues .................. (7,113)
Foreign currency transaction losses .............. (57)
----------
Income before taxes .............................. $ 70,972
==========
Identifiable assets .............................. $ 261,942 $ 361,302 $ (573) $ 622,671
========== ========== ==========
Corporate assets ................................. 707
----------
Total assets ..................................... $ 623,378
==========
AUGUST 31, 1995
Sales to unaffiliated
customers ...................................... $ 417,893 $ 609,565 -- $1,027,458
Inter-geographic
sales .......................................... 2,748 658 $ (3,406) --
---------- ---------- ---------- ----------
Total sales .................................. $ 420,641 $ 610,223 $ (3,406) $1,027,458
========== ========== ========== ==========
Operating income ................................. $ 35,945 $ 63,615 $ -- $ 99,560
========== ========== ==========
Interest expense ................................. (5,250)
Corporate expense less revenues .................. (4,478)
Foreign currency transaction losses .............. (20)
- -------------------------------------------------- ----------
Income before taxes .............................. $ 89,812
==========
Identifiable assets .............................. $ 284,806 $ 361,917 $ (600) $ 646,123
========== ========== ==========
Corporate assets ................................. 1,043
----------
Total assets ..................................... $ 647,166
==========
</TABLE>
26
<PAGE> 30
The North American geographic area includes operations in the United
States, Canada and Mexico. The Company's European operations are conducted in
Belgium, France, Germany, Poland, Switzerland and the United Kingdom.
Inter-geographic sales are based on selling prices which are negotiated at
the time of the transaction. These sales have no significant effect on the
operating income of any geographic segment.
Operating income is total revenues less operating expenses, gains on
disposals of properties and excludes corporate expense and revenues, interest
expense, loss or gain on foreign currency transactions, and income taxes.
General corporate expense and revenue are primarily domestic central office
administrative expenses less other income.
Assets of geographic segments represent those assets identified with the
operation of each segment. Corporate assets consist mainly of cash and other
miscellaneous investments.
NOTE 12 -- CONTINGENCIES
The Company is engaged in various legal proceedings arising in the ordinary
course of business. The ultimate outcome of these proceedings is not expected to
have a material adverse effect on the Company's financial condition.
NOTE 13 -- QUARTERLY FINANCIAL HIGHLIGHTS (UNAUDITED) (In thousands, except per
share data)
<TABLE>
<CAPTION>
Quarter ended Year ended
------------------------------------------------- ------------
Nov. 30, Feb. 28, May 31, Aug. 31, Aug. 31,
1996 1997 1997 1997 1997
------------------------------------------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales .... $257,807 $241,125 $259,231 $238,213 $996,376
Gross profit . 42,243 36,898 43,869 40,021 163,031
Net income ... 11,982 9,747 13,722 15,293 50,744
Net income per
share of
common stock $.32 $.26 $.37 $.42 $1.37
</TABLE>
<TABLE>
<CAPTION>
Quarter ended Year ended
-------------------------------------------------- ----------
Nov. 30, Feb. 29, May 31, Aug. 31, Aug. 31,
1995 1996 1996 1996 1996
-------------------------------------------------- ----------
<S> <C> <C> <C> <C> <C>
Net sales .... $249,541 $233,625 $254,432 $239,096 $976,694
Gross profit . 36,055 33,543 40,742 40,278 150,618
Net income ... 8,474 7,612 12,104 13,987 42,177
Net income per
share of
common stock $.23 $.20 $.32 $.37 $1.12
</TABLE>
27
A. Schulman, Inc.
Report of Independent Accountants
===============================================================================
PRICE WHATERHOUSE LLP [LOGO]
To the Board of Directors and Stockholders
of A. Schulman, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, stockholders' equity and cash flows present
fairly, in all material respects, the financial position of A. Schulman, Inc.
and its subsidiaries at August 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
August 31, 1997, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
Cleveland, Ohio
October 14, 1997
<PAGE> 31
A. Schulman, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1997
Net sales for 1997 were $996.4 million or 2% higher than 1996 sales of $976.7
million. A comparison of net sales is as follows:
<TABLE>
<CAPTION>
(In Thousands)
======== ======== ========
Increase
1997 1996 (Decrease)
<S> <C> <C> <C>
Manufacturing ........... $607,922 $598,297 $ 9,625
Merchant ................ 229,350 201,795 27,555
Distribution ............ 159,104 176,602 (17,498)
-------- -------- --------
$996,376 $976,694 $ 19,682
======== ======== ========
</TABLE>
The translation effect from the stronger U.S. dollar decreased 1997 sales
by $57.5 million.
Worldwide tonnage for 1997 was 8.8% higher than 1996. Tonnage was up
approximately 10% in Europe and 7% in North America.
Gross margins on sales were 16.4% in 1997 compared with 15.4% in 1996. The
increase in 1997 gross profit margins was primarily derived from manufacturing.
The improvement in manufacturing margins was partially offset by lower margins
for distribution activities. A comparison of gross profit is as follows:
<TABLE>
<CAPTION>
(In Thousands)
======== ======== ========
Increase
1997 1996 (Decrease)
<S> <C> <C> <C>
Manufacturing ........... $116,725 $102,557 $ 14,168
Merchant ................ 26,096 22,331 3,765
Distribution ............ 20,210 25,730 (5,520)
-------- -------- --------
$163,031 $150,618 $ 12,413
======== ======== ========
</TABLE>
Selling, general and administrative expenses decreased $2.6 million in
1997. The strengthening of the U.S. dollar decreased these expenses by $4.9
million in 1997. In addition, bad debt provisions were lower in 1997. These
reductions were partially offset by higher compensation levels and additional
costs to support the increase in sales volume.
Interest expense decreased in 1997 due to lower levels of borrowing.
Other income was down because of lower interest income resulting from a
decline in European temporary investments.
Foreign currency transaction gains in 1997 resulted primarily from the
payment of dividends from affiliates outside the United States.
The minority interest on the Consolidated Statement of Income represents a
30% equity position of MKV America Inc., an affiliate of Mitsubishi Chemical MKV
Company, in a partnership with the Company. Earnings of the partnership
increased during 1997 due to the addition of a second manufacturing line.
The effective tax rate was 41.2% in 1997 and 40.6% in 1996. The 1997 tax
rate was higher primarily because of greater provisions for various
international issues.
The strengthening in the value of the U.S. dollar decreased net income by
approximately $3.8 million or $.10 per share in 1997. The translation effect
from currency fluctuations is not covered with contracts, options or other
devices. Generally, forward hedging contracts are used to mitigate exposure to
currency transactions. The Company does not utilize any other types of
derivative instruments.
Earnings in Europe increased $4.6 million or 13% in 1997 despite the
adverse translation effect from the stronger U.S. dollar. Overall, tonnage was
up 10% with especially strong results in the manufacturing operations where
volume increased 14%. European profit margins were up due to utilization rates
close to capacity.
North American earnings increased $4 million or 61% in 1997. Total tonnage
grew 7% and plant capacity utilization was approximately 75%.
The European operations currently have a strong level of orders and
continue to operate at or near capacity levels. Pricing is firm and there
appears to be an overall improvement in the European economies. However, the
strength of the U.S. dollar should continue to have an adverse impact for 1998.
North America also has a good level of orders and demand from the
automotive industry is stable. In addition, it is anticipated that North America
will experience sound overall economic conditions in the months ahead.
1996
Net sales were $976.7 million in 1996, a decrease of 4.9% over 1995 sales of
$1,027.5 million. A comparison of net sales is as follows:
<TABLE>
<CAPTION>
(In Thousands)
Increase
1996 1995 (Decrease)
=========== =========== ===========
<S> <C> <C> <C>
Manufacturing ....... $ 598,297 $ 593,478 $ 4,819
Merchant ............ 201,795 230,330 (28,535)
Distribution ........ 176,602 203,650 (27,048)
----------- ----------- -----------
$ 976,694 $ 1,027,458 $ (50,764)
=========== =========== ===========
</TABLE>
A major factor contributing to the decline in sales was lower plastic resin
prices.
The translation effect from the stronger U.S. dollar reduced 1996 sales by
$3.6 million.
Worldwide tonnage was 3% higher than in 1995. North American tonnage
increased 9% but was partially offset by a decline from European merchant
activities. One of the major reasons for the increase in 1996 North American
tonnage was the acquisition of Texas Polymer Services on February 28, 1995.
Gross margins on sales were 15.4% in 1996 compared with 16% in 1995. The
primary reasons for the lower margins were the decline in plastic resin prices
early in fiscal 1996 and a reduction in capacity utilization, mainly in North
America. A comparison of gross profit is as follows:
<TABLE>
<CAPTION>
(In Thousands)
========== ========= ===========
Increase
1996 1995 (Decrease)
<S> <C> <C> <C>
Manufacturing .......... $ 102,557 $ 106,690 $ (4,133)
Merchant ............... 22,331 31,929 (9,598)
Distribution ........... 25,730 25,430 300
--------- --------- ---------
$ 150,618 $ 164,049 $ (13,431)
========= ========= =========
</TABLE>
Selling, general and administrative expenses increased $5.6 million in 1996
due to the acquisition of Texas Polymer Services on
28
<PAGE> 32
February 28, 1995, higher compensation, increased provisions for bad debts and
additional costs necessary to support business opportunities throughout the
world.
Interest expense decreased approximately $1.1 million in 1996 due to lower
levels of borrowing.
Foreign currency transaction losses were primarily due to changes in the
value of currencies within the European Monetary System as well as the Mexican
peso and Canadian dollar.
Earnings of the partnership with MKV America Inc. declined during 1996 due
to lower profit margins.
Other income declined because of reduced interest income from temporary
investments, mainly because of lower European interest rates.
The effective tax rate in 1996 was 40.6% compared with 40.3% in 1995. Lower
earnings in Germany had the effect of decreasing the 1996 effective tax rate.
However, this decrease was offset by greater taxes incurred due to the
repatriation of earnings from a subsidiary.
The strengthening in the value of the U.S. dollar decreased net income by
approximately $217,000 or $.01 per share in 1996.
Earnings in Europe decreased approximately 11% or $4.5 million in 1996. The
decline was primarily due to lower plastic resin prices and weak economic
conditions, especially in Germany.
North American earnings decreased approximately $7 million in 1996.
Earnings were adversely affected by lower selling prices and profit margins.
Profit margins declined in 1996 because of less than planned utilization of new
capacities as well as a concerted effort by customers to reduce inventories.
FINANCIAL CONDITION
Historically, the Company's primary source of funds has been from
operations. It is expected that this source of cash flow will continue to
provide a substantial portion of the Company's future needs.
The assets and liabilities of the Company's foreign subsidiaries are
translated into U.S. dollars using current exchange rates. Income statement
items are translated at average exchange rates prevailing during the period. The
resulting translation adjustments are recorded in the "cumulative foreign
currency translation adjustment" account in stockholders' equity. The
strengthening of the U.S. dollar during the fiscal year decreased this account
by approximately $43.4 million during 1997.
The following represent key measurements of the capital structure and
profitability of the Company:
<TABLE>
<CAPTION>
(Dollars in Thousands
except per share data)
-------- --------------------------
1997 1996 1995
<S> <C> <C> <C>
Net worth ............................... $393,401 $433,110 $405,218
Book value per share .................... $10.83 $11.43 $10.75
Ratio of long-term liabilities to capital 10.1% 14.5% 20.8%
Return on average net worth ............. 12.3% 10.1% 14.3%
Net income as a percent of sales ........ 5.1% 4.3% 5.2%
</TABLE>
The ratio of long-term liabilities to capital is computed by dividing
long-term debt and other long-term liabilities by the sum of total stockholders'
equity plus long-term debt and other long-term liabilities. This ratio decreased
in both 1997 and 1996 due to reductions in the outstanding debt under the
revolving credit agreement of $28 million in 1997 and $35 million in 1996.
The return on average net worth is computed by dividing net income by the
average of the total stockholders' equity during the year. This ratio increased
in 1997 due to a higher level of earnings and a lower net worth.
Gross dividends of $92 million were paid from foreign affiliates to the
U.S. Parent Company during 1997. Dividends from foreign affiliates should be
lower in 1998.
The Company repurchased 1,610,000 shares of its common stock during 1997
for $32.2 million under a 3 million share repurchase program authorized by the
Board of Directors in April 1997. Subject to market conditions, the Company
intends to purchase the balance of 1,390,000 shares under this program during
1998.
On November 7, 1996, the Company purchased the business and assets of the
Specialty Compounding Division of Laurel Industries, Inc. This facility, located
in Sharon Center, Ohio, has four manufacturing lines with an annual capacity of
approximately 15 million pounds.
Working capital and the current ratio are as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands)
1997 1996 1995
======= =========================
<S> <C> <C> <C>
Working capital ............. $291,973 $360,846 $363,040
Current ratio ............... 3.6:1 4.4:1 3.8:1
</TABLE>
A decrease in cash and short-term investments of approximately $78.6
million during 1997 is the primary reason for the reduction in working capital
and the lower current ratio. The primary reasons for the lower cash position was
the repurchase of common stock and the reduction of long-term debt.
In August 1997, the Company amended its revolving credit agreement to
provide for borrowings of up to $100 million through August 14, 2002.
Short-term lines of credit are maintained with various domestic and foreign
banks. The unused commitment under these lines was $60.7 million at August 31,
1997.
The Company's unfunded pension liability is approximately $18.1 million at
August 31, 1997. This amount is primarily due to a book reserve plan maintained
by the Company's German subsidiary. Under such plans, there is no separate
vehicle to accumulate assets to provide for the payment of benefits. The
benefits are paid directly by the Company to the participants. It is anticipated
that the German subsidiary will generate sufficient funds from operations to pay
these benefits in the future.
CAUTIONARY STATEMENTS
From time to time, in written reports and oral statements, we discuss our
expectations regarding future performance of the Company. These "forward-looking
statements" are based on currently available information. They are also
inherently uncertain, and investors must recognize that events could turn out to
be significantly different from what we had expected. Examples of such
uncertainties include, but are not limited to, the following:
- - Worldwide and regional economic, business and political conditions
- - Fluctuations in the value of currencies within the European Monetary
System, as well as the U.S. dollar, Canadian dollar, Mexican peso and
Indonesian rupiah
- - Fluctuations in prices of plastic resins and other raw materials
- - Changes in customer demand and requirements
29
<PAGE> 33
A. Schulman, Inc.
Ten Year Summary of Selected Financial Data
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended August 31,
=========== ===========================================
1997 1996 1995 1994
<S> <C> <C> <C> <C>
Net sales ..................................................... $996,376 $976,694 $1,027,458 $748,778
Interest and other income ..................................... 4,998 6,075 7,099 7,456
----------- ----------- ---------- --------
1,001,374 982,769 1,034,557 756,234
----------- ----------- ---------- --------
Cost of sales ................................................. 833,345 826,076 863,409 617,855
Other costs, expenses, etc .................................... 81,747 85,721 81,336 67,939
----------- ----------- ---------- --------
915,092 911,797 944,745 685,794
----------- ----------- ---------- --------
Income before taxes and cumulative effect of accounting changes 86,282 70,972 89,812 70,440
Provision for U.S. and foreign income taxes ................... 35,538 28,795 36,194 25,869
----------- ----------- ---------- --------
Income before cumulative effect of accounting changes ......... 50,744 42,177 53,618 44,571
Cumulative effect of accounting changes (1) ................... -- -- -- --
----------- ----------- ---------- --------
Net income .................................................... $50,744 $42,177 $53,618 $44,571
=========== ===========================================
Total assets .................................................. $562,945 $623,378 $647,166 $510,419
Long-term debt ................................................ 12,009 $40,054 $75,096 $23,126
Total stockholders' equity .................................... $393,401 $433,110 $405,218 $345,919
Average number of common shares outstanding,
net of treasury shares ...................................... 37,125,345 37,584,561 37,544,408 37,438,118
Per share of common stock:
Net income:
Before cumulative effect of accounting changes ............ $1.37 $1.12 $1.43 $1.19
Cumulative effect of accounting changes (1) ............... -- -- -- --
Net income ................................................ $1.37 $1.12 $1.43 $1.19
Cash dividends .............................................. $.41 $.37 $.33 $.286
Stockholders' equity ........................................ $10.83 $11.43 $10.75 $9.21
<FN>
(1) Effective September 1, 1992, the Company adopted SFAS 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," and SFAS 109,
"Accounting for Income Taxes."
(2) Includes a gain of $887,000 or $.02 per share from life insurance proceeds
and a tax benefit of $945,000 or $.03 per share from a new U.S./German tax
treaty. This tax benefit included $466,000 or $.01 per share applicable to
1990 and $479,000 or $.01 per share applicable to prior years.
(3) Includes special cash dividend of $.02 per share paid on November 23, 1987.
</TABLE>
Supplemental Information
(In thousands of dollars)
<TABLE>
<CAPTION>
Year Ended August 31,
================ ==============================================================================
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales
Manufacturing $607,922 61% $598,297 61% $ 593,478 58% $449,085 60% $408,763 60%
Merchant Activities 229,350 23% 201,795 21% 230,330 22% 149,798 20% 136,116 20%
Distribution 159,104 16% 176,602 18% 203,650 20% 149,895 20% 140,233 20%
---------------- ------------------------------------------------------------------------------
Total $996,376 100% $976,694 100% $1,027,458 100% $748,778 100% $685,112 100%
================ ==============================================================================
Gross Profit
Manufacturing $116,725 72% $102,557 68% $ 106,690 65% $ 88,609 68% $ 78,548 66%
Merchant Activities 26,096 16% 22,331 15% 31,929 19% 22,582 17% 21,495 18%
Distribution 20,210 12% 25,730 17% 25,430 16% 19,732 15% 19,784 16%
---------------- ------------------------------------------------------------------------------
Total $163,031 100% $150,618 100% $ 164,049 100% $130,923 100% $119,827 100%
================ ==============================================================================
</TABLE>
30
<PAGE> 34
<TABLE>
<CAPTION>
===================================================================================================
1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C>
$685,112 $732,170 $736,007 $678,644 $624,410 $597,696
8,103 6,778 4,083 2,409 1,675 1,211
- ---------- ---------- ---------- ---------- ---------- ----------
693,215 738,948 740,090 681,053 626,085 598,907
- ---------- ---------- ---------- ---------- ---------- ----------
565,284 599,009 614,001 566,872 528,296 505,907
65,480 66,838 55,876 50,644 43,000 42,567
- ---------- ---------- ---------- ---------- ---------- ----------
630,764 665,847 669,877 617,516 571,296 548,474
- ---------- ---------- ---------- ---------- ---------- ----------
62,451 73,101 70,213 63,537 54,789 50,433
23,544 29,341 27,864 27,441 23,977 22,787
- ---------- ---------- ---------- ---------- ---------- ----------
38,907 43,760 42,349 36,096 30,812 27,646
(2,169) -- -- -- -- --
- ---------- ---------- ---------- ---------- ---------- ----------
$36,738 $43,760 $42,349(2) $36,096 $30,812 $27,646
===================================================================================================
$407,865 $427,966 $344,273 $328,210 $257,687 $240,475
$10,149 $10,108 $9,000 $7,000 $10,000 $9,570
$294,209 $307,576 $232,567 $223,973 $166,640 $145,183
37,325,547 37,024,548 36,963,010 37,699,043 37,674,290 37,665,819
$1.04 $1.18 $1.14 $.96 $.82 $.73
($.06) -- -- -- -- --
$.98 $1.18 $1.14(2) $.96 $.82 $.73
$.248 $.216 $.186 $.153 $.135 $ .132(3)
$7.84 $8.26 $6.26 $5.91 $4.39 $3.82
</TABLE>
CORPORATE HEADQUARTERS
3550 West Market Street
Akron, Ohio 44333
(330) 666-3751
www.aschulman.com
ANNUAL MEETING
of Stockholders will be held on
Thursday, December 4, 1997,
at 10 AM E.S.T., at the Fairlawn Country Club,
200 North Wheaton Road
Akron, Ohio 44313
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
BP America Building
27th Floor
200 Public Square
Cleveland, Ohio 44114-2301
STOCK LISTING
The common stock of
A. Schulman, Inc. is traded
and quoted through the
NASDAQ National Market
System. Symbol: SHLM
TRANSFER AGENT
First Chicago Trust Company
P.O. Box 2500
Jersey City, NJ 07303-2500
Any questions regarding shareholder
records should be directed to
First Chicago Trust Company
800-317-4445
http://www.fctc.com
[email protected]
The annual report to the Securities and Exchange Commission, Form 10-K, will be
made available upon request without charge.
Write:
Robert A. Stefanko,
Chairman and
Chief Financial Officer
A. Schulman, Inc.
3550 West Market Street
Akron, Ohio 44333
31
<PAGE> 35
A. SCHULMAN, INC.
THE BOARD OF DIRECTORS
ROBERT A. STEFANKO
Chairman
TERRY L. HAINES
President and Chief Executive Officer
JAMES H. BERICK
Managing Partner,
Berick, Pearlman & Mills
DR. PEGGY GORDON ELLIOTT
Senior Fellow,
National Center for Higher Education
GORDON E. HEFFERN
Former Chairman and Director,
Society Corporation and
Society National Bank
WILLARD R. HOLLAND
Chairman and Chief Executive Officer,
Ohio Edison Company
JAMES A. KARMAN
President,
RPM, Inc.
LARRY A. KUSHKIN
Executive Vice President --
International Automotive Operations
FRANZ A. LOEHR
Former Managing Director -- Germany and
Associate General Manager -- Europe
JAMES S. MARLEN
Chairman, President and
Chief Executive Officer,
Ameron International Corporation
ALAN L. OCKENE
Former President and Chief Executive Officer,
General Tire, Inc.
DR. PAUL C. ROBERTS
Chairman, The Institute for
Political Economy
Distinguished Fellow, Cato Institute
RENE C. ROMBOUTS
General Manager-Europe
ROBERT G. WALLACE
Former Executive
Vice President and Director,
Phillips Petroleum Company
EXECUTIVE OFFICERS
TERRY L. HAINES
President and Chief Executive Officer
ROBERT A. STEFANKO
Chairman and
Chief Financial Officer
LARRY A. KUSHKIN
Executive Vice President --
International Automotive Operations
GORDON L. TRIMMER
Vice President -- North American
Sales and Marketing
ALAIN C. ADAM
Vice President -- Automotive Marketing
LEONARD E. EMGE
Vice President -- Manufacturing
JOHN M. MYLES
Vice President -- North American Purchasing
BRIAN R. COLBOW
Treasurer
JAMES H. BERICK
Secretary
EUROPEAN OPERATIONS
RENE C. ROMBOUTS
General Manager -- Europe
GERALD M. WEINBERGER
Managing Director -- Germany
OTTO H. BRUDER
Managing Director -- France
RITSON D. GILLINGS
Managing Director -- United Kingdom
DOMESTIC OFFICES
AKRON, OHIO 44333
Corporate Headquarters
3550 West Market Street
(330) 666-3751
BIRMINGHAM, MICHIGAN 48009-6524
2100 East Maple Road
(248) 643-6100
EAGAN, MINNESOTA 55121
1380 Corporate Center Curve
Suite 316
(612) 681-8020
EVANSVILLE, INDIANA 47712
122 N. St. Joseph Avenue
(812) 423-5836
FORT WAYNE, INDIANA 46825
9017 Coldwater
Suite 300A
(219) 497-0371
GRAND RAPIDS, MICHIGAN 49546
500 Cascade West Parkway, SE
(616) 285-2800
HOCKESSIN, DELAWARE 19707
724 Yorklyn Road, Suite 260
(302) 234-4870
HOUSTON, TEXAS 77060
363 N. Sam Houston Parkway E.
Suite 480
(281) 820-8093
PASADENA, CALIFORNIA 91106
600 South Lake Avenue
Suite 506
(626) 792-0053
PISCATAWAY, NEW JERSEY 08854
144B Carlton Avenue
(732) 424-9130
SCHAUMBURG, ILLINOIS 60173
Embassy Plaza
1933 N. Meacham Road
Suite 500
(847) 397-3973
ST. LOUIS, MISSOURI 63045-1303
514 Earth City Expressway
Suite 351
(314) 291-8626
NASHVILLE, TENNESSEE 37211-3333
ComAlloy International Company
481 Allied Drive
(615) 333-3453
ORANGE, TEXAS 77632
Texas Polymer Services, Inc.
6522 Interstate Highway 10 West
(409) 883-4331
32
<PAGE> 36
A. Schulman, Inc.
OTHER SALES LOCATIONS
ALPHARETTA, GEORGIA 30022
2507 Tree Ridge Parkway
(770) 518-8434
ARLINGTON, MASSACHUSETTS 02174
33 James Street
(617) 684-6949
ARLINGTON, TEXAS 76006
1907 Mill Run Drive
(817) 265-8000
REPRESENTATIVE OFFICES
BARCELONA, SPAIN
A. Schulman
Oficina de Representation en Espana
Paseje Francesc Ferrer n3
08348 Cabrils (Barcelona), Spain
34-3-750-7663
SINGAPORE
A. Schulman, Inc.
Singapore Representative Office
Contact Address:
05-05, Balmoral Condominium
Singapore - 259802
65-235-7675
FOREIGN OFFICES
BORNEM, BELGIUM
N.V.A. Schulman Plastics, S.A.
Pedro Colomalaan 25 Industriepark
2880 Bornem, Belgium
32-3-890-4211
KERPEN, GERMANY
A. Schulman GmbH
Huttenstrase 211
D-50170 Kerpen
49-2273-5610
PARIS, FRANCE
A. Schulman, S.A./
Diffusion Plastique
Immeuble Dynasteur
10/12 rue Andras Beck
92360 Meudon-la-Foret
33-1-4107-7500
CRUMLIN, SOUTH WALES (U.K.)
A. Schulman Inc. Limited
Croespenmaen Industrial Estate
Crumlin, Newport
Gwent NP1 4AG
44-1495-244090
ZURICH, SWITZERLAND
A. Schulman AG
Kernstrase 10
CH 8004 Zurich, Switzerland
41-1-241-6030
WARSAW, POLAND
A. Schulman Polska Sp. z o.o.
ul. Instalatarow 9
02-237 Warsaw
48-22-868-2682
MISSISSAUGA, ONTARIO, CANADA
L5R 3G5
A. Schulman Canada Ltd.
5770 Hurontario Street, Suite 602
(905) 568-8470
MEXICO CITY, MEXICO
A. Schulman de Mexico, S.A. de C.V.
Manuel E. Izaguirre #13
Despacho 304 - Ciudad Satelite
Naucalpan, Edo. de Mexico 53100
(525) 393-1216
MONTERREY, MEXICO
A. Schulman de Mexico, S.A. de C.V.
Camino del Lago #4517, Sector 4
Colonia Cortijo del Rio
Monterrey, N.L. 64890
(5283) 655-505
SAN LUIS POTOSI, MEXICO
A. Schulman de Mexico, S.A. de C.V.
Avenida CFE, 730
Entre Eje 134 y Eje 136
Zona Industrial del Potosi
San Luis Potosi, S.L.P. 78090
(5248) 240-708
PLANTS
AKRON, OHIO 44310
790 E. Tallmadge Ave.
(330) 633-8164
BELLEVUE, OHIO 44811
350 North Buckeye Street
(419) 483-2931
ORANGE, TEXAS 77630
(Dispersion Plant)
3007 Burnett
(409) 883-9371
SHARON CENTER, OHIO 44274
(Specialty Compounding Division)
1475 Wolf Creek Trail
(330) 239-0101
NASHVILLE, TENNESSEE 37211-3333
ComAlloy International Company
481 Allied Drive
(615) 333-3453
ORANGE, TEXAS 77632
Texas Polymer Services, Inc.
6522 Interstate Highway 10 West
(409) 883-4331
BORNEM, BELGIUM
N.V.A. Schulman Plastics, S.A.
Pedro Colomalaan 25
Industriepark
2880 Bornem, Belgium
32-3-890-4211
KERPEN, GERMANY
A. Schulman GmbH
Huttenstrase 211
D-50170 Kerpen
49-2273-5610
CRUMLIN, SOUTH WALES (U.K.)
A. Schulman Inc. Limited
Croespenmaen Industrial Estate
Crumlin, Newport
Gwent NP1 4AG
44-1495-244090
GIVET, FRANCE
A. Schulman Plastics S.A.
Rue Alex Schulman
F-08600 Givet, France
33-24-427161
ST. THOMAS, ONTARIO, CANADA
N5P 3Z5
A. Schulman Canada Ltd.
400 S. Edgeware Road
(519) 633-3451
SAN LUIS POTOSI,MEXICO
A. Schulman de Mexico, S.A. de C.V.
Avenida CFE, 730
Entre Eje 134 y Eje 136
Zona Industrial del Potosi
San Luis Potosi, S.L.P. 78090
(5248) 240-708
33
[INSIDE BACK COVER]
<PAGE> 37
[A. Schulman Inc. Logo]
3550 West Market Street, Akron, Ohio 44333-330/666-3751
www.aschulman.com
[OUTSIDE BACK COVER]
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF A. SCHULMAN, INC.
---------------------------------
<TABLE>
<CAPTION>
Jurisdiction
Name of Incorporation/Organization
- ---- -----------------------------
<S> <C>
N.V. A. Schulman, Plastics, S.A. Belgium
N.V. A. Schulman, S.A. Belgium
A. Schulman, S.A. (1) France
A. Schulman Plastics, S.A. (5) France
Diffusion Plastique (2) France
A. Schulman GmbH Germany
A. Schulman, Inc., Limited United Kingdom
A. Schulman Canada Ltd. Ontario, Canada
A. Schulman Foreign Sales Corporation Virgin Islands
Master Grip, Inc. Ohio
Gulf Coast Plastics, Inc. Texas
A. Schulman AG Switzerland
ASI Investments Holding Co. Delaware
ASI Akron Land Co. Delaware
ComAlloy International Company Ohio
A. Schulman International, Inc. Delaware
A. Schulman de Mexico, S.A. de C.V. (3) Mexico
ASI Employment, S.A. de C.V. (3) Mexico
AS Mex Hold, S.A. de C.V. (3) Mexico
Texas Polymer Services, Inc. Ohio
Polyvin GmbH (4) Germany
A. Schulman Polska Sp. z 0.0. (4) Poland
A. Schulman Plastics SpA (1) Italy
A. Schulman International Services N.V. (1) Belgium
PTA. Schueman Plastics, Indonesia (3) Indonesia
<FN>
- -------------------
(1) Owned by N.V. A. Schulman, S.A.
(2) Owned by A. Schulman, S.A.
(3) Owned by A. Schulman International, Inc.
(4) Owned by A. Schulman GmbH
(5) Owned by N.V. A. Schulman, Plastics, S.A.
</TABLE>
21-1
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-69042) of A. Schulman, Inc. of our report dated
October 14, 1997 appearing on page 27 of the Annual Report to Stockholders
which is incorporated in this Annual Report on Form 10-K. We also consent to
the incorporation by reference of our report on the Financial Statement
Schedule, which appears on page F-1 of this Form 10-K.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Cleveland, Ohio
November 25, 1997
<PAGE> 1
Exhibit 24
POWER OF ATTORNEY
-----------------
The undersigned Director of A. Schulman, Inc. (the "Corporation"), a
Delaware corporation, which anticipates filing with the Securities and Exchange
Commission, Washington, D.C., under the provisions of the Securities Exchange
Act of 1934, as amended, an Annual Report on Form 10-K for the Corporation's
fiscal year ended August 31, 1997, hereby constitutes and appoints TERRY L.
HAINES and ROBERT A. STEFANKO, and each of them, with full power of substitution
and resubstitution, as attorneys or attorney to sign for the undersigned and in
my name, place and stead, as Director of said Corporation, said Annual Report
and any and all amendments and exhibits thereto, and any and all applications
and documents to be filed with the Securities and Exchange Commission pertaining
to such Annual Report, with full power and authority to do and perform any and
all acts and things whatsoever requisite, necessary or advisable to be done in
the premises, as fully and for all intents and purposes as the undersigned could
do if personally present, hereby approving the acts of said attorney, and any
such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 20th day of
October, 1997.
/s/ James H. Berick
---------------------------
James H. Berick
24-1
<PAGE> 2
POWER OF ATTORNEY
-----------------
The undersigned Director of A. Schulman, Inc. (the "Corporation"), a
Delaware corporation, which anticipates filing with the Securities and Exchange
Commission, Washington, D.C., under the provisions of the Securities Exchange
Act of 1934, as amended, an Annual Report on Form 10-K for the Corporation's
fiscal year ended August 31, 1997, hereby constitutes and appoints TERRY L.
HAINES, JAMES H. BERICK and ROBERT A. STEFANKO, and each of them, with full
power of substitution and resubstitution, as attorneys or attorney to sign for
the undersigned and in my name, place and stead, as Director of said
Corporation, said Annual Report and any and all amendments and exhibits thereto,
and any and all applications and documents to be filed with the Securities and
Exchange Commission pertaining to such Annual Report, with full power and
authority to do and perform any and all acts and things whatsoever requisite,
necessary or advisable to be done in the premises, as fully and for all intents
and purposes as the undersigned could do if personally present, hereby approving
the acts of said attorneys, and any of them and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 20th day of
October, 1997.
/s/ Alan L. Ockene
--------------------------
Alan L. Ockene
24-2
<PAGE> 3
POWER OF ATTORNEY
-----------------
The undersigned Director of A. Schulman, Inc. (the "Corporation"), a
Delaware corporation, which anticipates filing with the Securities and Exchange
Commission, Washington, D.C., under the provisions of the Securities Exchange
Act of 1934, as amended, an Annual Report on Form 10-K for the Corporation's
fiscal year ended August 31, 1997, hereby constitutes and appoints TERRY L.
HAINES, JAMES H. BERICK and ROBERT A. STEFANKO, and each of them, with full
power of substitution and resubstitution, as attorneys or attorney to sign for
the undersigned and in my name, place and stead, as Director of said
Corporation, said Annual Report and any and all amendments and exhibits thereto,
and any and all applications and documents to be filed with the Securities and
Exchange Commission pertaining to such Annual Report, with full power and
authority to do and perform any and all acts and things whatsoever requisite,
necessary or advisable to be done in the premises, as fully and for all intents
and purposes as the undersigned could do if personally present, hereby approving
the acts of said attorneys, and any of them and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 20th day of
October, 1997.
/s/ Dr. Peggy Gordon Elliott
------------------------------
Dr. Peggy Gordon Elliott
24-3
<PAGE> 4
POWER OF ATTORNEY
-----------------
The undersigned Director of A. Schulman, Inc. (the "Corporation"), a
Delaware corporation, which anticipates filing with the Securities and Exchange
Commission, Washington, D.C., under the provisions of the Securities Exchange
Act of 1934, as amended, an Annual Report on Form 10-K for the Corporation's
fiscal year ended August 31, 1997, hereby constitutes and appoints TERRY L.
HAINES, JAMES H. BERICK and ROBERT A. STEFANKO, and each of them, with full
power of substitution and resubstitution, as attorneys or attorney to sign for
the undersigned and in my name, place and stead, as Director of said
Corporation, said Annual Report and any and all amendments and exhibits thereto,
and any and all applications and documents to be filed with the Securities and
Exchange Commission pertaining to such Annual Report, with full power and
authority to do and perform any and all acts and things whatsoever requisite,
necessary or advisable to be done in the premises, as fully and for all intents
and purposes as the undersigned could do if personally present, hereby approving
the acts of said attorneys, and any of them and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 20th day of
October, 1997.
/s/ Franz A. Loehr
--------------------------
Franz A. Loehr
24-4
<PAGE> 5
POWER OF ATTORNEY
-----------------
The undersigned Director of A. Schulman, Inc. (the "Corporation"), a
Delaware corporation, which anticipates filing with the Securities and Exchange
Commission, Washington, D.C., under the provisions of the Securities Exchange
Act of 1934, as amended, an Annual Report on Form 10-K for the Corporation's
fiscal year ended August 31, 1997, hereby constitutes and appoints TERRY L.
HAINES, JAMES H. BERICK and ROBERT A. STEFANKO, and each of them, with full
power of substitution and resubstitution, as attorneys or attorney to sign for
the undersigned and in my name, place and stead, as Director of said
Corporation, said Annual Report and any and all amendments and exhibits thereto,
and any and all applications and documents to be filed with the Securities and
Exchange Commission pertaining to such Annual Report, with full power and
authority to do and perform any and all acts and things whatsoever requisite,
necessary or advisable to be done in the premises, as fully and for all intents
and purposes as the undersigned could do if personally present, hereby approving
the acts of said attorneys, and any of them and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 20th day of
October, 1997.
/s/ Larry A. Kushkin
-------------------------
Larry A. Kushkin
24-5
<PAGE> 6
POWER OF ATTORNEY
-----------------
The undersigned Director of A. Schulman, Inc. (the "Corporation"), a
Delaware corporation, which anticipates filing with the Securities and Exchange
Commission, Washington, D.C., under the provisions of the Securities Exchange
Act of 1934, as amended, an Annual Report on Form 10-K for the Corporation's
fiscal year ended August 31, 1997, hereby constitutes and appoints TERRY L.
HAINES, JAMES H. BERICK and ROBERT A. STEFANKO, and each of them, with full
power of substitution and resubstitution, as attorneys or attorney to sign for
the undersigned and in my name, place and stead, as Director of said
Corporation, said Annual Report and any and all amendments and exhibits thereto,
and any and all applications and documents to be filed with the Securities and
Exchange Commission pertaining to such Annual Report, with full power and
authority to do and perform any and all acts and things whatsoever requisite,
necessary or advisable to be done in the premises, as fully and for all intents
and purposes as the undersigned could do if personally present, hereby approving
the acts of said attorneys, and any of them and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 20th day of
October, 1997.
/s/ Robert G. Wallace
--------------------------
Robert G. Wallace
24-6
<PAGE> 7
POWER OF ATTORNEY
-----------------
The undersigned Director of A. Schulman, Inc. (the "Corporation"), a
Delaware corporation, which anticipates filing with the Securities and Exchange
Commission, Washington, D.C., under the provisions of the Securities Exchange
Act of 1934, as amended, an Annual Report on Form 10-K for the Corporation's
fiscal year ended August 31, 1997, hereby constitutes and appoints TERRY L.
HAINES, JAMES H. BERICK and ROBERT A. STEFANKO, and each of them, with full
power of substitution and resubstitution, as attorneys or attorney to sign for
the undersigned and in my name, place and stead, as Director of said
Corporation, said Annual Report and any and all amendments and exhibits thereto,
and any and all applications and documents to be filed with the Securities and
Exchange Commission pertaining to such Annual Report, with full power and
authority to do and perform any and all acts and things whatsoever requisite,
necessary or advisable to be done in the premises, as fully and for all intents
and purposes as the undersigned could do if personally present, hereby approving
the acts of said attorneys, and any of them and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 20th day of
October, 1997.
/s/ Gordon E. Heffern
--------------------------
Gordon E. Heffern
24-7
<PAGE> 8
POWER OF ATTORNEY
-----------------
The undersigned Director of A. Schulman, Inc. (the "Corporation"), a
Delaware corporation, which anticipates filing with the Securities and Exchange
Commission, Washington, D.C., under the provisions of the Securities Exchange
Act of 1934, as amended, an Annual Report on Form 10-K for the Corporation's
fiscal year ended August 31, 1997, hereby constitutes and appoints TERRY L.
HAINES, JAMES H. BERICK and ROBERT A. STEFANKO, and each of them, with full
power of substitution and resubstitution, as attorneys or attorney to sign for
the undersigned and in my name, place and stead, as Director of said
Corporation, said Annual Report and any and all amendments and exhibits thereto,
and any and all applications and documents to be filed with the Securities and
Exchange Commission pertaining to such Annual Report, with full power and
authority to do and perform any and all acts and things whatsoever requisite,
necessary or advisable to be done in the premises, as fully and for all intents
and purposes as the undersigned could do if personally present, hereby approving
the acts of said attorneys, and any of them and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 20th day of
October, 1997.
/s/ Dr. Paul Craig Roberts
-----------------------------
Dr. Paul Craig Roberts
24-8
<PAGE> 9
POWER OF ATTORNEY
-----------------
The undersigned Director of A. Schulman, Inc. (the "Corporation"), a
Delaware corporation, which anticipates filing with the Securities and Exchange
Commission, Washington, D.C., under the provisions of the Securities Exchange
Act of 1934, as amended, an Annual Report on Form 10-K for the Corporation's
fiscal year ended August 31, 1997, hereby constitutes and appoints TERRY L.
HAINES, JAMES H. BERICK and ROBERT A. STEFANKO, and each of them, with full
power of substitution and resubstitution, as attorneys or attorney to sign for
the undersigned and in my name, place and stead, as Director of said
Corporation, said Annual Report and any and all amendments and exhibits thereto,
and any and all applications and documents to be filed with the Securities and
Exchange Commission pertaining to such Annual Report, with full power and
authority to do and perform any and all acts and things whatsoever requisite,
necessary or advisable to be done in the premises, as fully and for all intents
and purposes as the undersigned could do if personally present, hereby approving
the acts of said attorneys, and any of them and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 20th day of
October, 1997.
/s/ Rene C. Rombouts
----------------------------
Rene C. Rombouts
24-9
<PAGE> 10
POWER OF ATTORNEY
-----------------
The undersigned Director of A. Schulman, Inc. (the "Corporation"), a
Delaware corporation, which anticipates filing with the Securities and Exchange
Commission, Washington, D.C., under the provisions of the Securities Exchange
Act of 1934, as amended, an Annual Report on Form 10-K for the Corporation's
fiscal year ended August 31, 1997, hereby constitutes and appoints TERRY L.
HAINES, JAMES H. BERICK and ROBERT A. STEFANKO, and each of them, with full
power of substitution and resubstitution, as attorneys or attorney to sign for
the undersigned and in my name, place and stead, as Director of said
Corporation, said Annual Report and any and all amendments and exhibits thereto,
and any and all applications and documents to be filed with the Securities and
Exchange Commission pertaining to such Annual Report, with full power and
authority to do and perform any and all acts and things whatsoever requisite,
necessary or advisable to be done in the premises, as fully and for all intents
and purposes as the undersigned could do if personally present, hereby approving
the acts of said attorneys, and any of them and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 20th day of
October, 1997.
/s/ Willard R. Holland
-------------------------
Willard R. Holland
24-10
<PAGE> 11
POWER OF ATTORNEY
-----------------
The undersigned Director of A. Schulman, Inc. (the "Corporation"), a
Delaware corporation, which anticipates filing with the Securities and Exchange
Commission, Washington, D.C., under the provisions of the Securities Exchange
Act of 1934, as amended, an Annual Report on Form 10-K for the Corporation's
fiscal year ended August 31, 1997, hereby constitutes and appoints TERRY L.
HAINES, JAMES H. BERICK and ROBERT A. STEFANKO, and each of them, with full
power of substitution and resubstitution, as attorneys or attorney to sign for
the undersigned and in my name, place and stead, as Director of said
Corporation, said Annual Report and any and all amendments and exhibits thereto,
and any and all applications and documents to be filed with the Securities and
Exchange Commission pertaining to such Annual Report, with full power and
authority to do and perform any and all acts and things whatsoever requisite,
necessary or advisable to be done in the premises, as fully and for all intents
and purposes as the undersigned could do if personally present, hereby approving
the acts of said attorneys, and any of them and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 20th day of October,
1997.
/s/ James A. Karman
----------------------------
James A. Karman
24-11
<PAGE> 12
POWER OF ATTORNEY
-----------------
The undersigned Director of A. Schulman, Inc. (the "Corporation"), a
Delaware corporation, which anticipates filing with the Securities and Exchange
Commission, Washington, D.C., under the provisions of the Securities Exchange
Act of 1934, as amended, an Annual Report on Form 10-K for the Corporation's
fiscal year ended August 31, 1997, hereby constitutes and appoints TERRY L.
HAINES, JAMES H. BERICK and ROBERT A. STEFANKO, and each of them, with full
power of substitution and resubstitution, as attorneys or attorney to sign for
the undersigned and in my name, place and stead, as Director of said
Corporation, said Annual Report and any and all amendments and exhibits thereto,
and any and all applications and documents to be filed with the Securities and
Exchange Commission pertaining to such Annual Report, with full power and
authority to do and perform any and all acts and things whatsoever requisite,
necessary or advisable to be done in the premises, as fully and for all intents
and purposes as the undersigned could do if personally present, hereby approving
the acts of said attorneys, and any of them and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 20th day of October,
1997.
/s/ James S. Marlen
-----------------------------
James S. Marlen
24-12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF AUGUST 31, 1997 AND 1996 AND THE CONSOLIDATED
STATEMENT OF INCOME FOR EACH OF THE THREE YEARS ENDED AUGUST 31, 1997.
</LEGEND>
<CIK> 0000087565
<NAME> A. SCHULMAN, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-31-1997
<CASH> 69,147
<SECURITIES> 2,762
<RECEIVABLES> 150,192
<ALLOWANCES> 5,304
<INVENTORY> 164,432
<CURRENT-ASSETS> 403,714
<PP&E> 295,417
<DEPRECIATION> 156,022
<TOTAL-ASSETS> 562,945
<CURRENT-LIABILITIES> 111,741
<BONDS> 12,009
0
1,069
<COMMON> 38,343
<OTHER-SE> 353,989
<TOTAL-LIABILITY-AND-EQUITY> 562,945
<SALES> 996,376
<TOTAL-REVENUES> 1,001,374
<CGS> 833,345
<TOTAL-COSTS> 915,092
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,143
<INCOME-PRETAX> 86,282
<INCOME-TAX> 35,538
<INCOME-CONTINUING> 50,744
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50,744
<EPS-PRIMARY> 1.37
<EPS-DILUTED> 1.37
</TABLE>
<PAGE> 1
Exhibit 99
[LOGO] A. SCHULMAN INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Notice is hereby given that the Annual Meeting of Stockholders of
A. Schulman, Inc. will be held at the Fairlawn Country Club, 200 North Wheaton
Road, Akron, Ohio, on Thursday, December 4, 1997 at 10:00 A.M., local time, for
the purpose of considering and acting upon:
1. The election of four (4) Directors for a three-year term expiring in
2000;
2. The ratification of the selection by the Board of Directors of Price
Waterhouse LLP as independent accountants for the fiscal year ending
August 31, 1998; and
3. The transaction of any other business which properly may come before the
meeting and any adjournments thereof.
Stockholders of A. Schulman, Inc. of record at the close of business on
October 17, 1997 are entitled to vote at the Annual Meeting and any adjournments
thereof.
By order of the Board of Directors
JAMES H. BERICK
Secretary
Akron, Ohio
November 10, 1997
YOUR VOTE IS IMPORTANT. STOCKHOLDERS ARE REQUESTED TO COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES.
<PAGE> 2
[LOGO] A. SCHULMAN INC.
3550 West Market Street
Akron, Ohio 44333
PROXY STATEMENT
November 10, 1997
The accompanying proxy is solicited by the Board of Directors of the
Corporation for use at the Annual Meeting of Stockholders to be held on
December 4, 1997, and any adjournments thereof.
Stockholders of record at the close of business on October 17, 1997 (the
record date) will be entitled to vote at the Annual Meeting. At that date the
Corporation had issued and outstanding 36,135,193 shares of Common Stock, $1.00
par value. Each such share is entitled to one vote on all matters properly
coming before the Annual Meeting. At least 18,067,597 shares of Common Stock of
the Corporation must be represented at the meeting in person or by proxy in
order to constitute a quorum for the transaction of business.
This Proxy Statement and the accompanying form of proxy were first mailed
to stockholders on November 10, 1997.
ELECTION OF DIRECTORS
The Board of Directors of the Corporation presently is comprised of
fourteen Directors. The Directors of the Corporation are divided into three
classes; presently, Classes I and III each consist of five Directors and Class
II consists of four Directors. At the Annual Meeting, four Directors of Class II
are to be elected to serve for three-year terms expiring in 2000 and until their
respective successors are duly elected and qualified. Gordon E. Heffern,
currently a Class II Director, will retire at the Annual Meeting. Rene C.
Rombouts, currently a Class III Director, has been nominated to serve as a Class
II Director in Mr. Heffern's place. As a result, effective upon the election of
the Class II Directors at the Annual Meeting, the number of Directors of the
Corporation will be reduced to thirteen and the number of Class III Directors
will be reduced to four. The number of Class I and II Directors will remain
unchanged. In the event that Mr. Rombouts is not elected as a Class II Director,
he will continue to serve the remainder of his
<PAGE> 3
current term as a Class III Director, the number of Class III Directors will
remain fixed at five and the total number of Directors of the Corporation will
remain unchanged at fourteen.
Unless a stockholder requests that voting of the proxy be withheld for any
one or more of the nominees for Director in accordance with the instructions set
forth on the proxy, it presently is intended that shares represented by proxies
will be voted for the election as Directors of the four Class II nominees named
in the table below.
All nominees have consented to being named in this Proxy Statement and to
serve if elected. Should any nominee subsequently decline or be unable to accept
such nomination to serve as a Director, an event which the Board of Directors
does not now expect, the persons voting the shares represented by proxies
solicited hereby either may vote such shares for a slate of four persons which
includes a substitute nominee or for a reduced number of nominees, as they may
deem advisable. For election as a Director, a nominee must receive the
affirmative vote of the holders of a majority of shares of Common Stock
represented at the meeting in person or by proxy. Neither abstentions nor broker
non-votes will be counted as votes cast, although both will count toward the
determination of the presence of a quorum and both will have the same effect as
a vote cast against the nominee.
The following information concerning each nominee and each Director
continuing in office is based in part on information received from the
respective nominees and Directors and in part on the Corporation's records:
<TABLE>
<CAPTION>
PRINCIPAL
OCCUPATION DURING
PAST FIVE YEARS FIRST
NAME OF AND AGE AS OF BECAME
NOMINEE OR DIRECTOR OCTOBER 17, 1997 DIRECTOR
- ------------------------------- ------------------------------------------------- --------
<S> <C> <C>
NOMINEES TO SERVE UNTIL 2000 ANNUAL MEETING OF STOCKHOLDERS (CLASS II)
Robert A. Stefanko* Chairman of the Board of the Corporation since 1980
1991; Executive Vice President -- Finance and
Administration of the Corporation since 1989;
Age 54
Rene C. Rombouts General Manager of the Corporation's European 1992
subsidiaries since 1993 and Director of
European Marketing -- Manufactured Products of
the Corporation since 1983; Age 59
Dr. Peggy Gordon Elliott Senior Fellow, National Center for Higher 1994
(degree sign) Education since August 1996; formerly,
President, The University of Akron 1992-1996,
and Chancellor and Chief Executive Officer,
Indiana University Northwest, 1984-1992; Age 60
</TABLE>
2
<PAGE> 4
<TABLE>
<CAPTION>
PRINCIPAL
OCCUPATION DURING
PAST FIVE YEARS FIRST
NAME OF AND AGE AS OF BECAME
NOMINEE OR DIRECTOR OCTOBER 17, 1997 DIRECTOR
- ------------------------------- ------------------------------------------------- --------
<S> <C> <C>
James S. Marlen (degree sign) Chairman of the Board of Ameron International 1995
Corporation (construction and industrial
manufacturing) since January, 1995; President
and Chief Executive Officer of Ameron
International Corporation since June, 1993;
formerly, Vice President, GenCorp., Inc.
(aerospace, automotive, chemical and plastics)
and President, GenCorp. Polymer Products, a
subsidiary of GenCorp., Inc., 1988-1993; Age 56
CONTINUING DIRECTORS SERVING UNTIL 1998 ANNUAL MEETING OF STOCKHOLDERS (CLASS III)
James H. Berick (degree sign)+ ++ Chairman, Berick, Pearlman & Mills Co., L.P.A., 1973
Cleveland, Ohio (attorneys) and Secretary of
the Corporation; President and Treasurer,
Realty ReFund Trust since 1990; Age 64
Terry L. Haines* President and Chief Executive Officer of the 1990
Corporation since 1991; formerly, Chief
Operating Officer, 1990-1991; Age 51
Dr. Paul Craig Roberts Distinguished Fellow, Cato Institute since 1993; 1992
(degree sign) Chairman of Institute for Political Economy
since 1985; Columnist for Business Week since
1983 and The Washington Times since 1988;
nationally syndicated Columnist for Creators
Syndicate since March 1997; formerly, William
E. Simon Chair in Political Economy at Center
for Strategic and International Studies,
1982-1993; and Assistant Secretary of Treasury
for Economic Policy, 1981-1982; Age 58
James A. Karman (degree sign) President and Chief Operating Officer, RPM, Inc. 1995
(coatings, sealants and specialty chemicals)
since 1978; formerly, Chief Financial Officer,
RPM, Inc. 1982-1993; Age 60
CONTINUING DIRECTORS SERVING UNTIL 1999 ANNUAL MEETING OF STOCKHOLDERS (CLASS I)
Larry A. Kushkin* Executive Vice President -- International 1989
Automotive Operations of the Corporation since
1989; Age 57
Franz A. Loehr Retired; formerly Associate General Manager of 1984
the Corporation's European subsidiaries and
Managing Director, A. Schulman GmbH; Age 68
</TABLE>
3
<PAGE> 5
<TABLE>
<CAPTION>
PRINCIPAL
OCCUPATION DURING
PAST FIVE YEARS FIRST
NAME OF AND AGE AS OF BECAME
NOMINEE OR DIRECTOR OCTOBER 17, 1997 DIRECTOR
- ------------------------------- ------------------------------------------------- --------
<S> <C> <C>
Alan L. Ockene+ ++ Member, Executive Committee of Akron Regional 1992
Development Board; prior thereto, Chairman,
Akron Regional Development Board, 1995-1997;
formerly, President and Chief Executive Officer
of General Tire, Inc. 1991- 1994; and Vice
President of Goodyear Tire & Rubber
Company -- International, 1985-1991; Age 66
Robert G. Wallace+ ++ Retired; formerly Executive Vice President, 1988
Phillips Petroleum Company and
President of Phillips 66 Company; Age 71
Willard R. Holland+ ++ Chairman of the Board of Ohio Edison Company 1995
(electric utility) since November 1, 1996;
President and Chief Executive Officer, Ohio
Edison Company since 1993; Chairman of the
Board and Chief Executive Officer of Ohio
Edison Company's subsidiary, Pennsylvania Power
Company, since 1993; formerly, Chief Operating
Officer, Ohio Edison Company, 1991-1993; prior
thereto Senior Vice President, Detroit Edison
Company (electric utility), 1988-1991; Age 61
<FN>
- ---------------
* Member of Executive Committee
(degree sign) Member of Audit Committee
+ Member of Nominating Committee
++ Member of Compensation Committee
</TABLE>
Mr. Haines is a Director of FirstMerit Corporation and Ameron International
Corporation. Mr. Berick is a Director of MBNA Corporation and The Tranzonic
Companies and a Trustee of Realty ReFund Trust and The Town and Country Trust.
Dr. Roberts is a Director of 12 of the Value Line Mutual Funds. Mr. Wallace is a
Director of Valmont Industries, Inc. Dr. Elliott is a Director of The Lubrizol
Corporation. Mr. Marlen is a Director of Ameron International Corporation. Mr.
Karman is a Director of RPM, Inc., McDonald & Co. Investments, Inc., Shiloh
Industries, Inc. and Metropolitan Financial Corporation. Mr. Holland is a
Director of Ohio Edison Company. Mr. Ockene is a Director of Ameron
International Corporation.
The Board of Directors has established the following committees: Executive
Committee, Audit Committee, Compensation Committee and Nominating Committee.
The functions performed by the Audit Committee of the Board of Directors
include: (i) recommending to the Board of Directors the appointment of a firm of
independent accountants to examine the books and accounts of the Corporation and
its subsidiaries; (ii) reviewing with the independent accountants the scope of
their work, prior to their examination; (iii) reviewing with the independent
accountants the scope of their examination after it has been completed, as
4
<PAGE> 6
well as any recommendations made by the independent accountants; (iv) reviewing
with the independent accountants and approving each non-audit service performed
or proposed to be performed by the independent accountants, as well as the
relationship of audit to non-audit fees; and (v) considering the possible effect
of the non-audit services upon the independence of the accountants. The Audit
Committee held two meetings during the year ended August 31, 1997.
The functions performed by the Compensation Committee of the Board of
Directors include making recommendations to the Board of Directors concerning
compensation policies, salaries, grants of stock options and other forms of
compensation for management and certain other employees of the Corporation. The
Compensation Committee held three meetings during the year ended August 31,
1997.
The functions performed by the Nominating Committee include identifying
potential directors and making recommendations as to the size, functions and
composition of the Board and its committees. The Nominating Committee has no
formal procedures for consideration of nominees recommended by stockholders. The
Nominating Committee did not meet during the year ended August 31, 1997.
The Board of Directors held six meetings during the year ended August 31,
1997. All incumbent Directors attended at least 75% of the meetings of the Board
of Directors and any committees thereof on which they served during the year,
except Franz A. Loehr, who did not attend two Board meetings.
COMPENSATION OF DIRECTORS
Each Director of the Corporation who is not an employee of the Corporation
receives an annual Director's fee of $23,000 plus $1,000 for each Board or
committee meeting attended. In addition, on the first business day of February
of each year, each non-employee Director of the Corporation receives a grant of
an option to purchase 875 shares of the Common Stock of the Corporation, at an
option price equal to the fair market value of such shares on the first business
day immediately preceding the date of grant. Mr. Loehr had a Consulting
Agreement with the Corporation which provided for compensation of $50,000 for
the year ended August 31, 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
James H. Berick, Secretary, Director, and a member of the Corporation's
Compensation Committee is the Chairman of Berick, Pearlman & Mills Co., L.P.A.,
which is retained by the Corporation as legal counsel and which received legal
fees from the Corporation during the year ended August 31, 1997 in the amount of
$68,954.
5
<PAGE> 7
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This report describes the Corporation's executive compensation programs and
the basis on which fiscal year 1997 compensation determinations were made by the
Corporation's Compensation Committee in respect of the executive officers of the
Corporation, including the Chief Executive Officer and the other executive
officers named in the compensation tables in this proxy statement.
To ensure that the compensation program is administered in an objective
manner, the Compensation Committee is comprised entirely of independent
Directors. The duties of the Compensation Committee include determining the base
salary level and bonus for the Chief Executive Officer and for all other
executive officers, and approving the design and awards of all other elements of
the executive pay program. The Compensation Committee further evaluates
executive performance and addresses other matters related to executive
compensation.
COMPENSATION POLICY AND OVERALL OBJECTIVES
In determining the amount and composition of executive compensation, the
Compensation Committee's goal is to provide a compensation package that will
enable the Corporation to attract and retain talented executives, reward
outstanding performance and link the interests of the Corporation's executives
to the interests of the Corporation's shareholders. In determining actual
compensation levels, the Compensation Committee considers all elements of the
program in total, rather than any one element in isolation.
The Compensation Committee members believe that each element of the
compensation program should target compensation levels at rates that are
reflective of current market practices. Offering market-comparable pay
opportunities allows the Corporation to maintain a stable, successful management
team.
Competitive market data is provided periodically by an independent
compensation consultant. The data provided compares the Corporation's
compensation practices to those of a group of comparison companies. The
Corporation's market data for compensation comparison purposes is comprised of a
group of diversified manufacturing companies that have national and
international business operations. The Compensation Committee reviews and
approves the selection of companies used for compensation comparison purposes.
In establishing a comparison group for compensation purposes, the
Compensation Committee neither bases its decisions on quantitative relative
weights of various factors, nor follows mathematical formulae. Rather, the
Compensation Committee exercises its discretion and makes its judgment after
considering the factors it deems relevant.
The key elements of the Corporation's executive compensation are base
salary, annual bonuses and long-term incentives. These key elements are
addressed separately below. In determining compensation, the Compensation
Committee considers all elements of an executive's total compensation package.
BASE SALARIES
The Compensation Committee regularly reviews each executive's base salary.
Base salaries for executives initially are determined by evaluating executives'
levels of responsibility, prior
6
<PAGE> 8
experience, breadth of knowledge, internal equity issues and external pay
practices. Increases to base salaries are driven by individual performance and
Corporation profitability. Individual performance is evaluated based on
sustained levels of individual contribution to the Corporation.
In determining Mr. Haines' base salary in 1997, the Compensation Committee
considered the Corporation's financial performance for the prior year, Mr.
Haines' individual performance and his long-term contributions to the success of
the Corporation. The Compensation Committee also compares Mr. Haines' base
salary to the base salaries of other chief executive officers.
ANNUAL BONUSES
The Corporation's bonus program promotes the Corporation's
pay-for-performance philosophy by providing executives with direct financial
incentives in the form of annual cash bonuses based on individual performance.
Annual bonus opportunities allow the Corporation to communicate specific goals
that are of primary importance during the coming year and motivate executives to
achieve these goals.
Although target bonus opportunities were not established at the beginning
of the fiscal year, the payouts were intended to represent a significant portion
of each executive's total compensation. This practice reinforces the
Corporation's pay-for-performance philosophy. The sizes of the payouts for
fiscal 1997 were determined at the discretion of the Compensation Committee,
based upon each executive's performance during such fiscal year and on
Corporation performance. Mr. Haines' 1997 bonus award was determined using the
same criteria as the other executive officers and is reported in the Summary
Compensation Table, below.
Effective September 1, 1997, the Corporation instituted a new bonus program
for the determination of executive officer bonus payouts. Under the new program,
the Corporation will establish a total target award for each officer
approximately equal to the average award provided to persons holding similar
positions at comparable companies. The award will be measured by stated
threshold, target, and maximum percentages of salary. The officer's actual award
will be increased or decreased from the total target award based upon both
Corporation and individual performance. Approximately one-half of the total
target award potential will be determined by the financial performance of the
Corporation. This financial performance portion of the bonus will be based upon
(i) the world-wide performance of the Corporation for the President and Chief
Executive Officer and for the Chairman and Chief Financial Officer and (ii) the
Corporation's performance in North America for all other officers. The remaining
one-half of the total target award level will be based upon each officer's
individual performance.
LONG-TERM INCENTIVES
Long-term incentives are provided pursuant to the Corporation's 1991 Stock
Incentive Plan (the "1991 Plan").
In keeping with the Corporation's commitment to provide a total
compensation package which includes at-risk components of pay, the Compensation
Committee makes annual decisions regarding appropriate stock-based grants for
each executive. When determining these awards, the Compensation Committee
considers the Corporation's financial performance in the prior
7
<PAGE> 9
year, executives' levels of responsibility, prior experience, historical award
data, and compensation practices at the comparison companies.
Stock options were granted in 1997 at an option price equal to the fair
market value of the Corporation's common stock on the date of grant.
Accordingly, stock options granted in 1997 have value only if the stock price
appreciates following the date the options are granted. This design focuses
executives on the creation of shareholder value over the long term and
encourages equity ownership of the Corporation. These stock options become
exercisable at the rate of 25% per year commencing on the first anniversary of
the date of grant of the option, so long as the holder remains employed by the
Corporation or a subsidiary.
In 1997, Mr. Haines received options to purchase 37,000 shares at the fair
market value ($18.50) of such shares on the date of grant. These grants were
established after comparison to the averages of long-term incentive grants at
the comparison companies. The Compensation Committee believes that this equity
interest provides a strong link to the interests of shareholders.
RESTRICTED STOCK
Shares of restricted stock are awarded to certain executives bi-annually.
Restricted stock awarded to executives vests five years after the date awarded.
Because of its vesting requirements, restricted stock enhances the Corporation's
ability to maintain a stable executive team, focused on the Corporation's
long-term success. Restricted stock provides executives with an immediate link
to shareholder interests. Dividends are accrued until the lapse of restrictions
on the restricted stock and are paid out thereafter. In 1997, no executives
received awards of shares of restricted stock.
The Compensation Committee:
Gordon E. Heffern, Chairman
James H. Berick
Robert G. Wallace
Alan L. Ockene
Willard R. Holland
8
<PAGE> 10
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation paid or to be paid by the
Corporation and its subsidiaries in respect of services rendered during the
Corporation's last three fiscal years to the Corporation's Chief Executive
Officer and each of the four most highly compensated executive officers (as
measured by salary and bonus) whose aggregate salary and bonus during the fiscal
year ended August 31, 1997, exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------------
ANNUAL COMPENSATION (1) AWARDS
---------------------------------- ---------------------
OTHER RESTRICTED
ANNUAL STOCK ALL OTHER
FISCAL COMPENSA- AWARD(S) OPTIONS COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS TION(2) (3) (#) SATION(4)
- --------------------------------- ------ -------- -------- ---------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Terry L. Haines 1997 $360,000 $165,000 $0 $0 37,000 $ 139,328(5)
President & Chief 1996 $360,000 $145,000 $ 29,491 $184,000 30,000 $ 137,049
Executive Officer 1995 $325,000 $180,000 $ 21,910 $0 27,500 $ 130,819
Robert A. Stefanko 1997 $300,000 $165,000 $0 $0 31,000 $ 93,950(5)
Chairman of the Board 1996 $300,000 $145,000 $ 7,976 $149,500 25,000 $ 92,904
of Directors, Chief 1995 $270,833 $180,000 $118,335 $0 23,000 $ 122,274
Financial Officer and Executive
Vice President-- Finance and
Administration
Larry A. Kushkin 1997 $215,000 $145,000 $0 $0 22,000 $ 43,215(5)
Executive Vice President-- 1996 $215,000 $130,000 $ 29,206 $ 75,900 18,000 $ 41,942
International Automotive 1995 $200,000 $160,000 $139,899 $0 14,000 $ 69,278
Operations
Leonard E. Emge 1997 $150,000 $ 55,000 $0 $0 9,000 $ 16,110(5)
Vice President-- 1996 $150,000 $ 50,000 $ 3,399 $ 41,400 7,000 $ 16,110
Manufacturing 1995 $135,000 $ 60,000 $ 11,646 $0 7,000 $ 14,610
Alain C. Adam 1997 $122,000 $ 50,000 $0 $0 3,500 $ 13,310(5)
Vice President-- 1996 $122,000 $ 45,000 $ 45,052 $ 27,600 3,500 $ 13,310
Automotive Marketing 1995 $116,000 $ 55,000 $0 $0 3,500 $ 12,710
<FN>
- ---------------
(1) Includes amounts earned in fiscal year, whether or not deferred.
(2) Represents the net value (market value less exercise price) realized in
respect of Common Shares purchased from the Corporation pursuant to exercise
of stock options.
(3) The total number of restricted shares and the aggregate market value at
August 31, 1997: Mr. Haines held 14,000 shares valued at $306,250; Mr.
Stefanko held 11,500 shares valued at $251,563; Mr. Kushkin held 6,300
shares valued at $137,813; Mr. Adam held 2,400 shares valued at $52,500; and
Mr. Emge held 3,300 shares valued at $72,188. Dividends accrue but are not
paid on the restricted shares until the restrictions thereon lapse. The
aggregate market value is based on the fair market value at August 31, 1997
of $21.875.
(4) Represents the following compensation: Corporation contributions to Profit
Sharing Plan; amounts accrued by the Corporation for the fiscal year under
non-qualified profit sharing plan; Corporation payments of term life
insurance premiums; amounts accrued by the Corporation for the fiscal year
under deferred compensation agreements; and Director's fees received from
the Corporation's Belgian subsidiary.
9
<PAGE> 11
(5) Amounts shown include the following: Corporation contributions to Profit
Sharing Plan -- $15,000 for each of Messrs. Haines, Stefanko, Kushkin, and
Emge, and $12,200 for Mr. Adam; amounts accrued by the Corporation for the
fiscal year ended August 31, 1997 under non-qualified profit sharing plan --
$27,193 for Mr. Haines, $19,345 for Mr. Stefanko, and $8,340 for Mr.
Kushkin; Corporation payments of term life insurance premiums -- $1,110 for
each named executive officer; amounts accrued by the Corporation under
deferred compensation agreements for the fiscal year ended August 31, 1997
-- $75,061 for Mr. Haines ($30,024 of which was not vested), $37,531 for Mr.
Stefanko ($15,012 of which was not vested), and $18,765 for Mr. Kushkin
($11,259 of which was not vested); and Director's fees received from the
Corporation's Belgian subsidiary -- $20,964 for each of Messrs. Haines and
Stefanko.
</TABLE>
STOCK OPTIONS
The following table contains information concerning the grant of stock
options during fiscal year 1997 to the named executive officers. The amounts
shown for each of the named executive officers as potential realizable values
are based on arbitrarily assumed annualized rates of stock appreciation of five
percent and ten percent over the full five-year term of the options, which would
result in stock prices of approximately $23.61 and $29.79, respectively. No gain
to the optionees is possible without an increase in stock price which will
benefit all stockholders proportionately. Actual gains, if any, on an option
exercise are dependent upon future performance of the Corporation's Common Stock
and overall market conditions. There can be no assurance that the potential
realizable values shown in this table will be achieved.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS IN 1997 POTENTIAL REALIZABLE
------------------------------------------------------------ VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF STOCK
OPTIONS PRICE APPRECIATION FOR
GRANTED TO EXERCISE 5-YEAR OPTION TERM
EMPLOYEES IN OR BASE ----------------------
OPTIONS FISCAL PRICE(3) EXPIRATION 5% ($) 10% ($)
NAME (#)GRANTED(1) YEAR(2) ($/Sh) DATE (4) (4)
- ---------------------- ------------- ------------ -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Terry L. Haines 37,000 14.64% $18.50 4/28/02 $189,070 $417,730
Robert A. Stefanko 31,000 12.27% $18.50 4/28/02 $158,410 $349,990
Larry A. Kushkin 22,000 8.71% $18.50 4/28/02 $112,420 $248,380
Leonard E. Emge 9,000 3.56% $18.50 4/28/02 $ 45,990 $101,610
Alain C. Adam 3,500 1.39% $18.50 4/28/02 $ 17,885 $ 39,515
- ---------------
<FN>
(1) All options for common shares were granted pursuant to the 1991 Plan. Such
options become exercisable at the rate of 25% per year commencing on the
first anniversary of the date of grant of the option, so long as the
optionee remains employed by the Corporation.
(2) Based on 252,700 options granted to all employees.
(3) Fair market value on the date of grant.
(4) The share price represents the price of the Common Stock if the assumed
annual rates of stock price appreciation are achieved. If the named
executive officers realize these values, the Corporation's shareholders will
realize aggregate appreciation in the price of the 36,135,193 shares of
Common Stock outstanding of $184.7 million or $408.0 million, respectively,
over the five-year term of the options.
</TABLE>
10
<PAGE> 12
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS
The following table sets forth information as of October 17, 1997 in
respect of beneficial ownership of shares of the Corporation's Common Stock by
each person known to the Corporation to own five percent or more of its Common
Stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
NAME OWNERSHIP OUTSTANDING
- ------------------------------------------ ----------------- -----------
<S> <C> <C>
Dietche & Field Advisers, Inc.(1) 1,848,000 5.1%
437 Madison Avenue
New York, New York 10022
- ---------------
<FN>
(1) Information according to Dietche & Field Advisers, Inc.'s report on Schedule
13G dated January 7, 1997.
</TABLE>
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<PAGE> 13
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information as of October 17, 1997 in
respect of beneficial ownership of shares of the Corporation's Common Stock by
each Director, by each named executive officer, and by all Directors and
executive officers as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
NAME OWNERSHIP(1)(2)(3) OUTSTANDING
- ------------------------------------------ ----------------- -----------
<S> <C> <C>
Gordon E. Heffern 4,577 *
Robert A. Stefanko 163,962 *
Dr. Peggy Gordon Elliott 1,655 *
James H. Berick 17,186 *
Terry L. Haines 127,200 *
Dr. Paul Craig Roberts 4,591(4) *
Rene C. Rombouts 92,236 *
Larry A. Kushkin 297,346(5) *
Franz A. Loehr 142,474 *
Alan L. Ockene 5,886 *
Robert G. Wallace 9,811 *
James S. Marlen 6,218(6) *
Willard R. Holland 2,218 *
James A. Karman 1,218 *
Alain C. Adam 20,648 *
Leonard E. Emge 36,469 *
All Directors and
Executive Officers as a
group (18 persons) 987,536 2.7%
- ---------------
<FN>
* Less than 1% of the shares outstanding
(1) Includes the following number of shares which are not owned, but can be
purchased within 60 days upon the exercise of options granted under the
Corporation's 1991 Stock Incentive Plan: 77,500 by Terry L. Haines; 33,000
by Larry A. Kushkin; 64,000 by Robert A. Stefanko; 9,000 by Alain C. Adam;
12,750 by Leonard E. Emge; 41,375 by Rene C. Rombouts; and 253,450 by all
Directors and executive officers as a group.
(2) Includes the following number of shares which are not owned but can be
purchased within 60 days upon the exercise of options granted under the
Corporation's 1992 Non-Employee Directors' Stock Option Plan: 2,186 by each
of Alan L. Ockene, Robert G. Wallace, Gordon E. Heffern, James H. Berick,
and Dr. Paul Craig Roberts; 655 by Dr. Peggy Gordon Elliott; 218 by each of
Willard R. Holland, James A. Karman, and James S. Marlen; and 12,239 shares
by all Directors and executive officers as a group.
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<PAGE> 14
(3) Includes the following number of restricted shares of Common Stock awarded
under the Corporation's 1991 Stock Incentive Plan: 14,000 for Terry L.
Haines, 11,500 for Robert A. Stefanko, 6,300 for Larry A. Kushkin, 7,000 for
Rene C. Rombouts, 2,400 for Alain C. Adam, 3,300 for Leonard E. Emge, and
47,700 for all Directors and executive officers as a group.
(4) Includes 100 shares held by Dr. Roberts as trustee for his son, the
beneficial ownership of which Dr. Roberts disclaims.
(5) Includes 5,815 shares held solely by Mr. Kushkin's wife and 55,820 shares
held in trust for Mr. Kushkin's children, the beneficial ownership of all of
which Mr. Kushkin disclaims.
(6) Includes 2,000 shares held solely by Mr. Marlen's wife, the beneficial
ownership of which Mr. Marlen disclaims.
</TABLE>
13
<PAGE> 15
PERFORMANCE GRAPH
The following graph compares total stockholder returns in respect of the
Corporation's Common Shares over the last five fiscal years (i.e. the cumulative
changes over the past five-year period of $100 invested) to the Standard &
Poor's 500 Stock Index ("S&P 500") and the Standard and Poor's Specialty
Chemical Group ("S&P Specialty Chemicals"). Total return values for the
Corporation's Common Shares, S&P 500 and S&P Specialty Chemicals were calculated
based upon market weighting at the beginning of the period and include
reinvestment of dividends on a quarterly basis. The stockholder returns shown on
the graph below are not necessarily indicative of future performance.
The following graph shall not be deemed incorporated by reference by any
general statement incorporating by reference this proxy statement into any
filing under the Securities Act of 1933 or under the Securities Exchange Act of
1934, except to the extent the Corporation specifically incorporates this
information by reference and otherwise shall not be deemed filed under such
Acts.
<TABLE>
<CAPTION>
Measurement Period S&P Specialty
(Fiscal Year Covered) A. Schulman, Inc. S&P 500 Chemicals
<S> <C> <C> <C>
8/92 $100.00 $100.00 $100.00
8/93 88.22 115.13 117.64
8/94 101.04 121.39 113.76
8/95 102.24 147.27 143.13
8/96 85.33 174.72 142.49
8/97 87.45 245.53 169.27
</TABLE>
14
<PAGE> 16
EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS
The Corporation has employment agreements with Messrs. Haines, Stefanko,
Kushkin, Emge, Adam, and certain other senior personnel. The employment
agreements of Messrs. Haines, Stefanko and Kushkin have an initial three-year
term. Such agreements automatically will be extended at the end of each month
for an additional month unless prior notice of termination is given, to
constitute at all times a three-year agreement; provided, however, that no such
monthly extension shall occur after August 31, 2008, January 31, 2005, or July
31, 2002, respectively. The employment agreement of Mr. Emge provides for a
two-year term expiring in December 1997 and the employment agreement of Mr. Adam
had an initial one-year term. Mr. Adam's agreement automatically will be
extended at the end of each month for an additional month unless prior notice of
termination is given, to constitute at all times a one-year agreement; provided,
however, that no such monthly extension shall occur after November 30, 2012. The
employment agreements provide that in the event employment is terminated as a
result of a merger, consolidation, liquidation, or change in control
(collectively, "Change in Control") of the Corporation, or for any other reason
except for death, disability or for cause, the employee shall be paid a lump sum
amount equal to a multiple (equal to the initial term of such agreement) of the
sum of (i) the higher of his annual salary payable prior to the event causing
the termination or salary payable prior to the Change in Control, plus (ii) an
amount equal to the higher of his bonus earned in the preceding fiscal year or
the average bonus earned in the most recent three fiscal years. In addition,
upon a Change in Control, each of the employment agreements provides that the
employee also will continue to receive certain insurance benefits not provided
to the employee by another source after termination, for a period of time equal
to the original term of such employee's employment agreement, and the employee
will be paid a lump sum amount equal to the sum of (i) any unpaid annual
incentive compensation previously awarded to the employee, the payment of which
was contingent only upon continued employment, and (ii) a pro rata portion of
his bonus for the fiscal year in which the termination occurred. If the
Corporation terminates an employee's employment without cause prior to the
expiration of the term of the employment agreement or prior to a Change in
Control, the employee shall receive his salary for the remaining term of his
employment agreement, plus a bonus each year for the remaining term of his
agreement in an amount equal to fifty percent of his average annual bonus during
the most recent five calendar years of employment. If the employee's employment
is terminated by reason of death, the Corporation shall pay a lump sum amount
equal to sixty percent of the employee's salary for twenty-four months. In
addition, the amounts described above payable under the employment agreements
for Messrs. Haines, Stefanko and Kushkin shall be "grossed up" to cover certain
taxes payable by the employee on certain of the amounts paid to such employee in
respect of a Change in Control of the Corporation. Notwithstanding the
foregoing, in respect of the employment agreements of Messrs. Emge and Adam, the
Corporation is not obligated to pay any amount which is in excess of the maximum
amount which it can deduct for federal income tax purposes. These employment
agreements may tend to discourage a takeover attempt of the Corporation inasmuch
as a Change in Control of the Corporation could result in increased compensation
expense.
The Corporation has a qualified Profit Sharing Plan (the "Profit Sharing
Plan") which provides that in any year the Corporation's Board of Directors, in
its discretion, may authorize the payment of contributions to the Corporation's
Profit-Sharing Trust, which contributions are allocated among participants. The
maximum amount which may be allocated to a participant
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<PAGE> 17
generally is limited to the lesser of (i) $30,000 or (ii) 25% of the
participant's compensation. Participation in the Profit Sharing Plan is
available to all salaried employees of the Corporation (and participating
subsidiaries) who are employed on the last day of the Profit Sharing Plan Year.
Benefits under the Profit Sharing Plan vest in accordance with a specified
formula which provides for partial vesting starting after three years of
employment with the Corporation and full vesting after seven years of employment
with the Corporation. The assets of the Profit-Sharing Trust are invested, and
each participant's account reflects the aggregate investment performance of the
Trust assets. For the fiscal year ended August 31, 1997, the amounts contributed
to the Profit Sharing Plan accounts of the persons listed in the Summary
Compensation Table were: $15,000 for each of Messrs. Haines, Stefanko, Kushkin
and Emge and $12,200 for Mr. Adam.
The Corporation also has a non-qualified Profit Sharing Plan (the
"Non-Qualified Plan") which provides that in any year the Corporation's Board of
Directors, in its discretion, may authorize the accrual by the Corporation of
certain amounts for the benefit of the Non-Qualified Plan's participants, in
order to restore to such participants amounts not available to them under the
Profit Sharing Plan due to certain limitations thereunder. Benefits under the
Non-Qualified Plan vest in accordance with a specified formula which provides
for partial vesting starting after three years of employment with the
Corporation and full vesting after seven years of employment with the
Corporation. In addition, upon a Change in Control of the Corporation, benefits
become fully vested. Amounts accrued by the Corporation under the Non-Qualified
Plan for the benefit of each participant reflect the investment performance
which would have been realized had a corresponding amount been invested for the
benefit of such participant during such year in the Profit Sharing Trust
pursuant to the Profit Sharing Plan. For the fiscal year ended August 31, 1997,
the amounts accrued by the Corporation pursuant to the Non-Qualified Plan for
the benefit of the persons listed in the Summary Compensation Table were: Mr.
Haines, $27,193; Mr. Stefanko, $19,345; and Mr. Kushkin $8,340.
The Corporation also has deferred compensation agreements with Messrs.
Haines, Stefanko and Kushkin, providing for the payment of benefits for ten
years following retirement, disability or death in the annual amount of $100,000
for Mr. Haines, $100,000 (under two agreements for $50,000 each) for Mr.
Stefanko and $75,000 (under two agreements for $50,000 and $25,000,
respectively) for Mr. Kushkin, except that any amounts payable at retirement
will be reduced proportionately to the extent that Messrs. Haines, Stefanko and
Kushkin are employed by the Corporation for less than ten years from the date of
their agreements. The effective dates of Mr. Haines' Agreement is 1991, of Mr.
Stefanko's two agreements are 1985 and 1991, and of Mr. Kushkin's two agreements
are 1985 and 1992. No additional benefits are payable under the agreements upon
a Change in Control of the Corporation; however, payment of all of the benefits
of Messrs. Haines, Stefanko and Kushkin will be accelerated in the event of a
termination of employment following certain Changes in Control. The Corporation
owns and is the beneficiary of life insurance policies upon the lives of Messrs.
Haines, Stefanko and Kushkin, in the amount of $1,000,000, $1,000,000 and
$500,000, respectively.
SELECTION OF ACCOUNTANTS
Upon the recommendation of its Audit Committee, the Board of Directors of
the Corporation has selected Price Waterhouse LLP as independent accountants to
examine the books, records
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<PAGE> 18
and accounts of the Corporation and its subsidiaries for the fiscal year ending
August 31, 1998. In accordance with past practice, this selection is being
presented to stockholders for ratification or rejection at this Annual Meeting.
The Board of Directors recommends that such selection be ratified. Price
Waterhouse LLP was the independent accountant of the Corporation for the fiscal
year ended August 31, 1997, and is considered by the Board of Directors to be
well qualified. Representatives of Price Waterhouse LLP will be present at the
Annual Meeting to make a statement if they desire to do so and will be available
to respond to appropriate questions.
For ratification, this proposal will require the affirmative vote of the
holders of a majority of the shares of Common Stock represented at the meeting
in person or by proxy. If the resolution is rejected, or if Price Waterhouse LLP
declines to act or becomes incapable of action, or if its employment is
discontinued, the Board will appoint other public accountants whose continued
employment after the following Annual Meeting of Stockholders will be subject to
ratification by stockholders.
COMPLIANCE WITH SECTION 16(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's officers and Directors, and persons who own more than 10% of the
Corporation's Common Stock, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Gordon L. Trimmer, an
officer of the Corporation, filed his initial statement of beneficial ownership
on Form 3 subsequent to the due date for such filing.
OTHER MATTERS
The Board of Directors knows of no matters to be presented for action at
the Annual Meeting other than those described in this Proxy Statement. Should
other matters come before the meeting, the shares represented by proxies
solicited hereby will be voted in respect thereof in accordance with the best
judgment of the proxy holders.
GENERAL INFORMATION
VOTING OF PROXIES
Shares represented by properly executed proxies will be voted at the
meeting, and if a stockholder has specified how the shares represented thereby
are to be voted, they will be voted in accordance with such specification. It is
intended that shares represented by proxies on which no specification has been
made will be voted (i) for the election of Directors and (ii) for ratification
of the selection of the independent accountants.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the next Annual
Meeting of Stockholders, presently scheduled for December 1998, must be received
by the Corporation no later than July 10, 1998 for consideration for inclusion
in the proxy statement and form of proxy for that meeting.
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<PAGE> 19
REVOCATION OF PROXIES
A proxy may be revoked at any time before a vote is taken or the authority
granted is otherwise exercised. Revocation may be accomplished by the execution
of a later proxy with regard to the same shares or by giving notice in writing
or in open meeting.
SOLICITATION OF PROXIES
The cost of soliciting the accompanying proxies will be borne by the
Corporation. The Corporation does not expect to pay any compensation for the
solicitation of proxies but may pay brokers, nominees, fiduciaries and
custodians their reasonable expenses for sending proxy material to principals
and obtaining their instructions. In addition to solicitation by mail, proxies
may be solicited in person, by telephone or telegraph or by officers, Directors
and regular employees of the Corporation.
By order of the Board of Directors
JAMES H. BERICK
Secretary
November 10, 1997
18
