<PAGE>
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, 1999 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 .
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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
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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 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for 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. [X]
Aggregate market value of voting stock held by non-affiliates of the Registrant
on October 18, 1999: $555,475,932.
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practical date:
31,077,155 Shares of Common Stock, $1.00 Par Value, at October 18, 1999.
<TABLE>
<CAPTION>
DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K
Document in Which Incorporated
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<S> <C>
Portions of the Registrant's Notice
of Annual Meeting and Proxy Statement
Dated November 10, 1999 III and IV
Portions of the Registrant's 1999
Annual Report to Stockholders I and II
</TABLE>
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, 1999 shall be deemed incorporated by
reference herein.
<PAGE>
PART I
ITEM 1. BUSINESS
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 is engaged in the sale of plastic resins and compounds,
which are used as raw materials by its customers. To identify reportable
segments, the Company considered its operating structure and the types of
information subject to regular review by executive management. On this basis,
the Company operates in two geographic business segments, North America and
Europe.
BUSINESS ACTIVITIES
The Company combines basic resins purchased from plastic resin
producers and, through mixing and extrusion processes, introduces additives
that provide color, stabilizers, flame retardants or other enhancements that
may be required by a customer. These compounds are formulated in the
Company's laboratories and are manufactured in the Company's thirteen
plastics compounding plants in North America, Europe and Asia. Customers for
the Company's plastic compounds include manufacturers, custom molders and
extruders of a wide variety of plastic products and parts. The Company
generally produces compounds on the basis of customer commitments. When
necessary, compounds are produced for future delivery and are stored in
Company or public warehouses.
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The Company's plastic compounds are sold to manufacturers and suppliers
in various markets such as packaging, automotive, consumer products,
electrical/electronics, office equipment, and agriculture. These compounds are
used in the packaging industry for such products as plastic bags and labels and
packaging materials for food, soap, fragrances, flowers, gardening supplies and
various household necessities; in the automotive industry for such products as
grilles, body side moldings, bumper protective strips, window seals, valance
panels, bumper guards, air ducts, steering wheels, fan shrouds and other
interior and exterior components; 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
office equipment industry for such products as cases and housings for computers,
folders and binders, stack trays and panels and drawers for copying machines;
and in the agriculture industry for such products as greenhouse coverings and
protective film for plants and agricultural mulch.
The Company's manufacturing can be classified into four product
families: color and additive concentrates; engineered compounds; polyolefins;
and polyvinyl chloride (PVC).
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COLOR AND ADDITIVE CONCENTRATES
The Company's concentrate business consists of the compounding of
resins that provide plastic with specific color and/or physical properties, such
as conductivity, flexibility, viscosity and textures. 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 concentrates using
its formulae and purchased prime natural resins. These concentrates are sold to
manufacturers of plastic products, such as film for packaging, household goods,
toys, automotive parts, mechanical goods and other plastic items.
The Company's concentrates are sold under various trade names,
including the following:
Polybatch-Registered Trademark-, which is an additive or color
concentrate used for modifying various plastic resins and which
provides various physical properties required by customers;
Polyblak-Registered Trademark-, which is a line of black concentrates
that are resistant to weather and sunlight and that are used by wire
and cable manufactures for insulation coating and in the production of
plastic pipe, black film and other black plastic items; and
Papermatch-Registered Trademark-, one of the Company's newer product
lines, which is a plastic alternative to paper used for packaging,
menus, maps and other products. Papermatch-Registered Trademark- is
printable and resistant to tearing, moisture and chemicals.
ENGINEERED COMPOUNDS
The Company's engineered compounds are products designed to have and
maintain characteristics such as chemical resistance, electrical conductivity,
heat resistance and/or high strength-to-
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weight ratios. The engineered compounds manufactured by the Company include
the following:
Polyman-Registered Trademark- and Polyflam-Registered Trademark- are
flame retardant compounds used in applications such as telephone
systems, terminal blocks, parts for color televisions, electrical
components and housings for household appliances and outdoor products.
Schulamid-Registered Trademark- is a nylon compound which can be
unfilled, reinforced or impact-modified. Schulamid-Registered
Trademark- 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.
Formion-Registered Trademark-, a specialized compound which has good
impact strength, is resistant to abrasion and has performance
characteristics which do not decrease in low temperatures.
Formion-Registered Trademark- is sold principally to the transportation
industry for use in bumper blocks and protective rub strips.
Polypur-Registered Trademark- is a re-enforced and alloyed
thermoplastic polyurethane that has impact resistance and molding
properties for automotive applications such as exterior side moldings,
grilles, body side moldings and other painted parts.
POLYOLEFINS
The Company's polyolefin business consists of numerous polypropylene
and polyethylene resins and compounds. Polyolefins are used for interior
trim, fascias and bumper covers in automotive applications; for toys, small
appliances, sporting goods, and agricultural and watercraft products in
roto-molding applications; and for office supplies in industrial/commercial
applications. The polyolefin products manufactured by the Company include
the following:
Polytrope-Registered Trademark-, which is a thermoplastic elastomer
which has high resiliency and good impact resistance. Presently, the
principal market for this product is the domestic automotive industry
and typical applications include valance panels, body side moldings,
grilles and bumper rub strips. Parts
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molded from Polytrope-Registered Trademark- weigh less than equivalent
metal parts, are impact-resistant and may be painted to match
adjoining exterior body parts.
Polyfort-Registered Trademark-, which is a reinforced polypropylene
compound for applications which require stiffness and resistance to
heat distortion, such as coffee makers, binders for computer printouts,
setbacks and under-the-hood products for automobiles.
Schulink-Registered Trademark-, which is a crosslink polyethylene-based
compound, is used in rotational molding applications requiring high
strength and chemical resistance, such as industrial doors and
commercial waste containers.
POLYVINYL CHLORIDE
The Company's PVC business is transacted under the name
Polyvin-Registered Trademark- and involves the formulation of compounds and
elastomers to introduce a variety of product attributes, including
weatherability, consistency, ease of processing, material flexibility, and
high-gloss or low-gloss finish. The Company's thermoplastic PVC compounds are
available in blow molding, injection molding and extrusion grades for
application in the manufacture of automotive, furniture, architectural and
consumer products. The Company's Sunprene-Registered Trademark-compound
serves as a replacement for rubber and other thermoplastic elastomers in
automotive applications.
The Company also performs tolling services, which involve the
compounding of resins and other materials provided by customers based upon
formulae provided by such customers. Tolling is done principally for major
plastic resin producers. The Company is compensated on the basis of an agreed
price per
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pound plus an additional charge for any additives and packing supplied by the
Company.
The Company also acts as a merchant, buying prime and off-grade plastic
resins and reselling these commodities, without further processing, to a variety
of users. The plastic resins generally are purchased from major producers. Prime
resins purchased from these producers are usually 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.
The Company, through its European operations, acts as a distributor for
several major resin producers which include BASF, Exxon Chemical, Elf ATOCHEM,
Solvay, BP Amoco and Vestolit GmbH. The Company also acts as United States and
Canadian distributor of Escorene-Registered Trademark- polypropylene resins and,
in the United States, Escorene-Registered Trademark- roto-molding resins, both
manufactured by Exxon Chemical. The Company also is a distributor in the United
States and Canada for Exxon Chemical of polyethylene used in injection molding.
Information regarding the amount of sales, operating income and
identifiable assets attributable to each of the Company's geographic areas for
the last three years is set forth in Note 12 of the Notes to Consolidated
Financial Statements in the
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Company's 1999 Annual Report to Stockholders, which information is
incorporated herein by reference.
The Company's principal foreign subsidiaries are as follows:
N.V. A. Schulman Plastics, S.A., a Belgian subsidiary located in
Bornem, Belgium, manufactures color and additive concentrates and compounds.
These products principally are sold in Germany, France, the Benelux countries,
Italy and the Far East.
A. Schulman International Services N.V., a Belgian subsidiary located
in Bornem, Belgium, is a subsidiary of N.V. A. Schulman Plastics, S.A. and N.V.
A. Schulman, S.A. This company provides financing and administrative services to
the Company's subsidiaries.
A. Schulman, Inc., Limited, a United Kingdom subsidiary located in
South Wales, United Kingdom, manufactures color and additive plastic
concentrates which are sold primarily in the United Kingdom.
A. Schulman GmbH, a German subsidiary located in Sindorf, Germany,
manufactures engineered and flame-retardant plastic compounds. In addition,
the Company purchases and sells prime and off-grade plastic resins from major
European producers. During the fiscal year ended August 31, 1999, this
subsidiary purchased approximately 28% of the compounds manufactured in the
Bornem, Belgium plant. Approximately 22% of the sales volume of A. Schulman
GmbH during the same period was derived from the sale
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of plastic resins and compounds of Vestolit GmbH, BP Amoco, Exxon Chemical,
Hoechst and Solvay.
A. Schulman Canada Ltd., a Canadian subsidiary located in St. Thomas,
Ontario, manufactures engineered and various other plastic compounds, acts as a
merchant of prime and off-grade plastic resins and distributes for Exxon
Chemical, Escorene polypropylene resin and polyethylene for injection molding.
These products are sold primarily in Canada. Its principal sales office is
located in Toronto.
A. Schulman AG, a Swiss subsidiary located in Zurich, Switzerland,
sells plastic compounds and concentrates manufactured by other European
subsidiaries of the Company and also acts as a merchant of plastic resins.
A. Schulman, S.A., a French subsidiary, has six sales offices in France
and is a distributor in France for Elf Atochem and Appryl. A. Schulman, S.A.
also acts as 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 for BASF and
Solvay of certain plastic materials in France.
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
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industry and compounds for the automotive, construction, appliance and
consumer products markets.
A. Schulman Polska Sp. z o.o., located in Warsaw, Poland, is a
wholly-owned subsidiary of A. Schulman GmbH. This Company sells products
manufactured by other subsidiaries of the Company and acts as distributor and
merchant of plastic resins and compounds in Poland.
A. Schulman Plastics SpA, located in Italy, is a wholly-
owned subsidiary of N.V. A. Schulman, S.A. This subsidiary
primarily sells manufacturing products of N.V. A. Schulman
Plastics, S.A. and acts as a merchant of plastic resins in Italy.
JOINT VENTURES
The Company, through its wholly-owned subsidiary ASI Investments
Holding Co., 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, through its wholly-owned subsidiary A. Schulman
International, Inc., owns a 65% interest in PT. A. Schulman Plastics, Indonesia,
an Indonesian joint venture. This joint venture has a manufacturing facility
with one production line in
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Surabaya, Indonesia. The other partner is P.T. Prima Polycon Indah.
EMPLOYEE INFORMATION
As of August 31, 1999, the Company had approximately 1,074 employees in
the United States and approximately 1,338 employees in its foreign operations.
More than 80% 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 252 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.
RESEARCH AND DEVELOPMENT
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.
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COMPLIANCE WITH ENVIRONMENTAL REGULATIONS
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, has not had a material effect upon the capital
expenditures, earnings or competitive position of the Company.
DEPENDENCE ON CUSTOMERS
During the year ended August 31, 1999, 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, potentially, on a temporary basis.
AVAILABILITY OF RAW MATERIALS
The raw materials required by the Company are readily available from
major plastic resin producers or other suppliers. The principal types of
plastic resins used in the manufacture of the Company's proprietary plastic
compounds are polypropylene, PVC (polyvinyl chloride), polyethylene,
polystyrene, ABS (acrylonitrile butadiene styrene) and polyurethane.
COMPETITION
The Company's business is highly competitive. The Company competes with
producers of 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,
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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 North America and Europe which is not also engaged in the
petrochemical industry or is not a basic producer of plastic resins. Certain
of these competitors compete with the Company principally in such
competitors' own respective local market areas, 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 respect of
these activities, but management believes that the Company has only a small
fraction of the total market.
The principal methods of competition in plastics manufacturing are
innovation, quality, service and price. The principal methods of competition
in respect of merchant and distribution activities are service and price. The
Company believes that its financial capabilities, its excellent supplier
relationships and its ability to provide quality plastic compounds at
competitive prices provide its primary competitive advantages.
TRADEMARKS AND TRADE NAMES
The Company uses various trademarks and trade names in its business.
These trademarks and trade names protect names of
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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
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:
<TABLE>
<CAPTION>
Approximate Approximate
Capacity Floor Area
Location (lbs.)(1) (Square Feet)
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<S> <C> <C>
Akron, Ohio .......................... 73,000,000 164,000(2)
Bellevue, Ohio(3) .................... 80,000,000(4) 160,000
Sharon Center, Ohio .................. 10,000,000 145,000(5)
Orange, Texas ........................ 64,000,000 145,000
Orange, Texas--Texas
Polymer Services, Inc. ............. 145,000,000 182,000
Nashville, Tennessee(6) .............. 70,000,000 131,000
San Luis Potosi, Mexico .............. 40,000,000 78,000
Bornem, Belgium(7) ................... 136,000,000 371,000
Crumlin Gwent, South Wales ........... 79,000,000 102,000
Givet, France(8) ..................... 120,000,000 187,000
St. Thomas, Ontario, Canada .......... 74,000,000 111,000
Kerpen, Germany(9) ................... 90,000,000 325,000
Surabaya, Indonesia (Joint Venture) .. 8,000,000 68,000
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989,000,000 2,169,000
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</TABLE>
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(1) The approximate annual plastics compounding capacity set forth in this
table is an estimate and 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 15,800 square feet of space comprising the Company's product
development center.
(3) Excludes a new manufacturing line being added by The Sunprene Company at a
cost of approximately $7.5 million. This line will have an annual capacity
of approximately 15 million pounds and is scheduled to commence operations
in January 2001.
(4) 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.
(5) Includes approximately 14,500 square feet of space comprising the
Company's color technology center.
(6) Excludes a new manufacturing line being added to replace two smaller lines
at a cost of approximately $4 million. This line will increase annual
capacity by approximately 17.5 million pounds and is scheduled to commence
operations in May 2000.
(7) Excludes new manufacturing equipment that will increase annual capacity by
approximately 7 million pounds. This project, with a cost of approximately
$3.4 million, is expected to commence operations in calendar year 2000.
(8) Excludes a new manufacturing line being added at a cost of approximately
$3.2 million. This line will have an annual capacity of approximately 17
million pounds and is scheduled to commence operations in 2001.
(9) Excludes four new manufacturing lines being added at a cost of
approximately $5.1 million. These lines will have an aggregate annual
capacity of approximately 23 million pounds and are scheduled to commence
operations in calendar year 2000.
The Company considers each of the foregoing facilities to be in good
condition and suitable for its purposes.
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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 ranges yearly from approximately 25 to 30.
The Company believes an adequate supply of suitable public warehouse facilities
is available to it.
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 North America, Europe
and Asia.
ITEM 3. PENDING LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended August 31, 1999.
EXECUTIVE OFFICERS OF THE COMPANY
The age (as of October 18, 1999), 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 53; President and Chief Executive Officer of the
Company since January, 1991; formerly Chief
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Operating Officer, 1990-1991 and Vice President--North American Sales,
1989-1990.
Robert A. Stefanko: Age 56; Chairman of the Board since January, 1991;
Executive Vice President--Finance and Administration of the Company since 1989;
Chief Financial Officer of the Company since 1979; and Treasurer since 1999.
Alain C. Adam: Age 51; Vice President--International Automotive
Operations of the Company since September 1, 1999; Vice President--Automotive
Marketing from 1990 until August 31, 1999.
Gordon L. Trimmer: Age 55; Vice President--North American Sales and
Marketing since April 1997 and prior to that time Managing Director of A.
Schulman Canada, Ltd.
John M. Myles: Age 56; Vice President--North American Purchasing since
October 1997 and prior to that time General Manager-Operations of Laurel
Industries since 1992.
Ronald G. Andres: Age 49; Vice President--North American Manufacturing
since October 20, 1999; prior to that time, Director of Manufacturing for North
America from 1998 until October 1999; North American Manufacturing Manager from
1997 to 1998; and Plant Manager of the Bellevue, Ohio plant from 1990 to 1997.
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
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 1999 Annual Report to Stockholders, which information is
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Information in response to this Item is set forth on pages 30 and 31 of
the Company's 1999 Annual Report to Stockholders, which information is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Information in response to this Item is set forth on pages 27 through
29 of the Company's 1999 Annual Report to Stockholders, which information is
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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
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Statement of Income appearing on page 14 of the Company's 1999 Annual Report
to Shareholders. The Company estimates that a ten percent (10%) change in
foreign exchange rates at August 31, 1999 would have changed the fair value
of the contracts by approximately $0.4 million. Changes in the fair value of
forward exchange contracts are substantially offset by changes in the fair
value of the hedged positions. The Company does not hold or issue financial
instruments for trading purposes or utilize any other types of derivative
instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(a) FINANCIAL STATEMENTS
The financial statements, together with the report thereon of
PricewaterhouseCoopers LLP dated October 20, 1999, appearing on pages 14 through
26 of the Company's 1999 Annual Report to Stockholders, are incorporated herein
by reference.
(b) SUPPLEMENTARY DATA
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
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
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
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Exchange Act of 1934" in the Company's proxy statement dated November 10,
1999, 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 15 and 16 of this Form 10-K and
is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information in response to this Item is set forth under the caption
"Compensation of Executive Officers" in the Company's proxy statement dated
November 10, 1999, 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
"Security Ownership of Management" in the Company's proxy statement dated
November 10, 1999, previously filed with the Commission, which information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information in response to this Item is set forth under the caption
"Certain Related Transactions" in the Company's proxy statement dated November
10, 1999, previously filed with the Commission, which information is
incorporated herein by reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
<TABLE>
<S> <C>
PAGE
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(1) FINANCIAL STATEMENTS:
Report of Independent Accountants 26*
Consolidated Statement of Income for
the three years ended August 31, 1999 14*
Consolidated Balance Sheet at August 31,
1999 and 1998 16*
Consolidated Statement of Cash Flows for
the three years ended August 31, 1999 18*
Consolidated Statement of Stockholders'
Equity for the three years ended
August 31, 1999 15*
Notes to Consolidated Financial
Statements 19*
</TABLE>
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*Incorporated by reference from the indicated page of the Company's 1999
Annual Report to Stockholders. With the exception of this information and the
information incorporated in Items 1, 5, 6, 7 and 8, the 1999 Annual Report to
Stockholders is not deemed filed as part of this report.
(2) Financial Statement Schedules:
<TABLE>
<S> <C>
Report of Independent Accountants
on Financial Statement Schedule F-1
II-Valuation and Qualifying Accounts F-2
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
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(3) EXHIBITS:
<TABLE>
<CAPTION>
Exhibit
Number
------
<S> <C>
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 (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).
</TABLE>
-21-
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number
------
<S> <C>
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
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)* Second Amendment to A. Schulman, Inc. 1992 Non-
Employee Directors' Stock Option Plan (incorporated
by reference to Exhibit 10(e) to the Company's Form
10-K for the fiscal year ended August 31, 1998).
10(f)* 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(g)* 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).
</TABLE>
-22-
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number
------
<S> <C>
10(h)* A. Schulman, Inc. Directors' Deferred Compensation
Plan (incorporated by reference to Exhibit 10(h) to
the Company's Form 10-K for the fiscal year ended
August 31, 1998).
10(i)* 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(j)* 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(k)* 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(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)* Employment Agreement between the Company and Gordon
L. Trimmer dated May 14, 1997 (incorporated by
reference to Exhibit 10(a) to the Company's Form 10-K
for the fiscal year ended August 31, 1997).
10(n)* Employment Agreement between the Company and John M.
Myles dated as of July 8, 1998 (incorporated by
reference to Exhibit 10(p) to the Company's Form 10-K
for fiscal year ended August 31, 1998)
10(o)* Employment Agreement between the Company and Ronald
G. Andres dated as of October 20, 1999.
10(p)* Agreement between the Company and Robert A. Stefanko
dated as of August 1, 1985 (incorporated by reference
to Exhibit 10(h) to the Company's Form 10-K for
fiscal year ended August 31, 1991).
10(q)* 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(r)* 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).
</TABLE>
-23-
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number
------
<S> <C>
10(s)* 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(t)* 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(u)* 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(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
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 (incorporated by reference to Exhibit 10(x) to
the Company's Form 10-K for fiscal year ended August
31, 1997).
10(y) Note Purchase Agreement dated August 1, 1999
regarding $50,000,000 7.27% Senior Notes Due 2009,
among the Company, New York Life Insurance Company,
Mutual Trust Life Insurance Company, National
Travelers Life Company, Guarantee Reserve Life
Insurance Company, Pioneer Mutual Life Insurance
Company, Great Western Insurance Company, The
Catholic Aid Association, The Reliable Life Insurance
Company, The North West Life Assurance Company of
Canada, Lutheran Brotherhood and Modern Woodmen of
America.
10(z) Form of the Company's 7.27% Senior Notes Due 2009
</TABLE>
-24-
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number
------
<S> <C>
11 Computation of Basic and Diluted Earnings Per Common
Share
13 Company's 1999 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, 1999
</TABLE>
*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, 1999.
-25-
<PAGE>
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 24, 1999
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 24, 1999
- ------------------
Terry L. Haines Executive Officer
/s/ ROBERT A. STEFANKO Director, Principal November 24, 1999
- ---------------------
Robert A. Stefanko Financial Officer and
Principal Accounting Officer
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 24, 1999
---------------------
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.
-26-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of A. Schulman, Inc.
Our audits of the consolidated financial statements referred to in our report
dated October 20, 1999 appearing in the Annual Report to Stockholders of A.
Schulman, Inc. (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included
an audit of the financial statement schedule listed in Item 14(a)(2) of this
Form 10-K. In our opinion, this financial statement schedule presents fairly,
in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Cleveland, Ohio
October 20, 1999
F-1
<PAGE>
A. SCHULMAN, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGES TO BALANCE AT
BEGINNING COST AND NET TRANSLATION CLOSE OF
OF PERIOD EXPENSES WRITE-OFFS ADJUSTMENT OTHER PERIOD
----------- -------- ---------- ---------- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
RESERVE FOR DOUBTFUL ACCOUNTS
YEAR ENDED AUGUST 31, 1999 $4,778,000 $1,206,000 $(2,256,000) $(50,000) - $3,678,000
YEAR ENDED AUGUST 31, 1998 5,304,000 1,806,000 (2,300,000) (32,000) - 4,778,000
YEAR ENDED AUGUST 31, 1997 5,903,000 1,098,000 (1,357,000) (340,000) - 5,304,000
VALUATION ALLOWANCE - DEFERRED TAX ASSETS
YEAR ENDED AUGUST 31, 1999 5,968,000 - - - 2,161,000(1) 8,129,000
YEAR ENDED AUGUST 31, 1998 5,937,000 - - - 31,000(1) 5,968,000
YEAR ENDED AUGUST 31, 1997 3,155,000 - - - 2,782,000(1) 5,937,000
</TABLE>
NOTE:
(1) REPRESENTS CURRENT YEAR CHANGE IN VALUATION ALLOWANCE FOR FOREIGN
TAX CREDIT CARRYFORWARD BENEFITS WHICH ARE NOT LIKELY TO BE
UTILIZED.
F-2
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and
entered into as of this 20th day of October, 1999, by and between A. SCHULMAN,
INC., a Delaware corporation (the "Employer"), and RONALD G. ANDRES (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
Vice President-North American Manufacturing 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>
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 enter prise. 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 adminis trative
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 October 20,
2002. At the end of November 1999 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.
2
<PAGE>
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 in stallments 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>
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>
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. Notwith
standing 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>
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 employ ment 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>
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 applica bility 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 Em
ployee'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 Termina tion 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>
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 other wise 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 fol
lowing 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 Sever
ance 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>
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 bene fits, 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
non cash 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 ac count, (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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(C) If it is established pursuant to a final deter-
mination 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 state ment 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 applica tion 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 re quired 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 partici
pating 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 employ er, by retirement benefits, by offset against
any amount claimed to be owed by the Employee to the Employer, or other wise.
13. CONFIDENTIALITY; NON-COMPETITION AND NON-SOLICI-
TATION
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 employ ment 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 termina tion 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 Agree ment 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 repre sentatives,
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 fur nished 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 dis similar 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 refer ences
to sections of the Exchange Act or the Code shall be deemed also to refer to
any successor provisions to such sec tions. 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 counter parts,
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 Commit tee 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 jurisdic tion. Notwithstanding any
provision of this Agreement to the contrary, the Employee shall be entitled
to seek specific per formance 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
subsid iaries, 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 reason able 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 Emplo yer
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) pursu ant 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 out standing 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 imme diately after such merger
or consolidation, or (ii) a merger or consolidation effected
to implement a recapitalization of the Employer (or similar
transac tion) in which no Person is or becomes the Beneficial
Owner, directly or indirectly, of securities of the Employer
(not including in the securities Beneficial ly 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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<PAGE>
"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 at tributable 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 cor rected 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 any where 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 contin ue
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
23
<PAGE>
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 require ments 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
24
<PAGE>
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 follow ing paragraphs
shall have occurred:
(1) the Employer enters into an agreement,
the consummation of which would result in the occur rence 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 out standing 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).
25
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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\ Ronald G. Andres
------------------------------------------
Ronald G. Andres
A. SCHULMAN, INC.
By \s\ James H. Berick
----------------------------------------
James H. Berick, Secretary
By \s\ R. A. Stefanko
----------------------------------------
R. A. Stefanko, Executive Vice President
26
<PAGE>
Note Purchase Agreement dated August 1, 1999 regarding $50,000,000 7.27%
Senior Notes Due 2009, among the Company, New York Life Insurance Company,
Mutual Trust Life Insurance Company, National Travelers Life Company,
Guarantee Reserve Life Insurance Company, Pioneer Mutual Life Insurance
Company, Great Western Insurance Company, The Catholic Aid Association, The
Reliable Life Insurance Company, The North West Life Assurance Company of
Canada, Lutheran Brotherhood and Modern Woodmen of America.
- -------------------------------------------------------------------------------
A. SCHULMAN, INC.
---------------
NOTE PURCHASE AGREEMENT
----------------
Dated as of August 1, 1999
Re: $50,000,000 7.27% Senior Notes, Due 2009
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
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<S> <C>
SECTION 1. AUTHORIZATION OF NOTES.........................................................................1
SECTION 2. SALE AND PURCHASE OF NOTES.....................................................................1
SECTION 3. CLOSING........................................................................................1
SECTION 4. CONDITIONS TO CLOSING..........................................................................2
Section 4.1 Representations and Warranties...............................................2
Section 4.2 Performance; No Default......................................................2
Section 4.3 Compliance Certificates......................................................2
Section 4.4 Opinions of Counsel..........................................................3
Section 4.5 Purchase Permitted By Applicable Law, etc....................................3
Section 4.6 Sale of Other Notes..........................................................3
Section 4.7 Payment of Special Counsel Fees..............................................3
Section 4.8 Private Placement Number.....................................................3
Section 4.9 Changes in Corporate Structure...............................................4
Section 4.10 Proceedings and Documents....................................................4
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................................................4
Section 5.1 Organization; Power and Authority............................................4
Section 5.2 Authorization, etc...........................................................4
Section 5.3 Disclosure...................................................................4
Section 5.4 Organization and Ownership of Shares of Subsidiaries; Affiliates.............5
Section 5.5 Financial Statements.........................................................6
Section 5.6 Compliance with Laws, Other Instruments, etc.................................6
Section 5.7 Governmental Authorizations, etc.............................................6
Section 5.8 Litigation; Observance of Agreements, Statutes and Orders....................6
Section 5.9 Taxes........................................................................7
Section 5.10 Title to Property; Leases....................................................7
Section 5.11 Licenses, Permits, etc.......................................................7
Section 5.12 Compliance with ERISA........................................................8
Section 5.13 Private Offering by the Company..............................................8
Section 5.14 Use of Proceeds; Margin Regulations..........................................9
Section 5.15 Existing Indebtedness; Future Liens..........................................9
Section 5.16 Foreign Assets Control Regulations, etc......................................9
Section 5.17 Status under Certain Statutes...............................................10
Section 5.18 Environmental Matters.......................................................10
Section 5.19 Parity of Obligations.......................................................10
Section 5.20 Year 2000 Compliance........................................................11
SECTION 6. REPRESENTATIONS OF THE PURCHASERS.............................................................11
Section 6.1 Purchase for Investment.....................................................11
Section 6.2 Source of Funds.............................................................11
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TABLE OF CONTENTS
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<S> <C>
SECTION 7. INFORMATION AS TO COMPANY.....................................................................12
Section 7.1 Financial and Business Information..........................................12
Section 7.2 Officer's Certificate.......................................................15
Section 7.3 Inspection..................................................................16
SECTION 8. PREPAYMENT OF THE NOTES.......................................................................16
Section 8.1 Required Prepayments........................................................16
Section 8.2 Optional Prepayments with Make-Whole Amount.................................16
Section 8.3 Change in Control...........................................................17
Section 8.4 Allocation of Partial Prepayments...........................................19
Section 8.5 Maturity; Surrender, etc....................................................20
Section 8.6 Purchase of Notes...........................................................20
Section 8.7 Make-Whole Amount...........................................................20
SECTION 9. AFFIRMATIVE COVENANTS.........................................................................21
Section 9.1 Compliance with Law.........................................................21
Section 9.2 Insurance...................................................................22
Section 9.3 Maintenance of Properties...................................................22
Section 9.4 Payment of Taxes and Claims.................................................22
Section 9.5 Corporate Existence, etc....................................................22
Section 9.6 Notes to Rank Pari Passu....................................................23
Section 9.7 Year 2000 Compliance........................................................23
SECTION 10. NEGATIVE COVENANTS............................................................................23
Section 10.1 Transactions with Affiliates................................................23
Section 10.2 Merger, Consolidation, etc..................................................23
Section 10.3 Liens.......................................................................24
Section 10.4 Consolidated Adjusted Net Worth.............................................25
Section 10.5 Fixed Charge Coverage Ratio.................................................26
Section 10.6 Limitations on Debt.........................................................26
Section 10.7 Sale of Assets..............................................................27
Section 10.8 Restricted Payments.........................................................27
Section 10.9 Investments.................................................................29
Section 10.10 Line of Business............................................................31
SECTION 11. EVENTS OF DEFAULT.............................................................................31
SECTION 12. REMEDIES ON DEFAULT, ETC......................................................................33
Section 12.1 Acceleration................................................................33
Section 12.2 Other Remedies..............................................................34
Section 12.3 Rescission..................................................................34
Section 12.4 No Waivers or Election of Remedies, Expenses, etc...........................34
SECTION 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.................................................35
Section 13.1 Registration of Notes.......................................................35
</TABLE>
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TABLE OF CONTENTS
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<S> <C>
Section 13.2 Transfer and Exchange of Notes..............................................35
Section 13.3 Replacement of Notes........................................................35
SECTION 14. PAYMENT OF NOTES..............................................................................36
Section 14.1 Place of Payment............................................................36
Section 14.2 Home Office Payment.........................................................36
SECTION 15. EXPENSES, ETC.................................................................................36
Section 15.1 Transaction Expenses........................................................36
Section 15.2 Survival....................................................................37
SECTION 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT..................................37
SECTION 17. AMENDMENT AND WAIVER..........................................................................37
Section 17.1 Requirements................................................................37
Section 17.2 Solicitation of Holders of Notes............................................38
Section 17.3 Binding Effect, etc.........................................................38
Section 17.4 Notes Held by Company, etc..................................................38
SECTION 18. NOTICES.......................................................................................39
SECTION 19. REPRODUCTION OF DOCUMENTS.....................................................................39
SECTION 20. CONFIDENTIAL INFORMATION......................................................................40
SECTION 21. SUBSTITUTION OF PURCHASER.....................................................................41
SECTION 22. MISCELLANEOUS.................................................................................41
Section 22.1 Successors and Assigns......................................................41
Section 22.2 Payments Due on Non-Business Days...........................................41
Section 22.3 Severability................................................................41
Section 22.4 Construction................................................................41
Section 22.5 Counterparts................................................................42
Section 22.6 Governing Law...............................................................42
Section 22.7 Jurisdiction................................................................42
Section 22.7 Agent for Service of Process................................................42
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SCHEDULES
SCHEDULE A INFORMATION RELATING TO PURCHASERS
SCHEDULE B DEFINED TERMS
SCHEDULE 4.9 CHANGES IN CORPORATE STRUCTURE
SCHEDULE 5.4 CORPORATE STRUCTURE
SCHEDULE 5.5 FINANCIAL STATEMENTS
SCHEDULE 5.11 LICENSES, PERMITS
SCHEDULE 5.15 EXISTING INDEBTEDNESS
SCHEDULE 8.3 PRINCIPAL STOCKHOLDERS AND CURRENT MANAGEMENT TEAM
SCHEDULE 10.9 EXISTING INVESTMENTS
EXHIBITS
EXHIBIT I FORM OF SENIOR NOTE
EXHIBIT 4.4(a) DESCRIPTION OF CLOSING OPINION OF COUNSEL TO THE COMPANY
EXHIBIT 4.4(b) DESCRIPTION OF SPECIAL COUNSEL'S CLOSING OPINION
</TABLE>
<PAGE>
A. Schulman, Inc.
3550 W. Market Street
Akron, Ohio 44313
7.27% $50,000,000 Senior Notes, Due 2009
Dated as of
August 1, 1999
TO EACH OF THE PURCHASERS NAMED IN SCHEDULE A TO THIS AGREEMENT:
Ladies and Gentlemen:
A. Schulman, Inc., a Delaware corporation (the "COMPANY"), agrees
with the purchasers named in Schedule A to this Agreement (the "PURCHASERS")
as follows:
SECTION 1. AUTHORIZATION OF NOTES.
The Company will authorize the issue and sale of $50,000,000
aggregate principal amount of its 7.27% Senior Notes, Due 2009 (the "NOTES",
such term to include any such notes issued in substitution therefor pursuant
to Section 13 of this Agreement). The Notes shall be substantially in the
form set out in Exhibit 1, with such changes therefrom, if any, as may be
approved by each Purchaser and the Company. Certain capitalized terms used in
this Agreement are defined in Schedule B; references to a "Schedule" or an
"Exhibit" are, unless otherwise specified, to a Schedule or an Exhibit
attached to this Agreement.
SECTION 2. SALE AND PURCHASE OF NOTES.
Subject to the terms and conditions of this Agreement, the Company
will issue and sell to each Purchaser, and each Purchaser will purchase from
the Company, at the Closing provided for in Section 3, Notes in the principal
amount specified opposite each Purchaser's name in Schedule A at the purchase
price of 100% of the principal amount thereof. The obligations of each
Purchaser hereunder shall be several and not joint and no Purchaser shall
have any obligation or any liability to any Person for the performance or
non-performance by any other Purchaser hereunder.
SECTION 3. CLOSING.
The sale and purchase of the Notes to be purchased by each Purchaser
shall occur at the offices of McDermott, Will & Emery, 227 West Monroe,
Chicago, IL 60606 at 10:00 a.m., Chicago, Illinois time, at a closing (the
"CLOSING") on August 17, 1999 or on such other Business Day thereafter on or
prior to August 20, 1999 as may be agreed upon by the Company
<PAGE>
and each Purchaser. At the Closing the Company will deliver to each Purchaser
the Notes to be purchased by such Purchaser in the form of a single Note (or
such greater number of Notes in denominations of at least $1,000,000 as such
Purchaser may request) dated the date of the Closing and registered in such
Purchaser's name (or in the name of such Purchaser's nominee), against
delivery by such Purchaser to the Company or its order of immediately
available funds in the amount of the purchase price therefor by wire transfer
of immediately available funds for the account of the Company to account
number 075-6087 at KeyBank National Association, 127 Public Square,
Cleveland, Ohio, ABA No. 041001039. If at the Closing the Company shall fail
to tender such Notes to any Purchaser as provided above in this Section 3, or
any of the conditions specified in Section 4 shall not have been fulfilled to
your satisfaction, such Purchaser shall, at its election, be relieved of all
further obligations under this Agreement, without thereby waiving any rights
such Purchaser may have by reason of such failure or such non-fulfillment.
SECTION 4. CONDITIONS TO CLOSING.
Each Purchaser's obligation to purchase and pay for the Notes to be
sold to such Purchaser at the Closing is subject to the fulfillment to each
Purchaser's reasonable satisfaction, prior to or at the Closing, of the
following conditions:
SECTION 4.1 REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company in this Agreement
shall be correct when made and at the time of the Closing.
SECTION 4.2 PERFORMANCE; NO DEFAULT.
The Company shall have performed and complied with all agreements
and conditions contained in this Agreement required to be performed or
complied with by it prior to or at the Closing and after giving effect to the
issue and sale of the Notes (and the application of the proceeds thereof as
contemplated by Section 5.14) no Default or Event of Default shall have
occurred and be continuing. Neither the Company nor any Subsidiary shall have
entered into any transaction since the date of the Memorandum that would have
been prohibited by SECTIONS 10.1, 10.2, 10.3 or 10.6 hereof had such Sections
applied since such date.
SECTION 4.3 COMPLIANCE CERTIFICATES.
(a) OFFICER'S CERTIFICATE. The Company shall have delivered
to each Purchaser an Officer's Certificate, dated the date of the
Closing, certifying that the conditions specified in Sections 4.1,
4.2 and 4.9 have been fulfilled.
(b) SECRETARY'S CERTIFICATE. The Company shall have delivered
to each Purchaser a certificate certifying as to the resolutions
attached thereto and other corporate proceedings relating to the
authorization, execution and delivery of the Notes and the Agreements.
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SECTION 4.4 OPINIONS OF COUNSEL.
Each Purchaser shall have received opinions in form and substance
satisfactory to it, dated the date of the Closing (a) from Berick, Pearlman &
Mills Co., L.P.A., counsel for the Company, covering the matters set forth in
Exhibit 4.4(a) and covering such other matters incident to the transactions
contemplated hereby as each Purchaser or each Purchaser's counsel may
reasonably request (and the Company hereby instructs its counsel to deliver
such opinion to each Purchaser) and (b) from McDermott, Will & Emery,
Purchasers' special counsel in connection with such transactions,
substantially in the form set forth in Exhibit 4.4(b) and covering such other
matters incident to such transactions as each Purchaser may reasonably
request.
SECTION 4.5 PURCHASE PERMITTED BY APPLICABLE LAW, ETC.
On the date of the Closing each Purchaser's purchase of Notes shall (a)
be permitted by the laws and regulations of each jurisdiction to which you are
subject, without recourse to provisions (such as Section 1405(a)(8) of the New
York Insurance Law) permitting limited investments by insurance companies
without restriction as to the character of the particular investment, (b) not
violate any applicable law or regulation (including, without limitation,
Regulation U, T or X of the Board of Governors of the Federal Reserve System)
and (c) not subject any Purchaser to any tax, penalty or liability under or
pursuant to any applicable law or regulation, which law or regulation was not in
effect on the date hereof. If requested by any Purchaser, such Purchaser shall
have received an Officer's Certificate certifying as to such matters of fact as
such Purchaser may reasonably specify to enable it to determine whether such
purchase is so permitted.
SECTION 4.6 SALE OF NOTES.
Contemporaneously with the Closing the Company shall sell to the
Purchasers and the Purchasers shall purchase the Notes to be purchased by them
at the Closing as specified in Schedule A.
SECTION 4.7 PAYMENT OF SPECIAL COUNSEL FEES.
Without limiting the provisions of Section 15.1, the Company shall
have paid on or before the Closing the fees, charges and disbursements of
each Purchaser's special counsel referred to in Section 4.4 to the extent
reflected in a statement of such counsel rendered to the Company at least one
Business Day prior to the Closing.
SECTION 4.8 PRIVATE PLACEMENT NUMBER.
A Private Placement Number issued by Standard & Poor's CUSIP Service
Bureau (in cooperation with the Securities Valuation Office of the National
Association of Insurance Commissioners) shall have been obtained for the Notes.
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SECTION 4.9 CHANGES IN CORPORATE STRUCTURE.
Except as specified in Schedule 4.9, the Company shall not have
changed its jurisdiction of incorporation or been a party to any merger or
consolidation and shall not have succeeded to all or any substantial part of
the liabilities of any other entity, at any time following the date of the
most recent financial statements referred to in Schedule 5.5.
SECTION 4.10 PROCEEDINGS AND DOCUMENTS.
All corporate and other proceedings in connection with the
transactions contemplated by this Agreement and all documents and instruments
incident to such transactions shall be reasonably satisfactory to each
Purchaser and special counsel to the Purchasers, and each Purchaser and
special counsel to the Purchasers shall have received all such counterpart
originals or certified or other copies of such documents as such Purchaser or
special counsel to the Purchaser may reasonably request.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to you that:
SECTION 5.1 ORGANIZATION; POWER AND AUTHORITY.
The Company is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation, and is
duly qualified as a foreign corporation and is in good standing in each
jurisdiction in which such qualification is required by law, other than those
jurisdictions as to which the failure to be so qualified or in good standing
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. The Company has the corporate power and authority to
own or hold under lease the properties it purports to own or hold under
lease, to transact the business it transacts and proposes to transact, to
execute and deliver this Agreement and the Notes and to perform the
provisions hereof and thereof.
SECTION 5.2 AUTHORIZATION, ETC.
This Agreement and the Notes have been duly authorized by all
necessary corporate action on the part of the Company, and this Agreement
constitutes, and upon execution and delivery thereof each Note will
constitute, a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as such
enforceability may be limited by (a) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and (b) general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or at
law).
SECTION 5.3 DISCLOSURE.
The Company, through its agent, McDonald Investments Inc., has
delivered to Purchaser a copy of a Confidential Private Placement Memorandum
(the "MEMORANDUM"), relating to the
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<PAGE>
transactions contemplated hereby. The Memorandum fairly describes, in all
material respects, the general nature of the business and principal
properties of the Company and its Subsidiaries. This Agreement, the
Memorandum, the documents, certificates or other writings delivered to each
Purchaser by or on behalf of the Company in connection with the transactions
contemplated hereby and the financial statements listed in Schedule 5.5,
taken as a whole, do not contain any untrue statement of a material fact or
omit to state any material fact necessary to make the statements therein not
misleading in light of the circumstances under which they were made. Since
August 31, 1998 there has been no change in the financial condition,
operations, business, properties or prospects of the Company or any
Subsidiary except changes that individually or in the aggregate could not
reasonably be expected to have a Material Adverse Effect. There is no fact
known to the Company that could reasonably be expected to have a Material
Adverse Effect that has not been set forth herein or in the Memorandum or in
the other documents, certificates and other writings delivered to you by or
on behalf of the Company specifically for use in connection with the
transactions contemplated hereby.
SECTION 5.4 ORGANIZATION AND OWNERSHIP OF SHARES OF SUBSIDIARIES;
AFFILIATES.
(a) Schedule 5.4 contains (except as noted therein) complete
and correct lists (i) of the Company's Subsidiaries, showing, as to
each Subsidiary, the correct name thereof, the jurisdiction of its
organization, and the percentage of shares of each class of its
capital stock or similar equity interests outstanding owned by the
Company and each other Subsidiary, (ii) of the Company's Affiliates,
other than Subsidiaries, and (iii) of the Company's directors and
senior officers.
(b) All of the outstanding shares of capital stock or similar
equity interests of each Subsidiary shown in Schedule 5.4 as being
owned by the Company and its Subsidiaries have been validly issued,
are fully paid and nonassessable and are owned by the Company or
another Subsidiary free and clear of any Lien (except as otherwise
disclosed in Schedule 5.4).
(c) Each Subsidiary identified in Schedule 5.4 is a
corporation or other legal entity duly organized, validly existing and
in good standing under the laws of its jurisdiction of organization,
and is duly qualified as a foreign corporation or other legal entity
and is in good standing in each jurisdiction in which such
qualification is required by law, other than those jurisdictions as to
which the failure to be so qualified or in good standing could not,
individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. Each such Subsidiary has the corporate or
other power and authority to own or hold under lease the properties it
purports to own or hold under lease and to transact the business it
transacts and proposes to transact.
(d) No Subsidiary is a party to, or otherwise subject to any
legal restriction or any agreement (other than this Agreement, the
agreements listed on Schedule 5.4 and customary limitations imposed by
corporate law statutes) restricting the ability of such Subsidiary to
pay dividends out of profits or make any other similar distributions
of profits to the Company or any of its Subsidiaries that owns
outstanding shares of capital stock or similar equity interests of
such Subsidiary.
-5-
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SECTION 5.5 FINANCIAL STATEMENTS.
The Company has delivered to each Purchaser copies of the financial
statements of the Company and its Subsidiaries listed on Schedule 5.5. All of
said financial statements (including in each case the related schedules and
notes) fairly present in all material respects the consolidated financial
position of the Company and its Subsidiaries as of the respective dates
specified in such financial statements and the consolidated results of their
operations and cash flows for the respective periods so specified and have
been prepared in accordance with GAAP consistently applied throughout the
periods involved except as set forth in the notes thereto (subject, in the
case of any interim financial statements, to normal year-end adjustments).
SECTION 5.6 COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC.
The execution, delivery and performance by the Company of this
Agreement and the Notes will not (a) contravene, result in any breach of, or
constitute a default under, or result in the creation of any Lien in respect
of any property of the Company or any Subsidiary under, any indenture,
mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate
charter or by-laws, or any other agreement or instrument to which the Company
or any Subsidiary is bound or by which the Company or any Subsidiary or any
of their respective properties may be bound or affected, (b) conflict with or
result in a breach of any of the terms, conditions or provisions of any
order, judgment, decree, or ruling of any court, arbitrator or Governmental
Authority applicable to the Company or any Subsidiary or (c) violate any
provision of any statute or other rule or regulation of any Governmental
Authority applicable to the Company or any Subsidiary.
SECTION 5.7 GOVERNMENTAL AUTHORIZATIONS, ETC.
No consent, approval or authorization of, or registration, filing or
declaration with, any Governmental Authority is required in connection with the
execution, delivery or performance by the Company of this Agreement or the
Notes.
SECTION 5.8 LITIGATION; OBSERVANCE OF AGREEMENTS, STATUTES AND
ORDERS.
(a) There are no actions, suits or proceedings pending or, to
the knowledge of the Company, threatened against or affecting the
Company or any Subsidiary or any property of the Company or any
Subsidiary in any court or before any arbitrator of any kind or before
or by any Governmental Authority that, individually or in the
aggregate, could reasonably be expected to have a Material Adverse
Effect.
(b) Neither the Company nor any Subsidiary is in default
under any term of any agreement or instrument to which it is a party
or by which it is bound, or any order, judgment, decree or ruling of
any court, arbitrator or Governmental Authority or is in violation of
any applicable law, ordinance, rule or regulation (including without
limitation Environmental Laws) of any Governmental Authority, which
default or violation, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.
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SECTION 5.9 TAXES.
The Company and its Subsidiaries have filed all tax returns that are
required to have been filed in any jurisdiction, and have paid all taxes
shown to be due and payable on such returns and all other taxes and
assessments levied upon them or their properties, assets, income or
franchises, to the extent such taxes and assessments have become due and
payable and before they have become delinquent, except for any taxes and
assessments (a) the amount of which is not individually or in the aggregate
Material or (b) the amount, applicability or validity of which is currently
being contested in good faith by appropriate proceedings and with respect to
which the Company or a Subsidiary, as the case may be, has established
adequate reserves in accordance with GAAP. The Company knows of no basis for
any other tax or assessment that could reasonably be expected to have a
Material Adverse Effect. The charges, accruals and reserves on the books of
the Company and its Subsidiaries in respect of Federal, state or other taxes
for all fiscal periods are adequate. The Federal income tax liabilities of
the Company and its Subsidiaries have been determined by the Internal Revenue
Service and paid for all fiscal years up to and including the fiscal year
ended August 31, 1994.
SECTION 5.10 TITLE TO PROPERTY; LEASES.
The Company and its Subsidiaries have good and sufficient title to
their respective properties that individually or in the aggregate are
Material, including all such properties reflected in the most recent audited
balance sheet referred to in Section 5.5 or purported to have been acquired
by the Company or any Subsidiary after said date (except as sold or otherwise
disposed of in the ordinary course of business), in each case free and clear
of Liens prohibited by this Agreement. All leases that individually or in the
aggregate are Material are valid and subsisting and are in full force and
effect in all material respects.
SECTION 5.11 LICENSES, PERMITS, ETC.
(a) Except as disclosed in Schedule 5.11, the Company and its
Subsidiaries own or possess all licenses, permits, franchises,
authorizations, patents, copyrights, service marks, trademarks and
trade names, or rights thereto, that individually or in the aggregate
are Material, without known conflict with the rights of others.
(b) To the best knowledge of the Company, no product of the
Company infringes in any material respect any license, permit,
franchise, authorization, patent, copyright, service mark, trademark,
trade name or other right owned by any other Person.
(c) To the best knowledge of the Company, there is no
Material violation by any Person of any right of the Company or any
of its Subsidiaries with respect to any patent, copyright, service
mark, trademark, trade name or other right owned or used by the
Company or any of its Subsidiaries.
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SECTION 5.12 COMPLIANCE WITH ERISA.
The Company and each ERISA Affiliate have operated and administered
each Plan in compliance with all applicable laws except for such instances of
noncompliance as have not resulted in and could not reasonably be expected to
result in a Material Adverse Effect. Neither the Company nor any ERISA
Affiliate has incurred any liability pursuant to Title I or IV of ERISA or
the penalty or excise tax provisions of the Code relating to employee benefit
plans (as defined in Section 3 of ERISA), and no event, transaction or
condition has occurred or exists that could reasonably be expected to result
in the incurrence of any such liability by the Company or any ERISA
Affiliate, or in the imposition of any Lien on any of the rights, properties
or assets of the Company or any ERISA Affiliate, in either case pursuant to
Title I or IV of ERISA or to such penalty or excise tax provisions or to
Section 401(a)(29) or 412 of the Code, other than such liabilities or Liens
as would not be individually or in the aggregate Material.
The present value of the aggregate benefit liabilities under each of
the Plans (other than Multiemployer Plans), determined as of the end of such
Plan's most recently ended plan year on the basis of the actuarial
assumptions specified for funding purposes in such Plan's most recent
actuarial valuation report, exceeded the aggregate current value of the
assets of such Plan allocable to such benefit liabilities by $1,211,373. The
term "BENEFIT LIABILITIES" has the meaning specified in section 4001 of ERISA
and the terms "CURRENT VALUE" and "PRESENT VALUE" have the meaning specified
in section 3 of ERISA.
The Company and its ERISA Affiliates have not incurred withdrawal
liabilities (and are not subject to contingent withdrawal liabilities) under
section 4201 or 4204 of ERISA in respect of Multi-employer Plans that
individually or in the aggregate are Material.
The expected post-retirement benefit obligation (determined as of
the last day of the Company's most recently ended fiscal year in accordance
with Financial Accounting Standards Board Statement No. 106, without regard
to liabilities attributable to continuation coverage mandated by section
4980B of the Code) of the Company and its Subsidiaries noted in the financial
statements of the Company as at August 31, 1998 is $12,900,000.
The execution and delivery of this Agreement and the issuance and
sale of the Notes hereunder will not involve any transaction that is subject
to the prohibitions of section 406 of ERISA or in connection with which a tax
could be imposed pursuant to section 4975(c)(1)(A)-(D) of the Code. The
representation by the Company in the first sentence of this Section 5.12(e)
is made in reliance upon and subject to (i) the accuracy of each Purchaser's
representation in Section 6.2 as to the sources of the funds used to pay the
purchase price of the Notes to be purchased by you and (ii) the assumption,
made solely for the purpose of making such representation, that Department of
Labor Interpretive Bulletin 75-2 with respect to prohibited transactions
remains valid in the circumstances of the transactions contemplated herein.
SECTION 5.13 PRIVATE OFFERING BY THE COMPANY.
Neither the Company nor anyone acting on its behalf has offered the
Notes or any similar securities for sale to, or solicited any offer to buy
any of the same from, or otherwise approached
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or negotiated in respect thereof with, any Person other than the Purchasers
and not more than 37 other Institutional Investors, each of which has been
offered the Notes at a private sale for investment. Neither the Company nor
anyone acting on its behalf has taken, or will take, any action that would
subject the issuance or sale of the Notes to the registration requirements of
Section 5 of the Securities Act.
SECTION 5.14 USE OF PROCEEDS; MARGIN REGULATIONS.
The Company will apply the proceeds of the sale of the Notes to
repay a portion of existing Indebtedness and for general corporate purposes.
No part of the proceeds from the sale of the Notes hereunder will be used,
directly or indirectly, for the purpose of buying or carrying any margin
stock within the meaning of Regulation G of the Board of Governors of the
Federal Reserve System (12 CFR 207), or for the purpose of buying or carrying
or trading in any securities under such circumstances as to involve the
Company in a violation of Regulation X of said Board (12 CFR 224) or to
involve any broker or dealer in a violation of Regulation T of said Board (12
CFR 220). Margin stock does not constitute more than 5% of the value of the
consolidated assets of the Company and its Subsidiaries and the Company does
not have any present intention that margin stock will constitute more than 5%
of the value of such assets. As used in this Section, the terms "margin
stock" and "purpose of buying or carrying" shall have the meanings assigned
to them in said Regulation U.
SECTION 5.15 EXISTING INDEBTEDNESS; FUTURE LIENS.
(a) Except as described therein, Schedule 5.15 sets forth a
complete and correct list of all outstanding Indebtedness of the
Company and its Subsidiaries as May 31, 1999, since which date there
has been no Material change in the amounts, interest rates, sinking
funds, installment payments or maturities of the Indebtedness of the
Company or its Subsidiaries. Neither the Company nor any Subsidiary is
in default and no waiver of default is currently in effect, in the
payment of any principal or interest on any Indebtedness of the
Company or such Subsidiary and no event or condition exists with
respect to any Indebtedness of the Company or any Subsidiary that
would permit (or that with notice or the lapse of time, or both, would
permit) one or more Persons to cause such Indebtedness to become due
and payable before its stated maturity or before its regularly
scheduled dates of payment.
(b) Except as described in Schedule 5.15, neither the Company
nor any Subsidiary has agreed or consented to cause or permit in the
future (upon the happening of a contingency or otherwise) any of its
property, whether now owned or hereafter acquired, to be subject to a
Lien not permitted by Section 10.3.
SECTION 5.16 FOREIGN ASSETS CONTROL REGULATIONS, ETC.
Neither the sale of the Notes by the Company hereunder nor its use
of the proceeds thereof will violate the Trading with the Enemy Act, as
amended, or any of the foreign assets control regulations of the United
States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any
enabling legislation or executive order relating thereto.
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SECTION 5.17 STATUS UNDER CERTAIN STATUTES.
Neither the Company nor any Subsidiary is subject to regulation
under the Investment Company Act of 1940, as amended, the Public Utility
Holding Company Act of 1935, as amended, the Interstate Commerce Act, as
amended, or the Federal Power Act, as amended.
SECTION 5.18 ENVIRONMENTAL MATTERS.
Neither the Company nor any Subsidiary has knowledge of any claim or
has received any notice of any claim, and no proceeding has been instituted
raising any claim against the Company or any of its Subsidiaries or any of
their respective real properties now or formerly owned, leased or operated by
any of them or other assets, alleging any damage to the environment or
violation of any Environmental Laws, except, in each case, such as could not
reasonably be expected to result in a Material Adverse Effect. Except as
otherwise disclosed to the Purchaser in writing,
(a) neither the Company nor any Subsidiary has knowledge of
any facts which would give rise to any claim, public or private, of
violation of Environmental Laws or damage to the environment emanating
from, occurring on or in any way related to real properties now or
formerly owned, leased or operated by any of them or to other assets
or their use, except, in each case, such as could not reasonably be
expected to result in a Material Adverse Effect;
(b) neither the Company nor any of its Subsidiaries has
stored any Hazardous Materials on real properties now or formerly
owned, leased or operated by any of them and has not disposed of any
Hazardous Materials in a manner contrary to any Environmental Laws in
each case in any manner that could reasonably be expected to result
in a Material Adverse Effect; and
(c) all buildings on all real properties now owned, leased or
operated by the Company or any of its Subsidiaries are in compliance
with applicable Environmental Laws, except where failure to comply
could not reasonably be expected to result in a Material Adverse
Effect.
SECTION 5.19 PARITY OF OBLIGATIONS.
All obligations hereunder and under the Notes are direct and
unsecured obligations of the Company ranking pari passu as against the assets
of the Company with all other present and future unsecured Debt (actual or
contingent) of the Company which is not expressed to be subordinate or junior
in rank to any other unsecured Debt of the Company, including, without
limitation, Debt incurred under and pursuant to the Credit Agreement.
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SECTION 5.20 YEAR 2000 COMPLIANCE.
All Information Systems and Equipment are either Year 2000
Compliant, or any reprogramming, remediation or any other corrective action,
including the internal testing of all such Information Systems and Equipment,
is in the process of being completed. To the extent that such
reprogramming/remediation and testing action is required, the cost thereof,
as well as the cost of the reasonably foreseeable consequences of failure to
become Year 2000 Compliant, to the Company and its Subsidiaries (including
without limitation reprogramming errors and the failure or other systems or
equipment) would not reasonably be expected to result in a Material Adverse
Effect.
SECTION 6. REPRESENTATIONS OF THE PURCHASERS.
SECTION 6.1 PURCHASE FOR INVESTMENT.
Each Purchaser represents that it is purchasing the Notes for its
own account or for one or more separate accounts maintained by it for the
account of one or more pension or trust funds and not with a view to the
distribution thereof, PROVIDED that the disposition of such Purchaser's
property shall at all times be within its control. Each Purchaser understands
that the Notes have not been registered under the Securities Act and may be
resold only if registered pursuant to the provisions of the Securities Act or
if an exemption from registration is available, except under circumstances
where neither such registration nor such an exemption is required by law, and
that the Company is not required to register the Notes.
SECTION 6.2 SOURCE OF FUNDS.
Each Purchaser represents that at least one of the following
statements is an accurate representation as to each source of funds (a
"SOURCE") to be used by such Purchaser to pay the purchase price of the Notes
to be purchased by such Purchaser hereunder:
(a) the Source is an "INSURANCE COMPANY GENERAL ACCOUNT"
within the meaning of Department of Labor Prohibited Transaction
Exemption ("PTE") 95-60 (issued July 12, 1995) and there is no
employee benefit plan, treating as a single plan all plans maintained
by the same employer or employee organization, with respect to which
the amount of the general account reserves and liabilities for all
contracts held by or on behalf of such plan, exceed ten percent (10%)
of the total reserves and liabilities of such general account
(exclusive of separate account liabilities) plus surplus, as set forth
in the NAIC Annual Statement filed with such Purchaser's state of
domicile; or
(b) the Source is either (i) an insurance company pooled
separate account, within the meaning of PTE 90-1 (issued January 29,
1990), or (ii) a bank collective investment fund, within the meaning
of the PTE 91-38 (issued July 12, 1991) and, except as such Purchaser
has disclosed to the Company in writing pursuant to this paragraph
(b), no employee benefit plan or group of plans maintained by the same
employer or employee organization beneficially owns more than 10% of
all assets allocated to such pooled separate account or collective
investment fund; or
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(c) the Source constitutes assets of an "INVESTMENT FUND"
(within the meaning of Part V of the "QPAM Exemption") managed by a
"QUALIFIED PROFESSIONAL ASSET MANAGER" or "QPAM" (within the meaning
of Part V of the QPAM Exemption), no employee benefit plan's assets
that are included in such investment fund, when combined with the
assets of all other employee benefit plans established or maintained
by the same employer or by an affiliate (within the meaning of
Section V(c)(1) of the QPAM Exemption) of such employer or by the same
employee organization and managed by such QPAM, exceed 20% of the
total client assets managed by such QPAM, the conditions of Part I(c)
and (g) of the QPAM Exemption are satisfied, neither the QPAM nor a
person controlling or controlled by the QPAM (applying the definition
of "control" in Section V(e) of the QPAM Exemption) owns a 5% or more
interest in the Company and (i) the identity of such QPAM and (ii) the
names of all employee benefit plans whose assets are included in such
investment fund have been disclosed to the Company in writing pursuant
to this paragraph (c); or
(d) the Source is a governmental plan; or
(e) the Source is one or more employee benefit plans, or a
separate account or trust fund comprised of one or more employee
benefit plans, each of which has been identified to the Company in
writing pursuant to this paragraph (e); or
(f) the Source does not include assets of any employee
benefit plan, other than a plan exempt from the coverage of ERISA.
If any Purchaser or any subsequent transferee of the Notes indicates
that such Purchaser or such transferee is relying on any representation
contained in paragraph (b), (c) or (e) above, the Company shall deliver on
the date of Closing and on the date of any applicable transfer a certificate,
which shall either state that (i) it is neither a party in interest nor a
"disqualified person" (as defined in Section 4975(e)(2) of the Internal
Revenue Code of 1986, as amended), with respect to any plan identified
pursuant to paragraphs (b) or (e) above, or (ii) with respect to any plan,
identified pursuant to paragraph (c) above, neither it nor any "affiliate"
(as defined in Section V(c) of the QPAM Exemption) has at such time, and
during the immediately preceding one year, exercised the authority to appoint
or terminate said QPAM as manager of any plan identified in writing pursuant
to paragraph (c) above or to negotiate the terms of said QPAM's management
agreement on behalf of any such identified plan. As used in this Section 6.2,
the terms "employee benefit plan", "governmental plan", "party in interest"
and "separate account" shall have the respective meanings assigned to such
terms in Section 3 of ERISA.
SECTION 7. INFORMATION AS TO COMPANY.
SECTION 7.1 FINANCIAL AND BUSINESS INFORMATION.
The Company shall deliver to each Holder that is an Institutional
Investor:
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(a) QUARTERLY STATEMENTS -- within 90 days after the end of
each quarterly fiscal period in each fiscal year of the Company (other
than the last quarterly fiscal period of each such fiscal year),
duplicate copies of,
(i) a consolidated balance sheet of the Company
and its Subsidiaries as at the end of such quarter, and
(ii) consolidated statements of income, changes in
shareholders' equity and cash flows of the Company and its
Subsidiaries, for such quarter and (in the case of the second
and third quarters) for the portion of the fiscal year ending
with such quarter,
setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year, all in reasonable
detail, prepared in accordance with GAAP applicable to quarterly
financial statements generally, and certified by a Senior Financial
Officer as fairly presenting, in all material respects, the financial
position of the companies being reported on and their results of
operations and cash flows, subject to changes resulting from year-end
adjustments; PROVIDED that delivery within the time period specified
above of copies of the Company's Quarterly Report on form 10-Q
prepared in compliance with the requirements therefor and filed with
the Securities and Exchange Commission shall be deemed to satisfy the
requirements of this Section 7.1(a);
(b) ANNUAL STATEMENTS -- within 120 days after the end
of each fiscal year of the Company, duplicate copies of,
(i) a consolidated balance sheet of the Company
and its Subsidiaries, as at the end of such year, and
(ii) consolidated statements of income, changes in
shareholders' equity and cash flows of the Company and its
Subsidiaries, for such year,
setting forth in each case in comparative form the figures for the
previous fiscal year, all in reasonable detail, prepared in accordance
with GAAP, and accompanied by
(A) an opinion thereon of independent
certified public accountants of recognized national
standing, which opinion shall state that such
financial statements present fairly, in all material
respects, the financial position of the companies
being reported upon and their results of operations
and cash flows and have been prepared in conformity
with GAAP, and that the examination of such
accountants in connection with such financial
statements has been made in accordance with
generally accepted auditing standards, and that such
audit provides a reasonable basis for such opinion
in the circumstances; and
(B) a certificate of such accountants
stating that they have reviewed this Agreement and
stating further whether, in making their
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audit, they have become aware of any condition or
event that then constitutes a Default or an Event of
Default, and, if they are aware that any such
condition or event then exists, specifying the
nature and period of the existence thereof (it being
understood that such accountants shall not be
liable, directly or indirectly, for any failure to
obtain knowledge of any Default or Event of Default
unless such accountants should have obtained
knowledge thereof in making an audit in accordance
with generally accepted auditing standards or did
not make such an audit;
PROVIDED that the delivery within the time period specified above of
the Company's Annual Report on Form 10-K for such fiscal year
(together with the Company's annual report to shareholders, if any,
prepared pursuant to Rule 14a-3 under the Exchange Act) prepared in
accordance with the requirements therefor and filed with the
Securities and Exchange Commission, together with the accountant's
certificate described in clause (B) above, shall be deemed to satisfy
the requirements of this Section 7.1(b).
(c) SEC AND OTHER REPORTS -- promptly upon their becoming
available, one copy of (I) each financial statement, report, notice or
proxy statement sent by the Company or any Subsidiary to public
securities holders generally, and (II) each regular or periodic
report, each registration statement (without exhibits except as
expressly requested by such holder), and each prospectus and all
amendments thereto filed by the Company or any Subsidiary with the
Securities and Exchange Commission and of all press releases and other
statements made available generally by the Company or any Subsidiary
to the public concerning developments that are Material;
(d) NOTICE OF DEFAULT OR EVENT OF DEFAULT -- promptly, and in
any event within five days after a Responsible Officer becoming aware
of the existence of any Default or Event of Default or that any Person
has given any notice or taken any action with respect to a claimed
default hereunder or that any Person has given any notice or taken any
action with respect to a claimed default of the type referred to in
Section 11(f), a written notice specifying the nature and period of
existence thereof and what action the Company is taking or proposes to
take with respect thereto;
(e) NOTICE OF ERISA MATTERS -- promptly, and in any event
within ten days after a Responsible Officer becoming aware of any of
the following, a written notice setting forth the nature thereof and
the action, if any, that the Company or an ERISA Affiliate proposes to
take with respect thereto:
(i) with respect to any Plan, any reportable event,
as defined in section 4043(b) of ERISA and the regulations
thereunder, for which notice thereof has not been waived
pursuant to such regulations as in effect on the date hereof;
or
(ii) the taking by the PBGC of steps to institute, or
the threatening by the PBGC of the institution of, proceedings
under section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan, or the
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receipt by the Company or any ERISA Affiliate of a notice
from a Multiemployer Plan that such action has been taken by
the PBGC with respect to such Multiemployer Plan; or
(iii) any event, transaction or condition that could
result in the incurrence of any liability by the Company or
any ERISA Affiliate pursuant to Title I or IV of ERISA or the
penalty or excise tax provisions of the Code relating to
employee benefit plans, or in the imposition of any Lien on
any of the rights, properties or assets of the Company or any
ERISA Affiliate pursuant to Title I or IV of ERISA or such
penalty or excise tax provisions, if such liability or Lien,
taken together with any other such liabilities or Liens then
existing, could reasonably be expected to have a Material
Adverse Effect;
(f) NOTICES FROM GOVERNMENTAL AUTHORITY -- promptly, and in
any event within 30 days of receipt thereof, copies of any notice to
the Company or any Subsidiary from any Federal or state Governmental
Authority relating to any order, ruling, statute or other law or
regulation that could reasonably be expected to have a Material
Adverse Effect; and
(g) REQUESTED INFORMATION -- with reasonable promptness, such
other data and information relating to the business, operations,
affairs, financial condition, assets or properties of the Company or
any of its Subsidiaries or relating to the ability of the Company to
perform its obligations hereunder and under the Notes as from time to
time may be reasonably requested by any such Holder.
SECTION 7.2 OFFICER'S CERTIFICATE.
Each set of financial statements delivered to a Holder pursuant to
Section 7.1(a) or 7.1(b) hereof shall be accompanied by a certificate of a
Senior Financial Officer setting forth:
(a) COVENANT COMPLIANCE -- the information (including
detailed calculations) required in order to establish whether the
Company was in compliance with the requirements of Section 10.3
through Section 10.8 hereof, inclusive, during the quarterly or
annual period covered by the statements then being furnished
(including with respect to each such Section, where applicable, the
calculations of the maximum or minimum amount, ratio or percentage, as
the case may be, permissible under the terms of such Sections, and the
calculation of the amount, ratio or percentage then in existence); and
(b) EVENT OF DEFAULT -- a statement that such officer has
reviewed the relevant terms hereof and has made, or caused to be made,
under his or her supervision, a review of the transactions and
conditions of the Company and its Subsidiaries from the beginning of
the quarterly or annual period covered by the statements then being
furnished to the date of the certificate and that such review shall
not have disclosed the existence during such period of any condition
or event that constitutes a Default or an Event of Default or, if any
such condition or event existed or exists (including, without
limitation, any such event or condition resulting from the failure of
the Company or any
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Subsidiary to comply with any Environmental Law), specifying the
nature and period of existence thereof and what action the Company
shall have taken or proposes to take with respect thereto.
SECTION 7.3 INSPECTION.
The Company shall permit the representatives of each Holder that is
an Institutional Investor:
(a) NO DEFAULT -- if no Default or Event of Default then
exists, at the expense of such Holder and upon reasonable prior notice
to the Company, to visit the principal executive office of the
Company, to discuss the affairs, finances and accounts of the Company
and its Subsidiaries with the Company's officers, and (with the
consent of the Company, which consent will not be unreasonably
withheld) its independent public accountants, and (with the consent of
the Company, which consent will not be unreasonably withheld) to visit
the other offices and properties of the Company and each Subsidiary,
all at such reasonable times and as often as may be reasonably
requested in writing; and
(b) DEFAULT -- if a Default or Event of Default then exists,
at the expense of the Company, to visit and inspect any of the offices
or properties of the Company or any Subsidiary, to examine all their
respective books of account, records, reports and other papers, to
make copies and extracts therefrom, and to discuss their respective
affairs, finances and accounts with their respective officers and
independent public accountants (and by this provision the Company
authorizes said accountants to discuss the affairs, finances and
accounts of the Company and its Subsidiaries), all at such times and
as often as may be requested.
SECTION 8. PREPAYMENT OF THE NOTES.
SECTION 8.1 REQUIRED PREPAYMENTS.
No prepayments shall be required with respect to the Notes.
SECTION 8.2 OPTIONAL PREPAYMENTS WITH MAKE-WHOLE AMOUNT.
The Company may, at its option, upon notice as provided below,
prepay at any time all, or from time to time any part of, the Notes, in an
amount not less than 10% of the aggregate principal amount of the Notes then
outstanding in the case of a partial prepayment, at 100% of the principal
amount so prepaid, together with interest accrued thereon to the date of such
prepayment, plus the Make-Whole Amount determined for the prepayment date
with respect to such principal amount. The Company will give the Holders
written notice of each optional prepayment under this Section 8.2 not less
than 30 days and not more than 60 days prior to the date fixed for such
prepayment. Each such notice shall specify such date, the aggregate principal
amount of the Notes to be prepaid on such date, the principal amount of each
Note held by such Holder to be prepaid (determined in accordance with Section
8.4), and the interest to be paid on
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the prepayment date with respect to such principal amount being prepaid, and
shall be accompanied by a certificate of a Senior Financial Officer as to the
estimated Make-Whole Amount due in connection with such prepayment
(calculated as if the date of such notice were the date of the prepayment),
setting forth the details of such computation. Two Business Days prior to
such prepayment, the Company shall deliver to each holder of Notes a
certificate of a Senior Financial Officer specifying the calculation of such
Make-Whole Amount as of the specified prepayment date.
SECTION 8.3 CHANGE IN CONTROL.
(a) NOTICE OF CHANGE IN CONTROL OR CONTROL EVENT.
The Company will, within two Business Days after any
Responsible Officer has knowledge of the occurrence of any Change in Control
or Control Event, give written notice of such Change in Control or Control
Event to each holder of Notes unless notice in respect of such Change in
Control (or the Change in Control contemplated by such Control Event) shall
have been given pursuant to subparagraph (b) of this Section 8.3. If a Change
in Control has occurred, such notice shall contain and constitute an offer to
purchase Notes as described in subparagraph (c) of this Section 8.3 and shall
be accompanied by the certificate described in subparagraph (g) of this
Section 8.3.
(b) CONDITION TO COMPANY ACTION.
The Company will not take any action that consummates or
finalizes a Change in Control unless (i) at least 60 days prior to such
action it shall have given to each Holder written notice containing and
constituting an offer to purchase Notes as described in subparagraph (c) of
this Section 8.3, accompanied by the certificate described in subparagraph
(g) of this Section 8.3, and (ii) contemporaneously with such action, it
purchases all Notes required to be purchased in accordance with this Section
8.3.
(c) OFFER TO PURCHASE NOTES.
The offer to purchase Notes contemplated by subparagraphs
(a) and (b) of this Section 8.3 shall be an offer to purchase, in accordance
with and subject to this Section 8.3, all, but not less than all, of the
Notes held by each holder (in this case only, "HOLDER" in respect of any Note
registered in the name of a nominee for a disclosed beneficial owner shall
mean such beneficial owner) on a date specified in such offer (the "PROPOSED
PURCHASE DATE"). If such Proposed Purchase Date is in connection with an
offer contemplated by subparagraph (a) of this Section 8.3, such date shall
be not less than 60 days and not more than 90 days after the date of such
offer (if the Proposed Purchase Date shall not be specified in such offer,
the Proposed Purchase Date shall be the 75th day after the date of such
offer).
(d) ACCEPTANCE.
Each Holder may accept or reject the offer to purchase made
pursuant to this Section 8.3 by causing a notice of such acceptance or
rejection to be delivered to the Company at
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least 15 days prior to the Proposed Purchase Date. A failure by any Holder to
respond to an offer to purchase made pursuant to this Section 8.3 shall be
deemed to constitute an acceptance of such offer by such Holder.
(e) PURCHASE.
Purchase of the Notes to be purchased pursuant to this
Section 8.3 shall be at 100% of the principal amount of such Notes, plus the
Make-Whole Amount determined for the date of purchase with respect to such
principal amount, together with interest on such Notes accrued to the date of
purchase. On the second Business Day preceding the date of purchase, the
Company shall deliver to the Holders of Notes being purchased a statement
showing the Make-Whole Amount due in connection with such purchase and
setting forth the details of the computation of such amount. The purchase
shall be made on the Proposed Purchase Date except as provided in
subparagraph (f) of this Section 8.3.
(f) DEFERRAL PENDING CHANGE IN CONTROL.
The obligation of the Company to purchase Notes pursuant to
the offers required by subparagraph (b) and accepted in accordance with
subparagraph (d) of this Section 8.3 is subject to the occurrence of the
Change in Control in respect of which such offers and acceptances shall have
been made. In the event that such Change in Control does not occur on or
prior to the Proposed Purchase Date in respect thereof, the purchase shall be
deferred until and shall be made on the date on which such Change in Control
occurs. The Company shall keep the Holders reasonably and timely informed of
(i) any such deferral of the date of purchase, (ii) the date on which such
Change in Control and the purchase are expected to occur, and (iii) any
determination by the Company that efforts to effect such Change in Control
have ceased or been abandoned (in which case the offers and acceptances made
pursuant to this Section 8.3 in respect of such Change in Control shall be
deemed rescinded).
(g) OFFICER'S CERTIFICATE.
Each offer to purchase the Notes pursuant to this Section
8.3 shall be accompanied by a certificate, executed by a Senior Financial
Officer of the Company and dated the date of such offer, specifying: (i) the
Proposed Purchase Date; (ii) that such offer is made pursuant to this Section
8.3; (iii) the principal amount of each Note offered to be purchased; (iv)
the estimated Make-Whole Amount due in connection with such purchase
(calculated as if the date of such notice were the date of the purchase)
setting forth the details of such computation; (v) the interest that would be
due on each Note offered to be purchased, accrued to the Proposed Purchase
Date; (vi) that the conditions of this Section 8.3 have been fulfilled; and
(vii) in reasonable detail, the nature and date or proposed date of the
Change in Control.
(h) DEFINITIONS.
"CHANGE IN CONTROL" shall be deemed to have occurred if any
person (as such term is used in section 13(d) and section 14(d)(2) of the
Exchange Act as in effect on the date of the Closing) or related persons
constituting a Group other than a Designated Person or Group
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become the "beneficial owners" (as such term is used in Rule 13d-3 under the
Exchange Act as in effect on the date of the Closing), directly or
indirectly, of more than 50% of the total voting power of all classes then
outstanding of the Company's voting stock.
"GROUP" shall mean any group of related persons
constituting a "Group" for the purposes of Section 13(d) of the Exchange Act,
or any successor provision.
"CONTROL EVENT" means:
(i) the execution by the Company or any of its
Subsidiaries or Affiliates of any agreement or letter of
intent with respect to any proposed transaction or event or
series of transactions or events which, individually or in
the aggregate, may reasonably be expected to result in a
Change of Control,
(ii) the execution of any written agreement which,
when fully performed by the parties thereto, would result in
a Change in Control, or
(iii) the making of any written offer by any person
(as such term is used in section 13(d) and section 14(d)(2)
of the Exchange Act as in effect on the date of the Closing)
or related persons constituting a group (as such term is used
in Rule 13d-5 under the Exchange Act as in effect on the date
of the Closing) to the holders of the common stock of the
Company, which offer, if accepted by the requisite number of
holders, would result in a Change in Control.
"DESIGNATED PERSON OR GROUP" means (i) the principal
stockholders listed on Schedule 8.3 and their heirs, (ii) members of the
current management team listed on Schedule 8.3 or a group of Persons
including members of the current management team or (iii) an employee stock
ownership plan of the Company.
SECTION 8.4 ALLOCATION OF PARTIAL PREPAYMENTS.
In the case of each partial prepayment of the Notes pursuant to
Section 8.2, the principal amount of the Notes to be prepaid shall be
allocated among all of the Notes at the time outstanding in proportion, as
nearly as practicable, to the respective unpaid principal amounts thereof not
theretofore called for prepayment.
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SECTION 8.5 MATURITY; SURRENDER, ETC.
In the case of each prepayment or purchase of Notes pursuant to this
Section 8, the principal amount of each Note to be prepaid or purchased shall
mature and become due and payable on the date fixed for such prepayment or
purchase, together with interest on such principal amount accrued to such
date and the applicable Make-Whole Amount, if any. From and after such date,
unless the Company shall fail to pay such principal amount when so due and
payable, together with the interest and Make-Whole Amount, if any, as
aforesaid, interest on such principal amount shall cease to accrue. Any Note
paid, purchased or prepaid in full shall be surrendered to the Company and
cancelled and shall not be reissued, and no Note shall be issued in lieu of
any prepaid or purchased principal amount of any Note.
SECTION 8.6 PURCHASE OF NOTES.
The Company will not and will not permit any Affiliate to purchase,
redeem, prepay or otherwise acquire, directly or indirectly, any of the
outstanding Notes except upon the purchase, payment or prepayment of the
Notes in accordance with the terms of this Agreement and the Notes. The
Company will promptly cancel all Notes acquired by it or any Affiliate
pursuant to any payment, prepayment or purchase of Notes pursuant to any
provision of this Agreement and no Notes may be issued in substitution or
exchange for any such Notes.
SECTION 8.7 MAKE-WHOLE AMOUNT.
"MAKE-WHOLE AMOUNT" means, with respect to any Note, an amount equal
to the excess, if any, of the Discounted Value of the Remaining Scheduled
Payments with respect to the Called Principal of such Note over the amount of
such Called Principal, PROVIDED that the Make-Whole Amount may in no event be
less than zero. For the purposes of determining the Make-Whole Amount, the
following terms have the following meanings:
"CALLED PRINCIPAL" means, with respect to any Note, the principal of
such Note that is to be prepaid or purchased pursuant to Section 8.2 or
Section 8.3 or has become or is declared to be immediately due and payable
pursuant to Section 12.1, as the context requires.
"DISCOUNTED VALUE" means, with respect to the Called Principal of
any Note, the amount obtained by discounting all Remaining Scheduled Payments
with respect to such Called Principal from their respective scheduled due
dates to the Settlement Date with respect to such Called Principal, in
accordance with accepted financial practice and at a discount factor (applied
on the same periodic basis as that on which interest on the Notes is payable)
equal to the Reinvestment Yield with respect to such Called Principal.
"REINVESTMENT YIELD" means, with respect to the Called Principal of
any Note, (x) in the case of any calculation pursuant to Section 12.1, .75%
and (y) in all other instances, .50% over the yield to maturity implied by
(i) the yields reported, as of 10:00 A.M. (New York City time) on the third
Business Day preceding the Settlement Date with respect to such Called
Principal, on the relevant display provided by the Bloomberg Financial
Markets Services for actively traded on the run U.S. Treasury securities
having a maturity equal to the maturity of such Called
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Principal as of such Settlement Date, or (ii) if such yields are not reported
as of such time or the yields reported as of such time are not ascertainable,
the Treasury Constant Maturity Series Yields reported, for the latest day for
which such yields have been so reported as of the second Business Day
preceding the Settlement Date with respect to such Called Principal, in
Federal Reserve Statistical Release H.15 (519) (or any comparable successor
publication) for actively traded on the run U.S. Treasury securities having a
constant maturity equal to the maturity of such Called Principal as of such
Settlement Date. Such implied yield will be determined, if necessary, by (a)
converting U.S. Treasury bill quotations to bond-equivalent yields in
accordance with accepted financial practice and (b) interpolating linearly
between (1) the actively traded U.S. Treasury security with the maturity
closest to and greater than the maturity and (2) the actively traded U.S.
Treasury security with the maturity closest to and less than the maturity.
"REMAINING SCHEDULED PAYMENTS" means, with respect to the Called
Principal of any Note, all payments of such Called Principal and interest
thereon that would be due after the Settlement Date with respect to such
Called Principal if no payment or purchase of such Called Principal were made
prior to its scheduled due date, PROVIDED that if such Settlement Date is not
a date on which interest payments are due to be made under the terms of the
Notes, then the amount of the next succeeding scheduled interest payment will
be reduced by the amount of interest accrued to such Settlement Date and
required to be paid on such Settlement Date pursuant to Section 8.2, 8.3 or
12.1.
"SETTLEMENT DATE" means, with respect to the Called Principal of any
Note, the date on which such Called Principal is to be prepaid or purchased
pursuant to Section 8.2 or Section 8.3 or has become or is declared to be
immediately due and payable pursuant to Section 12.1, as the context requires.
SECTION 9. AFFIRMATIVE COVENANTS.
The Company covenants that so long as any of the Notes are outstanding:
SECTION 9.1 COMPLIANCE WITH LAW.
The Company will, and will cause each of its Subsidiaries to, comply
with all laws, ordinances or governmental rules or regulations to which each
of them is subject, including, without limitation, Environmental Laws, and
will obtain and maintain in effect all licenses, certificates, permits,
franchises and other governmental authorizations necessary to the ownership
of their respective properties or to the conduct of their respective
businesses, in each case to the extent necessary to ensure that
non-compliance with such laws, ordinances or governmental rules or
regulations or failures to obtain or maintain in effect such licenses,
certificates, permits, franchises and other governmental authorizations could
not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
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SECTION 9.2 INSURANCE.
The Company will, and will cause each of its Subsidiaries to,
maintain, with financially sound and reputable insurers, insurance with
respect to their respective properties and businesses against such casualties
and contingencies, of such types, on such terms and in such amounts
(including deductibles, co-insurance and self-insurance, if adequate reserves
are maintained with respect thereto) as is customary in the case of entities
of established reputations engaged in the same or a similar business and
similarly situated.
SECTION 9.3 MAINTENANCE OF PROPERTIES.
The Company will, and will cause each of its Subsidiaries to,
maintain and keep, or cause to be maintained and kept, their respective
properties in good repair, working order and condition (other than ordinary
wear and tear), so that the business carried on in connection therewith may
be properly conducted at all times, PROVIDED that this Section shall not
prevent the Company or any Subsidiary from discontinuing the operation and
the maintenance of any of its properties if such discontinuance is desirable
in the conduct of its business and the Company has concluded that such
discontinuance could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
SECTION 9.4 PAYMENT OF TAXES AND CLAIMS.
The Company will, and will cause each of its Subsidiaries to, file
all tax returns required to be filed in any jurisdiction and to pay and
discharge all taxes shown to be due and payable on such returns and all other
taxes, assessments, governmental charges, or levies imposed on them or any of
their properties, assets, income or franchises, to the extent such taxes and
assessments have become due and payable and before they have become
delinquent and all claims for which sums have become due and payable that
have or might become a Lien on properties or assets of the Company or any
Subsidiary, PROVIDED that neither the Company nor any Subsidiary need pay any
such tax or assessment or claims if (a) the amount, applicability or validity
thereof is contested by the Company or such Subsidiary on a timely basis in
good faith and in appropriate proceedings, and the Company or a Subsidiary
has established adequate reserves therefor in accordance with GAAP on the
books of the Company or such Subsidiary or (b) the nonpayment of all such
taxes and assessments in the aggregate could not reasonably be expected to
have a Material Adverse Effect.
SECTION 9.5 CORPORATE EXISTENCE, ETC.
The Company will at all times preserve and keep in full force and
effect its corporate existence. Subject to Sections 10.2 and 10.7, the
Company will at all times preserve and keep in full force and effect the
corporate existence of each of its Subsidiaries and all rights and franchises
of the Company and its Subsidiaries unless, in the good faith judgment of the
Company, the termination of or failure to preserve and keep in full force and
effect such corporate existence, right or franchise could not, individually
or in the aggregate, have a Material Adverse Effect.
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SECTION 9.6 NOTES TO RANK PARI PASSU.
The Notes and all other obligations of the Company under this
Agreement are and at all times shall remain direct and unsecured obligations
of the Company ranking pari passu as against the assets of the Company with
all other Notes from time to time issued and outstanding hereunder without
any preference among themselves and pari passu with all other present and
future unsecured Debt (actual or contingent) of the Company which is not
expressed to be subordinate or junior in rank to any other unsecured Debt of
the Company, including, without limitation, Debt incurred under and pursuant
to the Credit Agreement.
SECTION 9.7 YEAR 2000 COMPLIANCE.
The Company will take all reasonable steps to ensure that its
Information Systems and Equipment are at all times Year 2000 Compliant, and
the Company shall notify the Holders promptly upon detecting any failure of
the Information Systems and Equipment to be Year 2000 Compliant except
insofar as the failure to do so will not result in a Material Adverse Effect.
In addition, the Company shall provide the Holders with such information
about its year 2000 computer readiness (including without limitation
information as to contingency plans, budgets and testing results) as the
Holders shall reasonably request.
SECTION 10. NEGATIVE COVENANTS.
The Company covenants that so long as any of the Notes are outstanding:
SECTION 10.1 TRANSACTIONS WITH AFFILIATES.
The Company will not and will not permit any Subsidiary to enter
into directly or indirectly any transaction or Material group of related
transactions (including without limitation the purchase, lease, sale or
exchange of properties of any kind or the rendering of any service) with any
Affiliate (other than the Company or another Subsidiary), except in the
ordinary course and pursuant to the reasonable requirements of the Company's
or such Subsidiary's business and upon fair and reasonable terms no less
favorable to the Company or such Subsidiary than would be obtainable in a
comparable arm's-length transaction with a Person not an Affiliate.
SECTION 10.2 MERGER, CONSOLIDATION, ETC.
The Company shall not consolidate with or merge with any other
corporation or convey, transfer or lease substantially all of its assets in a
single transaction or series of transactions to any Person unless:
(a) the successor formed by such consolidation or the
survivor of such merger or the Person that acquires by conveyance,
transfer or lease substantially all of the assets of the Company as an
entirety, as the case may be (the "Successor Corporation"), shall be a
solvent corporation organized and existing under the laws of the
United States or any State thereof (including the District of
Columbia), and, if the Company is not such corporation, (i) such
corporation shall have executed and delivered to each Holder its
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assumption of the due and punctual performance and observance of each
covenant and condition of this Agreement and the Notes and (ii) shall
have caused to be delivered to each Holder an opinion of nationally
recognized independent counsel, or other independent counsel
reasonably satisfactory to the Required Holders, to the effect that
all agreements or instruments effecting such assumption are
enforceable in accordance with their terms and comply with the terms
hereof;
(b) immediately after giving effect to such transaction, (i)
no Default or Event of Default shall have occurred and be continuing,
and (ii) the Successor Corporation would be permitted by the
provisions of Section 10.6(a)(v) to incur at least $1.00 of additional
Funded Debt.
No such conveyance, transfer or lease of substantially all of the assets of
the Company shall have the effect of releasing the Company or any successor
corporation that shall theretofore have become such in the manner prescribed
in this Section 10.2 from its liability under this Agreement or the Notes.
SECTION 10.3 LIENS.
The Company will not, and will not permit any of its Subsidiaries
to, create or incur, or suffer to be incurred or to exist, any Lien on its or
their property or assets, whether or not owned or hereafter acquired, or upon
any income or profits therefrom, or transfer any property for the purpose of
subjecting the same to the payment of obligations in priority to the payment
of its or their general creditors, or acquire or agree to acquire, or permit
any of its Subsidiaries to acquire, any property or assets upon conditional
sales agreements or other title retention devices, except:
(a) Liens for property taxes and assessments or governmental
charges or levies and Liens securing claims or demands of mechanics
and materialmen, provided payment thereof is not at the time required
by Section 9.4;
(b) Liens of or resulting from any judgment or award, the
time for the appeal or petition for rehearing of which shall not have
expired, or in respect of which the Company or a Subsidiary shall at
any time in good faith be prosecuting an appeal or proceeding for a
review and in respect of which a stay of execution pending such appeal
or proceeding for review shall have been secured;
(c) Liens incidental to the conduct of business or the
ownership of properties and assets (including, but not limited to,
Liens in connection with worker's compensation, unemployment insurance
and other like laws, warehousemen's and attorneys' liens and statutory
landlords' liens) and Liens to secure the performance of bids, tenders
or trade contracts, or to secure statutory obligations, surety or
appeal bonds or other Liens of like general nature incurred in the
ordinary course of business and not in connection with the incurrence
of Indebtedness, PROVIDED that such Liens do not, individually or in
the aggregate, materially impair the use of the property encumbered by
any such Lien in the operation of the business of the Company and its
Subsidiaries, taken as a whole, or the value of the property so
encumbered for the purposes of such business;
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(d) Liens securing Indebtedness of the Company or any
Subsidiary existing or committed to as of the date of Closing and
reflected on Schedule 5.15 hereto;
(e) Liens incurred after the Closing given to secure the
payment of the purchase price incurred in connection with the
acquisition, construction or improvement of fixed assets of the
Company, which Liens are incurred contemporaneously with or within 180
days after the payment of such purchase price or completion of such
construction or improvement and Liens existing on fixed assets at the
time of acquisition thereof or at the time of acquisition by the
Company of any business entity then owning such fixed assets whether
by merger, consolidation or acquisition of substantially all of its
assets, and whether or not such existing Liens were given to secure
the payment of the purchase price of the fixed assets to which they
attach, PROVIDED that (i) the Lien shall attach solely to the fixed
assets acquired, constructed or improved, (ii) at the time of
acquisition, construction or improvement of such fixed assets, the
aggregate amount remaining unpaid on all Debt secured by such Liens on
such fixed assets whether or not assumed by the Company shall not
exceed an amount equal to 100% of the lesser of the total purchase
price or fair market value at the time of acquisition, construction or
improvement of such fixed assets (as determined in good faith by the
Board of Directors of the Company), and (iii) all Debt secured by such
Liens shall be incurred within the applicable limitations of this
Agreement including, without limitation, Section 10.6;
(f) any extension, renewal or refunding of any Lien permitted
by the preceding clauses (d) or (e) of this Section 10.3 in respect of
the same property theretofore subject to such Lien in connection with
the extension, renewal or refunding of the Debt secured thereby;
PROVIDED THAT (i) the principal amount of such extension, renewal or
refunding of Debt shall not exceed an amount equal to the original
principal amount incurred with respect thereto, (ii) the time
remaining until the maturity of such Debt shall not be reduced, (iii)
such Lien shall attach solely to the same such property, and (iv)
immediately after the consummation of the extension, renewal or
refunding and after giving effect thereto, (A) no Default or Event of
Default would exist, and (B) the Company would be permitted by the
provisions of Section 10.6(a)(iv) to incur at least $1.00 of
additional Funded Debt; and
(g) in addition to the Liens permitted under Section 10.3(a)
through (f), Liens securing Debt of the Company or any Subsidiary
within the limitations of Section 10.6(a)(iv).
SECTION 10.4 CONSOLIDATED ADJUSTED NET WORTH.
The Company will at all times keep and maintain Consolidated Adjusted
Net Worth at an amount not less than $250,000,000.
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SECTION 10.5 FIXED CHARGE COVERAGE RATIO.
The Company will keep and maintain the ratio of Consolidated Earnings
Available for Fixed Charges to Consolidated Fixed Charges, determined on a
Rolling Four Quarter Basis, at not less than 2.0 to 1.0.
SECTION 10.6 LIMITATIONS ON DEBT.
(a) The Company will not, and will not permit any Subsidiary
to, create, issue, assume, guarantee or otherwise incur or in any
manner be or become liable in respect of any Funded Debt, except:
(i) Funded Debt evidenced by the Notes;
(ii) Funded Debt of the Company and its
Subsidiaries outstanding as of the date of this Agreement
and described on Schedule 5.15 hereto;
(iii) Funded Debt of a Subsidiary to the Company or
to another Subsidiary;
(iv) Funded Debt of the Company and its
Subsidiaries secured by Liens permitted by Section 10.3(g);
PROVIDED that at the time of creation, issuance, assumption,
guarantee or incurrence thereof and after giving effect
thereto and to the application of the proceeds thereof:
(A) Priority Debt does not exceed 20%
of Consolidated Total Capitalization, and
(B) such Funded Debt shall be otherwise
permitted pursuant to clause (v) of this
Section 10.6(a); and
(v) unsecured Funded Debt of the Company and
Subsidiaries; PROVIDED that at the time of creation,
issuance, assumption, guarantee or incurrence thereof and
after giving effect thereto and to the application of the
proceeds thereof, Consolidated Funded Debt shall not exceed
55% of Consolidated Total Capitalization.
(b) The renewal, extension or refunding of any Funded Debt,
issued, incurred or outstanding pursuant to Section 10.6 (a) (other
than renewals, extensions or refundings of Funded Debt where there is
no increase in the outstanding principal amount of such Funded Debt)
shall constitute the issuance of additional Funded Debt which is, in
turn, subject to the limitations of the applicable provisions of this
Section 10.6.
(c) Any Person which becomes a Subsidiary after the date
hereof shall for all purposes of this Section 10.6 be deemed to have
created, assumed or incurred at the time
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it becomes a Subsidiary all Debt of such Person existing immediately
after it becomes a Subsidiary.
SECTION 10.7 SALE OF ASSETS.
Except (i) as provided in Section 10.2 above, (ii) with respect to
inventory or other current assets in the ordinary course of business, (iii)
with respect to obsolete or worn out assets or assets no longer need for
operations, (iv) by a Subsidiary to the Company or any other Subsidiary, or
(v) by the Company to PTA.Schulman Plastics, Indonesia, The Sunprene Co. or
to a Wholly-Owned Subsidiary, neither the Company nor any Subsidiary will
sell, lease, transfer or otherwise dispose of assets provided that the
foregoing restrictions do not apply to the sale of such assets for cash
consideration to a Person other than an Affiliate and all of the following
conditions are met:
(a) after giving effect to such disposition(s), the aggregate
net book value of such assets sold, leased, or otherwise disposed of
during either (x) the current fiscal year would not exceed 10% of
Consolidated Total Assets computed at the end of the most recent
fiscal year preceding such sale, lease or other disposition or (y) the
period from the Closing to the date of such sale, lease or other
disposition would not exceed 25% of Consolidated Total Assets computed
at the end of the most recent fiscal year preceding such sale, lease
or other disposition;
(b) in the opinion of the Company, the sale, lease or other
disposition is for fair market value and is in the best interest of
the Company; and
(c) immediately after the consummation of the transaction,
and after giving effect thereto, (x) no Default or Event of Default
would exist, and (y) the Company would be permitted by the provisions
of Section 10.6(a)(v) to incur at least $1.00 of additional Funded
Debt.
Dispositions of assets may be made in excess of the limits described
in clause (a) above if the net proceeds of such dispositions of assets in
excess of those permitted by clause (a) above are either (1) reinvested or
committed to be reinvested in assets in related businesses as determined by
the Company's Board of Directors within 12 months of such disposals; or (2)
to retire senior Debt of the Company (or, in the case of the Notes, the offer
of prepayment) on a PRO RATA basis at any applicable prepayment premium;
PROVIDED that the Company offers to each holder of the Notes to prepay its
Notes in an amount equal to its PRO RATA share of the amount being used to
retire senior Debt. It is understood and agreed by the Company that any such
amounts paid and applied to the prepayment of the Notes as hereinabove
provided shall be prepaid as and to the extent provided in Section 8.2.
SECTION 10.8 RESTRICTED PAYMENTS.
(a) The Company will not, and will not permit its
Subsidiaries to, except as hereinafter provided:
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(1) declare or pay any dividends, either in cash or property,
on any shares of its capital stock of any class (except dividends or
other distributions payable solely in shares of common stock of the
Company);
(2) directly or indirectly, or through any Subsidiary or
through any Affiliate of the Company, purchase, redeem or retire any
shares of its capital stock of any class or any warrants, rights or
options to purchase or acquire any shares of its capital stock (other
than in exchange for or out of the net cash proceeds to the Company
from the issue or sale of shares of common stock of the Company or
warrants, rights or options to purchase or acquire any shares of its
common stock);
(3) make any other payment or distribution, either directly
or indirectly or through any Subsidiary, in respect of its capital
stock; or
(4) make any optional payment in respect of Subordinated
Debt;
(such declarations or payments of dividends, purchases, redemptions or
retirements of capital stock (other than such purchases, redemptions or
retirements of common stock of the Company made under and pursuant to Section
10.9 hereof), warrants and Subordinated Debt, rights or options and all such
other payments or distributions being herein collectively called "RESTRICTED
PAYMENTS"), if after giving effect thereto the sum of (i) the aggregate
amount of Restricted Payments made during the period from and after the
Closing to and including the date of the making of the Restricted Payment in
question, PLUS (ii) the aggregate amount of all Restricted Investments made
by the Company or any Subsidiary during said period would exceed the sum of
(A) $50,000,000 PLUS (B) 50% of Consolidated Net Earnings for such period,
computed on a cumulative basis for said entire period (or if such
Consolidated Net Earnings on a cumulative basis is a deficit figure, then
MINUS 100% of such deficit).
(b) The Company will not, and will not permit its
Subsidiaries to, declare any dividend which constitutes a Restricted
Payment payable more than 60 days after the date of declaration
thereof, excluding dividends payable by a Subsidiary to another
Subsidiary or to the Company.
(c) For the purposes of this Section 10.8, the amount of any
Restricted Payment declared, paid or distributed in property shall be
deemed to be the greater of the book value or fair market value (as
determined in good faith by the Board of Directors of the Company) of
such property at the time of the making of the Restricted Payment in
question.
(d) The Company will not, and will not permit its
Subsidiaries to, authorize or make a Restricted Payment if after
giving effect to the proposed Restricted Payment (i) a Default or
Event of Default would exist, or (ii) the Company would not be
permitted by the provisions of Section 10.6(a)v) to incur at least
$1.00 of additional Funded Debt.
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SECTION 10.9 INVESTMENTS.
The Company will not, and will not permit any Subsidiary to, make
any Investments, other than:
(a) Investments by the Company and its Subsidiaries in and to
Subsidiaries, including any Investment in a corporation that operates
in lines of business similar to the Company's existing lines of
business which, after giving effect to such Investment, will become a
Subsidiary;
(b) Investments representing loans or advances to officers,
directors and employees for expenses (including moving expenses
related to a transfer) incidental to carrying on the business of the
Company or any Subsidiary in an aggregate outstanding amount not to
exceed $1,500,000;
(c) Investments in property or assets to be used in the
ordinary course of the business of the Company and its Subsidiaries as
described in Section 10.10 of this Agreement;
(d) Investments in the common stock of the Company in an
aggregate amount not to exceed $50,000,000;
(e) Investments of the Company existing as of the Closing and
described on Schedule 10.9 hereto;
(f) receivables arising from the sale of goods and services
in the ordinary course of business of the Company and its
Subsidiaries;
(g) Investments in joint ventures in which the Company has a
pro rata interest;
(h) Investments in direct obligations of the United States of
America or any agency or instrumentality of the United States of
America, the payment or guarantee of which constitutes a full faith
and credit obligation of the United States of America, in either case,
maturing within twelve months from the date of acquisition thereof;
(i) Investments in certificates of deposit and time deposits
maturing within one year from the date of issuance thereof, bankers'
acceptances, Eurodollar deposits, short-term investment funds and
money market certificates issued by a bank or trust company having
capital, surplus and undivided profits aggregating at least
$100,000,000, PROVIDED that at the time of acquisition thereof by the
Company or a Subsidiary, the senior unsecured long-term debt of such
bank or trust company or of the holding company of such bank or trust
company is rated, or has an equivalent rating of, "A" or better by
Standard & Poor's Ratings Group or "A2" or better by Moody's Investors
Service, Inc.;
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(j) Investments in repurchase agreements with respect to any
Security described in clause (h) or clause (l) of this Section 10.9
entered into with a depository institution or trust company acting as
principal described in clause (i) of this Section 10.9 if such
repurchase agreements are by their terms to be performed by the
repurchase obligor and such repurchase agreements are deposited with a
bank or trust company of the type described in clause (i) of this
Section 10.9;
(k) Investments in foreign currency exchange Swaps entered
into in the ordinary course of business of the Company and its
Subsidiaries so long as such Investments are not made for speculative
purposes;
(l) Investments in readily-marketable obligations of
indebtedness of any State of the United States or any municipality
organized under the laws of any State of the United States or any
political subdivision thereof which, at the time of acquisition by the
Company or any Subsidiary, are accorded a rating of "SP-1" or "AA" by
Standard & Poor's Ratings Group, or "MIG-1" or "Aa" by Moody's
Investors Service, Inc. and which in any such case mature no later
than one year after the date of acquisition thereof;
(m) Investments in readily-marketable obligations of
indebtedness of any State of the United States or any municipality
organized under the laws of any State of the United States or any
political subdivision thereof which, at the time of acquisition by the
Company or any Subsidiary, are accorded an investment grade rating or
higher by Standard & Poor's Ratings Group or Moody's Investors
Service, Inc. and which in any such case mature no later than three
years after the date of acquisition thereof;
(n) Investments in commercial paper of corporations organized
under the laws of the United States or any State thereof, maturing
within 270 days or less from the date of issuance which, at the time
of acquisition by the Company or any Subsidiary, are accorded one of
the top two rating classifications by Standard & Poor's Ratings Group
or by Moody's Investors Service, Inc.; and
(o) other Investments (in addition to those permitted by the
foregoing provisions of this Section 10.9), PROVIDED that (1) all such
other Investments shall have been made out of funds available for
Restricted Payments which the Company or any Subsidiary would then be
permitted to make in accordance with the provisions of Section 10.8
and (2) after giving effect to such other Investments, (A) no Default
or Event of Default shall have occurred and be continuing, and (B) the
Company would be permitted by the provisions of Section 10.6(a)(v) to
incur at least $1.00 of additional Funded Debt.
In valuing any Investments for the purpose of applying the
limitations set forth in this Section 10.9, such Investments shall be taken
at the original cost thereof, without allowance for any subsequent write-offs
or appreciation or depreciation therein, but less any amount repaid or
recovered on account of capital or principal.
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For purposes of this Section 10.9, at any time when a corporation
becomes a Subsidiary, all Investments of such corporation at such time shall
be deemed to have been made by such corporation, as a Subsidiary, at such
time.
Notwithstanding anything to the contrary in this Agreement,
Investments permitted by clause (d) of this Section 10.9 shall not be
counted as a Restricted Payment under Section 10.8 hereof.
SECTION 10.10 LINE OF BUSINESS.
The Company will not, and will not permit any of its Subsidiaries
to, engage in any business if, as a result, the general nature of the
business in which the Company and its Subsidiaries, taken as a whole, would
then be engaged would be substantially changed from the general nature of the
business in which the Company and it Subsidiaries, taken as a whole, are
engaged on the date of this Agreement as described in the Memorandum.
SECTION 11. EVENTS OF DEFAULT.
An "EVENT OF DEFAULT" shall exist if any of the following conditions
or events shall occur and be continuing:
(a) the Company defaults in the payment of any principal or
Make-Whole Amount, if any, on any Note when the same becomes due and
payable, whether at maturity or at a date fixed for prepayment or by
declaration or otherwise; or
(b) the Company defaults in the payment of any interest on
any Note for more than five Business Days after the same becomes due
and payable; or
(c) the Company defaults in the performance of or compliance
with any term contained in Sections 10.4 through 10.8; or
(d) the Company defaults in the performance of or compliance
with any term contained herein (other than those referred to in
paragraphs (a), (b) and (c) of this Section 11) and such default is
not remedied within [60] days after the earlier of (i) a Responsible
Officer obtaining actual knowledge of such default and (ii) the
Company receiving written notice of such default from any Holder (any
such written notice to be identified as a "NOTICE OF DEFAULT" and to
refer specifically to this paragraph (d) of Section 11); or
(e) any representation or warranty made in writing by or on
behalf of the Company or by any officer of the Company in this
Agreement or in any writing furnished in connection with the
transactions contemplated hereby proves to have been false or
incorrect in any Material respect on the date as of which made; or
(f) (i) the Company or any Subsidiary is in default (as
principal or as guarantor or other surety) in the payment of any
principal of or premium or make-whole
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amount or interest on any Debt that is outstanding in an aggregate
principal amount of at least $10,000,000 beyond any period of grace
provided with respect thereto, or (ii) the Company or any Subsidiary
is in default in the performance of or compliance with any term of any
evidence of any Debt in an aggregate outstanding principal amount of
at least $10,000,000 or of any mortgage, indenture or other agreement
relating thereto or any other condition exists, and as a consequence
of such default or condition such Indebtedness has become, or has been
declared, due and payable before its stated maturity or before its
regularly scheduled dates of payment, or (iii) as a consequence of the
occurrence or continuation of any event or condition (other than the
passage of time or the right of the holder of Indebtedness to convert
such Indebtedness into equity interests), (x) the Company or any
Subsidiary has become obligated to purchase or repay Debt before its
regular maturity or before its regularly scheduled dates of payment in
an aggregate outstanding principal amount of at least $10,000,000,
or (y) one or more Persons have the right to require the Company or
any Subsidiary so to purchase or repay such Debt; or
(g) the Company or any Subsidiary (i) is generally not
paying, or admits in writing its inability to pay, its debts as they
become due, (ii) files, or consents by answer or otherwise to the
filing against it of, a petition for relief or reorganization or
arrangement or any other petition in bankruptcy, for liquidation or to
take advantage of any bankruptcy, insolvency, reorganization,
moratorium or other similar law of any jurisdiction, (iii) makes an
assignment for the benefit of its creditors, (iv) consents to the
appointment of a custodian, receiver, trustee or other officer with
similar powers with respect to it or with respect to any substantial
part of its property, (v) is adjudicated as insolvent or to be
liquidated, or (vi) takes corporate action for the purpose of any of
the foregoing; or
(h) a court or governmental authority of competent
jurisdiction enters an order appointing, without consent by the
Company or any of its Subsidiaries, a custodian, receiver, trustee or
other officer with similar powers with respect to it or with respect
to any substantial part of its property, or constituting an order for
relief or approving a petition for relief or reorganization or any
other petition in bankruptcy or for liquidation or to take advantage
of any bankruptcy or insolvency law of any jurisdiction, or ordering
the dissolution, winding-up or liquidation of the Company or any of
its Subsidiaries, or any such petition shall be filed against the
Company or any of its Subsidiaries and such petition shall not be
dismissed within 60 days; or
(i) a final judgment or judgments for the payment of money
aggregating in excess of $10,000,000 are rendered against one or more
of the Company and its Subsidiaries and which judgments are not,
within 30 days after entry thereof, bonded, discharged or stayed
pending appeal, or are not discharged within 30 days after the
expiration of such stay; or
(j) (i) any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any plan year or part thereof or a
waiver of such standards or extension of any amortization period is
sought or granted under section 412 of the Code, (ii) a notice
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of intent to terminate any Plan shall have been or is reasonably
expected to be filed with the PBGC or the PBGC shall have instituted
proceedings under ERISA section 4042 to terminate or appoint a trustee
to administer any Plan or the PBGC shall have notified the Company or
any ERISA Affiliate that a Plan may become a subject of any such
proceedings, (iii) the aggregate "amount of unfunded benefit
liabilities" (within the meaning of section 4001(a)(18) of ERISA)
under all Plans subject to ERISA, determined in accordance with
Title IV of ERISA, shall exceed $5,000,000, (iv) the Company or any
ERISA Affiliate shall have incurred or is reasonably expected to incur
any liability pursuant to Title I or IV of ERISA or the penalty or
excise tax provisions of the Code relating to employee benefit plans,
(v) the Company or any ERISA Affiliate withdraws from any
Multiemployer Plan, or (vi) the Company or any Subsidiary establishes
or amends any employee welfare benefit plan that provides
post-employment welfare benefits in a manner that would increase the
liability of the Company or any Subsidiary thereunder; and any such
event or events described in clauses (i) through (vi) above, either
individually or together with any other such event or events, could
reasonably be expected to have a Material Adverse Effect.
As used in Section 11(j), the terms "EMPLOYEE BENEFIT PLAN" and "EMPLOYEE
WELFARE BENEFIT PLAN" shall have the respective meanings assigned to such
terms in Section 3 of ERISA.
SECTION 12. REMEDIES ON DEFAULT, ETC.
SECTION 12.1 ACCELERATION.
(a) If an Event of Default with respect to the Company
described in paragraph (g) or (h) of Section 11 (other than an Event
of Default described in clause (i) of paragraph (g) or described in
clause (vi) of paragraph (g) by virtue of the fact that such clause
encompasses clause (i) of paragraph (g)) has occurred, all the Notes
then outstanding shall automatically become immediately due and
payable.
(b) If any other Event of Default has occurred and is
continuing, any Holder or Holders of more than 50% in principal amount
of the Notes at the time outstanding may at any time at its or their
option, by notice or notices to the Company, declare all the Notes
then outstanding to be immediately due and payable.
(c) If any Event of Default described in paragraph (a) or (b)
of Section 11 has occurred and is continuing, any Holder or Holders of
Notes at the time outstanding affected by such Event of Default may at
any time, at its or their option, by notice or notices to the Company,
declare all the Notes held by it or them to be immediately due and
payable.
Upon any Notes becoming due and payable under this Section 12.1,
whether automatically or by declaration, such Notes will forthwith mature and
the entire unpaid principal amount of such Notes, plus (i) all accrued and
unpaid interest thereon and (ii) the Make-Whole Amount determined in respect
of such principal amount (to the full extent permitted by applicable law),
shall all be immediately due and payable, in each and every case without
presentment, demand, protest or further notice, all of which are hereby
waived. The Company acknowledges, and the parties hereto agree, that each
Holder has the right to maintain its
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investment in the Notes free from repayment by the Company (except as herein
specifically provided for) and that the provision for payment of a Make-Whole
Amount by the Company in the event that the Notes are prepaid or are
accelerated as a result of an Event of Default, is intended to provide
compensation for the deprivation of such right under such circumstances.
SECTION 12.2 OTHER REMEDIES.
If any Default or Event of Default has occurred and is continuing,
and irrespective of whether any Notes have become or have been declared
immediately due and payable under Section 12.1, any Holder may proceed to
protect and enforce the rights of such Holder by an action at law, suit in
equity or other appropriate proceeding, whether for the specific performance
of any agreement contained herein or in any Note, or for an injunction
against a violation of any of the terms hereof or thereof, or in aid of the
exercise of any power granted hereby or thereby or by law or otherwise.
SECTION 12.3 RESCISSION.
At any time after any Notes have been declared due and payable, the
Holders of not less than 66-2/3% in principal amount of the Notes then
outstanding, by written notice to the Company, may rescind and annul any such
declaration and its consequences if (a) the Company has paid all overdue
interest on the Notes, all principal of and Make-Whole Amount, if any, on any
Notes that are due and payable and are unpaid other than by reason of such
declaration, and all interest on such overdue principal and Make-Whole
Amount, if any, and (to the extent permitted by applicable law) any overdue
interest in respect of the Notes, at the Default Rate, (b) all Events of
Default and Defaults, other than non-payment of amounts that have become due
solely by reason of such declaration, have been cured or have been waived
pursuant to Section 17, and (c) no judgment or decree has been entered for
the payment of any monies due pursuant hereto or to the Notes. No rescission
and annulment under this Section 12.3 will extend to or affect any subsequent
Event of Default or Default or impair any right consequent thereon.
SECTION 12.4 NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC.
No course of dealing and no delay on the part of any Holder in
exercising any right, power or remedy shall operate as a waiver thereof or
otherwise prejudice such Holder's rights, powers or remedies. No right, power
or remedy conferred by this Agreement or by any Note upon any Holder thereof
shall be exclusive of any other right, power or remedy referred to herein or
therein or now or hereafter available at law, in equity, by statute or
otherwise. Without limiting the obligations of the Company under Section 15,
the Company will pay to each Holder on demand such further amount as shall be
sufficient to cover all costs and expenses of such Holder incurred in any
enforcement or collection under this Section 12, including, without
limitation, reasonable attorneys' fees, expenses and disbursements.
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SECTION 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.
SECTION 13.1 REGISTRATION OF NOTES.
The Company shall keep at its principal executive office a register
for the registration and registration of transfers of Notes. The name and
address of each Holder of each transfer thereof and the name and address of
each transferee of one or more Notes shall be registered in such register.
Prior to due presentment for registration of transfer, the Person in whose
name any Note shall be registered shall be deemed and treated as the owner
and holder thereof for all purposes hereof, and the Company shall not be
affected by any notice or knowledge to the contrary. The Company shall give
to any Holder promptly upon request therefor, a complete and correct copy of
the names and addresses of all registered Holders.
SECTION 13.2 TRANSFER AND EXCHANGE OF NOTES.
Upon surrender of any Note at the principal executive office of the
Company for registration of transfer or exchange (and in the case of a
surrender for registration of transfer, duly endorsed or accompanied by a
written instrument of transfer duly executed by the registered Holder or his
attorney duly authorized in writing and accompanied by the address for
notices of each transferee of such Note or part thereof), the Company shall
execute and deliver, at the Company's expense (except as provided below), one
or more new Notes (as requested by the holder thereof) in exchange therefor,
in an aggregate principal amount equal to the unpaid principal amount of the
surrendered Note. Each such new Note shall be payable to such Person as such
holder may request and shall be substantially in the form of Exhibit 1. Each
such new Note shall be dated and bear interest from the date to which
interest shall have been paid on the surrendered Note or dated the date of
the surrendered Note if no interest shall have been paid thereon. The Company
may require payment of a sum sufficient to cover any stamp tax or
governmental charge imposed in respect of any such transfer of Notes. Notes
shall not be transferred in denominations of less than $1,000,000, provided
that if necessary to enable the registration of transfer by a Holder of its
entire holding of Notes, one Note may be in a denomination of less than
$1,000,000. Any transferee, by its acceptance of a Note registered in its
name (or the name of its nominee), shall be deemed to have made the
representation set forth in Section 6.2.
SECTION 13.3 REPLACEMENT OF NOTES.
Upon receipt by the Company of evidence reasonably satisfactory to
it of the ownership of and the loss, theft, destruction or mutilation of any
Note (which evidence shall be, in the case of an Institutional Investor,
notice from such Institutional Investor of such ownership and such loss,
theft, destruction or mutilation), and
(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (provided that if the Holder is, or is a
nominee for, an original Purchaser or another Holder with a minimum
net worth of at least $25,000,000, such Person's own unsecured
agreement of indemnity shall be deemed to be satisfactory), or
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(b) in the case of mutilation, upon surrender and
cancellation thereof,
the Company at its own expense shall execute and deliver, in lieu thereof, a
new Note, dated and bearing interest from the date to which interest shall
have been paid on such lost, stolen, destroyed or mutilated Note or dated the
date of such lost, stolen, destroyed or mutilated Note if no interest shall
have been paid thereon.
SECTION 14. PAYMENT OF NOTES.
SECTION 14.1 PLACE OF PAYMENT.
Subject to Section 14.2, payments of principal, Make-Whole Amount,
if any, and interest becoming due and payable on the Notes shall be made in
Akron, Ohio at the principal office of the Company in such jurisdiction. The
Company may at any time, by notice to each Holder, change the place of
payment of the Notes so long as such place of payment shall be either the
principal office of the Company in such jurisdiction or the principal office
of a bank or trust company in such jurisdiction.
SECTION 14.2 HOME OFFICE PAYMENT.
So long as any Purchaser or its nominee shall be a Holder, and
notwithstanding anything contained in Section 14.1 or in such Note to the
contrary, the Company will pay all sums becoming due on such Note for
principal, Make-Whole Amount, if any, and interest by the method and at the
address specified for such purpose below your name in Schedule A, or by such
other method or at such other address as such Purchaser or nominee shall have
from time to time specified to the Company in writing for such purpose,
without the presentation or surrender of such Note or the making of any
notation thereon, except that upon written request of the Company made
concurrently with or reasonably promptly after payment or prepayment in full
of any Note, such Purchaser or nominee shall surrender such Note for
cancellation, reasonably promptly after any such request, to the Company at
its principal executive office or at the place of payment most recently
designated by the Company pursuant to Section 14.1. Prior to any sale or
other disposition of any Note held by any Purchaser or its nominee will, at
its election, either endorse thereon the amount of principal paid thereon and
the last date to which interest has been paid thereon or surrender such Note
to the Company in exchange for a new Note or Notes pursuant to Section 13.2.
The Company will afford the benefits of this Section 14.2 to any
Institutional Investor that is the direct or indirect transferee of any Note
purchased by each Purchaser under this Agreement and that has made the same
agreement relating to such Note as each Purchaser has made in this Section
14.2.
SECTION 15. EXPENSES, ETC.
SECTION 15.1 TRANSACTION EXPENSES.
Whether or not the transactions contemplated hereby are consummated,
the Company will pay all costs and expenses (including reasonable attorneys'
fees of a special counsel and, if reasonably required, local or other
counsel) incurred by each Purchaser or Holder in connection
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with such transactions and in connection with any amendments, waivers or
consents under or in respect of this Agreement or the Notes (whether or not
such amendment, waiver or consent becomes effective), including, without
limitation: (a) the costs and expenses incurred in enforcing or defending (or
determining whether or how to enforce or defend) any rights under this
Agreement or the Notes or in responding to any subpoena or other legal
process or informal investigative demand issued in connection with this
Agreement or the Notes, or by reason of being a Holder, and (b) the costs and
expenses, including financial advisors' fees, incurred in connection with the
insolvency or bankruptcy of the Company or any Subsidiary or in connection
with any work-out or restructuring of the transactions contemplated hereby
and by the Notes. The Company will pay, and will save each Purchaser or other
Holder harmless from, all claims in respect of any fees, costs or expenses if
any, of brokers and finders (other than those retained by such Purchaser or
other Holder).
SECTION 15.2 SURVIVAL.
The obligations of the Company under this Section 15 will survive
the payment or transfer of any Note, the enforcement, amendment or waiver of
any provision of this Agreement or the Notes, and the termination of this
Agreement.
SECTION 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained herein shall survive
the execution and delivery of this Agreement and the Notes, the purchase or
transfer by any Purchaser of any Note or portion thereof or interest therein
and the payment of any Note, and may be relied upon by any subsequent Holder,
regardless of any investigation made at any time by or on behalf of any
Purchaser or any other Holder. All statements contained in any certificate or
other instrument delivered by or on behalf of the Company pursuant to this
Agreement shall be deemed representations and warranties of the Company under
this Agreement.
Subject to the preceding sentence, this Agreement and the Notes
embody the entire agreement and understanding between you and the Company and
supersede all prior agreements and understandings relating to the subject
matter hereof.
SECTION 17. AMENDMENT AND WAIVER.
SECTION 17.1 REQUIREMENTS.
This Agreement and the Notes may be amended, and the observance of
any term hereof or of the Notes may be waived (either retroactively or
prospectively), with (and only with) the written consent of the Company and
the Required Holders, except that (a) no amendment or waiver of any of the
provisions of Section 1, 2, 3, 4, 5, 6 or 21 hereof, or any defined term (as
it is used therein), will be effective as to each Purchaser unless consented
to by each Purchaser in writing, and (b) no such amendment or waiver may,
without the written consent of each Holder at the time outstanding affected
thereby, (i) subject to the provisions of Section 12 relating to acceleration
or rescission, change the amount or time of any prepayment or payment of
principal
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of, or reduce the rate or change the time of payment or method of computation
of interest or of the Make-Whole Amount on, the Notes, (ii) change the
percentage of the principal amount of the Notes the Holders of which are
required to consent to any such amendment or waiver or (iii) amend any of
Sections 8, 11(a), 11(b), 12, 17 or 20.
SECTION 17.2 SOLICITATION OF HOLDERS OF NOTES.
(a) SOLICITATION.
The Company will provide each Holder (irrespective of the
amount of Notes then owned by it) with sufficient information,
sufficiently far in advance of the date a decision is required, to
enable such Holder to make informed and considered decision with
respect to any proposed amendment, waiver or consent in respect of any
of the provisions hereof or of the Notes. The Company will deliver
executed or true and correct copies of each amendment, waiver or
consent effected pursuant to the provisions of this Section 17 to each
Holder promptly following the date on which it is executed and
delivered by, or receives the consent or approval of, the requisite
Holders.
(b) PAYMENT.
The Company will not directly or indirectly pay or cause to
be paid any remuneration, whether by way of supplemental or additional
interest, fee or otherwise, or grant any security, to any Holder as
consideration for or as an inducement to the entering into by any
Holder of any waiver or amendment of any of the terms and provisions
hereof or of the Notes unless such remuneration is concurrently paid,
or security is concurrently granted, on the same terms, ratably to
each Holder then outstanding whether or not such Holder consented to
such waiver or amendment.
SECTION 17.3 BINDING EFFECT, ETC.
Any amendment or waiver consented to as provided in this Section 17
applies equally to all Holders and is binding upon them and upon each future
Holder and upon the Company without regard to whether such Note has been
marked to indicate such amendment or waiver. No such amendment or waiver will
extend to or affect any obligation, covenant, agreement, Default or Event of
Default not expressly amended or waived or impair any right consequent
thereon. No course of dealing between the Company and any Holder nor any
delay in exercising any rights hereunder or under any Note shall operate as a
waiver of any rights of any Holder. As used herein, the term "this Agreement"
and references thereto shall mean this Agreement as it may from time to time
be amended or supplemented.
SECTION 17.4 NOTES HELD BY COMPANY, ETC.
Solely for the purpose of determining whether the holders of the
requisite percentage of the aggregate principal amount of Notes then
outstanding approved or consented to any amendment, waiver or consent to be
given under this Agreement or the Notes, or have directed the taking of any
action provided herein or in the Notes to be taken upon the direction of the
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holders of a specified percentage of the aggregate principal amount of Notes
then outstanding, Notes directly or indirectly owned by the Company or any of
its Affiliates shall be deemed not to be outstanding.
SECTION 18. NOTICES.
All notices and communications provided for hereunder shall be in
writing and sent (a) by telecopy if the sender on the same day sends a
confirming copy of such notice by a recognized overnight delivery service
(charges prepaid), or (b) by registered or certified mail with return receipt
requested (postage prepaid), or (c) by a recognized overnight delivery
service (with charges prepaid). Any such notice must be sent:
(i) if to a Purchaser or its nominee, to such
Purchaser or it at the address specified for such
communications in Schedule A, or at such other address as you
or it shall have specified to the Company in writing,
(ii) if to any other Holder, to such Holder at such
address as such other Holder shall have specified to the
Company in writing, or
(iii) if to the Company, to the Company at its
address set forth at the beginning hereof to the attention of
Robert A. Stefanko, Executive Vice President Finance and
Administration, or at such other address as the Company shall
have specified to the holder of each Note in writing.
Notices under this Section 18 will be deemed given only when actually received.
SECTION 19. REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating thereto, including,
without limitation, (a) consents, waivers and modifications that may
hereafter be executed, (b) documents received by each Holder at the Closing
(except the Notes themselves), and (c) financial statements, certificates and
other information previously or hereafter furnished to any Holder, may be
reproduced by such Holder by any photographic, photostatic, microfilm,
microcard, miniature photographic or other similar process and such Holder
may destroy any original document so reproduced. The Company agrees and
stipulates that, to the extent permitted by applicable law, any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by such Holder in the
regular course of business) and any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
This Section 19 shall not prohibit the Company or any Holder from contesting
any such reproduction to the same extent that it could contest the original,
or from introducing evidence to demonstrate the inaccuracy of any such
reproduction.
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SECTION 20. CONFIDENTIAL INFORMATION.
For the purposes of this Section 20, "CONFIDENTIAL INFORMATION"
means information delivered to each Holder by or on behalf of the Company or
any Subsidiary in connection with the transactions contemplated by or
otherwise pursuant to this Agreement that is proprietary in nature and that
was clearly marked or labeled or otherwise adequately identified when
received by such Holder as being confidential information of the Company or
such Subsidiary, PROVIDED that such term does not include information that
(a) was publicly known or otherwise known to such Holder prior to the time of
such disclosure, (b) subsequently becomes publicly known through no act or
omission by such Holder or any Person acting on such Holder's behalf, (c)
otherwise becomes known to such Holder other than through disclosure by the
Company or any Subsidiary or (d) constitutes financial statements delivered
to such Holder under Section 7.1 that are otherwise publicly available.
Each Holder will maintain the confidentiality of such Confidential
Information in accordance with procedures adopted by such Holder in good
faith to protect confidential information of third parties delivered to such
Holder, PROVIDED that such Holder may deliver or disclose Confidential
Information to (i) each Holder's directors, trustees, officers, employees,
agents, attorneys and affiliates (to the extent such disclosure reasonably
relates to the administration of the investment represented by each Holder's
Notes), (ii) each Holder's financial advisors and other professional advisors
who agree to hold confidential the Confidential Information substantially in
accordance with the terms of this Section 20, (iii) any other Holder, (iv)
any Institutional Investor to which any Holder sells or offers to sell such
Note or any part thereof or any participation therein (if such Person has
agreed in writing prior to its receipt of such Confidential Information to be
bound by the provisions of this Section 20), (v) any Person from whom any
Holder offers to purchase any security of the Company (if such Person has
agreed in writing prior to its receipt of such Confidential Information to be
bound by the provisions of this Section 20), (vi) any federal or state
regulatory authority having jurisdiction over any Holder, (vii) the National
Association of Insurance Commissioners or any similar organization, or any
nationally recognized rating agency that requires access to information about
such Holder's investment portfolio or (viii) any other Person to which such
delivery or disclosure may be necessary or appropriate (w) to effect
compliance with any law, rule, regulation or order applicable to any Holder,
(x) in response to any subpoena or other legal process, (y) in connection
with any litigation to which any Holder is a party or (z) if an Event of
Default has occurred and is continuing, to the extent any Holder may
reasonably determine such delivery and disclosure to be necessary or
appropriate in the enforcement or for the protection of the rights and
remedies under your Notes and this Agreement.
Each Holder, by its acceptance of a Note, will be deemed to have
agreed to be bound by and to be entitled to the benefits of this Section 20
as though it were a party to this Agreement. On reasonable request by the
Company in connection with the delivery to any holder of a Note of
information required to be delivered to such Holder under this Agreement or
requested by such Holder (other than a Holder that is a party to this
Agreement or its nominee, such Holder will confirm in writing that it is
bound by the provisions of this Section 20.
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SECTION 21. SUBSTITUTION OF PURCHASER.
Each Purchaser shall have the right to substitute any one of its
Affiliates as the purchaser of the Notes that such Purchaser has agreed to
purchase hereunder, by written notice to the Company, which notice shall be
signed by both such Purchaser and such Affiliate, shall contain such
Affiliate's agreement to be bound by this Agreement and shall contain a
confirmation by such Affiliate of the accuracy with respect to it of the
representations set forth in Section 6. Upon receipt of such notice, wherever
the word "Purchaser" is used in this Agreement (other than in this Section
21), such word shall be deemed to refer to such Affiliate in lieu of the
previous Purchaser. In the event that such Affiliate is so substituted as a
purchaser hereunder and such Affiliate thereafter transfers to any Purchaser
all of the Notes then held by such Affiliate, upon receipt by the Company of
notice of such transfer, wherever the word "Purchaser" is used in this
Agreement (other than in this Section 21), such word shall no longer be
deemed to refer to such Affiliate, but shall refer to the Purchaser, and the
Purchaser shall have all the rights of an original Holder under this
Agreement.
SECTION 22. MISCELLANEOUS.
SECTION 22.1 SUCCESSORS AND ASSIGNS.
All covenants and other agreements contained in this Agreement by or
on behalf of any of the parties hereto bind and inure to the benefit of their
respective successors and assigns (including, without limitation, any
subsequent Holder) whether so expressed or not.
SECTION 22.2 PAYMENTS DUE ON NON-BUSINESS DAYS.
Anything in this Agreement or the Notes to the contrary
notwithstanding, any payment of principal of or Make-whole Amount or interest
on any Note that is due on a date other than a Business Day shall be made on
the next succeeding Business Day without including the additional days
elapsed in the computation of the interest payable on such next succeeding
Business Day.
SECTION 22.3 SEVERABILITY.
Any provision of this Agreement that is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in
any jurisdiction shall (to the full extent permitted by law) not invalidate
or render unenforceable such provision in any other jurisdiction.
SECTION 22.4 CONSTRUCTION.
Each covenant contained herein shall be construed (absent express
provision to the contrary) as being independent of each other covenant
contained herein, so that compliance with any one covenant shall not (absent
such an express contrary provision) be deemed to excuse compliance with any
other covenant. Where any provision herein refers to action to be taken by
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any Person, or which such Person is prohibited from taking, such provision
shall be applicable whether such action is taken directly or indirectly by
such Person.
SECTION 22.5 COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each
of which shall be an original but all of which together shall constitute one
instrument. Each counterpart may consist of a number of copies hereof, each
signed by less than all, but together signed by all, of the parties hereto.
SECTION 22.6 GOVERNING LAW.
This Agreement shall be construed and enforced in accordance with,
and the rights of the parties shall be governed by, the law of the State of
New York, excluding choice-of-law principles of the law of such State that
would require the application of the laws of a jurisdiction other than such
State.
SECTION 22.7 JURISDICTION.
The Company hereby irrevocably and unconditionally agrees that any
suit, action or proceeding with respect to this Agreement, or any proceeding
to execute or otherwise enforce any judgment in respect of any breach
thereof, brought by any registered Holder of a Note against the Company or
any of its property, may be brought by such Holder of a Note in the United
States District Court for the Southern District of New York or any New York
State Court sitting in the Borough of Manhattan in New York City, as such
Holder of a Note may in its sole discretion elect, and by the execution and
delivery of this Agreement, the Company irrevocably submits to the
jurisdiction of each such court; and agrees that process served either
personally or by registered mail shall constitute, to the extent permitted by
law, adequate service of process in any such suit. In addition the Company
hereby irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of venue in any
suit, action or proceeding arising out of or relating to this Agreement or
any Note, brought in the said courts, and hereby irrevocably waives any claim
that any such suit, action or proceeding brought in any such court has been
brought in an inconvenient forum. Nothing herein shall in any way be deemed
to limit the ability of any registered Holder of a Note to serve any such
writs, process or summonses, in any manner permitted by applicable law or to
obtain jurisdiction over the Company in such other jurisdiction, and in such
manner, as may be permitted by applicable law.
SECTION 22.8 AGENT FOR SERVICE OF PROCESS.
WITHOUT LIMITING THE FOREGOING, THE COMPANY HEREBY APPOINTS, IN THE
CASE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN THE COURTS OF OR IN THE
STATE OF NEW YORK, CT CORPORATION TO RECEIVE, FOR IT AND ON ITS BEHALF,
SERVICE OF PROCESS IN THE STATE OF NEW YORK WITH RESPECT THERETO, PROVIDED
THE COMPANY MAY, AND IN THE EVENT THAT CT CORPORATION IS AT ANY TIME NO
LONGER DOMICILED IN THE STATE OF NEW
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YORK, THE COMPANY SHALL, APPOINT CT CORPORATION OR ANY OTHER PERSON,
REASONABLY ACCEPTABLE TO THE REQUIRED HOLDERS, WITH OFFICES IN THE STATE OF
NEW YORK TO REPLACE SUCH AGENT FOR SERVICE OF PROCESS UPON DELIVERY TO THE
HOLDERS OF A REASONABLY ACCEPTABLE AGREEMENT OF SUCH NEW AGENT AGREEING SO TO
ACT. IF SERVICE OF PROCESS IS MADE BY ANY HOLDER OF A NOTE UPON SUCH
APPOINTEE, A COPY THEREOF SHALL ALSO BE PROVIDED TO THE COMPANY, BY
REGISTERED OR CERTIFIED MAIL, OR BY INTERNATIONALLY-RECOGNIZED EXPEDITED
DELIVERY SERVICE; PROVIDED THAT THE FAILURE OF SUCH HOLDER TO PROVIDE SUCH
COPY TO THE COMPANY SHALL NOT IMPAIR OR AFFECT IN ANY WAY THE VALIDITY OF
SUCH SERVICE OF PROCESS OR ANY JUDGMENT RENDERED IN ANY SUCH SUIT, ACTION, OR
PROCEEDING. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO LIMIT THE ABILITY OF
ANY HOLDER OF A NOTE TO SERVE ANY SUCH WRITS, PROCESS OR SUMMONSES IN ANY
MANNER PERMITTED BY APPLICABLE LAW, OR TO OBTAIN JURISDICTION OVER THE
COMPANY, IN SUCH OTHER JURISDICTION, AND IN SUCH MANNER, AS MAY BE PERMITTED
BY APPLICABLE LAW.
* * * * *
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If you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterpart of this Agreement and return it to the
Company, whereupon the foregoing shall become a binding agreement between you
and the Company.
Very truly yours,
A. SCHULMAN, INC.
By: /s/ R. A. Stefanko
----------------------------
Its: Executive Vice President
----------------------------
<PAGE>
The foregoing is hereby agreed to as of the date hereof.
NEW YORK LIFE INSURANCE COMPANY
By: /s/ S. Thomas Knoff
----------------------------
Its: S. Thomas Knoff, Director
----------------------------
<PAGE>
MUTUAL TRUST LIFE INSURANCE COMPANY
NATIONAL TRAVELERS LIFE COMPANY
GUARANTEE RESERVE LIFE INSURANCE COMPANY
PIONEER MUTUAL LIFE INSURANCE COMPANY
GREAT WESTERN INSURANCE COMPANY
THE CATHOLIC AID ASSOCIATION
THE NORTH WEST LIFE ASSURANCE COMPANY OF CANADA
BY: ADVANTUS CAPITAL MANAGEMENT, INC.
BY: /s/ Guy M. de Lambert
-------------------------------
ITS: VICE PRESIDENT
-------------------------------
<PAGE>
LUTHERAN BROTHERHOOD
By: /s/ Mark O. Swenson
-------------------------------
Its: Assistant Vice President
-------------------------------
<PAGE>
MODERN WOODMEN OF AMERICA
By: /s/ Clyde C. Schoeck
-------------------------------
Its: President, Clyde C. Schoeck
-------------------------------
<PAGE>
SCHEDULE B
DEFINED TERMS
As used herein, the following terms have the respective meanings set
forth below or set forth in the Section hereof following such term:
"AFFILIATE" means, at any time, and with respect to any Person, (a)
any other Person that at such time directly or indirectly through one or more
intermediaries Controls, or is Controlled by, or is under common Control
with, such first Person, and (b) any Person beneficially owning or holding,
directly or indirectly, 5% or more of any class of voting or equity interests
of the Company or any Subsidiary or any corporation of which the Company and
its Subsidiaries beneficially own or hold, in the aggregate, directly or
indirectly, 5% or more of any class of voting or equity interests. As used in
this definition, "CONTROL" means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of
a Person, whether through the ownership of voting securities, by contract or
otherwise. Unless the context otherwise clearly requires, any reference to an
"Affiliate" is a reference to an Affiliate of the Company.
"BUSINESS DAY" means any day other than a Saturday, a Sunday or a
day on which commercial banks in Akron, Ohio, or New York, are required or
authorized to be closed.
"CAPITAL LEASE" means, at any time, a lease with respect to which
the lessee is required concurrently to recognize the acquisition of an asset
and the incurrence of a liability in accordance with GAAP.
"CAPITALIZED LEASE OBLIGATIONS" means the amount of the obligations
of a Person as lessee under all Capital Leases which would be required to be
reflected as a liability on a balance sheet in accordance with GAAP.
"CLOSING" is defined in Section 3.
"CODE" means the Internal Revenue Code of 1986, as amended from time
to time, and the rules and regulations promulgated thereunder from time to
time.
"COMPANY" means A. Schulman, Inc., a Delaware corporation.
"CONFIDENTIAL INFORMATION" is defined in Section 20.
"CONSOLIDATED ADJUSTED NET WORTH" means as of the date of any
determination thereof the amount of shareholders' equity as determined in
accordance with GAAP; PROVIDED THAT, in connection with any calculation of
Consolidated Adjusted Net Worth, Consolidated Adjusted Net Worth shall not be
affected by any effects of foreign currency translation adjustments .
"CONSOLIDATED DEBT" means as of the date of any determination
thereof all Debt of the Company and its Subsidiaries, after eliminating
intercompany items in accordance with GAAP.
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"CONSOLIDATED FIXED CHARGES" means with respect to any period, the
sum of (i) Consolidated Interest Expense and (ii) Consolidated Lease Rentals,
for such period.
"CONSOLIDATED FUNDED DEBT" means, without duplication, all Funded
Debt of the Company and its Subsidiaries, determined on a consolidated basis
in accordance with GAAP.
"CONSOLIDATED INCOME TAX EXPENSE" means for any period (without
duplication) all income tax expense of the Company and its Subsidiaries.
"CONSOLIDATED INTEREST EXPENSE" means for any period (without
duplication) all interest (including the interest component of rentals on
Capital Leases) and all amortization of debt discount and expense on all
Indebtedness (including, without limitation, payment-in-kind, zero coupon and
other like Securities) of the Company and its Subsidiaries.
"CONSOLIDATED LEASE RENTALS" means with respect to any period, the
sum of the minimum amount of rental and other obligations required to be paid
during such period by the Company or its Subsidiaries as lessee under all
leases of real or personal property (other than Capitalized Lease
Obligations), excluding any amounts required to be paid by the lessee
(whether or not designated as rental) which are (i) on account of maintenance
and repairs, insurance, taxes, assessments, water rates and similar charges,
or (ii) which are based on profits, revenues or sales realized by the lessee
from all leased property or otherwise based on the performance of the lessee.
"CONSOLIDATED NET EARNINGS" means (without duplication) for any
period consolidated net income (or loss) of the Company and its Subsidiaries,
as determined in accordance with GAAP, after excluding the sum of (i) net
earnings (or losses) of any Subsidiary accrued prior to the date it becomes a
Subsidiary or is merged with or consolidated into the Company or any
Subsidiary; (ii) the undistributed earnings of any Subsidiary which are
legally or contractually unavailable for payment to the Company; (iii) any
restoration to income of any contingency reserve (other than reserves
established in the normal course of business, such as allowances for
uncollectable accounts), except to the extent that such reserve was
established during such period; (iv) any gain on the sale or disposition of
Investments or fixed or capital assets, including any tax effect; (v) any
gains resulting from any write-up of assets; (vi) the proceeds of any life
insurance policy; (vii) any gain arising from the acquisition of any
securities of the Company or Subsidiary; (viii) any net income or loss
resulting from changes in GAAP, any discontinued operations or any gain or
loss resulting from any extraordinary items; (ix) any deferred or other
credit representing the excess of the equity in any Subsidiary over the cost
of the investment at the acquisition date; (x) in the case of a successor to
the Company by consolidation or merger, any earnings of the successor
corporation prior to such consolidation or merger; and (xi) any income not
freely convertible into Dollars.
"CONSOLIDATED NET EARNINGS AVAILABLE FOR FIXED CHARGES" means for
any period the sum of (i) Consolidated Net Earnings, (ii) Consolidated Income
Tax Expense and (iii) Consolidated Fixed Charges.
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"CONSOLIDATED TOTAL ASSETS" means as of the date of determination
thereof all assets of the Company and its Subsidiaries, after eliminating
intercompany items in accordance with GAAP.
"CONSOLIDATED TOTAL CAPITALIZATION" means the sum of Consolidated
Funded Debt and Consolidated Adjusted Net Worth.
"CREDIT AGREEMENT" means that certain Credit Agreement dated as of
March 13, 1995, among the Company, certain banking institutions party
thereto, and KeyBank, National Association, as Agent, as amended from time to
time, and including any renewals, replacements and refundings thereof.
"DEBT" means, without duplication and in respect to any Person, the
sum of (i) liabilities for borrowed money; (ii) its liabilities for the
deferred purchase price of property acquired by such Person (other than in
the ordinary course of business); (iii) Capitalized Lease Obligations; (iv)
all liabilities for borrowed money secured by any Lien on property owned; and
(v) any Guaranty of such Person with respect to liabilities described in (i)
through (iv) hereof.
"DEFAULT" means an event or condition the occurrence or existence of
which would, with the lapse of time or the giving of notice or both, become
an Event of Default.
"DEFAULT RATE" means that rate of interest that is the greater of
(i) 1% per annum above the rate of interest stated in clause (a) of the first
paragraph of the Notes or (ii) 1% over the rate of interest publicly
announced by Citibank, N.A. in New York, New York as its "base" or "prime"
rate.
"ENVIRONMENTAL LAWS" means any and all Federal, state, local, and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to pollution and the protection of the
environment or the release of any materials into the environment, including
but not limited to those related to hazardous substances or wastes, air
emissions and discharges to waste or public systems.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the rules and regulations promulgated
thereunder from time to time in effect.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that is treated as a single employer together with the Company
under section 414 of the Code.
"EVENT OF DEFAULT" is defined in Section 11.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FUNDED DEBT" of any Person means (i) all Debt of such Person having a
final maturity of one or more than one year from the date of origin thereof (or
which is renewable or extendible
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at the option of the obligor for a period or periods more than one year from
the date of origin), including all payments in respect thereof that are
required to be made within one year from the date of any determination of
Funded Debt, whether or not the obligation to make such payments shall
constitute a current liability of the obligor under GAAP, (ii) all
Capitalized Lease Obligations of such Person, and (iii) all Guaranties by
such Person of Funded Debt of others; PROVIDED, that in the determination of
Funded Debt of the Company or any Subsidiary thereof, there shall not be
included Debt of the Company and any Subsidiary thereof outstanding under any
revolving credit agreement or line of credit providing for borrowings of less
than one year unless, during the 365-day period immediately preceding the
date of any such calculation of Funded Debt, there shall have not been a
period of at least 30 consecutive days on each day of which Debt of the
Company and any Subsidiary thereof outstanding under such revolving credit
agreement is equal to zero by virtue, and solely by virtue, of such Debt
having been paid from general corporate funds of the Company and any
Subsidiary thereof and not from funds borrowed by the Company and any
Subsidiary thereof pursuant to any other revolving credit agreement for the
purpose of paying such Debt. If there shall not have been such 30 consecutive
day period on each day of which such Debt was equal to zero, then and in such
event there shall be included in such calculation of Funded Debt an amount
equal to the average aggregate amount of all such Debt outstanding during
that period of 30 consecutive days during such preceding 365-day period
during which the average aggregate amount of such Debt was the lowest
outstanding amount.
"GAAP" means generally accepted accounting principles as in effect
from time to time in the United States of America.
"GOVERNMENTAL AUTHORITY" means
(a) the government of
(i) the United States of America or any State or
other political subdivision thereof, or
(ii) any jurisdiction in which the Company or any
Subsidiary conducts all or any part of its business, or which
asserts jurisdiction over any properties of the Company or
any Subsidiary, or
(b) any entity exercising executive, legislative, judicial,
regulatory or administrative functions of, or pertaining to, any such
government.
"GUARANTY" means, with respect to any Person, any obligation (except
the endorsement in the ordinary course of business of negotiable instruments
for deposit or collection) of such Person guaranteeing or in effect
guaranteeing any Indebtedness, dividend or other obligation of any other
Person in any manner, whether directly or indirectly, including (without
limitation) obligations incurred through an agreement, contingent or
otherwise, by such Person:
(a) to purchase such Indebtedness or obligation or any property
constituting security therefor;
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(b) to advance or supply funds (i) for the purchase or payment of
such Indebtedness or obligation, or (ii) to maintain any working capital or
other balance sheet condition or any income statement condition of any other
Person or otherwise to advance or make available funds for the purchase or
payment of such Indebtedness or obligation;
(c) to lease properties or to purchase properties or services
primarily for the purpose of assuring the owner of such Indebtedness or
obligation of the ability of any other Person to make payment of the
Indebtedness or obligation; or
(d) otherwise to assure the owner of such Indebtedness or obligation
against loss in respect thereof.
In any computation of the Indebtedness or other liabilities of the obligor
under any Guaranty, the Indebtedness or other obligations that are the
subject of such Guaranty shall be assumed to be direct obligations of such
obligor.
"HAZARDOUS MATERIAL" means any and all pollutants, toxic or
hazardous wastes or any other substances that might pose a hazard to health
or safety, the removal of which may be required or the generation,
manufacture, refining, production, processing, treatment, storage, handling,
transportation, transfer, use, disposal, release, discharge, spillage,
seepage, or filtration of which is or shall be restricted, prohibited or
penalized by any applicable law (including, without limitation, asbestos,
urea formaldehyde foam insulation and polychlorinated biphenyls).
"HOLDER" means, with respect to any Note, the Person in whose name
such Note is registered in the register maintained by the Company pursuant to
Section 13.1.
"INDEBTEDNESS" with respect to any Person means, at any time, without
duplication,
(a) its liabilities for borrowed money and its redemption
obligations in respect of mandatorily redeemable Preferred Stock;
(b) its liabilities for the deferred purchase price of
property acquired by such Person (excluding accounts payable arising
in the ordinary course of business but including all liabilities
created or arising under any conditional sale or other title retention
agreement with respect to any such property);
(c) all liabilities appearing on its balance sheet in
accordance with GAAP in respect of Capital Leases;
(d) all liabilities for borrowed money secured by any Lien
with respect to any property owned by such Person (whether or not it
has assumed or otherwise become liable for such liabilities);
(e) all its liabilities in respect of letters of credit or
instruments serving a similar function issued or accepted for its
account by banks and other financial institutions (whether or not
representing obligations for borrowed money);
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(f) Swaps of such Person; and
(g) any Guaranty of such Person with respect to liabilities
of a type described in any of clauses (a) through (f) hereof.
Indebtedness of any Person shall include all obligations of such Person of
the character described in clauses (a) through (g) to the extent such Person
remains legally liable in respect thereof notwithstanding that any such
obligation is deemed to be extinguished under GAAP.
"INFORMATION SYSTEMS AND EQUIPMENT" means all computer hardware,
firmware and software, as well as other information processing systems, or
any equipment containing embedded microchips, whether directly or indirectly
owned, licensed, leased, operated or otherwise controlled by the Company or
any of its Subsidiaries, including through third-party service providers, and
which, in whole or part, are used, operated, relied upon or integral to the
Company's or any of its Subsidiaries' conduct of their businesses.
"INSTITUTIONAL INVESTOR" means (a) any original purchaser of a Note,
(b) any holder of a Note holding more than 5% of the aggregate principal
amount of the Notes then outstanding, and (c) any bank, trust company,
savings and loan association or other financial institution, any pension
plan, any investment company, any insurance company, any broker or dealer, or
any other similar financial institution or entity, regardless of legal form.
"INVESTMENTS" means all investments, in cash or by delivery of
property made, directly or indirectly in any Person, whether by acquisition
of shares of capital stock, indebtedness or other obligations or Securities
or by loan, advance, capital contribution or otherwise; PROVIDED, HOWEVER,
that "Investments" shall not mean or include routine investments in property
to be used or consumed in the ordinary course of business.
"LIEN" means, with respect to any Person, any mortgage, lien,
pledge, charge, security interest or other encumbrance, or any interest or
title of any vendor, lessor, lender or other secured party to or of such
Person under any conditional sale or other title retention agreement or
Capital Lease, upon or with respect to any property or asset of such Person
(including in the case of stock, stockholder agreements, voting trust
agreements and all similar arrangements).
"MAKE-WHOLE AMOUNT" is defined in Section 8.7.
"MATERIAL" means material in relation to the business, operations,
affairs, financial condition, assets, properties, or prospects of the Company
and its Subsidiaries taken as a whole.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the
business, operations, affairs, financial condition, assets or properties of
the Company and its Subsidiaries taken as a whole, or (b) the ability of the
Company to perform its obligations under this Agreement and the Notes, or (c)
the validity or enforceability of this Agreement or the Notes.
"MEMORANDUM" is defined in Section 5.3.
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"MULTIEMPLOYER PLAN" means any Plan that is a "multiemployer plan"
(as such term is defined in section 4001(a)(3) of ERISA).
"NOTES" is defined in Section 1.
"OFFICER'S CERTIFICATE" means a certificate of a Senior Financial
Officer or of any other officer of the Company whose responsibilities extend
to the subject matter of such certificate.
"PBGC" means the Pension Benefit Guaranty Corporation referred to
and defined in ERISA or any successor thereto.
"PERSON" means an individual, partnership, corporation, limited
liability company, association, trust, unincorporated organization, or a
government or agency or political subdivision thereof.
"PLAN" means an "employee benefit plan" (as defined in section 3(3)
of ERISA) that is or, within the preceding five years, has been established
or maintained, or to which contributions are or, within the preceding five
years, have been made or required to be made, by the Company or any ERISA
Affiliate or with respect to which the Company or any ERISA Affiliate may
have any liability.
"PREFERRED STOCK" means any class of capital stock of a corporation
that is preferred over any other class of capital stock of such corporation
as to the payment of dividends or the payment of any amount upon liquidation
or dissolution of such corporation.
"PRIORITY DEBT" means, without duplication, the sum of (i) Funded
Debt of Subsidiaries (other than Funded Debt of a Subsidiary to the Company
or to another Wholly-Owned Subsidiary) and (ii) Debt secured by Liens
incurred under Section 10.3(g).
"PROPERTY" or "PROPERTIES" means, unless otherwise specifically
limited, real or personal property of any kind, tangible or intangible,
choate or inchoate.
"QPAM EXEMPTION" means Prohibited Transaction Class Exemption 84-14
issued by the United States Department of Labor.
"REQUIRED HOLDERS" means, at any time, the holders of at least
66-2/3% in principal amount of the Notes at the time outstanding (exclusive
of Notes then owned by the Company or any of its Affiliates).
"RESPONSIBLE OFFICER" means any Senior Financial Officer and any
other officer of the Company with responsibility for the administration of
the relevant portion of this Agreement.
"RESTRICTED INVESTMENTS" means all Investments, other than
Investments described in clauses (a) through (n) of Section 10.9 hereof.
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"ROLLING FOUR QUARTER BASIS" means four consecutive quarterly
accounting periods treated as a single accounting period.
"SECURITIES ACT" means the Securities Act of 1933, as amended from
time to time.
"SECURITY" shall have the same meaning as in Section 2(1) of the
Securities Act.
"SENIOR FINANCIAL OFFICER" means the chief financial officer,
principal accounting officer, treasurer or comptroller of the Company.
"SUBORDINATED DEBT" means and includes any Debt incurred after the
Closing of any Person which shall contain or have applicable thereto
subordination provisions providing for the subordination thereof in right of
payment or security to other Debt of such Person.
"SUBSIDIARY" means, as to any Person, any corporation, association
or other business entity in which such Person or one or more of its
Subsidiaries or such Person and one or more of its Subsidiaries owns
sufficient equity or voting interests to enable it or them (as a group)
ordinarily, in the absence of contingencies, to elect a majority of the
directors (or Persons performing similar functions) of such entity, and any
partnership or joint venture if more than a 50% interest in the profits or
capital thereof is owned by such Person or one or more of its Subsidiaries or
such Person and one or more of its Subsidiaries (unless such partnership can
and does ordinarily take major business actions without the prior approval of
such Person or one or more of its Subsidiaries). Unless the context otherwise
clearly requires, any reference to a "Subsidiary" is a reference to a
Subsidiary of the Company.
"SWAPS" means, with respect to any Person, payment obligations with
respect to interest rate swaps, currency swaps, foreign forward exchange
contracts, and similar obligations obligating such Person to make payments,
whether periodically or upon the happening of a contingency. For the purposes
of this Agreement, the amount of the obligation under any Swap shall be the
amount determined in respect thereof as of the end of the then most recently
ended fiscal quarter of such Person, based on the assumption that such Swap
had terminated at the end of such fiscal quarter, and in making such
determination, if any agreement relating to such Swap provides for the
netting of amounts payable by and to such Person thereunder or if any such
agreement provides for the simultaneous payment of amounts by and to such
Person, then in each such case, the amount of such obligation shall be the
net amount so determined.
"WHOLLY-OWNED SUBSIDIARY" means, at any time, any Subsidiary one
hundred percent (100%) of all of the equity interests (except directors'
qualifying shares) and voting interests of which are owned by any one or more
of the Company and the Company's other Wholly-Owned Subsidiaries at such time.
"YEAR 2000 COMPLIANT" means that all Information Systems and
Equipment accurately process date data (including without limitation
calculating, comparing and sequencing) in all material respects before,
during and after the year 2000, as well as same and multi-century dates, or
between the years 1999 and 2000, taking into account all leap years,
including the fact that the year 2000 is a leap year, and further that when
used in combination with, or interfacing with,
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other Information Systems and Equipment, shall accurately accept, release and
exchange date data, and shall in all material respects continue to function
in the same manner as it performs today and shall not otherwise materially
impair the accuracy or functionality of Information Systems and Equipment.
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[FORM OF NOTE]
A. SCHULMAN, INC.
7.27% SENIOR NOTE DUE 2009
No. [_____] [Date]
$[_______] PPN 808194 A@ 3
FOR VALUE RECEIVED, the undersigned, A. SCHULMAN, INC. (herein
called the "Company"), a corporation organized and existing under the laws of
the State of Delaware, hereby promises to pay to [________], or registered
assigns, the principal sum of [________] DOLLARS on August 17, 2009 with
interest (computed on the basis of a 360-day year of twelve 30-day months)
(a) on the unpaid balance thereof at the rate of 7.27% per annum from the
date hereof, payable quarterly, on the seventeenth day of February, May,
August and November in each year, commencing with November ___, 1999, until
the principal hereof shall have become due and payable, and (b) to the extent
permitted by law on any overdue payment (including any overdue prepayment) of
principal, any overdue payment of interest and any overdue payment of any
Make-Whole Amount (as defined in the Note Purchase Agreement referred to
below), payable quarterly as aforesaid (or, at the option of the registered
holder hereof, on demand), at a rate per annum from time to time equal to the
greater of (i) 8.27% or (ii) 1% over the rate of interest publicly announced
by Citibank, N.A. from time to time in New York, New York as its "base" or
"prime" rate.
Payments of principal of, interest on and any Make-Whole Amount with
respect to this Note are to be made in lawful money of the United States of
America at New York, New York or at such other place as the Company shall
have designated by written notice to the holder of this Note as provided in
the Note Purchase Agreement referred to below.
This Note is one of a series of Senior Notes (herein called the
"Notes") issued pursuant to the Note Purchase Agreement, dated as of August
1, 1999 (as from time to time amended, the "Note Purchase Agreement"),
between the Company and the Purchasers named therein and is entitled to the
benefits thereof. Each holder of this Note will be deemed, by its acceptance
hereof, (I) to have agreed to the confidentiality provisions set forth in
Section 20 of the Note Purchase Agreement and (ii) to have made the
representation set forth in Section 6.2 of the Note Purchase Agreement.
<PAGE>
This Note is a registered Note and, as provided in the Note Purchase
Agreement, upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed,
by the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment
and for all other purposes, and the Company will not be affected by any
notice to the contrary.
This Note is subject to optional prepayment, in whole or from time
to time in part, at the times and on the terms specified in the Note Purchase
Agreement, but not otherwise.
If an Event of Default, as defined in the Note Purchase Agreement,
occurs and is continuing, the principal of this Note may be declared or
otherwise become due and payable in the manner, at the price (including any
applicable Make-Whole Amount) and with the effect provided in the Note
Purchase Agreement.
This Note shall be construed and enforced in accordance with, and
the rights of the parties shall be governed by, the law of the State of New
York.
A. SCHULMAN, INC.
By
------------------------------------
Its
------------------------------------
I-2
<PAGE>
Exhibit 11
Computation of Basic and Diluted Earnings Per Common Share.
<TABLE>
<CAPTION>
Year ended August 31,
---------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income $47,789,000 $50,143,000 $50,744,000
Dividends on preferred stock 53,000 53,000 53,000
----------- ----------- ------------
Net income applicable to common stock $47,736,000 $50,090,000 $50,691,000
----------- ----------- ------------
----------- ----------- ------------
Number of shares on which basic earnings
per share is calculated:
Average outstanding during period 31,671,768 35,236,098 37,l25,345
Add - Incremental shares under stock
compensation plans 7,846 39,229 24,250
----------- ----------- ------------
Number of shares on which diluted earnings per
share is calculated 31,679,614 35,275,327 37,149,595
----------- ----------- ------------
----------- ----------- ------------
Basic earnings per share $1.51 $1.42 $1.37
Diluted earnings per share $1.51 $1.42 $1.37
</TABLE>
<PAGE>
[PHOTO OF RED, YELLOW, BLUE AND BLACK PLASTIC BOARDS AND A CIRCULAR SAW BLADE]
BUILDING ON OUR STRENGTHS FOR THE NEW MILLENNIUM
1999 ANNUAL REPORT OF A.SCHULMAN INC.
[OUTSIDE FRONT COVER]
<PAGE>
[PHOTO OF RED, BLUE, GREY AND BROWN PLASTIC BOARDS, CIRCULAR SAW BLADE, LEVEL,
SCREWS, PENCIL AND SLIDE SQUARE]
ON THE COVER:
A. SCHULMAN INC. IS "BUILDING ON ITS STRENGTHS FOR THE NEW MILLENNIUM." THESE
STRENGTHS GIVE THE COMPANY A DISTINCT ADVANTAGE OVER ITS PLASTICS INDUSTRY
COMPETITORS.
A. SCHULMAN'S CORE STRENGTHS ARE:
- - PRODUCT INNOVATION
- - EXCEPTIONAL SERVICE
- - GLOBAL LEADERSHIP
- - OPERATIONAL STRATEGY
THESE STRENGTHS CONTRIBUTE DIRECTLY TO A. SCHULMAN'S SUCCESS IN THE MARKETS
IT SERVES, SUCH AS AUTOMOTIVE, FILM AND PACKAGING, CONSTRUCTION (SUCH AS THE
PLASTIC BUILDING MATERIALS SHOWN ON THE COVER AND ABOVE), AND SPECIALTY
PLASTICS.
ABOUT THE COMPANY
A. SCHULMAN INC. IS A LEADING INTERNATIONAL SUPPLIER OF HIGH-PERFORMANCE PLASTIC
COMPOUNDS AND RESINS, WHICH ARE USED AS A RAW MATERIAL TO BE MOLDED OR EXTRUDED
BY THE COMPANY'S CUSTOMERS. END-USE APPLICATIONS INCLUDE AUTOMOTIVE COMPONENTS,
FILM AND PACKAGING MATERIALS, CONSTRUCTION AND HOME IMPROVEMENT PRODUCTS,
RECREATIONAL AND SPORTS PRODUCTS, HOME AND OFFICE FURNISHINGS, QUALITY
CHILDREN'S TOYS, AND NUMEROUS OTHER INDUSTRIAL AND CONSUMER PRODUCTS.
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
ADDITIVES THAT IMPROVE THE PERFORMANCE OF PLASTICS IN A NUMBER OF SPECIALIZED
APPLICATIONS.
IN ADDITION, THE COMPANY'S WORLDWIDE MARKETING AND LOGISTICS
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 HAS 13 MANUFACTURING
PLANTS IN NORTH AMERICA, EUROPE, MEXICO AND THE ASIA-PACIFIC REGION. THE
COMPANY EMPLOYS APPROXIMATELY 2,400 PEOPLE. A. SCHULMAN STOCK IS QUOTED
THROUGH THE NASDAQ NATIONAL MARKET SYSTEM (SYMBOL: SHLM).
TABLE OF CONTENTS:
1 FINANCIAL HIGHLIGHTS
2 PRODUCT FAMILIES AT A GLANCE
4 LETTER TO SHAREHOLDERS
6 PRODUCT INNOVATION
8 EXCEPTIONAL SERVICE
10 GLOBAL LEADERSHIP
12 OPERATIONAL STRATEGY
14 CONSOLIDATED FINANCIAL STATEMENTS
27 MANAGEMENT'S DISCUSSION AND ANALYSIS
30 SELECTED FINANCIAL DATA
32 CORPORATE INFORMATION
[INSIDE FRONT COVER]
<PAGE>
A. Schulman, Inc.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Year Ended August 31,
---------------- -------------- ---------------
---------------- -------------- ---------------
1999 1998 1997
<S> <C> <C> <C>
Net sales ..................................................... $ 985,623,000 $ 993,394,000 $ 996,376,000
Net income .................................................... $ 47,789,000 $ 50,143,000 $ 50,744,000
Diluted earnings per share of common stock .................... $ 1.51 $ 1.42* $ 1.37
Capital expenditures .......................................... $ 35,082,000 $ 30,987,000 $ 27,201,000
Long-term debt and other non-current liabilities .............. $ 102,696,000 $ 75,704,000 $ 44,318,000
Long-term liabilities to capital .............................. 22.4% 17.1% 10.1%
Stockholders' equity .......................................... $ 356,246,000 $ 366,271,000 $ 393,401,000
Book value per common share ................................... $ 11.41 $ 10.97 $ 10.83
Number of stockholders ........................................ 971 1,066 1,178
*After deducting cumulative effect of accounting change
amounting to $.06 per common share
Cash dividends per share
1st Quarter ................................................... $ .115 $ .105 $ .095
2nd Quarter ................................................... .125 .115 .105
3rd Quarter ................................................... .125 .115 .105
4th Quarter ................................................... .125 .115 .105
---------------- -------------- ---------------
$ .490 $ .450 $ .410
---------------- -------------- ---------------
---------------- -------------- ---------------
Common stock price range ...................................... High - Low High - Low High - Low
1st Quarter ................................................... 23 - 13 7/16 24 3/4 - 19 1/2 25 - 19 1/2
2nd Quarter ................................................... 22 3/4 - 16 1/4 26 1/2 - 22 3/8 25 1/8 - 19
3rd Quarter ................................................... 18 - 13 26 1/8 - 19 7/8 22 3/8 - 18
4th Quarter ................................................... 20 1/4 - 16 1/16 21 - 151 1/16 25 - 211/4
</TABLE>
<TABLE>
<CAPTION>
NET SALES NET INCOME CAPITAL EXPENDITURES
(Dollars in Billions) (Dollars in Millions) (Dollars in Millions)
<S> <C> <C>
1990 $ .736 1990 $ 36.096 1990 $ 17.668
1991 $ .679 1991 $ 42.349 1991 $ 17.997
1992 $ .732 1992 $ 43.760 1992 $ 15.827
1993 $ .685 1993 $ 36.738 1993 $ 18.158
1994 $ .749 1994 $ 44.571 1994 $ 25.302
1995 $1.027 1995 $ 53.618 1995 $ 58.533
1996 $ .977 1996 $ 42.177 1996 $ 18.542
1997 $ .996 1997 $ 50.774 1997 $ 27.201
1998 $ .993 1998 $ 50.143 1998 $ 30.987
1999 $ .986 1999 $ 47.789 1999 $ 35.082
</TABLE>
1
<PAGE>
[PHOTO OF GREEN, RED, YELLOW AND BLUE PELLETS AND COLOR PLAQUES]
A. SCHULMAN PRODUCT
FAMILIES
AT A GLANCE
- -----------------------
PRODUCT FAMILIES
- -----------------------
POLYOLEFINS
.......................
COLOR
CONCENTRATES/
ADDITIVE
MASTERBATCHES
.......................
POLYVINYL
CHLORIDE
.......................
ENGINEERED
MATERIALS
.......................
MERCHANT/
DISTRIBUTION
<PAGE>
- --------------------------------------------------------------------------------
PRODUCTS AND SERVICES
- --------------------------------------------------------------------------------
- - Filled and unfilled polypropylene and polyethylene compounds can withstand
severe weather and use conditions. Available for injection molding, extrusion
and blow molding applications.
- - A. Schulman's custom compounding services and resins are specifically
tailored for rotational molding, which is used to make very large hollow
parts.
- - Polyolefins can be combined with colorants and other additives to deliver
customer-specific properties for color, glossy/matte finish, ultraviolet
protection and a broad range of physical properties.
- --------------------------------------------------------------------------------
- - A. Schulman offers thermoplastic color and additive concentrates that improve
the appearance and performance of resins used in plastic film.
- - A. Schulman has matched thousands of different colors in virtually every
resin and can meet exacting customer specifications.
- - One masterbatch product is a paper substitute that is printable and foldable
like paper, but is exceptionally durable and resists moisture and chemicals.
- --------------------------------------------------------------------------------
- - Unique thermoplastic/PVC compounds are available in several blow molding,
injection molding and extrusion grades.
- - A. Schulman formulates compounds and elastomers to introduce a variety of
product attributes, including weatherability; consistency; ease of
processing; material flexibility; and high-gloss, low-gloss or matte finish.
- --------------------------------------------------------------------------------
- - A. Schulman configures multicomponent blends of ionomers, urethanes and nylon
to produce materials that meet specific performance requirements, no matter
what the base resin.
- - Compounds are processed for color; toughness; abrasion, chemical, heat and
corrosion resistance; electrical insulation; and dimensional stability.
- --------------------------------------------------------------------------------
- - A. Schulman is a leading international marketer and distributor of
polypropylene, polyethylene and specialty styrenics on behalf of polymer
producers Exxon Chemical and BASF.
- - The merchant business accommodates a variety of bulk and packaged material
requests for polyethylene, polypropylene, acrylonitrile butadiene styrene
(ABS), and custom blends.
- --------------------------------------------------------------------------------
CUSTOMERS AND MARKETS
- --------------------------------------------------------------------------------
- - Polyolefins are the material of choice for automotive applications, including
interior trim, bumper covers and fascias. A. Schulman is a preferred supplier
to leading North American auto manufacturers.
- - Roto-molding compounds are used in agricultural tanks, watercraft such as
kayaks and canoes, and large toys.
- -------------------------------------------------------------------------------
- - A. Schulman's film and packaging business is especially strong in Europe,
with significant growth potential in North America. End-uses: film and
packaging for processed foods, courier bags, and other consumer and
industrial products.
- - Papermatch-Registered Trademark- is an advanced product whose market
potential is just beginning to be realized. Applications include book covers,
bibs, maps, packaging materials, labels, folders and envelopes.
- -------------------------------------------------------------------------------
- - Typical applications include automotive, furniture, architectural and
consumer products.
- - A. Schulman's Sunprene-Registered Trademark- is an ideal, economically
beneficial replacement for rubber and other thermoplastic elastomers in
automotive applications.
- -------------------------------------------------------------------------------
- - High-strength applications in the electronics, appliance, automotive and
construction industries.
- -------------------------------------------------------------------------------
- - A. Schulman distributes specialty resins throughout North America and Europe.
Customers include automobile and film and packaging manufacturers around the
world.
- - A. Schulman capitalizes on its economies of scale and global purchasing and
sourcing capabilities to procure and re-package plastic materials to meet
specific customer needs.
BUILDING OUR
GLOBAL CAPACITY
A. Schulman is a U.S.-based global company whose investments in western and
eastern Europe, Mexico and Asia-Pacific have resulted in a number of strategic
successes around the world. The international operations enable A. Schulman to
meet local and global customers' demands for high-performance plastics.
In the last 24 months, A. Schulman has opened or expanded operations in Mexico,
the Czech Republic, France, Germany, Great Britain, Hungary, Italy, Poland and
Indonesia. A. Schulman's European operations are particularly well-positioned to
serve the growing film and packaging markets, while its North American
operations hold preferred-vendor status in the automobile industry.
The ability to share information in the automobile and film/packaging markets
across continents is a significant competitive advantage for A. Schulman. In
addition, A. Schulman's marketing expertise and global purchasing programs
provide opportunities in the non-manufacturing (distribution and merchant)
portion of the business. Global leadership has been, and will continue to be,
one of the core strengths of A. Schulman.
3
<PAGE>
TO OUR STOCKHOLDERS:
We are pleased to report that net income per share, before the effect of an
accounting change in fiscal 1998, established new records for the fourth quarter
and year ended August 31, 1999.
Net income per share for the fourth quarter ended August 31, 1999 was $.48,
a 9% increase over the $.44 per share recorded in the same period last year.
However, net income of $15,034,000 for the final quarter of 1999 was off
slightly from last year's earnings of $15,099,000 for the fourth quarter of
fiscal 1998. Sales of $241.3 million were up 3.8% from last year's fourth
quarter sales of $232.5 million.
Fiscal year 1999 net income per share of $1.51 was a record for A.
Schulman, surpassing last year's record of $1.48 before the cumulative effect of
an accounting change. Net income for 1999 was $47,789,000, down 8.4% from last
year's $52,150,000 before the cumulative effect of an accounting change. Sales
for fiscal 1999 were $985.6 million compared with $993.3 million for the same
period last year. A lower level of pricing in the plastic market more than
offset improved volume of approximately 2% for the year.
In November 1997, the FASB issued a ruling requiring the write-off of
business process re-engineering costs. Accordingly, in last year's first
quarter, we wrote off $3,237,000 of such costs that were capitalized as of
August 31, 1997. This write-off, net of income taxes, amounted to $2,007,000 or
$.06 per common share and was accounted for as a cumulative effect of an
accounting change. After deducting the charge, net income for the year ended
August 31, 1998 was $50,143,000 or $1.42 per common share.
Basic and diluted per share earnings are the same for all reported periods.
Although we accomplished many of our objectives during the past year, net
income was off from last year's levels. The major reasons for the reduction in
income were low pricing and higher operating expenses resulting from investments
in new employees, costs arising from the implementation of new business systems
and a number of other cost pressures.
There was a positive impact on per share earnings from the shares
repurchased under our existing authorization. During the year ended August 31,
1999, we repurchased 2,182,000 shares for $34,533,000 or an average cost of
$15.82 per share. Currently, we have 3,692,000 shares remaining under a six
million share repurchase authorization approved by our Board in August 1998. As
of August 31, 1999, there were 31,130,155 shares outstanding, down 6.5% from the
33,278,505 shares outstanding at the end of the 1998 fiscal year.
Profits in our European operations were up in the final quarter of the
fiscal year. Tonnage for the fourth quarter was up 8.5%, but sales were off
slightly mainly because of the adverse effect of the translation of foreign
currencies which reduced sales by $6.4 million for the quarter and $4.4 million
for the year. The adverse effect of translation also reduced net income by
$297,000 or $.01 per share for the quarter and $189,000 or $.01 per share for
the year.
For the 1999 fiscal year, European profits were up slightly on a sales
decline of $10.7 million resulting from the adverse effects of translation and
lower prices of plastics, which offset tonnage gains of 4.7%.
North American profits were down for the quarter and were off $4.6 million
for the year. Tonnage for the quarter was up 4.1%, and the gain was more than
offset by lower margins and higher operating expenses.
For the year, volume in North America was down approximately 1%, but an
improvement in profit margins was offset by higher operating expenses.
Worldwide volume was up 6.6% for the quarter and 2.2% for the year. Tonnage
in manufacturing was off approximately 2% for the year, but merchant volume was
up strongly in Europe and North America.
Capacity utilization in the quarter was 82% compared with 86% last year.
Utilization was down in Europe, mainly due to the startup of a new large
manufacturing line in the Givet, France operation. Utilization in North America
declined from 82% in last year's fourth quarter to 78% in the current quarter
due to equipment problems at our Texas tolling facility and additional capacity
in the Canadian and Mexican facilities.
For the year, capacity utilization was 84% compared with 90% last year.
Utilization was down 8% in Europe due to a weak second quarter.
Gross profit margins for the quarter were up because of strong margins in
Europe. Worldwide margins were 19.2% compared with 17.6% last year. For the
year, overall margins improved from 17.1% to 18.3% in 1999.
Capital expenditures were $35 million for 1999, the second highest in A.
Schulman's history. The largest project, with a cost of $12.5 million, was an
addition to the Givet, France facility that included a new manufacturing line
with an annual capacity of 60 million pounds. This line, which commenced
operations in June 1999, will increase European capacity by approximately 15%.
During the year, we also completed a product development and a color center,
both in northeast Ohio. These two facilities, with a cost of $5.8 million, will
provide new and enhanced capabilities for the development of products for
customers.
In addition, we are spending $13 million in Germany to expand our
manufacturing capability and provide additional storage capabilities. This
project, which will add 23 million pounds of capacity, should be completed
during the next year.
Our Board recently approved several new capital projects amounting to
approximately $13 million. These projects include
<PAGE>
a new state-of-the-art manufacturing line for our ComAlloy facility in
Tennessee. This line, which will cost $4 million, will replace two small volume
older manufacturing lines and provide the ability to pursue new business
opportunities.
We will also add a production line to our facility in Indonesia and replace
a line in our Belgian plant. The Belgian project will also include a warehouse
addition. These projects will cost $6.2 million. We will also invest $3.2
million to add a fourth line to our Givet, France facility.
These projects will increase worldwide capacity by approximately 4% and are
planned for completion in fiscal 2001.
Larry A. Kushkin, our Executive Vice President of International Automotive
Operations, and Brian R. Colbow, Treasurer, retired on August 31, 1999. Both of
these individuals, who each have over 20 years of service, have been important
contributors to our success. We will certainly miss their expertise, dedication
and commitment to A. Schulman.
In October 1999, we strengthened our management team by appointing Ronald
G. Andres as Vice President of North American Manufacturing. Mr. Andres, who has
15 years of service, has served in a number of manufacturing positions in
various locations. Alain C. Adam, our Vice President of International Automotive
Operations, will assume overall responsibility for the automotive business.
We have redesigned our business processes and installed new systems at the
majority of our worldwide facilities during fiscal 1999. We will implement the
system at one major facility and one smaller location during fiscal 2000. This
will complete our plan to cover the critical locations throughout our
operations.
These new systems and software will enable us to better serve our
customers, increase efficiencies and productivity, and provide us with the
information to effectively manage in today's competitive business environment.
During the year, we incurred $4.3 million for this initiative. Although these
implementations have been difficult and time consuming, we remain convinced and
enthusiastic about the future benefits for A. Schulman.
In August 1999, we completed a new $50 million financing. This agreement,
with a number of insurance companies, will have an effective interest rate of
7.14% annually and is repayable in one lump sum after ten years. These funds
will provide added capability and flexibility to continue our repurchases of
stock, maintain our program of capital expenditures, and provide resources for
any other new corporate opportunities that may arise.
In January 1999, for the seventeenth consecutive year, we increased annual
cash dividends from $.46 to $.50 per share. This increase, amounting to 9%,
reflects our confidence in the long-term future of A. Schulman.
[PHOTO OF TERRY L. HAINES AND ROBERT A. STEFANKO IN FRONT OF THE COMPANY'S
OHIO COLOR TECHNOLOGY CENTER]
Terry L. Haines (left) and Robert A. Stefanko at the new Color
Technology Center in Ohio.
There were a number of important accomplishments during the year. First,
record per share earnings were achieved in an extremely difficult environment of
strong competition, low plastic prices and a weak Euro. In addition, we have
been aggressive in our repurchase of shares under an existing authorization. We
have increased our European capacity with a large new line in France and have
opened two new centers in Ohio for the development of products. We have
redesigned our business processes and have installed new information systems in
the majority of our worldwide facilities. We have also enhanced our financial
capabilities with a new $50 million financing.
Currently, we have a strong level of orders in Europe. Pricing of resins
has firmed during the last six months and we anticipate good business conditions
through the 1999 calendar year.
In North America, we have a good level of orders but have noted some
pressure on margins due to the higher costs of plastic resins. Although the cost
of implementing new business systems will decline in fiscal 2000, most of the
lower cost will occur in the second half of the fiscal year.
As we enter the new millennium, we will utilize our strengths to capitalize
on new opportunities. We remain optimistic about the future.
We thank our shareholders and employees for their continued support and
commitment to A. Schulman.
/s/ Terry L. Haines /s/ Robert A. Stefanko
Terry L. Haines Robert A. Stefanko
President and Chairman
Chief Executive Officer
November 5, 1999
5
<PAGE>
[PHOTO OF FRONT DRIVER'S SIDE CORNER OF A RED AUTOMOBILE]
A. SCHULMAN'S ABILITY TO TAILOR PLASTIC COMPOUNDS TO MEET SPECIFIC CUSTOMER
APPLICATIONS IS A DISTINCT COMPETITIVE ADVANTAGE. THE NEW PLYMOUTH NEON BUMPER
COVER SHOWN ABOVE IS ONE SUCH INNOVATION - HIGHLY DURABLE, GLOSSY PLASTIC THAT
IS A SOLID COLOR, WITH NO NEED FOR PAINTING.
[PHOTO OF CLOTH MATERIAL, SPOOLS OF YELLOW THREAD, SCISSORS, PINS AND YELLOW
TAPE MEASURE]
<PAGE>
TECHNOLOGY and product innovation are important factors for future growth at
A. Schulman. The Company actively promotes, and benefits from, the increased use
of plastics in everything from automobile components and building materials to
film and packaging, recreational products, home furnishings, and toys.
A. Schulman offers a large array of plastic resins, concentrates, additives
and blends. These products are designed to meet specific customer demands for
color, weatherability, flexibility, dimensional stability, printability,
strength, and resistance to chemicals, heat, moisture and corrosion. The ability
to develop customer-specific color solutions is both a science and an art. A.
Schulman's color capabilities are unparalleled in the plastics industry.
[PHOTO OF RED, YELLOW, BLUE AND GREEN PLASTIC OBJECTS]
PRODUCT INNOVATION
A. Schulman's new Color Technology Center (CTC) enables the Company to
provide customers with a color match within five working days - a significant
advantage over the more typical three- to six-week time frame. Color-matching is
an increasingly important part of A. Schulman's business for customers around
the world use color to build corporate and brand identity.
The Company's Product Technology Center (PTC) develops market-driven
products with unique properties for customers. These products create high-growth
opportunities for A. Schulman. The center features one of the most
comprehensive, fully accredited film laboratories in the industry. It includes a
production area that allows A. Schulman and its customers to test new ideas and
formulations before undertaking full-scale production.
The two technology centers - opened in 1999 in northeast Ohio - centralize
A. Schulman's North American new product development capabilities. The locations
enable the Company to invest in the best technology and hire leading plastics
and color-matching experts. Once new products and applications are developed and
tested, the technology can be transferred to any of A. Schulman's 13
manufacturing plants, ensuring consistent product quality and timely delivery
throughout the world.
In North America, A. Schulman has a leadership position and reputation for
innovation in the automobile industry. For example, certain models of the
Plymouth Neon for the 2000 model year feature a highly durable plastic bumper
cover that incorporates A. Schulman's Reflection SeriesTM engineered resins
product. The bumper cover is a colored plastic alloy that is durable, glossy and
color-matched, thus eliminating the need for time-consuming, costly and
environmentally unfriendly painting.
Other high-end automotive plastics solutions include applications for body
side moldings, instrument panels, steering wheels, arm rests and functional body
seals. Rapid growth in this product category provided the need to add a third
manufacturing line at A. Schulman's Sunprene Company, a joint venture with
Mitsubishi Chemical MKV Co. in Ohio. Scheduled to be operational by January
2001, the new line will enable A. Schulman to produce an additional 15 million
pounds annually of specialized PVC compounds.
Meanwhile, the European operations of A. Schulman have strong positions in
the expanding film and packaging market, which includes grocery and specialty
store bags, drink containers, food packaging materials, bottles for household
products, and breathable film for diapers.
A. Schulman's approach to product innovation is to deliver plastics
engineering solutions that customers demand and markets need. Innovations are
designed to yield an acceptable return on investment and to enhance the
Company's position as a top-performing, value-adding manufacturer.
7
<PAGE>
[PHOTO OF A BUTLER IN TUXEDO HOLDING A SILVER TRAY CONTAINING BLUE, YELLOW
AND RED PLASTIC BOTTLES]
A. SCHULMAN IS AT THE CUSTOMER'S BECK AND CALL, WITH DEDICATED STAFF AND
AUTOMATED SYSTEMS THAT STAY CONNECTED TO CUSTOMERS AND THEIR NEEDS. SPECIAL
HANDHELD COLOR METERS (SHOWN AT FAR RIGHT) ENABLE THE A. SCHULMAN SALES FORCE TO
TAKE THE COMPANY'S COLOR EXPERTISE RIGHT TO THE CUSTOMER'S DOOR STEP.
[PHOTO OF POWER STRIP AND COLORED ELECTRICAL CORDS]
<PAGE>
A. SCHULMAN is committed to the customers and markets it serves. It strongly
believes that customers must receive quality service along with innovative
products.
The Company's philosophy states that it should be easy for customers to do
business with A. Schulman. Every customer should derive immediate and continuous
benefits from its relationship with A. Schulman. These benefits are
wide-ranging, including comprehensive technical solutions, high product quality,
reduced time to market and global product availability.
Beyond customer satisfaction, A. Schulman seeks to build customer loyalty
that results in long-term mutually beneficial relationships. Building and
serving a loyal customer base is a core value that promises to provide growth
and expansion opportunities for years to come.
The unwavering focus on commitment to customers is apparent in the
Company's culture, operational strategy and information systems. For example, A.
Schulman's color and product technology centers are designed and operated to be
highly customer-responsive, including having customers onsite during testing and
prototyping. Production samples and color-matches can be turned around in a few
days - a critical success factor in today's time- and technology-driven global
economy.
In addition, the A. Schulman sales force is being equipped with special
handheld color meters (shown at left) for onsite evaluation and matching of
customers' color specifications. Results can be downloaded to ensure that
prototype and production quantities match customers' field samples. This concept
is unique in the industry, and provides customers with faster and better
service.
[PHOTO OF A HAND-HELD COLOR METER AND COLOR PLAQUES]
EXCEPTIONAL SERVICE
A. Schulman's expertise in customer relationship management also extends to
its business and information systems. In 1999, A. Schulman implemented new
business processes and systems throughout most of its major worldwide
facilities. These systems provide efficient order processing; enhanced
production planning and scheduling; and improved logistics, sourcing and
distribution.
A new Customer Sales Support Center (CSSC) provides centralized,
personalized service for thousands of customers in North America. The support
center features expanded hours of accessibility, dedicated electronic
communications systems, and a well-trained staff assigned to specific customers
and geographic areas. Numerous processes have been redesigned and automated,
which has improved internal efficiency and external customer service.
A. Schulman's customer base includes hundreds of companies that are among
the largest manufacturers, and users of plastics in the world. A. Schulman's
commitment to these customers is unparalleled. The Company is responsive to the
requirements of customers and provides them with flexible product innovation,
manufacturing capacity and global logistics to meet their changing business
needs.
A. Schulman is persistent in its pursuit of business opportunities, and
service to new and existing customers. For example, the Company recently
introduced a CD-ROM-based customer tool kit featuring electronic versions of its
data sheets and a virtual tour of the color and product technology centers.
For the benefit of its customers, A. Schulman operates from a value- and
skills-based strategy. Satisfied, loyal customers are an essential part of A.
Schulman's success and integral to its future growth strategy.
9
<PAGE>
[PHOTO OF VARIOUS CURRENCIES]
A. SCHULMAN'S LARGE AND GROWING PRESENCE INTERNATIONALLY IS A CORNERSTONE OF THE
COMPANY'S SUCCESS. THE EUROPEAN OPERATIONS ARE ESPECIALLY STRONG IN FILM AND
PACKAGING (SHOWN AT FAR RIGHT), WHILE THE NORTH AMERICAN FOCUS IS THE AUTOMOTIVE
INDUSTRY.
[PHOTO OF MAN AND WOMAN TALKING IN FRONT OF PILLARS PAINTED WITH A GLOBAL MAP]
<PAGE>
A. SCHULMAN has continued to invest in its international manufacturing and
distribution capabilities. Strategic global purchasing and supplier arrangements
enable A. Schulman to meet the needs of its global and local customers
throughout the world.
A. Schulman has a large and growing presence throughout western and eastern
Europe, including Belgium, France, Germany, Hungary, Italy, Poland, Switzerland
and the United Kingdom. In addition, the Company serves Asia-Pacific with a
manufacturing facility in Indonesia, and the Latin American market through its
manufacturing and sales presence in Mexico.
During the last two years, A. Schulman has spent more than $60 million on
capital expenditures, with much of the investment devoted to acquiring and
expanding internationally. For example, new manufacturing lines have been added
to plants in Canada, the United Kingdom and Mexico. In addition, A. Schulman is
adding 60 million pounds of annual production capacity to its plant in Givet,
France.
A. Schulman is also spending $13 million in Germany to expand its
manufacturing and storage facilities, benefiting its businesses in both western
and eastern Europe. To serve the Asia-Pacific region, A. Schulman plans to
increase the capacity of its joint venture plant in Indonesia. This project
should be completed in calendar year 2000.
[PHOTO OF EUROPEAN CANDY WRAPPERS]
GLOBAL LEADERSHIP
The automotive industry accounts for a large portion of A. Schulman's North
American revenues, while the film and packaging markets are a major business in
the Company's European operations. There are a number of opportunities for
growth through cross-continent synergy and global leverage. For example, in
designing its new Color Technology Center in Ohio, A. Schulman capitalized on
its expertise in color-matching and color concentrate production in Europe.
In addition, A. Schulman is applying its European film and packaging
technical capabilities and industry expertise to the North American market. Over
the next year, A. Schulman is planning to introduce several of its European
engineered resins and film applications to the North American market.
Meanwhile, the North American operations are using their technical
strengths and customer relationships in the automotive industry to spur growth
in the European and Asia-Pacific operations. Indeed, the Company's ability to
create and standardize master color specifications for automakers and to ensure
worldwide product consistency is a critical success factor for A. Schulman's
global strategy.
A. Schulman's global leadership and expertise stem from a series of
international success stories and its strategic investments in various cultures
throughout the world.
11
<PAGE>
[PHOTO OF MULTI-COLORED PLASTIC GEARS]
A. SCHULMAN'S PEOPLE AND SYSTEMS WORK TOGETHER TO MAXIMIZE CUSTOMER SERVICE, AND
ENSURE INTERNAL EFFICIENCY AND COST-EFFECTIVENESS. THE NEW COLOR TECHNOLOGY
CENTER (SHOWN AT RIGHT) IS A MODEL OF EFFICIENCY, COMPLETING EVEN THE MOST
DIFFICULT COLOR MATCHES WITHIN FIVE WORKING DAYS.
[PHOTO OF A PORTION OF A STOP WATCH]
<PAGE>
THE STRENGTH of A. Schulman comes from its success in meeting and exceeding
customer demands, while being cost-effective and efficient.
The new automated business and information systems are helping A. Schulman
better serve its customers. Order processing is electronic, and information can
now be accessed directly by customers. In addition, the systems will enable A.
Schulman to operate more efficiently and increase overall productivity.
In recent years, A. Schulman has made several important consolidation
decisions, including centralizing the product and color technology centers. In
addition, A. Schulman has consolidated and coordinated the raw material
purchasing function to achieve the best pricing and service from a more focused
group of preferred vendors. This strategy streamlines the procurement process,
results in fewer transactions, enables plants to share inventory, and builds
close partnerships with key suppliers. Supply chain management is extremely
important to the continued success of A. Schulman.
[PHOTO OF EQUIPMENT IN OPERATION AT THE OHIO COLOR TECHNOLOGY CENTER]
OPERATIONAL STRATEGY
Customers are reducing their number of suppliers to become more efficient.
A. Schulman capitalizes on this trend by forming long-term, strategic
partnerships with leading customers in automobile manufacturing, consumer
products and other growth markets for the Company. Many customers are involving
A. Schulman in their product planning and design, and the companies are sharing
inventory data, sales forecasts and cost reduction ideas. As part of its
mission, the Company offers customers insight on the most effective, efficient
ways of ordering, receiving and using A. Schulman products.
A. Schulman's approach to production and manufacturing also yields
efficiency and cost-effectiveness dividends. Twelve of the Company's 13 plants
are ISO 9001-registered. A. Schulman is expanding several facilities in the next
year in response to increased customer demand throughout the world.
The implementation of financial and operational best practices enables A.
Schulman to maintain a strong balance sheet with few intangibles. Strong cash
flow and a low debt level provide A. Schulman with the resources to invest in
modern facilities and equipment, pay dividends to shareholders, finance
acquisitions and global expansion, and re-purchase Company stock. Over the last
year, A. Schulman has bought back 2,182,000 shares of stock, with 3.7 million
shares remaining under a previous 6-million-share authorization.
A. Schulman is well-positioned to serve the needs of its customers,
suppliers, employees and shareholders in the years ahead.
13
<PAGE>
A. Schulman, Inc.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended August 31,
--------------- --------------- ---------------
--------------- --------------- ---------------
1999 1998 1997
<S> <C> <C> <C>
Net Sales ............................................. $ 985,623,000 $ 993,394,000 $ 996,376,000
Interest and Other Income ............................. 2,712,000 3,072,000 4,998,000
--------------- --------------- ---------------
Total ........................................... 988,335,000 996,466,000 1,001,374,000
--------------- --------------- ---------------
Costs and Expenses:
Cost of sales ...................................... 805,030,000 823,856,000 833,345,000
Selling, general and administrative expenses ....... 99,317,000 85,293,000 78,500,000
Interest expense ................................... 3,716,000 1,933,000 3,143,000
Foreign currency transaction (gains) losses ........ 480,000 (1,669,000) (756,000)
Minority interest .................................. 1,836,000 724,000 860,000
--------------- --------------- ---------------
910,379,000 910,137,000 915,092,000
--------------- --------------- ---------------
Income Before Taxes and Cumulative Effect of
Accounting Change ..................................... 77,956,000 86,329,000 86,282,000
Provision for U.S. and Foreign Income Taxes ........... 30,167,000 34,179,000 35,538,000
--------------- --------------- ---------------
Income Before Cumulative Effect of Accounting Change .. 47,789,000 52,150,000 50,744,000
Cumulative Effect of Accounting Change ................ -- (2,007,000) --
--------------- --------------- ---------------
Net Income ............................................ $ 47,789,000 $ 50,143,000 $ 50,744,000
--------------- --------------- ---------------
--------------- --------------- ---------------
Weighted-average Number of Shares Outstanding:
Basic .............................................. 31,671,768 35,236,098 37,125,345
Diluted ............................................ 31,679,614 35,275,327 37,149,595
Basic and Diluted Earnings per Share of Common Stock:
Income Before Cumulative Effect of Accounting Change $ 1.51 $ 1.48 $ 1.37
Cumulative Effect of Accounting Change ............. -- (0.06) --
--------------- --------------- ---------------
Net Income ......................................... $ 1.51 $ 1.42 $ 1.37
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
14
<PAGE>
A. Schulman, Inc.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated Unearned Total
Other Stock Compre-
Common Other Retained Comprehensive Grant hensive
Stock Capital Earnings Income Compensation Income
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at August 31, 1996 $38,309,000 $44,474,000 $326,171,000 $ 36,862,000 $(1,714,000)
Comprehensive income for 1997:
Net income for 1997 50,744,000
Foreign currency translation loss (43,435,000)
Total comprehensive income $ 7,309,000
-----------
Cash dividends paid or accrued:
Preferred stock, $5 per share (53,000)
Common stock, $.41 per share (15,271,000)
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)
Comprehensive income for 1998:
Net income for 1998 50,143,000
Foreign currency translation loss (2,344,000)
Total comprehensive income $47,799,000
-----------
Cash dividends paid or accrued:
Preferred stock, $5 per share (53,000)
Common stock, $.45 per share (15,935,000)
Stock options exercised 4,000 97,000
Grant of restricted stock 1,269,000 (1,269,000)
Amortization of restricted stock 427,000
----------- ----------- ------------ ------------ -----------
Balance at August 31, 1998 38,347,000 45,778,000 395,746,000 (8,917,000) (1,994,000)
Comprehensive income for 1999:
Net income for 1999 47,789,000
Foreign currency translation loss (8,274,000)
Total comprehensive income $39,515,000
-----------
Cash dividends paid or accrued:
Preferred stock, $5 per share (53,000)
Common stock, $.49 per share (15,602,000)
Issue of restricted stock 34,000 (50,000)
Grant of restricted stock 966,000 (966,000)
Amortization of restricted stock 664,000
----------- ----------- ------------ ------------ -----------
Balance at August 31, 1999 $38,381,000 $46,694,000 $427,880,000 $(17,191,000) $(2,296,000)
----------- ----------- ------------ ------------ -----------
----------- ----------- ------------ ------------ -----------
</TABLE>
15
<PAGE>
A. Schulman, Inc.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
August 31, August 31,
1999 1998
------------ ------------
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ................................................ $ 56,836,000 $ 60,766,000
Accounts receivable, less allowance for doubtful accounts of $3,678,000 in
1999 and $4,778,000 in 1998 ............................................ 159,840,000 148,838,000
Inventories, average cost or market, whichever is lower .................. 171,454,000 165,661,000
Prepaids, including tax effect of temporary differences .................. 19,966,000 20,220,000
------------ ------------
Total Current Assets ................................................... 408,096,000 395,485,000
------------ ------------
Other Assets:
Cash surrender value of life insurance ................................... 484,000 500,000
Deferred charges, etc., including tax effect of temporary differences .... 22,604,000 17,752,000
------------ ------------
23,088,000 18,252,000
------------ ------------
Property, Plant and Equipment, at cost:
Land and improvements .................................................... 9,982,000 9,253,000
Buildings and leasehold improvements ..................................... 78,038,000 69,178,000
Machinery and equipment .................................................. 228,803,000 202,199,000
Furniture and fixtures ................................................... 24,162,000 22,422,000
Construction in progress ................................................. 7,838,000 18,854,000
------------ ------------
348,823,000 321,906,000
Accumulated depreciation and investment grants of $230,000 in 1999
and $355,000 in 1998 ................................................... 188,480,000 173,723,000
------------ ------------
160,343,000 148,183,000
------------ ------------
$591,527,000 $561,920,000
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
16
<PAGE>
<TABLE>
<CAPTION>
August 31, August 31,
1999 1998
------------- -------------
------------- -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable ................................................................ $ 10,721,000 $ 4,000,000
Accounts payable ............................................................. 64,402,000 58,640,000
U.S. and foreign income taxes payable ........................................ 6,721,000 9,865,000
Accrued payrolls, taxes and related benefits ................................. 19,180,000 18,073,000
Other accrued liabilities .................................................... 16,792,000 16,607,000
------------- -------------
Total Current Liabilities ................................................. 117,816,000 107,185,000
------------- -------------
Long-term Debt ............................................................... 65,000,000 40,000,000
Other Long-term Liabilities .................................................. 37,696,000 35,704,000
Deferred Income Taxes ........................................................ 11,375,000 9,852,000
Minority Interest ............................................................ 3,394,000 2,908,000
Stockholders' Equity:
Preferred stock, 5% cumulative, $100 par value, authorized,
issued and outstanding - 10,689 shares in 1999 and 1998 ................... 1,069,000 1,069,000
Special stock, 1,000,000 shares authorized, none outstanding ................. -- --
Common stock, $1 par value
Authorized - 75,000,000 shares
Issued - 38,381,017 shares in 1999 and 38,347,367 shares in 1998 .......... 38,381,000 38,347,000
Other capital ................................................................ 46,694,000 45,778,000
Accumulated other comprehensive income ....................................... (17,191,000) (8,917,000)
Retained earnings ............................................................ 427,880,000 395,746,000
Treasury stock, at cost, 7,250,862 shares in 1999 and 5,068,862 shares in 1998 (138,291,000) (103,758,000)
Unearned stock grant compensation ............................................ (2,296,000) (1,994,000)
------------- -------------
Common Stockholders' Equity .................................................. 355,177,000 365,202,000
------------- -------------
Total Stockholders' Equity ................................................ 356,246,000 366,271,000
------------- -------------
$ 591,527,000 $ 561,920,000
------------- -------------
------------- -------------
</TABLE>
<PAGE>
A. Schulman, Inc.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended August 31,
------------- ------------- -------------
------------- ------------- -------------
1999 1998 1997
<S> <C> <C> <C>
Provided from (used in) operating activities:
Net income ................................................... $ 47,789,000 $ 50,143,000 $ 50,744,000
Items not requiring the current use of cash:
Cumulative effect of accounting change .................... -- 2,007,000 --
Depreciation .............................................. 20,773,000 17,817,000 17,800,000
Non-current deferred taxes ................................ 775,000 192,000 1,266,000
Foreign pension and other deferred compensation ........... 2,321,000 2,129,000 2,284,000
Postretirement benefit obligation ......................... 1,325,000 814,000 774,000
Changes in working capital:
Accounts receivable ....................................... (17,808,000) 1,531,000 (16,753,000)
Inventories ............................................... (9,388,000) (3,180,000) (27,794,000)
Prepaids .................................................. (43,000) (3,209,000) (4,417,000)
Accounts payable .......................................... 10,412,000 (2,517,000) 21,849,000
Income taxes .............................................. (3,014,000) (1,306,000) 2,385,000
Accrued payrolls and other accrued liabilities ............ 2,531,000 721,000 1,199,000
Changes in other assets and other long-term liabilities ...... (3,847,000) (1,341,000) (3,791,000)
------------- ------------- -------------
Net cash provided from operating activities ............ 51,826,000 63,801,000 45,546,000
------------- ------------- -------------
Provided from (used in) investing activities:
Expenditures for property, plant and equipment ............... (35,082,000) (30,987,000) (27,201,000)
Disposals of property, plant and equipment ................... 432,000 812,000 1,428,000
Purchases of short-term investments .......................... -- (8,160,000) (10,893,000)
Proceeds from sales of short-term investments ................ -- 10,957,000 41,504,000
------------- ------------- -------------
Net cash provided from (used in) investing activities .. (34,650,000) (27,378,000) 4,838,000
------------- ------------- -------------
Provided from (used in) financing activities:
Cash dividends paid .......................................... (15,648,000) (15,946,000) (15,335,000)
Increase (decrease) of notes payable ......................... 6,831,000 1,000,000 (4,000,000)
Reduction of long-term debt .................................. (25,000,000) (45,000) (28,037,000)
Increase of long-term debt ................................... 50,000,000 28,000,000 --
Exercise of stock options .................................... -- 101,000 --
Investment grants from foreign countries ..................... -- 70,000 --
Increase (decrease) in minority interest, net of distributions 486,000 (326,000) 2,085,000
Purchase of treasury stock ................................... (34,533,000) (59,469,000) (32,226,000)
Redemption of preferred stock ................................ -- -- (2,000)
------------- ------------- -------------
Net cash used in financing activities .................. (17,864,000) (46,615,000) (77,515,000)
------------- ------------- -------------
Effect of exchange rate changes on cash ......................... (3,242,000) 1,811,000 (17,277,000)
------------- ------------- -------------
Net decrease in cash and cash equivalents ....................... (3,930,000) (8,381,000) (44,408,000)
Cash and cash equivalents at beginning of year .................. 60,766,000 69,147,000 113,555,000
------------- ------------- -------------
Cash and cash equivalents at end of year ........................ $ 56,836,000 $ 60,766,000 $ 69,147,000
------------- ------------- -------------
------------- ------------- -------------
Cash paid during the year for:
Interest ..................................................... $ 3,470,000 $ 1,842,000 $ 3,388,000
Income Taxes ................................................. $ 31,621,000 $ 36,069,000 $ 30,760,000
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
18
<PAGE>
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
$39,705,000 at August 31, 1999 and $40,036,000 at August 31, 1998. 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.
REVENUE RECOGNITION
Revenues are recognized when product is shipped.
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:
<TABLE>
<S> <C>
Buildings and leasehold improvements 10 to 40 years
Machinery and equipment 5 to 10 years
Computer Equipment 3 to 5 years
Furniture and fixtures 10 years
</TABLE>
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 is 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 $8,173,000 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, except those subsidiaries located in highly inflationary
economies, 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. Accumulated other comprehensive
income in stockholders' equity includes translation adjustments arising from the
use of different exchange rates from period to period. For subsidiaries
operating in highly inflationary economies, any translation adjustments are
included in net income.
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.
19
<PAGE>
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 7.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
On June 15, 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 is effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000. SFAS 133
required that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. Management of the Company anticipates that, due to its
limited use of derivative instruments, the adoption of SFAS 133 will not have a
significant effect on the Company's results of operations or its financial
position.
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 facilities 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 $109,000 in 1999, $123,000 in 1998 and $123,000 in
1997.
NOTE 3 - LONG-TERM DEBT AND CREDIT ARRANGEMENTS
<TABLE>
<CAPTION>
August 31,
1999 1998
----------- -----------
----------- -----------
<S> <C> <C>
A. Schulman, Inc.:
Revolving credit loan, 5.43% in 1999
and 5.82% in 1998 ................ $15,000,000 $40,000,000
Senior Notes, 7.27% due 2009: ...... 50,000,000 --
----------- -----------
$65,000,000 $40,000,000
----------- -----------
----------- -----------
</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 7 1/2 basis points must be paid to the banks.
On August 17, 1999, the company completed a private placement agreement for
$50,000,000 of Senior Notes due in 2009. The interest rate is fixed at 7.27% and
is payable quarterly with principal due upon maturity in 2009. Under the most
restrictive covenants of the revolving credit agreement and the Senior notes,
approximately $43,095,000 of retained earnings was available for the payment of
cash dividends at August 31, 1999.
The Company has $34,000,000 of unsecured short-term lines of credit from
various domestic banks. Short-term borrowings under these facilities were
$3,000,000 at August 31, 1999 and $4,000,000 at August 31, 1998 at weighted
average interest rates of 6.13% and 6.23% respectively.
The Company had $41,423,000 of unsecured short-term foreign lines of credit
available to its subsidiaries at August 31, 1999 and had $30,848,000 available
at August 31, 1998. At August 31, 1999, $7,721,000 was outstanding at a weighted
average interest rate of 6.00%. There were no foreign short-term borrowings
outstanding at August 31, 1998.
Aggregate maturities of long-term debt subsequent to August 31, 1999 are
$15,000,000 in 2002 and $50,000,000 in 2009.
In 1999, a fixed rate swap covering $50 million for the private placement
debt was used to reduce the Company's risk of increased interest costs during a
period of rising interest rates. Proceeds from this swap totaling $630,000 have
been deferred and will be amortized over the life of the loan effectively
reducing the annual interest rate from 7.27% to 7.14%. The financial institution
that participated in the contract has a good credit rating.
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.
20
<PAGE>
The following table presents a summary of foreign exchange contracts
outstanding as of August 31, 1999 and August 31, 1998:
<TABLE>
<CAPTION>
1999 1998
------------------------- -------------------------
------------------------- -------------------------
Contract Fair Contract Fair
Amount Value Amount Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Buy Currency:
German mark . $ 1,028,000 $ 1,031,000 $ 1,339,000 $ 1,339,000
All other ... 512,000 513,000 418,000 419,000
----------- ----------- ----------- -----------
$ 1,540,000 $ 1,544,000 $ 1,757,000 $ 1,758,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Sell Currency:
German mark . $ 5,123,000 $ 4,854,000 $27,874,000 $27,731,000
Italian lira -- -- 8,641,000 8,601,000
British pound 300,000 300,000 9,584,000 8,994,000
French franc -- -- 10,397,000 10,395,000
U.S. dollar . 577,000 611,000 2,516,000 2,508,000
All other ... -- -- 1,080,000 1,079,000
----------- ----------- ----------- -----------
$6,000,000 $5,765,000 $60,092,000 $59,308,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The fair value of foreign exchange contracts was estimated by obtaining
quotes from banks. Foreign exchange contracts are entered into with several
financial institutions having good credit ratings and generally have maturities
of less than nine months.
NOTE 5 - INCOME TAXES
Income before taxes is as follows:
<TABLE>
<CAPTION>
Year Ended August 31,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Domestic $ 596,000 $11,308,000 $ 8,470,000
Foreign 77,360,000 75,021,000 77,812,000
----------- ----------- -----------
$77,956,000 $86,329,000 $86,282,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The provisions for U.S. and foreign income taxes consist of the following:
<TABLE>
<CAPTION>
Year Ended August 31,
1999 1998 1997
------------ ------------ ------------
------------ ------------ ------------
<S> <C> <C> <C>
Current taxes:
U.S ......... $ 28,000 $ 4,255,000 $ 3,402,000
Foreign ..... 31,224,000 30,986,000 32,812,000
------------ ------------ ------------
31,252,000 35,241,000 36,214,000
------------ ------------ ------------
Deferred taxes:
U.S ......... (489,000) (405,000) (1,357,000)
Foreign ..... (596,000) (657,000) 681,000
------------ ------------ ------------
(1,085,000) (1,062,000) (676,000)
------------ ------------ ------------
$ 30,167,000 $ 34,179,000 $ 35,538,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
A reconciliation of the statutory U.S. federal income tax rate with the
effective tax rates of 38.7% in 1999, 39.6% in 1998 and 41.2% in 1997 is as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
% of % of % of
Pretax Pretax Pretax
(in thousands) Amount Income Amount Income Amount Income
------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Statutory U.S. .....
tax rate ......... $ 27,285 35.0% $ 30,215 35.0% $ 30,199 35.0%
Amount of
foreign
income taxes
in excess of
U.S. taxes at
statutory rate ... 3,274 4.2 2,452 2.8 4,751 5.5
Other, net ......... (392) (.5) 1,512 1.8 588 .7
------------------- ------------------- -------------------
$ 30,167 38.7% $ 34,179 39.6% $ 35,538 41.2%
------------------- ------------------- -------------------
------------------- ------------------- -------------------
</TABLE>
Deferred tax assets and (liabilities) consist of the following at August
31, 1999 and August 31, 1998:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
-------- --------
-------- --------
<S> <C> <C>
Pensions .................................. $ 2,512 $ 2,559
Inventory reserves ........................ 2,409 2,585
Bad debt reserves ......................... 657 848
Accruals .................................. 3,513 4,044
Dividends to be received .................. 1,364 888
Postretirement benefits other than pensions 4,965 4,501
Foreign tax credit carryforwards .......... 8,129 5,968
Alternative minimum tax carryforwards ..... 2,149 1,828
Other ..................................... 4,966 2,998
-------- --------
Gross deferred tax assets ................. 30,664 26,219
Valuation allowance ....................... (8,129) (5,968)
-------- --------
Total deferred tax assets ................. 22,535 20,251
-------- --------
Depreciation .............................. (17,315) (16,272)
Other ..................................... (214) --
-------- --------
Gross deferred tax liabilities ............ (17,529) (16,272)
-------- --------
$ 5,006 $ 3,979
-------- --------
-------- --------
</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 2001 to 2004.
The tax effect of temporary differences included in prepaids was
$12,633,000 and $11,282,000 at August 31, 1999 and 1998 respectively. Deferred
charges also included $3,748,000 and $2,549,000 from the tax effect of temporary
differences at August 31, 1999 and 1998 respectively.
At August 31, 1999, no taxes have been provided on the undistributed
earnings of certain foreign subsidiaries amounting to $212,075,000 because the
Company intends to reinvest these earnings.
21
<PAGE>
NOTE 6 - PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
The Company has defined benefit pension plans and other postretirement
benefit plans, primarily health care and life insurance. Benefits for the
defined benefit plans are based primarily on years of service and qualifying
compensation during the final years of employment. Postretirement health care
and life insurance benefits are provided to certain domestic employees if they
reach retirement age while working for the Company.
Components of the plan obligations and assets, and the recorded liability
at August 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Post Retirement Benefits
--------------------------- ------------------------------
--------------------------- ------------------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Benefit obligation at beginning of year ............................. $(29,100,000) $(23,833,000) $(11,284,000) $ (8,827,000)
Service cost ........................................................ (1,503,000) (1,376,000) (924,000) (653,000)
Interest cost ....................................................... (1,908,000) (1,757,000) (755,000) (697,000)
Plan amendments ..................................................... -- (250,000) -- (311,000)
Participant contributions ........................................... (154,000) (149,000) -- --
Assumption changes .................................................. -- (186,000) -- --
Actuarial (gain) loss ............................................... (2,565,000) (1,398,000) 301,000 (1,198,000)
Benefits paid ....................................................... 1,108,000 653,000 156,000 402,000
Translation adjustment .............................................. 1,487,000 (804,000) -- --
------------ ------------ ------------- --------------
Benefit obligation at end of year ................................... $(32,635,000) $(29,100,000) $(12,506,000) $(11,284,000)
------------ ------------ ------------- --------------
------------ ------------ ------------- --------------
Fair value of plan assets at beginning of year ...................... $ 6,943,000 $ 5,724,000 $ -- $ --
Actual return on assets ............................................. 1,008,000 336,000 -- --
Employer contributions .............................................. 913,000 731,000 156,000 402,000
Participant contributions ........................................... 154,000 149,000 -- --
Benefits paid ....................................................... (548,000) (168,000) (156,000) (402,000)
Translation adjustment .............................................. (277,000) 171,000 -- --
------------ ------------ ------------- --------------
Fair value of plan assets at end of year ............................ $ 8,193,000 $ 6,943,000 $ -- $ --
------------ ------------ ------------- --------------
------------ ------------ ------------- --------------
Funded status ....................................................... $(24,442,000) $(22,157,000) $(12,506,000) $(11,284,000)
Unamortized:
Net liability at transition ....................................... 1,296,000 1,515,000 -- --
Net (gain) loss ................................................... 1,995,000 72,000 (1,121,000) (510,000)
Prior year service cost ........................................... 592,000 646,000 (671,000) (1,067,000)
------------ ------------ ------------- --------------
Net amount recognized ............................................... $(20,559,000) $(19,924,000) $(14,298,000) $(12,861,000)
------------ ------------ ------------- --------------
------------ ------------ ------------- --------------
Amounts recognized in the statement of financial position consist of:
Intangible asset .................................................. $ 1,360,000 $ -- $ -- $ --
Accrued benefit liability ......................................... (270,000) (286,000) -- --
Other long term liabilities ....................................... (21,649,000) (19,638,000) (14,298,000) (12,861,000)
------------ ------------ ------------- --------------
$(20,559,000) $(19,924,000) $(14,298,000) $(12,861,000)
------------ ------------ ------------- --------------
------------ ------------ ------------- --------------
<CAPTION>
The components of net periodic benefit cost for the years ended August 31 are as follows:
<S> <C> <C> <C> <C>
Service cost ........................................................ $ 1,503,000 $ 1,376,000 $ 924,000 $ 653,000
Interest cost ....................................................... 1,908,000 1,757,000 755,000 697,000
Expected return on plan assets ...................................... (889,000) (426,000) -- --
Amortization of transition (asset)/obligation ....................... 62,000 207,000 -- --
Amortization of prior service cost .................................. 53,000 53,000 (85,000) (105,000)
Deferred asset gain (loss) .......................................... 441,000 (221,000) -- --
Recognized net actuarial loss ....................................... 53,000 33,000 (1,000) (28,000)
------------ ------------ ------------- --------------
$ 3,131,000 $ 2,779,000 $ 1,593,000 $ (1,217,000)
------------ ------------ ------------- --------------
------------ ------------ ------------- --------------
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plan with accumulated benefit obligations
in excess of plan assets were $32,635,000, $24,442,000 and $8,193,000
respectively as of August 31, 1999, and $27,645,000, $23,366,000 and $6,095,000,
respectively, as of August 31, 1998. The total pension contributions for
multiemployer pension plans were $193,000 in 1999, $307,000 in 1998 and $286,000
in 1997.
22
<PAGE>
Actuarial assumptions used in the calculation of the recorded liabilities
are as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Weighted-average assumptions
as of August 31
Discount rate ....................... 6.2% 6.8%
Return on pension plan assets ....... 8.7% 8.9%
Rate of compensation increase ....... 3.0% 3.0%
Projected health care cost trend rate 9.5% 9.5%
Ultimate health care rate ........... 6.0% 6.0%
Year ultimate health care trend rate
is achieved ....................... 2005 2005
</TABLE>
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plan. A one-percentage point change in
assumed health care cost trend rates would have the following effects at August
31, 1999:
<TABLE>
<CAPTION>
One-Percentage- One-Percentage-
Point increase Point decrease
-------------- ---------------
<S> <C> <C>
Effect on total of service and
interest cost components ....... $ 306,000 $ (253,000)
Effect on postretirement obligation $ 1,630,000 $(1,418,000)
</TABLE>
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, $2,450,000 is vested and $300,000 will vest over the
next two to three years. However, vesting and payments may be accelerated under
certain conditions. The Company has provided $131,000 in 1999, 1998 and 1997 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 - 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, 1999, there were 433,114 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 1,000 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, 1999, there were 92,625 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,
--------------------------------------------
--------------------------------------------
1999 1998
-------------------- ---------------------
Weighted Weighted
Shares Average Shares Average
Under Exercise Under Exercise
Option Price Option Price
--------- ------- --------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning
of year ............... 1,056,925 $21.59 915,695 $22.94
Granted during the year .. 400,600 18.30 307,600 19.07
Exercised during the year -- -- (4,500) 22.50
Cancelled during the year (146,150) 25.91 (161,870) 24.43
--------- ---------
Outstanding at end of year 1,311,375 20.10 1,056,925 21.59
--------- ---------
--------- ---------
Exercisable at end of year 507,645 22.12 416,996 24.10
--------- ---------
--------- ---------
</TABLE>
Under the 1991 Plan, 34,000 shares of restricted stock were granted on
August 19, 1994, 43,150 shares were granted on July 11, 1996, 67,100 shares were
granted on July 8, 1998 and 52,800 shares were granted on July 8, 1999. The fair
market value on the date of grant in 1994 was $26.25 per share, 1996 was $23 per
share, 1998 was $18.91 per share and in 1999 was $18.31 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 $648,000 in 1999,
$428,000 in 1998 and $533,000 in 1997.
The following table summarizes information about options outstanding at
August 31, 1999:
<TABLE>
<CAPTION>
Weighted Average
-----------------------
Grant Options Options Exercise Remaining
Date Outstanding Exercisable Price Life (Years)
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
8/95 157,450 157,450 25.50 1
7/96 186,600 139,950 23.00 2
4/97 245,375 122,688 18.50 2.7
7/98 298,600 74,650 18.91 4
7/99 393,600 - 18.31 5
All other 29,750 12,907 24.02 2.8
</TABLE>
23
<PAGE>
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 $617,000, or
$.02 per share, in 1999, $405,000, or $.01 per share, in 1998 and $249,000, or
$.01 per share, in 1997. Pro forma net income would have been $47,172,000 in
1999, $49,738,000 in 1998 and $50,495,000 in 1997. 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 $5.53, $5.31 and $5.84 for options granted in 1999, 1998 and 1997.
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:
<TABLE>
<CAPTION>
Year Ended August 31,
-------------------------------
-------------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Expected life (years) 5 5 5
Interest rate 5.9% 5.4% 6.7%
Volatility 26% 23.7% 26.9%
Dividend yield 1.33% 1.25% 1.33%
</TABLE>
NOTE 8 - EARNINGS PER COMMON SHARE
Basic earnings per share is computed by dividing income avail-able to
common shareholders by the weighted-average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilution that
could occur if common stock equivalents were exercised and then shared in the
earnings of the Company.
Under both the basic and diluted earnings per share calculations, reported
net income is reduced by preferred dividends of $53,000. The weighted-average
number of common shares used is as follows:
<TABLE>
<CAPTION>
Year Ended August 31,
------------------------------------
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Basic . 31,671,768 35,236,098 37,125,345
Diluted 31,679,614 35,275,327 37,149,595
</TABLE>
The difference between basic and diluted weighted-average common shares
results from the assumed exercise of outstanding stock options and grants of
restricted stock, calculated using the treasury stock method.
The following stock equivalents are not included in the diluted earnings
per share calculation because their effects are antidilutive:
<TABLE>
<CAPTION>
Year Ended August 31,
---------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Stock equivalents...... 1,465,225 1,158,096 968,595
</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.
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 the 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.
24
<PAGE>
NOTE 10 - CUMULATIVE EFFECT OF ACCOUNTING CHANGE
On November 20, 1997, the FASB Emerging Issues Task Force issued a ruling
which requires the write-off of business process re-engineering costs. The
cumulative effect of this change to September 1, 1997 was to decrease the pretax
income by $3,237,000 and net income by $2,007,000 or $.06 per share and is
accounted for as a cumulative effect of a change in accounting method for the
year ended August 31, 1998.
NOTE 11 - LEASES
Total rental expense was $4,580,000 in 1999, $3,398,000 in 1998 and
$3,021,000 in 1997. The future minimum rental commitments for non-cancelable
leases excluding obligations for taxes, insurance, etc. are as follows:
<TABLE>
<CAPTION>
Year ended August 31, Minimum rental
- --------------------------------------------------------------
- --------------------------------------------------------------
<S> <C>
2000 $2,986,000
2001 3,424,000
2002 2,406,000
2003 1,092,000
2004 546,000
Later years 92,000
-----------
$10,546,000
-----------
-----------
</TABLE>
NOTE 12 - SEGMENT INFORMATION
The Company is engaged in the sale of plastic resins in various forms,
which are used as raw materials by its customers. To identify reportable
segments, the Company considered its operating structure and the types of
information subject to regular review by executive management. On this basis,
the Company operates in two geographic business segments, North America and
Europe.
The North American segment includes operations in the United States,
Canada, and Mexico. The Company's European segment includes operations conducted
in Belgium, France, Germany, Poland, Hungary, Italy, Switzerland and the United
Kingdom. Indonesia is managed by Europe and thus is included in the European
segment. The accounting policies of each business segment are consistent with
those described in the "Summary of Significant Accounting Policies".
Operating income includes all items except for interest income and expense.
North American corporate expenses have not been allocated. Assets of geographic
segments represent those assets identified with the operation of each segment.
<TABLE>
<CAPTION>
North Consoli-
(in thousands) America Europe Other dated
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
August 31, 1999
Sales to unaffiliated
customers ............. $ 424,133 $ 561,490 $ -- $ 985,623
--------- --------- --------- ---------
Gross profit ............ $ 68,006 $ 112,587 -- $ 180,593
--------- --------- --------- ---------
Operating income ........ $ 17,145 $ 62,696 -- $ 79,841
Interest expense, net ... -- -- (1,885) (1,885)
--------- --------- --------- ---------
Income before taxes ..... $ 17,145 $ 62,696 $ (1,885) $ 77,956
--------- --------- --------- ---------
--------- --------- --------- ---------
Identifiable assets ..... $ 289,459 $ 303,841 $ (1,773) $ 591,527
--------- --------- --------- ---------
Depreciation expense .... $ 13,148 $ 7,625 -- $ 20,773
--------- --------- --------- ---------
Capital expenditures .... $ 16,155 $ 18,927 $ -- $ 35,082
--------- --------- --------- ---------
August 31, 1998
Sales to unaffiliated
customers ............. $ 421,188 $ 572,206 $ -- $ 993,394
Gross profit ............ $ 65,388 $ 104,150 -- $ 169,538
--------- --------- --------- ---------
Operating income ........ $ 20,845 $ 64,592 -- $ 85,437
Interest income, net .... -- -- 892 892
--------- --------- --------- ---------
Income before taxes and
cumulative effect of an
accounting change ..... $ 20,845 $ 64,592 $ 892 $ 86,329
--------- --------- --------- ---------
--------- --------- --------- ---------
Identifiable assets ..... $ 272,198 $ 290,884 $ (1,162) $ 561,920
--------- --------- --------- ---------
Depreciation expense .... $ 11,203 $ 6,614 -- $ 17,817
--------- --------- --------- ---------
Capital expenditures .... $ 17,520 $ 13,467 $ -- $ 30,987
--------- --------- --------- ---------
August 31, 1997
Sales to unaffiliated
customers ............. $ 446,832 $ 549,544 $ -- $ 996,376
--------- --------- --------- ---------
Gross profit ............ $ 56,402 $ 106,629 -- $ 163,031
--------- --------- --------- ---------
Operating income ........ $ 18,088 $ 66,595 -- $ 84,683
Interest income, net .... -- -- 1,599 1,599
--------- --------- --------- ---------
Income before taxes ..... $ 18,088 $ 66,595 $ 1,599 $ 86,282
--------- --------- --------- ---------
--------- --------- --------- ---------
Identifiable assets ..... $ 281,357 $ 282,533 $ (945) $ 562,945
--------- --------- --------- ---------
Depreciation expense .... $ 10,884 $ 6,916 -- $ 17,800
--------- --------- --------- ---------
Capital expenditures .... $ 14,784 $ 12,417 $ -- $ 27,201
--------- --------- --------- ---------
</TABLE>
25
<PAGE>
A. Schulman, Inc.
Report of Independent Accountants
Below is a summary of sales point of origin and assets by location.
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
Net Sales -------- -------- --------
-------- -------- --------
<S> <C> <C> <C>
United States ..... $336,792 $346,370 $376,949
Germany ........... 256,035 283,288 277,967
Other International 392,796 363,736 341,460
-------- -------- --------
$985,623 $993,394 $996,376
-------- -------- --------
-------- -------- --------
Long Lived Assets
United States ..... $ 80,966 $ 80,009 $ 77,091
Other International 79,377 68,174 62,304
-------- -------- --------
$160,343 $148,183 $139,395
-------- -------- --------
-------- -------- --------
</TABLE>
NOTE 13 - 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 14 - 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,
1998 1999 1999 1999 1999
------------------------------------------ ----------
------------------------------------------ ----------
<S> <C> <C> <C> <C> <C>
Net Sales ......... $258,646 $235,198 $250,450 $241,329 $985,623
Gross Profit ...... 49,450 39,492 45,264 46,387 180,593
Net Income ........ 12,818 8,640 11,297 15,034 47,789
Basic and Diluted
Earnings Per Share
of Common Stock .. $ .40 $ .27 $ .36 $ .48 $ 1.51
</TABLE>
<TABLE>
<CAPTION>
Quarter ended Year ended
------------------------------------------ ----------
Nov. 30, Feb. 28, May 31, Aug. 31, Aug. 31,
1997 1998 1998 1998 1998
------------------------------------------ ----------
------------------------------------------ ----------
<S> <C> <C> <C> <C> <C>
Net Sales ........... $ 264,208 $ 239,840 $ 256,810 $ 232,536 $ 993,394
Gross Profit ........ 43,819 40,878 43,989 40,852 169,538
Income Before
Cumulative Effect
of Accounting
Change ............. 12,533 10,985 13,533 15,099 52,150
Cumulative Effect
of Accounting
Change ............. (2,007) -- -- -- (2,007)
--------- --------- --------- --------- -----------
Net Income .......... $ 10,526 $ 10,985 $ 13,533 $ 15,099 $ 50,143
Basic and Diluted
Earnings Per Share
of Common Stock:
Income Before
Cumulative Effect
of Accounting
Change ............ $ .35 $ .31 $ .38 $ .44 $ 1.48
Cumulative Effect
of Accounting
Change ............ (.06) -- -- -- (.06)
--------- --------- --------- --------- -----------
Net Income ........ $ .29 $ .31 $ .38 $ .44 $ 1.42
--------- --------- --------- --------- -----------
--------- --------- --------- --------- -----------
</TABLE>
A. Schulman, Inc.
REPORT OF INDEPENDENT ACCOUNTANTS
[LETTERHEAD AND LOGO OF PRICEWATERHOUSECOOPERS]
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, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
August 31, 1999, 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 over-all financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers L.L.P.
Cleveland, Ohio
October 20, 1999
26
<PAGE>
A. Schulman, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1999
Net sales for 1999 were $985.6 million or 0.8% lower than 1998 sales of
$993.4 million. A comparison of net sales is as follows:
<TABLE>
<CAPTION>
(In Thousands)
--------- -----------------------
--------- -----------------------
Increase
1999 1998 (Decrease)
<S> <C> <C> <C>
North America.... $ 424,133 $ 421,188 $ 2,945
Europe .......... 561,490 572,206 (10,716)
--------- --------- ----------
$ 985,623 $ 993,394 $ (7,771)
--------- --------- ----------
--------- --------- ----------
</TABLE>
The translation effect from the stronger U.S. dollar decreased 1999 sales
by $4.4 million.
Worldwide tonnage for 1999 was 2.2% higher than 1998. Tonnage was up 4.7%
in Europe and down approximately 1% in North America. Tonnage in manufacturing
was off approximately 2% for the year, but merchant volume was up strongly.
Although the pricing of resins has firmed during the past several months,
the low level of pricing in the worldwide plastics market adversely affected
sales in 1999.
Gross profit margins on sales were 18.3% in 1999 and 17.1% in 1998. A
comparison of gross profit is as follows:
<TABLE>
<CAPTION>
(In Thousands)
----------------- ----------------------------
----------------- ----------------------------
1999 1998 Increase
<S> <C> <C> <C> <C> <C>
North America..... $ 68,006 16.0% $ 65,388 15.5% $ 2,618
Europe ........... 112,587 20.1% 104,150 18.2% 8,437
----------------- ----------------- --------
$180,593 18.3% $169,538 17.1% $ 11,055
----------------- ----------------- --------
----------------- ----------------- --------
</TABLE>
The improvement in gross profit margins in 1999 were achieved despite a
lower level of capacity utilization. The better margins were primarily due to
improving trends in resin prices. Utilization was down in Europe, mainly due to
the startup of a new large manufacturing line in the Givet, France operation.
Utilization in North America declined due to additional capacity in the Canadian
and Mexican facilities as well as equipment problems at a Texas tolling facility
during the fourth quarter. A comparison of capacity utilization levels is as
follows:
<TABLE>
<CAPTION>
1999 1998 (Decrease)
<S> <C> <C> <C>
North America ........... 81% 86% (6%)
Europe .................. 88% 96% (8%)
Worldwide ............... 84% 90% (7%)
</TABLE>
Selling, general and administrative expenses increased $14 million in 1999.
During 1999, the Company incurred $4.3 million of costs associated with
redesigning its business processes and installing new systems at a majority of
its worldwide facilities. In addition, expenses were higher due to $2.1 million
from new operations in Italy and Hungary, increased compensation for additional
personnel, annual salary adjustments and a major plastic trade show held every
three years.
Interest expense increased in 1999 due to higher levels of borrowing.
Foreign currency transaction losses were primarily due to changes in the value
of currencies in major areas where the Company operates, including the U.S.
dollar, Euro, U.K. pound sterling, Canadian dollar and Mexican peso.
Minority interest represents a 30% equity position of Mitsubishi Chemical
MKV Company 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.
Other income declined due to lower interest income resulting from a
reduction in European temporary investments. This decline more than offset a
settlement arising from the termination of a supplier arrangement in Europe
during the 1999 second quarter.
The effective tax rate was 38.7% in 1999 and 39.6% in 1998. The 1999 tax
rate was lower primarily because of a reduction in certain tax rates in Europe
and lower provisions for international issues.
The strengthening in the value of the U.S. dollar decreased net income by
approximately $189,000 or $.01 per share in 1999.
North American income before taxes was down $3.7 million for the year.
Volume in North America was down approximately 1%, but an improvement in gross
profit and margins was offset by higher operating expenses.
European income before taxes decreased $1.9 million in 1999. Sales in
Europe declined $10.7 million due to the adverse effects of translation and
lower prices of plastics, which more than offset tonnage gains of 4.7%.
North America currently has a good level of orders but some pressure on
margins has been noted due to the higher costs of plastic resins. Although the
cost of implementing new business systems will decline in fiscal 2000, most of
the lower cost will occur in the second half of the fiscal year.
Europe has a strong level of orders at present. Pricing of resins has
firmed during the last six months and good business conditions are anticipated
through the 1999 calendar year.
1998
Net sales were $993.4 million in 1998, a decrease of $3.0 million over 1997
sales of $996.4 million. A comparison of net sales is as follows:
<TABLE>
<CAPTION>
(In Thousands)
--------- ------------------------
--------- ------------------------
Increase
1998 1997 (Decrease)
<S> <C> <C> <C>
North America ................ $ 421,188 $ 446,832 $ (25,644)
Europe ....................... 572,206 549,544 22,662
--------- --------- ---------
$ 993,394 $ 996,376 $ (2,982)
--------- --------- ---------
--------- --------- ---------
</TABLE>
The translation effect from the stronger U.S. dollar reduced sales by $45.8
million in 1998.
Worldwide tonnage was 7% higher than in 1997. European tonnage increased
14% while North American tonnage was approximately the same as in 1997. North
American tonnage declined during the 1998 fourth quarter due to the General
Motors strike.
Gross profit margins on sales were 17.1% in 1998 compared with 16.4% in
1997. The higher margins were the result of lower resin prices and capacity
utilization, which improved year to year from 83% to 90% for fiscal 1998. A
comparison of gross profit is as follows:
<TABLE>
(In Thousands)
----------------- -----------------------------
----------------- -----------------------------
Increase
1998 1997 (Decrease)
<S> <C> <C> <C> <C> <C>
North America ........... $ 65,388 15.5% $ 56,402 12.6% $ 8,986
Europe .................. 104,150 18.2% 106,629 19.4% (2,479)
----------------- ----------------- --------
$169,538 17.1% $163,031 16.4% $ 6,507
----------------- ----------------- --------
----------------- ----------------- --------
</TABLE>
27
<PAGE>
Selling, general and administrative expenses increased $6.8 million in
1998. During 1998, the Company incurred $2.4 million of business process
re-engineering costs related to the redesign of its business processes in North
America. These types of charges had been capitalized prior to fiscal 1998. In
addition, higher compensation levels and additional costs were incurred in 1998
to support the increase in sales volume.
Interest expense decreased approximately $1.2 million in 1998 due to lower
levels of borrowing.
Foreign currency transaction gains were primarily due to changes in the
value of currencies within the European Monetary System, as well as the U.S.
dollar, Canadian dollar, Mexican peso and Indonesian rupiah.
Minority interest represents a 30% equity position of Mitsubishi Chemical
MKV Company 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.
Other income was down because of lower interest income resulting from a
decline in European temporary investments.
The effective tax rate in 1998 was 39.6% compared with 41.2% in 1997. The
1998 tax rate was lower primarily because of greater North American earnings,
which generally incur a lower tax rate, than earnings generated in Europe and a
lower overall effective tax rate in Europe.
The strengthening in the value of the U.S. dollar decreased net income by
approximately $2,180,000 or $.06 per share in 1998.
On November 20, 1997, the FASB Emerging Issues Task Force issued a new
ruling, which requires the write-off of business process re-engineering costs.
Accordingly, the Company wrote off, in fiscal 1998, $3,237,000 of such costs,
which were capitalized as of August 31, 1997. This write-off, net of income
taxes, amounted to $2,007,000 or $.06 per share and is accounted for as a
cumulative effect of a change in accounting method for fiscal 1998.
Income before taxes in Europe were off 3% for 1998 due to lower profit
margins and the adverse effect of translation from the strength of the U.S.
dollar.
Income before taxes in North America before the cumulative effect of the
accounting change improved 15% for 1998. Profit margins in North America were
higher due to a number of factors, including an increase in plant utilization
from 77% to 86% in the current year. Certain high cost manufacturing lines in
the United States were closed during 1998.
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 "accumulated other
comprehensive income" account in stockholders' equity. The strengthening of the
U.S. dollar during the fiscal year decreased this account by approximately $8.3
million during 1999.
The following represent key measurements of the capital structure and
profitability of the Company:
<TABLE>
<CAPTION>
(Dollars in Thousands
except per share data)
----------- --------------------------
----------- --------------------------
1999 1998 1997
<S> <C> <C> <C>
Net worth ............................... $ 356,246 $ 366,271 $ 393,401
Book value per share .................... $ 11.41 $ 10.97 $ 10.83
Ratio of long-term liabilities to capital 22.4% 17.1% 10.1%
Return on average net worth ............. 13.2% 13.2% 12.3%
Net Income as a percent of sales ........ 4.8% 5.0% 5.1%
</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 was
higher in 1999 primarily due to a $25 million increase in the outstanding debt
resulting from the Company's stock repurchase program.
The return on average net worth is computed by dividing net income by the
average of the total stockholders' equity during the year.
During 1999, the Company repurchased 2,182,000 shares of its common stock
for $34,533,000. Approximately 3.7 million shares remain under a 6 million share
authorization approved by the Board of Directors in August 1998. Subject to
market conditions, the company intends to continue repurchasing its common stock
in 2000.
Working capital and the current ratio are as follows:
<TABLE>
<CAPTION>
(In Thousands)
-------- ------------------
-------- ------------------
1999 1998 1997
<S> <C> <C> <C>
Working capital.......... $290,280 $288,300 $291,973
Current ratio............ 3.5:1 3.7:1 3.6:1
</TABLE>
Accounts receivable has increased $11 million since August 31, 1998. During
the 1999 first quarter, the Company purchased the assets of Isopolymer, Inc., a
distributor of the Company's products in Italy. As a result of this purchase,
the Company now sells directly to customers in Italy which require longer sales
terms than when the company sold to Isopolymer. An additional factor
contributing to the accounts receivable increase is the extension of longer
payment terms to certain North American automotive-related customers in response
to competitive pressures.
During 1999, the Company expended $35.1 million for fixed assets. The
largest project during this period was a building addition and a new
manufacturing line in Givet, France. This line, with an annual capacity of 60
million pounds, commenced operation in June 1999 and was a major addition to the
existing facility.
The Company has a revolving credit agreement, which provides for borrowings
up to $100 million through August 14, 2002. At August 31, 1999, $15 million was
outstanding under this facility. On August 17, 1999, the Company completed a
private placement agreement for $50,000,000 of Senior Notes with an interest
rate of 7.27% due in 2009. Also, short-term lines of credit are maintained with
various domestic and foreign banks. The unused commitment under these lines was
$64.7 million at August 31, 1999.
The Company's unfunded pension liability is approximately $24.4 million at
August 31, 1999. 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.
28
<PAGE>
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 estimates that a 10% change in foreign exchange rates at August 31, 1999
would have changed the fair value of the contracts by approximately $0.4
million. Changes in the fair value of forward exchange contracts are
substantially offset by changes in the fair value of the hedged positions. The
Company does not hold or issue financial instruments for trading purposes or
utilize any other types of derivative instruments.
On June 15, 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 is effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000. SFAS 133
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. Management of the Company anticipates that, due to its
limited use of derivative instruments, the adoption of SFAS 133 will not have a
significant effect on the Company's results of operations or its financial
position.
YEAR 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define a specific year. Any computer program that
has date sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a temporary inability to process
transactions or engage in other business activities.
The Company has been addressing Year 2000 compliance related to the
following areas: enterprise-wide information systems; manufacturing equipment,
lab equipment and technical infrastructure related information systems;
remaining information systems and business critical and key suppliers.
The Company has been redesigning its business processes and implementing
enterprise-wide information systems in North America and Europe. Hardware and
software purchased and installed in conjunction with these systems are expected
to provide Year 2000 compliance for business critical commercial applications.
These systems, which are approximately 98% complete, are planned to be
installed, tested and operating by November 15, 1999, at those locations which
are relying on these enterprise-wide system implementations to address the Year
2000 issue. The Company's Year 2000 compliance is approximately 99% complete
related to manufacturing and lab equipment. The Company expects this process to
be complete by November 15, 1999. The Company is also currently addressing the
remaining technical infrastructure areas which have potential Year 2000 issues,
primarily desktop computers, and miscellaneous non-business-critical desktop
applications. The Year 2000 compliance related to these remaining areas is
approximately 95% complete and is expected to be complete by December 1, 1999.
The Company has been communicating with its business-critical and key
suppliers to determine the extent to which the Company may be vulnerable due to
such suppliers' failure to correct their own Year 2000 issues. Currently,
approximately 100% of the business-critical and key suppliers relative to
manufacturing facilities and laboratories have confirmed their Year 2000
compliance.
The aggregate anticipated cost paid to third parties and incurred for
implementing the enterprise-wide information systems, and addressing Year 2000
issues in legacy information systems is approximately $16 million, with the
majority of such cost relating to new enterprise-wide information technology
systems and software, underlying system platforms, and personal computer
workstations. The portion of such cost directly attributable to Year 2000
compliance is approximately $6 million. All Year 2000 costs paid to date have
been primarily funded through operations. Information systems maintenance or
modification costs, and costs directly attributable to Year 2000 remediation are
expensed as incurred, while the cost of new software and equipment is
capitalized and amortized over the assets' useful lives.
Although the Company does not anticipate any material adverse effects
related to the Year 2000, the Company's "most reasonably likely worst case
scenario" would be the disruption to some aspects of its operations as a result
of non-compliant systems utilized by unrelated third party entities such as
governments, utility providers, and other businesses which were included in the
review of business critical and key suppliers' Year 2000 readiness. This type of
failure could result in the temporary inability of the Company to manufacture
and distribute certain products. The Company expects that any such failure would
be temporary, due to the Company's ability to purchase materials from various
suppliers and the Company's ability to shift production among various plants.
The impact on the Company's revenues, gross profit and net income due to the
occurrence of the "most reasonably likely worst case scenario" cannot be
estimated.
The Company has completed its contingency planning and expects to finalize
its plan in November 1999 related to business-critical systems. However, in
certain cases, especially global infrastructure failures related to utilities,
core transportation systems, etc., there would be no practical alternative
course of action available to the Company other than shifting production between
plants.
The above disclosures relative to Year 2000 are based upon information
currently available to management. The Company believes it will be Year 2000
compliant on a timely basis. However, business-critical third parties could
experience a Year 2000 related failure, which could result in an adverse effect
on the Company's results of operations and financial condition.
CAUTIONARY STATEMENTS
Statements in this report which are not historical facts are forward
looking statements which involve risks and uncertainties and actual events or
results could differ materially from those expressed or implied in this report.
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 in major areas where the Company
operates, i.e. the U.S. dollar, Euro, U.K. pound sterling, Canadian dollar,
Mexican peso and Indonesian rupiah, etc.
- - Fluctuations in prices of plastic resins and other raw materials
- - Changes in customer demand and requirements
29
<PAGE>
A. Schulman, Inc.
TEN YEAR SUMMARY OF SELECTED FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended August 31,
------------ -------------------------------------------
------------ -------------------------------------------
1999 1998 1997 1996
<S> <C> <C> <C> <C>
Net sales ..................................................... $ 985,623 $ 993,394 $ 996,376 $ 976,694
Interest and other income ..................................... 2,712 3,072 4,998 6,075
------------ ------------ ------------ ------------
988,335 996,466 1,001,374 982,769
------------ ------------ ------------ ------------
Cost of sales ................................................. 805,030 823,856 833,345 826,076
Other costs, expenses, etc .................................... 105,349 86,281 81,747 85,721
------------ ------------ ------------ ------------
910,379 910,137 915,092 911,797
------------ ------------ ------------ ------------
Income before taxes and cumulative effect of accounting changes 77,956 86,329 86,282 70,972
Provision for U.S. and foreign income taxes ................... 30,167 34,179 35,538 28,795
------------ ------------ ------------ ------------
Income before cumulative effect of accounting changes ......... 47,789 52,150 50,744 42,177
Cumulative effect of accounting changes (1) (2) ............... -- (2,007) -- --
------------ ------------ ------------ ------------
Net income .................................................... $ 47,789 $ 50,143 $ 50,744 $ 42,177
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Total assets .................................................. $ 591,527 $ 561,920 $ 562,945 $ 623,378
Long-term debt ................................................ $ 65,000 $ 40,000 $ 12,009 $ 40,054
Total stockholders' equity .................................... $ 356,246 $ 366,271 $ 393,401 $ 433,110
Average number of common shares outstanding,
net of treasury shares:
Basic ................................................... 31,671,768 35,236,098 37,125,345 37,584,561
Diluted ................................................. 31,679,614 35,275,327 37,149,595 37,591,747
Diluted earnings per share:
Before cumulative effect of accounting changes .......... $ 1.51 $ 1.48 $ 1.37 $ 1.12
Cumulative effect of accounting changes (1) (2) ......... -- $ (0.06) -- --
Net income .............................................. $ 1.51 $ 1.42 $ 1.37 $ 1.12
Cash dividends per common share ............................... $ .49 $ .45 $ .41 $ .37
Book value per common share ................................... $ 11.41 $ 10.97 $ 10.83 $ 11.43
<CAPTION>
----------------------------------------------------------
----------------------------------------------------------
1995 1994 1993 1992
<S> <C> <C> <C> <C>
Net sales ..................................................... $ 1,027,458 $ 748,778 $ 685,112 $ 732,170
Interest and other income ..................................... 7,099 7,456 8,103 6,778
------------ ------------ ------------ ------------
1,034,557 756,234 693,215 738,948
------------ ------------ ------------ ------------
Cost of sales ................................................. 863,409 617,855 565,284 599,009
Other costs, expenses, etc .................................... 81,336 67,939 65,480 66,838
------------ ------------ ------------ ------------
944,745 685,794 630,764 665,847
------------ ------------ ------------ ------------
Income before taxes and cumulative effect of accounting changes 89,812 70,440 62,451 73,101
Provision for U.S. and foreign income taxes ................... 36,194 25,869 23,544 29,341
------------ ------------ ------------ ------------
Income before cumulative effect of accounting changes ......... 53,618 44,571 38,907 43,760
Cumulative effect of accounting changes (1) (2) ............... -- -- (2,169) --
------------ ------------ ------------ ------------
Net income .................................................... $ 53,618 $ 44,571 $ 36,738 $ 43,760
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Total assets .................................................. $ 647,166 $ 510,419 $ 407,865 $ 427,966
Long-term debt ................................................ $ 75,096 $ 23,126 $ 10,149 $ 10,108
Total stockholders' equity .................................... $ 405,218 $ 345,919 $ 294,209 $ 307,576
Average number of common shares outstanding,
net of treasury shares:
Basic ................................................... 37,544,408 37,438,118 37,325,547 37,024,548
Diluted ................................................. 37,703,820 37,540,391 37,411,527 37,340,053
Diluted earnings per share:
Before cumulative effect of accounting changes .......... $ 1.42 $ 1.19 $ 1.04 $ 1.17
Cumulative effect of accounting changes (1) (2) ......... -- -- $ (0.06) --
Net income .............................................. $ 1.42 $ 1.19 $ .98 $ 1.17
Cash dividends per common share ............................... $ .33 $ .286 $ .248 $ .216
Book value per common share ................................... $ 10.75 $ 9.21 $ 7.84 $ 8.26
<CAPTION>
-----------------------------
-----------------------------
1991 1990
<S> <C> <C>
Net sales ..................................................... $ 736,007 $ 678,644
Interest and other income ..................................... 4,083 2,409
------------ ------------
740,090 681,053
------------ ------------
Cost of sales ................................................. 614,001 566,872
Other costs, expenses, etc .................................... 55,876 50,644
------------ ------------
669,877 617,516
------------ ------------
Income before taxes and cumulative effect of accounting changes 70,213 63,537
Provision for U.S. and foreign income taxes ................... 27,864 27,441
------------ ------------
Income before cumulative effect of accounting changes ......... 42,349 36,096
Cumulative effect of accounting changes (1) (2) ............... -- --
------------ ------------
Net income .................................................... $ 42,349(3) $ 36,096
------------ ------------
------------ ------------
Total assets .................................................. $ 344,273 $ 328,210
Long-term debt ................................................ $ 9,000 $ 7,000
Total stockholders' equity .................................... $ 232,567 $ 223,973
Average number of common shares outstanding,
net of treasury shares:
Basic ................................................... 36,963,010 37,699,043
Diluted ................................................. 37,239,413 37,927,662
Diluted earnings per share:
Before cumulative effect of accounting changes .......... $ 1.14 $ .95
Cumulative effect of accounting changes (1) (2) ......... -- --
Net income .............................................. $1.14 (3) $ .95
Cash dividends per common share ............................... $ .186 $ .153
Book value per common share ................................... $ 6.26 $ 5.91
</TABLE>
(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) On November 20,1997, The FASB Emerging Issues Task Force issued a ruling
which requires the write-off of business process re-engineering costs.
Accordingly, $3,237,000 of such costs capitalized as of August 31, 1997
were written off in the quarter ending November 30, 1997. This write-off,
net of income taxes, amounted to $2,007,000 or $.06 per common share and
was accounted for as a change in accounting.
(3) 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.
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 9, 1999,
at 10 AM E.S.T., at the Hilton Inn West 3180
West Market Street
Akron, Ohio 44333
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
BP Tower
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
A Division of EquiServe
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.equiserve.com
[email protected]
30
<PAGE>
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
<PAGE>
A. SCHULMAN, INC.
THE BOARD OF DIRECTORS
ROBERT A. STEFANKO
Chairman
TERRY L. HAINES
President and Chief Executive Officer
DR. PEGGY GORDON ELLIOTT
President, South Dakota State University
WILLARD R. HOLLAND
Chairman
FirstEnergy Corp.
JAMES A. KARMAN
President, RPM, Inc.
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 CRAIG ROBERTS
Chairman,
The Institute for Political Economy
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, Chief Financial Officer
and Treasurer
GORDON L. TRIMMER
Vice President --
North American Sales and Marketing
ALAIN C. ADAM
Vice President -- International
Automotive Operations
JOHN M. MYLES
Vice President --
North American Purchasing
RONALD G. ANDRES
Vice President --
North American Manufacturing
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
CORPORATE HEADQUARTERS
A. SCHULMAN, INC.
3550 West Market Street
Akron, OH 44333
(330) 666-3751
DOMESTIC OFFICES
NORTHEAST REGIONAL SALES OFFICE
367 Ghent Road, Suite 3C
Akron, OH 44333
(330) 666-3751
INTERNATIONAL AUTOMOTIVE MARKETING CENTER
2100 East Maple Road
Birmingham, MI 48009-6524
(248) 643-6100
SOUTHEAST REGIONAL SALES OFFICE
7029 Albert Pick Road, Suite 101
Greensboro, NC 27409
(336) 668-8081
MIDWEST REGIONAL SALES OFFICE
Embassy Plaza
1933 N. Meacham Road, Suite 500
Schaumburg, IL 60173
(847) 397-3973
WESTERN REGIONAL SALES OFFICE
600 South Lake Avenue, Suite 506
Pasadena, CA 91106
(626) 792-0053
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
TECHNOLOGY CENTERS
A. SCHULMAN, INC.
Product Technology Center
1183 Home Avenue
Akron, Ohio 44310
(330) 630-3315
A. SCHULMAN, INC.
Color Technology Center
1475 Wolf Creek Trail
Sharon Center, Ohio 44274
(330) 239-0101
32
<PAGE>
A. SCHULMAN, INC.
FOREIGN OFFICES
BORNEM, BELGIUM
N.V.A. Schulman Plastics, S.A.
Pedro Colomalaan 25
Industriepark
2880 Bornem
32-3-890-4211
KERPEN, GERMANY
A. Schulman GmbH
HuttenstrassBe 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
KernstrassBe 10
CH 8004 Zurich
41-1-241-6030
WARSAW, POLAND
A. Schulman Polska Sp. z o.o.
ul. Instalatorow 9
02-237 Warsaw
48-22-868-2682
BUDAPEST, HUNGARY
A. Schulman Hungary Kft.
XI. Bezirk, Bartfai u. 54
H-1115 Budapest
36-1-203-4264
MILAN, ITALY
A. Schulman Plastics, S.p.A.
Via Siviglia, 11
I-20093 Cologno Monzese (Mi)
39-02-25-391-912
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.
Avenida Lazaro Cardenas 2400 PTE
Condominio los Soles Office PB -- 17
Colonia Reas San Agustin
San Pedro Garza Garcia, N.L. Mexico 66220
(528) 363-5072
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
(524) 824-0708
REPRESENTATIVE OFFICES
BARCELONA, SPAIN
Oficina de representacion
BCIN - Pol. Ind Les Guixeres s/n
08915 Barcelona
34-3-464-8043
SINGAPORE
Singapore Representative Office
Contact Address:
311 Bukit Timah Road
07-01, Rich Mansions
Singapore - 259709
65-235-7675
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
32-3-890-4211
KERPEN, GERMANY
A. Schulman GmbH
HuttenstrassBe 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
33-24-427161
EAST JAVA, INDONESIA
PT A. Schulman Plastics
Desa Ngerong - Gempol
Kab. Pasuruan
62-343-854-232
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
(524) 824-0708
[INSIDE BACK COVER]
33
<PAGE>
[LOGO] A. SCHULMAN INC.
3550 WEST MARKET STREET, AKRON, OHIO 44333 - 330/666-3751
www.aschulman.com
[OUTSIDE BACK COVER]
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF A. SCHULMAN, INC.
Jurisdiction
Name of Incorporation/Organization
- ---- -----------------------------
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. (2) France
Diffusion Plastique (3) 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. (4) Mexico
ASI Employment, S.A. de C.V. (4) Mexico
AS Mex Hold, S.A. de C.V. (5) Mexico
Texas Polymer Services, Inc. Ohio
Polyvin GmbH (6) Germany
A. Schulman Aschersleben GmbH (6) Germany
A. Schulman Polska Sp. z 0.0. (6) Poland
A. Schulman Plastics SpA (1) Italy
A. Schulman International Services N.V. (1) Belgium
A. Schulman Hungary Kft. (6) Hungary
PT A. Schulman Plastics, Indonesia (7) Indonesia
The Sunprene Company (8) Ohio
___________________
(1) Owned by N.V. A. Schulman, S.A.
(2) Owned by N.V. A. Schulman, Plastics, S.A.
(3) Owned by A. Schulman, S.A.
(4) Owned by AS MexHold, S.A. de C.V.
(5) Owned by A. Schulman International, Inc.
(6) Owned by A. Schulman GmbH
(7) 65% owned (in joint venture) by A. Schulman International, Inc.
(8) 70% owned (in partnership) by ASI Investments Holding Co.
<PAGE>
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 20, 1999 relating to the financial statements, which appears in 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
dated November 24, 1999 relating to the financial statement schedule, which
appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Cleveland, Ohio
November 24, 1999
<PAGE>
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, 1999, 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,
1999.
/s/ Alan L. Ockene
-------------------------------------
Alan L. Ockene
<PAGE>
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, 1999, 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,
1999.
/s/ Dr. Peggy Gordon Elliott
-------------------------------------
Dr. Peggy Gordon Elliott
<PAGE>
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, 1999, 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,
1999.
/s/ Robert G. Wallace
-------------------------------------
Robert G. Wallace
<PAGE>
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, 1999, 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,
1999.
/s/ Dr. Paul Craig Roberts
-------------------------------------
Dr. Paul Craig Roberts
<PAGE>
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, 1999, 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,
1999.
/s/ Rene C. Rombouts
-------------------------------------
Rene C. Rombouts
<PAGE>
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, 1999, 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,
1999.
/s/ Willard R. Holland
-------------------------------------
Willard R. Holland
<PAGE>
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, 1999, 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,
1999.
/s/ James A. Karman
-------------------------------------
James A. Karman
<PAGE>
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, 1999, 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,
1999.
/s/ James S. Marlen
-------------------------------------
James S. Marlen
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF AUGUST 31, 1999, AND THE CONSOLIDATED STATEMENT
OF INCOME FOR THE YEAR ENDED AUGUST 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> AUG-31-1999
<CASH> 56,836,000
<SECURITIES> 0
<RECEIVABLES> 159,840,000
<ALLOWANCES> 3,678,000
<INVENTORY> 171,454,000
<CURRENT-ASSETS> 408,096,000
<PP&E> 348,823,000
<DEPRECIATION> 188,480,000
<TOTAL-ASSETS> 591,527,000
<CURRENT-LIABILITIES> 117,816,000
<BONDS> 65,000,000
0
1,069,000
<COMMON> 38,381,000
<OTHER-SE> 316,796,000
<TOTAL-LIABILITY-AND-EQUITY> 591,527,000
<SALES> 985,623,000
<TOTAL-REVENUES> 988,335,000
<CGS> 805,030,000
<TOTAL-COSTS> 910,379,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,206,000
<INTEREST-EXPENSE> 3,716,000
<INCOME-PRETAX> 77,956,000
<INCOME-TAX> 30,167,000
<INCOME-CONTINUING> 47,789,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 47,789,000
<EPS-BASIC> 1.51
<EPS-DILUTED> 1.51
</TABLE>
<PAGE>
[LOGO]
------------------------
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 Hilton Inn West, 3180 West Market Street,
Akron, Ohio, on Thursday, December 9, 1999 at 10:00 A.M., local time, for the
purpose of considering and acting upon:
1. The election of three (3) Directors for a three-year term expiring in
2002;
2. A proposal to amend the 1991 Stock Incentive Plan;
3. The ratification of the selection by the Board of Directors of
PricewaterhouseCoopers LLP as independent accountants for the fiscal
year ending August 31, 2000; and
4. 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 18, 1999 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, 1999
- --------------------------------------------------------------------------------
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>
[LOGO]
3550 WEST MARKET STREET
AKRON, OHIO 44333
------------------------
PROXY STATEMENT
---------------------
November 10, 1999
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 9, 1999, and any adjournments thereof.
Stockholders of record at the close of business on October 18, 1999 (the
record date) will be entitled to vote at the Annual Meeting. At that date the
Corporation had issued and outstanding 31,077,155 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 15,538,578 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, 1999.
ELECTION OF DIRECTORS
The Board of Directors of the Corporation presently is comprised of ten
Directors. The Directors of the Corporation are divided into three classes;
presently, Classes I and III each consist of three Directors and Class II
consists of four Directors. At the Annual Meeting, three Directors of Class I
are to be elected to serve for three-year terms expiring in 2002 and until their
respective successors are duly elected and qualified. Robert G. Wallace,
currently a Class I Director, will retire at the Annual Meeting. Peggy Gordon
Elliott, currently a Class II Director, has been nominated to serve as a
Class I Director in Mr. Wallace's place. As a result, effective upon the
election of the Class I Directors at the Annual Meeting, the number of Directors
of the Corporation will be reduced to nine and the number of Class II Directors
will be reduced to three. The number of Class I and III Directors will remain
unchanged. In the event that Dr. Elliott is not elected as a Class I Director,
she will continue to serve the remainder of her current term as a Class II
Director, the number of Class II Directors will remain fixed at four and the
total number of Directors of the Corporation will remain unchanged at ten.
<PAGE>
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 three Class I 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 may vote such shares for a reduced number of nominees. For
election as a Director, a nominee must receive the affirmative vote of the
holders of a majority of shares represented at the meeting in person or by
proxy. Abstentions will be counted as votes cast and will count toward the
determination of the presence of a quorum, but will have the same effect as a
vote cast against the nominee. Broker non-votes will not be counted as votes
cast, but will count toward the determination of the presence of a quorum.
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>
FIRST
PRINCIPAL OCCUPATION DURING PAST FIVE YEARS BECAME
NAME OF NOMINEE OR DIRECTOR AND AGE AS OF OCTOBER 18, 1999 DIRECTOR
- --------------------------- ----------------------------------------------------------- --------
<S> <C> <C>
NOMINEES TO SERVE UNTIL 2002 ANNUAL MEETING OF STOCKHOLDERS (CLASS I)
Alan L. Ockene(3)(4)...................... Member, Executive Committee of Akron Regional Development 1992
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 68
Willard R. Holland(3)(4).................. Chairman of the Board of FirstEnergy Corp. (electric 1995
utility) since November 1, 1996; President and Chief
Executive Officer, FirstEnergy Corp. since 1993; Chairman
of the Board and Chief Executive Officer of FirstEnergy
Corp.'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 63
Dr. Peggy Gordon Elliott(2)(4)............ President, South Dakota State University since January 1994
1998; prior thereto, Senior Fellow, National Center for
Higher Education 1996-1998; President, The University of
Akron 1992-1996; and Chancellor and Chief Executive
Officer, Indiana University Northwest, 1984-1992; Age 62
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
FIRST
PRINCIPAL OCCUPATION DURING PAST FIVE YEARS BECAME
NAME OF NOMINEE OR DIRECTOR AND AGE AS OF OCTOBER 18, 1999 DIRECTOR
- --------------------------- ----------------------------------------------------------- --------
<S> <C> <C>
CONTINUING DIRECTORS SERVING UNTIL 2000 ANNUAL MEETING OF STOCKHOLDERS (CLASS II)
Robert A. Stefanko(1)..................... Chairman of the Board of the Corporation since 1991; 1980
Executive Vice President--Finance and Administration of
the Corporation since 1989; Age 56
Rene C. Rombouts.......................... General Manager of the Corporation's European subsidiaries 1992
since 1993 and Director of European
Marketing--Manufactured Products of the Corporation since
1983; Age 61
James S. Marlen(2)........................ Chairman of the Board of Ameron International Corporation 1995
(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 58
CONTINUING DIRECTORS SERVING UNTIL 2001 ANNUAL MEETING OF STOCKHOLDERS (CLASS III)
Terry L. Haines(1)........................ President and Chief Executive Officer of the Corporation 1990
since 1991; formerly, Chief Operating Officer, 1990-1991;
Age 53
Dr. Paul Craig Roberts(2)(3).............. Columnist for THE WASHINGTON TIMES since 1988 and for 1992
INVESTOR'S BUSINESS DAILY since 1998; Chairman of
Institute for Political Economy since 1985; nationally
syndicated Columnist for Creators Syndicate since March
1997; formerly, Distinguished Fellow, Cato Institute,
1993-1996; Columnist for BUSINESS WEEK, 1982-1998;
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 60
James A. Karman(2)........................ Vice Chairman, RPM, Inc. (coatings, sealants and specialty 1995
chemicals) since August 1999; formerly President of RPM,
Inc., 1978-1999; Chief Financial Officer, RPM, Inc.
1982-1993; Age 62
</TABLE>
- ------------------------------
(1) Member of Executive Committee
(2) Member of Audit Committee
(3) Member of Nominating Committee
(4) Member of Compensation Committee
3
<PAGE>
Mr. Haines is a Director of FirstMerit Corporation and Ameron International
Corporation. Dr. Roberts is a Director of 12 of the Value Line Mutual Funds.
Dr. Elliott is a Director of The Lubrizol Corporation. Messrs. Marlen and Ockene
are Directors of Ameron International Corporation. Mr. Karman is a Director of
RPM, Inc., Shiloh Industries, Inc. and Metropolitan Financial Corporation.
Mr. Holland is a Director of FirstEnergy Corp.
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 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, 1999.
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 two meetings during the year ended August 31, 1999.
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, 1999.
The Board of Directors held seven meetings during the year ended August 31,
1999. 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 Mr. Ockene and Mr. Karman.
COMPENSATION OF DIRECTORS
Each Director of the Corporation who is not an employee of the Corporation
receives an annual Director's fee of $27,000, plus $1,100 for each Board or
committee meeting attended. Further, any Director serving as a Chairman of a
committee receives an additional annual fee of $2,000. Each Director has the
option to defer payment of all or a specified portion of his or her Director's
fees and to receive, in lieu thereof, a number of units equivalent to the amount
to be paid, divided by the closing price of the Corporation's Common Stock on
the last business day of the prior year. Upon surrender of the units, the
Director will receive a cash payment in an amount determined by multiplying the
number of units times the market price of the Common Stock on the day before the
surrender date. 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 1,000 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
preceding the date of grant.
4
<PAGE>
CERTAIN RELATED TRANSACTIONS
Terry L. Haines, President and Chief Executive Officer, received a
non-interest bearing loan from the Corporation to be applied in part to pay
taxes relating to the vesting of certain shares of restricted stock of the
Corporation previously granted to Mr. Haines and in part for general purposes.
The largest amount of such indebtedness to the Corporation outstanding during
the fiscal year was $67,233. As of October 31, 1999, the amount of such
indebtedness outstanding was $31,300.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This report describes the Corporation's executive compensation programs and
the basis on which fiscal year 1999 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.
5
<PAGE>
BASE SALARIES
The Compensation Committee regularly reviews each executive's base salary.
Base salaries for executives initially are determined by evaluating the
executives' respective levels of responsibility, prior 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 1999, 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.
Under the Corporation's bonus program, the Corporation established a total
target award for each executive officer approximately equal to the average award
provided to persons holding similar positions at comparable companies. The award
was measured by stated threshold, target, and maximum percentages of salary. The
executive officer's actual award was increased or decreased for the total target
award based upon both Corporation and individual performance. Approximately
one-half of the total target award potential was determined by the financial
performance of the Corporation. This financial performance portion of the bonus
was based upon (i) the world-wide performance of the Corporation for Mr. Haines,
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 was
based upon each executive officer's individual performance. Mr. Haines' 1999
bonus award is reported in the Summary Compensation Table below.
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 the prior year, the executives'
respective levels of responsibility, prior experience, and historical award
data, and compensation practices at the comparison companies.
Stock options were granted in 1999 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 1999 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
6
<PAGE>
anniversary of the date of grant of the option, so long as the holder remains
employed by the Corporation or a subsidiary.
In 1999, Mr. Haines received options to purchase 50,000 shares at the fair
market value ($18.3125) 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 were awarded to certain executives in 1999.
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 1999, Mr. Haines received
an award of 10,000 shares of restricted stock.
The Compensation Committee:
Willard R. Holland, Chairman
Robert G. Wallace, Retiring Director
Alan L. Ockene
Dr. Peggy Gordon Elliott
7
<PAGE>
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, 1999, exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------------------
AWARDS
-------------------------
ANNUAL COMPENSATION(1) RESTRICTED
FISCAL ---------------------- STOCK OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARD(S)(2) (#) COMPENSATION(3)
- --------------------------- -------- -------- -------- ----------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Terry L. Haines .................... 1999 $400,000 $181,200 $183,125 50,000 $136,557(4)
President and Chief Executive 1998 $380,000 $228,000 $189,063 40,000 $132,011
Officer 1997 $360,000 $165,000 $ 0 37,000 $139,328
Robert A. Stefanko ................. 1999 $340,000 $154,500 $146,500 40,000 $ 92,526(4)
Chairman of the Board of 1998 $315,000 $189,000 $151,250 35,000 $ 87,981
Directors, Chief Financial Officer 1997 $300,000 $165,000 $ 0 31,000 $ 93,950
and Executive Vice
President--Finance and
Administration
Larry A. Kushkin ................... 1999 $268,000 $ 80,400 $ 0 0 $ 46,675(4)
Executive Vice President-- 1998 $225,000 $117,000 $ 0 0 $ 42,375
International Automotive 1997 $215,000 $145,000 $ 0 22,000 $ 43,215
Operations until August 31, 1999
Gordon L. Trimmer .................. 1999 $145,000 $ 43,500 $ 45,781 11,000 $ 15,610(4)
Vice President--North American 1998 $135,000 $ 70,000 $ 47,266 10,000 $ 63,642
Sales and Marketing 1997 $ 88,537(5) $ 52,000 $ 0 8,000 $ 11,006
John M. Myles ...................... 1999 $142,800 $ 42,840 $ 27,469 11,000 $ 15,390(4)
Vice President--North American 1998 $133,140 $ 35,000 $ 37,813 8,000 $ 14,424
Purchasing 1997 $122,490 $ 25,000 $ 0 5,000 $ 10,711
</TABLE>
- ------------------------
(1) Includes amounts earned in fiscal year, whether or not deferred.
(2) The amounts set forth in this column represent grants of restricted stock
during the fiscal year, valued at the fair market value of the Corporation's
Common Stock on the grant date ($18.3125). The total number of restricted
shares and the aggregate market value at August 31, 1999 (based upon the
fair market value at August 31, 1999 of $18.00) in respect of each named
executive officer are as follows: Mr. Haines held 28,000 shares valued at
$504,000; Mr. Stefanko held 22,500 shares valued at $405,000; Mr. Kushkin
held no shares; Mr. Trimmer held 6,700 shares valued at $120,600; and
Mr. Myles held 3,500 shares valued at $63,000. Dividends accrue but are not
paid on the restricted shares until the restrictions thereon lapse.
(3) 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.
8
<PAGE>
(4) Amounts shown include the following: Corporation contributions to Profit
Sharing Plan--$16,000 for each of Messrs. Haines, Stefanko, and Kushkin,
$14,500 for Mr. Trimmer, and $14,280 for Mr. Myles; amounts accrued by the
Corporation for the fiscal year ended August 31, 1999 under non-qualified
profit sharing plan--$26,000 for Mr. Haines, $19,500 for Mr. Stefanko, and
$10,800 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, 1999--$75,061 for Mr. Haines ($15,012 of which was not vested),
$37,530 for Mr. Stefanko ($3,753 of which was not vested) and $18,765 for
Mr. Kushkin; and Director's fees received from the Corporation's Belgian
subsidiary--$18,386 for each of Messrs. Haines and Stefanko.
(5) A portion of Mr. Trimmer's compensation in respect of 1997 was paid in
Canadian dollars. The amounts shown reflect the currency exchange ratio at
August 31, 1997, which was $1 CN to $.6038 US.
STOCK OPTIONS
The following table contains information concerning the grant of stock
options during fiscal year 1999 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 $23.37 and $29.49, respectively. No gain
to the optionees is possible without an increase in stock price which will
benefit all stockholders proportionately. Actual gains, if any, on an option
exercise are dependent upon future performance of the Corporation's Common Stock
and overall market conditions. There can be no assurance that the potential
realizable values shown in this table will be achieved.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS IN 1999 VALUE AT ASSUMED
------------------------------------------------------ ANNUAL RATES OF STOCK
% OF TOTAL PRICE APPRECIATION FOR
OPTIONS EXERCISE 5-YEAR OPTION TERM
GRANTED TO OR BASE -----------------------
OPTIONS EMPLOYEES IN PRICE(3) EXPIRATION 5% ($) 10% ($)
NAME (#)GRANTED(1) FISCAL YEAR(2) ($/SH) DATE (4) (4)
- ---- ------------- -------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Terry L. Haines............ 50,000 12.70% $18.3125 7/7/04 $252,875 $558,875
Robert A. Stefanko......... 40,000 10.16% $18.3125 7/7/04 $202,300 $447,100
Larry A. Kushkin........... 0 0% N/A N/A $ 0 $ 0
Gordon L. Trimmer.......... 11,000 2.80% $18.3125 7/7/04 $ 55,633 $122,953
John M. Myles.............. 11,000 2.80% $18.3125 7/7/04 $ 55,633 $122,953
</TABLE>
- ------------------------
(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 393,600 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 31,077,155 shares of
Common Stock outstanding of $157.2 million or $347.4 million, respectively,
over the five-year term of the options.
9
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth information as of October 18, 1999 in respect
of beneficial ownership of shares of the Corporation's Common Stock by each
Director, by each named executive officer, by all Directors and executive
officers as a group, and by each person known to the Corporation to own 5% or
more of its Common Stock:
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
NAME OWNERSHIP(1)(2)(3) OUTSTANDING
- ---- ------------------ -----------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Robert A. Stefanko.......................................... 177,662 *
Terry L. Haines............................................. 148,200 *
Rene C. Rombouts............................................ 135,490 *
Larry A. Kushkin............................................ 38,500 *
Gordon L. Trimmer........................................... 22,701 *
Robert G. Wallace(4)........................................ 9,843 *
John M. Myles............................................... 8,325
Dr. Peggy Gordon Elliott.................................... 5,468 *
James S. Marlen............................................. 5,343 *
Alan L. Ockene.............................................. 4,793 *
Dr. Paul Craig Roberts...................................... 4,623(5) *
Willard R. Holland.......................................... 4,343 *
James A. Karman............................................. 3,343 *
All Directors and Executive Officers as a group
(14 persons).............................................. 580,907 1.87%
5% STOCKHOLDERS
Berger Associates, Inc. .................................... 1,777,300(6) 5.72%
Suite 900
201 University Boulevard
Denver, Colorado 80206
</TABLE>
- ------------------------
* 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: 78,500 by Terry L. Haines; 66,000
by Robert A. Stefanko; 38,500 by Larry A. Kushkin; 56,500 by Rene C.
Rombouts; 16,000 by Gordon L. Trimmer; 4,500 by John M. Myles and 268,875 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: 2,218 by each
of Alan L. Ockene, Robert G. Wallace, and Dr. Paul Craig Roberts; 4,468 by
Dr. Peggy Gordon Elliott; 1,343 by each of Willard R. Holland, James A.
Karman, and James S. Marlen; and 15,151 shares by all Directors and
executive officers as a group.
(3) Includes the following number of restricted shares of Common Stock awarded
under the Corporation's 1991 Stock Incentive Plan; 28,000 for Terry L.
Haines, 22,500 for Robert A. Stefanko, 14,000 for Rene C. Rombouts, 6,700
for Gordon L. Trimmer, 3,500 for John M. Myles and 79,500 for all Directors
and executive officers as a group.
(4) Mr. Wallace, whose term as a Class I Director of the Corporation will expire
as of the date of the Annual Meeting, will retire from the Board of
Directors effective as of such date.
(5) Includes 100 shares held by Dr. Roberts as trustee for his son, the
beneficial ownership of which Dr. Roberts disclaims.
10
<PAGE>
(6) Berger Associates, Inc., through its sub-advisor, Perkins, Wolf, McDonnell &
Company, a registered investment adviser, has confirmed to the Corporation
its ownership of more than 5% of the Corporation's Common Stock. The share
ownership information presented is based upon information dated October 6,
1999 posted on Nasdaq-AMEX Online-SM-.
PERFORMANCE GRAPH
The following graph compares total stockholder returns in respect of shares
of the Corporation's Common Stock 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
shares of the Corporation's Common Stock, 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.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
A. SCHULMAN, INC. S&P 500 S&P SPECIALTY CHEMICALS
<S> <C> <C> <C>
8/94 $100.00 $100.00 $100.00
8/95 $101.19 $121.35 $125.81
8/96 $84.45 $144.03 $124.95
8/97 $86.55 $202.41 $148.97
8/98 $64.22 $218.84 $119.58
8/99 $74.58 $305.90 $160.20
</TABLE>
11
<PAGE>
EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS
The Corporation has employment agreements with Messrs. Haines, Stefanko,
Kushkin, Trimmer, Myles and certain other senior personnel. The employment
agreements of Messrs. Haines, Stefanko, Kushkin, Trimmer and Myles have an
initial three-year term. Such agreements automatically are 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, June 23, 2006, or October 31, 2008, respectively. 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. Trimmer and Myles,
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 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, 1999, the amounts contributed to the Profit Sharing Plan
12
<PAGE>
accounts of the persons listed in the Summary Compensation Table were: $16,000
for each of Messrs. Haines, Stefanko, and Kushkin, $14,500 for Mr. Trimmer, and
$14,280 for Mr. Myles.
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, 1999,
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, $26,000; Mr. Stefanko, $19,500; and Mr. Kushkin $10,800.
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. As a result of Mr. Kushkin's retirement on
August 31, 1999, Mr. Kushkin has commenced receiving benefits under his
Agreements. Except in the case of disability or death, to the extent that
Messrs. Haines and Stefanko are employed by the Corporation for less than ten
years from the date of their agreements, any amounts payable at retirement will
be reduced proportionately. The effective dates of Mr. Haines' Agreement is 1991
and of Mr. Stefanko's two agreements are 1985 and 1991. 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 and Stefanko 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.
PROPOSAL TO AMEND THE A. SCHULMAN, INC. 1991 STOCK INCENTIVE PLAN
The Board of Directors has approved and recommends that the stockholders
approve an amendment to the A. Schulman, Inc. 1991 Stock Incentive Plan, as
heretofore amended (the "1991 Plan"), to increase the number of shares of the
Corporation's Common Stock which may be issued under the 1991 Plan by 2,000,000.
As previously approved by the stockholders, the 1991 Plan authorized grants
for up to 1,875,000 shares of the Corporation's Common Stock (giving effect to
splits in the Corporation's Common Stock subsequent to adoption of the 1991
Plan). Grants made since 1991 have substantially depleted this number of shares
and the ability to grant additional shares is required to enable the Corporation
to maintain its ability to attract, motivate and retain employees who have made
or are expected to make material contributions to the Corporation's success.
Giving effect to the proposed amendment, 2,433,114 shares will be available for
future grants under the 1991 Plan.
13
<PAGE>
The Corporation has no other stock option plan providing for the grant of
options to its employees. Information concerning options granted under the 1991
Plan and the Corporation's 1992 Non-Employee Directors' Stock Option Plan is
included elsewhere in this Proxy Statement.
The full text of the proposed Amendment to the 1991 Plan is set forth in
Exhibit A to this Proxy Statement.
Approval of the amendment to the 1991 Plan will require the affirmative vote
of the holders of the majority of the total votes cast on this proposal in
person or by proxy. Abstentions will be counted as votes cast and will have the
same effect as votes cast against the proposal. Broker non-votes will not be
counted as votes cast.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENT TO
THE 1991 PLAN.
SELECTION OF ACCOUNTANTS
Upon the recommendation of its Audit Committee, the Board of Directors of
the Corporation has selected PricewaterhouseCoopers LLP as independent
accountants to examine the books, records and accounts of the Corporation and
its subsidiaries for the fiscal year ending August 31, 2000. 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. PricewaterhouseCoopers LLP was the
independent accountant of the Corporation for the fiscal year ended August 31,
1999, and is considered by the Board of Directors to be well qualified.
Representatives of PricewaterhouseCoopers 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 total votes cast on this proposal in person or by
proxy. Abstentions will be counted as votes cast and will have the same effect
as votes cast against the proposal. Broker non-votes will not be counted as
votes cast. If the resolution is rejected, or if PricewaterhouseCoopers 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. All such persons timely
filed their respective reports during the year ended August 31, 1999.
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.
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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 (ii) for approval of the
amendment to the 1991 Stock Incentive Plan and (iii) for ratification of the
selection of the independent accountants.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented in accordance with
Rule 14a-8 of the Securities and Exchange Commission at the next Annual Meeting
of Stockholders, presently scheduled for December 2000, must be received by the
Corporation no later than July 12, 2000 for consideration for inclusion in the
proxy statement and form of proxy for that meeting. Proposals of stockholders
intended to be presented outside of the requirements of such Rule at such Annual
Meeting must be received by the Corporation by September 26, 2000.
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 may reimburse 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. Further, the Corporation has retained
Corporate Investor Communications to perform solicitation services in connection
with this proxy statement. For such services, Corporate Investor Communications
will receive a fee of approximately $4,000 and will be reimbursed for certain
out-of-pocket expenses and indemnified against certain liabilities incurred in
connection with this proxy solicitation.
By order of the Board of Directors
JAMES H. BERICK
SECRETARY
November 10, 1999
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EXHIBIT A
SECOND AMENDMENT
TO
A. SCHULMAN, INC.
1991 STOCK INCENTIVE PLAN
1. PURPOSE OF AMENDMENT.
The A. Schulman, Inc. 1991 Stock Incentive Plan, as heretofore amended (the
"Plan"), provides that the total number of Shares (this term and all other
capitalized terms which are not defined herein shall have the meanings ascribed
to such terms in the Plan) available for grant under the Plan may not exceed
one million eight hundred seventy-five thousand (giving effect to splits in the
Corporation's Common Stock subsequent to adoption of the Plan). The purpose of
this Amendment is to increase the number of Shares available for grant by
two million, such that, as of the effective date of this Second Amendment, two
million four hundred thirty-three thousand one hundred and fourteen Shares will
be available for future grants.
2. AMENDMENT.
Pursuant to the power reserved by the Board in Section 12.1 of the Plan, and
subject to the approval thereof by the stockholders of the Company, Section 4.1
of the Plan is hereby amended and restated in its entirety as follows:
"5.1 NUMBER OF SHARES. Subject to adjustment as provided in Section 4.3
herein, the total number of Shares available for grant under the Plan
may not exceed three million eight hundred seventy-five thousand, two
million four hundred thirty-three thousand one hundred and fourteen
Shares of which will be available for future grants as of the effective
date of this Second Amendment. All Shares available for grant under the
Plan may be either authorized but unissued or reacquired Shares."
3. EFFECTIVE DATE.
The effective date of this Second Amendment shall be October 20, 1999,
provided, however, that if this Second Amendment is not approved by the
stockholders of the Company at or prior to the Company's 1999 Annual Meeting of
Stockholders, this Second Amendment shall be null and void and of no effect
whatsoever.
A-1
