A. SCHULMAN, INC. Form PRE 14A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities
Exchange Act of 1934 (Amendment
No. )
Filed by the
Registrant þ
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Registrant o
Check the appropriate box:
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þ Preliminary
Proxy Statement
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o Confidential,
for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
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o Definitive
Proxy Statement
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o Definitive
Additional Materials
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o Soliciting
Material Pursuant to §240.14a-12
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A. Schulman, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if
other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required.
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Fee computed on table below per Exchange Act
Rules 14a-6(i)(1) and 0-11.
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Title of each class of securities to which
transaction applies:
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Aggregate number of securities to which
transaction applies:
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Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule 0-11
(set forth the amount on which the filing fee is calculated and
state how it was determined):
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Proposed maximum aggregate value of transaction:
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Fee paid previously with preliminary materials.
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Check box if any part of the fee is offset as
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previous filing by registration statement number, or the Form or
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TABLE OF CONTENTS
[A. SCHULMAN, INC. LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Notice is hereby given that the Annual Meeting of Stockholders of A. Schulman, Inc. (the
Corporation) will be held at The Hilton Inn West, 3180 West Market Street, Akron, Ohio, on
Thursday, December 8, 2005 at 10:00 A.M., local time, for the purpose of considering and acting
upon:
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The election of three (3) Class I Directors for a three-year term expiring in 2008; |
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The amendment of the Corporations Restated Certificate of Incorporation, as amended, by
deleting Article Seventeenth; |
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The ratification of the selection of PricewaterhouseCoopers
LLP as independent registered public accountants
for the fiscal year ending August 31, 2006; and |
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The transaction of any other business as may properly come before the meeting and any
adjournments thereof. |
Stockholders of record at the close of business on October 19, 2005 are entitled to notice of
and to vote at the Annual Meeting and any adjournments thereof.
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By order of the Board of Directors |
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GARY J. ELEK |
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Secretary |
Akron, Ohio
November 7, 2005
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.
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IMPORTANT NOTICE REGARDING DELIVERY OF SECURITY HOLDER DOCUMENTS
The Securities and Exchange Commission permits companies to send a single set of annual
disclosure documents to any household at which two or more stockholders reside, unless contrary
instructions have been received, but only if the company provides advance notice and follows
certain procedures. In such cases, such stockholders continue to receive a separate notice of the
meeting and proxy card. This householding process reduces the volume of duplicate information and
reduces printing and mailing expenses. A. Schulman, Inc. (the Corporation) has not instituted
householding for stockholders of record; however, a limited number of brokerage firms may have
instituted householding for beneficial owners of the Corporations shares of common stock held
through such brokerage firms. If your family has multiple accounts holding shares of common stock
of the Corporation, you already may have received householding notification from your broker.
Please contact your broker directly if you have any questions or require additional copies of the
annual disclosure documents. The broker will arrange for delivery of a separate copy of this Proxy
Statement or the Corporations Annual Report promptly upon your written or oral request. You may
decide at any time to revoke your decision to household, and thereby receive multiple copies.
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[A. SCHULMAN, INC. LOGO]
3550 West Market Street
Akron, Ohio 44333
PROXY
STATEMENT
November 7, 2005
The accompanying proxy is solicited by the Board of Directors of A. Schulman, Inc. (the
Corporation) for use at the Annual Meeting of Stockholders to be held on December 8, 2005, and
any adjournments thereof.
Stockholders of record at the close of business on October 19, 2005 (the record date) will be
entitled to vote at the Annual Meeting. On that date the Corporation had issued and outstanding
30,719,063 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 15,359,532 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
or about November 7, 2005.
PROPOSAL 1 ELECTION OF DIRECTORS
In accordance with the provisions of the By-Laws of the Corporation and the Restated
Certificate of Incorporation, as amended, of the Corporation (the Certificate of Incorporation),
the Board of Directors has fixed the number of Directors at twelve. The Board of Directors
expanded the number of Directors from ten to twelve in connection with an agreement dated as of
October 21, 2005 (the Agreement) entered into by and among the Corporation and a group of related
investors (the Barington Group), which resolved certain matters between the Corporation and the
Barington Group. For further information relating to the Agreement and the Barington Group, see
Certain Relationships and Related Transactions herein and the Form 8-K filed by the Corporation
with the Securities and Exchange Commission on October 24, 2005. The expansion of the Board of
Directors created two vacancies. Pursuant to the Agreement, the Board of Directors appointed James
A. Mitarotonda, a member of the Barington Group, to fill one of the vacancies, and the Board
expects to appoint an additional Director to the other vacancy as is further described below.
Although there is currently one vacancy on the Board of Directors, proxies cannot be voted for a
greater number of persons than the number of nominees named in this Proxy Statement.
The Directors of the Corporation are currently divided into three classes. Classes I and II
each consist of three Directors and Class III consists of five Directors. At the Annual Meeting,
three Directors of Class I are to be elected to serve for three-year terms expiring in 2008 and
until their respective successors are duly elected and qualified. As contemplated in the
Agreement, the Board of Directors expects to appoint, no later than November 21, 2005, an
additional Director to Class I who is independent of and acceptable to both the Corporation and the
Barington Group. This appointed Director will begin serving as a Director immediately following
the 2005 Annual Meeting for a term that expires at the 2008 annual meeting of stockholders. At the
time of such appointment, a current member of Class III of the Board of Directors (other than Mr.
Mitarotonda) will be designated, with such Directors consent, to serve as a Class II Director so
that there will then be four Directors in each of Class I, II and III.
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 card, it presently
is intended that shares represented by proxies in the enclosed form will be voted for the election
as Directors of the three Class I nominees named in the table on the following page. The Nominating
and Corporate Governance Committee has recommended, and the Board of Directors has approved, the
nomination of these nominees.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THESE NOMINEES.
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 that 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. The
election of the Director nominees requires the favorable vote of a plurality of all votes cast by
the holders of the Corporations Common Stock at a meeting at which a quorum is present. Broker
non-votes and proxies marked Withhold Authority will not be counted toward the election of
Directors or toward the election of individual nominees specified in the form of proxy and, thus,
will have no effect.
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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
Corporations records.
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First |
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Principal Occupation During Past Five Years |
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Name of Nominee or Director |
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and Age as of October 19, 2005 |
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Director |
Nominees to Serve Until 2008 Annual Meeting of Stockholders (Class I)
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Willard R. Holland (2)(3)(4)
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Retired; formerly, Chairman of the Board of FirstEnergy
Corp. (electric utility), 1996-1999; President and Chief
Executive Officer, FirstEnergy Corp., 1993-1999; Chairman
of the Board and Chief Executive Officer of FirstEnergy
Corp.s subsidiary, Pennsylvania Power Company, 1993-1999;
Chief Operating Officer, Ohio Edison Company, 1991-1993;
Senior Vice President, Detroit Edison Company (electric
utility), 1988-1991; age 69
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1995 |
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Dr. Peggy Miller (3)(4)
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President, South Dakota State University since January, 1998; formerly, 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 68
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1994 |
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John B. Yasinsky (2)(3)
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Retired; formerly, Chairman and Chief Executive Officer of
Omnova Solutions, Inc. (decorative and building products
and performance chemicals) 1999-2001; Chairman, President and Chief
Executive Officer, GenCorp.,
Inc. (aerospace, automotive, chemical and plastics),
1995-1999; age 66
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2000 |
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Continuing Directors Serving Until 2006 Annual Meeting of Stockholders (Class II)
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James S. Marlen (2)(3)
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Chairman of the Board of Ameron International Corporation
(construction and industrial manufacturing) since 1995;
President and Chief Executive Officer of Ameron
International Corporation since 1993; formerly, Vice
President, GenCorp., Inc. (aerospace, automotive, chemical
and plastics) and President, GenCorp. Polymer Products, a
subsidiary of GenCorp., Inc., 1988-1993; age 64
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1995 |
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Ernest J. Novak, Jr. (2)
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Retired; formerly, Partner of Ernst & Young LLP (public
accounting), 1980-2003, including most recently, Managing
Partner of certain domestic offices, 1986-2003; age 60
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2003 |
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Robert A. Stefanko (1)
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Chairman of the Board of the Corporation since 1991;
Executive Vice President Finance and Administration and
Chief Financial Officer of the Corporation since 1989; age
62
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1980 |
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First |
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Name of Nominee or Director |
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and Age as of October 19, 2005 |
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Director |
Continuing Directors Serving Until 2007 Annual Meeting of Stockholders (Class III)
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Terry L. Haines (1)
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President and Chief Executive Officer of the Corporation
since 1991; formerly, Chief Operating Officer of the
Corporation, 1990-1991; age 59
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1990 |
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Dr. Paul Craig Roberts (4)
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Columnist for The Washington Times since 1988 and for
Investors Business Daily since 1998; Chairman of
Institute for Political Economy since 1985; nationally
syndicated Columnist for Creators Syndicate since 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 66
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1992 |
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James A. Karman (2)(4)
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Retired; formerly Vice Chairman, RPM International, Inc.
(coatings, sealants and specialty chemicals) 1999-2002;
formerly President of RPM International, Inc., 1978-1999;
and Chief Financial Officer of RPM International, Inc.,
1982-1993; age 68
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1995 |
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Joseph M. Gingo (3)(4)
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Executive Vice President, Quality Systems and Chief
Technical Officer of The Goodyear Tire & Rubber Company
(tire and rubber manufacturing) since 2003; formerly,
Senior Vice President for Technology and Global Products
Planning of The Goodyear Tire & Rubber Company, 1999-2003;
Vice President and General Manager of The Goodyear Tire &
Rubber Companys Engineered Products business unit, 1998-
1999; and Vice President of The Goodyear Tire and Rubber
Companys Asia operations, 1995-1998; age 60
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2000 |
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James A Mitarotonda (1)
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Chairman of the Board, President and Chief Executive
Officer of Barington Capital Group, L.P. since 1991; the
Chief Executive Officer from January 2004 until December
2004 of Dynabazaar, Inc.; the Co-Chief Executive Officer
and Co-Chairman, from April 2003 until May 2004, and sole
Chief Executive Officer, from May 2004 until October 2004,
of LQ Corporation, Inc.; from January 2001 until May 2004,
President and Chief Executive Officer of MM
Companies, Inc. (now known as George Foreman Enterprises,
Inc.); age 51
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2005 |
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Member of Executive Committee |
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Member of Audit Committee |
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Member of Nominating and Corporate Governance Committee |
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Member of Compensation Committee |
Mr. Haines is a director of FirstMerit Corporation and Ameron International Corporation. Mr.
Holland is a director of Davey Tree Expert Company. Mr. Karman is a director of RPM International,
Inc. Dr. Miller is a director of The Lubrizol Corporation. Mr. Marlen is a director of Ameron
International Corporation and Parsons Corporation. Mr. Novak is a director of BorgWarner Inc. and
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FirstEnergy Corp. Dr. Roberts is a director of all 16 of the Value Line Mutual Funds. Mr.
Stefanko is a director of Davey Tree Expert Company. Mr. Yasinsky is a director of CMS Energy
Corporation. Mr. Mitarotonda is a director of MM Companies,
Inc., Register.com, Dynabazaar, Inc. and LQ Corporation,
Inc.
Attendance at Meetings
The Board of Directors held nine meetings during the year ended August 31, 2005. 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. In accordance with the Corporations
Corporate Governance Guidelines for the Board of Directors, Directors are expected to attend all
meetings of the Board of Directors (although it is understood that, on occasion, a Director may not
be able to attend a meeting). Directors are encouraged to attend the Annual Meetings of
Stockholders. All of the members of the Board of Directors attended the Annual Meeting of
Stockholders on December 9, 2004 other than James M. Marlen. James A. Mitarotonda was not then a
member of the Board of Directors and did not attend the Annual Meeting of Stockholders.
Compensation of Directors
Each Director of the Corporation who is not an employee of the Corporation receives an annual
Directors fee of $29,000, plus $1,500 for each Board or committee meeting attended. Further, any
Director serving as a Chairman of the Audit Committee, the Compensation Committee or the Nominating
and Corporate Governance Committee receives an additional annual fee
of $8,500, $7,500 or $6,000, respectively. Each Director
has the option to defer payment of all or a specified portion of his or her Directors 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 Corporations Common Stock on the last
business day of the prior year. At the end of a Directors service to the Board of Directors, the units are surrendered in
exchange for 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. Pursuant to the
Corporations 2002 Equity Incentive Plan, on February 1, 2005, each non-employee Director of the
Corporation received an award of 2,500 restricted shares of Common Stock. The restricted stock
grants vest on the fourth anniversary after the date awarded, and the fair market value of the
restricted shares granted to each such non-employee Director on the
February 1, 2005 grant date was
$45,950 (based upon the $18.38 closing price of the Corporations Common Stock on the date of
grant).
PROPOSAL 2 AMENDMENT TO CERTIFICATE OF INCORPORATION
On October 21, 2005 and in connection with the Agreement, Directors in attendance at a meeting
of the Board of Directors unanimously approved an amendment to repeal Article SEVENTEENTH in its
entirety from the Certificate of Incorporation (Article SEVENTEENTH). The provisions of Article
SEVENTEENTH are attached as Appendix A to this Proxy Statement and incorporated herein by
reference.
Under Article SEVENTEENTH, with certain exceptions, the affirmative vote of holders of not
less than 80% of the outstanding shares of voting stock is required to approve a
business combination of the Corporation with any related person (as such terms are defined in
Article SEVENTEENTH). Under certain circumstances, it is possible that the deletion of Article
SEVENTEENTH may have the effect, by reducing the stockholder vote required for approval, of making
it easier to accomplish a business combination with a related person. Subject to certain
exceptions, a related person is a person who, together with affiliates and associates,
owns, or within three years did own, 20% or more of the Corporations voting stock.
During its deliberations with respect to the Agreement, the Board of Directors considered the
advantages and disadvantages of the related party voting requirements in Article SEVENTEENTH. This
provision is generally intended to encourage a person making an
unsolicited bid for the Corporation
to negotiate with the Board of Directors to reach terms that are fair and provide the best results
for all stockholders. After completing its review, and determining that persons making an
unsolicited bid for the Corporation would still be encouraged to negotiate with the Board of
Directors by operation of Section 203 of the Delaware General Corporation Law, the Directors in
attendance at the meeting unanimously approved the proposed amendment to repeal Article
SEVENTEENTH.
Whether or not the repeal of Article SEVENTEENTH is approved by the stockholders, the
Corporation will continue to be subject to the business combination provisions of Section 203 of
the Delaware General Corporation Law. A Delaware corporation may opt out of application of
Section 203 with an express provision in its certificate of incorporation or by-laws. The
Corporation has not opted out of the provisions of Section 203. The provisions of Section 203
could have the effect of prohibiting, delaying or deferring the accomplishment of mergers or other
takeover or change-in-control attempts with respect to the Corporation and, accordingly, may
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discourage attempts to acquire the Corporation. To the extent that any of the provisions of
Article SEVENTEENTH currently conflict with the provisions of Section 203, the provisions of
Section 203 would prevail.
Subject to certain exceptions, Section 203 prohibits a publicly-held Delaware corporation from
engaging in a business combination with an interested stockholder for a period of three years
after the date of the transaction in which the person became an interested stockholder unless:
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the transaction is approved by the board of directors prior to the date the interested
stockholder obtained interested stockholder status; |
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upon consummation of the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the Corporations
voting stock outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned by (a) persons who are
directors and also officers and (b) employee stock plans in which employee participants do
not have the right to determine confidentially whether shares held subject to the plan will
be tendered in a tender or exchange offer; or |
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on or subsequent to the date the interested stockholder obtained interested stockholder
status, the business combination is approved by the board of directors and authorized at an
annual or special meeting of stockholders by the affirmative vote of at least two-thirds of
the outstanding voting stock that is not owned by the interested stockholder. |
A business combination under Section 203 includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. An
interested stockholder under Section 203 means any person who
is the beneficial owner of 15% or more of the outstanding shares of
the Corporations Common Stock.
If approved by the stockholders, the Corporation will file an amendment to the Certificate of
Incorporation deleting Article SEVENTEEN and the proposed amendment to the Certificate will
become effective when filed with the Secretary of State of the State of Delaware. The Corporation
anticipates that such filing will occur promptly after the proposed amendment is authorized and
approved by the stockholders.
Vote Required
The
affirmative approval of a majority of the outstanding shares of the
Corporations Common Stock is required to approve this Proposal
to repeal Article SEVENTEENTH, since a majority of Continuing
Directors have approved the Proposal. A Continuing Director means any Director who
either (a) was a member of the Board of Directors prior to the time that any person became the
beneficial owner of 20% or more of the shares of the Corporations Common Stock, or (b) is a
successor of a Continuing Director who was recommended to succeed a Continuing Director by a
majority of the Continuing Directors of the Board. Because no person is the beneficial owner of
more than 20% of the shares of the Corporations Common Stock, all of the current members of the
Board of Directors are Continuing Directors. Nine of the ten Directors then serving on the Board of
Directors were present at the meeting on October 21, 2005, and they unanimously approved this
Proposal 2. Broker non-votes and abstentions will have the effect of a vote against Proposal 2.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 2.
CORPORATE GOVERNANCE
The Corporations Board of Directors has long followed, both formally and informally,
corporate governance principles designed to assure that the Board, through its membership,
composition and committee structure, is able to provide informed, competent and independent
oversight of the Corporation. In response to the enactment of the Sarbanes-Oxley Act of 2002
(Sarbanes-Oxley) and other developments in corporate governance, the Board of Directors reviewed
during 2003 and 2004 the Corporations corporate governance policies and committee charters to
assure that the Board continues to meet fully its responsibilities to the Corporations
stockholders and the investing public. The measures taken to assure that objective is met are
described below.
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Corporate Governance Guidelines
The
Board of Directors reviewed and adopted the Corporations Corporate
Governance Guidelines in 2004. These Corporate
Governance Guidelines, which may be found on the Corporations
website at www.aschulman.com, are
intended to assure that the Corporations Director qualifications, Committee structure and overall
Board processes provide good corporate governance and independent oversight of the Corporations
management.
Director Independence
Under the corporate governance listing standards of the NASDAQ National Market (sometimes
referred to as NASDAQ) and the Corporate Governance Guidelines of the Corporation, a majority of
the members of the Corporations Board of Directors must satisfy NASDAQs criteria for
independence. The Board has determined that all Directors, other than Messrs. Haines and
Stefanko, are independent under the NASDAQ National Market standards.
The Board has not yet considered whether Mr. Mitarotonda
qualifies as an independent director but will undertake such
consideration at the next meeting of the Board of Directors.
Board Committees
The Board of Directors has established the following committees: Executive Committee, Audit
Committee, Compensation Committee and Nominating and Corporate Governance Committee.
Executive Committee
The Executive Committee is authorized to act on behalf of the Board of Directors on all
corporate actions for which applicable law does not require participation by the full Board of
Directors. In practice, the Executive Committee acts in place of the full Board of Directors only
when emergency issues or scheduling make it difficult or impracticable to assemble the full Board
of Directors. All actions taken by the Executive Committee must be reported at the next Board
meeting. The Executive Committee held no formal meetings during the year ended August 31, 2005, but
took one action pursuant to a written consent resolution.
Audit Committee
The Audit Committee of the Board of Directors operates under a written charter, adopted in
2004, that reflects the corporate governance reforms embodied by the Securities and Exchange
Commission (the SEC) and the rules and listing standards of NASDAQ. The primary purpose of
the Audit Committee is to assist the Board in fulfilling its responsibility to oversee the
accounting and financial reporting process of the Corporation, including the quality and integrity
of the Corporations financial statements and other financial information provided by the
Corporation to any governmental or regulatory body, the public or other users thereof; the
Corporations compliance with legal and regulatory requirements; the qualifications, independence
and performance of, and the Corporations relationship with, its independent auditor; the
performance of the Corporations systems of internal accounting and financial controls; the
performance of the Corporations systems of internal auditing; and the annual independent audit of
the Corporations financial statements. The functions performed by the Audit Committee of the Board
of Directors include (i) reviewing the financial statements with management and the independent
auditor before publication; (ii) reviewing with management and the independent auditor significant
financial reporting issues and judgments made in connection with the preparation of the
Corporations financial statements; (iii) reviewing with the Chief Executive Officer and the Chief
Financial Officer any issues pertaining to the certifications required to accompany the filing of
the Corporations Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, and any other
information required to be disclosed in connection therewith; (iv) overseeing the Corporations
internal accounting and financial controls; (v) reviewing legal matters that may have a material
impact on the Corporations financial statements or the Corporations compliance policies; (vi)
establishing procedures for the proper handling of complaints concerning accounting or auditing
matters; (vii) considering the compatibility of the auditors non-audit services with the auditors
independence; (viii) reviewing and approving in advance the annual audit plan and scope of work of
the independent auditor and reviewing with the independent auditor any audit-related concerns and
managements response; (ix) being directly responsible for the appointment, compensation, retention
and oversight of the Corporations independent auditor; and (x) pre-approving all auditing
services and permitted non-audit services to be performed for the Corporation by the independent
auditor. Additionally, the Audit Committee oversees the Corporations program to comply with
Section 404 of Sarbanes-Oxley, which requires the Corporation to establish, maintain and assess
adequate internal control structures and procedures for financial reporting.
NASDAQ rules require each member of the Audit Committee to be able to read and understand
financial statements. The Corporation believes that each member of the Audit Committee as
constituted satisfies this requirement. Members of the Committee rely, without independent
verification, on the information provided to them and on the representations made by management and
the
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Corporations independent auditor, although each member of the Audit Committee has the
authority to engage and determine funding for independent advisors as deemed necessary.
Furthermore, the Audit Committees considerations and discussions do not assure that the audit of
the Corporations financial statements has been carried out in accordance with generally accepted
auditing standards, that the financial statements are presented in accordance with generally
accepted accounting principles or that the Corporations auditor is in fact independent. A more
complete description of these and other Audit Committee functions is contained in the Audit
Committees Charter, a copy of which is available on the Corporations website at
www.aschulman.com.
The Audit Committee held six meetings during the year ended August 31, 2005. In addition, the
Audit Committee Chairman reviewed with PricewaterhouseCoopers LLP and the Corporations management
the Corporations interim financial results prior to the filing of each of the Corporations
Quarterly Reports on Form 10-Q. Each of the members of the Audit Committee is independent as
defined under Rule 4200(a)(15) of the listing standards of NASDAQ. The Board has also determined
that Ernest J. Novak is an audit committee financial expert as defined in regulations adopted by
the SEC.
Compensation Committee
The Compensation Committee operates under a written charter adopted in 2004. The primary
purpose of the Compensation Committee is to supervise and, to the extent consistent with the
Corporate Governance Guidelines, exercise the powers of the Board of Directors with respect to
overseeing the use of corporate assets in compensating executive officers. The Compensation
Committee has overall responsibility for executive succession planning (except for the Chief
Executive Officer, which is the responsibility of the Nominating and Corporate Governance
Committee), management development and approving and evaluating the incentive compensation plans,
policies and programs of the Corporation. As set forth in the Compensation Committees charter, the
functions to be performed by the Compensation Committee include (i) setting the salary and other
compensation of the Chief Executive Officer and the other executive officers of the Corporation;
(ii) reviewing incentive compensation pools for the Corporation prior to the annual determination
of individual cash and equity based incentive awards; (iii) approving all employment or
change-in-control severance agreements, annuity contracts and benefit or perquisite plans or
programs (other than broad-based employee plans or programs) proposed for executive officers and
certain managers; (iv) periodically reviewing the Corporations compensation programs and policies
to align them with the Corporations annual and long-term goals and the interests of the
stockholders; and (v) administering, implementing and interpreting the Corporations long term
incentive plans, including stock options, restricted stock, stock appreciation rights, performance
incentives, and similar plans and arrangements. A more complete description of these and other
Compensation Committee functions is contained in the Compensation Committees charter, which is
available on the Corporations website at
www.aschulman.com.
The Compensation Committee held two meetings during the fiscal year ended August 31, 2005. The
Board of Directors has determined that each of the members of the Compensation Committee is
independent as defined under Rule 4200(a)(15) of the NASDAQ listing standards.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee operates under a written charter adopted in
2004. The primary purpose of the Nominating and Corporate Governance Committee is to identify
individuals qualified to become Directors, recommend to the Board the candidates for election by
stockholders or appointment by the Board to fill a vacancy, recommend to the Board the composition
and Chairs of Board committees, develop and recommend to the Board guidelines for effective
corporate governance, and lead an annual review of the performance of the Board and each of its
committees. A more complete description of these and other Nominating and Corporate Governance
Committee functions is contained in the Nominating and Corporate Governance Committees charter,
which is available on the Corporations website at
www.aschulman.com.
In its role as the nominating body for the Board, the Nominating and Corporate Governance
Committee reviews the credentials of potential Director candidates (including potential candidates
recommended by stockholders), conducts interviews and makes formal recommendations to the Board for
the annual and interim election of Directors. In making its recommendations, the Committee considers
a variety of factors, including whether the individuals have demonstrated achievements in business,
education or public service. In addition, the Committee considers whether candidates for Director
possess the requisite intelligence, education and experience to make a significant contribution to
the membership of the Board of Directors, and bring a range of skills, diverse perspectives and
backgrounds to the deliberations of the Board of Directors. The Committee also considers whether
the candidates possess the highest ethical standards and a strong sense of professionalism, are
prepared to serve the interests of all the stockholders and are able to make themselves available
to the Board of Directors in the fulfillment of their duties. For those Director candidates who are
also employees of the Corporation, they should be members of the executive management of the
Corporation who have
9
or are in the position to have a broad base of information about the Corporation and its
business. The Committee has in the past engaged a professional search firm (to which it paid a fee)
to assist in identifying and evaluating potential nominees, and may do so again in the future.
The Nominating and Corporate Governance Committee will consider recommendations for nomination
to stand for election as directors those persons who are recommended to it in writing by any
stockholder. Any stockholder wishing to recommend an individual to be considered by the Committee
as a nominee for election as a Director should send a signed letter of recommendation to the
following address: A. Schulman, Inc., 3550 West Market Street, Akron, Ohio 44333, Attention:
Chairperson of the Nominating and Corporate Governance Committee, c/o Corporate Secretary.
Recommendation letters must state the reasons for the recommendation and contain the full name and
address of each proposed nominee as well as a brief biographical history setting forth past and
present directorships, employments, occupations and civic activities. Any such recommendation
should be accompanied by a written statement from the proposed nominee consenting to be named as a
candidate and, if nominated and elected, consenting to serve as a Director. The Corporation may
also require a candidate to furnish additional information regarding his or her eligibility and
qualifications. The Nominating and Corporate Governance Committee does not intend to evaluate
candidates proposed by stockholders differently than it evaluates candidates that are suggested by
the Corporations Board members, executive officers or other sources.
The Nominating and Corporate Governance Committee held three meetings in fiscal 2005. The
Board of Directors has determined that each of the members of the Nominating and Corporate
Governance Committee is independent as defined under Rule 4200(a) (15) of the NASDAQ listing
standards.
Code of Conduct
The Board of Directors has adopted a Code of Conduct, available on the Corporations website
at www.aschulman.com, for the Corporations employees, officers and directors. To further assure
compliance, the Corporation maintains a worldwide hotline that allows employees to report
confidentially any detected violation of its Code of Conduct.
Executive Sessions
Executive sessions of non-management Directors (consisting of all Directors other than Messrs.
Haines and Stefanko) are regularly scheduled and were held after each meeting of the Board of
Directors during the fiscal year ended August 31, 2005.
Stockholder Communications with the Board of Directors
Stockholders may send communications to the Board of Directors by mail or courier delivery
addressed as follows: A. Schulman, Inc., c/o Corporate Secretary, 3550 West Market Street, Akron,
Ohio 44333. In general, the Corporate Secretary will forward all such communications to the
chairperson of the Nominating and Corporate Governance Committee. The Committee Chairperson in turn
determines whether the communication should be forwarded to other members of the Board and, if so,
forwards them accordingly. However, for communications addressed to a particular member of the
Board or the Chairman of a particular Board Committee, the Corporate Secretary forwards those
communications directly to the Board member so addressed.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Notwithstanding anything to the contrary set forth in any of the Corporations previous or
future filings under the Securities Act of 1933 or the Securities Exchange Act of 1934 that might
incorporate this Proxy Statement or future filings with the SEC, in whole or in part, the following
report shall not be deemed to be incorporated by reference into any such filing.
This report describes the Corporations executive compensation programs and the basis on which
fiscal year 2005 compensation determinations were made by the Corporations 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.
The Compensation Committee is comprised entirely of Directors deemed independent under the
NASDAQ listing standards. 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.
10
Compensation Policy and Overall Objectives
In determining the amount and composition of executive compensation, the Compensation
Committees 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
Corporations executives to the interests of the Corporations stockholders. In determining actual
compensation levels, the Compensation Committee considers all elements of the program in total, but
also evaluates whether the individual elements of the compensation program 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.
The key elements of the Corporations 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 executives total
compensation package.
Competitive market data is provided periodically by an independent compensation consultant.
The data provided compares the Corporations compensation practices to those of a group of
comparison companies. The Corporations 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 evaluating the comparison group data 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.
Base Salaries
The Compensation Committee reviews each executives base salary annually. Base salaries for
executives initially are determined by evaluating the executives respective levels of
responsibility, prior experience and breadth of knowledge, internal equity issues and external pay
practices. Determination of increases to base salaries are driven by individual performance and
corporate profitability. Individual performance is evaluated based on sustained levels of
individual contribution to the Corporation.
In determining Mr. Haines base salary in 2005, the Compensation Committee considered the
Corporations 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 compared
Mr. Haines base salary to the base salaries of other chief executive officers within a peer group
of specialty chemical companies, including both similarly-sized companies and other chemical and
plastics manufacturers recognized as broader competitors of the Corporation. Mr. Haines base
salary is reported in the Summary Compensation Table below.
Annual Bonuses
The Corporations bonus program promotes the Corporations pay-for-performance philosophy by
providing executives with direct financial incentives in the form of annual cash bonuses based on
individual and company 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 Corporations 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 officers actual award was increased or decreased for the
total target award based upon both Corporation financial results and individual performance.
Approximately one-half of the total target award potential was determined by the financial
performance of the Corporation, measured by levels of operating income, net income or return on
assets. For Mr. Haines, the President and Chief Executive Officer, and for Mr. Stefanko, the
Chairman and Chief Financial Officer, this financial performance portion of the bonus was based
upon the net income of the Corporation. For all other executive officers, the financial performance
portion of the bonus was based on the Corporations operating income in North America. The
remaining one-half of the total target award level was based upon each executive officers
individual performance. The Corporation did not meet its financial performance goals as established
under the bonus program with respect to 2005 for either Messrs. Haines and Stefanko or the other
executive officers. The 2005 bonus awards for Mr. Haines and the other executive officers based on
individual performances are reported in the Summary Compensation Table below.
Long-Term Incentives
The Corporations 2002 Equity Incentive Plan provides long-term incentives to its executives.
In keeping with the Corporations commitment to provide a total compensation package that includes
at-risk components of pay, the Compensation Committee makes
11
annual decisions regarding appropriate stock-based grants for each executive. When determining
these awards, the Compensation Committee considers the Corporations financial performance in the
prior year, the executives respective levels of responsibility, prior experience, and historical
award data and compensation practices at the comparison companies.
Options
On October 22, 2004, options to purchase shares of the Corporations Common Stock were granted
to executive officers, including options to purchase 130,000 shares granted to Mr. Haines. These
options, granted in fiscal 2005, were granted as compensation for performance in fiscal 2004
pursuant to the 2002 Equity Incentive Plan at an option price equal to the fair market value
($19.85) of such shares (which was determined under the 2002 Equity Incentive Plan as the closing
price of the Corporations Common Stock on the date of grant). On October 21, 2005, stock options
were granted to executive officers of the Corporation, including options to purchase 130,000 shares
granted to Mr. Haines. These options were granted in fiscal 2006 as compensation for performance in
fiscal 2005 under the 2002 Equity Incentive Plan at the fair market value ($19.20) of such shares
on the date of grant. Accordingly, stock options granted have value only if the stock price
appreciates following the date the options were granted. This design focuses Corporation executives
on the creation of stockholder value over the long term and encourages equity ownership of the
Corporation. These stock options become exercisable at the rate of 33% 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 or a subsidiary.
In setting the October 21, 2005 stock option grant to Mr. Haines, the Compensation Committee
considered the Corporations financial performance for the prior year, Mr. Haines individual
performance and his long-term contributions to the success of the Corporation.
Restricted Stock
On October 22, 2004, restricted stock was awarded to the Corporations executive officers,
including an award of 15,000 shares of restricted stock made to Mr. Haines. This restricted stock
was awarded in fiscal 2005 as compensation for performance in fiscal 2004 pursuant to the 2002
Equity Incentive Plan. On October 21, 2005, restricted stock awards were made to certain executive
officers of the Corporation. No restricted shares were awarded to Mr. Haines or Mr. Stefanko. Such
restricted stock was awarded in fiscal 2006 as compensation for performance in fiscal 2005 under
the 2002 Equity Incentive Plan. Dividends on restricted stock are accrued until the restrictions
lapse and are paid out thereafter. The restricted stock awards vest on the fourth anniversary of
the date of the awards. Because of its vesting requirements, restricted stock enhances the
Corporations ability to maintain a stable executive team which is focused on the Corporations
long-term success, and restricted stock provides executives with an immediate link to stockholder
interests. In determining restricted stock awards, the Compensation Committee considers the
Corporations financial performance for the prior year, the executives individual performances and
their respective long-term contributions to the success of the Corporation.
Supplemental Executive Retirement Plan
The Corporations Supplemental Executive Retirement Benefits Plan (the SERP) provides
retirement benefits to executive officers named as participants by the Board. Messrs. Haines and
Stefanko are currently the only officers of the Corporation who are eligible to participate in the
SERP. Under the SERP, a participant will earn a pension benefit that
is equal to 30% of
his or her final average plan compensation, plus an additional one
percent for each year of service, up to a
maximum of thirty such years. Thus, a participant who retires with 30 or more years of service
will receive an annual benefit equal to 60% of the participants final average plan
compensation. The pension benefits payable under the SERP are reduced by the actuarial value of
certain other plan and deferred compensation that is payable to the participant.
12
The following table shows estimated annual benefits payable on retirement at age 65 to SERP
participants.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
Years of Service |
Compensation |
|
15 |
|
20 |
|
25 |
|
30 |
|
35 |
$ 200,000 |
|
$ |
90,000 |
|
|
$ |
100,000 |
|
|
$ |
110,000 |
|
|
$ |
120,000 |
|
|
$ |
120,000 |
|
$ 300,000 |
|
$ |
135,000 |
|
|
$ |
150,000 |
|
|
$ |
165,000 |
|
|
$ |
180,000 |
|
|
$ |
180,000 |
|
$ 400,000 |
|
$ |
180,000 |
|
|
$ |
200,000 |
|
|
$ |
220,000 |
|
|
$ |
240,000 |
|
|
$ |
240,000 |
|
$ 500,000 |
|
$ |
225,000 |
|
|
$ |
250,000 |
|
|
$ |
275,000 |
|
|
$ |
300,000 |
|
|
$ |
300,000 |
|
$ 600,000 |
|
$ |
270,000 |
|
|
$ |
300,000 |
|
|
$ |
330,000 |
|
|
$ |
360,000 |
|
|
$ |
360,000 |
|
$ 700,000 |
|
$ |
315,000 |
|
|
$ |
350,000 |
|
|
$ |
385,000 |
|
|
$ |
420,000 |
|
|
$ |
420,000 |
|
$ 800,000 |
|
$ |
360,000 |
|
|
$ |
400,000 |
|
|
$ |
440,000 |
|
|
$ |
480,000 |
|
|
$ |
480,000 |
|
$ 900,000 |
|
$ |
405,000 |
|
|
$ |
450,000 |
|
|
$ |
495,000 |
|
|
$ |
540,000 |
|
|
$ |
540,000 |
|
$ 1,000,000 |
|
$ |
450,000 |
|
|
$ |
500,000 |
|
|
$ |
550,000 |
|
|
$ |
600,000 |
|
|
$ |
600,000 |
|
$ 1,100,000 |
|
$ |
495,000 |
|
|
$ |
550,000 |
|
|
$ |
605,000 |
|
|
$ |
660,000 |
|
|
$ |
660,000 |
|
For purposes of determining pension benefits payable under the SERP, final average plan
compensation is the participants average annual compensation
for the highest 36 month
period in the participants last 60 months of employment, and takes into account the
participants base salary and cash bonuses.
The pension benefits payable under the SERP are reduced by the actuarial equivalent of (1) the
participants primary social security benefits, (2) benefits payable to the participant under each
of the Corporations Profit Sharing Plan and Non-Qualified Plan described below, and (3) benefits
payable to the participant under the deferred compensation agreements described below (without
regard to any forfeiture of or other loss of benefits that may occur under such arrangements on
account of a termination for cause or any other reason).
SERP benefits are payable as a monthly pension, generally beginning at age 65 or after the
participants retirement, if later. If a participant retires at or after age 55 with ten years of
service, the Board may grant the participant payment before age 65 in an actuarially reduced
amount. If a participant becomes totally and permanently disabled and has ten years of service, the
Board may grant the participant payment before age 65 in an actuarially reduced amount.
In general, SERP pension payments are payable to the participant as a life annuity (i.e. for
the lifetime of the participant). Participants may elect to receive SERP pension payments in
various optional forms of payment that are the actuarial equivalent of the participants life
annuity. However, a lump sum form of payment will only be made with the consent of the Board of
Directors of the Corporation.
The final average plan compensation of Messrs. Haines and Stefanko was $844,578 and $597,878
respectively, as of August 31, 2005. As of August 31, 2005, Messrs. Haines and Stefanko have been
credited with 39 and 33 years of service, respectively, for purposes of the
SERP.
Deductibility of Executive Compensation
The Committee has reviewed the qualifying compensation regulations issued by the Internal
Revenue Service under Code Section 162(m), which provide that no deduction is allowed for
applicable employee remuneration paid by a publicly held corporation to the chief executive officer
or any of the other four highest paid officers of the corporation to the extent that the
remuneration paid to the employee exceeds $1.0 million for the applicable taxable year, unless
certain conditions are met. Compensation pursuant to certain stock option plans and other
performance based compensation may be excluded from the $1.0 million limit. Currently, remuneration
is not expected to exceed the $1.0 million limit for any employee covered by Section 162(m),
although the uncertain value of stock at future dates with respect to
certain existing stock awards makes it impossible for the
Corporation to assure that such limit will not be exceeded at some date in the future.
The Committee believes that stock options awarded under the 2002 Equity Incentive Plan will not count toward the Section 162(m)
limit. Stock options still outstanding under earlier Corporation stock plans and restricted stock
awards and dividend units are not so exempt from the calculation. If
compensation attributed to the exercise or vesting of such options,
restricted stock awards or dividend units causes aggregate
compensation to any employee covered by Section 162(m) to
exceed $1.0 million in any calendar year, any amounts in excess
of $1.0 million may not be deductible to the Corporation.
The
Compensation Committee:
Willard R. Holland, Chairman
Joseph M. Gingo
James A. Karman
Dr. Peggy Miller
Dr. Paul Craig Roberts
13
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 Corporations last three fiscal years to
the Corporations Chief Executive Officer and each of the other four most highly compensated executive
officers (as measured by salary and bonus) whose aggregate salary and bonus during the fiscal year
ended August 31, 2005 exceeded $100,000 (collectively, the Named Executive Officers):
Summary Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards |
|
|
|
|
|
|
|
|
Annual |
|
Restricted |
|
|
|
|
|
|
Fiscal |
|
Compensation (1) |
|
Stock |
|
Options |
|
All Other |
Name and Principal Position |
|
Year |
|
Salary |
|
Bonus |
|
Award(s) (2) |
|
(#) |
|
Compensation |
Terry L. Haines |
|
|
2005 |
|
|
$ |
619,078 |
(3) |
|
$ |
165,000 |
|
|
$ |
0 |
|
|
|
130,000 |
(4) |
|
$ |
61,610 |
(5) |
President and Chief Executive |
|
|
2004 |
|
|
$ |
569,666 |
(3) |
|
$ |
165,000 |
|
|
$ |
297,750 |
|
|
|
130,000 |
|
|
$ |
56,089 |
(6) |
Officer |
|
|
2003 |
|
|
$ |
566,424 |
(3) |
|
$ |
165,000 |
|
|
$ |
234,260 |
|
|
|
130,000 |
|
|
$ |
56,110 |
(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert A. Stefanko |
|
|
2005 |
|
|
$ |
437,078 |
(3) |
|
$ |
118,500 |
|
|
$ |
0 |
|
|
|
90,000 |
(4) |
|
$ |
43,410 |
(5) |
Chairman of the Board of Directors, |
|
|
2004 |
|
|
$ |
414,666 |
(3) |
|
$ |
118,500 |
|
|
$ |
178,650 |
|
|
|
90,000 |
|
|
$ |
40,589 |
(6) |
Chief Financial Officer and Executive |
|
|
2003 |
|
|
$ |
411,424 |
(3) |
|
$ |
118,500 |
|
|
$ |
162,180 |
|
|
|
90,000 |
|
|
$ |
40,610 |
(7) |
Vice President Finance and Administration |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Barry Rhodes |
|
|
2005 |
|
|
$ |
188,500 |
|
|
$ |
75,000 |
|
|
$ |
153,600 |
|
|
|
22,000 |
(4) |
|
$ |
19,960 |
(5) |
Vice President North American |
|
|
2004 |
|
|
$ |
175,000 |
|
|
$ |
60,000 |
|
|
$ |
138,950 |
|
|
|
22,000 |
|
|
$ |
18,589 |
(6) |
Sales and Marketing |
|
|
2003 |
|
|
$ |
165,000 |
|
|
$ |
50,000 |
|
|
$ |
90,100 |
|
|
|
20,000 |
|
|
$ |
17,610 |
(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ronald G. Andres |
|
|
2005 |
|
|
$ |
177,500 |
|
|
$ |
60,000 |
|
|
$ |
134,400 |
|
|
|
20,000 |
(4) |
|
$ |
18,860 |
(5) |
Vice President North |
|
|
2004 |
|
|
$ |
165,000 |
|
|
$ |
55,000 |
|
|
$ |
119,100 |
|
|
|
20,000 |
|
|
$ |
17,589 |
(6) |
American Manufacturing |
|
|
2003 |
|
|
$ |
165,000 |
|
|
$ |
50,000 |
|
|
$ |
90,100 |
|
|
|
17,000 |
|
|
$ |
17,610 |
(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gary J. Elek(8) |
|
|
2005 |
|
|
$ |
171,600 |
|
|
$ |
35,000 |
|
|
$ |
57,600 |
|
|
|
10,000 |
(4) |
|
$ |
18,270 |
(5) |
Vice President Corporate Controller and |
|
|
2004 |
|
|
$ |
96,250 |
|
|
$ |
33,000 |
|
|
$ |
59,550 |
|
|
|
10,000 |
|
|
$ |
10,735 |
(6) |
Secretary |
|
|
2003 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
|
0 |
|
|
$ |
0 |
|
|
|
|
(1) |
|
Includes amounts earned in fiscal year, whether or not deferred. Perquisites provided to each
of the Named Executive Officers did not exceed the lesser of $50,000 or 10% of total annual
salary and bonus for any Named Executive Officer, and therefore are not included in these
totals. Perquisites include tax preparation expenses, motor vehicle leases and country club
memberships for each Named Executive Officer. |
|
(2) |
|
No grants of restricted stock were made during fiscal 2005, except for awards of shares of
restricted stock made to the Named Executive Officers on October 22, 2004 in respect of fiscal
2004, which restricted stock awards were made under the 2002 Equity Incentive Plan and are
reflected above as 2004 restricted stock awards, valued at the closing market price of the
Corporations Common Stock on the date of grant ($19.85). In fiscal 2006, awards of restricted
stock were made on October 21, 2005 to certain of the Named Executive Officers in respect of
fiscal 2005 under the 2002 Equity Incentive Plan. The amount set forth in respect of each
Named Executive Officer represents these awards of restricted stock in respect of fiscal 2005
valued at the closing market price of the Corporations Common Stock on the date of grant
($19.20). The total number of restricted shares held, including restricted shares granted on
October 21, 2005 in respect of fiscal 2005, and the aggregate market value (based upon the
closing market price at August 31, 2005 of $18.21) in respect of each Named Executive Officer
are as follows: Mr. Haines held 56,000 shares valued at $1,019,760; Mr. Stefanko held 36,000
shares valued at $655,560; Mr. Andres held 23,200 shares valued at $422,472; Mr. Rhodes held
25,000 shares valued at $455,250; and Mr. Elek held 6,000 shares valued at $54,630. Dividends
accrue but are not paid on the restricted shares until the restrictions thereon lapse. |
|
(3) |
|
Includes Directors fees received from the Corporations Belgian subsidiary in the following
amounts for the years 2005, 2004 and 2003: $14,078, $19,666, $16,424. |
|
(4) |
|
As described below under the heading, Compensation of Executive Officers Stock Options,
these options were granted in fiscal 2006 in respect of fiscal 2005 under the 2002 Equity
Incentive Plan. |
(Footnotes continued on next page)
14
|
|
|
(5) |
|
Amounts shown include the following: Corporation contributions to Profit Sharing Plan
$20,500 for each of Messrs. Haines and Stefanko, $17,750 for Mr. Andres, $18,850 for Mr.
Rhodes and $17,160 for Mr. Elek; amounts accrued by the Corporation for the fiscal year ended
August 31, 2004 under non-qualified profit sharing plan $40,000 for Mr. Haines and $21,800
for Mr. Stefanko; and Corporation payments of term life insurance premiums $1,110 for each
Named Executive Officer. |
|
(6) |
|
Amounts shown include the following: Corporation contributions to Profit Sharing Plan
$20,000 for each of Messrs. Haines and Stefanko, $16,500 for Mr. Andres, $17,500 for Mr.
Rhodes and $9,625 for Mr. Elek; amounts accrued by the Corporation for the fiscal year ended
August 31, 2004 under non-qualified profit sharing plan $35,000 for Mr. Haines and $19,500
for Mr. Stefanko; and Corporation payments of term life insurance premiums $1,089 for each
Named Executive Officer. |
|
(7) |
|
Amounts shown include the following: Corporation contributions to Profit Sharing Plan
$20,000 for each of Messrs. Haines and Stefanko and $16,500 for each of Messrs. Andres and
Rhodes; amounts accrued by the Corporation for the fiscal year ended August 31, 2003 under
non-qualified profit sharing plan $35,000 for Mr. Haines and $19,500 for Mr. Stefanko; and
Corporation payments of term life insurance premiums $1,110 for each Named Executive Officer
(other than Mr. Elek). |
|
(8) |
|
Mr. Elek commenced employment with the Corporation on February 1, 2004. |
Stock Options
No stock options were granted to the Named Executive Officers during fiscal 2005 except for
options to purchase shares granted to the Named Executive Officers on October 22, 2004 in respect
of fiscal 2004, which option awards were made under the 2002 Equity Incentive Plan. However, stock
options were granted in fiscal 2006 (on October 21, 2005) to the Named Executive Officers in
respect of fiscal 2005 pursuant to the 2002 Equity Incentive Plan. The following table contains
information concerning the grant of stock options in respect of fiscal 2005 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 ten-year term of the options, which would result in stock prices of
approximately $31.27 and $49.80, respectively. No gain to the optionees is possible without an
increase in stock price, which will benefit all stockholders proportionately. Actual gains, if any,
on an option exercise are dependent upon future performance of the Corporations Common Stock and
overall market conditions. There can be no assurance that the potential realizable values shown in
this table will be achieved.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual Grants in Respect of Fiscal 2005 |
|
|
|
|
|
|
|
|
Percent of Total |
|
|
|
|
|
|
|
|
|
Potential Realizable Value at |
|
|
Number of |
|
Options/SARs |
|
|
|
|
|
|
|
|
|
Assumed Annual Rates of |
|
|
Total |
|
Granted to |
|
Exercise |
|
|
|
|
|
Stock Price Appreciation for |
|
|
Options/SARs |
|
Employees in |
|
or Base |
|
Expiration |
|
10-Year Option Term |
Name |
|
Granted (1) |
|
Fiscal Year (2) |
|
Price (3) |
|
Date |
|
5%($) (4) |
|
10%($) (4) |
Terry L. Haines |
|
|
130,000 |
|
|
|
25.35 |
% |
|
$ |
19.20 |
|
|
|
10/21/2015 |
|
|
$ |
1,569,721 |
|
|
$ |
3,977,981 |
|
Robert A. Stefanko |
|
|
90,000 |
|
|
|
17.55 |
% |
|
$ |
19.20 |
|
|
|
10/21/2015 |
|
|
$ |
1,086,730 |
|
|
$ |
2,753,987 |
|
Barry A. Rhodes |
|
|
22,000 |
|
|
|
4.39 |
% |
|
$ |
19.20 |
|
|
|
10/21/2015 |
|
|
$ |
265,645 |
|
|
$ |
673,197 |
|
Ronald G. Andres |
|
|
20,000 |
|
|
|
3.90 |
% |
|
$ |
19.20 |
|
|
|
10/21/2015 |
|
|
$ |
241,496 |
|
|
$ |
611,997 |
|
Gary J. Elek |
|
|
10,000 |
|
|
|
1.95 |
% |
|
$ |
19.20 |
|
|
|
10/21/2015 |
|
|
$ |
120,748 |
|
|
$ |
305,999 |
|
|
|
|
(1) |
|
All options for shares of Common Stock were granted pursuant to the 2002 Equity Incentive
Plan. Such options become exercisable at the rate of 33% 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 or a subsidiary. |
|
(2) |
|
Based on 512,750 options granted to all employees. |
|
(3) |
|
Fair market value on the date of grant on October 21, 2005. |
|
(4) |
|
The share price represents the price of the Common Stock if the assumed annual rates of stock
price appreciation are achieved. |
15
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
|
Securities Underlying |
|
Value of |
|
|
Shares |
|
|
|
|
|
Unexercised Options at |
|
Unexercised In-the-Money |
|
|
Acquired on |
|
Value |
|
Fiscal Year-End |
|
Options at Fiscal Year-End |
Name |
|
Exercise |
|
Realized (1) |
|
Exercisable/Unexercisable (2) |
|
Exercisable/Unexercisable (2)(3) |
Terry L. Haines |
|
|
18,750 |
|
|
$ |
114,844 |
|
|
|
129,166 / 265,001 |
|
|
$ |
414,249 / $233,486 |
|
Robert A. Stefanko |
|
|
60,000 |
|
|
$ |
420,395 |
|
|
|
45,000 / 180,000 |
|
|
$ |
81,300 / $138,000 |
|
Barry A. Rhodes |
|
|
10,667 |
|
|
$ |
86,283 |
|
|
|
9,166 / 40,001 |
|
|
$ |
13,867 / $ 22,228 |
|
Ronald G. Andres |
|
|
3,000 |
|
|
$ |
20,175 |
|
|
|
26,999 / 36,001 |
|
|
$ |
100,942 / $ 21,849 |
|
Gary J. Elek |
|
|
0 |
|
|
$ |
0 |
|
|
|
0 / 10,000 |
|
|
$ |
0 / $ 0 |
|
|
|
|
(1) |
|
Amounts shown reflect the difference between the exercise price paid by the executive officer
for Common Stock acquired upon the exercise of options and the fair market value of the Common
Stock on the date of exercise. |
|
(2) |
|
Does not include options granted in fiscal 2006 in respect of fiscal 2005. |
|
(3) |
|
The value of unexercised stock options is based on the difference between the exercise price
of the options and the closing price per share of Common Stock on August 31, 2005 of $18.21. |
Employment Contracts and Change-In-Control Arrangements
The Corporation has employment agreements with Messrs. Haines, Stefanko, Andres, Rhodes and
certain other senior personnel. The employment agreements of Messrs. Haines, Stefanko, Andres and
Rhodes have initial three-year terms. 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, December 31, 2011 or August 31, 2022, respectively. The
employment agreements provide that in the event employment is terminated following a merger,
consolidation, liquidation, or other change in control (collectively, Change in Control) of the
Corporation for any reason except for termination by the Corporation for cause, termination for
death or disability or termination by the employee without good reason, 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 such a termination of employment following 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 employees 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. Additionally,
during the one-month period beginning with the first day of the month immediately following the
first anniversary of a Change in Control, the employment agreements of Messrs. Haines and Stefanko
provide that they may terminate their employment for any reason and will still be entitled to the
Change-in-Control payments described above. If the Corporation terminates an employees employment
without cause prior to the expiration of the term of the employment agreement and 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 employees employment is terminated by reason of death, the Corporation shall pay a lump sum
amount equal to sixty percent of the employees salary for twenty-four months. In addition, the
amounts described above payable under the employment agreements for Messrs. Haines and Stefanko
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. Andres and Rhodes, the Corporation is
not obligated to pay any amount that is in excess of the maximum amount that 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) that provides
that in any year the Corporations Board of Directors, in its discretion, may authorize the payment
of contributions to the Corporations Profit-Sharing Trust, which contributions are allocated among
participants. The maximum amount that may be allocated to a participant generally is limited to the
lesser of (i) $40,000 or (ii) one hundred percent of the participants compensation. Participation
in the Profit Sharing Plan is available
16
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 that 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 participants account
reflects the aggregate investment performance of the Trust assets. For the fiscal year ended August
31, 2005, the amounts contributed to the Profit Sharing Plan accounts of the persons listed in the
Summary Compensation Table were: $20,500 for each of Messrs. Haines and Stefanko, $17,750 for Mr.
Andres, $18,850 for Mr. Rhodes and $17,160 for Mr. Elek.
The Corporation also has a non-qualified Profit Sharing Plan (the Non-Qualified Plan)
pursuant to which the Corporation may accrue certain amounts for the benefit of the Non-Qualified
Plans 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 that 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 that 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,
2005, the amounts accrued (excluding the assumed investment based performance earnings thereon) by
the Corporation pursuant to the Non-Qualified Plan for the benefit of the persons listed in the
Summary Compensation Table were: Mr. Haines, $40,000, and Mr. Stefanko, $21,800.
The Corporation also has deferred compensation agreements with Messrs. Haines and Stefanko,
providing for the payment of benefits for ten years following retirement, disability or death in
the annual amount of $100,000 for Mr. Haines and $100,000 (under two agreements for $50,000 each)
for Mr. Stefanko. The effective dates of Mr. Haines Agreement is 1991 and of Mr. Stefankos 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 and Stefanko, in the amount of $1,000,000 each.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth information as of October 19, 2005 (except as otherwise
indicated by footnote) in respect of beneficial ownership of shares of the Corporations 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 five
percent or more of its Common Stock. Unless
otherwise indicated, each beneficial owner has sole power to vote and dispose of the number of
shares set forth in the table:
|
|
|
|
|
|
|
|
|
DIRECTORS AND EXECUTIVE OFFICERS |
|
TOTAL BENEFICIAL |
|
PERCENT OF |
Name |
|
OWNERSHIP |
|
OUTSTANDING |
Terry L. Haines(1)(2) |
|
|
424,666 |
|
|
|
1.37 |
% |
Robert A. Stefanko(1)(2)(3) |
|
|
252,662 |
|
|
|
* |
|
Ronald G. Andres(1)(2)(4) |
|
|
76,099 |
|
|
|
* |
|
Barry A. Rhodes(1)(2) |
|
|
48,034 |
|
|
|
* |
|
Gary J. Elek(1)(2) |
|
|
6,333 |
|
|
|
* |
|
Dr. Peggy Miller(1)(2) |
|
|
12,333 |
|
|
|
* |
|
James S. Marlen(1)(2) |
|
|
13,833 |
|
|
|
* |
|
Dr. Paul Craig Roberts(1)(2) |
|
|
10,138 |
|
|
|
* |
|
Willard R. Holland(1)(2) |
|
|
14,333 |
|
|
|
* |
|
James A. Karman(1)(2) |
|
|
15,333 |
|
|
|
* |
|
Joseph M. Gingo(1)(2) |
|
|
11,333 |
|
|
|
* |
|
John B. Yasinsky(1)(2) |
|
|
12,333 |
|
|
|
* |
|
Ernest J. Novak, Jr. (1)(2) |
|
|
7,700 |
|
|
|
* |
|
James A. Mitarotonda(5)(7) |
|
|
1,193,002 |
|
|
|
3.88 |
% |
All Directors and Executive Officers as a group (15 persons)(1)(2)(3)(4)(5) |
|
|
3,867,668 |
|
|
|
12.37 |
% |
(Footnotes on next page)
17
|
|
|
|
|
|
|
|
|
|
|
TOTAL BENEFICIAL |
|
PERCENT OF |
5% OR GREATER STOCKHOLDERS |
|
OWNERSHIP |
|
OUTSTANDING |
Royce & Associates LLC (6)
1414 Avenue of Americas
New York, NY 10019 |
|
|
3,296,804 |
|
|
|
10.73 |
% |
|
|
|
|
|
|
|
|
|
Barington Companies Equity Partners, L.P. and other group members
(7)
888 Seventh Avenue, 17th Floor
New York, New York 10019 |
|
|
2,684,495 |
|
|
|
8.74 |
% |
|
|
|
|
|
|
|
|
|
Barclays Global Investors, N.A. and Barclays Global Fund Advisors(8)
45 Fremont Street
San Francisco, California 94105 |
|
|
2,102,458 |
|
|
|
6.84 |
% |
|
|
|
|
|
|
|
|
|
Dimensional Fund Advisors Inc. (9)
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401 |
|
|
2,040,432 |
|
|
|
6.64 |
% |
|
|
|
|
|
|
|
|
|
Snyder Capital Management, L.P./Snyder Capital Management, Inc.
(10)
350 California Street, Suite 1460
San Francisco, CA 94104 |
|
|
1,766,276 |
|
|
|
5.75 |
% |
|
|
|
* |
|
Less than 1% of the shares outstanding |
|
(1) |
|
Includes the following number of shares that are not owned, but can be purchased within sixty
days upon the exercise of options granted under the Corporations 1991 Stock Incentive Plan,
1992 Non-Employee Directors Stock Option Plan and/or 2002 Equity Incentive Plan: 264,166 by
Terry L. Haines; 135,000 by Robert A. Stefanko; 43,999 by Ronald G. Andres; 27,833 by Barry A.
Rhodes; 3,333 by Gary J. Elek; 4,833 by each of Dr. Peggy Miller, James A. Karman, Willard R.
Holland, John B. Yasinsky and Joseph M. Gingo; 3,333 by each of Dr. Paul Craig Roberts and
James S. Marlen; and 557,078 by all Directors and executive officers as a group. |
|
(2) |
|
Includes the following number of restricted shares of Common Stock awarded under the
Corporations 1991 Stock Incentive Plan, 1992 Non-Employee Directors Stock Option Plan and/or
2002 Equity Incentive Plan: 56,000 for Terry L. Haines; 36,000 for Robert A. Stefanko; 16,200
for Ronald G. Andres; 17,000 for Barry A. Rhodes; 3,000 for Gary J. Elek; 6,500 for each of
Dr. Paul Craig Roberts, Dr. Peggy Miller, Willard R. Holland, James A. Karman, James S.
Marlen, John B. Yasinsky and Joseph M. Gingo; 4,500 for Mr. Novak; and 195,000 for all
Directors and executive officers as a group. |
|
(3) |
|
The Trust for Barbara J. Stefanko, Barbara J. Stefanko
Trustee, holds 30,166
shares. Barbara Stefanko is the spouse of Robert A. Stefanko. |
|
(4) |
|
Mr. Andres owns 5,300 shares jointly with his spouse, and he has shared voting and
dispositive power with respect to such shares. |
|
(5) |
|
As reported in a Schedule 13D/A dated October 25, 2005, Mr. Mitarotonda, as the sole
stockholder and director of LNA Capital Corp., may be deemed to beneficially own the 495,893
shares owned by Barington Companies Equity Partners, L.P., the 360,921 shares of Common Stock
beneficially owned by Barington Companies Advisors, LLC and the 336,188 shares owned by
Barington Companies Offshore Fund, Ltd. (BVI), representing an aggregate of 1,193,002 shares,
constituting approximately 3.88% of the Issued and Outstanding Shares. Mr. Mitarotonda has
sole voting and dispositive power with respect to the 495,893 shares owned by Barington
Companies Equity Partners, L.P. and the 336,188 shares owned by Barington Companies Offshore
Fund, Ltd. (BVI) and shared voting and dispositive power with respect to the 360,921 shares of
Common Stock beneficially owned by Barington Companies Advisors, LLC by virtue of his
authority to vote and dispose of such shares. Mr. Mitarotonda expressly disclaims beneficial ownership
of any such shares except to the extent of his pecuniary interest therein. In addition to Mr. |
(Footnotes continued on next page)
18
|
|
Mitarotonda, 29 entities and other individuals jointly filed such Schedule 13D/A reporting their
ownership of various shares as members of a group. For additional information see footnote 7
below. |
|
(6) |
|
As reported in a Schedule 13G/A dated and filed with the SEC on March 8, 2005. |
|
(7) |
|
As reported in a Schedule 13D/A dated October 25, 2005, Barington Companies Equity Partners,
L.P. and the other members of the Barington Group (as defined in Certain Relationships and
Related Transactions herein) are the beneficial owners, have, as a group, the sole power to
vote or direct the voting of, and may be deemed to have the sole power to dispose or direct
the disposition of an aggregate of 2,684,495 shares of the Corporations Common Stock. |
|
(8) |
|
As reported in a Schedule 13G dated and filed with the SEC on February 14, 2005 by Barclays
Global Investors, N.A. Barclays Global Fund Advisors and a group of other affiliated entities.
The Schedule 13G states that (a) Barclays Global Investors, N.A., beneficially owns and has
the sole power to dispose of an aggregate of 1,282,595 shares of the Corporations Common
Stock and the sole power to vote an aggregate of 1,097,793 shares of the Corporations Common
Stock and (b) Barclays Global Fund Advisors beneficially owns and has the sole power to dispose
of an aggregate of 819,461 shares of the Corporations Common Stock and the sole power to vote
an aggregate of 818,665 shares of the Corporations Common Stock. According to the Schedule
13G, these shares are held in trust accounts for the economic benefit of the beneficiaries of
those accounts. |
|
(9) |
|
As reported in a Schedule 13G dated and filed with the SEC on February 9, 2005, Dimensional
Fund Advisors Inc. is the beneficial owner of and has the sole power to vote or direct the
voting of, and the sole power to dispose or direct the disposition of, an aggregate of
2,040,432 shares of the Corporations Common Stock. According to the Schedule 13G, Dimensional
Fund Advisors Inc. is an investment advisor registered under Section 203 of the Investment
Advisors Act of 1940, furnishes investment advice to four investment companies registered
under the Investment Company Act of 1940, and serves as investment manager to certain other
commingled group trusts and separate accounts (the Funds). As reported in the Schedule 13G,
Dimensional Fund Advisors Inc. possesses investment and/or voting power over the Corporations
Common Stock owned by the Funds, and may be deemed to be the beneficial owner of such shares.
However, all such shares are owned by the Funds, and Dimensional disclaims beneficial
ownership of such shares in the Schedule 13G/A. |
|
(10) |
|
As reported in a Schedule 13G/A dated and filed with the SEC on February 10, 2005, by Snyder
Capital Management, L.P. (SCMLP) and Snyder Capital Management, Inc. (SCMI). The Schedule
13G/A states that SCMI is a wholly owned subsidiary of IXIS Asset Management North America,
L.P. (formerly known as CDC IXIS Asset Management North America, L.P.). IXIS Asset Management
North America is ultimately owned principally by three affiliated French financial services
firms: the Caisse des Dépôts et Consignations (CDC); the Caisse National des Caisses
dEpargne (CNCE), a financial institution owned by the CDC and the French regional savings
banks known as the Caisses dEpargne; and CNP Assurances, a French life insurance company.
According to the Schedule 13G/A, SCMI and IXIS Asset Management North America operate under an
understanding that all investment and voting decisions regarding managed accounts are to be
made by SCMI and SCMLP and not by IXIS Asset Management North America or any entity
controlling it. Accordingly, SCMI and SCMLP do not consider IXIS Asset Management North
America or any entity controlling it to have any direct or indirect control over the
securities held in managed accounts. As reported in the Schedule 13G/A, each of SCMLP and SCMI
have shared voting power over 1,602,600 shares of the Corporations Common Stock and have
shared dispositive power over 1,766,276 shares of the Corporations Common Stock. |
PERFORMANCE GRAPH
The following graph compares total stockholder returns in respect of shares of the
Corporations Common Stock over the last five fiscal years (i.e. the cumulative changes over the
past five-year period of $100 invested at August 31, 2000) to the Standard & Poors 500 Stock Index (S&P 500) and
the Standard & Poors 500 Specialty Chemicals Index (S&P Specialty Chemicals). Total return
values for shares of the Corporations Common Stock, S&P 500 and S&P Specialty Chemicals were
calculated based upon market weighting at the beginning of the period and include reinvestment of
dividends on a quarterly basis. The stockholder returns shown on the graph below are not
necessarily indicative of future performance.
19
The following graph shall not be deemed incorporated by reference by any general statement
incorporating by reference this Proxy Statement into any filing under the Securities Act of 1933 or
under the Securities Exchange Act of 1934, except to the extent the Corporation specifically
incorporates this information by reference and otherwise shall not be deemed filed under such Acts.
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8/00 |
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8/01 |
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8/02 |
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8/03 |
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8/04 |
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8/05 |
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A. Schulman, Inc. |
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$ |
100.00 |
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$ |
119.29 |
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$ |
188.42 |
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$ |
147.68 |
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$ |
190.08 |
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$ |
177.99 |
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S & P 500 |
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$ |
100.00 |
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$ |
75.65 |
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$ |
62.04 |
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$ |
69.49 |
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$ |
77.44 |
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$ |
87.14 |
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S & P 500 Specialty Chemicals |
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$ |
100.00 |
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$ |
126.70 |
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$ |
139.35 |
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$ |
145.92 |
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$ |
168.20 |
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$ |
183.95 |
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AUDIT COMMITTEE REPORT
Notwithstanding anything to the contrary set forth in any of the Corporations previous or
future filings under the Securities Act of 1933 or the Securities Exchange Act of 1934 that might
incorporate this Proxy Statement or future filings with the SEC, in whole or in part, the following
report shall not be deemed to be incorporated by reference into any such filing.
The Audit Committee consists of the following members of the Corporations Board of Directors:
Willard R. Holland, James A. Karman, James S. Marlen, Ernest J. Novak, Jr. and John B. Yasinsky.
The Audit Committee has met, reviewed and discussed the audited consolidated financial
statements of the Corporation for the fiscal year ended August 31, 2005, with the Corporations
management, who represented to the Audit Committee that the financial statements were prepared in
accordance with accounting principles generally accepted in the United States. The Audit Committee
has discussed with PricewaterhouseCoopers LLP, the Corporations
independent registered public accountants, the
matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with
Audit Committees).
The Audit Committee also has received the written disclosures and the letter from
PricewaterhouseCoopers LLP required by Independence Standards Board Standard No. 1 (Independence
Discussion with Audit Committee), and the Audit Committee has discussed the independence of
PricewaterhouseCoopers LLP with that firm.
Based upon the Audit Committees review and discussions noted above, the Audit Committee
recommended that the Corporations audited financial statements be included in the Corporations
Annual Report on Form 10-K for the fiscal year ended August 31, 2005 for filing with the SEC.
The Audit Committee:
Ernest J. Novak, Jr., Chairman
Willard R. Holland
James A. Karman
James S. Marlen
John B. Yasinsky
20
PROPOSAL 3 RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
The Audit Committee of the Board of Directors of the Corporation has selected
PricewaterhouseCoopers LLP as independent registered public accountants to examine the books, records and accounts of the
Corporation and its subsidiaries for the fiscal year ending August 31, 2006. This selection is
being presented to stockholders for ratification or rejection at this Annual Meeting. The Audit
Committee and the Board of Directors each recommends that such selection be ratified.
PricewaterhouseCoopers LLP was the independent registered public accountants of the Corporation for the fiscal year
ended August 31, 2005, and is considered by the Audit Committee and 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 shares of Common Stock represented at the Annual Meeting in person or by proxy. Votes on the
ratification of PricewaterhouseCoopers LLP marked abstain and broker non-votes will not be
counted as votes cast, but will count toward the determination of the presence of a quorum and have
the same effect as votes cast against the proposal. If the resolution is rejected, or if
PricewaterhouseCoopers LLP declines to act or becomes incapable of acting as the independent
registered public accountants of the Corporation, or if its employment is discontinued, the Audit Committee will appoint
another public auditor, continued employment of whom after the 2006 Annual Meeting of Stockholders
will be subject to ratification by stockholders.
Fees Billed by Independent Registered Public Accountants
Set forth below are the aggregate fees billed for professional services rendered to the
Corporation by PricewaterhouseCoopers LLP, its independent registered public accountants for fiscal 2005 and fiscal 2004.
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Fiscal 2005 |
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Fiscal 2004 |
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Audit Fees (1) |
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$ |
2,922,000 |
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$ |
1,010,600 |
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Audit-Related Fees (2) |
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$ |
48,000 |
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$ |
490,600 |
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Tax Fees (3) |
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$ |
1,048,000 |
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$ |
757,079 |
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All Other Fees |
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$ |
0 |
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$ |
0 |
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(1) |
|
Comprised of the aggregate fees for professional services rendered by PricewaterhouseCoopers
LLP in connection with its audit of the Corporations consolidated financial statements and
its limited reviews of the Corporations unaudited consolidated interim financial statements
included in the Corporations Quarterly Reports on Form 10-Q, as well as statutory audits of
the Corporations subsidiaries and consents to SEC filings. |
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(2) |
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Comprised of professional services rendered by PricewaterhouseCoopers LLP for Sarbanes-Oxley
Section 404 advisory services, consultations regarding financial accounting and reporting and
employee benefit plan audits. |
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(3) |
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Comprised of professional services rendered by PricewaterhouseCoopers LLP for tax planning
and advice and domestic and foreign tax compliance and tax return preparation. |
Pre-Approval of Fees
The Audit Committee pre-approves the audit and non-audit services performed by the independent
registered public accountants to assure that the provision of the services does not impair
the registered public accountants independence.
Unless a type of service to be provided by the independent registered public accountants has received general
pre-approval, it requires specific pre-approval by the Committee. In addition, any proposed
services exceeding pre-approved cost levels require specific Audit Committee pre-approval. The
Audit Committee has delegated pre-approval authority to its Chairman, provided that the
pre-approval is to be reviewed with the Audit Committee at its next regular meeting. The Audit
Committee also reviews, generally on a quarterly basis, reports summarizing the services provided
by the independent registered public accountants.
21
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 21, 2005, the Corporation and Barington Companies Equity Partners, L.P., Barington
Companies Investors, LLC, Barington Companies Offshore Fund, Ltd. (BVI), Barington Companies
Advisors, LLC, Barington Capital Group, L.P., LNA Capital Corp., James Mitarotonda, Parche, LLC,
Starboard Value & Opportunity Fund, LLC, Admiral Advisors, LLC, Ramius Capital Group, LLC, C4S &
Co., LLC, Peter A. Cohen, Morgan B. Stark, Jeffrey M. Solomon, Thomas W. Strauss, Millenco, L.P.,
Millennium Management, L.L.C., Israel A. Englander, RJG Capital Partners, L.P., RJG Capital
Management, LLC, Ronald Gross, D.B. Zwirn Special Opportunities Fund, L.P., D.B. Zwirn Special
Opportunities Fund (TE), L.P., D.B. Zwirn Special Opportunities Fund, Ltd., HCM/Z Special
Opportunities LLC, D.B. Zwirn & Co., L.P., DBZ GP, LLC, Zwirn Holdings, LLC and Daniel B. Zwirn
(collectively, the Barington Group) entered into the Agreement. Among other things, the Agreement
provides that:
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the Barington Group withdraw its notice of intent to nominate persons for election as
directors at the Corporations 2005 Annual Meeting and agreed to abide by certain
standstill provisions until the Corporations 2007 Annual Meeting; |
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the Corporation would work together with representatives of the Barington Group to
create a plan to improve the Corporations operations and profitability; |
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the Corporation would implement a number of corporate governance improvements, including
(i) establishing a lead independent Director; (ii) implementing a regular evaluation of the
Corporations rights agreement by the Boards independent directors; and (iii) submitting
Proposal 2 for approval by the Corporations stockholders; |
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the Corporation would reimburse the Barington Group, up to an aggregate maximum of
$150,000, for the expenses incurred by the Barington Group in connection with the Agreement
and all related activities and matters; and |
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the Board of Directors would appoint James A. Mitarotonda and
another person independent of the Corporation and the Barington Group
as Directors. |
Mr. Mitarotonda is affiliated with several members of the Barington Group and is also a party
to the Agreement in his individual capacity. For more information
relating to the Barington Group,
see Security Ownership of Management and Certain Beneficial Owners
herein, the most recent
Schedule 13D/A filed by the Barington Group with the SEC on
October 25, 2005, and the Form 8-K filed by the Corporation
with the SEC on October 24, 2005.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Corporations officers and
Directors, and persons who own more than ten percent of the Corporations Common Stock, to file
reports of ownership and changes in ownership with the SEC. To the Corporations knowledge, based
solely on its review of the copies of such forms received by the Corporation, all such persons
timely filed their respective reports during the year ended August 31, 2005, except that Mr.
Holland reported an acquisition of phantom stock in lieu of Directors fees one day late in April
2005, and Mr. Rhodes reported the exercise of an option to acquire 1,000 shares of the Corporations
Common Stock one day late in November 2004.
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. The Corporations By-Laws describe procedures,
including minimum notice provisions, for stockholder nomination of Directors and submission of
other stockholder business to be transacted at the Annual Meeting. A copy of the pertinent
By-Law provisions is available on request to the Corporate Secretary at A. Schulman, Inc., 3550
West Market Street, Akron, Ohio 44333. If any such stockholder proposals or other business to be
transacted properly come before the Annual Meeting, it is intended that shares represented by
proxies solicited hereby will be voted in respect thereof in accordance with the best judgment of
the proxy holders.
22
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 the amendment
of the Certificate of Incorporation and (iii) for the ratification of the selection of the
independent registered public accountants.
Stockholder Proposals
Any stockholder who intends to present a proposal at the annual meeting in the year 2006 must
deliver the proposal to the Corporate Secretary at A. Schulman, Inc., 3550 West Market Street,
Akron, Ohio 44333:
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Not later than July 10, 2006, if the proposal is submitted for inclusion in
the Corporations proxy materials for that meeting pursuant to Rule 14a-8 under the
Securities Exchange Act of 1934; or |
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Not earlier than September 8, 2006 and not later than October 8, 2006, if the
proposal is submitted pursuant to the Corporations By-Laws. The Corporation reserves the
right to exercise discretionary voting authority on such proposal if a stockholder has
failed to submit the proposal within such September 8, 2006 through October 8, 2006 time
period. |
A
copy of the Corporations By-Laws is available on request to the Corporate Secretary at A.
Schulman, Inc., 3550 West Market Street, Akron, Ohio 44333.
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 dated 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 Georgeson
Shareholder to perform solicitation services in connection with this
Proxy Statement. For such
services, the Corporation will pay Georgeson Shareholder a fee of approximately $7,000 and will be
reimbursed for certain out-of-pocket expenses and indemnified against certain liabilities incurred
in connection with this proxy solicitation.
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By order of the Board of Directors
GARY J. ELEK
Secretary
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November 7, 2005
23
Appendix A to Proxy Statement
Article SEVENTEENTH of the
Restated Certificate of Incorporation of A. Schulman, Inc.
SEVENTEENTH.
(A) The affirmative vote of the holders of not less than 80 percent of the outstanding shares
of Voting Stock (as hereinafter defined), voting together as a single class, shall be required for
the approval or authorization of any Business Combination (as hereinafter defined) of the
Corporation with any Related Person (as hereinafter defined); provided, however, that these
requirements shall not be applicable if:
(1) The Business Combination has been expressly approved by a vote of a majority
of the Continuing Directors of the Corporation (as hereinafter defined); or
(2) The consideration to be received per share by holders of common stock of the
Corporation in the Business Combination is cash in an amount not less than the higher
of (i) the highest per share price, including commissions, paid by the Related Person
for the common stock of the Corporation during the two years preceding the last
purchase by the Related Person or (ii) the highest sales price per share at which the
common stock of the Corporation was traded on any stock exchange or in any
over-the-counter market during the two years preceding the last purchase thereof by
the Related Person.
(B) For the purposes of this Article SEVENTEENTH:
(1) Business Combination means:
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(a) |
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any merger or consolidation of the
Corporation or a subsidiary of the Corporation with (i) any
Related Person or (ii) any other corporation (whether or not
itself a Related Person) which is, or after such merger or
consolidation would be, an Affiliate (as hereinafter defined) of
a Related Person; |
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(b) |
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any sale, lease, exchange, mortgage,
pledge, transfer or other disposition, of all or any Substantial
Part (as hereinafter defined) of the assets of either the
Corporation (including without limitation any voting securities
of a subsidiary) or of a subsidiary of the Corporation, to a
Related Person; |
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(c) |
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any sale, lease, exchange, transfer or
other disposition of all or any Substantial Part of the assets
of a Related Person to the Corporation or a subsidiary of the
Corporation; |
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(d) |
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the issuance of any securities of the
Corporation or a subsidiary of the Corporation to a Related
Person; |
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(e) |
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any recapitalization or reclassification
that would have the effect of increasing the proportionate share
of the outstanding shares of any class of equity securities of
the [C]orporation or any subsidiary of the Corporation which is
owned by any Related Person; |
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(f) |
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the adoption of any plan or proposal for
the liquidation or dissolution of the Corporation proposed by or
on behalf of a Related Person; or |
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(g) |
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any agreement, contract, or other
arrangement providing for any of the transactions described in
this definition of Business Combination. |
A-1
(2) Related Person means and includes any individual, corporation, partnership
or other person or entity which, together with its Affiliates and Associates (both as
hereinafter defined) is the Beneficial Owner (as hereinafter defined) in the aggregate
of 20 percent or more of the outstanding Voting Stock, and any Affiliate or Associate
of any such individual, corporation, partnership or other person or entity.
(3) Affiliate and Associate have the respective meanings ascribed to such
terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange
Act of 1934, as in effect on December 1, 1983.
(4) Beneficial Owner has the meaning ascribed to such term in Rule 13d-3 of the
General Rules and Regulations under the Securities Exchange Act of 1934, as in effect
on December 1, 1983.
(5) Substantial Part means more than 20 percent of the fair market value of the
total assets of the entity in question, as of the end of its most recent fiscal year
ending prior to the time the determination is being made.
(6) Voting Stock shall mean all outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of Directors, and each
reference to a proportion of Voting Stock shall refer to such proportion of the votes
entitled to be cast by such shares.
(7) Continuing Director means a Director who either (a) was a member of the
Board of Directors prior to the time that any Related Person became a Related Person
or (b) any successor of a Continuing Director who was recommended to succeed a
Continuing Director by a majority of the Continuing Directors then on the Board.
(C) The affirmative vote of the holders of not less than 80 percent of the outstanding voting
shares of common stock of the Corporation entitled to vote generally in the election of Directors
shall be required to alter, amend or repeal this Article SEVENTEENTH, provided, however, that this
paragraph shall not apply to, and such 80 percent vote shall not be required for, any alteration,
amendment or repeal recommended by the affirmative vote of at least two-thirds of the Continuing
Directors of the Corporation.
A-2
DETACH CARD
PROXY
A. SCHULMAN, INC.
This Proxy is Solicited on Behalf of the Board of Directors of
A. Schulman, Inc. for the Annual Meeting of Stockholders
to be Held on December 8, 2005
The undersigned hereby appoints TERRY L. HAINES, ROBERT A. STEFANKO, and GARY J. ELEK and each of
them as Proxies, each with the full power to appoint his substitute, and hereby authorizes them to
represent and to vote all of the shares of Common Stock of A. Schulman, Inc. the undersigned is
entitled to vote at the Annual Meeting of Stockholders of A. Schulman, Inc. to be held on December
8, 2005 and at any adjournments or postponements thereof, in the manner specified on this proxy
card and as fully as the undersigned could do if personally present at the meeting. Receipt of a
separate Notice of Annual Meeting and Proxy Statement is acknowledged by return of this Card.
You are encouraged to specify your choices by marking the appropriate boxes, SEE REVERSE SIDE, but
you need not mark any boxes if you wish to vote in accordance with the Board of Directors
recommendations. The Proxies cannot vote your shares unless you sign and return this Card.
DETACH CARD
(Continued from the other side)
x Please mark your votes as in this example.
This proxy is solicited on behalf of the Board of Directors of A. Schulman, Inc. This proxy will be
voted as directed, but if no instructions are specified, this proxy will be voted FOR Proposals 1,
2 and 3.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 and 3.
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1. |
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Election of Class I Directors |
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Nominees: |
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Willard R. Holland |
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Dr. Peggy Miller |
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John B. Yasinsky |
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To withhold authority to vote for any
individual nominee, mark FOR all
nominees listed at left except as marked
to the contrary and write that
nominees name on the line below. |
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2. |
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To approve the amendment of the
Corporations Restated Certificate of
Incorporation, as amended, by deleting
Article Seventeenth. |
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3. |
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To ratify the selection of
PricewaterhouseCoopers LLP as
independent registered public accountants for the fiscal year
ending August 31, 2006. |
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4. |
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The Proxies are authorized to vote in
their discretion upon such other
business as may properly come before the
meeting. |
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This proxy, when properly executed, will be voted in the manner directed herein. |
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WITHHOLD |
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authority to vote |
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FOR all nominees |
FOR all |
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for |
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listed at left except |
nominees |
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all nominees |
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as marked to the |
listed at left |
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listed at left |
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contrary |
o |
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o |
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o |
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FOR |
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AGAINST |
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ABSTAIN |
o |
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o |
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o |
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FOR |
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AGAINST |
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ABSTAIN |
o |
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o |
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o |
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SIGNATURE
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DATE |
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SIGNATURE (if held jointly)
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DATE |
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NOTE: Please sign exactly as your name appears hereon. When shares are
held by joint tenants, both should sign. When signing as attorney,
executor, trustee, administrator or guardian, please give title as
such. If stockholder is a corporation, please sign in full corporate
name by president or other authorized officer. If a partnership,
please sign in partnership name by authorized person. |
PLEASE SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY, USING THE ENCLOSED ENVELOPE.